Commission file number:
000-55655(Exact name of Registrant as specified in its charter)
Nevada | | 81-0756622 |
(State or other jurisdiction | | (I.R.S. Employer Identification No.) |
of incorporation or organization) | | |
1708 Jaggie Fox Way, Lexington, Kentucky 40511
1910 Pacific Avenue, Suite 20000
Dallas, Texas 75201
(Address of principal executive offices)
(Registrant’s telephone number)
1708 Jaggie Fox Way
Lexington, Kentucky 40511
(Former name or former address, if changed since last report)
_________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ ☑ No¨ ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
��☑ No¨ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting
company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer”filer,” “smaller reporting company” and
“smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange
Act (Check one):Act. | Large accelerated filer ¨☐ | Accelerated filer ¨☐ | |
| Non-accelerated filer ¨☐ | Smaller reporting company þ☑ | |
| (Do not check if smaller reporting company) | Emerging growth company ☑ | |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes
¨☐ Noþ ☑
As of
November 16, 2016,August 11, 2017, the issuer had
21,030,45326,526,641 shares of Common Stock, $0.001 par value, issued and outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This document contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results may vary from any estimates, predictions, projections, assumptions, or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
3PART I. | FINANCIAL INFORMATION |
| FINANCIAL INFORMATION |
| |
Item 1. | Financial Statements |
NEXEON MEDSYSTEMS INC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | September 30, 2016 | | | December 31, 2015 | |
Assets | | | | | | | | |
| | | | | | | | |
Current Assets | | | | | | | | |
Cash and cash equivalents | | $ | 139,819 | | | $ | — | |
Pre-paid expenses | | | 5,000 | | | | — | |
Total Current Assets | | $ | 144,819 | | | | | |
| | | | | | | | |
Property and equipment, net | | | 10,107 | | | | — | |
Investments | | | 322,360 | | | | — | |
Patents, net of accumulated amortization of $389,710 | | | 5,730,290 | | | | — | |
Total Assets | | $ | 6,207,576 | | | $ | — | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
| | | | | | | | |
Current Liabilities | | | | | | | | |
Accounts payable | | | 258,258 | | | | — | |
Accrued liabilities | | | 18,419 | | | | — | |
Due to related party | | | 85,851 | | | | 415 | |
Credit facility | | | 15,052 | | | | — | |
Accrued interest payable – stockholder | | | 3,781 | | | | — | |
Total Current Liabilities | | | 381,361 | | | | 415 | |
| | | | | | | | |
Notes payable stockholders - long term | | | 20,000 | | | | — | |
Total Liabilities | | $ | 401,361 | | | | 415 | |
| | | | | | | | |
Stockholders' Equity | | | | | | | | |
Common Stock - 75,000,000 shares authorized, $.001 par value; 19,132,453 and 500,000 issued and outstanding at September 30, 2016 and December 31, 2015, respectively | | | 19,132 | | | | 500 | |
Additional paid-in capital | | | 6,608,333 | | | | — | |
Accumulated deficit | | | (821,250 | ) | | | (915 | ) |
Total Stockholders' Equity | | | 5,806,215 | | | | (415 | ) |
| | | | | | | | |
Total Liabilities and Stockholders' Equity | | $ | 6,207,576 | | | $ | — | |
| | June 30, 2017 | | | December 31, 2016 | |
Assets | | | | | | |
| | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | 210,668 | | | $ | 2,039,907 | |
Other current assets | | | 69,185 | | | | 127,597 | |
Notes receivable | | | 1,514,361 | | | | — | |
Accrued interest – notes receivable | | | 20,448 | | | | — | |
Total Current Assets | | $ | 1,814,662 | | | $ | 2,167,504 | |
| | | | | | | | |
Property and equipment, net | | | 789 | | | | 888 | |
Investments | | | 111,072 | | | | 148,860 | |
Patents and license, net of accumulated amortization of 1,079,926 and 562,714, respectively | | | 8,230,074 | | | | 8,747,286 | |
Total Assets | | $ | 10,156,597 | | | $ | 11,064,538 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
| | | | | | | | |
Current Liabilities | | | | | | | | |
Accounts payable | | | 119,064 | | | | 112,302 | |
Accrued liabilities | | | 10,075 | | | | 33,434 | |
Due to related party | | | — | | | | 415 | |
Credit facility | | | 17,500 | | | | 14,813 | |
Accrued interest payable – stockholder | | | 2,788 | | | | 2,193 | |
Notes payable stockholders | | | 10,000 | | | | — | |
Total Current Liabilities | | | 159,427 | | | | 163,157 | |
| | | | | | | | |
Notes payable stockholders - long term | | | — | | | | 10,000 | |
Total Liabilities | | $ | 159,427 | | | $ | 173,157 | |
| | | | | | | | |
Stockholders' Equity | | | | | | | | |
Common Stock - 75,000,000 shares authorized, $.001 par value; 26,378,928 and 21,711,953 issued and outstanding at June 30, 2017 and December 31, 2016, respectively | | | 26,379 | | | | 21,712 | |
Additional paid-in capital | | | 13,887,772 | | | | 9,392,007 | |
Equity instruments to be issued | | | 101,279 | | | | 3,070,000 | |
Accumulated deficit | | | (4,018,260 | ) | | | (1,592,338 | ) |
Total Stockholders' Equity | | | 9,997,170 | | | | 10,891,381 | |
| | | | | | | | |
Total Liabilities and Stockholders' Equity | | $ | 10,156,597 | | | $ | 11,064,538 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | Three Months | | | Nine Months | |
| | Ended | | | Ended | |
| | September 30, 2016 | | | September 30, 2016 | |
| | | | | | |
Revenues | | $ | — | | | $ | — | |
| | | | | | | | |
Depreciation and amortization | | | 156,452 | | | | 390,970 | |
General and administrative expenses | | | 231,711 | | | | 361,477 | |
Research and development expenses | | | 46,869 | | | | 63,459 | |
| | | | | | | | |
Loss from operations | | | (435,032 | ) | | | (815,906 | ) |
| | | | | | | | |
Other (Expense) | | | | | | | | |
Interest expense - stockholders | | | (598 | ) | | | (1,795 | ) |
Interest expense - other | | | (1,313 | ) | | | (2,634 | ) |
| | | | | | | | |
Loss before provision for taxes | | $ | (436,943 | ) | | $ | (820,335 | ) |
Provision for taxes | | | — | | | | — | |
| | | | | | | | |
Net loss | | $ | (436,943 | ) | | $ | (820,335 | ) |
| | | | | | | | |
BASIC AND DILUTED PER SHARE DATA: | | | | | | | | |
Net Loss per common share, basic and diluted | | $ | (0.02 | ) | | $ | (0.05 | ) |
Weighted average common shares outstanding, basic and diluted | | | 18,825,985 | | | | 18,212,552 | |
| | For the Three Months Ended | | | For the Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | |
Revenues | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 258,655 | | | | 155,884 | | | | 517,310 | | | | 233,826 | |
General and administrative expenses | | | 387,207 | | | | 73,335 | | | | 1,010,728 | | | | 121,972 | |
Research and development expenses | | | 480,484 | | | | 24,384 | | | | 966,307 | | | | 24,384 | |
| | | | | | | | | | | | | | | | |
Loss from operations | | | (1,126,346 | ) | | | (253,603 | ) | | | (2,494,345 | ) | | | (380,182 | ) |
| | | | | | | | | | | | | | | | |
Other Income (Expense) | | | | | | | | | | | | | | | | |
Interest income | | | 14,590 | | | | — | | | | 19,160 | | | | — | |
Interest expense – stockholders | | | (299 | ) | | | (599 | ) | | | (595 | ) | | | (1,197 | ) |
Interest expense – other | | | (891 | ) | | | (654 | ) | | | (1,795 | ) | | | (1,321 | ) |
Loss on stock exchange | | | — | | | | — | | | | (37,788 | ) | | | — | |
Foreign exchange gain | | | 89,441 | | | | — | | | | 89,441 | | | | — | |
| | | | | | | | | | | | | | | | |
Loss before provision (benefit) for taxes | | | (1,023,505 | ) | | | (254,856 | ) | | | (2,425,922 | ) | | | (382,700 | ) |
Provision (benefit) for taxes | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (1,023,505 | ) | | $ | (254,856 | ) | | | (2,425,922 | ) | | | (382,700 | ) |
| | | | | | | | | | | | | | | | |
BASIC AND DILUTED PER SHARE DATA: | | | | | | | | | | | | | | | | |
Net Loss per common share, basic and diluted | | $ | (0.04 | ) | | $ | (0.01 | ) | | $ | (0.11 | ) | | $ | (0.02 | ) |
Weighted average common shares outstanding, basic and diluted | | | 23,854,325 | | | | 18,794,764 | | | | 22,822,246 | | | | 17,895,927 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | Nine Months | |
| | Ended | |
| | September 30, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net Loss | | $ | (820,335 | ) |
Adjustment to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization | | | 390,970 | |
Stock-based compensation | | | 23,115 | |
Change in operating liabilities: | | | | |
Pre-paid expenses | | | (5,000 | ) |
Accounts payable | | | 30,927 | |
Accrued liabilities | | | 931 | |
Accrued interest | | | 1,795 | |
Net cash used in operating activities | | | (377,597 | ) |
| | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
Acquisition of property & equipment | | | (986 | ) |
Net cash used in investing activities | | | (986 | ) |
| | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Proceeds from issuance of common stock | | | 432,966 | |
Proceeds of loan from related party | | | 85,436 | |
Net cash provided by financing activities | | | 518,402 | |
| | | | |
Net increase in cash and cash equivalents | | | 139,819 | |
Cash and cash equivalents at beginning of period | | | — | |
Cash and cash equivalents at end of period | | $ | 139,819 | |
| | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | |
Cash paid during period for interest | | $ | 2,634 | |
Cash paid during period for taxes | | $ | — | |
| | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: | | | | |
Rescission of common stock issued for contribution of note receivable | | | (175,000 | ) |
Common stock issued for acquisition | | | 4,357,903 | |
Common stock issued for conversion of shareholder notes and accrued interest | | | 1,287,564 | |
Common stock issued for investments | | | 322,360 | |
| | For the Six Months Ended | |
| | June 30, | |
| | 2017 | | | 2016 | |
| | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net Loss | | $ | (2,425,922 | ) | | $ | (382,700 | ) |
Adjustment to reconcile net loss to net cash used in operating activities: | | | | | | | | |
Depreciation and amortization | | | 517,310 | | | | 233,826 | |
Pre-paid expenses | | | — | | | | (5,000 | ) |
Stock-based compensation | | | 540,775 | | | | 10,456 | |
Accrued interest from note receivable | | | (20,448 | ) | | | — | |
Loss on exchange for stock | | | 37,788 | | | | — | |
Change in operating assets and liabilities: | | | | | | | | |
Other current assets | | | 58,412 | | | | — | |
Accounts payable | | | 6,762 | | | | 34,991 | |
Accrued liabilities | | | (23,359 | ) | | | 216 | |
Accrued interest | | | 595 | | | | 1,197 | |
Net cash used in operating activities | | | (1,308,087 | ) | | | (107,014 | ) |
| | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
Issuance of notes receivable | | | (1,514,361 | ) | | | — | |
Net cash used in investing activities | | | (1,514,361 | ) | | | — | |
| | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
Proceeds from issuance of common stock | | | 990,936 | | | | 100,000 | |
Proceeds from loan to related party | | | — | | | | 27,222 | |
Repayment of related party loan | | | (415 | ) | | | — | |
Proceeds from revolving credit facility | | | 2,688 | | | | — | |
Net cash provided by financing activities | | | 993,209 | | | | 127,222 | |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (1,829,239 | ) | | | 20,208 | |
Cash and cash equivalents at beginning of period | | | 2,039,907 | | | | — | |
Cash and cash equivalents at end of period | | $ | 210,668 | | | $ | 20,208 | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | |
Cash paid during period for interest | | $ | 1,795 | | | $ | — | |
Cash paid during period for taxes | | | — | | | | — | |
| | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: | | | | | | | | |
Rescission of common stock issued for contribution of note receivable | | $ | — | | | $ | (175,000 | ) |
Common stock issued for acquisition | | | — | | | | 4,505,486 | |
Common stock issued for conversion of shareholder notes and accrued interest | | | — | | | | 1,490,390 | |
Common stock issued for investments | | | — | | | | 322,360 | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
Note 1. | Nature of Organization |
Note 1. Nature of Organization
Organization and Operations
Nexeon MedSystems Inc
(the(“Nexeon” or the “Company”) was incorporated in the State of Nevada on December 7, 2015.
