As filed with the Securities and Exchange Commission on November 8, 2018
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STEMCELLS,
MICROBOT MEDICAL INC.
(Exact name
(Exact Name of registrantRegistrant as specifiedSpecified in its charter)
Its Charter)
Delaware (State or | 2836 (Primary Standard Industrial | 94-3078125 (I.R.S. Employer |
25 Recreation Park Drive, Unit 108
Hingham, MA 02043
(781) 875-3605
(Address, Including Zip Code, and telephone number, including area code, Telephone Number, Including Area Code,
of Registrant's principal executive offices)
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IRIS BREST, ESQ.
STEMCELLS, INC.
3155 PORTER DRIVE
PALO ALTO, CA 94304
(650) 475-3100
(Name, address, including zip code,Registrant’s Principal Executive Offices)
Harel Gadot
President, Chief Executive Officer, Chairman
25 Recreation Park Drive, Unit 108
Hingham, MA 02043
(781) 875-3605
(Name, Address, Including Zip Code, and telephone number, including area code,Telephone Number, Including Area Code, of agentAgent for service)
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COPIES TO:
GEOFFREY B. DAVIS, ESQ.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
(617) 951-7050 (fax)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:Service)
Copies to:
Marc D. Mantell, Esq. and Popeo, P.C. | Stephen E. Fox, Esq. Ruskin Moscou Faltischek PC 1425 RXR Plaza 15thFloor, East Tower Uniondale, New York 11556 (516) 663-6600 | Steven Skolnick, Esq. Michael Lerner, Esq. Lowenstein Sandler LLP 1251 Avenue of the Americas New York, NY 10020 (212) 262-6700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement becomes effective.
registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box. /X/
☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form☐
Indicate by check mark whether the registrant is a post-effective amendment filedlarge accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”).
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company ☒ | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Rule 462(d)
underSection 7(a)(2)(B) of the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered(1) | Proposed Maximum Aggregate Offering Price(2)(3) | Amount of Registration Fee(3) | ||||||
| Common Stock, par value $0.01 per share | $ | 23,000,000 | $ | 2,787.60 | ||||
| Pre-funded warrants to purchase shares of common stock and common stock issuable upon exercise thereof | — | — | ||||||
| Underwriter warrants to purchase shares of common stock issuable upon exercise thereof(4) | $ | 1,437,500 | $ | 174.23 | ||||
| Total | $ | 24,437,500 | $ | 2,961.83 | ||||
| (1) | Pursuant to |
| (2) | The proposed maximum aggregate offering price of the common stock proposed to be sold in the offering will be reduced on a dollar-for-dollar basis based on the aggregate offering price of the pre-funded warrants offered and sold in the offering, and therefore the proposed aggregate maximum offering price of the common stock and pre-funded warrants (including the common stock issuable upon exercise of the pre-funded warrants), if any, is $23,000,000. |
| (3) | Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended. Includes the offering price of any additional securities that the underwriter has the option to purchase. |
| (4) | Represents warrants issuable to H.C. Wainwright & Co., LLC (the “Underwriter’s Warrants”) to purchase a number of shares of common stock equal to 5% of the number of shares of common stock (including the shares of common stock issued pursuant to the underwriter’s exercise of its over-allotment option and pre-funded warrants) being offered at an exercise price equal to 125% of the public offering price. Resales of the Underwriter’s Warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, are registered hereby. Resales of shares of common stock issuable upon exercise of the Underwriter’s Warrants are also being similarly registered on a delayed or continuous basis hereby. See “Underwriting.” |
The price per share will vary based on the volume-weighted average daily
price of the Company's common stock during the drawdown periods described inRegistrant hereby amends this registration statement.
(3) This representsstatement on such date or dates as may be necessary to delay its effective date until the maximum fair market value of shares sold to Sativum
Investments Limited under the common stock purchase agreement. The maximum
net proceeds the Company can receive is $30,000,000 less an aggregate cash
placement fee of 3% of net proceeds payable to its placement agents Pacific
Crest Securities, Inc. and Granite Financial Group, Inc.
(4) Issuable upon exercise of the warrants issued to Sativum Investments
Limited, Pacific Crest Securities, Inc. and Granite Financial Group, Inc.
(5) Estimated solely for the purpose of calculating theRegistrant shall file a further amendment that specifically states that this registration fee
pursuant to Rule 457(c)statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, basedas amended, or until the registration statement shall become effective on such date as the average
of the highSecurities and low prices as reported on the Nasdaq National Market on
May 18, 2001.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTIONExchange Commission, acting pursuant to said Section 8(a), MAY DETERMINE.
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THE INFORMATION IN THISmay determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
MAY 25, 2001
STEMCELLS, INC.
10,350,000 SHARES OF COMMON STOCK
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This prospectus relatesNOVEMBER 8, 2018
Shares of Common Stock
Pre-Funded Warrants to upPurchase Shares of Common Stock
We are offering ______ shares of our common stock.
We are also offering to 10,000,000certain purchasers whose purchase of shares of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to purchase, if any such purchaser so chooses, pre-funded warrants, in lieu of shares of common stock that maywould otherwise result in such purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock. The purchase price of each pre-funded warrant will be issued from timeequal to timethe price per share at our discretion pursuant to awhich shares of common stock purchase agreement, as further describedare sold to the public in this prospectus, with Sativum
Investments Limited, a British Virgin Islands corporation,offering, minus $0.01, and 350,000the exercise price of each pre-funded warrant will be $0.01 per share. This offering also relates to the shares of common stock issuable upon the exercise of any pre-funded warrants issued to Sativum, Pacific
Crest Securities, Inc.sold in this offering. The pre-funded warrants will be exercisable immediately and Granite Financial Group, Inc.may be exercised at any time until all of the pre-funded warrants are exercised in connection withfull. For each pre-funded warrant we sell, the
common stock purchase agreement. The total number of shares of common stock that
may be sold by Sativum, Pacific Crest and Granite pursuant to this prospectus
would constitute 48.2% of our issued and outstanding common stock as of May 10,
2001, the date of the common stock purchase agreement. However, we may not sell
pursuant to the common stock purchase agreement more than 3,922,606 shares of
common stock, which equals 19.9% of our issued and outstanding common stock as
of May 10, 2001, minus the shares underlying the warrants, unless and until we
receive the approval of our stockholders as required pursuant to the Nasdaq
National Market's issuer designation requirements.
We will receive the net sale price of any common stock that we sell to
Sativum pursuant to the common stock purchase agreement or that we issue upon
the exercise of the warrants by Sativum, Pacific Crest or Granite. Sativum,
Pacific Crest and Granite may resell those shares pursuant to this prospectus.
The price at which we will sell the shares to Sativum pursuant to the common
stock purchase agreementare offering will be equal to 94% of the average of the volume
weighted average price of our common stock during the twenty trading days
immediately following our request to draw down an investment by Sativum under
the common stock purchase agreement. The registration of shares of our common
stock issued pursuant to the common stock purchase agreement and upon the
exercise of the warrants that may be offered pursuant to this prospectus does
not necessarily mean that any of those shares will ultimately be offered and
sold.
Sativum is an "underwriter" within the meaning of the Securities Act of 1933
in connection with its sales.
decreased on a one-for-one basis.
Our common stock is listed on theThe Nasdaq NationalCapital Market under the symbol "STEM." The“MBOT.” On November 7, 2018, the last reported salessale price forof our common stock on theThe Nasdaq NationalCapital Market on May 24, 2001 was $3.60$4.64 per share. ------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS The public offering price per share and any pre-funded warrant will be determined between us and the underwriter at the time of pricing, and may be at a discount to the current market price. There is no established public trading market for the pre-funded warrants and the Underwriter’s Warrants, and we do not expect a market to develop. In addition, we do not intend to apply for a listing of the pre-funded warrants and the Underwriter’s Warrants on any national securities exchange or other nationally recognized trading system.
Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 7 of this prospectus and in the documents incorporated by reference into this prospectus for a discussion of risks that should be considered in connection with an investment in our securities.
| Per Share | Per Pre-Funded Warrant | Total | ||||||||||
| Public offering price | $ | $ | $ | |||||||||
| Underwriting discounts and commissions(1) | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ | |||||||||
| (1) | See “Underwriting” beginning on page 20 of this prospectus for a description of compensation and reimbursement of expenses payable to the underwriter. |
The offering is being underwritten on a firm commitment basis. We have granted the underwriter an option for a period of 30 days from the date of this prospectus to purchase up to an additionalshares of our common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any. If the underwriter exercises this option in full, the total underwriting discounts and commissions payable by us will be $, 2001.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Delivery of the shares of common stock and any pre-funded warrants to purchasers is expected on or about ______________, 2018, subject to certain customary closing conditions.
Sole Book-Running Manager
H.C. Wainwright & Co.
The date of this prospectus is ____________, 2018
TABLE OF CONTENTS
| Page | |
| PROSPECTUS SUMMARY | 1 |
| RISK FACTORS | 7 |
| SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | 11 |
| USE OF PROCEEDS | 12 |
| PRICE RANGE OF OUR COMMON STOCK | 13 |
| DIVIDEND POLICY | 14 |
| DILUTION | 15 |
| PRINCIPAL STOCKHOLDERS | 16 |
| DESCRIPTION OF CAPITAL STOCK | 17 |
| DESCRIPTION OF SECURITIES WE ARE OFFERING | 19 |
| UNDERWRITING | 20 |
| LEGAL MATTERS | 25 |
| EXPERTS | 25 |
| WHERE YOU CAN FIND ADDITIONAL INFORMATION | 25 |
| INCORPORATION OF CERTAIN INFORMATION BY REFERENCE | 25 |
| FINANCIAL STATEMENTS | F-1 |
We have not, and the underwriter has not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable, authorized free writing prospectus is current only as of its date, and any information in documents incorporated by reference is current only as of the date of the document incorporated by reference, regardless of its time of delivery or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: We have not, and the underwriter has not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION REGARDING OUR BUSINESS AND
THIS OFFERING. BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS AND RELATED
NOTES, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
STEMCELLS, INC.
We are engaged
This summary highlights information contained in other parts of this prospectus or information incorporated by reference into this prospectus from our filings with the Securities and Exchange Commission, or SEC, listed in the section of the prospectus entitled “Incorporation of Certain Information by Reference.” Because it is only a summary, it does not contain all of the information that you should consider before purchasing our securities in this offering and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere or incorporated by reference into this prospectus. You should read the entire prospectus, the registration statement of which this prospectus is a part, and the information incorporated by reference herein in their entirety, including the “Risk Factors” and our financial statements and the related notes incorporated by reference into this prospectus, before purchasing our securities in this offering. Unless the context requires otherwise, references in this prospectus to “Microbot,” “we,” “us” and “our” refer to Microbot Medical Inc. together with its wholly owned subsidiaries.
Overview
Our Company
Microbot is a pre-clinical medical device company specializing in the research, design and development effortsof next generation robotic endoluminal surgery devices targeting the minimally invasive surgery space. Microbot is primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes for patients.
Microbot’s current technological platforms, ViRobTM, TipCATTM and CardioSertTM, are comprised of proprietary innovative technologies. Using the ViRob platform, Microbot is currently developing its first product candidate: the Self Cleaning Shunt, or SCSTM, for the treatment of hydrocephalus and Normal Pressure Hydrocephalus, or NPH. Although the SCS utilizes one of our platforms, we are focused on the identification, isolationdevelopment of a Multi Generation Pipeline Portfolio utilizing all three of our proprietary technologies.
Microbot has a patent portfolio of 25 issued/allowed patents and expansion of stem cells15 patent applications pending worldwide.
Technological Platforms
ViRob
The ViRob is an autonomous crawling micro-robot which can be controlled remotely or within the body. Its miniature dimensions are expected to allow it to navigate and crawl in different natural spaces within the human body, including blood vessels, the digestive tract and the respiratory system as well as artificial spaces such as shunts, catheters, ports, etc. Its unique structure is expected to give it the ability to move in tight spaces and curved passages as well as the underlyingability to remain within the human body for prolonged time. The SCS product was developed using the ViRob technology.
CardioSert
On May 25, 2018, Microbot acquired a patent-protected technology from CardioSert Ltd., a privately-held medical device company based in Israel. The CardioSertTMtechnology contemplates a combination of a guidewire and microcatheter, technologies that are broadly used for developingsurgery within a tubular organ or structure such as a blood vessel or duct. The CardioSertTM technology features a unique guidewire delivery system with steering and stiffness control capabilities which when developed is expected to give the physician the ability to control the tip curvature, to adjust tip load to varying degrees of stiffness in a gradually continuous manner. The CardioSertTMtechnology was originally developed to support interventional cardiologists in crossing chronic total occlusions (CTO) during percutaneous coronary intervention (PCI) procedures and has the potential cell transplant therapies. Stem cells are
key cellsto be used in other spaces and applications, such as peripheral intervention, and neurosurgery. CardioSertTM was part of a technological incubator supported by the Israel Innovation Authorities (formerly known as the Office of the Chief Scientist, or OCS), and a device based on the technology has successfully completed pre-clinical testing.
TipCAT
The TipCAT is a disposable self-propelled locomotive device that is specially designed to advance in tubular anatomies. The TipCAT is a mechanism comprising a series of interconnected balloons at the device’s tip that provides the TipCAT with its forward locomotion capability. The device can self-propel within natural tubular lumens such as the blood vessels, respiratory and the urinary and GI tracts. A single channel of air/fluid supply sequentially inflates and deflates a series of balloons creating an inchworm like forward motion. The TipCAT maintains a standard working channel for treatments. Unlike standard access devices such as guidewires, catheters for vascular access and endoscopes, the TipCAT does not need to be pushed into the patient’s lumen using external pressure; rather, it will gently advance itself through the organ’s anatomy. As a result, the TipCAT is designed to be able to reach every part of the lumen under examination regardless of the topography, be less operator dependent, and greatly reduce the likelihood of damage to lumen structure. The TipCAT thus offers functionality features equivalent to modern tubular access devices, along with advantages associated with its physiologically adapted self-propelling mechanism, flexibility, and design.
Industry Overview
CSF Management
Hydrocephalus is a medical condition in which there is an abnormal accumulation of cerebrospinal fluid, or CSF, in the bodybrain that produce allcan cause increased intracranial pressure. It is estimated that one in every 500 babies are born with hydrocephalus, and over 1,000,000 people in the United States currently live with hydrocephalus.
Symptoms of hydrocephalus vary with age, disease progression and individual tolerance to the condition, but they can include convulsion, tunnel vision, mental disability or dementia-like symptoms and even death. NPH is a type of hydrocephalus that usually occurs in older adults. NPH is generally treated as distinct from other types of hydrocephalus because it develops slowly over time. In NPH, the drainage of CSF is blocked gradually and the excess fluid builds up slowly. This slow accumulation means that the fluid pressure may not be as high as in other types of hydrocephalus. It is estimated that more than 700,000 Americans have NPH, but less than 20% receive an appropriate diagnosis.
Hydrocephalus is most often treated by the surgical insertion of a shunt system. The shunt system diverts the flow of CSF from the brain’s ventricles (or the lumbar subarachnoid space) to another part of the functional mature cell types foundbody where the fluid can be more readily absorbed. Hydrocephalus shunt designs have changed little since their introduction in normal, healthy individuals. Our goalthe 1950s. A shunt system typically consists of three parts: the distal tubing or shunt (a flexible and sturdy plastic tube), the ventricular catheter (the proximal catheter), and a valve. The end of the shunt system with the proximal catheter is placed in the ventricles (within the CSF) and the distal catheter is placed in the site of the body where the CSF can be drained. A valve is located along the shunt to develop therapiesmaintain and regulate the rate of CSF flow. Current systems can be created from separate components or bought as complete units.
The treatment of hydrocephalus with existing shunt systems often includes complications. For example, approximately 50% of shunts used in the pediatric population fail within two years of placement and repeated neurosurgical operations are often required. Ventricular catheter blockage, or occlusion, is by far the most frequent event that will use
stemresults in shunt failure. Shunt occlusion occurs when there is a partial or complete blockage of the shunt that causes it to function intermittently or not at all. Such a shunt blockage can be caused by the accumulation of blood cells, tissue, or bacteria in any part of the shunt system. In the event of shunt occlusion, CSF begins to repopulateaccumulate in the brain or repair tissues,lumbar region again and the symptoms of untreated hydrocephalus can reappear until a shunt replacement surgery is performed.
Although several companies are active in the field of hydrocephalus treatment and the manufacturing of shunt systems and shunt components, Microbot believes that the majority of those companies are focusing on the development of valves. The development of a “smart shunt” – a shunt that could provide data to the physician on patient conditions and shunt function with sensor-based controls, or correct the high failure rate of existing shunt systems – is for the most part at an academic and conceptual level only. Reports of smart shunt technologies are typically focused on a subset of components with remaining factors left unspecified, such as thosehardware, control algorithms or power management. Microbot does not believe that a smart shunt that can prevent functional failures has been developed to date. Because of the limited innovation in this area, Microbot believes an opportunity exists to provide patients suffering from hydrocephalus or NPH with a more effective instrument for treating their condition.
An alternative, short-term solution to hydrocephalus is the implantation of an External Ventricular Drainage, or EVD, an implanted device used in neurosurgery for the short-term treatment and monitoring of elevated intracranial pressure when the normal flow of CSF inside the brain pancreas
or liver, that have been damaged or lostis obstructed. If after using an EVD, the underlying hydrocephalus does not eventually resolve, the EVD may then be converted to a cerebral shunt, a fully internalized, long-term treatment for hydrocephalus.
EVDs are also used in other instances when the normal flow of CSF inside the brain is obstructed, such as a result of disease or injury. Allhead trauma, intracerebral hemorrhage, brain tumors and infection. The EVD serves to divert excess fluids from the brain and allows for the monitoring of our programs are currently at the discovery or pre-clinical stage.
Many diseases,intracranial pressure. An EVD must be placed in a center with full neurosurgical capabilities because immediate neurosurgical intervention may be needed if a complication of EVD placement, such as Alzheimer's, Parkinson's and other degenerative
diseasesbleeding, is encountered. EVD is one of the brain or nervous system, involvemost commonly used and most important life-saving procedures in the failure of organs that
cannot be transplanted. Other diseases,neurologic ICU, with more than 200,000 neuro-intensive patients requiring EVD insertions annually.
Similar to shunts, EVDs are also prone to occlusion, mostly due to cellular debris, such as hepatitisblood clots and/or tissue fragments. Studies have shown that approximately 1-7% of EVDs require replacement secondary to occlusion. Current solutions for EVD occlusion include irrigation and diabetes, involve
organsreplacement, which we believe may be ineffective (in the case of irrigation) or costly (in the case of replacement) and in either case, put the patient at risk of unintended side effects. Microbot believes that with its portfolio of technologies, and its initial pre-clinical results, it is well-positioned to explore and expand its offerings as an alternative solution for EVD occlusion.
Minimally Invasive Endovascular Neurosurgery
Minimally Invasive Surgery, or MIS, refers to surgical procedures performed through tiny incisions instead of a single large opening. Because the incisions are small, patients tend to have quicker recovery times and experience less trauma than with conventional surgery. The global MIS market is expected to exceed $50 billion by 2019, with a CAGR of over 20% through 2023. MIS involves three major category of devices: surgical, monitoring and visualization, and endoscopy. The market for surgical devices, including ablation, electrosurgery and medical robotic systems, accounts for the largest share of revenue and is also expected to show the highest rate of growth.
As a subset of MIS, endovascular neurosurgery refers to surgeries performed by using devices that pass through the blood vessels to diagnose and treat neurological diseases and conditions such as stroke, arteriovenous malformations, aneurysms and atherosclerosis, rather than using open surgery.
The global neurovascular device market was valued at $1.62 billion in 2015 and is expected to reach a value of $2.92 billion by 2024, growing at a CAGR of 6.5%. Increases in the liver or pancreas thatgeriatric population and a rise in the number of patients suffering from neurovascular disorders, implementation of advanced technological platforms, and favorable reimbursement policies across established markets are expected to drive this market’s growth. On the other hand, the high cost of the endovascular devices and scarcity of neurovascular surgeons may impede such growth.
Stroke is a devastating condition, affecting 33 million people worldwide every year. In the United States alone, there are nearly 800,000 instances of stroke yearly, with about three in four being first-time strokes. This number is expected to increase to one million annually in 2021. Stroke is the fifth leading cause of death in the United States and is a leading cause of long-term disability, with related care costs estimated at $70 billion annually.
Mechanical thrombectomy has only been approved as a first-line treatment for ischemic stroke since 2016. Prior to such aproval, chemical thrombolysis using tissue plasminogen activators was the only first-line treatment available, limiting the therapeutic window for ischemic stroke patients to as little as 3-4 hours from the onset of symptoms. With mechanical thrombectomy, treatment can be transplanted, but therestarted within 6-24 hours of the time the patient was last known to be well. The US mechanical thrombectomy market is projected to grow at a very limited supplyCAGR of those organs available for transplant. We estimate based
on information available23.9% between 2014-2020, to us fromreach a value over $350 million.
According to the Alzheimer's Association, the Centers for
Disease Control, the Family Caregiver's Alliance and the Spinal Cord Injury
Information Network, that these conditions affect more than 18Brain Aneurysm Foundation, an estimated 6 million people in the United States have an unruptured brain aneurysm, or 1 in 50 people. The annual rate of rupture is approximately 8 – 10 per 100,000 people, or about 30,000 people in the United States annually. Embolic coiling is the established gold-standard treatment for aneurysms, and the most established product line in the neurovascular market – it is a strong but relatively stagnant market, projected to grow at a CAGR of 1.7% between 2014-2020, to reach a value of over $800 million. New devices that improve treatment of complex aneurysms, such as embolization-enabling stents, bifurcations stents, flow-diversion stents, liquid embolics and intrasaccular devices, are expected to boost market growth.
The major companies in the field of neurovascular devices include Stryker Corporation, Medtronic Plc., Cerenovus (Johnson & Johnson), Terumo Corporation and Penumbra, Inc. Neurovascular access devices are the means for delivering neurovascular treatment tools and devices from an opening in the femoral or radial arteries into the brain vasculature. Such access devices include sheaths, guidewires and microcatheters. Wires and catheters account for more than $150 billion annually18.6% of the overall neurovascular market.
Navigating and placing access devices through tortuous and highly delicate brain arteries is a complex procedure that requires high-level surgical skills with specialist training. In many procedures, surgeons exchange numerous access devices before reaching the target and applying the therapeutic agent or device, increasing the risk of adverse events and the exposure of both patient and physician to radiation. Adverse events, such as perforation of brain arteries or the release of embolies from a thrombus or atherosclerotic lesion can have devastating or even fatal results.
Microbot believes that with its portfolio of technologies specifically CardioSertTM and TipCAT, it is well-positioned to explore and develop such technologies as neurovascular access devices, with a focus on improving the ease and access and enhancing the safety of endovascular neurosurgery.
Our Product Pipeline
Self-Cleaning Shunt
The SCS device is designed to act as the ventricular catheter portion of a CSF shunt system that is used to relieve hydrocephalus and NPH. It is designed to work as an alternative to any ventricular catheter options currently on the market and to connect to all existing shunt system valves currently on the market; therefore, the successful commercialization of the SCS is not dependent on any single shunt system. Initially, Microbot expects the SCS device to be an aftermarket purchase that would be deployed to modify existing products by the end user. Microbot believes that the use of its SCS device will be able to reduce, and potentially eliminate, shunt occlusions, and by doing so, Microbot believes its SCS has the potential to become the gold standard ventricular shunt in health care
costs.
We believethe treatment of hydrocephalus and NPH.
The SCS device embeds an internal robotic cleaning mechanism in the lumen, or inside space, of the ventricular catheter which prevents cell accumulation and tissue ingrowth into the catheter. The SCS device consists of a silicone tube with a perforated titanium tip, which connects to a standard shunt valve at its distal end. The internal cleaning mechanism is embedded in the lumen of the titanium tip. Once activated, the cleaning mechanism keeps tissue from entering the catheter perforations while maintaining the CSF flow in the ventricular catheter.
The internal cleaning mechanism of the SCS device is activated by means of an induced magnetic field, which is currently designed to be externally generated by the patient through a user-friendly headset that our stem cell technologies, if successfully developed, may
providetransmits the basis for effective therapies for thesemagnetic field at a pre-determined frequency and other conditions. Our
aimoperating sequence protocol. The magnetic field that is created by the headset is then captured by a flexible coil and circuit board that is placed just under the patient’s scalp in the location where the valve is located. The circuit board assembly converts the magnetic field into the power necessary to return patients to productive livesactivate the cleaning mechanism within the proximal part of the ventricular catheter.
Microbot has completed the development of an SCS prototype and significantly reduceis currently completing the substantial health care costs often associated with these diseasessafety testing, general proof of concept testing and disorders. We have made significant progress toward developing stem cell
therapiesperformance testing for the nervous system by identifying and characterizing the human
central nervous system stem cell. We have also made significant advancesdevice, which Microbot began in our
search for the stem cells of the pancreas and the liver by identifying novel
markers on the surface of cells so they can be isolated and tested to determine
whether they are stem cells.
We have established our intellectual property position with respect to stem
cell therapies for each of these three areas--the central nervous system, the
pancreas and the liver--by patenting or seeking patent protection for our
discoveries and by entering into exclusive licensing arrangements. Our portfolio
of issued patents includes a method of culturing normal human neural stem cells
in our proprietary medium, and our published studies show that our cultured and
expanded cells give rise to all three major cell types of the central nervous
system.mid-2013. In addition, the Company recentlyMay 2018, Microbot announced the results of two pre-clinical studies assessing the SCS, anin-vitro study and a newsmall animal study. The in-vitro study, which was performed at Wayne State University by Dr. Carolyn Harris, supports the SCS’s potential as a viable technology for preventing occlusion in shunts used to treat hydrocephalus. The animal study designed to assess the safety profile of the SCS, which was performed by James Patterson McAllister, PhD, a Professor of Neurosurgery at Washington University School of Medicine in St. Louis, met the primary goal to determine the safety of the SCS device that showedaims to prevent obstruction in CSF catheters. Since the completion of these initial studies, Microbot has commenced a follow-up study to further evaluate the safety and to investigate the efficacy of the SCS. The follow-up study is also being conducted by leading hydrocephalus experts at Washington University and Wayne State University. The study will include a larger sample size compared to the initial studies and the primary and secondary endpoints will seek to validate the safety and efficacy of the SCS that will be activated in bothin-vitro (lab) andin-vivo (animal) models. Microbot plans to use the findings for initial regulatory submissions in the United States, Europe and other jurisdictions, although upon the completion of animal studies, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would improve the marketability of the product candidate. Microbot believes that the animal study results of its first generation SCS device should be available during the second half of 2019 and we expect to submit that data to the FDA either in a regulatory submission or as part of a pre-submission meeting request, depending on the final results of this ongoing studies. The proposed indication for use of the SCS device would be for the treatment of hydrocephalus as a component of a shunt system when draining or shunting of CSF is indicated. It continues to be possible that the FDA could require us to conduct a human brain stem cells canclinical study to support the safety and efficacy of the SCS and that such clinical data would need to be submitted as part of a 510(k) notification to authorize marketing of the medical device in the U.S.
Microbot may also conduct clinical trials for the SCS in other countries where such trials are necessary for Microbot to sell its SCS device in such country’s market, although it has no current plans to do so.
TipCAT
A TipCAT prototype was shown to self-propel and self-navigate in curved plastic pipes and curved ex-vivo colon. In addition, in its first feasibility study, the prototype device was tested in a live animal experiment and successfully isolatedself-propelled through segments of the animal’s colon, with no post-procedural damage. All tests were conducted at AMIT (Alfred Mann Institute of Technology at the Technion), prior to the licensing of TipCAT by Microbot.
Microbot is no longer pursuing the development of the TipCAT as a colonoscopy tool but is currently exploring the use of markers presentthe TipCAT for minimally invasive endovascular neurosurgical applications.
Risks Associated with Our Business and this Offering
Our business and our ability to implement our business strategy are subject to numerous risks, as more fully described in the section of this prospectus entitled “Risk Factors” and under similarly titled headings of the documents incorporated herein by reference. You should read these risks before you invest in our securities. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include:
| ● | We will need to raise significant additional capital to support our operations. | |
| ● | We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future, and our future profitability is uncertain. | |
| ● | Our product candidates must undergo rigorous clinical testing, such clinical testing may fail to demonstrate safety and efficacy and any of our product candidates could cause undesirable side effects, which would substantially delay or prevent regulatory approval or commercialization. | |
| ● | We are dependent on patents and proprietary technology. If we fail to adequately protect this intellectual property or if we otherwise do not have exclusivity for the marketing of our products, our ability to commercialize products could suffer. | |
| ● | If our competitors are able to develop and market products that are more effective, safer or more affordable than ours, or obtain marketing approval before we do, our commercial opportunities may be limited. | |
| ● | If you purchase our securities in this offering, you will incur immediate and substantial dilution. | |
| ● | We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively. |
Corporate and Other Information
We were incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate of Incorporation was restated on February 14, 1992 to change our name to CytoTherapeutics, Inc. On May 24, 2000, the Certificate of Incorporation as restated was further amended to change our name to StemCells, Inc. On November 28, 2016, C&RD Israel Ltd., a wholly-owned subsidiary of ours, completed its merger with and into Microbot Medical Ltd., or Microbot Israel, an Israeli corporation that then owned our assets and operated our current business, with Microbot Israel surviving as a wholly-owned subsidiary of ours. We refer to this transaction as the Merger. On November 28, 2016, in connection with the Merger, we changed our name from “StemCells, Inc.” to Microbot Medical Inc., and each outstanding share of Microbot Israel capital stock was converted into the right to receive shares of our common stock. In addition, all outstanding options to purchase the ordinary shares of Microbot Israel were assumed by us and converted into options to purchase shares of the common stock of Microbot Medical Inc. On November 29, 2016, our common stock began trading on the surface of freshly obtained brain cells. We
believe this isNasdaq Capital Market under the first reproducible process for isolating highly purified
populations of well-characterized normal human neural stem cells, andsymbol “MBOT”. Prior to the Merger, we have
applied forwere a composition of matter patent. We also have filed an improved
process patent forbiopharmaceutical company that operated in one segment, the growth and expansion of these purified normal human
neural cells.