We are a development stage enterprise focusing on the development and commercialization of physician-driven, medical device innovations. As a bioelectronics company developing active medical devices for the treatment of chronic medical conditions, we are developing solutions with a unique blend of traditional device technologies such as electronics, software, mechanical engineering, and material science. The Company’s primary
purpose ispurposes are to
develop and commercialize the drug-eluting balloon technology acquired in the acquisition of Nexeon MedSystems, Inc., a private Delaware corporation (“NXDE”)
primarily engaged inand to commercialize the
developmentimplantable neurotechnology and
commercializationrecording platform to be applied for the relief of
a unique serieschronic diseases and disorders, upon completing the acquisition of
breakthrough therapies for people with cardiovascular disease, as further described inNote 4 – AcquisitionNexeon Medsystems Belgium, SPRL (“NMB”),
below, as well as acquire medical device manufacturing capability.
During 2016, the Company formed the following wholly-owned subsidiaries: Nexeon Medsystems Europe, SARL (“Nexeon Europe”), Nexeon Medsystems Puerto Rico Operating Company Corporation (“NXPROC”), and Pulsus Medical LLC. Nexeon Europe is the holding company for NXPROC and NMB, subject to the acquisition. NXPROC is focused on research and development, software development and data analysis for the implantable neurotechnology. Pulsus Medical, LLC will conduct research and development on the cardiovascular disease technology.
Unless the context otherwise requires, references to “we,” “our,” “us,” “Nexeon” or the “Company” in these Notes mean Nexeon MedSystems Inc, a Nevada corporation, on a consolidated basis with its wholly-owned subsidiaries, as applicable.
Note 2. | Basis of Presentation |
Note 2. Basis of Presentation
The accompanying
unaudited consolidated financial statements include the accounts of Nexeon MedSystems Inc and its wholly-owned subsidiaries NXPROC, Nexeon Europe and Pulsus Medical, LLC as of June 30, 2017 and December 31, 2016 and for the three month periods ended June 30, 2017 and 2016. The Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
These unaudited consolidated financial statements should be read in conjunction with the audited financial statements of the Company, and related notes thereto, which are included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as
SeptemberJune 30,
20162017 and the results of operations and cash flows for the periods presented. The results of operations for the three
and nine months ended
SeptemberJune 30,
20162017 are not necessarily indicative of the operating results for the full fiscal year or any future period.
These unaudited consolidated financial statements should be readAll significant intercompany accounts and transactions have been eliminated in
conjunction with the audited financial statements of the Company and NXDE, and related notes thereto, for the period ended December 31, 2015 included in the Form 10 Registration Statement of the Company filed with the Securities and Exchange Commission on October 5, 2016. consolidation.
Note 3. Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern.
However, theThe Company has not
commenced operationsgenerated any revenues since inception and has an accumulated a deficit of
$821,250 as of September$4,018,260 at June 30,
2016.2017. The Company currently has limited liquidity, and has not completed its efforts to establish a source of
recurring revenues sufficient to cover operating costs over an extended period of time. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.
Management expects to seek potential business opportunities for merger or acquisition of existing companies.
Management is not currently limiting their search for merger or acquisition candidates to any industry or locations. Management, while not especially experienced in matters relating to public company management, will rely upon their own efforts and, to a much lesser extent, the efforts of the Company’s shareholders, in accomplishing the business purposes of the Company.
On February 16, 2016, NXDE entered into an Agreement and Plan
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
JUNE 30,
2016(Unaudited)
Note 4. | Acquisition (Continued) |
In exchange for 100% of the issued and outstanding preferred stock of NXDE, immediately prior to the closing of the Merger, the Company issued 1,659,943 shares of common stock to the preferred stockholders of NXDE. As a result of the Merger, the stockholders of the NXDE acquired 9.67% of the Company's issued and outstanding common stock as of the effective date of the Merger.
In addition, the Merger Agreement provides for the conversion of debt of NXDE under the provisions of the Private Placement of the Company. SeeNote 8, Equityfor details on the Private Placement.
The Merger Agreement further provides for the payment of a royalty to a limited liability company to be formed by the former preferred shareholders of NXDE (the “Royalty”). The Royalty payment is equal to 3% of net product sales made by the Company that directly result from the patent portfolio of NXDE and has a term coinciding with the term of the Company’s patent portfolio.
Pursuant to the Merger Agreement, the Company exchanged $645,000 in NXDE stockholder loans and $176,482 in accrued interest related to those loans for 821,482 Units in the Private Placement, each Unit consisting of one share of restricted common stock and one common stock purchase warrant. $202,825 in accrued interest related to those loans was cancelled. SeeNote 8, Equityfor additional information regarding the Private Placement.
The Company considered the consideration in accordance with ASC 845 Nonmonetary transaction whereby assets acquired in exchange for another nonmonetary asset is the fair value of the assets surrendered or received, whichever is more clearly evident. Due to the lack of trading activity of the Company’s common stock surrendered in the acquisition, the Company has determined that the fair value of the assets acquired, less liabilities assumed of NXDE is a more clearly evident value of the consideration transferred in the acquisition.
The aggregate fair market value of the consideration issued, $4,357,903, was determined based on the fair market value of the assets received in the acquisition less the liabilities assumed through the acquisition. 1,659,943 shares of the Company's par value $.001 common stock were transferred for all the issued and outstanding preferred stock of NXDE.
The following table shows the allocation of the purchase price of the identified assets acquired and liabilities assumed.
Cash and cash equivalents | | $ | — | |
Property and equipment, net | | | 10,381 | |
Patents, net | | | 6,120,000 | |
Total identifiable assets | | | 6,130,381 | |
Accounts payable | | | (242,614 | ) |
Accrued liabilities | | | (17,489 | ) |
Accrued interest payable – stockholders | | | (542,375 | ) |
Notes payable – stockholders | | | (970,000 | ) |
Total liabilities assumed | | | (1,772,478 | ) |
| | | | |
Total Purchase Price | | $ | 4,357,903 | |
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
Note 5. | Summary of Significant Accounting Policies |
Note 4. Summary of Significant Accounting Policies
Development Stage Company
The Company is considered to be in the development stage as defined in ASC 915
“Development Stage Entities.” The Company is devoting substantially all of its efforts to the development of its business plans. The Company has elected to adopt early application of Accounting Standards Update No. 2014-10,
“Development Stage Entities (Topic 915):
Elimination of Certain Financial Reporting Requirements,;” and does not present or disclose inception-to-date information and other remaining disclosure requirements of Topic 915.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740,
“Income “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.
All tax positions are first analyzed to determine if the weight of available evidence indicates that it is more likely than not that the position will be sustained under audit, including resolution of any related appeals or litigation processes. After the initial analysis, the tax benefit is measured as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
If the Company is required to pay interest on the underpayment of income taxes, the Company recognizes interest expense in the first period the interest becomes due according to the provisions of the relevant tax law.
If the Company is subject to payment of penalties, the Company recognizes an expense for the amount of the statutory penalty in the period when the position is taken on the income tax return. If the penalty was not recognized in the period when the position was initially taken, the expense is recognized in the period when the Company changes its judgment about meeting minimum statutory thresholds related to the initial position taken.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
(Unaudited)
Note 5. | Summary of Significant Accounting Policies (Continued) |
Note 4. Summary of Significant Accounting Policies (Continued)
The Company adopted the provisions of ASC Topic 820,
“Fair Value Measurements and Disclosures,” which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1
— quoted—quoted prices in active markets for identical assets or liabilities
Level 2
— quoted—quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3
— inputs—inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The Company currently has no assets or liabilities valued at fair value on a recurring basis.
Principals of Consolidation
The consolidated financial statements include the accounts of the Company, and its wholly-owned
subsidiary.subsidiaries. All material inter-company accounts, transactions, and profits have been eliminated in
consolidationconsolidation.
Investments in Non-Consolidated Subsidiaries
Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. The Company accounts for its
investmentsinvestment in
Nuviant Medical Inc., MicroTransponder,
Inc., and Emeritus Clinical Solutions, Inc., formerly known as Telemend Medical, Inc. under the cost method due to the lack of significant
influence (seeNote 8, Equity).NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
Note 5. | Summary of Significant Accounting Policies (Continued) |
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The Company did not recognize any impairment losses during the three and
ninesix months ended
SeptemberJune 30,
2016.2017.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 4. Summary of Significant Accounting Policies (Continued)
Common Stock Purchase Warrants and Other Derivative Financial Instruments
The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40
"“Contracts in Entity's Own Equity."” We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants at each reporting date to determine whether a change in classification between assets and liabilities is
required.required.
Property and equipment are stated at cost. Equipment is depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized based upon the lesser of the term of the lease or the useful life of the asset and such expense is included in depreciation expense. Repair and maintenance costs are expensed as incurred. The Company capitalizes all furniture and equipment with cost greater than $500 and benefiting more than one accounting period in the period purchased.
The Company expenses all research and development costs as incurred.
Research and development expenses include, but are not limited to, product development, clinical and regulatory expenses, payroll and other personnel expenses, materials, supplies, and consulting costs.
ASC 718 requires companies to measure all stock compensation awards using a fair value method and recognize the related compensation cost in its financial statements. Beginning with the Company’s quarterly period that began on January 1, 2016, the Company adopted the provisions of FASB ASC 718 and expenses the fair value of employee stock options and similar awards in the financial statements. The Company accounts for share-based payments in accordance with ASC 718, “Compensation - Stock Compensation,” which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date fair value of the award. In accordance with ASC 718-10-30-9, “Measurement Objective – Fair Value at Grant Date,” the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders. The simplified method is used to determine compensation expense since historical option exercise experience is limited relative to the number of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.
The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments, and is recognized as expense over the service period.
The Company recognized stock-based administrative compensation aggregating $169,867$161,848 and $10,204 for common stock options issued to Company personnel, directors and/or consultants during the six months ended June 30, 2017 and 2016, respectively. Also during the six months ended June 30, 2017 and 2016, the Company paid stock-based compensation consisting of common stock issued to administrative personnelnon-employees aggregating $378,927 and consultants during$0, respectively, and to affiliates aggregating $0 and $252, respectively.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 4. Summary of Significant Accounting Policies (Continued)
Acquired Intangibles
Acquired intangibles include patents and patent licenses acquired by the
nine months ended September 30, 2016.Company, which are recorded at fair value, assigned an estimated useful life, and are amortized on a straight-line basis over their estimated useful lives ranging from 3 to 19 years. The Company periodically evaluates whether current facts or circumstances indicate that the carrying values of its acquired intangibles may not be recoverable. If such circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets, or appropriate asset groupings, is compared to the carrying value to determine whether an impairment exists. If the asset is determined to be impaired, the loss is measured based on the difference between the carrying value of the intangible asset and its fair value, which is determined based on the net present value of estimated future cash flows.
Recently Issued Accounting Pronouncements
The Company has considered recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period, and management believes that such pronouncements did not, or are not to have a material impact on the Company’s present or future consolidated financial statements.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
Note 5. Income Taxes
As of June 30,
2016(Unaudited)
The2017, the Company has approximately $821,250$4,018,260 of net operating losses (“NOL”) carryovers to offset taxable income, if any, in future years which begin to expire in fiscal 2035.2036. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion 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 periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assetassets relating to NOLsthe NOL period because it is more likely than not that all of the deferred tax assetassets will not be realized.
Note 7. | Notes Payable - Related Parties |
Note 6. Notes Payable
As of
SeptemberJune 30,
2016, the Company's Chief Operating Officer loaned $415 to the Company. The loan is non-interest bearing with no set terms of repayment.As of September 30, 2016, $85,436 is due and payable to Rosellini Scientific, LLC, the Company’s largest shareholder. The loan is non-interest bearing with no set terms of repayment.
As of September 30, 2016,2017, the Company has notesheld a note payable with two stockholdersa stockholder in the amount of $10,000 each, which bearbears interest at the rate of 12% per annum and maturematures on March 31, 2018.
Common As of June 30, 2017, accrued interest payable related to the note was $2,788.