Historical Note: We were formerly known as CytoTherapeutics and were
incorporated in Delaware in 1988. We currently have one subsidiary, StemCells
California, Inc., a California corporation we acquired in September 1997. Until
mid-1999, we had programs in a different technology, encapsulated cell therapy,
as well as stem cell programs. In 1999, we embarked on a major restructuring of
our research, and development operations and sold the encapsulated cell therapy
technology. We now focus exclusively on the discovery, development, and commercialization of our proprietary platform of stem cell therapeutics and related technologies. 2
RECENT DEVELOPMENTS
SALE OF MODEX SHARES
On April 30, 2001,Substantially all of the material assets relating to the stem cell business were sold on November 29, 2016.
In May 2016, we sold 103,577 shares in Modex Therapeutics, Ltd.,effected a Swiss biotherapeutics company, for a net price of 87.30 Swiss Francs per share,
which converts to approximately $50.30, for total proceeds of approximately
$5,200,000, net of commissions and fees. We no longer hold any shares of Modex.
See "Business--Corporate Collaboration."
COMMON STOCK PURCHASE AGREEMENT RELATING TO EQUITY LINE
On May 10, 2001, we entered into a common stock purchase agreement with
Sativum Investments Limited for the potential future issuance and sale of up to
$30,000,000 million1-for-12 reverse split of our common stock, subject to restrictions and other
obligations that are described throughout this prospectus. We, at our sole
discretion, may draw down on this facility, sometimes termed an equity line,
from time to time, and Sativum is obligated to purchase sharesin November 2016, we effected a 1-for-9 reverse split of our common stock atin connection with the Merger. In September 2018, we effected a 6% discount to a volume weighted average market price over the 20
trading days following the drawdown notice. Our volume weighted average market
price is calculated by adding the total dollars traded in every transaction in a
given trading day1-for-15 reverse split of our common stock. The share and dividing that number by the total number of shares traded
during that trading day. We are limited with respect to how often we can
exercise a drawdown and the amount of each drawdown. For more details on the
equity line, see "Common Stock Purchase Agreement" elsewhereper share information described in this prospectus.
------------------------
prospectus that occurred prior to these reverse splits have been adjusted to give retrospective effect to the reverse splits.
Our principal executive offices are located at 25 Recreation Park Drive, Unit 108, Hingham, MA 02043. The telephone number at our principal executive office is located at 3155 Porter Drive, Palo Alto,
California 94304 and our telephone number(781) 875-3605. Our website address is (650) 475-3100. We maintain a
website on the Internet at WWW.STEMCELLSINC.COM.www.microbotmedical.com. Our website and the information contained therein, ison, or that can be accessed through, our website will not abe deemed to be incorporated by reference in, and are not considered part of, this prospectus. 3
THE OFFERING
You should not rely on our website or any such information in making your decision whether to purchase our securities in this offering.
This prospectus contains references to our trademarks and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Implications of Being a Smaller Reporting Company
We are a “smaller reporting company” as defined in the Exchange Act and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies, including certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
The Offering
| Common stock | _______ shares. | |
| Pre-funded warrants offered | We are also offering to | |
| Option to purchase additional shares | The underwriter has an option to purchase up to | |
| Common stock to be outstanding after this offering | ______ shares | |
| Use of | We | |
| Risk factors | You should read the “Risk Factors” section of this prospectus for a discussion of certain of the factors to consider carefully before deciding to purchase any shares of our common stock or pre-funded warrants in this offering. | |
| National Securities Exchange Listing | Our common stock is listed on The Nasdaq |
The number of shares of our common stock to be outstanding after this offering is based on 2,945,676 shares of common stock outstanding as of June 30 2018, adjusted for the Company’s 1-for-15 reverse stock split on September 4, 2018, and excludes, as of September 30, 2018:
| ● | 412,478 shares of our common stock issuable upon the exercise of outstanding stock options, with exercise prices ranging from $0 to $19.35 and having a weighted-average exercise price of $11.70 per share; | |
| ● | 211,239 shares of our common stock reserved for future grant under our 2017 Equity Incentive Plan; | |
| ● | Approximately 7,531 shares of our common stock issuable upon the exercise of outstanding warrants, with exercise prices ranging from approximately $40.00 to $2,885 per share and having a weighted-average exercise price of $1,697 per share; and | |
| ● | An aggregate of 67,000 shares of our common stock issuable upon the conversion of 1,001 shares of our Series A Convertible Preferred Stock. |
Unless otherwise indicated, all information contained in this prospectus assumes no exercise by the underwriter of its over-allotment option, no sale of any pre-funded warrants in this offering and no exercise by the underwriter of its warrants to purchase _______ shares of our common stock at an exercise price per share which is equal to 125% of the public offering price per share of the shares of common stock offered in this offering.
| 6 |
Investing in our securities involves a high degree of risk. You should consider carefully the risks described below, together with all of the other information included or incorporated by reference in this prospectus, including the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, before deciding whether to purchase our securities in this offering. All of these risk factors are incorporated herein in their entirety. The risks described below and incorporated by reference are material risks currently known, expected or reasonably foreseeable by us. However, the risks described below or that we incorporate by reference are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, operating results, prospects or financial condition. If any of these risks actually materialize, our business, prospects, financial condition, and results of operations could be seriously harmed. This could cause the trading price of our common stock and the value of the warrants to decline, resulting in a loss of all or part of your investment.
Risks Relating to the Development and Commercialization of Microbot’s Product Candidates
Microbot’s business depends heavily on the success of its lead product candidate, the SCS. If Microbot is unable to commercialize the SCS or experiences significant delays in doing so, Microbot’s business will be materially harmed.
On January 27, 2017, Microbot entered into a research agreement with Washington University in St. Louis to develop the protocol for and to execute the necessary animal study to determine the effectiveness of the Microbot’s SCS prototype. The initial research was completed in 2017 with a comprehensive study expected to be completed in 2019. Upon the completion of animal studies, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would improve the marketability of the product candidate. After all necessary clinical and performance data supporting the safety and effectiveness of SCS are collected, Microbot must still obtain FDA clearance or approval to market the device and those regulatory processes can take several months to several years to be completed. Therefore, Microbot’s ability to generate product revenues will not occur for at least the next few years, if at all, and will depend heavily on the successful commercialization of SCS in the treatment of hydrocephalus. The success of commercializing SCS will depend on a number of factors, including the following:
| ● | ourability to obtain additional capital; | |
| ● | successful completion of animal studies and, if necessary, human clinical trials and the collection of sufficient data to demonstrate that the device is safe and effective for its intended use; | |
| ● | receipt of marketing approvals or clearances from the FDA and other applicable regulatory authorities; | |
| ● | establishing commercial manufacturing arrangements with one or more third parties; | |
| ● | obtaining and maintaining patent and trade secret protections; | |
| ● | protecting Microbot’s rights in its intellectual property portfolio; | |
| ● | establishing sales, marketing and distribution capabilities; | |
| ● | generating commercial sales of SCS, if and when approved, whether alone or in collaboration with other entities; | |
| ● | acceptance of SCS, if and when commercially launched, by the medical community, patients and third-party payors; | |
| ● | effectively competing with existing shunt and endoscope products on the market | |
| ● | maintaining quality and an acceptable safety profile of SCS following clearance or approval. |
If Microbot does not achieve one or more of these factors in a timely manner or at all, it could experience significant delays or an inability to successfully commercialize SCS, which would materially harm its business.
Microbot’s ability to expand our technology platforms for other uses, including endovascular neurosurgery other than for the treatment of hydrocephalus, may be limited.
After spending time working with experts in the field, Microbot has recently decided to no longer pursue the use of TipCAT in colonoscopy and has instead committed to focus on expanding all of its technology platforms for use in segments of the endovascular neurosurgery market, including traumatic brain injury, to capitalize on its existing competencies in hydrocephalus and the market’s needs. Microbot’s ability to expand its technology platforms for use in the endovascular neurosurgery market will be limited by its ability to develop and/or refine the necessary technology, obtain the necessary regulatory approvals for their use on humans, and the marketing of its products and otherwise obtaining market acceptance of its product in the United States and in other countries.
Microbot operates in a competitive industry and if its competitors have products that are marketed more effectively or develop products, treatments or procedures that are similar, more advanced, safer or more effective, its commercial opportunities will be reduced or eliminated, which would materially harm its business.
Our competitors that have developed or are developing endoluminal robotics surgical systems include Corindus Vascular Robotics, Inc., Hansen Medical, Inc. Auris Health, Inc., Stereotaxis, Inc., Medrobotics Corporation and others. Our competitors may develop products, treatments or procedures that directly compete with our products and potential products and which are similar, more advanced, safer or more effective than ours. The medical device industry is very competitive and subject to significant technological and practice changes. Microbot expects to face competition from many different sources with respect to the SCS and products that it is seeking to develop or commercialize with respect to its other product candidates in the future.
Competing against large established competitors with significant resources may make establishing a market for any products that it develops difficult which would have a material adverse effect on Microbot’s business. Microbot’s commercial opportunities could also be reduced or eliminated if its competitors develop and commercialize products, treatments or procedures quicker, that are safer, more effective, are more convenient or are less expensive than the SCS or any product that Microbot may develop. Many of Microbot’s potential competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than Microbot may have. Mergers and acquisitions in the medical device industry market may result in even more resources being concentrated among a smaller number of Microbot’s potential competitors.
At this time, Microbot does not know whether the FDA will require it to submit clinical data in support of its future marketing applications for its SCS product candidate, particularly in light of recent initiatives by the FDA to enhance and modernize its approach to medical device safety and innovation, which creates uncertainty for Microbot as well as the possibility of increased product development costs and time to market.
Microbot anticipates that its lead product candidate, the SCS, will be classified by the FDA as Class II and thus be eligible for marketing pursuant to a cleared 510(k) notification. However, there is no guarantee that the FDA will agree with the Company’s determination or that the FDA would accept the predicate device that Microbot intends to submit in its 510(k) notification in order to establish that its new device product is substantially equivalent to one or more predicate devices. The FDA also may request additional data in response to a 510(k) notification, or require Microbot to conduct further testing or compile more data in support of its 510(k) submission. Such additional data could include clinical data that must be derived from human clinical studies that are designed appropriately to address the potential questions from the FDA regarding a proposed product’s safety or effectiveness. It is unclear at this time whether and how various activities recently initiated or announced by the FDA to modernize the U.S. medical device regulatory system could affect the marketing pathway or timeline for our product candidate, given the timing and the undeveloped nature of some of the FDA’s new medical device safety and innovation initiatives. One of the recent initiatives was announced in April 2018, when the FDA Commissioner issued a statement with the release of a Medical Device Safety Action Plan. Among other key areas of the Medical Device Safety Action Plan, the Commissioner stated that the FDA is “exploring what further actions we can take to spur innovation towards technologies that can make devices and their use safer. For instance, our Breakthrough Device Program that helps address unmet medical needs can be used to facilitate patient access to innovative new devices that have important improvements to patient safety. We’re considering developing a similar program to support the development of safer devices that do not otherwise meet the Breakthrough Program criteria, but are clearly intended to be safer than currently available technologies.” This type of program may negatively affect our existing development plan for the SCS product candidate or it may benefit Microbot, but at this time those potential impacts from recent FDA medical device initiatives are unknown and uncertain. Similarly, the FDA Commissioner announced various agency goals under a Medical Innovation Access Plan in 2017.
If the FDA does require clinical data to be submitted as part of the SCS marketing submission, any type of clinical study performed in humans will require the investment of substantial expense, professional resources and time. In order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness of a medical device, a company must, among other things, apply for and obtain Institutional Review Board, or IRB, approval of the proposed investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA) to human health, the sponsor of the investigation must also submit and obtain FDA approval of an Investigational Device Exemption, or IDE, application. Microbot may not be able to obtain FDA and/or IRB approval to undertake clinical trials in the United States for any new devices Microbot intends to market in the United States in the future. Moreover, the timing of the commencement, continuation and completion of any future clinical trial may be subject to significant delays attributable to various causes, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria, failure of patients to complete the clinical trial, delay in or failure to obtain IRB approval to conduct a clinical trial at a prospective site, and shortages of supply in the investigational device.
Thus, the addition of one or more mandatory clinical trials to the development timeline for the SCS would significantly increase the costs associated with developing and commercializing the product and delay the timing of U.S. regulatory authorization. The current uncertainty regarding near-term medical device regulatory changes by the FDA could further affect our development plans for the SCS, depending on their nature, scope and applicability. Microbot and its business, financial condition and operating results could be materially and adversely affected as a result of any such costs, delays or uncertainty.
Risks Related to this Offering
You will experience immediate and substantial dilution if you purchase securities in this offering.
As of June 30, 2018, our net tangible book value was approximately $8.6 million, or $2.72 per share. Since the price per share of our common stock being offered in this offering is substantially higher than the net tangible book value per share of our common stock, you will suffer substantial dilution with respect to the net tangible book value of the common stock you purchase in this offering. Based on the assumed public offering price of $____ per share of common stock being sold in this offering (the last reported sale price of our common stock on The Nasdaq Capital Market on _________, 2018), and our net tangible book value per share as of June 30, 2018, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $_____ per share with respect to the net tangible book value of the common stock. See the section entitled “Dilution” for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering. The discussion above assumes (i) no sale of pre-funded warrants, which, if sold, would reduce the number of shares of common stock that we are offering on a one-for-one basis until such warrants are exercised and (ii) no exercise by the underwriter of the Underwriter’s Warrants.
There is no public market for the pre-funded warrants being offered in this offering.
There is no established public trading market for the pre-funded warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the pre-funded warrants on any securities exchange or nationally recognized trading system, including The Nasdaq Capital Market. Without an active market, the liquidity of the pre-funded warrants will be limited.
We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management may not apply the net proceeds from this offering in ways that ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities or as otherwise provided in our investment policies in effect from time to time. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
We are subject to a lawsuit that could adversely affect our business and our use of proceeds from this offering.
We are named as the defendant in a lawsuit, which we refer to as the Matter, captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, pending in the Supreme Court of the State of New York, County of New York (the “Court”) (Index No. 654581/2017). The complaint alleges, among other things, that we breached multiple representations and warranties contained in the Securities Purchase Agreement (the “SPA”) related to our June 8, 2017 equity financing, or the Financing, of which the Plaintiffs participated. The complaint seeks rescission of the SPA and return of the Plaintiffs’ $3,375,000 purchase price with respect to the Financing, and damages in an amount to be determined at trial, but alleged to exceed $1 million. On August 3, 2018, both Plaintiffs and Defendant filed motions for summary judgment. On September 27, 2018, the Court heard oral argument on the parties’ respective summary judgment motions. After oral argument, the Court denied Plaintiffs’ motion in its entirety from the bench. On September 28, 2018, the Court issued a decision granting our motion for summary judgment regarding Plaintiffs’ claim for monetary damages and denying our motion for summary judgment on Plaintiffs’ claim for rescission, finding that there were material questions of fact that would need to be resolved at trial. A trial date has not been set.
On April 4,
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize2018, we entered into a Tolling and Standstill Agreement with Empery Asset Master, Ltd., Empery Tax Efficient LP, Empery Tax Efficient II LP, and Hudson Bay Master Fund, Ltd., the other investors in the Financing, of whom we refer to as the Other Investors. Pursuant to the Tolling Agreement, among other things, (a) the Other Investors agree not to bring any claims against us arising out of the Matter, (b) the parties agree that if we reach an agreement to settle the claims asserted by the Sabby Funds in the above suit, we will provide the same settlement terms on a pro rata basis to the Other Investors, and the Other Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of each party as of the effective date of the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.
We believe that the claims are without merit and have been and intend to continue to defend the action vigorously. However, due to the early stage in the ligation process, management is unable to assess the likelihood of the claim and the amount of potential damages, if any, to be awarded. Accordingly, no assurance can be given that any adverse outcome would not be material to our consolidated financial dataposition. Additionally, in the event the court holds for the Plaintiffs in the Matter and we lose our appeals, we will likely be required to use the proceeds from this offering or available cash towards payment of damages to the Plaintiffs and the Other Investors, that we otherwise would have used to build our business and develop our technologies into commercial products. In such event, we would be required to raise additional capital sooner than we otherwise would, of which we can give no assurance of success.
There may be future sales of our securities or other dilution of our equity, which may adversely affect the market price of our common stock.
We are generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The market price of our common stock could decline as a result of sales of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, common stock after this offering or the perception that such sales could occur.
Holders of pre-funded warrants purchased in this offering will have no rights as common stockholders until such holders exercise their pre-funded warrants and acquire our common stock.
Until holders of pre-funded warrants acquire shares of our common stock upon exercise of the pre-funded warrants, holders of pre-funded warrants will have no rights with respect to the shares of our common stock underlying such pre-funded warrants. Upon exercise of the pre-funded warrants, the holders will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
Even if this offering is successful, we will need to raise additional capital in the future to continue operations, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We have had significant recurring losses from operations and we do not generate any cash from operations and must raise additional funds in order to continue operating our business. We expect to continue to fund our operations in the future primarily through equity and debt financings, grants from the Israel Innovation Authority and other sources. If additional capital is not available to us when needed or on acceptable terms, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely. As of June 30, 2018, we had cash and cash equivalents of approximately $8.0 million. We estimate that we will receive net proceeds of approximately $_____ million from the sale of the securities offered by us in this offering, based on the assumed public offering price of $_____ per share (the last reported sale price of our common stock on The Nasdaq Capital Market on _________, 2018) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the pre-funded warrants issued pursuant to this offering. In the event of a decrease in the net proceeds to us from this offering as a result of a decrease in the assumed public offering price or the number of shares offered by us, if the Plaintiffs succeed in the Matter or if our use of proceeds changes from our plans as described under “Use of Proceeds”, we may need to raise additional capital sooner than we anticipate. In addition, we cannot provide assurances that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Our ability to raise additional funds will depend, in part, on the success of our product development activities, any clinical trials, regulatory events, our ability to identify and enter into in-licensing or other strategic arrangements, and other events or conditions that may affect our value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control. There can be no assurances that sufficient funds will be available to us when required or on acceptable terms, if at all.
If we are unable to secure additional funds when needed or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of technology or assets, pursue an acquisition of our company by a third party at a price that may result in a loss on investment for our business. You should read this table together with "Management'sstockholders, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether. Any of these events could have a material adverse effect on our business, financial condition and results of operations. Moreover, if we are unable to obtain additional funds on a timely basis, there will be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and up to a total loss of investment by our stockholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” and our consolidated
financial statements and notes included elsewhere“Business” in this prospectus.
prospectus or the documents incorporated herein by reference. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | our estimates regarding anticipated operating losses, capital requirements and | |
| ● | our ability to raise additional capital when needed and to continue as a going concern; | |
| ● | our ability to manufacture, or otherwise secure the manufacture of, | |
| ● | our ability to find and develop applications for our technologies for other neurosurgical conditions besides hydrocephalus; | |
| ● | our clinical development and other research and development |
| ● | the safety and efficacy of our product candidates; | |
| ● | the anticipated regulatory pathways for our product candidates; | |
| ● | our ability to successfully complete preclinical and clinical development of, and obtain regulatory approval of our product candidates and commercialize any approved products on our expected timeframes or at all; | |
| ● | the content and timing of submissions to and decisions made by the U.S. Food and Drug Administration and other regulatory agencies; | |
| ● | our ability to leverage the experience of our management team; | |
| ● | our ability to attract and keep management and other key personnel; | |
| ● | the capacities and performance of our suppliers, manufacturers and other third parties over whom we have limited control; | |
| ● | the actions of our competitors and success of competing products that are or may become available; | |
| ● | our expectations with respect to future growth and investments in our infrastructure, and our ability to effectively manage any such growth; | |
| ● | the size and potential growth of the markets for any of our product candidates, and our ability to capture share in or impact the size of those markets; | |
| ● | the benefits of our product candidates; | |
| ● | market and industry trends; | |
| ● | the outcome of any litigation in which we or any of our officers or directors may be involved, including | |
| ● | the effects of government regulation and regulatory developments, and our ability and the ability of the third parties with whom we engage to comply with applicable regulatory requirements; | |
| ● | the accuracy of our estimates regarding future expenses, revenues, capital requirements and need for additional financing; | |
| ● | our expectations regarding future planned expenditures; | |
| ● | our ability to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act; | |
| ● | our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of any of our products and product candidates; | |
| ● | our expected use of the net proceeds from this offering; and | |
| ● | our ability to operate our business without infringing the intellectual property rights of others. |
In July 1999 we began restructuring the company to focus solely on our stem
cell technology. As part of this restructuring we terminated all activities
related to our former encapsulated cell technology and we relocated our
headquarters from Rhode Island to California. The results shown for the year
ended December 31, 1999 and 2000 includes $6,047,806 and $3,327,360,
respectively, in expenses related to the restructuring. For more information on
this restructuring see "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and notes included elsewhere in this prospectus.
During 2000, in connection with our investment in Modex Therapeutics, Ltd.,
a Swiss biotechnology company that completed an initial public offering on
June 23, 2000, we realized a $1,427,686 gain and recognized an increase in value
related to our remaining holdings of $16,356,334 as of December 31, 2000. During
the three months ended March 31, 2001, we realized a gain of $2,550,000 in
connection with further sales of Modex shares. After a subsequent sale on
April 30, 2001, we no longer hold any shares of Modex. For more information on
Modex, see "Recent Developments" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and notes included elsewhere in this prospectus.
5
RISK FACTORS
THE OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
MAKING AN INVESTMENT DECISION REGARDING STEMCELLS, INC.OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED IF ANY
OF THESE RISKS ACTUALLY OCCUR. CONSEQUENTIALLY, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, RESULTING IN THE LOSS OF ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR TECHNOLOGY IS AT AN EARLY STAGE OF DISCOVERY AND DEVELOPMENT AND WE MAY
FAIL TO DEVELOP ANY PRODUCTS.
Our stem cell technology is at the early pre-clinical stage for the brain
stem cell and at the discovery phase for the liver and pancreas stem cells and
has not yet led to the development of any proposed product. We may fail to
discover the stem cells we are seeking, to develop any products, to obtain
regulatory approvals, to enter clinical trials, or to commercialize any
products. Any product using stem cell technology may fail to (i) survive and
persist in the desired location, (ii) provide the intended therapeutic benefits,
(iii) properly integrate into existing tissue in the desired manner, or
(iv) achieve benefits therapeutically equal to or better than the standard of
treatment at the time of testing. In addition, any such product may cause
undesirable side effects. Results of early pre-clinical research may not be
indicative of the results that will be obtained in later stages of preclinical
or clinical research. If the appropriate regulatory authorities do not approve
our products, or if we fail to maintain regulatory compliance, we would have
limited ability to commercialize our products, and our business and results of
operations would be harmed. Furthermore, since stem cells are a new form of
therapy, the marketplace may not accept any products we may develop.
If we do succeed in developing products, we will face many potential
obstacles such as the need to obtain regulatory approvals, and to develop or
obtain manufacturing, marketing and distribution capabilities. In addition, we
will face substantial additional risks such as product liability.
WE HAVE PAYMENT OBLIGATIONS RESULTING FROM REAL PROPERTY OWNED OR LEASED BY
US IN RHODE ISLAND, WHICH ADVERSELY AFFECT OUR ABILITY TO FUND OUR STEM CELL
RESEARCH AND DEVELOPMENT.
Prior to our reorganization in 1999 and the resulting consolidation of all
functions in California, we carried out our former encapsulated cell therapy
programs at facilities in Lincoln, Rhode Island, where we also had our
administrative offices. Although we have vacated these facilities, we have
continuing obligations for lease payments and operating costs of approximately
$1,200,000 per year for our former science and administrative facility, which we
have leased through June 30, 2013, and debt service payments and operating costs
of approximately $1,000,000 per year for our former encapsulated cell therapy
pilot manufacturing facility. We are currently seeking to sublease the science
and administrative facility and to sell the pilot manufacturing facility, but
may not be able to do so. These continuing costs significantly reduce our cash
resources and adversely affect our ability to fund further development of our
stem cell technology. The lease for the science and administrative facility
contains a provision requiring occupancy of the premises and we currently may be
in violation of this provision. The landlord agreed not to take any action as a
result of this violation until November 19, 2000. We cannot give any assurance
that the landlord will extend any additional forebearance. If the landlord
decides to pursue its rights after any period of forebearance, we may be
required to pay the landlord the entire amount due for the rest of the lease
period. In March 2001, the landlord approved a sublease of part of the premises.
6
WE MAY NEED BUT FAIL TO OBTAIN PARTNERS TO SUPPORT OUR STEM CELL DEVELOPMENT
EFFORTS AND TO COMMERCIALIZE OUR TECHNOLOGY.
Equity and debt financings alone may not be sufficient to fund the cost of
developing our stem cell technologies and we may need to rely on our ability to
reach partnering arrangements to provide financial support for our stem cell
discovery and development efforts. In addition, in order to successfully develop
and commercialize our technology, we may need to enter into a wide variety of
arrangements with corporate sponsors, pharmaceutical companies, universities,
research groups and others. While we have engaged, and expect to continue to
engage, in discussions regarding such arrangements, we have not reached any
agreement regarding any such arrangement and we may fail to obtain any such
agreement on terms acceptable to us, if at all. Even if we enter into these
arrangements, we may not be able to satisfy our obligations under them or renew
or replace them after their original terms. Furthermore, these arrangements may
require us to grant certain rights to third parties, including exclusive
marketing rights to one or more products, or may have other terms that are
burdensome to us, and may involve the acquisition of our securities. If any of
our collaborators terminates its relationship with us or fails to perform its
obligations in a timely manner, the development or commercialization of our
technology and potential products may be adversely affected.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE MAY FAIL TO OBTAIN REVENUES OR
BECOME PROFITABLE.
We have incurred $130,229,646 in operating losses through March 31, 2001 and
expect to continue to incur substantial operating losses in the future in order
to conduct our research and development activities, and if those activities are
successful, to fund clinical trials and other expenses. These expenses include
the cost of acquiring technology, product testing, acquiring regulatory
approvals, establishing production, marketing, sales and distribution programs,
and administrative expenses. We have not earned any revenues from sales of any
product. All of our past revenues have been derived from, and any revenues we
may obtain for the foreseeable future are expected to be derived from,
cooperative agreements, research grants, investments and interest on invested
capital. We have no cooperative agreements and we have received only two
research grants for our stem cell technology, and we may not obtain any such
agreements or additional grants in the future, or receive any revenues from
them.
WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS TO PROTECT OUR INTELLECTUAL
PROPERTY FROM INFRINGEMENT. NEVERTHELESS, SUCH PROTECTION IS UNCERTAIN AND, IF
GAINED, MAY OFFER ONLY LIMITED PROTECTION. IF WE ARE UNABLE TO PROTECT OUR
PATENTS AND PROPRIETARY RIGHTS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATION WILL BE HARMED.
We own or license a number of patents or pending patent applications
covering human nerve stem cell cultures, central nervous system stem cell
cultures, neuroblast cultures, peripheral nervous system stem cell cultures, and
an animal model for liver failure. Patent protection for products such as those
we propose to develop is highly uncertain and involves complex and continually
evolving factual and legal questions. The governmental authorities that consider
patent applications can deny or significantly reduce the patent coverage
requested in an application before or after issuing the patent. Consequently, we
do not know whether any of our pending applications will result in the issuance
of patents, or if any existing or future patents will provide sufficient
protection or significant commercial advantage or if others will circumvent
these patents. Since patent applications are secret until patents are issued in
the United States or until the applications are published in foreign countries,
and since publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, we cannot be certain that we were the
first to make the inventions covered by each of our pending patent applications
or that we were the first to file patent applications for such inventions. Our
patents may not issue from our pending or future patent applications or, if
issued, may not be of commercial benefit to us, or may not afford us adequate
protection from competing products. In addition, third parties may challenge our
patents or governmental authorities may declare them invalid. In the event that
a third party has also filed a patent application relating to inventions claimed
in our patent applications,
7
we may have to participate in proceedings to determine priority of invention.
This could result in substantial uncertainties and cost for us, even if the
eventual outcome is favorable to us, and the outcome might not be favorable to
us. Even if a patent issues, a court could decide that the patent was issued
invalidly.
IF OTHERS ARE FIRST TO DISCOVER AND PATENT ANY STEM CELLS WE ARE SEEKING TO
DISCOVER, WE COULD BE BLOCKED FROM FURTHER WORK ON THAT STEM CELL, AND OUR
BUSINESS WOULD BE HARMED.
Because the first person or entity to discover and obtain a valid patent to
a particular stem or progenitor cell may effectively block all others, it will
be important to our development efforts for us or our collaborators to be the
first to discover any stem cell that we are seeking. Failure to be the first
could prevent us from commercializing all of our research and development
related to such stem cell and have a material adverse effect on us.
WE MAY NEED TO OBTAIN LICENSES TO THIRD PARTY PATENTS, AND MAY NOT BE ABLE
TO GET THEM.
A number of pharmaceutical, biotechnology and other companies, universities
and research institutions have filed patent applications or have received
patents relating to cell therapy, stem cells and other technologies potentially
relevant to or necessary for our expected products. We cannot predict which, if
any, of the applications will issue as patents. We are also aware of a number of
patent applications and patents claiming use of genetically modified cells to
treat disease, disorder or injury. We are aware of three patents issued to two
competitors claiming certain methods for enriching central nervous system stem
cells through gene modification of in vitro cultured cells. These patents were
issued or licensed to NeuralStem and Layton Bioscience. It is possible that
NeuralStem or Layton Bioscience will be able to produce commercially available
stem cell products before we can. These genetically modified cells may be
effective in treating defective, diseased or damaged central nervous system
tissue.