The Company has a revolving credit card with BB&T Financial with an outstanding balance of $13,851 as of June 30, 2017, a credit limit of $60,000 and
Preferred StockThe Company’s Articlesa current APR of Incorporation authorize 75,000,00025.4%, and a revolving credit card with Comerica Bank with an outstanding balance of $3,649 as of June 30, 2017, a credit limit of $11,000 and a current APR of 0%.
Note 7. Notes Receivable
In connection with the Acquisition Agreement (See Note 11. Related Party Transactions) and based on the assumption that Nexeon Europe will acquire 107,154 shares of
Common Stock, $0.001 par value,NMB, Nexeon Europe and
25,000,000 sharesNMB entered into the Loan Agreement and Promissory Note pursuant to which Nexeon Europe agreed to loan NMB an aggregate of
Preferred Stock, $0.001 par value.€1,000,000. The
Articlesloan will mature on the first business day after the one (1) year anniversary of
Incorporationthe agreement, or January 11, 2018. The loan accrues interest at a rate of 5% per annum, which interest shall be payable on the maturity date. On May 1, 2017, the terms of the loan were amended
on February 22, 2016 to
cancelincrease the
authorizationaggregate principal amount of
Preferred Stock.the loan to €1,500,000. As of June 30, 2017, $1,514,361 has been loaned to NMB pursuant to the terms of the Loan Agreement and Promissory Note and $20,448 has been recorded as accrued interest income.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 8. Equity
Common Stock Issuances
On December 15, 2015, the Company issued 500,000 shares of its common stock to its Chief Operating Officer for the sum of $500 at the par value of $0.001. 212,000 shares of the 500,000 shares became vested upon issue and the remaining 288,000 shares shall vest over a 36 month period at the rate of 8,000 shares per month. Vesting began on January 1, 2016.
During the
ninesix months ended
SeptemberJune 30,
2016,2017, the Company:
| (i) | Issued to its Interim Chief Financial Officer 252,000an aggregate of 201,002 shares of restricted Common Stockcommon stock for certain legal, corporate structuring and research and development consulting services rendered by third-party consultants. The foregoing shares were valued at $201,002. $2,925 is included in Equity instruments to be issued for consulting compensation earned but not yet issued as of June 30, 2017. |
| (ii) | On March 17, 2017 the Company offered to current warrant holders who participated in the 2016 Private Placement which closed on December 2, 2016, the opportunity to convert their warrants into common stock of the Company on the following terms (the “Warrant Conversion Offer”). The offer terms included the exercise of seventeen (17) warrants for seventeen (17) shares of the Company’s common stock at an exercise price of $0.01 per share for every one hundred (100) warrants owned. The remaining eighty-three (83) warrants per hundred warrants owned would be cancelled. The offer was on an all-or-nothing basis to convert all warrants held by each warrant holder (the “Warrant Conversion Offer”). As of June 30, 2017, 593,598 warrants have been exercised for an aggregate of 593,598 shares of the Company’s common stock and 2,898,151 warrants were cancelled in connection with the Warrant Conversion Offer. The total proceeds from the exercise of the 593,598 warrants pursuant to the Warrant Conversion Offer were $5,936. |
| (iii) | During the six months ended June 30, 2017, the Company conducted a private placement of up to 2,000,000 shares of common stock to accredited investors only, pursuant to which it would receive up to $2,500,000 in proceeds (the “2017 Private Placement”). The shares of common stock were offered at $1.25 per share. As of June 30, 2017, the Company had received $985,000 from the sale of common stock and issued 788,000 shares of common stock pursuant to the 2017 Private Placement. |
| (iv) | On December 15, 2016, Mr. Rosellini sold, assigned, and transferred all his right, title, and interest in and to the license owned by him related to the Siemens Patents to the Company pursuant to a Patent License Asset Purchase Agreement (the “Purchase Agreement”). Pursuant to the terms of the Purchase Agreement, during the six months ended June 30, 2017, 3,050,000 shares of the Company’s restricted common stock were issued to Mr. Rosellini valued at $3,050,000. See Note 11 – Related Party Transactions, Patent License Agreement (Siemens Patents) and Patent License Asset Purchase Agreement. |
| (v) | On April 1, 2017, the Company issued 175,000 shares of the Company’s common stock in exchange for an increase of $175,000 in the loan to NMB. The shares were issued to AtidTek, LLC for certain accountingproject management and budget-relatedengineering services rendered as well as serving as Interim CFO until such time as a permanent CFO is hired. The shares vest at the rate of 7,000 shares per month over a term of 36 months from the grant date.provided to NMB. The shares were valued at $252. |
12$175,000. See Note 11 – Related Party Transactions, January 10, 2017 Acquisition Agreement. |
The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act, by Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
Warrants
On February 1, 2016, the Company initiated a private placement for the sale of up to 5,500,000 units (the “Units”) at $1.00 per Unit (the “2016 Private Placement”). Each Unit consisted of one share of restricted common stock and one warrant to purchase one additional share of restricted common stock. The 2016 Private Placement was closed on December 2, 2016. The warrants have an exercise price of $2.00 per share and expire 36 months from the date of issue. The warrants have limited transferability to an affiliate of the holder only, cannot be sold as a warrant and do not contain cashless exercise provisions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
JUNE 30,
2016(Unaudited)
Note 8. | Equity (Continued) |
Common Stock Issuances (Continued)
| (ii) | Issued to Rosellini Scientific, LLC 13,200,000 shares of Common Stock in exchange for 1,675,000 shares of common stock in Nuviant Medical Inc., a Nevada corporation, 175 shares of common stock in Emeritus Clinical Solutions, Inc., a Delaware corporation, 167 shares of common stock in MicroTransponder, Inc., a Delaware corporation, the assignment of one Federal NIH Grant in the amount of $218,377 and one State of Kentucky Matching Funds Grant in the amount of $150,000. Mr. Rosellini, the CEO of the Company, is the sole Member and Manager of Rosellini Scientific, LLC. The shares had a fair value of $272,686 on the date of issuance and were valued based on the value of the contributed assets as the Company’s shares had no ascertainable value as of the date of issuance of the shares. This was in accordance with ASC 845,Nonmonetary Transactions, whereby nonmonetary assets acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered or received, whichever is more clearly evident. In this case the value of the contributed assets were more ascertainable than the value of the shares issued. |
| (iii) | Issued 1,800,000 shares of restricted common stock to its Vice President of Clinical Affairs in return for 214 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation, and 60,000 shares of common stock of Nuviant Medical, Inc., a Nevada corporation. The shares had a fair value of $49,673 on the date of issuance and were valued based on the value of the contributed assets as the Company’s shares had no ascertainable value as of the date of issuance of the shares. This was in accordance with ASC 845,Nonmonetary Transactions,whereby nonmonetary assets acquired in exchange for another nonmonetary asset is the fair value of the asset surrendered or received, whichever is more clearly evident. In this case the value of the contributed assets were more ascertainable than the value of the shares issued. |
| (iv) | Issued 1,659,943 shares of common stock to the stockholders of NXDE, pursuant to the terms of the Merger Agreement seeNote 4, Acquisition, in exchange for 10,222,137 shares of Series A Preferred Stock and 832,034 shares of Series B Preferred Stock, or 100% of the issued and outstanding preferred stock of NXDE. The shares had a fair value of $4,357,903 on the date of issuance. |
| (v) | Pursuant to the Merger Agreement and subsequent to the Merger, the Company exchanged $950,000 in NXDE stockholder loans and $337,564 in accrued interest related to those loans for 1,287,564 Units in the Private Placement at $1.00 per Unit, each Unit consisting of one share of restricted common stock and one warrant to purchase one additional share of restricted common stock. The warrants have an exercise price of $2.00 per share and expire 36 months from the expiration date of the Private Placement. For information regarding the Private Placement, seeNote 8, Equity – Warrants, below. The shares of Common Stock issued as part of the Units had a fair value of $1,287,564 on the date of issuance. |
| (vi) | Issued to an existing stockholder and director of the Company 175,000 shares of restricted common stock of the Company, as part of the Private Placement, in exchange for a note receivable in the amount of $175,000 issued by Emeritus Clinical Solutions, Inc. This transaction was rescinded as of June 30, 2016 and the shares were returned. |
| (vii) | As of September 30, 2016, $286,446 in Units have been issued in the Private Placement, resulting in 286,446 shares of restricted Common Stock being issued. |
| (viii) | As of September 30, 2016 146,500 shares of restricted Common Stock of the Company have been issued for certain legal services rendered to third-party consultants The shares were valued at $146,500.
|
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
Note 8. Equity (Continued)
Warrants (Continued)
On March 17, 2017, the Company offered to current warrant holders who participated in the 2016 Private Placement the opportunity to convert their warrants into common stock of the Company on the following terms (the “Warrant Conversion Offer”). The offer terms included the exercise of seventeen (17) warrants for seventeen (17) shares of the Company’s common stock at an exercise price of $0.01 per share for every one hundred (100) warrants owned. The remaining eighty-three (83) warrants per hundred warrants owned would be cancelled. The offer was on an all-or-nothing basis to convert all warrants held by each warrant holder.
As of June 30, 2017, 593,598 warrants have been exercised for an aggregate of 593,598 shares of the Company’s common stock and 2,898,151 warrants were cancelled in connection with the Warrant Conversion Offer. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act, by Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
As of June 30, 2017, we had 636,761 warrants outstanding, all of which are currently exercisable, with a weighted average price of $2.00 per share and a total of 636,761 shares of common stock of the Company have been reserved for issuance upon exercise of the warrants.
Options Grants – 2016
(Unaudited)
Note 8. | Equity (Continued) |
Option Grants
Omnibus Incentive Plan
The Company may, from time to time, issue certain equity awards pursuant to our 2016 Omnibus Incentive Plan (the “2016 Plan”). The 2016 Plan was adopted by our Board of Directors on January 2, 2016 and was subsequently approved by our shareholders on January 2, 2016.shareholders. The Company reserved 2,500,0005,000,000 shares of common stock for issuance pursuant option grants under the 2016 Plan.
During the
ninesix months ended
SeptemberJune 30,
2016,2017, the Company issued stock options to purchase a total of
1,008,000695,000 shares of the Company’s common stock under the 2016 Plan,
all with
an exercise
price ofprices ranging from $1.00
to $1.25 per share, as follows:
| (i) | Granted to the Company’s Chief InnovationScience Officer 252,000 three-year nonqualifiedof Nexeon Medsystems Puerto Rico Operating Company Corporation, a wholly-owned subsidiary of the Company, 100,000 incentive stock options to purchase 252,000100,000 shares of common stock, with an exercise price of $1.00 per share. The options vest in monthly increments of 7,0008,333 shares per month for 11 months and 8,337 options shall vest in the 12th month, with the three-year term for each option beginning upon each date of vesting, and granted 325,000 nonqualified stock options to purchase 325,000 shares of common stock, with an exercise price of $1.00 per share. The options vest in monthly increments of 27,083 shares per month for 11 months and 27,087 options shall vest in the 12th month, with the three-year term for each option beginning upon each date of vesting. The fair value of the options was determined to be $47,056$113,073 using the Black-Scholes Option Pricing Model. |
| (ii) | Granted to the Company’s Vice President Clinical Affairs 252,000 three-yeara Consultant 150,000 nonqualified stock options to purchase 252,000150,000 shares of common stock, with an exercise price of $1.00 per share. The50,000 options vest in monthly increments of 7,000 shares, with the three-year term for each option beginning upon each date of vesting.on January 2, 2018, 50,000 options vest on January 2, 2019 and 50,000 options vest on January 2, 2020. The fair value of the options was determined to be $47,056$35,917 using the Black-Scholes Option Pricing Model. |
| (iii) | Granted to a consultant of the Company, for services renderedDirector appointed to the Company since inception as well as ongoing services to be provided from time to time, 252,000 three-yearBoard of Directors nonqualified stock options to purchase 252,000a total of 25,000 shares of common stock, in two grants of 12,500 each, with an exercise price of $1.00 per share. The options vest in monthly increments of 7,000 shares, with the three-year term forare immediately exercisable and each option beginning upon eachgrant expires four years from the date of vesting.grant. The fair value of the options was determined to be $47,056$6,788 using the Black-Scholes Option Pricing Model. |
| (iv) | Granted to a second Director appointed to the Vice PresidentBoard of Emerging Therapies 252,000 three-yearDirectors nonqualified stock options to purchase 252,000a total of 25,000 shares of common stock, in two grants of 12,500 each, with an exercise price of $1.00 per share. The options vest in monthly increments of 7,000 shares, with the three-year term forare immediately exercisable and each option beginning upon eachgrant expires four years from the date of vesting.grant. The fair value of the options was determined to be $42,113$6,788 using the Black-Scholes Option Pricing Model. |
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 8. Equity (Continued)
Options Grants – 2016 Omnibus Incentive Plan (Continued)
| (v) | Granted to our Vice President, Sales and Marketing, an initial grant of 220,000 nontransferable incentive stock options to purchase 220,000 shares of common stock, with an exercise price of $1.25 per share. Each option shall expire 36 months from the date of vesting. The options shall vest at the rate of 6,111 shares per month for a period of 35 months and 6,115 options shall vest in the 36th month. Vesting commences on the first day of the month following the Grant Date. The fair value of the options was determined to be $33,392 using the Black-Scholes Option Pricing Model. |
The options were valued at
$183,281$195,960 using the Black-Scholes option pricing model with the following assumptions:
Risk-free interest rate | | 0.94%1.51% |
Expected life | | 33.00 years |
Expected dividends | | 0.00% |
Expected volatility | | 38.14%48.16% |
Fair value of the Company's common stock | | $1.001.07 |
Aggregate options expense recognized for the
ninesix months ended
SeptemberJune 30,
20162017 was
$23,115.$161,848.