If third party patents or patent applications contain claims infringed by
our technology and these claims are valid, we may be unable to obtain licenses
to these patents at a reasonable cost, if at all, and may also be unable to
develop or obtain alternative technology. If we are unable to obtain such
licenses at a reasonable cost, our business could be significantly harmed. We
may have to to defend ourselves in court against allegations of infringement of
third party patents. Patent litigation is very expensive and could consume
substantial resources and create significant uncertainties. An adverse outcome
in such a suit could subject us to significant liabilities to third parties,
require disputed rights to be licensed from third parties, or require us to
cease using such technology.
Proprietary trade secrets and unpatented know-how are also important to our
research and development activities. We cannot be certain that others will not
independently develop the same or similar technologies on their own or gain
access to our trade secrets or disclose such technology, or that we will be able
to meaningfully protect our trade secrets and unpatented know-how and keep them
secret.
We require our employees, consultants, and significant scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of an employment or consulting relationship with us. These
agreements may, however, fail to provide meaningful protection or adequate
remedies for us in the event of unauthorized use, transfer or disclosure of such
information or inventions.
We have obtained rights from universities and research institutions to
technologies, processes and compounds that we believe may be important to the
development of our products. Licensors may cancel our licenses or convert them
to non-exclusive licenses if we fail to use the relevant technology or otherwise
breach these agreements. Loss of such licenses could expose us to the risks of
third party patents and/or technology. We can give no assurance that any of
these licenses will provide effective protection against our competitors.
8
WE COMPETE WITH COMPANIES THAT HAVE SIGNIFICANT ADVANTAGES OVER US.
The market for therapeutic products that address degenerative diseases is
large and competition is intense. We expect competition to increase. We believe
that our most significant competitors will be fully integrated pharmaceutical
companies and more established biotechnology companies, such as Biogen, Inc. and
Genzyme, an Elan Corporation. These companies already produce or are developing
treatments for degenerative diseases that are not stem-cell based, and they have
significantly greater capital resources and expertise in research and
development, manufacturing, testing, obtaining regulatory approvals and
marketing than we do. Many of these potential competitors have significant
products approved or in development that could be competitive with our potential
products, and also operate large, well-funded research and development programs.
In addition, we expect to compete with smaller companies such as NeuralStem and
Layton Bioscience and with universities and other research institutions who are
developing treatments for degenerative diseases that are stem-cell based.
Our competitors may succeed in developing technologies and products that are
more effective than those being developed by us, or that would render our
technology obsolete or non-competitive.
The relative speed with which we and our competitors can develop products,
complete the clinical testing and approval processes, and supply commercial
quantities of a product to market will affect our ability to gather market
acceptance and market share. With respect to clinical testing, competition may
delay progress by limiting the number of clinical investigators and patients
available to test our potential products.
DEVELOPMENT OF OUR TECHNOLOGY WILL BE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION.
Our research and development efforts, as well as any future clinical trials,
and the manufacturing and marketing of any products we may develop, will be
subject to extensive regulation by governmental authorities in the United States
and other countries. The process of obtaining U.S. Food and Drug Administration
and other necessary regulatory approvals is lengthy, expensive and uncertain. We
or our collaborators may fail to obtain the necessary approvals to commence or
continue clinical testing or to manufacture or market our potential products in
reasonable time frames, if at all. In addition, the United States Congress and
other legislative bodies may enact regulatory reforms or restrictions on the
development of new therapies that could adversely affect the regulatory
environment in which we operate or the development of any products we may
develop.
We base our research and development on the use of human stem and progenitor
cells obtained from fetal tissue. The federal and state governments and other
jurisdictions impose restrictions on the use of fetal tissue. These restrictions
change from time to time and may become more onerous. Additionally, we may not
be able to identify or develop reliable sources for the cells necessary for our
potential products--that is, sources that follow all state and federal
guidelines for cell procurement. Further, we may not be able to obtain such
cells in the quantity or quality sufficient to satisfy the commercial
requirements of our potential products. As a result we may be unable to develop
or produce our products in a profitable manner.
We may apply for status under the Orphan Drug Act for certain of our
therapies, in order to gain a seven year period of marketing exclusivity for
those therapies. The U.S. Congress in the past considered, and in the future
again may consider, legislation that would restrict the extent and duration of
the market exclusivity of an orphan drug. If enacted, such legislation could
prevent us from obtaining some or all of the benefits of the existing statute
even if we were to apply for and be granted orphan drug status with respect to a
potential product.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL.
We are highly dependent on the principal members of our management and
scientific staff and certain of our outside consultants, including the members
of our scientific advisory board, our chief
9
executive officer, each of our vice presidents and the directors of our neural
stem cell and liver stem cell programs. Although we have entered into employment
agreements with some of these individuals, they may terminate their agreements
at any time. We currently have outside consultants and interim personnel in key
management and scientific positions who are not permanent employees. Loss of
services of any of these individuals could have a material adverse effect on our
operations, because these individuals possess management experience or
specialized scientific skills which we do not otherwise have and which we may
not be able to replace. In addition, our operations are dependent upon our
ability to attract and retain additional qualified scientific and management
personnel. More generally, we may not be able to attract and retain the
personnel we need on acceptable terms given the competition for experienced
personnel among pharmaceutical, biotechnology and health care companies,
universities and research institutions. If we lose the services of these key
personnel or are unable to attract and retain additional qualified personnel, we
may have to delay, reduce or eliminate some or all of our research and
development programs.
HEALTHCARE INSURERS AND OTHER ORGANIZATIONS MAY NOT PAY FOR OUR PRODUCTS OR
MAY IMPOSE LIMITS ON REIMBURSEMENTS.
In both domestic and foreign markets, sales of potential products are likely
to depend in part upon the availability and amounts of reimbursement from third
party health care payor organizations, including government agencies, private
health care insurers and other health care payors such as health maintenance
organizations and self-insured employee plans. There is considerable pressure to
reduce the cost of therapeutic products, and government and other third party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products, and by
refusing, in some cases, to provide any coverage for uses of approved products
for disease indications for which the Food and Drug Administration has not
granted marketing approval. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. We can give no
assurance that reimbursement will be provided by such payors at all or without
substantial delay, or, if such reimbursement is provided, that the approved
reimbursement amounts will be sufficient to enable us to sell products we
develop on a profitable basis. Changes in reimbursement policy could also
adversely affect the willingness of pharmaceutical companies to collaborate with
us on the development of our stem cell technology.
In certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. We expect that there will
continue to be a number of Federal and state proposals to implement government
control over health care costs. Efforts at healthcare reform are likely to
continue in future legislative sessions. We do not know what legislative
proposals Federal or state governments will adopt or what actions Federal, state
or private payers for healthcare goods and services may take in response to
healthcare reform proposals or legislation. We cannot predict the effect
government control and other healthcare reforms may have on our business.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.
Our operating results have varied, and may in the future continue to vary,
significantly from quarter to quarter due to a variety of factors. These factors
include the receipt of one-time license or milestone payments under
collaborative agreements, costs associated with the winddown of our encapsulated
cell therapy programs, variation in the level of expenses related to our
research and development efforts, receipt of grants or other support for our
research and development efforts, and other factors. Quarterly comparisons of
our financial results are not necessarily meaningful and you should not rely
upon them as an indication of future performance.
10
RISKS RELATED TO THE EQUITY LINE AND OUR FINANCIAL CONDITION
WE HAVE LIMITED LIQUIDITY AND CAPITAL RESOURCES AND MAY NOT OBTAIN THE
SIGNIFICANT CAPITAL RESOURCES WE WILL NEED TO SUSTAIN OUR RESEARCH AND
DEVELOPMENT EFFORTS.
We have limited liquidity and capital resources and must obtain substantial
additional capital to support our research and development programs, for
acquisition of technology and intellectual property rights, and, to the extent
we decide to undertake these activities ourselves, for pre-clinical and clinical
testing of our anticipated products, pursuit of regulatory approvals,
establishment of production capabilities, establishment of marketing and sales
capabilities and distribution channels, and general administrative expenses. If
we do not obtain the necessary capital resources, we may have to delay, reduce
or eliminate some or all of our research and development programs or license our
technology or any potential products to third parties rather than
commercializing them ourselves.
If we are unable to draw down on the equity line or choose not to do so, we
intend to pursue our needed capital resources through equity and debt
financings, corporate alliances, grants and collaborative research arrangements.
We may fail to obtain the necessary capital resources from any such sources when
needed or on terms acceptable to us. Our ability to complete any such
arrangements successfully will depend upon market conditions and, more
specifically, on continued progress in our research and development efforts. We
are prohibited from entering into other stand-by equity based credit facilities
during the term of the common stock purchase agreement.
WE MAY BE UNABLE TO ACCESS ALL OR PART OF OUR EQUITY LINE.
If the trading volume and/or price of our common stock falls below
established levels, then we will not be able to draw down all of the
$30 million committed by Sativum pursuant to the equity line. In addition, we
may choose not to draw down some or all of the equity line. If we do not receive
stockholder approval to issue more than 3,922,606 shares under the equity line,
we also will not be able to access some of the funds in the equity line.
Furthermore, if our common stock is delisted from the Nasdaq National Market, or
if we experience a material adverse change to our business, operations,
properties or financial condition that is not cured within 30 days of the
change, the common stock purchase agreement will terminate. If we are unable to
meet the conditions to a drawdown in the common stock purchase agreement, we
will not be able to draw down any funds until those conditions are met. See
"Common Stock Purchase Agreement."
OUR COMMON STOCK PURCHASE AGREEMENT WITH SATIVUM AND THE ISSUANCE OF SHARES
TO SATIVUM THEREUNDER MAY CAUSE SIGNIFICANT DILUTION TO OUR STOCKHOLDERS OR
CONTRIBUTE TO A PERCEIVED RISK OF DILUTION.
The resale by Sativum of the common stock that it purchases from us will
increase the number of our publicly traded shares, which could depress the
market price of our common stock. Moreover, because all the shares we sell to
Sativum will be available for immediate resale, the prospect of our sales to
Sativum could depress the market price for our common stock. The shares of our
common stock issuable to Sativum under the equity line will be sold at a 6%
discount to the volume-weighted average daily price of our common stock during
the applicable drawdown period, and the proceeds paid to us upon each drawdown
will be net of an aggregate 3% placement fee to our placement agents, Pacific
Crest Securities Inc. and Granite Financial Group, Inc., so we will be required
to issue more shares than would be necessary at a market price to receive a
given amount of cash proceeds. If we require Sativum to purchase our common
stock at a time when our stock price is low, our existing common stockholders
will experience substantial dilution. The perceived risk of dilution may cause
some stockholders to sell their shares or encourage short sales, which may
contribute to a downward movement in the market price of our common stock.
11
IF OUR COMMON STOCK PRICE DROPS SIGNIFICANTLY, WE MAY BE DELISTED FROM THE
NASDAQ NATIONAL MARKET, WHICH COULD ELIMINATE THE TRADING MARKET FOR OUR COMMON
STOCK.
Our common stock is quoted on the Nasdaq National Market. In order to
continue to be included in the Nasdaq National Market, a company must meet
Nasdaq's maintenance criteria. The maintenance criteria most applicable to us
requires a minimum bid price of $1.00 per share, $4,000,000 in net tangible
assets and $5,000,000 market value of the public float. The public float
excludes shares held directly or indirectly by any of our officers, directors
and holders of 10% or more of our outstanding common stock. As of March 31,
2001, we had approximately $15.4 million of net tangible assets. As of May 24,
2001, the market value of our public float was approximately $71.6 million, and
the lowest bid price of our common stock since March 31, 2001 was $1.47. We
cannot assure you that we will continue to meet these listing criteria. The
issuance by us of shares of common stock to Sativum, or the subsequent resale by
Sativum of those shares, in either case at a discount to the market price, may
cause the trading price of our common stock to fall to a level below the Nasdaq
minimum bid price requirement. Failure to meet these maintenance criteria may
result in the delisting of our common stock from the Nasdaq National Market. If
our common stock is delisted and in order to have our common stock relisted on
the Nasdaq National Market, we would be required to meet the criteria for
initial listing, which are more stringent than the maintenance criteria.
Accordingly, we cannot assure you that if we were delisted we would be able to
have our common stock relisted on the Nasdaq National Market.
If our common stock were delisted from the Nasdaq National Market, we would
not be able to draw down any additional funds on the equity line, and we also
may be required to pay damages to other holders of our common stock under
agreements we previously entered into with them in connection with equity
financings. Finally, if our common stock were removed from listing on the Nasdaq
National Market, it might become more difficult for us to raise funds through
the sale of our common stock or securities convertible into our common stock.
12
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. You can identify these statements by forward-looking wordsterms such as "may," "will," "possibly," "expect,"
"anticipate," "project," "believe," "estimate"“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and "continue"similar expressions that convey uncertainty of future events or similar words.
You should readoutcomes. These forward-looking statements that containreflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. We discuss many of these words carefully because they
discuss our future expectations, contain projections of our future results of
operations or of our financial condition, or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there will be eventsrisks in greater detail in the future thatdocuments incorporated by reference herein, usually under the heading “Risk Factors.” Moreover, we haveoperate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not been ablepossible for our management to accurately predict all risks, nor can we assess the impact of all factors on our business or control and thatthe extent to which any factor, or combination of factors, may cause our actual results to differ materially from those discussed. For example,
contaminations atcontained in any forward-looking statements we may make. In addition, statements that “we believe” and similar statements reflect our facilities, changes inbeliefs and opinions on the pharmaceuticalrelevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or biotechnology
industries, competitionincomplete, and changes in government regulationsour statements should not be read to indicate that we have conducted an exhaustive inquiry into, or general
economic or market conditions couldreview of, all have significant effects on our results.potentially available relevant information. These factors should be considered carefully and readersstatements are inherently uncertain. Given these uncertainties, you should not place undue reliance on ourthese forward-looking statements. Before you invest in our common
stock, you
You should be awarecarefully read this prospectus, the documents that we incorporate by reference into this prospectus and the occurrence of the events described in the
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" sections and elsewheredocuments we reference in this prospectus could harm our business, operating results and financial condition. All forward
looking statements attributablehave filed as exhibits to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements and risk
factors contained throughout this prospectus.
INDUSTRY AND MARKET DATA
Inregistration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we rely on and referexpect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, and statistics
regarding disease occurrences, costs of treatment, biotechnology, and the market
sectors in which we may compete in the future. We obtained this information and
statistics from various third party sources, discussions with our consultants
and/future events or our own internal estimates. We believe that these sources and estimates
are reliable, but we have not independently verified them.
otherwise.
We estimate that we will not receive anynet proceeds of approximately $______ million (or approximately $______ million if the proceedsunderwriter’s over-allotment option is exercised in full) from the sale of the securities offered by us in this offering, based on the assumed public offering price of $______ per share (the last reported sale price of our common stock on The Nasdaq Capital Market on _____, 2018), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of any pre-funded warrants issued pursuant to this offering.
A $______ increase (decrease) in the assumed public offering price of $______ per share would increase (decrease) the expected net proceeds to us from this offering by approximately $______ million, assuming that the number of shares offered by Sativum underus, as set forth on the cover page of this prospectus. However, we will receiveprospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and excluding the proceeds, if any, from the exercise of the pre-funded warrants issued pursuant to this offering.
Similarly, a one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net saleproceeds to us by approximately $______ million, assuming the assumed public offering price of $______ per share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and excluding the proceeds, if any, common stock we sell to Sativum underfrom the termsexercise of the common stock purchase
agreement described inpre-funded warrants issued pursuant to this prospectus. offering.
We currently intend to use the net proceeds from any salesthis offering for attaining regulatory approvals for and commercializing our SCS device in the treatment of hydrocephalus and NPH; expanding and developing the applications of our existing ViRob and SCS IP and prototypes into other areas of CSF management, such as EVD, through regulatory submission; developing the CardioSertTM technology for neurovascular disorders from proof of concept to Sativum primarilypre-clinical studies; and for working capital and other general corporate purposes. See “Risk Factors” for a discussion of certain risks that may affect our intended use of the net proceeds from this offering, including with respect to the Matter. We may also use a portion of the net proceeds from this offering to in-license, acquire, or invest in complementary businesses, technologies, products or assets. However, we have no current commitments or obligations to do so.
We currently anticipate that our existing resources, together with the expected net proceeds from this offering, will be sufficient to fund our planned operations until December 2021.
Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot currently allocate specific percentages of the net proceeds that we may use for the purposes specified above, and we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including our ability to obtain additional financing, the progress, cost and results of our preclinical and clinical development programs and whether we are able to enter into future licensing or collaboration arrangements. We may find it necessary or advisable to use the net proceeds for other purposes, and our management will have significant flexibility andbroad discretion in applyingthe application of the net proceeds, received by us. and investors will be relying on our judgment regarding the application of the net proceeds from this offering.
Pending anythe use of the net proceeds from this offering, we willintend to invest the net proceeds of any common
stock sold to Sativum in short-term, investment grade,investment-grade, interest-bearing securities.
13
PRICE RANGE OF OUR COMMON STOCK
Our common stock is quotedlisted on theThe Nasdaq NationalCapital Market under the symbol "STEM."“MBOT.” On November 7, 2018, the closing price for our common stock as reported on The Nasdaq Capital Market was $4.64 per share. The following table sets forth the ranges of high and low salesales prices of our
common stock for the periods indicated on the Nasdaq National Market.
| High(1) | Low(1) | |||||||
| Year Ended December 31, 2017 | ||||||||
| First Quarter | $ | 149.10 | $ | 64.50 | ||||
| Second Quarter | $ | 90.00 | $ | 19.80 | ||||
| Third Quarter | $ | 23.25 | $ | 15.00 | ||||
| Fourth Quarter | $ | 22.80 | $ | 15.15 | ||||
| Year Ending December 31, 2018 | ||||||||
| First Quarter | $ | 17.25 | $ | 9.97 | ||||
| Second Quarter | $ | 15.30 | $ | 8.70 | ||||
| Third Quarter | $ | 11.55 | $ | 5.47 | ||||
| Fourth Quarter (through November 7, 2018) | $ | 8.30 | $ | 4.33 | ||||
| (1) | Adjusted for our one-for-fifteen reverse stock split on September 4, 2018. |
As of November 7, 2018, there were approximately 184 holders of record of our common stock, was $3.60 per share.
which excludes stockholders whose shares were held in nominee or street name by brokers. The actual number of common stockholders is greater than the number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. We do not, therefore, anticipate paying any cash
dividends within the next five years. Any future determination to pay dividends
will be at the discretion of our board of directors and will be dependent on
then existing conditions, including our financial stability, results of
operations, contractual restrictions, capital requirements, business prospects
and other factors our board of directors deems relevant.
14
CAPITALIZATION
The following table presents our consolidated capitalization as of
March 31, 2001. This table excludes:
- 3,962,087 shares of common stock issuable upon the exercise of outstanding
stock options and warrants as follows:
a) as of March 31, 2001, 3,164,618 shares of common stock issuable upon the
exercise of stock options pursuant to our stock option plans at a
weighted average price of $4.11 per share.
b) 622,469 shares of common stock issuable upon the exercise of warrants
held by Millennium Partners, at an exercise price of $0.01 per share.
c) 121,487 shares of common stock issuable upon the exercise of warrants
held by Millennium Partners at a weighted average exercise price of
$4.94 per share.
d) 100,000 shares of common stock issuable upon the exercise of warrants
granted to May Davis Group, Inc. and four of its affiliates at an
exercise price of $5.0375 per share.
e) 75,000 shares of common stock issuable upon the exercise of warrants at
$6.58 per share held by holders of our 6% cumulative convertible
preferred stock.
- Millennium Partners, L.P.'s option to purchase a maximum of 461,894 shares
of common stock for up to $2,000,000 on or prior to August 3, 2001 and
receive a warrant to purchase additional shares upon exercise of that
option.
- The right of the holders of our 6% cumulative convertible preferred stock
to convert their shares of preferred stock into shares of common stock at
$3.77 per share.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes thereto included elsewhere in this prospectus.
AS OF
MARCH 31,
2001
-------------
(UNAUDITED)
Stockholders' equity:
Convertible Preferred Stock, par value $0.01 per share,
1,000,000 shares authorized, 2,626 designated as 6%
Cumulative Convertible Preferred Stock, 1,500 shares
issued.................................................. $ 1,500,000
Common stock, par value $0.01 per share, 45,000,000 shares
authorized, 21,458,211 shares issued.................... 214,612
Additional paid-in-capital................................ 137,608,696
Accumulated deficit....................................... (130,229,646)
Accumulated other comprehensive income.................... 8,412,650
Deferred compensation..................................... (2,044,609)
-------------
Total stockholders' equity.............................. $ 15,461,703
=============
15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
to those statements and other financial information included elsewhere in this
prospectus.
The consolidated historical financial data presented below as of
December 31, 1996, 1997, 1998, 1999 and 2000 and for the years then ended are
derived from our consolidated financial statements, which have been audited by
Ernst & Young LLP, our independent auditors. The selected consolidated financial
data as of March 31, 2001, and for the three months ended March 31, 2000 and
2001 are derived from our unaudited financial statements. In the opinion of our
management, the unaudited financial statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations for such
periods. The selected consolidated financial data for the three months ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001 or any other future period.
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------------------------------- ---------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT INCOME PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue from collaborative agreements
and grants............................ $ 7,104 $ 10,617 $ 8,803 $ 5,022 $ 74 $ -- $ 100
Gain on sale of investment.............. -- -- -- -- 1,428 -- 2,550
-------- -------- -------- -------- -------- ------- --------
Research and development expenses....... 17,130 18,604 17,659 9,984 5,979 907 1,644
Acquired research and development....... -- 8,344 -- -- -- -- --
ECT wind-down and corporate relocation
expenses.............................. -- -- -- 6,048 3,327 234 --
Net income (loss)....................... $(13,759) $(18,114) $(12,628) $(15,709) $(11,125) $(1,794) $ 269
Basic and diluted net income (loss) per
share applicable to common
stockholders before cumulative effect
of a change in accounting principle... $ (0.89) $ (1.08) $ (0.69) $ (0.84) $ (0.57) $ (0.09) $ 0.01
Cumulative effect of a change in
accounting principle.................. -- -- -- -- (0.01) -- --
-------- -------- -------- -------- -------- ------- --------
Net income (loss) per share applicable
to common stockholders................ $ (0.89) $ (1.08) $ (0.69) $ (0.84) $ (0.58) $ (0.09) $ 0.01
Shares used in computing basic net
income (loss) per share............... 15,430 16,704 18,291 18,706 20,068 19,330 20,989
Shares used in computing diluted income
(loss) per share...................... 15,430 16,704 18,291 18,706 20,068 19,330 22,405
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- ---------
1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities..... $42,607 $29,050 $17,386 $ 4,760 $ 6,069 $ 4,499
Restricted investments............................... -- -- -- -- 16,356 8,413
Total assets......................................... 58,397 44,301 32,866 15,781 29,795 21,507
Long-term debt, including capitalized leases......... 8,223 4,108 3,762 2,937 2,605 2,521
Redeemable common stock.............................. 8,159 5,583 5,249 5,249 -- --
Stockholders' equity................................. 34,747 28,900 17,897 3,506 22,982 15,462
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 AND THE YEARS
ENDED DECEMBER 31, 2000, 1999 AND 1998 SHOULD BE READ IN CONJUNCTION WITH THE
"SELECTED CONSOLIDATED FINANCIAL DATA" SECTION OF THIS PROSPECTUS AND OUR
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FORWARD-LOOKING
STATEMENTS IN THIS DISCUSSION REGARDING OUR EXPECTATIONS REGARDING OUR FUTURE
PERFORMANCE, LIQUIDITY AND CAPITAL RESOURCES AND OTHER NON-HISTORICAL STATEMENTS
IN THIS DISCUSSION INVOLVE NUMEROUS RISKS AND UNCERTAINTIES AS DESCRIBED IN THE
"RISK FACTORS" SECTION OF THIS PROSPECTUS. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
OVERVIEW
Since our inception in 1988, we have been primarily engaged in research and
development of human therapeutic products. At the beginning of 1999, our
corporate headquarters, most of our employees, and the main focus of our
operations were primarily devoted to a different technology--encapsulated cell
therapy, or ECT. Since that time, we terminated a clinical trial of the ECT then
in progress, we wound down our other operations relating to the ECT, we
terminated the employment of those who worked on the ECT, we sold the ECT and we
relocated from Rhode Island to California. As a result of a restructuring in the
second half of 1999, our sole focus is now on our stem cell technology. The year
2000 was a year of transition, in which we completed the consolidation and
restructuring of our operations. Comparisons with results of operations prior to
2000 are correspondingly less meaningful than they may be under other
circumstances.
We were known as CytoTherapeutics, Inc., until May 23, 2000, when we changed
our name to StemCells, Inc.
We have not derived any revenues from the sale of any products, and we do not expect to receive revenues from product sales for at least several years. We
have not commercialized any product and in order to do so we must, among other
things, substantially increase our research and development expenditures as
research and product development efforts accelerate and clinical trials are
initiated. We have incurred annual operating losses since inception and expect
to incur substantial operating lossesanticipate paying cash dividends on common stock in the foreseeable future. As a result, we are
dependent upon external financing from equity and debt offerings and revenues
from collaborative research arrangements with corporate sponsors to finance our
operations. There are no such collaborative research arrangements at this time
and there can be no assurance that such or partnering revenues will be available
when needed or on terms acceptable to us.
Our results of operations have varied significantly from year to year and
quarter to quarter and may vary significantly in the future due to the
occurrence of material, nonrecurring events, including without limitation the
receipt of one-time, nonrecurring licensing payments, sale of marketable
securities and the initiation or termination of research collaborations, in
addition to the winding-down of terminated research and development programs
referred to above.
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
For the three months ended March 31, 2001, revenues from grants totaled
$100,000. There was no such revenue for the three months ended March 31, 2000.
On January 9, 2001, we sold 22,616 Modex shares for a net price of 182.00
Swiss francs per share, which converts to $112.76 per share, for total proceeds
and a realized gain of $2,550,000.
17
Research and development expenses totaled $1,644,257 for the three months
ended March 31, 2001, compared with $906,632 for the same period in 2000. The
increase of $737,625 or 81% from 2000 to 2001 was primarily attributable to the
related costs of an increase in personnel from 11 full time employees to 19 full
time employees to facilitate the expansion of our research programs and initiate
development and the cost of leasing a larger facility.
General and administrative expenses were $996,862 for the three months ended
March 31, 2001, compared with $657,714 for the same period in 2000. The increase
of $339,148, or 52%, from 2000 to 2001 was primarily attributable to the related
costs of an increase in personnel from 5 full time employees to 8 full time
employees, which included the hiring of senior management personnel as part of
the restructuring and consolidation of our operations in California and the cost
of leasing a larger facility.
Wind-down expenses related to our ECT research, our Rhode Island operations
and the transfer of our headquarters to California for the three months ended
March 31, 2000 were $234,386. In December 2000, we created a reserve of
$1,780,578 related to the carrying costs for the Rhode Island facilities through
2001. At March 31, 2001 the reserve was $1,381,946.
Interest income for the three months ended March 31, 2001 and 2000 was
$79,041 and $73,332 respectively. Interest expense of $64,460 for the three
months ended March 31, 2001 was booked against the wind-down reserve created in
2000 for the whole of 2001, as the expense was part of the bond payments related
to the Rhode Island facilities. Interest expense for the same period in 2000 was
$68,858. The decrease in 2001 was attributable to lower outstanding debt and
capital lease balances in 2001 compared to 2000.
Other income for the three months ended March 31, 2001 was $180,389, which
was a refund from the Citizens Bank of Rhode Island for an overpayment of
property taxes in prior years.
Net income for the three months ended March 31, 2001 was $268,541 or $0.01
per share, as compared to net loss of $1,794,258, or $0.09 per share, for the
comparable period in 2000. The decrease in net loss of $2,062,800 or 115% from
the same period in 2000 was primarily attributable to a realized gain of
$2,550,230 from the sale of a portion of our Modex investment, offset by an
increase in expenses attributable to an increase in personnel and the costs
associated with our move to a larger facility.
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Revenues totaled $74,000, $5,022,000 and $8,803,000 for the years ending
December 31, 2000, 1999 and 1998, respectively. Revenues for 2000 are from
Neurotech, S.A. in return for the assignment of our intellectual property assets
relating to Encapsulated Cell Technology. Revenues for 1999 and 1998 were from
collaborative agreements, earned primarily from a Development, Marketing and
License Agreement with AstraZeneca Group plc, which was signed in March 1995.
The decrease in revenues from 1998 to 1999 to 2000 resulted primarily from the
June 1999 termination of the Astra agreement.
Research and development expenses totaled $5,979,000 in 2000, as compared to
$9,984,000 in 1999 and $17,659,000 in 1998. The decrease of $4,005,000, or 40%,
from 1999 to 2000 and the decrease of $7,675,000 or 43%, from 1998 to 1999, was
primarily attributable to the wind-down of research activities relating to our
encapsulated cell technology, precipitated by termination of the Astra
Agreement.
General and administrative expenses were $3,361,000 in 2000, compared with
$4,927,000 in 1999 and $4,603,000 in 1998. The decrease of $1,566,000 or 32%,
from 1999 to 2000 was primarily attributable to the relocation of our
headquarters to a smaller facility as well as a reduction of personnel.
18
Wind-down expenses related to our ECT research, our Rhode Island operations
and the transfer of our headquarters to California totaled $3,327,000 and
$6,048,000 for 2000 and 1999, respectively. No such expenses were incurred in
1998. 1999 expenses included accruals of approximately $1.6 million for employee
severance costs, $1.9 million in losses and reserves for the write-down of
related patents and fixed assets, $1.2 million for our costs of settlement of a
1989 funding agreement with RIPSAT, $700,000 of estimated additional carrying
costs through June 30, 2000, and other related expenses totaling $760,000.
During 2000, we incurred approximately $290,000 of costs in excess of the
amounts accrued as of December 31, 1999 for the carrying costs, including lease
payments, property taxes and utilities, through the expected June 30, 2000
disposition of the Rhode Island facilities. During the third and fourth quarters
of 2000 we incurred additional $1.3 million in carrying costs for the Rhode
Island facilities, because we were unable to dispose of them as we had expected.
We have created a reserve of $1,780,000 related to the carrying costs for the
Rhode Island facilities through 2001. In February 2001, we subleased portions of
the facilities and are actively seeking to sublease, assign or sell our
remaining interests in the properties. However, there can be no assurance that
we will be able to dispose of these facilities in a reasonable time, if at all.
Interest income for the years ended December 31, 2000, 1999 and 1998 totaled
$303,000, $564,000 and $1,254,000, respectively. The average cash and investment
balances were $5,668,000, $10,663,000 and $21,795,000 in 2000, 1999 and 1998,
respectively. The decrease in interest income from 1998 to 1999 to 2000 was
attributable to lower average balances.
In 2000, interest expense was $273,000, compared to $335,000 in 1999 and
$472,000 in 1998. The decrease from 1998 to 1999 to 2000 was attributable to
lower outstanding debt and capital lease balances.
During the second quarter 2000 we realized a $1,427,000 gain in connection
with the sale of a portion of our investment in Modex. Modex
Therapeutics, Ltd., a Swiss biotechnology company that completed an initial
public offering on June 23, 2000, and is publicly traded on the Swiss Neue
Market exchange.
The net loss in 2000, 1999 and 1998 was $11,125,000, $15,709,000, and
$12,628,000, respectively. The loss per share was $0.58, $.84 and $.69 in 2000,
1999 and 1998, respectively. The decrease from 1999 to 2000 is primarily
attributable to the wind-down of our encapsulated cell technology research and
our Rhode Island operations and offset by the elimination of revenue from the
Astra Agreement. The increase from 1998 to 1999 is primarily attributable to the
elimination of revenue from the Astra Agreement, which was terminated in
June 1999, as well as expenses related to the wind-down of our encapsulated cell
technology research and our other Rhode Island operations, the transfer of our
corporate headquarters to California and an accrual for the our estimate of the
costs of settlement of a funding agreement with RIPSAT.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the sale of our
common and preferred stock, the issuance of long-term debt and capitalized lease
obligations, revenues from collaborative agreements, research grants, sales of
marketable securities and interest income.
We had unrestricted cash and cash equivalents totaling $4,499,000 at
March 31, 2001. Cash equivalents are invested in money market funds.
Our liquidity and capital resources were, in the past, significantly
affected by our relationships with corporate partners, which were related to our
former encapsulated cell technology, or ECT. These relationships are now
terminated, and we have not yet established corporate partnerships with respect
to our stem cell technology.
19
In the third quarter of 1999, we announced restructuring plans to wind down
operations relating to our ECT and to focus our resources on the research and
development of our platform of proprietary stem cell technologies. We terminated
approximately 68 full time employees and, in October 1999, relocated our
corporate headquarters to California. As part of our restructuring of operations
and relocation of corporate headquarters to California, we identified a
significant amount of excess fixed assets. In December 1999, we completed the
disposition of those excess fixed assets, from which we received more than
$746,000.
On December 30, 1999 we sold our ECT and assigned our intellectual property
assets in it to Neurotech S.A. for a payment of $3,000,000, royaltiesdividends on future
product sales, and a portion of certain Neurotech revenues from third parties.
In addition, we retained certain non-exclusive rights to use ECT in combination
with our proprietary stem cell technologies and in the field of vaccines for
prevention and treatment of infectious diseases.
In July 1999, as a result of our decision to close our Rhode Island
facilities, the Rhode Island Partnership for Science and Technology, or RIPSAT,
alleged that we were in default under a June, 1989 Funding Agreement, and
demanded payment of approximately $2.6 million. While we believe we were not in
default under the Funding Agreement, we deemed it best to resolve the dispute
without litigation and, on March 3, 2000, entered into a settlement agreement
with RIPSAT, the Rhode Island Industrial Recreational Building Authority, or
IRBA, and the Rhode Island Industrial Facilities Corporation, or RIIFC. We
agreed to pay RIPSAT $1,172,000 in full satisfaction of all of our obligations
to them under the Funding Agreement. At the same time, IRBA agreed to return to
us the full amount of our debt service reserve, comprising approximately
$610,000 of principal and interest, relating to the bonds we had with IRBA and
RIIFC. The $610,000 debt service reserve was transferred directly to RIPSAT,
leaving the remainder of approximately $562,000 to be paid by us. We made this
payment in March of 2000.
Our liquidity and capital resources could have also been affected by a claim
by Genentech, Inc., arising out of the their collaborative development and
licensing agreement with us relating to the development of products for the
treatment of Parkinson's disease; however, the claim was resolved with no effect
on our resources. On May 21, 1998, Genentech exercised its right to terminate
the Parkinson's collaboration and demanded that we redeem, for approximately
$3,100,000, certain shares of our redeemable Common Stock held by Genentech.
Genentech's claim was based on provisions in the agreement requiring us to
redeem, at the price of $10.01 per share, the shares representing the difference
between the funds invested by Genentech to acquire such stock and the amount
expended by us on the terminated program less an additional $1,000,000. In
March 2000, we entered into a Settlement Agreement with Genentech under which
Genentech released us from any obligation to redeem any shares of our Common
Stock held by Genentech, without cost to us. Accordingly, the $5.2 million of
redeemable common stock shown as a liability in our December 31, 1999 balance
sheet was transferred to equity in March, 2000 without any impact on our
liquidity and capital resources. We and Genentech also agreed that all
collaborations between us were terminated, and that neither of us had any rights
to the intellectual property of the other.
We continue to have outstanding obligations in regard to our former
facilities in Lincoln, Rhode Island, including lease payments and operating
costs of approximately $1,200,000 per year associated with our former research
laboratory and corporate headquarters building, and debt service payments and
operating costs of approximately $1,000,000 per year with respect to our pilot
manufacturing and cell processing facility. We are actively seeking to sublease,
assign or sell our interests in these facilities. Failure to do so within a
reasonable period of time will have a material adverse effect on our liquidity
and capital resources.
On April 13, 2000, we sold 1,500 shares of our 6% cumulative convertible
preferred stock plus warrants for a total of 75,000 shares of our common stock to two members ofwill depend on earnings, financial condition, debt covenants in place, and other business and economic factors affecting us at such time as our Board of Directors 20
for $1,500,000, on terms more favorable to us thanmay consider relevant. If we were able to obtain from
outside investors. The face value of the shares of preferred stock is
convertible at the option of the holders into common stock at $3.77 per share.
The holders of the preferred stock have liquidation rights equal to their
original investments plus accrued but unpaid dividends. Any unconverted
preferred stock will be converted to common stock, at the applicable conversion
price, on April 13, 2002. The warrants expire on April 13, 2005.
On August 3, 2000, we completed a $4 million common stock financing
transaction with Millennium Partners, LP, or the Fund, an investment fund with
more than a billion dollars in assets under management. We received $3 million
of the purchase price at the closing and received the remaining $1 million upon
effectiveness of a registration statement covering the shares purchased by the
Fund. The Fund purchaseddo not pay dividends, our common stock at $4.33may be less valuable because a return on a stockholders’ investment will only occur if our stock price appreciates.
Our historical net tangible book value as of June 30, 2018 was approximately $8.6 million, or $2.72 per share. The Fund is
entitled, pursuant to an adjustable warrant issued on August 3, 2000 in
connection with the saleshare of common stock tostock. Our historical net tangible book value is the Fund, to purchase additional
sharesamount of our total tangible assets less our liabilities. Historical net tangible book value per common stock for $0.01 per share. The adjustments to the adjustable
warrant are calculated on eight dates beginning six months from the closing and
every three months thereafter. The number of additional shares the Fund may be
entitled to on each date will be based onshare is our historical net tangible book value divided by the number of shares of common stock the Fund continuesoutstanding as of June 30, 2018.
After giving effect to hold on each date and the market price of our common stock
over a period prior to each date. We will have the right, under certain
circumstances, to cap the number of additional shares by purchasing part of the
entitlement from the Fund. On January 27, 2001, the Fund's adjustable warrant
became exercisable for 463,369 shares of our common stock, and the Fund
purchased all of those shares on March 30, 2001, for $4,634. On April 27, 2001,
the Fund's adjustable warrant became exercisable for an additional 622,469
shares of our common stock, and the warrant has not been exercised with respect
to those shares. The Fund also received on August 3, 2000 a warrant to purchase
up to 101,587 shares of common stock at $4.725 per share. This warrant is
callable by us at $7.875 per underlying share.
In addition, the Fund was granted an option for twelve months to purchase up
to $3 million of additional common stock. On August 23, 2000 the Fund exercised
$1,000,000 of its option to purchase additional common stock at $5.53 per share.
The Fund paid $750,000 of the purchase price in connection with the closing on
August 30, 2000, and paid the remaining $250,000 upon effectiveness of a
registration statement covering the shares owned by the Fund. At the closing on
August 30, 2000, we issued to the Fund an adjustable warrant similar to the one
issued on August 3, 2000. This adjustable warrant was canceled by agreement
between us and the Fund on November 1, 2000. The Fund also received on
August 23, 2000 a warrant to purchase up to 19,900 shares of common stock at
$6.03 per share. This warrant is callable by us at $10.05 per underlying share.
If Millennium exercises all or part of its remaining $2 million option, it will
receive additional callable warrants.
We have sold all of our shares of Modex Therapeutics, Ltd. Our final sale of
Modex shares occurred on April 30, 2001, when we realized a gain of $5,232,168
net of commissions and other fees. All other sales occurred prior to March 31,
2001. In addition, on April 30, 2001, we sold Modex our rights to future
payments under the agreement between us and Neurotech S.A. for $300,000.
On May 10, 2001, we entered into a common stock purchase agreement with
Sativum Investments Limited for the potential future issuance and sale of up to
$30,000,000 million of our common stock, subject to restrictions and other
obligations that are described throughout this prospectus. We, at our sole
discretion, may draw down on this facility, sometimes termed an equity line,
from time to time, and Sativum is obligated to purchase shares of our common
stock at a 6% discount to a volume weighted average market price over the 20
trading days following the drawdown notice. We are limited with respect to how
often we can exercise a drawdown and the amount of each drawdown. For more
details on the equity line, see "Common Stock Purchase Agreement" elsewhere in
this prospectus.
We have limited liquidity and capital resources and must obtain significant
additional capital resources in the future in order to sustain our product
development efforts. Substantial additional funds
21
will be required to support our research and development programs, for
acquisition of technologies and intellectual property rights, for preclinical
and clinical testing of our anticipated products, pursuit of regulatory
approvals, acquisition of capital equipment, laboratory and office facilities,
establishment of production capabilities and for general and administrative
expenses. Our ability to obtain additional capital will be substantially
dependent on our ability to obtain partnering support for our stem cell
technology. Failure to do so will have a material effect on our liquidity and
capital resources. Until our operations generate significant revenues from
product sales, we must rely on cash reserves and proceeds from equity and debt
offerings, proceeds from the transfer or sale of our intellectual property
rights, equipment, facilities or investments, government grants and funding from
collaborative arrangements, if obtainable, to fund our operations.
We may, but are not required to, draw down on the equity line from time to
time as necessary and possible under the terms of the facility. We also intend
to pursue opportunities to obtain additional financing in the future through
grants and collaborative research arrangements. We are permitted under the terms
of the equity line to pursue unrelated debt and equity financing other than
other stand-by equity based credit facilities. The source, timing and
availability of any future financing will depend principally upon market
conditions, interest rates and, more specifically, on our progress in our
exploratory, preclinical and future clinical development programs. Lack of
necessary funds may require us to delay, reduce or eliminate some or all of our
research and product development programs or to license our potential products
or technologies to third parties. Funding may not be available when needed--at
all, or on terms acceptable to us.
While our cash requirements may vary, as noted above, we currently expect
that our existing capital resources, including income earned on invested
capital, will be sufficient to fund our operations through December 2001. Our
cash requirements may vary, however, depending on numerous factors. If for some
reason we are not able to drawdown on the equity line, lack of necessary funds
may require us to delay, scale back or eliminate some or all of our research and
product development programs and/or our capital expenditures or to license our
potential products or technologies to third parties.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The
statement requires us to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in fair value of derivatives are either offset against the change in
fair value of assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. Because we had no derivative instruments and do not currently engage
in hedging activities, the adoption of Statement No. 133 on January 1, 2001 had
no impact on our results of operations or financial position.
22
BUSINESS
OVERVIEW
We are engaged in research aimed at the development of therapies that would
use stem and progenitor cells derived from fetal or adult sources to treat, and
possibly cure, human diseases and injuries such as Parkinson's disease,
hepatitis, diabetes, and spinal cord injuries. The body uses certain key cells
known as stem cells to produce all the functional mature cell types found in
normal organs of healthy individuals. Progenitor cells are cells that have
already developed from the stem cells, but can still produce one or more types
of mature cells within an organ.
Many diseases, such as Alzheimer's, Parkinson's, and other degenerative
diseases of the brain or nervous system, involve the failure of organs that
cannot be transplanted. Other diseases, such as hepatitis and diabetes, involve
organs such as the liver or pancreas that can be transplanted, but there is a
very limited supply of those organs available for transplant. We estimate, based
on information available to us from the Alzheimer's Association, the Centers for
Disease Control, the Family Caregiver's Alliance and the Spinal Cord Injury
Information Network, that these conditions affect more than 18 million people in
the United States and account for more than $150 billion annually in health care
costs.
Our proposed therapies are based on the transplanting of healthy human stem
and progenitor cells to repair or replace central nervous system, pancreas or
liver tissue that has been damaged or lost as a result of disease or injury,
potentially returning patients to productive lives and significantly reducing
health care costs. We believe that we have achieved significant progress in
research regarding stem cells of the central nervous system through the advances
we have made in the isolation, purification and transplantation of central
nervous system stem and progenitor cells. We have also made advances in our
research programs to discover the stem cells of the pancreas and of the liver.
We have established an intellectual property position in all three areas of our
stem cell research--the central nervous system, the pancreas and the liver--by
patenting our discoveries and entering into exclusive licensing arrangements. We
believe that, if successfully developed, our platform of stem cell technologies
may create the basis for therapies that would address a number of conditions
with significant unmet medical needs.
We were formerly known as CytoTherapeutics, Inc. Until mid-1990 we had
programs in a different technology, encapsulated cell therapy, as well as stem
cell programs. We now focus exclusively on the discovery, development and
commercialization of our proprietary platform of stem cell technologies.
Effective May 2000 we changed our name to StemCells, Inc.
CELL THERAPY BACKGROUND
ROLE OF CELLS IN HUMAN HEALTH AND TRADITIONAL THERAPIES
Cells maintain normal physiological function in healthy individuals by
secreting or metabolizing substances, such as sugars, amino acids,
neurotransmitters and hormones, which are essential to life. When cells are
damaged or destroyed, they no longer produce, metabolize or accurately regulate
those substances. Impaired cellular function is associated with the progressive
decline common to many degenerative diseases of the nervous system, such as
Parkinson's disease, Alzheimer's disease and amyotrophic lateral sclerosis.
Recent advances in medical science have identified cell loss or impaired
cellular function as leading causes of degenerative diseases. Biotechnology
advances have led to the identification of some of the specific substances or
proteins that are deficient. While administering these substances or proteins as
medication does overcome some of the limitations of traditional pharmaceuticals
such as lack of specificity, there is no existing technology that can deliver
them to the precise sites of action and in the appropriate physiological
quantities or for the duration required to cure the degenerative condition.
Cells, however, do this naturally. As a result, investigators have
23
considered replacing failing cells that are no longer producing the needed
substances or proteins by implanting stem or progenitor cells capable of
regenerating the cell that the degenerative condition has damaged or destroyed.
Where there has been irreversible tissue damage or organ failure,
transplantation of stem cells offers the possibility of generating new and
healthy tissue, thus potentially restoring the organ function and the patient's
health.
THE POTENTIAL OF OUR STEM CELL-BASED THERAPY
We believe that, if successfully developed, stem cell-based therapy--the use
of stem or progenitor cells to treat diseases--has the potential to provide a
broad therapeutic approach comparable in importance to traditional
pharmaceuticals and genetically engineered biologics.
Stem cells are rare and only available in limited supply, whether from the
patients themselves or from donors. Cells obtained from the same person who will
receive them may be abnormal if the patient is ill or the tissue is contaminated
with disease-causing cells. Also, the cells can often be obtained only through
significant surgical procedures. The challenge, therefore, has been three-fold:
1) to identify the stem cells;
2) to create techniques and processes that can be used to expand these rare
cells in sufficient quantities for effective transplants; and
3) to establish a bank of normal human stem or progenitor cells that can be
used for transplantation into individuals whose own cells are not suitable
because of disease or other reasons.
We have developed and demonstrated a process, based on a proprietary IN
VITRO culture system in chemically defined media, that reproducibly grows normal
human central nervous system, or CNS, stem and progenitor cells. We believe this
is the first reproducible process for growing normal human CNS stem cells. More
recently, we have discovered markers on the cell surface that identify the human
CNS stem cells. This allows us to purify them and eliminate other unwanted cell
types. Together, these discoveries enable us to select normal human CNS stem
cells and to expand them in culture to produce a large number of pure stem
cells.
Because these cells have not been genetically modified, they may be
especially suitable for transplantation and may provide a safer and more
effective alternative to therapies that are based on cells derived from cancer
cells, from cells modified by a cancer gene to make them grow, from an
unpurified mixture of many different cell types, or from animal derived cells.
We believe our proprietary stem cell technologies may enable therapies to
replace specific cells that have been damaged or destroyed, permitting the
restoration of function through the replacement of normal cells where this has
not been possible in the past. In our research, we have shown that stem cells of
the central nervous system transplanted into hosts are accepted, migrate, and
successfully specialize to produce mature neurons and glial cells.
More generally, because the stem cell is the pivotal cell that produces all
the functional mature cell types in an organ, we believe these cells, if
successfully identified and developed for transplantation, may serve as
platforms for five major areas of regenerative medicine and biotechnology:
- tissue repair and replacement,
- correction of genetic disorders,
- drug discovery and screening,
- gene discovery and use, and
24
- diagnostics.
We will be pursuing alliances in these key areas.
OUR PLATFORM OF STEM CELL TECHNOLOGIES
Stem cells have two defining characteristics:
- some of the cells developed from stem cells produce all the kinds of
mature cells making up the particular organ; and
- they "self renew"--that is, other cells developed from stem cells are
themselves new stem cells, thus permitting the process to continue again
and again.
Stem cells are known to exist for many systems of the human body, including
the blood and immune system, the central and peripheral nervous systems
(including the brain), and the liver, pancreas endocrine, and the skin systems.
These cells are responsible for organ regeneration during normal cell
replacement and, to a more or less limited extent, after injury. We believe that
further research and development will allow stem cells to be cultivated and
administered in ways that enhance their natural function, so as to form the
basis of therapies that will replace specific subsets of cells that have been
damaged or lost through disease, injury or genetic defect.
We also believe that the person or entity that first identifies and isolates
a stem cell and defines methods to culture any of the finite number of different
types of human stem cells will be able to obtain patent protection for the
methods and the composition, making the commercial development of stem cell
treatment and possible cure of currently intractable diseases financially
feasible.
Our strategy is to be the first to identify, isolate and patent multiple
types of human stem and progenitor cells with commercial importance. Our
portfolio of issued patents includes a method of culturing normal human central
nervous system stem and progenitor cells in our proprietary chemically defined
medium, and our published studies show that these cultured and expanded cells
give rise to all three major cell types of the central nervous system. Also, a
separate study sponsored by us using these cultured stem and progenitor cells
showed that the cells are accepted, migrate, and successfully specialize to
produce neurons and glial cells.
More recently, we announced the results of a new study that showed that
human central nervous system stem cells can be successfully isolated by markers
present on the surface of freshly obtained brain cells. We believe this is the
first reproducible process for isolating highly purified populations of
well-characterized normal human central nervous system stem cells, and have
applied for a composition of matter patent. Because the cells are highly
purified and have not been genetically modified, they may be especially suitable
for transplantation and may provide a safer and more effective alternative than
therapies that are based on cells derived from cancer cells, or from cells
modified by a cancer gene to make them grow, or from an unpurified mixture of
many different cell types or cells derived from animals. We have also filed an
improved process patent for the growth and expansion of these purified normal
human central nervous system cells.
Neurological disorders such as Parkinson's disease, epilepsy, Alzheimer's
disease, and the side effects of stroke, affect a significant portion of the
U.S. population and there currently are no effective long-term therapies for
them. We believe that therapies based on our process for identifying, isolating
and culturing neural stem and progenitor cells may be useful in treating such
diseases. We are continuing our research into, and have initiated the
development of, human central nervous system stem and progenitor cell-based
therapies for these diseases.
We continue to advance our research programs to discover the islet stem cell
in the human pancreas and the liver stem cell. Islet cells are the cells that
produce insulin, so islet stem cells may be useful in the treatment of Type 1
diabetes and those cases of Type 2 diabetes where insulin secretion is
25
defective. Liver stem cells may be useful in the treatment of diseases such as
hepatitis, cirrhosis of the liver and liver cancer.
EXPECTED ADVANTAGES OF OUR STEM CELL TECHNOLOGY
NO OTHER TREATMENT
To the best of our knowledge, no one has developed an FDA-approved method
for replacing lost or damaged tissues from the human nervous system. Replacement
of tissues in other areas of the human body is limited to those few sites, such
as bone marrow or peripheral blood cell transplants, where transplantation of
the patient's own cells is now feasible. In a few additional areas, including
the liver, transplantation of donor organs is now used, but is limited by the
scarcity of organs available through donation. We believe that our stem cell
technologies have the potential to reestablish function in at least some of the
patients who have suffered the losses referred to above.
REPLACED CELLS PROVIDE NORMAL FUNCTION
Because stem cells can duplicate themselves, or self-renew, and specialize
into the multiple kinds of cells that are commonly lost in various diseases,
transplanted stem cells may be able to migrate limited distances to the proper
location within the body, to expand and specialize and to replace damaged or
defective cells, facilitating the return to proper function. We believe that
such replacement of damaged or defective cells by functional cells is unlikely
to be achieved with any other treatment.
RESEARCH EFFORTS AND PRODUCT DEVELOPMENT PROGRAMS
OVERVIEW OF RESEARCH AND PRODUCT DEVELOPMENT STRATEGY
We have devoted substantial resources to our research programs to isolate
and develop a series of stem and progenitor cells that we believe can serve as a
basis for replacing diseased or injured cells. Our efforts to date have been
directed at methods to identify, isolate and culture large varieties of stem and
progenitor cells of the human nervous system, liver and pancreas and to develop
therapies utilizing these stem and progenitor cells.
The following table lists the potential therapeutic indications for, and
current status of, our primary research and product development programs and
projects. The table is qualified in its entirety by reference to the more
detailed descriptions of such programs and projects appearing elsewhere in this
prospectus. We continually evaluate our research and product development efforts
and reallocate resources among existing programs or to new programs in light of
experimental results, commercial potential, availability of third party funding,
likelihood of near-term efficacy, collaboration success or significant
technology enhancement, as well as other factors. Our research and product
development programs are at relatively early stages of development and will
require substantial resources to commercialize.
26
RESEARCH AND PRODUCT DEVELOPMENT PROGRAMS
PROGRAM DESCRIPTION AND OBJECTIVE STAGE/STATUS(1)
- ------------------------------------------- -------------------------------------------------------
HUMAN NEURAL STEM CELL PRECLINICAL
Repair or replace damaged central nervous - Demonstrated IN VITRO the ability to
system tissue (including spinal cord, initiate and expand stem cell-containing
degenerated retinas and tissue affected by human neural cultures and specialization
certain genetic disorders) into three types of central nervous system
cells
- Demonstrated the ability of neurosphere-
initiating stem cells from human brain
- Demonstrated in rodent studies that
transplanted human brain-derived stem cells
are accepted and properly specialized into
the three major cell types of the central
nervous system
PANCREAS ISLET STEM CELL RESEARCH
Repair or replace damaged pancreas islet - Identified markers on the surface of cells
tissue to identify, isolate and culture islet stem
cells of the pancreas
- Commenced small animal testing
LIVER STEM CELL RESEARCH
Repair or replace damaged liver tissue - Demonstrated the production of hepatocytes
including tissue resulting from certain from purified mouse hematopoietic stem
metabolic genetic diseases cells
- Identified IN VITRO culture assay for
growth of human bipotent liver progenitor
cells that can produce both bile duct and
hepatocytes
- Showed that the in vitro culture of human
bipotent liver cells can also grow human
hepatitis virus
- ------------------------
(1) "Research" refers to early stage research and product development activities
IN VITRO, including the selection and characterization of product candidates
for preclinical testing. "Preclinical" refers to further testing of a
defined product candidate IN VITRO and in animals prior to clinical studies.
RESEARCH AND DEVELOPMENT PROGRAMS
Our portfolio of stem cell technology results from our exclusive licensing
of central nervous system, stem and progenitor cell technology, animal models
for the identification and/or testing of stem and progenitor cells and our own
research and development efforts to date. We believe that therapies using stem
cells represent a fundamentally new approach to the treatment of diseases caused
by lost or damaged tissue. We have assembled an experienced team of scientists
and scientific advisors to consult with and advise our scientists on their
continuing research and development of stem and progenitor cells. This team
includes, among others, Irving L. Weissman, M.D., of Stanford University, Fred
H. Gage, Ph.D., of The Salk Institute and David Anderson, Ph.D., of the
California Institute of Technology.
BRAIN STEM AND PROGENITOR CELL RESEARCH AND DEVELOPMENT PROGRAM
We began our work with central nervous system stem and progenitor cell
cultures in collaboration with NeuroSpheres, Ltd., in 1992. We believe that
NeuroSpheres was the first to invent these cultures.
27
We are the exclusive, worldwide licensee from NeuroSpheres to such inventions
and associated patents and patent applications for all uses, including
transplantation in the human body, as embodied in these patents. See "License
Agreements and Sponsored Research Agreements--NeuroSpheres, Ltd."
In 1997, our scientists invented a reproducible method for growing human
CNS, stem and progenitor cells in cultures. In preclinical IN VITRO and early IN
VIVO studies, we demonstrated that these cells specialize into all three of the
cell types of the central nervous system. Because of these results, we believe
that these cells may form the basis for replacement of cells lost in certain
degenerative diseases. We are continuing research into, and have initiated the
development of, our human CNS stem and progenitor cell cultures. We have
initiated the cultures and demonstrated that these cultures can be expanded for
a number of generations IN VITRO in chemically defined media. In collaboration
with us, Dr. Anders Bjorklund has shown that cells from these cultures can be
successfully transplanted and accepted into the brains of rodents where they
subsequently migrated and specialized into the appropriate cell types for the
site of the brain into which they were placed.
In 1998, we expanded our preclinical efforts in this area by initiating
programs aimed at the discovery and use of specific monoclonal antibodies to
facilitate identification and isolation of CNS and other stem and progenitor
cells or their specialized progeny. Also in 1998, our researchers devised
methods to advance the IN VITRO culture and passage of human CNS stem cells that
resulted in a 100-fold increase in CNS stem and progenitor cell production after
6 passages. A U.S. patent on those methods has since been allowed. We are
expanding our preclinical efforts toward the goal of selecting the proper
indications to pursue.
In December 1998, we announced that the US Patent and Trademark Office had
granted patent No. 5,851,832, covering our methods for the human CNS cell
cultures containing central nervous system stem cells, for compositions of human
CNS cells expanded by these methods, and for use of these cultures in human
transplantation. These human CNS stem and progenitor cells expanded in culture
may be useful for repairing or replacing damaged central nervous system tissue,
including the brain and the spinal cord.
In October 1999, the US Patent and Trademark Office granted patent number
5,968,829 entitled "Human CNS Neural Stem Cells," covering our composition of
matter patent for human CNS stem cells, and also allowed a separate patent
application for our media for culturing human CNS stem cells.
Also in 1999, we announced the filing of a US patent application covering
our proprietary process for the direct isolation of normal human CNS stem cells
based on the markers found to be present on the surface of freshly obtained
brain cells. Since the filing of this patent application, our researchers have
completed a study designed to identify, isolate and culture human CNS stem cells
utilizing this proprietary process. In November 1999, we announced the study's
first results: Our researchers, by using our proprietary markers on the surface
of the cell, had succeeded in identifying, isolating and purifying human CNS
stem cells from brain tissue, and were able to expand the number of these cells
in culture.
We believe that this is the first study to show a reproducible process for
isolating highly purified populations of well-characterized normal human CNS
stem cells. Because the cells are normal human CNS stem cells and have not been
genetically modified, they may be especially suitable for transplantation and
may provide a safer and more effective alternative to therapies that are based
on cells derived from cancer cells or from an unpurified mix of many different
cell types, or from animal derived cells.
In January 2000, we reported what we regard as an even more important
result: In long term animal studies, our researchers were able to take these
purified and expanded stem cells and transplant them into the normal brains of
immunodeficient mouse hosts, where they take hold and grow into neurons and
glial cells.
28
During the course of the study, the transplanted human CNS stem cells
survived for as long as one year and migrated to specific functional domains of
the host brain, with no sign of tumor formation or adverse effects on the animal
recipients; moreover, the cells were still dividing. These findings show that
when CNS stem cells isolated and cultured with our proprietary processes are
transplanted, they adopt the characteristics of the host brain and act like
normal stem cells. In other words, the study suggests the possibility of a
continual replenishment of normal human brain cells.
As noted above, human CNS stem and progenitor cells harvested and purified
and expanded using our proprietary processes may be useful for creating
therapies for the treatment of degenerative brain diseases such as Parkinson's,
Huntington's and Alzheimer's disease. These conditions affect more than
5 million people in the United States and there are no effective long-term
therapies currently available. We believe the ability to purify human brain stem
cells directly from fresh tissue is important because:
- it provides an enriched source of normal stem cells, not contaminated by
other unwanted or diseased cell types, that can be expanded in culture
without fear of also expanding some unwanted cell types;
- it opens the way to a better understanding of the properties of these
cells and how they might be manipulated to treat specific diseases. For
example, in certain genetic diseases such as Tay Sachs and Gaucher's, a
key metabolic enzyme required for normal development and function of the
brain is absent. Brain-derived stem cell cultures might be genetically
modified to produce those proteins. The modified brain stem cells could be
transplanted into patients with these genetic diseases;
- the efficient acceptance of these non-transformed normal human stem cells
into host brains means that the cell product can be tested in animal
models for its ability to correct deficiencies caused by various human
neurological diseases. This technology could also provide a unique animal
model for the testing of drugs that act on human brain cells either for
effectiveness of the drug against the disease or its toxicity to human
nerve cells.