As of
SeptemberJune 30,
2016,2017, there were
1,492,0001,823,000 shares available for grant under the 2016 Plan, excluding the
1,008,0003,177,000 options outstanding.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
Note 8. | Equity (Continued) |
Warrants
On February 1, 2016, the Company initiated a private placement for the sale of up to 5,500,000 units (the “Units”) at $1.00 per Unit (the “Private Placement”). Each Unit consists of one share of restricted common stock and one warrant1,427,000 non-qualified options outstanding to purchase one additional sharean aggregate of restricted common stock. The expiration date of the Private Placement is December 31, 2016. The warrants have an exercise price of $2.00 per share and expire 36 months from the expiration date of the Private Placement. The warrants have limited transferability to an affiliate of the holder only, cannot be sold as a warrant and do not contain cashless exercise provisions. The warrants do not include any terms or contracts to issue additional shares and have no liquidation preferences or participation rights.
During the nine months ended September 30, 2016, the Company issued a total of 1,574,010 warrants to purchase1,427,000 shares of the Company’sCompany's common stock pursuant toand 1,823,000 shares available for grant under the Private Placement, as follows:
| (i) | Pursuant to the Merger Agreement, the Company exchanged $645,000 in NXDE stockholder loans and $176,482 in accrued interest related to those loans for 821,482 Units in the Private Placement at $1.00 per Unit, each Unit consisting of one share of restricted common stock and one warrant to purchase one additional share of restricted common stock, resulting in 821,482 warrants being issued. |
| (ii) | Subsequent to the Merger the Company exchanged $305,000 in NXDE stockholder loans and $161,082 in accrued interest related to those loans for 466,082 Units in the Private Placement at $1.00 per Unit, each Unit consisting of one share of restricted common stock and one warrant to purchase one additional share of restricted common stock, resulting in 466,082 warrants being issued. |
| (iii) | As of September 30, 2016, $286,446 in Units have been issued in the Private Placement associated with cash subscriptions, resulting in 286,446 warrants being issued. |
During the nine months ended September 30, 2016 amortization expense of $0 was recognized.
As of the September 30, 2016, no warrants have been exercised.
As of September 30, 2016, a total of 1,574,010 shares of Common Stock of the Company have been reserved for issuance upon exercise of the warrants.
Plan.
Stock option activity, both within and outside the
2016 Plan, and warrant activity for the
ninesix months ended
SeptemberJune 30,
2016,2017, are as follows:
| | | Stock Options | | | | Stock Warrants |
| | | | | | | Weighted | | | | | | | | Weighted |
| | | | | | | Average | | | | | | | | Exercise |
| | | Shares | | | | Price | | | | Shares | | | | Price |
| | | | | | | | | | | | | | | |
Outstanding at January 2, 2016 | | | — | | | $ | — | | | | — | | | $ | — |
Granted | | | 1,008,000 | | | | 1.00 | | | | 1,574,010 | | | | 2.00 |
Canceled | | | — | | | | — | | | | — | | | | — |
Expired | | | — | | | | — | | | | — | | | | — |
Exercised | | | — | | | | — | | | | — | | | | — |
Outstanding at September 30, 2016 | | | 1,008,000 | | | $ | 1.00 | | | | 1,574,010 | | | $ | 2.00 |
Exercisable at September 30, 2016 | | | 140,000 | | | $ | 1.00 | | | | 1,574,010 | | | $ | 2.00 |
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
Note 8. | Equity (Continued) |
Warrants (Continued)
| | Stock Options | | | Stock Warrants | |
| | | | | Weighted | | | | | | Weighted | |
| | | | | Average | | | | | | Exercise | |
| | Shares | | | Price | | | Shares | | | Price | |
| | | | | | | | | | | | |
Outstanding at December 31, 2016 | | | 2,332,000 | | | $ | 1.00 | | | | 4,128,510 | | | $ | 2.00 | |
Granted | | | 845,000 | | | | 1.07 | | | | — | | | | | |
Canceled | | | — | | | | — | | | | 2,898,151 | | | | 2.00 | |
Expired | | | — | | | | — | | | | — | | | | — | |
Exercised | | | — | | | | — | | | | 593,598 | | | | 0.01 | |
Outstanding at June 30, 2017 | | | 3,177,000 | | | $ | 1.02 | | | | 636,761 | | | $ | 2.00 | |
Exercisable at June 30, 2017 | | | 1,201,413 | | | $ | 1.00 | | | | 636,761 | | | $ | 2.00 | |
The range of exercise prices and remaining weighted average life of the options outstanding at
SeptemberJune 30,
20162017 were $1.00 to
$1.00$1.25 and
2.972.73 to 7.92 years, respectively. The aggregate intrinsic value of the outstanding options at
SeptemberJune 30,
20162017 was
$183,281.$789,735.
The range of exercise pricesprice and remaining weighted average life of the warrants outstanding at SeptemberJune 30, 20162017 were $2.00 and 1.61 to $2.00 and 2.452.36 years, respectively. The aggregate intrinsic value of the outstanding warrants at SeptemberJune 30, 2017 was $42,456.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 9 Commitments and Contingencies
The Company is subject to a patent royalty agreement that requires 3% of Net Product Sales received from commercialization of the 35 patents or other intellectual property acquired in the Merger with NXDE to be paid to NXDE, LLC. No sales have been generated from any of the acquired patents or intellectual property.
The Company acquired a non-exclusive license to a portfolio of 86 patents and is subject to a 6% royalty to Magnus IP GmbH of the Net Sales of all licensed products sold, licensed, leased or otherwise disposed of pursuant to the license. No sales have been generated from the licensed intellectual property.
Note 10. Omnibus Incentive Plan
The Company may, from time to time, issue certain equity awards pursuant to our 2016
Omnibus Incentive Plan (the "2016 Plan''). The 2016 Plan was
$1,574,010.adopted by our Board of Directors on January 2, 2016 and was subsequently approved by our shareholders. As of June 30, 2017, options to purchase a total of 3,177,000 shares of the Company's common stock were issued under the 2016 Plan, 2,957,000 with an exercise price of $1.00 per share and 220,000 with an exercise price of $1.25 per share. 200,916 vested immediately upon grant and the remaining vest in varying amounts ranging from 50,000 to 100,000 annually and monthly increments ranging from 3,333 to 27,087 based on individual stock option agreements. The options have terms as follows: 1,977,000 options have a three-year term starting on each date of vesting, 50,000 options have a four-year term starting on each date of vesting, and 1,150,000 have an eight-year term starting on the date of vesting.
The 2016 Plan is administered by a committee of two or more non-employee independent directors designated by the Board. The committee shall perform the requisite duties with respect to awards granted. The committee currently determines to whom awards are made, the timing of any such awards, the type of securities, and number of shares covered by each award, as well as the terms, conditions, performance criteria, restrictions, and other provisions of awards. The committee has the authority to cancel or suspend awards, accelerate the vesting, or extend the exercise period of any awards made pursuant to the 2016 Plan.
Shares Available under the 2016 Omnibus Incentive Plan
The maximum shares available for issuance under the 2016 Plan are 5,000,000 shares, subject to adjustment as set forth in the 2016 Plan. Any shares subject to an award that expires, is cancelled or forfeited or is settled for cash shall, to the extent of such cancelation, forfeiture, expiration or cash settlement, again become available for awards under the 2016 Plan. The committee can issue awards comprised of restricted stock, stock options, stock appreciation rights, stock units and other awards, as set forth in the 2016 Plan.
Transferability
Except as otherwise provided in the 2016 Plan, (i) during the lifetime of a participant, only the participant or the participant’s guardian or legal representative may exercise an option or stock appreciation right, or receive payment with respect to any other award and (ii) no award may be sold, assigned, transferred, exchanged or encumbered, voluntarily or involuntarily, other than by will or the laws of descent and distribution.
Change in Control
In the event of a merger, the surviving or successor entity (or its parent) may continue, assume or replace outstanding awards as of the date of the relevant transaction and such awards or replacements therefore shall remain outstanding and be governed by their respective terms. Such awards or replacements can be executed in part on the condition that the contractual obligations represented by the award are expressly assumed by the surviving or successor entity (or its parent) with appropriate adjustments to the number and type of securities subject to the award and the exercise price thereof so as to preserve the intrinsic value of the award existing at the time of the relevant transaction. Alternatively, the surviving or successor entity (or its parent) could issue to a participant a comparable equity-based award that preserves the intrinsic value of the original award existing at the time of the relevant transaction and contains terms and conditions that are substantially similar to those of the award.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 10. Omnibus Incentive Plan (Continued)
Change in Control (Continued)
If and to the extent that outstanding awards under the 2016 Plan are not continued, assumed or replaced in connection with a merger or relevant corporate transaction, then all outstanding awards shall become fully vested and exercisable for such period of time prior to the effective date of the relevant transaction as is deemed fair and equitable by the committee and shall terminate at the effective date of said transaction.
Note 9. | Related Party Transactions |
During the nine months ended
Note 11. Related Party Transactions
Patent License Agreement (Siemens Patents) and Patent License Asset Purchase Agreement
On September
30,29, 2016,
the Company had the following transactions with related parties:On January 1, 2016, the Company granted to Christopher Miller, the Company’s InterimWilliam Rosellini, our Chief FinancialExecutive Officer, 252,000 sharesa director and a majority shareholder of restricted Common Stock of the Company for certain accounting and budget-related services rendered as well as serving as Interim CFO until such time as a permanent CFO is hired. The shares vest at the rate of 7,000 shares per month over a term of 36 months from the grant date.
On January 2, 2016, the Company, entered into a Contributionpatent license agreement (the “License Agreement”) with Magnus IP GmbH, German corporation (“Magnus”). Pursuant to the terms of the License Agreement, withMagnus granted to Mr. Rosellini, and his affiliates, a non-exclusive, non-transferable, non-assignable without the right to sublicense worldwide license to a portfolio of 86 patents, referred to herein as the “Siemens Patents”.
The intellectual property relates to IOT technology as described by a system of interrelated computing devices, mechanical and digital machines, objects, animals, and/or people that have unique identifiers and a subsequent ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. This technology can be utilized in a wide variety of medical device applications, most notably in hospitals, nursing facilities, or patients’ homes.
On December 15, 2016, Mr. Rosellini sold, assigned, and transferred all his right, title, and interest in and to the license owned by him related to the Siemens Patents to the Company pursuant to a Patent License Asset Purchase Agreement (the “Purchase Agreement”). As consideration for the transfer of the Siemens Patents and the license related thereto, the Company paid to Mr. Rosellini the sum of $140,000 in cash and during the six months ended June 30, 2017, issued to Mr. Rosellini 3,050,000 shares of the Company’s restricted common stock valued at $3,050,000.