PANCREAS STEM CELLS DISCOVERY RESEARCH PROGRAMS
Our discovery program directed to the identification, isolation and
culturing of the pancreas stem and progenitor cells has, to the present, been
conducted by Nora Sarvetnick, Ph.D., of The Scripps Research Institute, in
collaboration with some of our senior researchers. It is our intention to bring
the research on stem and progenitor cells of the pancreas in house. We expect
that Dr. Sarvetnick will continue to consult with us.
According to diabetes and juvenile diabetes foundations, between 800,000 and
1.5 million Americans have Type 1 diabetes, which is often called "juvenile
diabetes" and most commonly diagnosed in childhood; and 30,000 new patients are
diagnosed with the disease every year. It is a costly, serious, lifelong
condition, requiring constant attention and insulin injections every day for
survival.
About 15 million other people in the United States have Type 2 diabetes
mellitus, which is also a chronic and potentially fatal condition; and more than
700,000 new patients are diagnosed annually.
In 1998, we obtained an exclusive, worldwide license from The Scripps
Research Institute to novel technology developed by Dr. Sarvetnick which may
facilitate the identification and isolation of pancreas stem and progenitor
cells by using a mouse model that continuously regenerates the pancreas. We
believe that stem cells produce the regeneration, in which case this animal
model may be useful for identifying specific markers on the cell surface unique
to the pancreas stem cells. We believe this may lead to the development of
cell-based treatments for Type 1 diabetes and that portion of Type 2 diabetes
characterized by defective secretion of insulin.
29
In 1999, advances in the research sponsored by us resulted in our obtaining
additional exclusive, worldwide licenses from The Scripps Research Institute to
novel markers on the cell surface identified by Dr. Sarvetnick and her research
team as being unique to the pancreas islet stem cell for which we have now filed
a US patent application. In collaboration with Dr. Sarvetnick, we continue to
advance the discovery program directed at the identification, isolation and
culturing of pancreas stem and progenitor cells utilizing this technology.
LIVER STEM CELLS DISCOVERY RESEARCH PROGRAMS
We initiated our discovery work for the liver stem and progenitor cell
through a sponsored research agreement with Markus Grompe, Ph.D., of Oregon
Health Sciences University. Dr. Grompe's work focuses on the discovery and
development of a suitable method for identifying and assessing liver stem and
progenitor cells for use in transplantation. We have also obtained a worldwide
exclusive license to a novel mouse model of liver failure for evaluating cell
transplantation developed by Dr. Grompe.
Approximately 1 in 10 Americans suffers from diseases and disorders of the
liver for which there are currently no effective, long-term treatments. In 1998,
our researchers continued to advance methods for establishing enriched cell
populations suitable for transplantation in preclinical animal models. We are
focused on discovering and utilizing our proprietary methods to identify,
isolate and culture liver stem and progenitor cells and to evaluate these cells
in preclinical animal models.
In 1999, our researchers devised a culture assay that we will use in our
efforts to identify liver stem and progenitor cells. In addition to supporting
the growth of an early human liver bipotent progenitor cell, it is also possible
to infect this culture with human hepatitis virus, providing a valuable system
for study of the virus. This technology could also provide a unique IN VITRO
model for the testing of drugs that act on, or are metabolized by, human liver
cells.
An important element of our stem cell discovery program is the further
development of intellectual property positions with respect to stem and
progenitor cells. We have also obtained rights to certain inventions relating to
stem cells from, and are conducting stem cell related research at, several
academic institutions. We expect to expand our search for new stem and
progenitor cells and to seek to acquire rights to additional inventions relating
to stem and progenitor cells from third parties.
WIND-DOWN OF ENCAPSULATED CELL THERAPY RESEARCH AND DEVELOPMENT PROGRAMS
Until mid-1999, we engaged in research and development in encapsulated cell
therapy technology, or ECT, including a pain control program funded by
AstraZeneca Group plc. The results from the 85-patient double-blind,
placebo-controlled trial of our encapsulated bovine cell implant for the
treatment of severe, chronic pain in cancer patients did not, however, meet the
criteria AstraZeneca had established for continuing trials for the therapy, and
in June 1999, AstraZeneca terminated the collaboration.
Consequently, in July 1999, we announced plans for the restructuring of our
research operations to abandon all further ECT research and to concentrate our
resources on the research and development of our proprietary platform of stem
cell technology. We reduced our workforce by approximately 68 full-time
employees who had been focused on ECT programs, wound down our research and
manufacturing operations in Lincoln, Rhode Island, and relocated our remaining
research and development activities, and our corporate headquarters, to the
facilities of our wholly owned subsidiary, StemCells California, Inc., in
California. We have subleased a portion of our former corporate headquarters
building and our pilot manufacturing and cell processing facility in Rhode
Island are actively seeking to sublease, assign or sell our interest in the
remainder.
30
In December 1999 we sold our intellectual property assets related to our ECT
to Neurotech S.A., a privately held French company, in exchange for a payment of
$3 million, royalties on future product sales, and a portion of certain revenues
Neurotech may in the future receive from third parties. These rights to
royalties and other payments have now been transferred to Modex. We retained
certain non-exclusive rights to use the ECT in combination with our proprietary
stem cell technology, and in the field of vaccines for prevention and treatment
of infectious diseases.
SUBSIDIARY
STEMCELLS CALIFORNIA, INC.
On September 26, 1997, we acquired by merger StemCells, Inc. (now StemCells
California, Inc.), a California corporation, in exchange for 1,320,691 shares of
our common stock and options and warrants for the purchase of 259,296 common
shares. Simultaneously with the acquisition, its President, Richard M. Rose,
M.D., became our President, Chief Executive Officer and a director, and Irving
L. Weissman, M.D., a founder of the California corporation, became a member of
our board of directors. We, as the sole stockholder of our subsidiary, voted on
February 23, 2000, to amend its Certificate of Incorporation to change its name
to StemCells California, Inc.
CORPORATE COLLABORATIONS
CORPORATE INVESTMENT
In July 1996, we, together with certain founding scientists, established
Modex Therapeutics, Ltd., a Swiss biotherapeutics company, to pursue extensions
of our former technology of ECT for certain applications outside the central
nervous system. Modex, headquartered in Lausanne, Switzerland, was formed to
integrate technologies developed by us and by several other institutions to
develop products to treat diseases such as diabetes, obesity and anemia. After
our disposition of the encapsulated cell technology in December 1999, we no
longer had common research or development interests with Modex, but we held
approximate 17% of its stock. Modex completed an initial public offering on
June 23, 2000, in the course of which we realized a gain of approximately
$1.4 million from the sale of certain shares. After Modex's IPO, we owned
126,193 shares, or approximately 9%, of Modex's equity, subject to a lockup
until December 23, 2000. The closing market price of Modex stock on the Swiss
Neue Market exchange on January 2, 2001 was 210.00 Swiss francs, or
approximately $130.39, per share. On January 9, 2001, we sold 22,616 Modex
shares for a net price of 182.00 Swiss francs per share, which converts to
$112.76 per share, for total proceeds of approximately $2,550,000. In connection
with this sale, we agreed not to resell any more of our remaining 103,577 Modex
shares until April 12, 2001. On April 30, 2001, we sold our remaining 103,577
Modex shares for a net price of 87.30 Swiss francs per share, which converts to
approximately $50.30, for proceeds from that sale of approximately $5,200,000.
LICENSE AGREEMENTS AND SPONSORED RESEARCH AGREEMENTS
SPONSORED RESEARCH AGREEMENTS
Under Sponsored Research Agreements with The Scripps Research Institute and
Oregon Health Sciences University, we funded certain research in return for
licenses or options to license the inventions resulting from the research. We
have also entered into license agreements with the California Institute of
Technology. All of these agreements relate largely to stem or progenitor cells
and or to processes and methods for the isolation, identification, expansion or
culturing of stem or progenitor cells.
Our research agreement with Scripps expired on November 14, 2000. It is our
intention to bring the research on stem and progenitor cells of the pancreas in
house. Dr. Nora Sarvetnick, who led the
31
research at Scripps, will continue to consult with us. Our license agreements
with Scripps are not affected by the expiration of the research agreement. They
will terminate upon expiration, revocation or invalidation of the patents
licensed to us, unless governmental regulations require a shorter term. These
license agreements also will terminate earlier if we breach without curing our
obligations under the agreement or if we declare bankruptcy, and we can
terminate the license agreements at any time upon notice. Upon the initiation of
the Phase II trial for our first product using Scripps licensed technology, we
must pay Scripps $50,000 and upon completion of that Phase II trial we must pay
Scripps an additional $125,000. Upon approval of the first product for sale in
the market, we must pay Scripps $250,000. Our license agreements with the
California Institute of Technology will expire upon expiration, revocation,
invalidation or abandonment of the patents licensed to us. We can terminate any
of these license agreements by giving 30 days' notice to the California
Institute of Technology. Either party can terminate these license agreements
upon a material breach by the other party. We issued 12,800 shares of common
stock amounting to $10,000 to the California Institute of Technology upon
execution of the license agreements, and we must pay an additional $10,000 upon
the issuance of the patent licensed to us under the relevant agreement. We also
will pay $5,000 on the anniversary of the issuance of the patent licensed to us
under the relevant agreement. These amounts are creditable against royalties we
must pay under the license agreements. The maximum royalties that we will have
to pay to the California Institute of Technology will be $2 million per year,
with an overall maximum of $15 million. Once we pay the $15 million maximum
royalty, the licenses will become fully paid and irrevocable.
LICENSE AGREEMENTS
We have entered into a number of license agreements with commercial and
non-profit institutions, as well as a number of research-plus-license agreements
with academic organizations. The research agreements provide that we will fund
certain research costs, and in return, will have a license or an option for a
license to the resulting inventions. Under the license agreements, we will
typically be subject to obligations of due diligence and the requirement to pay
royalties on products that use patented technology licensed under such
agreements.
SIGNAL PHARMACEUTICALS, INC.
In December 1997, we entered into two license agreements with Signal
Pharmaceuticals, Inc. under which each party licensed to the other certain
patent rights and biological materials for use in defined fields. An initial
disagreement as to the interpretation of the licensed rights was resolved by the
parties, and the agreements are operating in accordance with their terms. Signal
has now been acquired by Celgene. Each agreement with Signal will terminate at
the expiration of all patents licensed under it, but the licensing party can
terminate earlier if the other party breaches its obligations under the
agreement or declares bankruptcy. Also, the party receiving the license can
terminate the agreement at any time upon notice to the other party. Under these
agreements, we must reimburse Signal for payments it must make to the University
of California based on products we develop and for 50% of certain other payments
Signal must make.
32
NEUROSPHERES, LTD.
In March 1994, we entered into a Contract Research and License Agreement
with NeuroSpheres, Ltd., which was clarified in a License Agreement dated as of
April 1, 1997. Under the agreement as clarified, we obtained an exclusive patent
license from NeuroSpheres in the field of transplantation, subject to a limited
right of NeuroSpheres to purchase a nonexclusive license from us, which right
was not exercised and has expired. We have developed additional intellectual
property relating to the subject matter of the license. We entered into an
additional license agreement with NeuroSpheres as of October 30, 2000, under
which we obtained an exclusive license in the field of non-transplant uses, such
as drug discovery and drug testing, so that together the licenses are exclusive
for all uses of the technology. We made up-front payments to NeuroSpheres of
65,000 shares of our common stock in October 2000 and $50,000 in January 2001,
and we will make additional cash payments when milestones are achieved in the
non-transplant field, or in any products employing NeuroSpheres patents for
generating cells of the blood and immune system from neural stem cells. In
addition we reimbursed Neurospheres for patent costs amounting to $341,000.
Milestone payments would total $500,000 for each product that is approved for
market. Our agreements with NeuroSpheres will terminate at the expiration of all
patents licensed to us, but can terminate earlier if we breach without curing
our obligations under the agreement or if we declare bankruptcy. We would have a
security interest in the licensed technology in the event that NeuroSpheres
declares bankruptcy.
MANUFACTURING
The keys to successful commercialization of brain stem and progenitor cells
are efficacy, safety, consistency of the product, and economy of the process. We
expect to address these issues by appropriate testing and banking representative
vials of large-scale cultures. Commercial production is expected to involve
expansion of banked cells and packaging them in appropriate containers after
formulating the cells in an effective carrier. The carrier may also be used to
improve the stability and acceptance of the stem cells or their progeny. Because
of the early stage of our stem and progenitor cell programs, all of the issues
that will affect manufacture of stem and progenitor cell products are not yet
clear.
MARKETING
We expect to market and sell our products primarily through co-marketing,
licensing or other arrangements with third parties. There are a number of
substantial companies with existing distribution channels and large marketing
resources who are well equipped to market and sell our products. It is our
intent to have the marketing of our products undertaken by such partners,
although we may seek to retain limited marketing rights in specific narrow
markets where the product may be addressed by a specialty or niche sales force.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
We believe that proprietary protection of our inventions will be of major
importance to our future business. We have an aggressive program of vigorously
seeking and protecting our intellectual property which we believe might be
useful in connection with our products. We believe that our know-how will also
provide a significant competitive advantage, and we intend to continue to
develop and protect our proprietary know-how. We may also from time to time seek
to acquire licenses to important externally developed technologies.
We have exclusive or non-exclusive rights to a portfolio of patents and
patent applications related to various stem and progenitor cells and methods of
deriving and using them. These patents and patent applications relate mainly to
compositions of matter, methods of obtaining such cells, and methods for
preparing, transplanting and utilizing such cells. Currently, our U.S. patent
portfolio in the stem cell
33
therapy area includes 24 issued U.S. patents, eight of which issued in 2000. An
additional 23 patent applications are pending, four of which have been allowed.
We own, or have filed, the following United States Patents and patent
applications: U.S. Patent Number 5,968,829 (Human CNS neural stem cells); U.S.
Patent Number 6,103,530 (Human CNS neural stem cells--culture media);
Application Number WO 99/11758 (Cultures of human CNS neural stem cells); and
Application Number WO 00/36091 (An animal model for identifying a common stem/
progenitor to liver cells and pancreatic cells); Application Number WO98/50526
(Generation, characterization, and isolation of neuroepithelial stem cells and
lineage restricted intermediate precursor); Application Number WO 00/50572 (Use
of collagenase in the preparation of neural stem cell cultures); and Application
Number WO 00/47762 (Enriched neural stem cell populations and methods of
identifying, isolating, and enriching neural stem cells).
We have licensed the following United States Patents or pending patent
applications from Neurospheres Holdings Ltd.: U.S. Patent Number 5,851,832 (IN
VITRO proliferation); U.S. Patent Number 5,750,376 (IN VITRO genetic
modification); U.S. Patent Number 5,981,165 (IN VITRO production of dopaminergic
cells from mammalian central nervous system multipotent stem cell compositions);
U.S. Patent Number 6,093,531 (Generation of hematopoietic cells from multipotent
neural stem cells); U.S. Patent Number 5,980,885 (Methods for inducing IN VIVO
proliferation of precursor cells); U.S. Patent Number 6,071,889 (Methods for IN
VIVO transfer of a nucleic acid sequence to proliferating neural cells); U.S.
Patent Number 6,165,783 (Methods of inducing differentiation of multipotent
neural stem cells); Application Number WO 93/01275 (Mammalian central nervous
system multipotent stem cell compositions); Application Number WO 94/09119
(Remyelination using mammalian central nervous system multipotent stem cell
compositions); Application Number WO 94/10292 (Biological factors useful in
differentiating mammalian central nervous system multipotent stem cell
compositions); Application Number WO 94/16718 (Genetically engineered mammalian
central nervous system multipotent stem cell compositions); Application Number
WO 96/15224 (Differentiation of mammalian central nervous system multipotent
stem cell compositions); Application Number WO 99/2196 (Erythropoietin-mediated
neurogenesis); Application Number WO 99/16863 (Generation of hematopoietic
cells); Application Number WO 98/22127 (Pretreatment with growth factors to
protect against CNS damage); Application Number WO 97/3560 (IN SITU manipulation
of cells of the hippocampus); Application Number WO 96/09543 (IN VITRO models of
CNS functions and dysfunctions); Application Number WO 95/13364 (IN SITU
modification and manipulation of stem cells of the CNS); Application Number WO
96/15226 (IN VITRO production of dopaminergic cells from mammalian central
nervous system multipotent stem cell composition); and Application Number WO
96/15266 (Regulation of neural stem cell proliferation).
We have licensed the following United States Patents or pending patent
applications from the University of California, San Diego: U.S. Patent Number
5,776,948 (Method of production of neuroblasts); U.S. Patent Number 6,013,521
(Method of production of neuroblasts); U.S. Patent Number 6,020,197 (Method of
production of neuroblasts); Application Number WO 94/16059 (Method of production
of neuroblasts); and Application Number WO 00/52143 (Methods of enriching a
population of uncultured cells).
We have licensed the following United States Patents or pending patent
applications from the California Institute of Technology: U.S. Patent Number
5,629,159 (Immortalization and disimmortalization of cells); Application Number
WO 96/40877 (Immortalization and disimmortalization of cells); U.S. Patent
Number 5,935,811 (Neuron restrictive silencer factor proteins); Application
Number WO 96/27665 (Neuron restrictive silencer factor proteins); U.S. Patent
Number 5,589,376 (Mammalian neural crest stem cells); U.S. Patent Number
5,824,489 (Methods for isolating mammalian multipotent neural crest stem cells);
Application Number WO 94/02593 (Mammalian neural crest stem cells); U.S. Patent
Number 5,654,183 (Genetically engineered mammalian neural crest stem cells);
U.S. Patent Number 5,928,947 (Mammalian multipotent neural
34
crest stem cells); U.S. Patent Number 5,693,482 (IN VITRO neural crest stem cell
assay); U.S. Patent Number 6,001,654 (Methods for differentiating neural stem
cells to neurons or smooth muscle cells (TGFb)); Application Number WO 98/48001
(Methods for differentiating neural stem cells to neurons or smooth muscle cells
(TGFb)); U.S. Patent Number 5,672,499 (Methods for immortalizing multipotent
neural crest stem cells); U.S. Patent Number 5,849,553 (Immortalizing and
disimmortalizing multipotent neural crest stem cells); and U.S. Patent Number
6,033,906 (Differentiating mammalian neural stem cells to glial cells using
neuregulins).
We also rely upon trade-secret protection for our confidential and
proprietary information and take active measures to control access to that
information.
Our policy is to require our employees, consultants and significant
scientific collaborators and sponsored researchers to execute confidentiality
agreements upon the commencement of an employment or consulting relationship
with us. These agreements generally provide that all confidential information
developed or made known to the individual by us during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of employees and
consultants, the agreements generally provide that all inventions conceived by
the individual in the course of rendering services to us shall be our exclusive
property.
The patent positions of pharmaceutical and biotechnology companies,
including us, are uncertain and involve complex and evolving legal and factual
questions. The coverage sought in a patent application can be denied or
significantly reduced before or after the patent is issued. Consequently, we do
not know whether any of its pending applications will result in the issuance of
patents, or if any existing or future patents will provide significant
protection or commercial advantage or will be circumvented by others. Since
patent applications are secret until patents are issued in the United States or
until the applications are published in foreign countries, and since publication
of discoveries in the scientific or patent literature often lags behind actual
discoveries, we cannot be certain that it was the first to make the inventions
covered by each of its pending patent applications or that it was the first to
file patent applications for such inventions. There can be no assurance that
patents will issue from our pending or future patent applications or, if issued,
that such patents will be of commercial benefit to us, afford us adequate
protection from competing products or not be challenged or declared invalid.
In the event that a third party has also filed a patent application relating
to inventions claimed in our patent applications, we may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
uncertainties and cost for the Company, even if the eventual outcome is
favorable to us. There can be no assurance that our patents, if issued, would be
held valid by a court of competent jurisdiction.
A number of pharmaceutical, biotechnology and other companies, universities
and research institutions have filed patent applications or have been issued
patents relating to cell therapy, stem cells and other technologies potentially
relevant to or required by our expected products. We cannot predict which, if
any, of such applications will issue as patents or the claims that might be
allowed. We are aware that a number of companies have filed applications
relating to stem cells. We are also aware of a number of patent applications and
patents claiming use of genetically modified cells to treat disease, disorder or
injury. We are aware of two patents issued to a competitor claiming certain
methods for treating defective, diseased or damaged cells in the mammalian CNS
by grafting genetically modified donor cells from the same mammalian species.
If third party patents or patent applications contain claims infringed by
our technology and such claims or claims in issued patents are ultimately
determined to be valid, there can be no assurance that we would be able to
obtain licenses to these patents at a reasonable cost, if at all, or be able to
develop or obtain alternative technology. If we are unable to obtain such
licenses at a reasonable cost, it may
35
be adversely affected. There can be no assurance that we will not be obliged to
defend itself in court against allegations of infringement of third party
patents. Patent litigation is very expensive and could consume substantial
resources and create significant uncertainties. An adverse outcome in such a
suit could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties, or require us to cease using
such technology.
We have obtained rights from universities and research institutions to
technologies, processes and compounds that it believes may be important to the
development of its products. These agreements typically require us to pay
license fees, meet certain diligence obligations and, upon commercial
introduction of certain products, pay royalties. These include exclusive license
agreements with NeuroSpheres, The Scripps Institute, the California Institute of
Technology and the Oregon Health Sciences University to certain patents and
know-how regarding present and certain future developments in neural and
pancreatic stem cells. Our licenses may be canceled or converted to
non-exclusive licenses if we fail to use the relevant technology or we breach
our agreements. Loss of such licenses could expose us to the risks of third
party patents and/or technology. There can be no assurance that any of these
licenses will provide effective protection against our competitors.
COMPETITION
The targeted disease states for our initial products in some instances
currently have no effective long-term therapies. However, we do expect that our
initial products will have to compete with a variety of therapeutic products and
procedures. Major pharmaceutical companies currently offer a number of
pharmaceutical products to treat neurodegenerative and liver diseases, diabetes
and other diseases for which our technologies may be applicable. Many
pharmaceutical and biotechnology companies are investigating new drugs and
therapeutic approaches for the same purposes, which may achieve new efficacy
profiles, extend the therapeutic window for such products, alter the prognosis
of these diseases, or prevent their onset. We believe that our products, when
successfully developed, will compete with these products principally on the
basis of improved and extended efficacy and safety and their overall economic
benefit to the health care system. The market for therapeutic products that
address degenerative diseases is large, and competition is intense. We expect
competition to increase. We believe that our most significant competitors will
be fully integrated pharmaceutical companies and more established biotechnology
companies. Smaller companies may also be significant competitors, particularly
through collaborative arrangements with large pharmaceutical or biotechnology
companies. Many of these competitors have significant products approved or in
development that could be competitive with our potential products.
Competition for our stem and progenitor cell products may be in the form of
existing and new drugs, other forms of cell transplantation, ablative and
simulative procedures, and gene therapy. We believe that some of our competitors
are also trying to develop stem and progenitor cell-based technologies. We
expect that all of these products will compete with our potential stem and
progenitor cell products based on efficacy, safety, cost and intellectual
property positions.
We may also face competition from companies that have filed patent
applications relating to the use of genetically modified cells to treat disease,
disorder or injury. We may be required to seek licenses from these competitors
in order to commercialize certain of our proposed products.
Once our products are developed and receive regulatory approval, they must
then compete for market acceptance and market share. For certain of our
potential products, an important success factor will be the timing of market
introduction of competitive products. This is a function of the relative speed
with which we and our competitors can develop products, complete the clinical
testing and approval processes, and supply commercial quantities of a product to
market. These competitive products may also impact the timing of clinical
testing and approval processes by limiting the number of clinical investigators
and patients available to test our potential products.
36
While we believe that the primary competitive factors will be product
efficacy, safety, and the timing and scope of regulatory approvals, other
factors include, in certain instances, obtaining marketing exclusivity under the
Orphan Drug Act, availability of supply, marketing and sales capability,
reimbursement coverage, price, and patent and technology position.
GOVERNMENT REGULATION
Our research and development activities and the future manufacturing and
marketing of our potential products are, and will continue to be, subject to
regulation for safety and efficacy by numerous governmental authorities in the
United States and other countries.
In the United States, pharmaceuticals, biologicals and medical devices are
subject to rigorous Food and Drug Administration, or FDA, regulation. The
Federal Food, Drug and Cosmetic Act, as amended, and the Public Health Service
Act, as amended, the regulations promulgated thereunder, and other Federal and
state statutes and regulations govern, among other things, the testing,
manufacture, safety, efficacy, labeling, storage, export, record keeping,
approval, marketing, advertising and promotion of our potential products.
Product development and approval within this regulatory framework takes a number
of years and involves significant uncertainty combined with the expenditure of
substantial resources. In addition, the federal, state, and other jurisdictions
have restrictions on the use of fetal tissue.
FDA APPROVAL
The steps required before our potential products may be marketed in the
United States include:
STEPS CONSIDERATIONS
- ----------------------------------------- --------------------------------------------------
1. Preclinical laboratory and animal Preclinical tests include laboratory evaluation of
tests the product and animal studies in specific disease
models to assess the potential safety and efficacy
of the product and our formulation as well as the
quality and consistency of the manufacturing
process.
2. Submission to the FDA of an The results of the preclinical tests are submitted
application for an Investigational New to the FDA as part of an IND, and the IND becomes
Drug Exemption, or IND, which must become effective 30 days following its receipt by the
effective before U.S. human clinical FDA, as long as there are no questions, requests
trials may commence for delay or objections from the FDA.
37
STEPS CONSIDERATIONS
- ----------------------------------------- --------------------------------------------------
Clinical trials involve the evaluation of the
product in healthy volunteers or, as may be the
case with our potential products, in a small
3. Adequate and well-controlled human number of patients under the supervision of a
clinical trials to establish the safety qualified physician. Clinical trials are conducted
and efficacy of the product in accordance with protocols that detail the
objectives of the study, the parameters to be used
to monitor safety and the efficacy criteria to be
evaluated. Any product administered in a U.S.
clinical trial must be manufactured in accordance
with clinical Good Manufacturing Practices, or
cGMP, determined by the FDA. Each protocol is
submitted to the FDA as part of the IND. The
protocol for each clinical study must be approved
by an independent Institutional Review Board, or
IRB, at the institution at which the study is
conducted and the informed consent of all
participants must be obtained. The IRB will
consider, among other things, the existing
information on the product, ethical factors, the
safety of human subjects, the potential benefits
of the therapy and the possible liability of the
institution.
Clinical development is traditionally conducted in
three sequential phases, which may overlap:
- In Phase I, products are typically
introduced into healthy human subjects or
into selected patient populations to test
for adverse reactions, dosage tolerance,
absorption and distribution, metabolism,
excretion and clinical pharmacology.
- Phase II involves studies in a limited
patient population to (i) determine the
efficacy of the product for specific
targeted indications and populations,
(ii) determine optimal dosage and dosage
tolerance and (iii) identify possible
adverse effects and safety risks. When a
dose is chosen and a candidate product is
found to be effective and to have an
acceptable safety profile in Phase II
evaluations, Phase III trials begin.
- Phase III trials are undertaken to
conclusively demonstrate clinical
efficacy and to test further for safety
within an expanded patient population,
generally at multiple study sites.
The FDA continually reviews the clinical trial
plans and results and may suggest changes or may
require discontinuance of the trials at any time
if significant safety issues arise.
38
STEPS CONSIDERATIONS
- ----------------------------------------- --------------------------------------------------
4. Submission to the FDA of marketing The results of the preclinical studies and
authorization applications clinical studies are submitted to the FDA in the
form of marketing approval authorization
applications.
5. FDA approval of the application(s) The testing and approval process will require
prior to any commercial sale or shipment substantial time, effort and expense. The time for
of the drug. Biologic product approval is affected by a number of factors,
manufacturing establishments located in including relative risks and benefits demonstrated
certain states also may be subject to in clinical trials, the availability of
separate regulatory and licensing alternative treatments and the severity of the
requirement disease. Additional animal studies or clinical
trials may be requested during the FDA review
period which might add to that time.
After FDA approval for the initial indications and requisite approval of the
manufacturing facility, further clinical trials may be required to gain approval
for the use of the product for additional indications. The FDA may also require
unusual or restrictive post-marketing testing and surveillance to monitor for
adverse effects, which could involve significant expense, or may elect to grant
only conditional approvals.
FDA MANUFACTURING REQUIREMENTS
Among the conditions for product licensure is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's cGMP requirement. Even after product licensure approval, the
manufacturer must comply with cGMP on a continuing basis, and what constitutes
cGMP may change as the state of the art of manufacturing changes. Domestic
manufacturing facilities are subject to regular FDA inspections for cGMP
compliance which are normally held at least every two years. Foreign
manufacturing facilities are subject to periodic FDA inspections or inspections
by the foreign regulatory authorities with reciprocal inspection agreements with
the FDA. Domestic manufacturing facilities may also be subject to inspection by
foreign authorities.
ORPHAN DRUG ACT
The Orphan Drug Act provides incentives to drug manufacturers to develop and
manufacture drugs for the treatment of diseases or conditions that affect fewer
than 200,000 individuals in the United States. Orphan drug status can also be
sought for treatments for diseases or conditions that affect more than 200,000
individuals in the United States if the sponsor does not realistically
anticipate its product becoming profitable from sales in the United States. We
may apply for orphan drug status for certain of our therapies. Under the Orphan
Drug Act, a manufacturer of a designated orphan product can seek tax benefits,
and the holder of the first FDA approval of a designated orphan product will be
granted a seven-year period of marketing exclusivity in the United States for
that product for the orphan indication. While the marketing exclusivity of an
orphan drug would prevent other sponsors from obtaining approval of the same
compound for the same indication, it would not prevent other types of products
from being approved for the same use including, in some cases, slight variations
on the originally designated orphan product.
PROPOSED FDA REGULATIONS
Proposed regulations of the FDA and other governmental agencies would place
restrictions, including disclosure requirements, on researchers who have a
financial interest in the outcome of their research. Under the proposed
regulations, the FDA could also apply heightened scrutiny to, or exclude the
results of, studies conducted by such researchers when reviewing applications to
the FDA, which
39
contain such research. Certain of our collaborators have stock options or other
equity interests in us that could subject such collaborators and us to the
proposed regulations.
Our research and development is based on the use of human stem and
progenitor cells. The FDA has published a "Proposed Approach to Regulation of
Cellular and Tissue-Based Products" which relates to the use of human cells. We
cannot now determine the effects of that approach or what regulatory actions
might be taken from it. Restrictions exist on the testing or use of cells,
whether human or non-human.
OTHER REGULATIONS
In addition to safety regulations enforced by the FDA, we are also subject
to regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act and other present and potential
future foreign, Federal, state and local regulations.
Outside the United States, we will be subject to regulations which govern
the import of drug products from the United States or other manufacturing sites
and foreign regulatory requirements governing human clinical trials and
marketing approval for our products. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursements vary widely from
country to country. In particular, the European Union, or EU, is revising its
regulatory approach to high tech products, and representatives from the United
States, Japan and the EU are in the process of harmonizing and making more
uniform the regulations for the registration of pharmaceutical products in these
three markets.
REIMBURSEMENT AND HEALTH CARE COST CONTROL
Reimbursement for the costs of treatments and products such as ours from
government health administration authorities, private health insurers and others
both in the United States and abroad is a key element in the success of new
health care products. Significant uncertainty often exists as to the
reimbursement status of newly approved health care products.
The revenues and profitability of some health care-related companies have
been affected by the continuing efforts of governmental and third party payers
to contain or reduce the cost of health care through various means. Payers are
increasingly attempting to limit both coverage and the level of reimbursement
for new therapeutic products approved for marketing by the FDA, and are
refusing, in some cases, to provide any coverage for uses of approved products
for disease indications for which the FDA has not granted marketing approval.
For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been a number of Federal and state proposals to implement
government control over health care costs.
EMPLOYEES
As of May 23, 2001, we had 28 full-time employees, eight of whom have Ph.D.
degrees. The equivalent of 21 full-time employees work in research and
development and laboratory support services. A number of our employees have held
positions with other biotechnology or pharmaceutical companies or have worked in
university research programs. No employees are covered by collective bargaining
agreements. We believe our relationships with our employees are good.
SCIENTIFIC ADVISORY BOARD
Members of our Scientific Advisory Board provide us with strategic guidance
in regard to our research and product development programs, as well as
assistance in recruiting employees and collaborators. Each Scientific Advisory
Board member has entered into a consulting agreement with us.
40
These consulting agreements specify the compensation to be paid to the
consultant and require that all information about our products and technology be
kept confidential. All of the Scientific Advisory Board members are employed by
employers other than us and may have commitments to or consulting or advising
agreements with other entities that limit their availability to us. The
Scientific Advisory Board members have generally agreed, however, for so long as
they serve as consultants to us, not to provide any services to any other
entities that would conflict with the services the member provides to us.
Members of the Scientific Advisory Board offer consultation on specific issues
encountered by us as well as general advice on the directions of appropriate
scientific inquiry for us. In addition, Scientific Advisory Board members assist
us in assessing the appropriateness of moving our projects to more advanced
stages. The following persons are members of our Scientific Advisory Board:
- Irving L. Weissman, M.D., is the Karel and Avice Beekhuis Professor of
Cancer Biology, Professor of Pathology and Professor of Developmental
Biology at Stanford University. Dr. Weissman was a cofounder of
SyStemix, Inc., and Chairman of its Scientific Advisory Board. He has
served on the Scientific Advisory Boards of Amgen Inc., DNAX and T-Cell
Sciences, Inc. Dr. Weissman is Chairman of the Scientific Advisory Board
of StemCells.
- David J. Anderson, Ph.D., is Professor of Biology, California Institute of
Technology, Pasadena, California and Investigator, Howard Hughes Medical
Institute.
- Fred H. Gage, Ph.D., is Professor, Laboratory of Genetics, The Salk
Institute for Biological Studies, La Jolla, California and Adjunct
Professor, Department of Neurosciences, University of California, San
Diego, California.
PROPERTIES
Our current research laboratories and administrative offices are located in
a leased 40,000 square foot facility, located in the Stanford Research Park in
Palo Alto, California, which includes vivarium space as well as laboratories,
offices, and a GMP (Good Manufacturing Practices) suite, signifying that the
facility can be used to manufacture materials for clinical trials.
We continue to lease the following facilities in Lincoln, Rhode Island
obtained in connection with our former encapsulated cell technology: our former
research laboratory and corporate headquarters building which contains 65,000
square feet of wet labs, specialty research areas and administrative offices
held on a fifteen-year lease agreement, as well as a 21,000 square-foot pilot
manufacturing facility and a 3,000 square-foot cell processing facility financed
by bonds issued by the Rhode Island Industrial Facilities Corporation. In
February 2001, we subleased the 3,000 square foot facility and approximately
one-third of the 65,000 square foot facility. We are actively seeking to
sublease, assign or sell our remaining interests in these properties.
LEGAL PROCEEDINGS
We are not currently party to any legal actions.
41
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the name, age as of December 31, 2000, and
position of each of our executive officers, key members of management, and
directors.
NAME AGE POSITION
- ---- -------- ------------------------------------------
John J. Schwartz, Ph.D.................... 67 Director, Chairman of the Board
Martin M. McGlynn......................... 54 Director, President and Chief Executive
Officer
Mark J. Levin............................. 50 Director
Roger M. Perlmutter M.D., Ph.D............ 48 Director
Irving L. Weissman, M.D................... 61 Director
Ann Tsukamoto, Ph.D....................... 48 Vice President, Scientific Operations
Ronnda Bartel, Ph.D....................... 42 Vice President, Scientific Development
- ------------------------
- - JOHN J. SCHWARTZ, PH.D., was elected to the board of directors in
December 1998 and was elected Chairman of the board at the same time. He was
formerly Senior Vice President and General Counsel of SyStemix, Inc. from 1993
to 1995, and then President and Chief Executive Officer of SyStemix, Inc. from
1995 to 1997. Dr. Schwartz is currently President of Quantum Strategies
Management Company, a registered investment advisor located in Atherton,
California. Prior to his positions at SyStemix, he served as Assistant
Professor and a Vice President and General Counsel at Stanford University in
California. Dr. Schwartz graduated from Harvard Law School in 1958 and
received his Ph.D. in physics from the University of Rochester in 1966.
- - MARTIN M. MCGLYNN joined us on January 15, 2001 when he was appointed
President and Chief Executive Officer of us and our wholly-owned subsidiary,
StemCells California, Inc. From 1994 until he joined us, Mr. McGlynn was
President and Chief Executive Officer of Pharmadigm, Inc., a privately held
company in Salt Lake City, Utah, engaged in research and development in the
fields of inflammation and genetic immunization. Mr. McGlynn received a
bachelor of commerce degree from University College, Dublin, Ireland in 1968,
a diploma in industrial engineering from the Irish Institute of Industrial
Engineering in 1970, and a diploma in production planning from the University
of Birmingham, England in 1971.
- - MARK J. LEVIN is a founder and has served as a director since our inception.
From inception until January 1990 and from May 1990 until February 1991,
Mr. Levin served as our President and acting Chief Executive Officer. From
November 1991 until March 1992, he served as Chief Executive Officer of
Tularik, Inc., a biotechnology company. From August 1991 until August 1993,
Mr. Levin was Chief Executive Officer and a director of Focal, Inc., a
biomedical company. Mr. Levin is currently the Chairman of the Board and Chief
Executive Officer of Millennium Pharmaceuticals, Inc., a biotechnology
company. Mr. Levin is also currently on the Board of Directors of
Tularik, Inc.
- - ROGER M. PERLMUTTER, M.D., PH.D., was elected to the board of directors in
December 2000. Dr. Perlmutter is Executive Vice President, Research and
Development, of Amgen, Inc., a position he has held since January 2001. Prior
to joining Amgen, Dr. Perlmutter was Executive Vice President, Worldwide Basic
Research and Preclinical Development, Merck Research Laboratories, a division
of Merck & Co., Inc., a position he held since August 1999. He joined Merck in
February 1997 as Senior Vice President, Merck Research Laboratories, from
February 1997 to December 1998 and as Executive Vice President from
February 1999 to July 1999. Prior to joining Merck, Dr. Perlmutter was a
professor in the Departments of Immunology, Biochemistry and Medicine at the
University of Washington from January 1991 to January 1997 and served as
chairman of the Department of Immunology at the University of Washington from
May 1989 to January 1997. He also was an Investigator at the Howard Hughes
Medical Institute from July 1984 to
42
February 1997. Dr Perlmutter has been a member of the board of directors of
The Irvington Institute for Immunological Research since 1997 and of the
Institute for Systems Biology since 1999. He also serves as President of the
Merck Genome Research Institute, a position he has held since March 2000.
- - IRVING L. WEISSMAN, M.D., has served as a director since September 1997. He
has been a consultant to us since September 1997. He is the Karel and Avice
Beekhuis Professor of Cancer Biology, Professor of Pathology and Professor of
Developmental Biology at Stanford University. Stanford has employed
Dr. Weissman since July 1967, and he has been a Faculty member since
January 1969. He has been a full professor of pathology since September 1987,
and also of developmental biology since July 1989. Since October 1990,
Dr. Weissman has also served as a professor of biology (by courtesy). He has
been Chairman of the Stanford University Immunology Program since 1986.
Dr. Weissman was a cofounder of SyStemix, Inc., and Chairman of its Scientific
Advisory Board. He has served on the Scientific Advisory Boards of
Amgen Inc., DNAX and T-Cell Sciences, Inc. Dr. Weissman is a member of the
National Academy of Sciences and also serves as Chairman of our Scientific
Advisory Board. He also serves as Chief Executive Officer and a member of the
Board of Managers of Celtrans, LLC.
- - ANN TSUKAMOTO, PH.D., joined us in November 1997 as Senior Director,
Scientific Operations, and was appointed Vice President, Scientific Operations
in June 1998. From 1989 until she joined us, Dr. Tsukamoto was employed at
SyStemix, Inc., where she served in various research capacities before
transitioning to the position of Director of Clinical Science. At
SyStemix, Inc., Dr. Tsukamoto assisted in the launch of its clinical research
program for the hematopoietic stem cell. She received her Ph.D. degree from
the University of California, Los Angeles and did postdoctoral research with
Dr. Harold Varmus at the University of California, San Francisco.
Dr. Tsukamoto is an inventor on six issued U.S. Patents related to the human
hematopoietic stem cell. As of March 5, 2001, Dr. Tsukamoto became a member of
the Board of Directors for the Society of Regenerative Medicine and Stem Cell
Biology.
- - RONNDA BARTEL, PH.D., joined us in July 1998, as Senior Director, Cell
Development, and was appointed Vice President, Scientific Development in
April 2000. From 1995 until her employment with us, Dr. Bartel was Senior
Principal Scientist at Advanced Tissue Sciences Inc., responsible for
research, development, and manufacturing of tissue engineered human cell based
products. Dr. Bartel was awarded her Ph.D. degree in biochemistry from the
University of Kansas, Lawrence and did postdoctoral work with Dr. John
Voorhees at the University of Michigan, Ann Arbor.
BOARD COMPOSITION
Our certificate of incorporation and by-laws provide for the classification
of the board of directors into three classes, as nearly equal in number as
possible, with the term of office of one class expiring each year. There are no
family relationships between any of our directors or executive officers. Our
executive officers are elected by, and serve at the discretion of, the board of
directors.
DIRECTOR COMPENSATION
We currently pay no additional remuneration to Mr. McGlynn, our president
and chief executive officer, for his service as a director.
One of our non-employee directors, Dr. Weissman, also serves us as a
compensated consultant. See "Related Party Transactions--Compensation Paid to
Dr. Weissman."
We have adopted the following methodology for compensating our directors:
upon election or appointment to an initial term on the board, we will grant a
director an option to purchase 20,000 shares at fair market value, which option
will vest ratably over 3 years. On the third anniversary date,
43
each re-elected director will be granted an additional option to purchase 15,000
shares at fair market value, which option will vest ratably over 3 years. In
addition, each director will receive a retainer of $18,000 annually and the
Chairman of the board of directors will receive a retainer of $35,000 annually,
each payable in options to purchase our common stock at $.25 per share.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has an audit committee and a compensation and stock
option committee. The board may also establish other committees to assist in the
discharge of its responsibilities.
The audit committee oversees our financial reporting process on behalf of
the board of directors, makes recommendations to the board regarding the
independent auditors to be nominated for election by the stockholders, reviews
the independence of such auditors, approves the scope of their annual audit
activities, reviews their audit results, assures that our financial reporting is
of high quality, and reviews the interim financial statements with our
management and the independent auditors prior to the filing of our Quarterly
Report on Form 10-Q. Dr. Schwartz and Dr. Perlmutter make up the audit
committee.
The duties of the compensation and stock option committee are to make
recommendations to the board and our management concerning salaries in general,
determine executive compensation, and approve incentive compensation. The
compensation and stock option committee is currently comprised of Mr. Levin and
Dr. Schwartz.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors served on the compensation and stock
option committee in 2000: Mr. Levin and Dr. Schwartz. In 1989, 1990 and 1991,
Mr. Levin was one of our executive officers.
We entered into a consulting services agreement with Dr. Schwartz on
July 27, 1998, as amended December 19, 1998, for strategic business advice and
counseling services, including assistance in the negotiation and consummation of
strategic collaboration transactions specified by us. Dr. Schwartz was elected
to the Board of Directors on December 19, 1998 and became a member of the
compensation and stock option committee on that date. During the fiscal year
ended December 31, 1999, we made payments to Dr. Schwartz under the consulting
services agreement and the letter agreement dated December 19, 1998 and amended
as of July 1, 1999, under which he served as a Director and Chairman of the
Board. See "Related Party Transactions." Both the consulting services agreement
and the letter agreement were terminated as of March 31, 2001.
We believe the terms of these agreements were no less favorable to us than
could have been obtained from unaffiliated third parties.
44
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us to our Chief
Executive Officers during the fiscal years ended December 31, 2000, 1999 and
1998 and the two other most highly compensated executive officers who served in
such capacities during the fiscal year ended December 31, 2000. There were no
other persons serving as executive officers at the end of such fiscal year.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- -------------------------------------------------- -------- --------- --------- ---------- ------------
GEORGE W. DUNBAR, JR. ............................ 2000 186,538 50,000 36,031 --
Acting President and Chief Executive Officer(1) 1999 48,000
RICHARD M. ROSE M.D. ............................. 2000 309,632 -- -- --
Chief Executive Officer(2) 1999 279,974 -- -- 4,667(3)
1998 286,553 -- 150,000(4) 11,330(5)
ANN TSUKAMOTO, PH.D. ............................. 2000 159,054 -- -- 4,783(6)
VP, Scientific Operations
RONNDA BARTEL, PH.D. ............................. 2000 129,668 -- -- 3,245(7)
VP, Scientific Development
- --------------------------
(1) Mr. Dunbar became Acting President and Chief Executive Officer effective as
of February 1, 2000, and resigned from that position effective as of
January 15, 2001.
(2) Dr. Rose became Chief Executive Officer on September 26, 1997. Dr. Rose
resigned as a director and officer of the company and its wholly owned
subsidiary effective as of January 31, 2000.
(3) Represents the personal portion of the use of a company vehicle, as well as
$5,000 of fair market value of our matching contributions of common stock to
Dr. Rose's account in the company's 401(k) Plan.
(4) Represents the regrant of an option in the original amount of 200,000 shares
which was reduced to 150,000 shares as a result of the employee equity
incentive repricing plan approved by the Board of Directors on
July 10,1998.
(5) Represents $4,666.56 of fair market value of the company matching
contributions of common stock to Dr. Rose's account in our 401(k) Plan.
(6) Represents $4,783 of fair market value of the company matching contributions
of common stock to Dr. Tsukamoto.
(7) Represents $3,245 of fair market value of the company matching contributions
of common stock to Dr. Bartel.
OPTION GRANTS IN LAST YEAR
The following table provides information on option grants in 2000 to
Mr. Dunbar, the only named executive officer to be granted options in 2000.
45
OPTION GRANTS IN LAST YEAR
POTENTIAL REALIZABLE VALUE
SECURITIES PERCENT OF AT ASSUMED ANNUAL RATES OF
UNDERLYING TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME (# OF SHARES) 2000(1) ($/SHARE)(2) DATE 0%($) 5%($) 10%($)
- ---- ------------- ------------- ------------ ---------- -------- -------- --------
George W. Dunbar, Jr....... 73,000(3) 22% 1.094 10/15/01 271,998 307,120 345,580
12,031(3) 4% 4.156 10/15/01 13,162 19,467 26,371
- ------------------------
(1) We granted options covering 330,031 shares of common stock to employees in
the fiscal year ended December 31, 2000.
(2) The exercise price may be paid by delivery of already-owned shares and tax
withholding obligations related to exercise may be paid by offset of the
underlying shares, subject to certain conditions.
(3) As of December 31, 2000, options for 85,031 shares were fully vested.
OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES
The following table provides information about option exercises in 2000 by
the named executive officers and the value of such officers' unexercised options
on December 31, 2000.
AGGREGATED OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Richard M. Rose, M.D...... 156,250 865,328 -- 93,750 -- --
George W. Dunbar, Jr...... 42,000 209,160 24,031 -- 11,248 --
Ann Tsukamoto, Ph.D....... -- -- 78,082 33,168 29,638 35,161
Ronnda Bartel, Ph.D....... -- -- 19,270 33,230 24,814 43,058
- ------------------------
(1) Value is based on the difference between the aggregate option exercise price
and the fair market value as of December 31, 2000. The fair market value of
the common stock is based on the closing price of the our common stock on
December 29, 2000 (the last trading day of 2000) on the Nasdaq National
Market, which was $2.50.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Martin McGlynn joined the company as President and Chief Executive Officer
on January 15, 2001. Under the terms of an agreement between Mr. McGlynn and us,
Mr. McGlynn is entitled to an annual base salary of $275,000 per year,
reviewable annually by the board of directors, and a bonus, in the board's sole
discretion, of up to 25% of his base salary. Mr. McGlynn was granted an option
to purchase 400,000 shares of common stock with an exercise price equal to the
fair market value of the common stock on the date of his employment. One-fourth
of these options will vest on the first anniversary of his employment and the
remaining three-fourths will vest in equal monthly installments during his
second through fourth years of employment. The board may, in its sole
discretion, grant Mr. McGlynn a bonus option to purchase up to an additional
25,000 shares. The vesting under the option is subject to acceleration in the
event of certain changes of control. We also agreed to pay Mr. McGlynn a $50,000
relocation bonus and reimburse him for relocation expenses. Our agreement with
Mr. McGlynn provides that if his employment is terminated by us without cause or
by
46
Mr. McGlynn for good reason, he will be entitled to severance payments equal to
one year's base salary and he will receive healthcare benefits under our plans
for one year after termination. If Mr. McGlynn's employment is terminated as a
result of his disability, he will receive up to six months' base salary. If we
terminate Mr. McGlynn's employment for cause or if he resigns without good
reason, he will not be entitled to any severance or other benefits.
STOCK PLANS AND RELATED TRANSACTIONS
In April 2001, our board of directors adopted the 2001 Equity Incentive
Plan, subject to stockholder approval.
The purpose of the Plan is to advance our interests by enhancing our ability
to attract and retain executive officers, employees, directors and other persons
or entities providing services to us who are in a position to make significant
contributions to our success, and to reward participants for such contributions,
through ownership of shares of our common stock. The Plan is intended to
accomplish these goals by enabling us to grant awards in the form of options,
stock appreciation rights, restricted stock, unrestricted stock or deferred
stock, or performance awards, loans or supplemental grants or combinations
thereof, all as more fully described below. The Plan will be the successor to
both our 1992 Equity Incentive Plan and our 1992 Stock Option Plan for
Non-Employee Directors. No awards may be made under either of the 1992 plans
after February 12, 2002.
The Plan will be administered by our board of directors. Under the Plan, the
board may grant stock options, stock appreciation rights, restricted stock,
unrestricted stock, deferred stock, and performance awards (in cash or stock),
or combinations thereof, and may waive the terms and conditions of any award. A
total of 3,000,000 shares of common stock may be issued under the Plan.
Employees, including executive officers, directors and other persons or entities
providing services to us or its subsidiaries who are in a position to make a
significant contribution to our success are eligible to receive awards under the
Plan.
The exercise price of an incentive stock option ("ISO") granted under the
Plan or an option intended to qualify as performance-based compensation under
Section 162(m) of the Code shall not be less than 100% of the fair market value
of the stock at the time of grant. The board determines the exercise price of a
non-ISO granted under the Plan. No stock options may be granted under the Plan
after March 28, 2011, but stock options previously granted may extend beyond
that date. The exercise price may be paid in cash or by check. Subject to
certain additional limitations, the board may also permit the exercise price to
be paid by tendering shares of stock, by delivery of a promissory note, by
delivery to us of an undertaking by a broker to deliver promptly sufficient
funds to pay the exercise price, or a combination of the foregoing.
Stock appreciation rights ("SARs") may be granted either alone or in tandem
with stock option grants. Each SAR entitles the holder on exercise to receive an
amount in cash or stock or a combination thereof (such form to be determined by
the board) determined in whole or in part by reference to appreciation in the
fair market value of a share of Stock. SARs may be based solely on appreciation
in the fair market value of stock or on a comparison of such appreciation with
some other measure of market growth.
The Plan provides for awards of nontransferable shares of restricted stock
subject to forfeiture, as well as unrestricted shares of stock. Shares of
restricted stock may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated until the end of the applicable period and the
satisfaction of any other conditions or restrictions established by the board.
Except as the Plan may otherwise specifically provide, if a participant ceases
to be an employee or ceases to continue the consulting or other similar
relationship engaged in by such participant with us for any reason other than
death during the restricted period, then the restricted stock must be offered to
us for purchase for the amount of cash paid for the restricted stock, or
forfeited to us if no cash was paid. The Plan also
47
provides for deferred grants entitling the recipient to receive shares of stock
in the future at such times and on such conditions as the board may specify.
The Plan provides for performance awards entitling the recipient to receive
without payment cash or stock or a combination thereof following the attainment
of performance goals determined by the board. In the case of any performance
award intended to qualify for the performance-based remuneration exception
described in Section 162(m) of the Code, the board will in writing pre-establish
specific performance goals that are based upon any one or more operational,
result or event-specific goals.
The Plan provides that the board has full authority to decide whether to
make a loan to a participant in connection with the purchase of stock under an
award or with the payment of any applicable income tax recognized as a result of
an award. The Plan also provides that, in connection with any award, the board
may provide for and grant a cash award with certain limitations as to the amount
of the supplemental grant.
Except as otherwise provided by the board, if a participant dies, options
and SARs exercisable immediately prior to death may be exercised by the
participant's executor, administrator or transferee during a period of one year
following such death (or for the remainder of their original term, if less).
Options and SARs not exercisable at a participant's death terminate. In the case
of termination for reasons other than death, options and SARs remain
exercisable, to the extent they were exercisable immediately prior to
termination, for three months (or for the remainder of their original term, if
less); provided that if in the Board's judgment the reason for the award
holder's termination casts discredit on us sufficient to justify immediate
termination of the award, then such award will immediately terminate.
In the case of certain mergers, consolidations or other transactions in
which we are acquired or is liquidated and there is a surviving or acquiring
corporation, the Plan permits the board to arrange for the assumption of awards
outstanding under the Plan or the grant to participants of replacement awards by
that corporation. All outstanding awards not assumed by the surviving or
acquiring corporation shall become exercisable immediately prior to the
consummation of such merger, consolidation or other transaction and upon such
consummation all outstanding awards that have not been assumed or replaced will
terminate.
The board may amend the Plan or any outstanding award at any time, provided
that no such amendment will, without the approval of our stockholders,
effectuate a change for which shareholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code.
The future benefits or amounts that would be received under the Plan by the
executive officers and the non-executive officer employees are discretionary and
are therefore not determinable at this time.
The 2001 Equity Incentive Plan will become effective as of May 31, 2001,
provided that it is approved by the stockholders at our annual meeting.
48
RELATED PARTY TRANSACTIONS
COMPENSATION PAID TO DR. SCHWARTZ
Dr. Schwartz, a member and Chairman of the board of directors, was retained
in July 1998 under a consulting services agreement to serve as a consultant to
us rendering strategic business advice and counseling services, including
assistance in the negotiation and consummation of strategic collaboration
transactions specified by us. The consulting services agreement provided for
compensation to Dr. Schwartz in the amount of $50,000 in cash for services
rendered during the period of September 27, 1997 through July 26, 1998, plus a
fully vested option to purchase 20,000 shares of our common stock at $1.281, the
fair market value of our common stock at the time of the grant. For services
rendered during the term of the consulting services agreement, Dr. Schwartz was
entitled to total cash compensation of $120,000, an option to purchase 76,000
shares of our common stock with an exercise price equal to the closing bid price
for the shares on July 27, 1998, and an option to purchase 48,000_____ shares of our common stock at the then current fair market valueassumed public offering price of $______ per share (the last reported sale price of our common stock on July 27, 1999, vesting at a rate of 2,000 shares per month. In addition,The Nasdaq Capital Market on _______, 2018), and after deducting the consulting services agreement provided that in the event that, at a time when
Dr. Schwartz was not a member of the board of directors but the consulting
services agreement was still in effect, Dr. Schwartz materially participated in
the negotiationestimated underwriting discounts and consummation of a strategic collaboration transaction
specifiedcommissions and estimated offering expenses payable by us, heand excluding the proceeds, if any, from the exercise of any pre-funded warrants issued pursuant to this offering, our as adjusted net tangible book value as of June 30, 2018 would have been be entitledapproximately $______ million, or $______ per share of common stock. This represents an immediate increase in as adjusted net tangible book value of $______ per share to receive additional
compensation equalour existing stockholders, and an immediate dilution of $_____ per share to 3% ofnew investors purchasing securities in this offering at the transaction consideration, payable halfassumed public offering price. All share and per share information are retroactively adjusted to reflect our 1-for-15 reverse stock split on September 4, 2018.
The following table illustrates this dilution on a per share basis:
| Assumed public offering price per share | $ | |||||||
| Historical net tangible book value per share as of June 30, 2018 | $ | 2.72 | ||||||
| Pro forma increase in net tangible book value per share attributable to investors in this offering | ||||||||
| As adjusted net tangible book value per share after this offering | ||||||||
| Dilution per share to investors participating in this offering | $ |
If the underwriter exercises in cash
and half in the form of anfull its option or warrant to purchase up to_____ additional shares of common stock at the assumed public offering price of $_____ per share (the last reported sale price of our common stock at $.20 on The Nasdaq Capital Market on _______, 2018), the as adjusted net tangible book value after this offering would be $_____ million, or $_____per share, representing an increase in net tangible book value of $_____ per share to existing stockholders and immediate dilution in net tangible book value of $_____ per share to investors purchasing our securities in this offering at the numberassumed public offering price.
The foregoing discussion and table does not take into account further dilution to investors in this offering that could occur upon the exercise of shares being calculatedoutstanding options and warrants, including the pre-funded warrants offered pursuant to this offering and the Underwriter’s Warrants, having a per share exercise price less than the public offering price per share in this offering.
The foregoing discussion and table are based on the fair
market value of our common stock ten days prior to the first public announcement
of the consummation of, the execution of a letter of intent for, or the
existence of discussions concerning the collaboration transaction. There have
been no such strategic collaboration transactions that would have given rise to
additional compensation.
On December 19, 1998, Dr. Schwartz became a member of the board of directors
and its Chairman and his compensation for services in this capacity was provided
for under the terms of a letter agreement, which also incorporated certain
compensation provided for under the consulting services agreement. Under the
letter agreement, as amended July 1, 1999, Dr. Schwartz in his capacity as
Chairman was entitled to receive $132,000 in cash per year, plus $1,500 per
board or committee meeting and $500 per telephonic meeting. He also received an
option to acquire 40,000 shares of our common stock under the 1992 Equity
Incentive Plan, with an exercise price equal to the fair market value on the
date of the grant. The time requirement for his position was set at thirty
business days per quarter. Dr. Schwartz canceled both the letter agreement and
the consulting services agreement as of March 31, 2001. He currently continues
to serve in his position as Chairman and member of the board of directors under
the terms of the compensation policy recently approved by the directors. See
"Management--Director Compensation."
COMPENSATION PAID TO DR. WEISSMAN
Dr. Weissman, a member of the board of directors, was retained in
September 1997 to serve as a consultant to us. Pursuant to his consulting
agreement, Dr. Weissman has agreed to provide consulting services to us and
serve on our Scientific Advisory Board. We agreed to pay Dr. Weissman $50,000
per year for his services and granted him an option to purchase 500,0002,945,676 shares of common stock outstanding as of June 30, 2018, adjusted for $5.25 per share,our 1-for-15 reverse stock split on September 4, 2018, and excludes, as of which 31,250September 30, 2018:
| ● | 412,478 shares of our common stock issuable upon the exercise of outstanding stock options, with exercise prices ranging from $0 to $19.35 and having a weighted-average exercise price of $11.70 per share; | |
| ● | 211,239 shares of our common stock reserved for future grant under our 2017 Equity Incentive Plan; | |
| ● | Approximately 7,531 shares of our common stock issuable upon the exercise of outstanding warrants, with exercise prices ranging from approximately $40.00 to $2,885 per share and having a weighted-average exercise price of $1,967 per share; and | |
| ● | An aggregate of 67,000 shares of our common stock issuable upon the conversion of 1,001 shares of our Series A Convertible Preferred Stock. |
To the extent that options, warrants or other convertible securities outstanding as of June 30, 2018 have been or may be exercised, converted or other shares vested atissued, investors purchasing securities in this offering may experience further dilution. In addition, we may seek to raise additional capital in the datefuture through the sale of grant. Originally,equity or convertible debt securities. To the remainderextent that additional capital is raised through the sale of equity or convertible debt securities, the option would have vested upon the
occurrenceissuance of certain milestones relatedthese securities could result in further dilution to our stem cell research program and
in the event of certain changes of control. We agreed to amend the option on
October 27, 2000 so that the shares would become exercisable over eight years
from the original grant date or in the event of certain changes of control. We
recorded compensation expense of $823,759 during the fourth quarter of 2000 as a
result of this change in the vested portion of the option. The deferred
compensation
49
expense associated with the unvested portion of the grants was recorded as
$669,116. We plan to revalue the options using the Black-Scholes method on a
quarterly basis and recognize additional compensation expense accordingly. We
also agreed in September 1997 to nominate Dr. Weissman for a position on the
board of directors. Dr. Weissman's consulting agreement contains
confidentiality, noncompetition, and assignment of invention provisions and is
for a term of fifteen years, subject to earlier termination by us for cause or
frustration of purpose and earlier termination by Dr. Weissman for good reason.