January 6, 2017 Stock Exchange Agreement
On January 6, 2017, (the “Effective Date”), the Company and Rosellini Scientific, LLC,
a Texas limited liability company (“RS”) – a company controlled by our CEO William Rosellini,
–entered into a Stock Exchange Agreement (the “Agreement”). Subject to the terms and
conditions set forth the Agreement, on the Effective Date, RS sold, transferred, and assigned to Nexeon all of its
wholly-owned subsidiary Belltower Associates, LLC (collectively, Rosellini Scientific, LLCright, title and
Belltower Associates, LLC are hereinafter referredinterest in and to
as “RS”). Under this agreement, the Company issued 13,200,000100 shares of
its common stock
in return for, among other consideration: | i. | RS’s agreement to an assignment (subject to regulatory transfer approval) to the Company of Phase II, should it be granted of the Federal NIH/SBIR awarded Grant #1R44HL129870-01; |
| ii. | 1,675,000 shares of common stock of Nuviant Medical, Inc., a Nevada corporation; |
| iii. | 167 shares of common stock of MicroTransponder, Inc., a Delaware corporation; and |
| iv. | 175 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation. |
These transactions were valued based on the value of the contributed assets as the Company’s shares had no ascertainable value as of the date of issuance of the shares. This was in accordance with ASC 845 Non-monetary transactions whereby non-monetary assets acquiredMicroTransponder Inc., a Delaware corporation (the “MTI Shares”) in exchange for another non-monetary asset is the fair value of the asset surrendered or received, whichever is more clearly evident. In this case the value of the contributed assets were more ascertainable than the value of the shares issued.
Prior to the contribution William Rosellini was not a related party of the Company, but became a related party on January 2, 2016 through the issuance of the 13,200,000 shares and a controlling interest in the Company.
Mr. Rosellini, the CEO of the Company, is the sole Member and Manager of Rosellini Scientific, LLC.
On January 2, 2016, the Company issued 1,800,000 shares of its common stock to its Vice President of Clinical Affairs, Dr. Elizabeth Rosellini DDS (the sister of our CEO), in return for 214389 shares of common stock of Emeritus Clinical Solutions, Inc. (formerly Telemend, Inc.), a DelawareTexas corporation, owned by Nexeon and 60,000Nexeon sold, transferred and assigned to RS 389 shares of common stock of Nuviant Medical,Emeritus Clinical Solutions, Inc. (the “Emeritus Shares”) in exchange for the 100 MTI Shares (the MTI Shares and Emeritus Shares are collective referred to as the “Exchange Shares”).
January 10, 2017 Acquisition Agreement
On January 10, 2017, Rosellini Scientific, LLC, (“RS”), a
Nevada corporation.company controlled by our CEO William Rosellini, and Nexeon Medsystems Europe, S.a.r.l., a Luxembourg private limited liability company (hereinafter referred to as “Nexeon Europe”), which is a wholly-owned subsidiary of the Company, and in the presence of Nexeon Medsystems Belgium, SPRL, a company incorporated under the laws of Belgium, (hereinafter referred to as “NMB”), entered into an Acquisition Agreement. RS is the sole shareholder of NMB owning 107,154 shares (the “Shares”). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
(Unaudited)
Note 9. | Related Party Transactions(Continued) |
On April 1, 2016, pursuant
Note 11. Related Party Transactions (Continued)
January 10, 2017 Acquisition Agreement (Continued)
Pursuant to the Acquisition Agreement, RS is granting to Nexeon Europe the exclusive and irrevocable right to purchase the Shares upon the terms and conditions set forth in the Acquisition Agreement (the “Right to Purchase”). The consideration for the Right to Purchase is US $1,000 (the “Acquisition Price”). Nexeon Europe shall have the right to exercise the Right to Purchase commencing from the date of the Acquisition Agreement and terminating on December 31, 2017 (the “Acquisition Period”). In the event Nexeon Europe exercises the Right to Purchase, the Agreement shall be automatically deemed converted into and considered a share transfer agreement for the purchase of the Shares and the Acquisition Price shall be considered the Purchase Price of the Shares and shall be deemed to have been satisfied by Nexeon Europe to RS as of the date of the Acquisition Agreement. If Nexeon Europe elects not to exercise the Right to Purchase on or before December 31, 2017, then the Acquisition Agreement shall become null and void and of no further force and effect.
Pursuant to the terms of the Acquisition Agreement, closing of the transaction is conditioned upon the delivery to Nexeon Europe of a two year audit for years ending December 31, 2015 and 2016 Omnibus Incentive Plan,of NMB, to be completed by April 15, 2017, which date has been extended to May 31, 2017. RS shall be solely responsible and liable for any and all fees, costs and expenses associated with such audit.
Description of Nexeon Medsystems Belgium, SPRL
Nexeon Medsystems Belgium, SPRL, formerly known as Rosellini Scientific Benelux, is wholly-owned subsidiary of RS and is a medical device manufacturing company. NMB was originally formed in 2013 and is located in Liege, Belgium. NMB has previously received a number of subsidies from the government of the Walloon region in Belgium to develop active implantable medical devices. In addition, NMB has acquired assets related to an implantable neurostimulation device system, the Synapse™, for use in the treatment of neurological diseases. The Synapse™ was previously issued a CE Mark for use in the treatment of certain movement disorders associated with Parkinson's disease. It also is being manufactured for a number of commercial partners, including Galvani Bioelectronics and John Hopkin's University, for use in their various research projects.
Description of Nexeon Europe
Nexeon Europe is a wholly-owned subsidiary of the Company
issued non-qualified options to purchase 252,000 shares of common stock, with an exercise price of $1.00 per share, with a term of three years to each of the following: Dr. Mark C. Bates MD, Chief Innovation Officer; Dr. Elizabeth Rosellini DDS, Vice President of Clinical Affairs;formed on October 28, 2016. The Company and
Sheneka Rains, a consultant, for services rendered to the Company since inception as well as ongoing services to be provided from time to time. The options vest in monthly increments of 7,000, with a three-year term for each option beginning upon each date of vesting.AsNexeon Europe are part of the MergerNexeon group of companies (the “Group”) that is currently being restructured in order to achieve a more efficient and cost-effective Group structure.
Loan Agreement and Promissory Note
In connection with NXDE, Dr. Mark Bates, M.D, the Company’s Chief Innovation Officer,Acquisition Agreement described above and Director, receivedbased on the contemplation that Nexeon Europe shall acquire all of the shares of NMB, Nexeon Europe (Lender) and NMB (Borrower) entered into a totalLoan Agreement and related Promissory Note pursuant to which Nexeon Europe agrees to make a loan to NMB in the aggregate principal amount of 386,212EUR 1,000,000 (One Million Euros) (the “Loan”). The Loan shall mature on the first Business Day falling one (1) year from the date of the Loan Agreement (the “Maturity Date”). The Maturity Date shall be extended and the term of the Loan Agreement automatically renewed for successive thirty (30) day periods unless the NMB notifies the Nexeon Europe within ten (10) days of the then upcoming Maturity Date that it intends to repay the full amount or the then outstanding amount of the Loan prior to the upcoming Maturity Date. NMB may repay, either partially or entirely, the Loan and/or accrued interest thereon at any time prior to the Maturity Date without penalty, upon giving at least two (2) Business Days’ prior written notice to Nexeon Europe. NMB and Nexeon Europe may also agree to settle the Loan through the inter-company account netting procedure or to capitalize as an investment in the subsidiary.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 11. Related Party Transactions (Continued)
January 10, 2017 Acquisition Agreement (Continued)
Loan Agreement and Promissory Note (Continued)
The Loan shall bear interest at the rate of 5% per annum. Accrued interest on the unpaid principal amount of the Loan shall be payable on the Maturity Date. Accrued interest on any partial repayment of the Loan shall be payable on the earlier of the date of repayment or the first business day of the month following partial repayment.
During the quarter ended June 30, 2017, 175,000 shares of the Company’s
Common Stock upon conversion of the NXDE preferred shares, and converted $370,000 of debt owed to him by NXDE into 370,000 shares of our common stock
and warrants to purchase 370,000 additional shares of common stock at a strike price of $2.00 per share and with a term of 36 months. In addition, Dr. Bates contributed $202,825 of accrued interest on his debt, which has been reflected as additional paid in capital to the Company during the first quarter of 2016. Dr. Bates, beginning May 1, 2016, will receive a monthly consulting fee of $3,500. As part of the Merger Agreement with NXDE, Mr. Ralph Ballard, who was a co-founder and Director of NXDE, received a total of 123,759 shares of the Company’s Common Stock upon conversion of the NXDE preferred shares, which were divided as follows: 1,398 shares to Mr. Ballard personally, 7,691 shares to a Custodial IRA FBO Ralph Ballard, and 114,670 shares to Ballard Investments. In addition, as part of the Merger Agreement with NXDE, Mr. Ballard converted $451,482 of debt owed to him by NXDE and received 451,482 shares of our common stock and warrants to purchase 451,482 shares at a strike price of $2.00 per share with a term of 36 months, which shares and warrants were issued to Ballard Investments. Mr. BallardAtidTek, LLC, a consultant of NMB in exchange for research and development project management and engineering services. The shares were valued at $175,000. The $175,000 common stock issuance has been included in the power to vote and disposeoutstanding balance of the shares held by his IRAloan to NMB. On May 1, 2017 the terms of the Promissory Note were amended to increase the aggregate principal amount of the loan to €1,500,000.
As of June 30, 2017, 1,514,361 has been loaned to NMB and
Ballard Investments. In addition, three trusts representing three of Mr. Ballard’s children converted a total of $431,821 of debt and received 431,821 shares of our common stock and warrants to purchase 431,821 shares of common stock at a strike price of $2.00 per share with a term of 36 months, divided between and issued to the three trusts. The three trusts are irrevocable trusts managed by an arms-length third party professional fiduciary. Mr. Ballard disclaims any beneficial ownership$20,448 has been recorded in
the common stock and warrants issued to the three trusts.On June 1, 2016,accrued interest income pursuant to the 2016 Omnibus Incentive Plan,Loan Agreement and Promissory Note.
Security Agreement
As collateral security for the Company issuedpayment in full when due (whether at stated maturity, by acceleration or otherwise) of the Loan, NMB pledged and granted to Dr. Melanie McWade PhD,Nexeon Europe a security interest in all of NMB’s right, title and interest in, to and under all of its properties, including but not limited to personal and real property, in each case whether tangible or intangible.
Related Party Loan
The Company's Executive Vice President of
Emerging Therapies, non-qualified stock options to purchase 252,000 shares of common stock, with an exercise price of $1.00 per share, with a term of three years. The options vest in monthly increments of 7,000 with a three-year term for each option beginning upon each date of vesting.As of September 30, 2016, the Company's Chief Operating OfficerFinance loaned $415 to the Company. The loan iswas non-interest bearing with no set terms of repayment.
As of SeptemberJune 30, 2016, $85,436 is due and payable2017, the loan was repaid in full.
Warrant Conversion Offer
On March 21, 2017, the Company offered to
Rosellini Scientific, LLC, the largest shareholdercurrent warrant holders who participated in the
Company.2016 Private Placement which closed on December 2, 2016, the opportunity to convert their warrants into common stock of the Company on the following terms ("Warrant Conversion Offer"). The
loan is non-interest bearing with no setoffer terms
included the exercise of
repayment.seventeen (17) warrants for seventeen (17) shares of the Company’s common stock at an exercise price of $0.01 per share for every one hundred (100) warrants owned. The remaining eighty-three (83) warrants per hundred warrants owned would be cancelled. The offer was on an all-or-nothing basis to convert all warrants held by each warrant holder.