Dr. Weissman initially received no compensation as a member of the board of
directors or for attending meetings of the board or its committees or meetings
of our Scientific Advisory Board, but was reimbursed for reasonable expenses he
incurred in attending such meetings. In October 2000, we agreed with
Dr. Weissman that we would pay him the same compensation paid to other members
of the board. See "Management--Director Compensation."
PREFERRED STOCK ISSUED TO DR. WEISSMAN AND MR. LEVIN
In April 2000, we sold 750 shares of our 6% cumulative convertible preferred
stock plus a warrant to purchase 37,500 shares of our common stock at $6.58 per
share to each of Dr. Weissman and Mr. Levin, each a director, for $750,000, for
a total of $1,500,000, on terms more favorable to us than we were able to obtain
from outside investors. The face value of the shares is convertible at the
option of the holder into common stock at $3.77 per share. The holders of the
preferred stock have liquidation rights equal to their original investments plus
accrued but unpaid dividends. Any unconverted preferred stock will be converted
into common stock on April 13, 2002. The warrants expire on April 13, 2005.
50
The following table showssets forth information regarding the beneficial ownership of our capital stock, as of April 30, 2001 for:
- each personNovember 7, 2018, by:
| ● | each of our directors; | |
| ● | each of our named executive officers; | |
| ● | all of our current directors and executive officers as a group; and | |
| ● | all those known by us to be to a beneficial owner of more than 5% of the Company’s common stock. |
In general, “beneficial ownership” refers to shares that an individual or groupentity has the power to vote or dispose of, affiliated persons known by usand any rights to own beneficially
more than 5% of the outstanding shares ofacquire common stock and 6% cumulative
convertible preferred stock;
- each director and named executive officer; and
- all directors and executive officers as a group.
The address for each listed director and officer is c/o StemCells, Inc.,
3155 Porter Drive, Palo Alto, CA 94304.
We have determined beneficial ownership in the table in accordance with the
rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, we have deemed to be outstanding shares of capital stock subject to
options or warrants held by that person that are currently exercisable or will become exercisable within 60 days of April 30, 2001, but we have notNovember 7, 2018. We calculated percentage ownership in accordance with the rules of the SEC. The percentage of common stock beneficially owned is based on 2,975,676 shares outstanding as of November 7, 2018. In addition, shares issuable pursuant to options or other convertible securities that may be acquired within 60 days of November 7, 2018 are deemed
these shares to be issued and outstanding for computingand have been treated as outstanding in calculating and determining the beneficial ownership and percentage ownership of those persons possessing those securities, but not for any other person. To our knowledge, exceptpersons.
This table is based on information supplied by each prospective director, officer and principal stockholder of the Company. Except as set forthindicated in footnotes to this table, the footnotes below, each
stockholder identifiedCompany believes that the stockholders named in thethis table possesseshave sole voting and investment power with respect to all shares of common stock and 6% cumulative convertible
preferred stockCommon Stock shown asto be beneficially owned by that stockholder. Beneficial
ownership percentage isthem, based on 21,458,211 sharesinformation provided by such stockholders. Unless otherwise indicated, the address for each director, executive officer and 5% or greater stockholder of our common stock and 1,500
shares of our 6% cumulative convertible preferred stock outstanding on
March 31, 2001.
| Number of Shares | Percentage of Common Stock Beneficially Owned | |||||||||||
| Beneficial Owner | Beneficially Owned | Before Offering | After Offering(1) | |||||||||
| Directors and Executive Officers | ||||||||||||
| Harel Gadot(2) | 303,384 | 9.78 | % | |||||||||
| Yoav Waizer(3) | 1,016 | * | ||||||||||
| Yoseph Bornstein(4) | 299,710 | 10.07 | % | |||||||||
| Scott Burell(3) | 1,016 | * | ||||||||||
| Martin Madden(3) | 1,016 | * | ||||||||||
| David Ben Naim(3) | 2,000 | * | ||||||||||
| Yehezkel (Hezi) Himelfarb(3) | 29,004 | * | ||||||||||
| Prattipati Laxminarain(3) | 1,016 | * | ||||||||||
| All current directors and executive officers as a group (8 persons)(5) | 638,162 | 20.33 | % | |||||||||
| Five Percent Shareholders | ||||||||||||
| LSA - Life Science Accelerator Ltd.(4) | 299,710 | 10.07 | % | |||||||||
| MEDX Ventures Group LLC(6) | 254,711 | 8.34 | % | |||||||||
| Saber Holding GmbH(7) | 287,134 | 9.65 | % | |||||||||
| Moshe Shoham(8) | 159,636 | 5.27 | % | |||||||||
| * | Less than 1% |
| (1) | Assumes the sale of __ shares of our common stock and common stock underlying pre-funded warrants offered by us in this offering and does not include any shares of our common stock underlying the underwriter’s option to cover over-allotments, or underlying the Underwriter’s Warrants. |
| (2) | Includes 77,864 shares of our common stock issuable upon the exercise of options granted to MEDX Ventures Group and 48,673 shares of our common stock issuable upon the exercise of options granted to Mr. Gadot. All of such shares and 77,864 options are held by MEDX Ventures Group LLC, which is beneficially owned by Mr. Gadot. See Note 6 below. |
| (3) | Represents options to acquire shares of our common stock. |
| (4) | Based on representations and other information made or provided to the Company by Mr. Bornstein, Mr. Bornstein is the CEO and Director of LSA and of Shizim, and Mr. Bornstein is the majority equity owner of Shizim. Shizim is the majority equity owner of LSA. Accordingly, Mr. Bornstein may be deemed to share voting and investment power over the shares beneficially owned by these entities and has an address of 16 Iris Street, Rosh-Ha’Ayin Israel 4858022. Includes 1,016 shares of our common stock issuable upon exercise of options. |
| (5) | Includes shares of our common stock issuable upon the exercise of options as set forth in footnotes (1), (2) and (3). |
| (6) | Includes 77,864 shares of our common stock issuable upon the exercise of options granted to MEDX Ventures Group. Mr. Gadot is the Chief Executive Officer, Company Group Chairman and majority equity owner of MEDX Venture Group and thus may be deemed to share voting and investment power over the shares beneficially owned by this entity. Does not include 48,673 shares of our common stock issuable upon the exercise of options granted to Mr. Gadot directly. See Note 1 above. |
| (7) | Pursuant to a Schedule 13D/A-2 filed on June 20, 2017, Mrs. Sandra Berkson owns 100% of the equity of Saber Holding GmbH. Mr. Avram Berkson and Mrs. Sandra Berkson have shared power with Saber to vote or direct the vote, and to dispose or direct the disposition, of such shares. Saber’s address is Krummbaumgasse 10/20, 1020 Wein, Austria. |
| (8) | Includes 55,743 shares of our common stock issuable upon the exercise of options. |
| 16 |
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
As of March 31, 2001, the total amountdate of ourthis prospectus, we are authorized to issue up to 221,000,000 shares of capital stock, consisted of 45,000,000 shares of common stock, $.01 par value $0.01 per share, divided into two classes designated, respectively, “common stock” and undesignated “preferred stock.” Of such shares authorized, 220,000,000 shares are designated as common stock, and 1,000,000 shares of authorized preferred stock, $.01 par value per share, 2,626
of which has beenare designated as 6% cumulativeundesignated preferred stock, to be issued from
time to time in one or more series, with such designations, powers, preferences,
rights, qualifications, limitations and restrictions as our board of directors
may determine. As of March 31, 2001, we had outstanding 21,458,211 shares of
common stock and 1,500 shares of 6% cumulative convertible preferred stock.
As of March 31, 2001, we had 287 stockholders of record with respect to our
common stock, and we had outstanding options and warrants to purchase 3,461,105
shares of our common stock, of which 871,386 were currently exercisable.
The following is a summary of provisionsthe material terms of our capital stock describes all materialand certain provisions of but does not purport to be complete and is subject to, and
qualified in its entirety by, our restated certificate of incorporation and our
amended and restated by-laws, whichbylaws. Since the terms of our certificate of incorporation and bylaws, and Delaware law, are includedmore detailed than the general information provided below, you should only rely on the actual provisions of those documents and Delaware law. If you would like to read those documents, they are on file with the SEC, as exhibits todescribed under the registration
statement of which this prospectus forms a part, andheading “Where You Can Find Additional Information” below. The summary below is also qualified by the provisions of applicable law.
COMMON STOCK
On September 4, 2018, we filed a Certificate of Amendment (the “Amendment”) to our Restated Certificate of Incorporation to implement a 1-for-15 reverse split of our common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each fifteen shares of our issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock. The Reverse Stock Split affected all issued and outstanding shares of the Company’s common stock are, and preferred stock, as well as common stock underlying stock options, preferred stock and warrants outstanding immediately prior to the effectiveness of the Reverse Stock Split. The Amendment did not decrease the number of authorized shares of the Company’s common stock, nor did it alter the par value of common stock, which remained at $0.01 per share, or modify any voting rights or other terms of our common stock or preferred stock. Unless otherwise indicated, all information set forth in this prospectus gives effect to the Reverse Stock Split.
As of November 7, 2018, there were 2,975,676 shares of common stock to be issuedoutstanding that were held of record by us in connection with the offering will be, validly
issued, fully paid and nonassessable. Holdersapproximately 184 stockholders, although we believe that there is a significantly larger number of beneficial owners of our common stock are entitled
to any and all dividends as such dividends are declared by the board of
directors. This right is not cumulative, and no right shall accrue to holders of
common stock by reason of the fact that dividends on said shares were not
declared in any prior period. The shares of common stock are not convertible and
the holders thereof have no preemptive or subscription rights to purchase any of
our securities. Upon liquidation, dissolution or winding up of our company, the
holdersstock.
Common Stock
Holders of common stock are entitled to an amount equal to $1.00 perone vote for each share subject to the rights of the holders of the preferred stock. After payment to
the holders of the common stock of the full preferential amounts due to them,
the holders of common stock have the right to share equally in the distribution
of the entire remaining assets of the company legally available for
distribution, subject to the rights of the holders of the preferred stock. Each
outstanding share of common stock is entitled to one voteheld on all matters submitted to a vote of stockholders suchand do not have cumulative voting rights. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, out of funds that we may legally use to pay dividends, subject to any preferential dividend rights of any outstanding series of preferred stock or series of preferred stock that we may designate and issue in the future. All shares of common stock outstanding as of the date of this prospectus and, upon issuance and sale, all shares of common stock that we may offer pursuant to this prospectus, will be counted together
withfully paid and nonassessable.
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
General
We have authority to issue up to 1,000,000 shares of preferred stock, par value $0.01 per share. As of June 30, 2018, we had 1,001 shares of Series A Convertible Preferred Stock issued and outstanding that can convert into an aggregate of 67,000 shares of our common stock. As of the date of this prospectus, no other shares of capitalour preferred stock having voting powers and not as a
separate class, except as otherwise required by law.
Our common stock is traded on the Nasdaq National Market under the symbol
"STEM."
PREFERRED STOCK
were outstanding or designated.
Our board of directors mayis authorized, without stockholder approval, from time to time, direct the issuance ofto issue shares of preferred stock in series and may, at the time of issuance, subject to Delaware law and our certificate of incorporation and by-laws, determine the rights, preferences and limitations of each series. Sharesseries, including voting rights, dividend rights and redemption and liquidation preferences. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of any one series shallfunds available for the payment of dividends on shares of our common stock. Holders of shares of preferred stock may be identical with each otherentitled to receive a preference payment in all respects except as to
the dates from which dividends shall accrue and/or cumulate. In the event of any liquidation, dissolution or winding upwinding-up of theour company before any payment is made to the holders of undesignatedshares of our common stock. In some circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of each series are entitled to receive an amount
fixedcontrol by a holder of a large block of our restated certificatesecurities or the removal of incorporation or byincumbent management. Upon the resolution(s)affirmative vote of theour board of directors, providing for the issuancewithout stockholder approval, we may issue shares of such series.
The board of directors designated 2,626 shares, $.01 par value per share, as
6% cumulative convertible preferred stock 1,500 shares ofwith voting and conversion rights which are issued and
outstanding. The holders of these preferred shares are entitled to receive
cumulative dividends at a per share rate of 6% of the liquidation preference of
each share, per annum accruing daily and compounding quarterly, with
52
priority over payment of any dividend on common stock or any other class or
series of equity security of the company. In the event of any liquidation,
dissolution or winding up of the company,could adversely affect the holders of the 6% cumulative
convertibleshares of our common stock.
If we issue a specific series of preferred stock, are entitled to receive in preference to holderswe will file a copy of any other class or seriesthe certificate establishing the terms of equity securities, an amount equal to $1,000 per
share plus (i) dividends added to the liquidation preference, (ii) all accrued
but unpaid dividends and (iii) all "Monthly Delay Payments" under a registration
rights agreement, dated April 13, 2000, by and between us and Irving Weissman
and Mark Levin. The 6% cumulative convertible preferred stock was issued
pursuant to a securities purchase agreement, dated April 13, 2000, by and
between us and Irving Weissman and Mark Levin. Each holderwith the Secretary of State of the 6%State of Delaware and with the SEC. To the extent required, this description will include:
| ● | the title and stated value; | |
| ● | the number of shares offered, the liquidation preference per share and the purchase price; | |
| ● | the dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation for such dividends; | |
| ● | whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate; | |
| ● | the procedures for any auction and remarketing, if any; | |
| ● | the provisions for a sinking fund, if any; | |
| ● | the provisions for redemption, if applicable; | |
| ● | any listing of the preferred stock on any securities exchange or market; | |
| ● | whether the preferred stock will be convertible into our common stock, and, if applicable, the conversion price (or how it will be calculated) and conversion period; | |
| ● | whether the preferred stock will be exchangeable into debt securities, and, if applicable, the exchange price (or how it will be calculated) and exchange period; | |
| ● | voting rights, if any, of the preferred stock; | |
| ● | a discussion of any material and/or special U.S. federal income tax considerations applicable to the preferred stock; | |
| ● | the relative ranking and preferences of the preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; and | |
| ● | any material limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the Company. |
Series A Preferred Stock
In December 2016 and May 2017, we filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, or the Series A Certificate of Designation, with the Secretary of State of the State of Delaware, establishing and designating an aggregate of 12,991 shares of the Series A Preferred Stock. Each share of Series A Preferred Stock is convertible, preferred stock has at any time at the right to convert any or all 6%
cumulative convertible preferred stock held by suchoption of the holder thereof, into fully paid,
validly issued and nonassessable1,000 shares of common stock, $.01 par value per
share, at which pointsubject to certain adjustments and subject to the ownership limitation described below. The Series A Preferred Stock has no sinking provisions, dividend rights, liquidation preference or other preferences over common stock and has no voting rights except as provided in the Series A Certificate of Designation or as otherwise required by law.
The Series A Preferred Stock contains limitations that prevent the holder from acquiring shares upon conversion of shares of series A preferred stock that would result in the number of shares beneficially owned by the holder and its affiliates exceeding 4.99% of the holderstotal number of converted 6% cumulative
convertible preferred stock shall be treated as having become the owners of such
common stock. The affirmative vote of a majority in interest of the outstanding
6% cumulative convertible preferred stock is required for (i) any amendment,
modification or repeal of the Certificate of Designations, Certificate of
Incorporation or by-laws that may amend or change or adversely affect any of the
rights or preference of the 6% cumulative convertible preferred stock; provided,
however, that the holders of 6% cumulative convertible preferred stock who are
affiliates of the company shall not participate in such votes, and such shares
shall be deemed not to be outstanding for purposes of such votes. We have no
current intention to issue any more of our unissued, authorized shares of
undesignated preferred stock. However, the issuance of any shares of
undesignated preferred stock in the future could adversely affect the rights of
the holders of common stock.
WARRANTS
As of March 31, 2001, we had outstanding warrants to purchase 918,956 shares
of common stock at a weighted average exercise price of $1.75 per share, subject
to customary antidilution adjustment. The warrants were issued at various times
since April 13, 2000 to eight different parties as described below.
As of April 13, 2000, we issued to each of Irving Weissman and Mark Levin,
each a director, a warrant in connection with a Securities Purchase Agreement
dated as of April 13, 2000. Each warrant is to purchase 37,500 shares of our common stock then issued and outstanding, which limitation may be increased to 9.99% at an exercise pricethe option of $6.58125 per share. Each warrant is
exercisable,the holder. In addition, upon certain changes in whole or in part, at any time on or after April 13, 2000 and on
or priorcontrol of Microbot, holders of shares of Series A Preferred Stock can elect to April 13, 2005. The exercise price isreceive, subject to adjustment for
subdivisions, combinations, stock dividends, reorganizationscertain limitations and various other
issuances. We may, at any time duringassumptions, securities in a successor entity equal to the termvalue of the warrant, reduce the
exercise price to any amount for any period of time deemed appropriate by our
board of directors. See "Related Party Transactions--Preferredholders’ Series A Preferred Stock, Issued to
Dr. Weissman and Mr. Levin."
We issued a warrant to Millennium Partners L.P. on August 3, 2000, which may
entitle them to receive additional sharesor if holders of common stock on eight dates
beginning six months from that date and every three months thereafter. On
Augustare given a choice of cash or property, then cash or property equal to the value of the holder’s outstanding Series A Preferred Stock.
As of June 30, 20002018, we issued a second warrant to Millennium which may entitle them
to receive additionalhad 1,001 shares of common stock on eight dates beginning six months
from August 30, 2000Series A Preferred Stock issued and every three months thereafter. On November 1, 2000, we
agreed with Millennium to cancel the adjustable warrant issued on August 30,
2000 and to decrease the numberoutstanding, convertible into an aggregate of shares for which the adjustable warrant
issued on August 3, 2000 may be exercisable. The number of additional shares
Millennium will be entitled to receive on each date will be based on the number
of shares of common stock Millennium continues to hold on each date and the
market price of our common stock over a period prior to each date. We will have
the right, under certain circumstances, to limit the number of additional shares
by purchasing part of the entitlement from Millennium. The remaining warrant is
exercisable, in whole or in part, at any time on or prior to 30 days after the
last date which may entitle Millennium to receive additional shares. This
warrant is subject to adjustment
53
for subdivisions, combinations, stock dividends, reorganizations and various
other issuances of common stock. On January 27, 2001, Millennium's August 3,
2000 adjustable warrant became exercisable for 463,36967,000 shares of our common stock, and Millennium purchased allno shares of those sharesSeries A Preferred Stock are available for $4,634issuance.
Outstanding Warrants
As of June 30, 2018, we had outstanding:
| ● | warrants to purchase approximately 2,770 shares of our common stock at an exercise price of approximately $40.00 per share, which are exercisable through March 14, 2022, and which are subject to “full ratchet” price-based anti-dilution adjustments; | |
| ● | warrants to purchase approximately 683 shares of our common stock at an exercise price of approximately $1,363 per share, which are exercisable through April 30, 2020; and | |
| ● | warrants to purchase approximately 183 shares of our common stock at an exercise price of approximately $2,725 per share, which are exercisable through April 9, 2023. |
Nasdaq Capital Market
Our common stock is listed on March 30,
2001. On April 27, 2001,The Nasdaq Capital Market under the adjustable warrant became exercisablesymbol “MBOT.”
Transfer Agent and Registrar
The transfer agent and registrar for an
additional 622,469our common stock is Computershare Trust Company, N.A. The transfer agent and registrar’s address is Meidinger Tower, 462 South 4th Street, Louisville, KY 40202.
DESCRIPTION OF SECURITIES WE ARE OFFERING
We are offering _____ shares of our common stock and the warrant has not been
exercised with respect to those shares.
Millennium also received a warrant on August 3, 2000or pre-funded warrants to purchase up to
101,587shares of our common stock. The shares of common stock at $4.725 per share, which is callable by us at
$7.875 per underlying share. On August 30, 2000 weor pre-funded warrants will be issued an additional warrant
to purchase up to 19,900separately. We are also registering the shares of common stock at $6.03 per share which is
callable by us at $10.05 per underlying share. Millennium has an optionissuable from time to purchase up to $2 milliontime upon exercise of the pre-funded warrants offered hereby.
Common Stock
The material terms and provisions of our common stock onand each other class of our securities which qualifies or prior to August 3, 2001. If
it exercises all or part of this option, it will receive an additional callable
warrant. Each callable warrant is exercisable, in whole or in part, at any time
on or after the issuance date and on or prior to the fifth year anniversary of
the issuance date. The exercise price and number of shares are subject to
adjustment for subdivisions, combinations, stock dividends, reorganizations and
various other issuances.
On August 3, 2000 we issued a warrant to the May Davis Group and four of its
affiliates to purchase up to 100,000 shares of common stock at $5.0375 per
share. The warrant is exercisable, in whole or in part, at any time on or after
the issuance date and on or prior to the fifth year anniversary of the issuance
date. The exercise price and number of shares are subject to adjustment for
subdivisions, combinations, stock dividends, reorganizations and various other
issuances.
On May 10, 2001, in connection with our execution of a common stock purchase
agreement with Sativum Investments Limited, we issued three three-year warrants
to purchase an aggregate of 350,000 shares oflimits our common stock at $2.38 per
share to Sativum (250,000 shares), Pacific Crest Securities Inc. (75,000 shares)are described under the caption “Description of Capital Stock” in this prospectus.
Pre-Funded Warrants
The following summary of certain terms and Granite Financial Group, Inc. (25,000 shares). The shares underlying theseprovisions of pre-funded warrants that are being registered for saleoffered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the pre-funded warrant, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of pre-funded warrant for a complete description of the terms and conditions of the pre-funded warrants.
Duration and Exercise Price. Each pre-funded warrant offered hereby will have an initial exercise price per share equal to $0.01. The pre-funded warrants will be immediately exercisable and may be exercised at any time until the pre-funded warrants are exercised in full. The exercise price and number of shares areof common stock issuable upon exercise is subject to appropriate adjustment for subdivisions, combinations,in the event of stock dividends, and
reorganizations.
PROVISIONS OF DELAWARE LAW GOVERNING BUSINESS COMBINATIONS
We are subject to the "business combination" provisions of the Delaware
General Corporation Law. In general, such provisions prohibit a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless:
- the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained such status;
- upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tendersplits, reorganizations or exchange
offer; or
- on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of a corporation's voting stock or within
54
three years did own 15% or more of a corporation's voting stock. The statute
could prohibit or delay mergers or other takeover or change in control attempts.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar forsimilar events affecting our common stock is EquiServe L.P.
COMMON STOCK PURCHASE AGREEMENT
On May 10, 2001, we entered intoand the exercise price.
Exercisability.The pre-funded warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a common stock purchase agreement with
Sativum Investments Limited, a British Virgin Islands corporation,duly executed exercise notice accompanied by payment in full for the future issuance and purchasenumber of shares of our common stock. Thisstock purchased upon such exercise (except in the case of a cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of the pre-funded warrant to the extent that the holder would own more than 4.99% of the outstanding common stock purchase agreement establishes whatimmediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the amount of ownership of outstanding stock after exercising the holder’s pre-funded warrants up to 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is sometimes termeddetermined in accordance with the terms of the pre-funded warrants. Purchasers of pre-funded warrants in this offering may also elect prior to the issuance of the pre-funded warrants to have the initial exercise limitation set at 9.99% of our outstanding common stock. No fractional shares of common stock will be issued in connection with the exercise of a pre-funded warrant. In lieu of fractional shares, we will either pay the holder an equity line.
In general,amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
Cashless Exercise. If, at the time a holder exercises its pre-funded warrants, a registration statement registering the issuance of the shares of common stock underlying the pre-funded warrants under the equity line, SativumSecurities Act is not then effective or available, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in the pre-funded warrants.
Transferability.Subject to applicable laws, a pre-funded warrant may be transferred at the option of the holder upon surrender of the pre-funded warrant to us together with the appropriate instruments of transfer.
Exchange Listing. There is no trading market available for the pre-funded warrants on any securities exchange or nationally recognized trading system. We do not intend to list the pre-funded warrants on any securities exchange or nationally recognized trading system.
Right as a Stockholder. Except as otherwise provided in the pre-funded warrants or by virtue of such holder’s ownership of shares of our common stock, the holders of the pre-funded warrants do not have the rights or privileges of holders of our common stock, including any voting rights, until they exercise their pre-funded warrants.
Fundamental Transaction. In the event of a fundamental transaction, as described in the pre-funded warrants and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, the holders of the pre-funded warrants will be entitled to receive upon exercise of the pre-funded warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the pre-funded warrants immediately prior to such fundamental transaction.
We have entered into an underwriting agreement dated ________, 2018 with H.C. Wainwright & Co., LLC, as underwriter, with respect to the securities being offered hereby. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriter and the underwriter has committedagreed to providepurchase from us, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, shares of our common stock and pre-funded warrants.
Pursuant to the terms and subject to the conditions contained in the underwriting agreement, we have agreed to sell to the underwriter named below, and the underwriter has agreed to purchase from us, the respective number of shares of common stock and pre-funded warrants set forth opposite its name below:
| Underwriter | | | Number of Shares of Common Stock | | | Number of Pre-funded Warrants | |
| H.C. Wainwright & Co., LLC | | | | ||||
The underwriting agreement provides that the obligation of the underwriter to purchase the shares of common stock and/or pre-funded warrants offered by this prospectus is subject to certain conditions. The underwriter is obligated to purchase all of the shares of common stock and/or pre-funded warrants if any of the securities are purchased, other than those shares covered by the option to purchase additional securities described below. Delivery of the shares of common stock and any pre-funded warrants to purchasers is expected on or about ______, 2018, subject to certain customary closing conditions.
The underwriter proposes to offer the shares of common stock and/or pre-funded warrants purchased pursuant to the underwriting agreement to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $_____ per share or per pre-funded warrant. After this offering, the public offering price and concession may be changed by the underwriter. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.
In connection with the sale of the common stock and/or pre-funded warrants to be purchased by the underwriter, the underwriter will be deemed to have received compensation in the form of underwriting commissions and discounts. The underwriter’s commissions and discounts will be 7% of the gross proceeds of this offering, or $_____ per share of common stock or per pre-funded warrant.
Underwriting Discounts, Commissions and Expenses
The following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriter’s option to purchase additional shares of common stock.
| Per Share | Per Pre- funded Warrants | Total Without Option | Total With Option | |||||||||||||
| Public offering price | $ | $ | $ | $ | ||||||||||||
| Underwriting discounts and commissions | $ | $ | $ | $ | ||||||||||||
| Proceeds before expenses | $ | $ | $ | $ | ||||||||||||
We have also agreed to pay to the underwriter a management fee equal to 1% of the aggregate gross proceeds raised in this offering. We estimate the total expenses payable by us for this offering, excluding the underwriting discounts and commissions, to be approximately $_____, which includes (i) a $35,000 non-accountable expense allowance payable to the underwriter, (ii) reimbursement of the accountable expenses of the underwriter up to $30 million$125,000, including the legal fees of the underwriter, (iii) if applicable, reimbursement of documented costs of clearing agent settlement and financing up to $10,000 and (iv) other estimated expenses, which include legal, accounting, printing costs and various fees associated with the registration and listing of our securities sold in this offering in a total estimated amount of $_____.
We have also agreed to pay the underwriter a tail fee equal to the cash and warrant compensation in this offering if any investor which the underwriter contacted or introduced us to during the term of the underwriter’s engagement (other than investors who have a pre-existing relationship with us) provides us with further capital in a public or private offering or capital raising transaction and such offering or transaction is consummated during the six-month period following termination or expiration of that certain engagement letter, dated October 12, 2018, entered into between us and the underwriter.
In addition, we have agreed to issue to the underwriter warrants (the “Underwriter’s Warrants”) to purchase up to shares of common stock, which represents 5% of the aggregate number of shares of common stock and pre-funded warrants sold in this offering (including the number of shares of common stock issuable upon exercise of the option to purchase additional securities), at an exercise price of $_____ per share (representing 125% of the public offering price per share of common stock to be sold in this offering). The Underwriter’s Warrants will be exercisable immediately and shall expire five years following the effective date of this offering. Pursuant to FINRA Rule 5110(g), the Underwriter’s Warrants and any shares issued upon exercise of the Underwriter’s Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering, except the transfer of any security: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period; (iii) if the aggregate amount of our securities held by the underwriter or related persons do not exceed 1% of the securities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) the exercise or conversion of any security, if all securities remain subject to the lock-up restriction set forth above for the remainder of the time period.
Option to Purchase Additional Securities
We have granted to the underwriter an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to an additional _____ shares of common stock at the public offering price, less the underwriting discounts and commissions, set forth on the cover page of this prospectus. If any additional shares of common stock are purchased pursuant to such option, the underwriter will offer these securities on the same terms as we request it overthose on which the securities are being offered hereby.
Right of First Refusal
We have also granted the underwriter a 30-monthright of first refusal for a period in returnof twelve months following the closing of this offering to act as sole book-running manager, sole underwriter or sole placement agent for newly issuedeach and every future public offering or private placement of equity or debt securities by us or any of our subsidiaries.