During the six months ended June 30, 2017, the following officers, directors and related parties have converted warrants pursuant to the Warrant Exchange Offer, as follows:
| (i) | Mark C. Bates, our Chief Innovation Officer and a Director, held 370,000 warrants and pursuant to the terms of the Warrant Conversion Offer, converted 62,900 warrants into 62,900 shares of common stock, with 307,100 warrants being cancelled. The 62,900 shares of common stock were value at $629. |
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)
Note 11. Related Party Transactions (Continued)
Warrant Conversion Offer (Continued)
| (ii) | Dr. Michael Rosellini, the father of William Rosellini, our Chief Executive Officer, held 600,000 warrants individually and 617,000 warrants under the Michael Rosellini ROTH IRA. Dr. Rosellini, pursuant to the terms of the Warrant Conversion Offer, converted 206,890 warrants into 206,890 shares of common stock, with 1,010,110 warrants being cancelled. The 206,890 shares of common stock are held as follows: 102,000 shares by Dr. Rosellini individually and 104,890 shares by the Michael Rosellini ROTH IRA. The 206,890 shares of common stock were value at $2,069. |
| (iii) | Michael Neitzel, a Director, held 500,000 warrants through Yorkville MGB Investments, LLC (“Yorkville”). Mr. Neitzel is the Managing Partner of Yorkville. Mr. Neitzel converted 85,000 warrants into 85,000 shares of common stock pursuant to the terms of the Warrant Conversion Offer, with 415,000 warrants being cancelled. The 85,000 shares of common stock were value at $850. |
Note 12. Subsequent Events
2017 Private Placement
During the six months ended June 30, 2017, the Company conducted a private placement of up to 2,000,000 shares of common stock to accredited investors only, pursuant to which it would receive up to $2,500,000 in proceeds (the “2017 Private Placement”). The shares of common stock were offered at $1.25 per share. As of SeptemberJune 30, 2016,2017, the Company had received $985,000 from the sale of common stock and issued 788,000 shares of common stock pursuant to the 2017 Private Placement. As of August 11, 2017, the Company has notes payablereceived an additional $180,000 from the sale of common stock and issued 144,000 shares of common stock.
Other Common Stock Issuances
Subsequent to June 30, 2017, the Company issued 3,713 shares of common stock for services rendered by third-party consultants. The shares were valued at $3,713.
Carter, Terry & Company
On July 6, 2017, the Company entered into a placement agent agreement with
two stockholdersCarter, Terry & Company (the “Agreement”) for the private placement of equity in the amount of
$10,000 each, which bear interest$3,000,000. Carter, Terry & Company will be the exclusive financial advisor to and representative of the Company for an initial period of 30 days, and then reverting to a non-exclusive financial advisor for the next twelve consecutive (12) months commencing on the date of the Agreement, with an option to extend the Agreement an additional six months; provided however, that either party may withdraw from the Agreement at any time upon written notice to the other party. Compensation to Carter, Terry & Company will include a one-time payment of $20,000 and a success fee for debt and/or equity raised on behalf of the Company at the rate of
12% per annum10% of the amount for any capital raised up to $5,000,000 and
mature March 31, 2018.8% of the amount for any capital raised over $5,000,000. This private placement has not commenced as of August 11, 2017. The final terms and conditions are still being finalized. NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2016
(Unaudited)
The Company has evaluated subsequent events occurring through the date that the financial statements were issued, for events requiring recording or disclosure.
An additional $1,873,000 in Units have been issued in the Private Placement, resulting in
Nexeon Medsystems Belgium, SPRL (“NMB”) Loan
Between July 1, 2017 and August 11, 2017, an additional
1,873,000 shares of restricted Common Stock being subscribed for in cash. At total of $2,159,446 in Units have$372,543 has been
issued inloaned to NMB pursuant to the
Private Placement asLoan Agreement and Promissory Note increasing the outstanding balance of the
time of this filing. Each Unit consisting of one share of restricted common stockloan to $1,886,904. On July 15, 2017, the Company executed the Second Amended and
one warrantRestated Promissory Note amending the existing terms to
purchase one additional share of restricted common stock, resulting in 2,159,446 shares of common stock and 2,159,446 warrants being issued.Subsequent to September 30, 2016, 25,000 shares of restricted Common Stockincrease the aggregate principal amount of the Company have been issued for research and development services renderedloan to third-party consultants.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following management discussion and analysis of our financial condition and results of operations should be read in conjunction with
(i) our unaudited interim consolidated financial statements and related notes
thereto which are included in Item 1 of this Quarterly Report on Form 10-Q,
and with(ii) the audited financial statements of the Company and NXDE, and related notes thereto, for the period ended December 31,
20152016 included in our Form 10 Registration Statement filed with the Securities and Exchange Commission
(“SEC”) on October 5,
2016.
2016, and (iii) our audited financial statements and related notes thereto included in our Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on March 29, 2017.
Nexeon
Medsystems, Inc.MedSystems Inc was incorporated on December 7,
2015.2015 in the State of Nevada. We are a development stage enterprise focusing on the development and commercialization of physician-driven medical device
innovationsinnovations. The Company’s consolidated operations include operations of the following wholly-owned subsidiaries: Nexeon Medsystems Europe, SARL (“Nexeon Europe”), Nexeon Medsystems Puerto Rico Operating Company Corporation (“NXPROC”) and Pulsus Medical LLC. Nexeon Europe is the holding company for
NXPROC and will be the
treatmentholding company for NMB upon the acquisition of
cardiovascular disease. We have never declared bankruptcy, have never been in receivership, and have never been involved in any legal action or proceedings. Since incorporation, we have not made any significant saleNMB during Q3 of
assets.Our operations to date have been limited to organizing and staffing our Company, in addition to limited2017. NXPROC is focused on research and development, activities, our mergersoftware development, and data analysis for the implantable neurotechnology device, NNS, being developed by NMB. As a result of the acquisition of NMB the Company will have accomplished an expansion of its medical device innovations to include an implantable neurotechnology device with NXDE, which includes its patent portfolio,European sales expected to begin in Q1 of 2018. Pulsus will continue to conduct the development and organizationcommercialization of the Company’s cardiovascular disease technology, a private placement offering.
Micro-Perforated Catheter Balloon Drug Delivery System.
As of
SeptemberJune 30,
2016,2017, we had an accumulated deficit of
$821,250.$4,108,260. Our net loss was
$436,943$1,023,505, and
$820,335$2,425,922 for the three and
ninesix months
ending Septemberended June 30,
2016, respectively, compared with a net loss of $915 for the period between December 7, 2015 (inception) and December 31, 2015. 2017, respectively.
We expect the Companythat we will continue to incur significant expenses and increasing operating losses in connection withrelating to our ongoing activities, particularly as we continue to invest in research andthe development and initiatecommercialization of medical devices, which will include the requisiteinitiation of clinical trials required to receive regulatory approval for our medical devices in both the United States and European Union. Additionally, if and when we initiate a launch of one or more of our products, we expect to incur substantial commercialization expenses related to the manufacture and distribution, as well as sales and marketing, of these products. Furthermore, upon the effectiveness of this registration statement,In addition, the Company will beis subject to additional costs associated with operating as a public company. Accordingly, we maywill need to obtain additional funding to continue operations. Such financing may not be available to us on acceptable terms, or at all. In the event we require additional capital and are unable to secure such funding, we could be forced to delay, reduce, or eliminate our research, development, and development activities, as well as any future commercialization activities.
For complete details regarding the business of
the Company, see “Item 1. Business” and “Item 2. Properties” included in our
products.Results of Operations
Our results of operations reflectAnnual Report on Form 10-K filed with the three and nine months ended September 30, 2016.
SEC on March 29, 2017.
To date,
the Company haswe have not generated any revenues and
hashave financed our operations with net proceeds from the private placement of our common stock
completed during the
threeyear ended December 31, 2016 (the “2016 Private Placement”) and
nine months ended September 30, 2016.our current private placement of our common stock (the “2017 Private Placement”). See Note 8 – Equity, Common Stock Issuances for details regarding the 2017 Private Placement. The Company’s ability to generate revenues will depend heavily on the successful completion of the requisite clinical trials and studies necessary to achieve approval to begin marketing our contemplated medical devices from the relevant regulatory authorities in the United States and
the European Union.
Results of Operations for the Three Months Ended June 30, 2017 and 2016
Research & Development Activities
Research and Development (“R&D”) expenses consist of the costs associated with our research and discovery efforts related to the design and development of our proposed medical devices. Primarily, R&D expenses are expected to include, but may not be limited to:
| •· | Facilities, laboratory supplies, equipment and related expenses; |
| •· | Employee-related expenses, which among other things includes salaries, benefits, travel, and stock-based compensation; |
| •· | External R&D activities incurred under arrangements with third-parties such as contract research organizations, manufacturing organizations, consultants, and possibly a scientific advisory board; and |
| •· | License fees and other costs associated with securing and protecting IP. |
For the three
and nine months ended
SeptemberJune 30,
2017 and 2016, the Company’s research and development expenses were
$46,869$480,484 and
$63,459$24,384, respectively, primarily reflecting consultants,
and materials and supplies.
It is expected that the Company’s R&D activities and related expenses will increase significantly in the future as we increase the scope and rate of such efforts and begin more expensive development activities, including clinical trials and similar studies as required by the relevant regulatory authorities in our targeted jurisdictions (i.e.
, the United States and European Union).
The successful completion of the requisite clinical trials and studies to bring our contemplated medical devices to the U.S. and E.U. markets is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the related efforts, nor can we make any assurances as to the period, if any, in which material net cash inflows from sales of our medical devices may commence. This uncertainty is due to the numerous risks and variables associated with developing and marketing medical devices, including, but not limited to:
| •· | The scope and degree of progress associated with our research and discovery efforts, as well as related development activities; |
| •· | The extent of expenses incurred in conjunction with the foregoing activities; |
| •· | The safety and efficacy of our medical device as compared to traditional treatment modalities; |
| •· | Our ability to articulate successfully the benefits of our medical device to medical professionals who will be responsible for introducing patients to our product; |
| •· | The results of anticipated clinical studies and trials as required by the relevant regulatory approval processes; |
| •· | The terms and timing of potential regulatory approvals, if any; and |
| •· | The expense of securing licenses to relevant IP and/or the expense of filing, prosecuting, defending, and enforcing patent claims and other IP rights that we either own outright or have licensed. |
Unfavorable developments with respect to any of the foregoing could mean significant changes in the cost and timing associated with our ability to bring our medical device to market and begin generating revenues.
General & Administrative Expenses
General and administrative expenses generally consist of salaries and similar costs associated with employees, including stock-based compensation expense. This category of expenses may also include facility costs and professional fees related to (i) legal and patent services; (ii) capital formation; (iii) investor and public relations services; and (iv) consulting and accounting services.
For the three
and nine months ended
SeptemberJune 30,
2017 and 2016, the Company’s general and administrative expenses were
$231,711$387,207 and
$361,477,$73,335, respectively.
It is expected that our general and administrative expenses will increase in the future as we expand our R&D activities in pursuit of regulatory approval for our contemplated medical
device.devices. Such a rise in expenses could result from:
| •· | Increased number of employees; |
| •· | Expanded infrastructure; |
| •· | Higher legal and compliance costs; |
| •· | Increased complexity of our financial statements that could precipitate a rise in our bookkeeping and accounting costs; |
| •· | Higher insurance premiums; or |
| •· | Increased need for investor and public relation services. |
Depreciation and Amortization
Depreciation and Amortization expenses consist of amortization of acquired intangibles and depreciation for office equipment and furniture and fixtures. Equipment is depreciated using the straight-line method over the estimated useful lives of the assets. During the three months ended June 30, 2017, the Company has not acquired any office equipment.
During the year ended December 31, 2016, the Company acquired $6,120,000 in patents pertaining to the Cardiovascular Disease Technology acquired in the Merger with NXDE and acquired $3,190,000 in patent licenses for the underlying patents referred to as the Siemens Patents. The amortization period for each of the individual patents depends on the legal terms for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. The patents and patent licenses are amortized using the straight-line method over the remaining time until expiration. The majority of these patents and patents underlying the license will expire between 2020 and 2036.
For the three months ended June 30, 2017 and 2016, the Company's depreciation expenses were $49 and $0, respectively. For the three months ended June 30, 2017 and 2016, the Company's amortization expenses were $258,665 and $155,884 respectively.
Results of Operations for the Six Months Ended June 30, 2017 and 2016
Research & Development Activities
Research and Development (“R&D”) expenses consist of the costs associated with our research and discovery efforts related to the design and development of our proposed medical devices. Primarily, R&D expenses are expected to include, but may not be limited to:
20· | Facilities, laboratory supplies, equipment and related expenses; |
Table of Contents· | Employee-related expenses, which among other things includes salaries, benefits, travel, and stock-based compensation; |
· | External R&D activities incurred under arrangements with third-parties such as contract research organizations, manufacturing organizations, consultants, and possibly a scientific advisory board; and |
· | License fees and other costs associated with securing and protecting IP. |
For the six months ended June 30, 2017 and 2016, the Company’s research and development expenses were $966,307 and $24,384, respectively, primarily reflecting consultants, materials and supplies.
It is expected that the Company’s R&D activities and related expenses will increase significantly in the future as we increase the scope and rate of such efforts and begin more expensive development activities, including clinical trials and similar studies as required by the relevant regulatory authorities in our targeted jurisdictions (i.e., the United States and European Union).
The successful completion of the requisite clinical trials and studies to bring our contemplated medical devices to the U.S. and E.U. markets is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the related efforts, nor can we make any assurances as to the period, if any, in which material net cash inflows from sales of our medical devices may commence. This uncertainty is due to the numerous risks and variables associated with developing and marketing medical devices, including, but not limited to:
· | The scope and degree of progress associated with our research and discovery efforts, as well as related development activities; |
· | The extent of expenses incurred in conjunction with the foregoing activities; |
· | The safety and efficacy of our medical device as compared to traditional treatment modalities; |
· | Our ability to articulate successfully the benefits of our medical device to medical professionals who will be responsible for introducing patients to our product; |
· | The results of anticipated clinical studies and trials as required by the relevant regulatory approval processes; |
· | The terms and timing of potential regulatory approvals, if any; and |
· | The expense of securing licenses to relevant IP and/or the expense of filing, prosecuting, defending, and enforcing patent claims and other IP rights that we either own outright or have licensed. |
Unfavorable developments with respect to any of the foregoing could mean significant changes in the cost and timing associated with our ability to bring our medical device to market and begin generating revenues.
General & Administrative Expenses
General and administrative expenses generally consist of salaries and similar costs associated with employees, including stock-based compensation expense. This category of expenses may also include facility costs and professional fees related to (i) legal and patent services; (ii) capital formation; (iii) investor and public relations services; and (iv) consulting and accounting services.
For the six months ended June 30, 2017 and 2016, the Company’s general and administrative expenses were $1,010,728 and $121,972, respectively.
It is expected that our general and administrative expenses will increase in the future as we expand our R&D activities in pursuit of regulatory approval for our contemplated medical devices. Such a rise in expenses could result from:
· | Increased number of employees; |
· | Expanded infrastructure; |
· | Higher legal and compliance costs; |
· | Increased complexity of our financial statements that could precipitate a rise in our bookkeeping and accounting costs; |
· | Higher insurance premiums; or |
· | Increased need for investor and public relation services. |
Depreciation and Amortization
Depreciation and Amortization expenses consist of amortization of acquired intangibles and depreciation for office equipment and furniture and fixtures. Equipment is depreciated using the straight-line method over the estimated useful lives of the assets. During the six months ended June 30, 2017, the Company has not acquired any office equipment.
During the year ended December 31, 2016, the Company acquired $6,120,000 in patents pertaining to the Cardiovascular Disease Technology acquired in the Merger with NXDE and acquired $3,190,000 in patent licenses for the underlying patents referred to as the Siemens Patents. The amortization period for each of the individual patents depends on the legal terms for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. The patents and patent licenses are amortized using the straight-line method over the remaining time until expiration. The majority of these patents and patents underlying the license will expire between 2020 and 2036.
For the six months ended June 30, 2017 and 2016, the Company's depreciation expenses were $98 and $0, respectively. For the six months ended June 30, 2017 and 2016, the Company's amortization expenses were $517,212 and $233,826, respectively.
Liquidity and Capital Resources
To date, the Company has not generated any revenues. We have financed our operations to date through a private placement (the “Private“2016 Private Placement”) of our common stock and from loans from the Company's largest shareholder, Rosellini Scientific LLC. AsScientific. The 2016 Private Placement was closed as of September 30,December 2, 2016 we have(the “Closing Date”). We received $286,446$2,860,946 in net cash proceeds from the issuance of Units, consisting2,840,946 units in the 2016 Private Placement and 20,000 units not yet issued at $1.00 per unit. Each unit consists of one share of restricted common stock and one warrant to purchase one additional share of restricted common stock,stock. The warrants have an exercise price of $2.00 per share and expire 36 months from the Closing Date of the 2016 Private Placement (seePart II, Item 2, “Recent SalesPlacement.
The Company is conducting a private placement of Unregistered Securities,” below, for more information)up to 2,000,000 shares of common stock to accredited investors only, pursuant to which it would receive up to $2,500,000 in proceeds (the “2017 Private Placement”). The shares of common stock are being offered at $1.25 per share. As of August 11, 2017, the Company has extended itsreceived $1,165,000 from the sale of common stock and issued 932,000 shares of common stock pursuant to the 2017 Private PlacementPlacement.
During the six months ended June 30, 2017, the Company issued an aggregate of 201,002 shares of common stock for certain legal, corporate structuring and research and development consulting services rendered by third-party consultants and issued 175,000 shares of common stock for research and development consulting to December 31, 2016 and increaseda contractor of NMB. The foregoing shares were valued at $376,002. The issuance of these securities was deemed to be exempt from the offering for up to $5,500,000 million, including the $286,446 already raised as noted above, providing for an additional $3,000,000 million in new capital that could be formed as partregistration requirements of the currentSecurities Act, by Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering. The Company reserves the right to conclude its Private Placement prior to December 31, 2016.
During the next 12 months, the Company may elect to
formissue additional debt or equity
capital following the completion of the current Private Placement either by private placement or a registered offering. There can be no assurance that the Company will be successful in completing any new debt and/or equity financing or receive assignments of grants.
In the event thatIf the Company is unable to secure needed financing or is unable to secure such financing on terms we find favorable, we may be forced to delay, limit, or terminate product development and/or future product commercialization.
Material changes
During 2016, Rosellini Scientific transferred approximately $751,000 of Federal research grants applicable to Pulsus’ products to the Company. These awards commence in the
financial conditionthird quarter of 2017. Pulsus had previously applied for Matching Funds from
December 31, 2015 include:the Kentucky SBIR Matching Funds Program funded by the Cabinet for Economic Development (“CED”), Office of Entrepreneurship. The contribution on January 2, 2016 of various securities withKentucky SBIR Matching Funds Program was a fair market value of $322,360 for 15,000,000 shares ofcompetitive qualification process and Pulsus did not receive the Company’s Common Stock.
On February 16, 2016,award. The Company and Pulsus have several additional NIH/SBIR Grant applications pending.
NMB currently has €1,496,000 (approximately US $1,615,000) in remaining funds from previously awarded grants and €1,203,000 (approximately US $1,299,000) in pending grant applications from the La Region Wallone in Belgium. The NMB grant revenues would be beneficial to the Company entered intosubject to completing the acquisition of NMB.
As of June 30, 2017, we had cash on hand of $210,668 and a
Merger Agreementworking capital surplus of $1,655,235. Based upon our budgeted burn rate, and along with
Nexeon MedSystems, Inc, a private Delaware corporation (“NXDE”), issuing 1,695,943 shares ofgrant funding and proceeds from the
Company’s par value $.001 common stock in exchange2017 Private Placement, we currently have operating capital for
all the outstanding preferred shares on NXDE and assuming $1,772,478 of the NXDE’s liabilities. As part of the Merger Agreement $821,482 of assumed stockholder loans and accrued interest was converted for 821,482 shares of the Company’s par value $0.001 common stock and $202,825 of assumed accrued interest was cancelled. In subsequent transactions, the Company converted $466,082 of assumed stockholder loans and accrued interest for 466,082 shares of the Company’s par value $0.001 common stock.approximately two month The Company initiated a private placement ofhas historically relied on equity or debt financings to finance its Common Stock effective February 1, 2016 and extended through December 31, 2016. The private placement is for the sale of 5,500,000 Units at $1.00 per unit, each Unit consisting of one share of restricted common stock and one warrant to purchase one additional share of restricted common stock. The warrants have an exercise price of $2.00 per share and expire 36 months from the expiration date of the Private Placement. As of the date of this filing, $2,159,446 Units had been subscribed for in cash.
ongoing operations.
Future Financing; Continued Operations
Until such time, if ever, as the Company can generate substantial revenues, we expect to finance our cash needs through a combination of future debt and equity financing, as well as expected non-dilutive research grant awards. Besides certain grant awards, as described above, the Company does not have any committed external source of funds. To the extent that the Company secures additional capital through the sale of convertible debt or equity securities, the ownership interest of our stockholders may be diluted, and the terms of any such securities we issue may include liquidation or other preferences that adversely affect the rights of common stockholders. In cases where the Company secures certain debt financing, if any such is available, we may become subject to certain covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures, or declaring dividends. In the event the Company is unable to secure needed financing, or is unable to secure such financing on terms we find favorable, we may be forced to delay, limit, or terminate product development and/or future commercialization of the same.
On July 6, 2017, the Company entered into a placement agent agreement with Carter, Terry & Company (the “Agreement”) for the private placement of equity in the amount of $3,000,000. Carter, Terry & Company will be the exclusive financial advisor to and representative of the Company for an initial period of 30 days, and then reverting to a non-exclusive financial advisor for the next twelve consecutive (12) months commencing on the date of the Agreement, with an option to extend the Agreement an additional six months; provided however, that either party may withdraw from the Agreement at any time upon written notice to the other party. Compensation to Carter, Terry & Company will include a one-time payment of $20,000 and a success fee for debt and/or equity raised on behalf of the Company at the rate of 10% of the amount for any capital raised up to $5,000,000 and 8% of the amount for any capital raised over $5,000,000. This private placement has not commenced as of August 11, 2017. The final terms and conditions are still being finalized.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support, or other benefits.
Critical Accounting Policies
Our management’s discussion and analysis of the Company’s financial condition and results of operations is based on our consolidated financial statements, which were prepared in conformity with generally accepted accounting principles. The preparation of our consolidated financial statements requires us to establish accounting policies and make estimates and assumptions that affect our reported amounts of assets and liabilities at the date of the consolidated financial statements. These consolidated financial statements include some estimates and assumptions that are based on informed judgments and estimates of management. We evaluate our policies and estimates on an on-going basis and discuss the development, selection and disclosure of critical accounting policies with the Board of Directors. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Our consolidated financial statements may differ based upon different estimates and assumptions.
The Company’s significant accounting policies are described in more detail in the notes to our consolidated financial statements, above. See
Note 5,4, Summary of Significant Accounting Policies which we believe set forth the most critical accounting policies to aid you in fully understanding and evaluating our financial condition and results of operations.
New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
| Quantitative and Qualitative Disclosures About Market Risk |
Our exposure to market risks is limited to changes in interest rates. We do not use derivative financial instruments as part of an overall strategy to manage market risk. We have no debt outstanding nor do we have any investment in debt instruments other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of
SeptemberJune 30,
2016,2017, our disclosure controls and procedures were not effective due to the size and nature of the existing business operation. Given the size of our current operation and existing personnel, the opportunity to implement internal control procedures that segregate accounting duties and responsibilities is limited. Until the organization can increase in size to warrant an increase in personnel, formal internal control procedure will not be implemented until they can be effectively executed and monitored. As a result of the size of the current organization, there will not be significant levels of supervision, review, independent directors nor formal audit committee.
Changes in Internal Control Over Financial Reporting
During the quarter ended
SeptemberJune 30,
2016,2017, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22PART II. | OTHER INFORMATION |
PART II. | OTHER INFORMATION |
As of the date of this report, the Company is not currently involved in any legal proceedings.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Set forth below is an enumeration of all securities issued by the Company since December 7, 2015 (inception) that have not been registered under the Securities Act.
On February 16, 2016,
Because of the
Company merged with Nexeon MedSystems, Inc. (“NXDE”) – a Delaware corporation. The Company, a Nevada corporation, was the surviving entity. The Company convertedMerger, 100% of NXDE’s issued and outstanding
common andshares of preferred stock
were converted into
an aggregate of 1,659,943 shares of the Company’s common stock.
This merger was unanimously approved The Company has been unsuccessful in contacting five NXDE preferred stock holders and issuing 77,725 shares of the Company’s stock. These shares are valued at a meeting$77,725 and are included in Equity instruments to be issued until these shares can be issued. The Company has issued 1,582,218 of NXDE’s common and preferred shareholders, allthe 1,659,943 shares of whom are “Accredited Investors” as defined by Rule 501 of SEC Regulation D. Based on these facts, we believe the issuance of CompanyCompany’s common stock exchanged pursuant to the NXDE common and preferred shareholders qualifies as a Section 4(2) exemption from registration.
Merger Agreement.
As part of the Merger,
Agreement with NXDE, Dr. Mark
C. Bates,
M.D, the Company’sour Chief Innovation Officer, and
Director,director, received
a totalan aggregate of 386,212 shares of the Company’s
Common Stockcommon stock upon conversion of the NXDE preferred shares, and converted $370,000 of debt owed to him by NXDE into 370,000 shares of
ourthe Company’s common stock and warrants to purchase
up to 370,000
additional shares of common stock at
a strikean exercise price of $2.00 per
share and withshare. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a
term of 36 months. In addition, Dr. Bates contributed $202,825 of accrued interest on his debt, which will be reflected as additional paid in capital to the Company during the first quarter of 2016. Dr. Bates, beginning May 1, 2016, will receivetransaction by an issuer not involving a
monthly consulting fee of $3,500.00. public offering.
As part of the Merger,
Agreement with NXDE, Mr. Ralph Ballard,
who was a co-founder, and
Directordirector of NXDE, received
a totalan aggregate of 123,759 shares of the Company’s
Common Stockcommon stock upon conversion of the NXDE preferred shares
which were divided as follows:
1,398 shares of common stock were issued to Mr. Ballard, personally, 7,691 shares of common stock were issued to a Custodial IRA FBO Ralph Ballard and 114,670 shares of common stock were issued to Ballard Investments. In addition,
as part of the Merger Agreement with NXDE, Mr. Ballard converted $451,482 of debt owed to him by NXDE
and receivedinto 451,482 shares of
ourthe Company’s common stock and warrants to purchase
up to 451,482 shares
of common stock at
a strikean exercise price of $2.00 per share with a term of 36 months, which shares and warrants were issued to Ballard Investments.
Mr. Ballard has the power to vote and dispose of the shares held by his IRA and Ballard Investments. In addition, three trusts representing three of Mr. Ballard’s children converted
a totalan aggregate of $431,821 of debt
and receivedinto 431,821 shares of
ourthe Company’s common stock and warrants to purchase
up to 431,821 shares of common stock at
a strikean exercise price of $2.00 per share with a term of 36 months, divided between and issued to the three trusts.
The three trusts are irrevocable trusts managed by an arms-length third party professional fiduciary. Mr. Ballard
disclaimsdenies any beneficial ownership in the common stock and warrants issued to the three trusts.
Subsequent The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a transaction by an issuer not involving a public offering.
After the Merger, three additional NXDE
Shareholdersshareholders converted
a totalan aggregate of $34,261 in debt for 34,261 shares of
ourthe Company’s common stock and warrants to purchase
up to 34,261 shares of
our common stock at
a strikean exercise price of $2.00 per share with a term of 36 months.
Subsequent The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a transaction by an issuer not involving a public offering.
After the Merger, Rosellini Scientific LLC exchanged a $175,000 promissory note with a term of five years bearing an annual interest rate of 8%, payable to Rosellini Scientific by Emeritus Clinical Solutions, Inc., a Delaware corporation, to the Company, in returnexchange for 175,000 shares of the Company’s common stock and three-year warrants to purchase up to 175,000 shares of common stock with a strikean exercise price of $2.00 per share withshare. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a
term of 36 months. transaction by an issuer not involving a public offering. This transaction was rescinded as of June 30, 2016 and the shares were returned. On December 15, 2015, the Company issued 500,000 shares of its common stock to its Chief Operating OfficerRonald Conquest, the Executive Vice President of Finance, and a director for the sum of $500 at the par value of $0.001. 212,000 shares of$500. Of the 500,000 shares, became212,000 vested upon issueissuance and the remaining 288,000 sharesbalance shall vest over a 36 month36-month period at the rate of 8,000 shares per month. Vesting begancommencing on January 1, 2016.The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a transaction by an issuer not involving a public offering. On January 1, 2016, the Company issued 252,000 shares of common stock to Christopher Miller, with a par value of $0.001,the Company’s Chief Financial Officer, for certain accounting and budget-related services rendered as well as serving as Interim CFO until such time as a permanent CFO iswas hired. The shares vest over a 36 month period at36-month period. The issuance of these securities was deemed to be exempt from the
rateregistration requirements of
7,000 shares per month.the Securities Act by Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On January 2, 2016, the Company issued 1,800,000 shares of its common stock to its then Vice President of Clinical Affairs, Dr. Elizabeth Rosellini DDS (the sister of our CEO), in returnexchange for 214 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation, and 60,000 shares of common stock of Nuviant Medical, Inc.,Nuviant. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act, by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a
Nevada corporation.transaction by an issuer not involving a public offering.
On January 2, 2016, the Company entered into a
Contribution Agreementcontribution agreement with Rosellini Scientific,
LLC – a company controlled by our
CEO,Chief Executive Officer, William Rosellini
– and its wholly-owned subsidiary, Belltower Associates,
LLC (collectively, Rosellini Scientific, LLC and Belltower Associates, LLC are hereinafter referredLLC. Pursuant to
as “RS”). Under thisthe contribution agreement, the Company issued 13,200,000 shares of
its common stock in return for, among other consideration:
| i.· | RS’s agreement to anRSBA’s assignment (subject to regulatory transfer approval) to the Company of Phase II, should it be granted, of the Federalfederal NIH/SBIR awarded Grant #1R44HL129870-01; |
| ii.· | 1,675,000 shares of common stock of Nuviant Medical, Inc..;Nuviant; |
| iii.· | 167 shares of common stock of MicroTransponder, Inc., a Delaware corporation; and |
| iv.· | 175 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation.Emeritus. |
These transactions were valued based on
The issuance of these securities was deemed to be exempt from the
valueregistration requirements of the
contributed assetsSecurities Act by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as
the Company’s shares had no ascertainable value as of the date of issuance of the shares. This was in accordance with ASC 845 Non-monetary transactions whereby non-monetary assets acquired in exchange for another non-monetary asset is the fair value of the asset surrendered or received, whichever is more clearly evident. In this case the value of the contributed assets were more ascertainable than the value of the shares issued.Prior to the contribution William Rosellini wasa transaction by an issuer not involving a related party of the Company, but became a related party on Januarypublic offering.
On December 2,
2016 through the issuance of the 13,200,000 shares and a controlling interest in the Company.Mr. Rosellini, the CEO of the Company, is the sole Member and Manager of Rosellini Scientific, LLC.
Pursuant to the Company’s Private Placement, between March and October 2016, the Company issued 2,159,446 shares of its common stock and warrants to purchase 2,159,446 shares of its common stock with a strike price of $2.00 per share and a term of 36 months, realizing aggregate cash proceeds of $2,159,446.
On April 1, 2016, pursuant to the 2016 Omnibus Incentive Plan,Private Placement, the Company received $2,860,946 in net cash proceeds from the issuance of 2,840,946 units. Each Unit consisted of one share of common stock and one warrant to purchase one additional share of common stock. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a transaction by an issuer not involving a public offering.
On March 17, 2017, the Company offered to current warrant holders who participated in the 2016 Private Placement, the opportunity to convert their warrants into common stock of the Company (the “Warrant Conversion Offer”). The offer terms included the exercise of 17 warrants for 17 shares of the Company’s common stock at an exercise price of $0.01 per share for every 100 warrants owned. The remaining 83 warrants per 100 warrants owned would be cancelled. The offer was on an all-or-nothing basis to convert all warrants held by each warrant holder. As of June 30, 2017, 593,598 warrants have been exercised for an aggregate of 593,598 shares of the Company’s common stock and 2,898,151 warrants were cancelled in connection with the warrant conversion offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act, by Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On April 1, 2017, the Company issued non-qualified options175,000 shares of the Company’s common stock in exchange for an increase of $175,000 in loan to purchase 252,000NMB. The shares were issued to AtidTek, LLC for certain project management and engineering services provided to NMB. The shares were valued at $175,000. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) thereof and/or Rule 506 of Regulation D thereunder, as a transaction by an issuer not involving a public offering.
As of June 30, 2017, the Company issued an aggregate of 372,502 shares of common stock
with an exercise price of $1.00 with a term of three years to each of the following: Dr. Mark Bates MD; Dr. Elizabeth Rosellini DDS; and Sheneka Rains (a consultant) for services rendered to the Company since inception as well as ongoing services to be provided from time to time. The options vest in monthly increments of 7,000, with a three-year term for each option beginning upon each date of vesting.Sheneka Rains is a full time employee of Rosellini Scientific LLC. From time to time Ms Rains provides certain management and engineering services in the role of a consultant to the Company. Currently Ms. Rains primary function is to plan, lead, and manage medical device programs, utilizing multi-disciplined product development teams. Projects span portions of the entire development life-cycle, from concept/feasibility, to detailed design, and on to manufacturing transition and launch, as well as post launch support. Her responsibility is to lead the overall program planning, staffing, project execution, cost control, risk management, primary client relationship duties and working under the oversight of the group’s Advisory Board for that particular project.
On June 1, 2016, pursuant to the 2016 Omnibus Incentive Plan, the Company issued Dr. Melanie McWade PhD Incentive Stock Options to purchase 252,000 shares of its common stock with an exercise price of $1.00. The options vest in monthly increments of 7,000 with a three-year term for each option beginning upon each date of vesting.
As of October 31, 2016, 174,500 shares of restricted Common Stock of the Company have been issued for certain legal, corporate structuring and research and development consulting services rendered by third-party consultants.
Unless otherwise stated, the The foregoing shares were valued at $372,502. The issuance of the abovethese securities werewas deemed to be exempt from the registration under the Securities Act in reliance upon Section 4(2)requirements of the Securities Act, or Regulation D promulgated there under, or Rule 701 promulgated underby Section 3(b) of the Securities Act4(a)(2) thereof, as transactionsa transaction by an issuer not involving anya public offering or contracts relatingoffering.
During the six months ended June 30, 2017, the Company conducted a private placement of up to
compensation as provided under Rule 701. 2,000,000 shares of common stock to accredited investors only, pursuant to which it would receive up to $2,500,000 in proceeds (the “2017 Private Placement”). The recipientsshares of common stock were offered at $1.25 per share. As of August 11, 2017, the Company has received $1,165,000 from the sale of common stock and issued 932,000 shares of common stock The issuance of these securities was deemed to be exempt from the registration requirements of the securities in the foregoing transactions represented their intentions to acquire the securities for investment only andSecurities Act by Section 4(a)(2) thereof, as a transaction by an issuer not withinvolving a view to the resale or distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had access, through their relationships with the Company, to information about Nexeon MedSystems Inc.
public offering. Item 3. | Defaults Upon Senior Securities |
Item 4. | Mine Safety Disclosures |
Not
Number | | Description |
| | |
3.01 (1) | | |
3.02 (1) | | |
3.03 (1) | | |
3.04 (1) | | |
3.05 (1) | | |
4.01 (2) | | |
4.02 (1) | | |
10.01 (3) | | |
10.02 (1) | | Contribution Agreement between the Company and Rosellini Scientific, LLC dated January 2, 2016 |
10.03 (1) | | Contribution Agreement between the Company and Elizabeth Rosellini dated January 2, 2016 |
10.04 (1) | | Executive Services Agreement between the Company and Ronald Conquest dated January 1, 2016 |
10.05 (1) | | Director Services Agreement between the Company and Dr. Mark Bates MD dated May 1, 2016 |
10.06 (1) | | |
14.01 (1) | | |
31.1 * | | |
31.2 * | | |
32.1 * | | |
101.INS* | | XBRL Instance Document** |
101.SCH* | | XBRL Extension Schema Document** |
101.CAL* | | XBRL Extension Calculation Linkbase Document** |
101.DEF* | | XBRL Extension Definition Linkbase Document** |
101.LAB* | | XBRL Extension Labels Linkbase Document** |
101.PRE* | | XBRL Extension Presentation Linkbase Document** |
__________________
_________________
* | Filed herewith |
(1) | Previously filed with Form 10 filed on July 6, 2016 |
(2) | Previously filed with Amendment No. 1 to the Form 10 on August 16, 2016. |
(3) | Previously filed with Amendment No. 2 to the Form 10 on September 9, 2016. |
** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Nexeon MedSystems Inc |
| | |
| | |
Dated: November 16, 2016August 11, 2017 | By: | /s/ William Rosellini |
| | (Principal Executive Officer) |
| |
| | |
Dated: November 16, 2016August 11, 2017 | By: | /s/ Christopher R. Miller |
| | Christopher R. Miller Interim
(Principal Financial and Accounting Officer) |
| | |