Lock-up Agreements
Our Section 16 (under the Exchange Act) officers and directors have agreed with the underwriter to be subject to a lock-up period of 90 days following the date of this prospectus. This means that, during the applicable lock-up period, such persons may not offer for sale, contract to sell, sell, distribute, grant any option, right or warrant to purchase, pledge, hypothecate or otherwise dispose of, directly or indirectly, any of our shares of common stock or any securities convertible into, or exercisable or exchangeable for, shares of common stock. Once every 22 trading daysCertain limited transfers are permitted during the lock-up period if the transferee agrees to these lock-up restrictions.
We have also agreed, in the underwriting agreement, to similar lock-up restrictions on the Nasdaq National Market, weissuance and sale of our shares of common stock, or any securities convertible into, or exercisable or exchangeable for, shares of common stock, for 90 days following the closing of this offering, subject to certain exceptions.
The underwriter may, requestin its sole discretion and without notice, waive the terms of any of these lock-up agreements.
Stabilization, Short Positions and Penalty Bids
The underwriter may engage in syndicate covering transactions, stabilizing transactions and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock:
| ● | Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Such a naked short position would be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriter is concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in the offering. | |
| ● | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specific maximum. | |
| ● | Penalty bids permit the underwriter to reclaim a selling concession from a syndicate member when the securities originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These syndicate covering transactions, stabilizing transactions and penalty bids may have the effect of raising or maintaining the market prices of our securities or preventing or retarding a drawdown. The amount we can draw down at each request must be at least
$100,000. The maximum amount we can actually draw down for each request is also
limited to 6%decline in the market prices of our securities. As a result, the weighted average price of our common stock formay be higher than the 60
calendar days priorprice that might otherwise exist in the open market. Neither we nor the underwriter make any representation or prediction as to the dateeffect that the transactions described above may have on the price of our request multiplied bycommon stock. These transactions may be effected on the totalNasdaq Capital Market, in the over-the-counter market or on any other trading volumemarket and, if commenced, may be discontinued at any time.
In connection with this offering, the underwriter also may engage in passive market making transactions in our common stock in accordance with Regulation M during a period before the commencement of offers or sales of our securities in this offering and extending through the completion of the distribution. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for that security. However, if all independent bids are lowered below the passive market maker’s bid that bid must then be lowered when specific purchase limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.
Neither we nor the underwriter make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the prices of our securities. In addition, neither we nor the underwriter make any representation that the underwriter will engage in these transactions or that any transactions, once commenced, will not be discontinued without notice.
Indemnification
We have agreed to indemnify the underwriter against certain liabilities, including certain liabilities arising under the Securities Act, or to contribute to payments that the underwriter may be required to make for these liabilities.
Determination of Offering Price
The actual offering price of the securities we are offering will be negotiated between us and the underwriter based on the trading of our common stock for the 60 calendar days prior to our request. We are
under no obligationthe offering, among other things, and may be at a discount to issue any shares to Sativum or to request a drawdown
during any period.
Each 20-day trading period following a drawdown request is divided into two
10 trading day settlement periods. We are entitled to receive fundsthe current market price.
Electronic Offer, Sale and must
deliver shares to SativumDistribution of Securities
A prospectus in electronic format may be made available on the 12th daywebsites maintained by the underwriter, if any, participating in this offering and the 22nd day followingunderwriter may distribute prospectuses electronically. Other than the deliveryprospectus in electronic format, the information on these websites is not part of a drawdown notice. Our requested drawdown amount will be reduced by
1/20 for each day during the 20 trading day period that the volume-weighted
average stock price falls below a threshold price set by us or for each day on
which trading of our shares on Nasdaq is suspendedthis prospectus or the registration statement of which this prospectus formsform a part, is suspended. We then usehas not been approved or endorsed by us or the formulasunderwriter, and should not be relied upon by investors.
Other Relationships
The underwriter and its respective affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates.
Listing
Our common stock purchase agreementis listed on The Nasdaq Capital Market under the symbol “MBOT.” We do not plan to determinelist the numberpre-funded warrants or the Underwriter’s Warrants on The Nasdaq Capital Market or any other securities exchange or trading market.
Notice To Investors
Belgium
The offering is exclusively conducted under applicable private placement exemptions and therefore it has not been and will not be notified to, and this document or any other offering material relating to the securities has not been and will not be approved by, the Belgian Banking, Finance and Insurance Commission (“Commission bancaire, financière et des assurances/Commissie voor het Bank, Financie en Assurantiewezen”). Any representation to the contrary is unlawful.
The underwriter has undertaken not to offer sell, resell, transfer or deliver directly or indirectly, any units, or to take any steps relating/ancillary thereto, and not to distribute or publish this document or any other material relating to the units or to the offering in a manner which would be construed as: (a) a public offering under the Belgian Royal Decree of shares7 July 1999 on the public character of financial transactions; or (b) an offering of securities to the public under Directive 2003/71/EC which triggers an obligation to publish a prospectus in Belgium. Any action contrary to these restrictions will cause the recipient and the Company to be in violation of the Belgian securities laws.
France
Neither this prospectus nor any other offering material relating to the securities has been submitted to the clearance procedures of the Autorité des marchés financiers in France. The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the securities has been or will be: (a) released, issued, distributed or caused to be released, issued or distributed to the public in France; or (b) used in connection with any offer for subscription or sale of the securities to the public in France. Such offers, sales and distributions will be made in France only: (i) to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in and in accordance with Articles L.411-2, D.411-1, D.411-2, D.734-1,D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier; (ii) to investment services providers authorised to engage in portfolio management on behalf of third parties; or (iii) in a transaction that, wein accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des marchés financiers, does not constitute a public offer (appel public à l’épargne). Such securities may be resold only in compliance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
United Kingdom/Germany/Norway/The Netherlands
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State other than the offers contemplated in this prospectus in name(s) of Member State(s) where prospectus will issue to Sativum in returnbe approved or passported for the actual drawdown amount. The formulas for
determiningpurposes of a non-exempt offer once this prospectus has been approved by the actual drawdown amounts,competent authority in such Member State and published and passported in accordance with the numberProspectus Directive as implemented in name(s) of sharesrelevant Member State(s) except that we issuean offer to Sativumthe public in that Relevant Member State of any security may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
| (a) | to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; |
| (b) | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; |
| (c) | by the representative to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or |
| (d) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of units shall result in a requirement for the publication by the company or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an “offer to the public” in relation to any units in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any units to be offered so as to enable an investor to decide to purchase any units, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the price per share paid by Sativum are describedexpression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in detail
beginning on page 56. each Relevant Member State.
The aggregate total of all drawdownsunderwriter has represented, warranted and agreed that:
| (a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection with the issue or sale of any units in circumstances in which section 21(1) of the FSMA does not apply to the company; and |
| (b) | it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom. |
Israel
This prospectus does not constitute a prospectus under the equity line
cannot exceed $30,000,000.
The price per share dollar amount that Sativum pays for our common stock for
each drawdown includes a 6% discountIsraeli Securities Law, 5728-1968, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus is being distributed only to, and is directed only at, investors listed in the first addendum, or the Addendum, to the average daily market priceIsraeli Securities Law, consisting primarily of our
common stock for each day duringjoint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the 20 day trading period after our drawdown
request, weighted by trading volume during each such trading day. The actual
drawdown amount will be reduced by a fee, equal to 3% of net proceeds, payable
to the placement agent, Pacific Crest Securities, Inc., which introduced Sativum
to us. Pacific Crest has agreed to contribute one-third of each of its drawdown
fees to Granite Financial Group, Inc.
We are required to complyTel Aviv Stock Exchange, underwriters, venture capital funds, entities with Nasdaq's issuer designation requirements. One
of those requirements prevents us from issuing, pursuant to the common stock
purchase agreement, more than 3,922,606 shares, or 19.9% of our outstanding
common stock on May 10, 2001 minus the shares underlying the warrants, unless
and until we receive the approval of our stockholders. If necessary, we will
seek stockholder approval at or prior to our 2002 or 2003 annual meeting of
stockholders in case we opt to issue shares of common stock pursuant to the
common stock purchase agreementequity in excess of that amount. Additionally,NIS 50 million and “qualified individuals,” each as defined in the common stock purchase agreement does not permit us to draw funds if the issuance
of shares of common stock to Sativum pursuant to the drawdown would exceed 9.9%
of our outstanding common stock held by Sativum on the drawdown exercise date.
In such cases, we will notAddendum (as it may be permitted to issue the shares otherwise issuable
pursuant to the drawdown that exceed that amount of shares, and Sativum will not
be obligated to purchase those shares. Shares sold by Sativum
55
time will reduce its beneficial ownership of our common stock and
accordingly permit ustime), collectively referred to sell additional shares to Sativumas qualified investors, in each case, purchasing for their own account or, where permitted under the common
stock purchase agreement.
We are prohibited by the common stock purchase agreement from entering into
any other stand-by equity based credit facilities during the term of the common
stock purchase agreement. We are not prohibited, however, from entering into
other equity or debt financing arrangements.
In connection with the common stock purchase agreement, we issued to Sativum
at the initial closing a warrant certificate to purchase up to 250,000 shares of
our common stock. The warrant expires on May 10, 2004. The exercise price of the
warrant is $2.3805. Simultaneous with the issuance of the warrant to Sativum, we
issued a warrant to Pacific CrestAddendum, for the purchaseaccounts of up to 75,000 shares of our
common stock and to Granite Financial Group, Inc. for the purchase of up to
25,000 shares of our common stock, on the same terms as Sativum's warrant. The
shares underlying these warrantstheir clients who are being registered by the registration
statement of which this prospectus forms a part.
THE DRAWDOWN PROCEDURE AND THE STOCK PURCHASES
We may request a drawdown by faxing to Sativum a drawdown notice, stating
the amount of the drawdown that we wish to exercise and the minimum threshold
price at which we are willing to sell the shares.
DOLLAR AMOUNT OF THE DRAWDOWN
No drawdown can be less than $100,000 or more than 6% of the weighted
average price of our common stock for the sixty calendar days prior to the date
of our request, multiplied by the total trading volume of our common stock for
the 60 calendar days prior to our request. A sample calculation of the maximum
drawdown amount is described on page 57.
The actual dollar amount of the drawdown will be reduced by 1/20 for every
day during the 20 trading days after our drawdown request that:
- the volume weighted average price is less than the minimum threshold price
we designate;
- the common stock is suspended for more than three hours, in the aggregate,
or if any trading day is shortened because of a public holiday; or
- if sales of previously drawn down shares pursuant to the registration
statement of which this prospectus is a part are suspended by us because
of certain potentially material events for more than three hours, in the
aggregate.
If any of the above three conditions is met for one or more trading days
during the 20 trading day period, the actual dollar amount of our drawdown will
be lower than we requested in our notice. The volume weighted average price of
any trading day during a pricing period that meets any of the conditions above
will have no effect on the pricing of the shares purchased with respect to the
other days during that pricing period.
NUMBER OF SHARES
The volume-weighted average price of our shares on each of the 20 trading
days immediately following the drawdown notice, except for days excluded in any
of the three bullets above, is used to determine the number of shares that we
will issue in return for the money provided by Sativum. We will not know the
number of shares we will be issuing in a drawdown at the time of delivery of our
drawdown notice. If our stock price falls during the 20 trading days after the
notice, the number of shares will proportionately rise, except that we will not
be required to issue shares below the threshold price that we will have set in
the notice.
56
The number of shares of common stock that we will issue with respect to each
trading day during a drawdown will be determined by the following formula:
- 1/20th of the dollar amount contained in our drawdown notice divided by
- 94% of the volume-weighted average price of our common stock for that day.
The 94% reflects Sativum's 6% discount. The sum of these 20 daily calculations
produces the number of common shares that we will issue, unless trading one or
more days is excluded as explained above, in which case that day is ignored in
the calculation.
SAMPLE CALCULATION OF STOCK PURCHASES
The following is an example of the calculation of a single drawdown and the
number of shares we would issue to Sativum in connection with that drawdown
based on the assumptions noted in the discussion below.
SAMPLE MAXIMUM DRAWDOWN AMOUNT CALCULATION
For purposes of this example, suppose that we provide a drawdown notice to
Sativum, and that we set the threshold price at $1.90 per share based on the
volume weighted average price before applying the 6% discount. Suppose further
that the total trading volume for the 60 calendar days prior to our drawdown
notice is 5,335,700 shares and that the average of the volume-weighted average
daily prices of our common stock for the 60 calendar days prior to the notice is
$2.18. Using these hypothetical numbers, which by way of example only are the
actual volume and price numbers for our common stock for the 60 calendar days
ended May 18, 2001, the maximum amount of the drawdown is as follows:
- the total trading volume for the 60 calendar days prior to our drawdown
notice, 5,335,700, multiplied by
- the average of the volume-weighted average daily prices of our common
stock for the 60 calendar days prior to the drawdown notice, $2.18,
multiplied by
- 6%
equals $697,910.
The maximum amount we can request in a drawdown notice under the formula and
using these hypothetical numbers, is therefore capped at $697,910.
SAMPLE CALCULATION OF NUMBER OF SHARES
Assuming we requested the maximum drawdown amount reflected by the
hypothetical numbers above, and assuming that the volume-weighted average daily
prices for our common stock for the twenty trading days following our drawdown
notice as set forth in the table below, the number of shares to be issued based
on any trading day during the drawdown period can be calculated as follows:
- 1/20 of the requested drawdown amount of $697,910 divided by
- 94% of the volume-weighted average daily price.
For example, for the fourth trading day in the example in the table below,
the calculation is as follows: 1/20 of $697,910 is $34,895. Divide $34,895 by
94% of the volume-weighted average daily price for that day of $1.90 per share,
to get 19,538 shares. Perform this share calculation for each of the 20
measuring days during the drawdown period, excluding any days on which the
volume-weighted average daily price is below the $1.90 threshold price, or on
which trading of our common stock or the
57
effectiveness of the registration statement of which this prospectus forms a
part is suspended. Add the results to determine the number of shares to be
issued.
After excluding the first three days of the period because they are below
the threshold price, the actual dollar amount of our drawdown in this example
would be $593,223, $244,268 of which would be settled on day 12 for the first
settlement period, and $348,955 of which would be settled on day 22 for the
second settlement period. The total number of shares that we would issue to
Sativum for this drawdown request would be 264,445 shares, so long as those
shares, together with all other shares held by Sativum, do not exceed 9.9% of
our then outstanding common stock. Of these total shares issued with respect to
this hypothetical drawdown, 128,612 shares would be issued on day 12 for the
first settlement period and 135,833 shares would be issued on day 22 for the
second settlement period. Sativum would pay an average of $2.24 per share for
these shares.
HYPOTHETICAL DRAWDOWN PRICING PERIOD(1)
VOLUME WEIGHTED
AVERAGE PRICE DAILY INVESTMENT
TRADING DAY (VWAP) 94% OF VWAP AMOUNT NUMBER OF SHARES SOLD
- --------------------- ---------------------- ---------------------- ---------------------- ----------------------
1 $1.87 $1.76 (2) (2)
2 $1.84 $1.73 (2) (2)
3 $1.82 $1.71 (2) (2)
4 $1.90 $1.79 $34,895 19,538
5 $1.92 $1.81 $34,895 19,316
6 $1.94 $1.83 $34,895 19,114
7 $1.94 $1.82 $34,895 19,136
8 $2.11 $1.99 $34,895 17,567
9 $2.11 $1.98 $34,895 17,624
10 $2.28 $2.14 $34,895 16,317
11 $2.31 $2.17 $34,895 16,046
12 $2.42 $2.27 $34,895 15,352
13 $2.96 $2.78 $34,895 12,551
14 $2.77 $2.60 $34,895 13,399
15 $2.64 $2.48 $34,895 14,075
16 $2.52 $2.37 $34,895 14,735
17 $2.91 $2.73 $34,895 12,762
18 $2.87 $2.69 $34,895 12,948
19 $3.02 $2.84 $34,895 12,298
20 $3.18 $2.99 $34,895 11,667
---------------------- ----------------------
Total $593,223 264,445
(1) We have used the volume-weighted average share prices of our common stock
during the twenty trading days ended May 18, 2001 for illustrative purposes
only. Our use of these numbers should not be interpreted as a forecast of
share prices, an indicator of the prices at which we may choose to utilize
the equity line or the expected or historical volatility of our common
stock, whether during or outside a drawdown period. Due to rounding,
division of the figures in the above table may not exactly equal the shares
presented.
(2) Excluded because the volume-weighted average daily price is below the
threshold specified in our hypothetical drawdown notice.
We would receive the amount of our adjusted drawdown, $593,223, less an
aggregate 3% cash fee paid to the placement agent, Pacific Crest, of $17,797,
for net proceeds to us of approximately $575,426. Pacific Crest would contribute
one-third, or $5,932, of this hypothetical placement fee to
58
Granite. The delivery of the requisite number of shares and payment of the
drawdown will take place electronically and, if we choose, through an escrow
agent, Epstein, Becker & Green, P.C. of New York.
NECESSARY CONDITIONS BEFORE SATIVUM IS OBLIGATED TO PURCHASE OUR SHARES
The following conditions must be satisfied before Sativum is obligated to
purchase any common shares following a drawdown request:
- a registration statement for the resale of the shares by Sativum must be
declared effective by the Securities and Exchange Commission and must
remain effective and available as of the drawdown settlement date;
- trading in our common shares must not have been suspended by the
Securities and Exchange Commission or the Nasdaq National Market, nor
shall minimum prices have been established on securities whose trades are
reported on the Nasdaq National Market;
- we must not have merged or consolidated with or into another company or
transferred all or substantially all of our assets to another company,
unless the acquiring company has agreed to honor the common stock purchase
agreement;
- no statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect which prohibits consummation of the
transactions contemplated by the common stock purchase agreement; and
- no event which is materially adverse to our business, operations,
properties or financial condition shall have occurred.
A further condition is that we may not issue more than 19.9% of our common
shares issued and outstanding on May 10, 2001 pursuant to the common stock
purchase agreement on the associated warrants, without our first obtaining
approval from our stockholders for the excess issuance. In addition, the common
stock purchase agreement provides that Sativum is not permitted to purchase
shares of our common stock pursuant to a drawdown to the extent that the
purchase of those shares would result in Sativum's beneficially owning more than
9.9% of our common stock following the purchase. Accordingly, each drawdown will
be limited to an amount that will cause Sativum's beneficial ownership as of the
date of the purchase to exceed 9.9%. However, shares sold by Sativum from time
to time will reduce its beneficial ownership of our common stock and accordingly
permit us to sell additional shares to Sativum under the common stock purchase
agreement.
COSTS OF CLOSING THE TRANSACTION
At the initial closing of the transaction on May 10, 2001, we paid $25,000
to cover the fees and expenses of Sativum's counsel. We owe Sativum an
additional $25,000 prior to June 23, 2001 to cover additional non-accountable
fees and expenses. Pacific Crest Securities, Inc. also received a $25,000
placement fee. Pacific Crest is not obligated to purchase any of our shares
pursuant to the common stock purchase agreement.
LIQUIDATED DAMAGES
Wequalified investors. Qualified investors will be required to pay liquidated damagessubmit written confirmation that they fall within the scope of the Addendum.
Italy
The offering of the securities offered hereby in Italy has not been registered with the Commissione Nazionale per la Società e la Borsa (“CONSOB”) pursuant to Sativum if we fail to
deliver shares within 5 trading days after a settlement date. We will alsoItalian securities legislation and, accordingly, the securities offered hereby cannot be required to pay liquidated damages to Sativum ifoffered, sold or delivered in the effectivenessRepublic of Italy (“Italy”) nor may any copy of this registration statement is suspended during,prospectus or within 5 days after, a drawdown
pricing period. In the latter case, we will be required to compensate Sativum
for any net decline in the price of our shares greater than 20% following the
suspensionother document relating to the extent Sativum sold shares at the reduced price within 5 days
after the end of the suspension period.
59
TERMINATION OF THE COMMON STOCK PURCHASE AGREEMENT
The equity line established by the common stock purchase agreement will
terminate 30 months from the effective date of the registration statement of
which this prospectus forms a part. The equity line shall also terminate if we
file for protection from creditors, if our common stock is delisted from The
Nasdaq National Market and not promptly relisted on Nasdaq, Nasdaq SmallCap
Market, the American Stock Exchange or the New York Stock Exchange. We may
terminate the agreement if Sativum failssecurities offered hereby be distributed in Italy other than to perform its obligations to purchase
shares with respect to a drawdown.
INDEMNIFICATION OF SATIVUM AND PACIFIC CREST
Sativum is entitled to customary indemnification from us for any losses or
liabilities suffered by it as a result of material misstatements or omissions
from the common stock purchase agreement, registration statement and this
prospectus as supplemented from time to time, except as they relate to
information supplied by Sativum to us for inclusion in the registration
statement and prospectus. Pacific Crest is also entitled to customary
indemnification from us from any losses or liabilities suffered by it in
connection with its role as placement agent.
SELLING STOCKHOLDERS
OVERVIEW
Shares of our common stock registered for resale under this prospectus
constitute 48.2% of our issued and outstanding common shares as of March 31,
2001. However, the common stock purchase agreement provides that we may not sell
more than 4,272,606 shares of common stock, or 19.9% of our issued and
outstanding common stock as of May 10, 2001, the date of the common stock
purchase agreement, unless and until we receive the approval of our stockholders
as required pursuant to Nasdaq's issuer designation requirements. The number of
shares we are registering is based in part on our good faith estimate of the
maximum number of shares we may issue to Sativum under the common stock purchase
agreement. We are under no obligation to issue any shares to Sativum under the
common stock purchase agreement. Accordingly, the number of shares we are
registering for issuance under the common stock purchase agreement may be higher
than the number we actually issue under the common stock purchase agreement.
SATIVUM INVESTMENTS LIMITED
Sativum Investments Limited is engaged in the business of investing in
publicly traded equity securities for its own account. Sativum's principal
offices are located at Harbour House, 2nd Floor, Road Town, Tortolla, British
Virgin Islands. Investment decisions for Sativum are made by its board of
directors. Sativum has informed us that it does not currently own any of our
securities as of the date of this prospectus. Other than its obligation to
purchase common shares under the common stock purchase agreement, it has no
other commitments or arrangements to purchase or sell any of our securities.
Sativum is prohibited by the common stock purchase agreement from engaging in
short sales of our common stock,professional investors (operatori qualificati) as defined in applicableArticle 31, second paragraph, of CONSOB Regulation No. 11522 of 1 July, 1998 as subsequently amended. Any offer, sale or delivery of the securities regulations. There are no business relationships between Sativumoffered hereby or distribution of copies of this prospectus or any other document relating to the securities offered hereby in Italy must be made:
| (a) | by an investment firm, bank or intermediary permitted to conduct such activities in Italy in accordance with Legislative Decree No. 58 of 24 February 1998 and Legislative Decree No. 385 of 1 September 1993 (the “Banking Act”); |
| (b) | in compliance with Article 129 of the Banking Act and the implementing guidelines of the Bank of Italy; and |
| (c) | in compliance with any other applicable laws and regulations and other possible requirements or limitations which may be imposed by Italian authorities. |
Sweden
This prospectus has not been nor will it be registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this prospectus may not be made available, nor may the securities offered hereunder be marketed and usoffered for sale in Sweden, other than as contemplated byunder circumstances which are deemed not to require a prospectus under the common stock purchase agreement.
PACIFIC CREST SECURITIES, INC. AND GRANITE FINANCIAL GROUP, INC.
Pacific Crest Securities, Inc., a registered broker-dealer, has acted as
placement agent in connection with the equity line. Pacific Crest introduced us
to Sativum and assisted us with structuring the equity line with Sativum.
Pacific Crest's duties as placement agent were undertaken on a reasonable best
efforts basis only. It made no commitment to purchase shares from us and did not
ensure us of the successful placement of any securities.
60
Other than the warrant to purchase 75,000 shares of common stock granted to
Pacific Crest as a placement fee, Pacific Crest has informed us that it does not
currently own any of our securities. Other than the warrant to purchase 25,000
shares of common stock, Granite Financial Group, Inc., also a placement agent
and a registered broker-dealer, has informed us that it does not currently own
any of our securities.
Sativum, Pacific Crest and Granite have not held any positions as officers
or had material relationships with us or any of our affiliates within the past
three years other than as a result of the ownership of our common stock. If, in
the future, any of their relationships with us changes, we will amend or
supplement this prospectus to update this disclosure.
61
PLAN OF DISTRIBUTION
GENERAL
Sativum Investments, Limited, is offering the common shares for its account
as statutory underwriter, and not for our account. We will not receive any
proceeds from the sale of common shares by Sativum. Sativum may be offering for
sale up to 10,000,000 common sharesInstruments Trading Act (1991: 980).
Switzerland
The securities offered pursuant to this prospectus which it may
acquirewill not be offered, directly or indirectly, to the public in Switzerland and this prospectus does not constitute a public offering prospectus as that term is understood pursuant to the termsart. 652a or art. 1156 of the stock purchase agreement more fully
described underSwiss Federal Code of Obligations. The company has not applied for a listing of the section ofsecurities being offered pursuant to this prospectus entitled "The Common Stock
Purchase Agreement." Sativum is a statutory underwriter withinon the meaning ofSWX Swiss Exchange or on any other regulated securities market, and consequently, the Securities Act of 1933information presented in connectionthis prospectus does not necessarily comply with such sales of common shares and
will be acting as an underwriter in its resales of the common shares under this
prospectus. Sativum has, prior to any sales, agreed not to effect any offers or
sales of the common shares in any manner other than as specifiedinformation standards set out in the prospectus and not to purchase or induce others to purchase common shares in
violation of any applicable state and federalrelevant listing rules. The securities laws, rules and
regulations and the rules and regulations of The Nasdaq National Market. Sativum
has agreed not to engage in short sales of our common stock, as defined in
applicable securities regulations, during the term of the common stock purchase
agreement. We will pay the costs of registering the shares under this
prospectus, including legal fees.
To permit Sativum to resell the shares of common stock issued to it under
the stock purchase agreement, we agreed to register those shares and to maintain
that registration. To that end, we have agreed with Sativum that we will prepare
and file such amendments and supplements to the registration statement and the
prospectus as may be necessary in accordance with the Securities Act and the
rules and regulations promulgated thereunder, to keep it effective so long as
any of the shares are "registrable securities," as defined in our registration
rights agreement with Sativum. Registrable securities include all shares sold to
Sativumbeing offered pursuant to the common stock purchase agreement that:
-this prospectus have not been sold pursuantregistered with the Swiss Federal Banking Commission as foreign investment funds, and the investor protection afforded to the registration statementacquirers of which this
prospectus forms a part;
- haveinvestment fund certificates does not been sold pursuantextend to Rule 144 under the Securities Act;
- have not been otherwise transferredacquirers of securities.
Investors are advised to persons who may trade the shares
without restriction under the Securities Act, as evidenced by share
certificates not bearing a restrictive legend;contact their legal, financial or - may not be sold, in the opinion of our counsel, without restriction under
the Securities Act.
Shares of common stock offered through this prospectus may be sold from timetax advisers to time by Sativum. Shares of common stock issuable upon exerciseobtain an independent assessment of the warrants issued asfinancial and tax consequences of the date of the common stock purchase agreement to
Sativum, Pacific Crest Securities, Inc. and Granite Financial Group, Inc. or
their transferees, may also be sold through this prospectus. We will supplement
this prospectus to disclose the names of any transferees of warrant shares that
intend to offer common stock through this prospectus.
Sales may be made on the Nasdaq National Market, on the over-the-counter
market or otherwise at prices and at terms then prevailing or at prices related
to the then current market price, oran investment in negotiated private transactions, or in a
combination of these methods. Sativum will act independently of us in making
decisions with respect to the form, timing, manner and size of each sale. We
have been informed by Sativum and Pacific Crest that there are no existing
arrangements between either of them and any stockholder, broker, dealer,
underwriter or agent relating to the distribution of this prospectus. Sativum is
an underwriter in connection with resales of its shares.
The common shares may be sold in one or more of the following manners:
- a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker or dealer for its account under this prospectus; or
- ordinary brokerage transactions and transactions in which the broker
solicits purchases.
62
In effecting sales, brokers or dealers engaged by Sativum, Pacific Crest or
Granite may arrange for other brokers or dealers to participate. Except as
disclosed in a supplement to this prospectus, no broker-dealer will be paid more
than a customary brokerage commission in connection with any sale of the shares
of common stock by Sativum, Pacific Crest or Granite. Brokers or dealers may
receive commissions, discounts or other concessions from the selling
stockholders in amounts to be negotiated immediately prior to the sale. The
compensation to a particular broker-dealer may be in excess of customary
commissions. Profits on any resale of the shares of common stock as a principal
by such broker-dealers and any commissions received by such broker-dealers may
be deemed to be underwriting discounts and commissions under the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from Sativum, Pacific Crest and Granite, if they act as agent for
the purchaser of such shares of common stock, from such purchaser.
Broker-dealers who acquire common shares as principal may thereafter resell
such shares of common stock from time to time in transactions, which may involve
crosses and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above, in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with such resales may pay to or receive from the purchasers of such shares of
common stock commissions computed as described above. Brokers or dealers who
acquire common shares as principal and any other participating brokers or
dealers may be deemed to be underwriters in connection with resales of the
shares of common stock.
In addition, any shares of common stock covered by this prospectus which
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this prospectus. However, since Sativum is an underwriter, Rule 144
of the Securities Act is not available to Sativum to sell its shares. We will
not receive any of the proceeds from the sale of these shares of common stock,
although we have paid the expenses of preparing this prospectus and the related
registration statement of which it is a part and are required to reimburse
Sativum $50,000 for its legal and administrative costs.
Sativum, Pacific Crest and Granite are subject to the applicable provisions
of the Exchange Act, including without limitation Rule 10b-5 thereunder. Under
applicable rules and regulations under the Exchange Act, any person engaged in a
distribution of the shares of common stock may not simultaneously purchase such
securities for a period beginning when such person becomes a distribution
participant and ending upon such person's completion of participation in a
distribution. In addition, in connection with the transactions in the shares of
common stock, Sativum, Pacific Crest and Granite will be subject to applicable
provisions of the Exchange Act and the rules and regulations under that Act,
including, without limitation, the rules set forth above. These restrictions may
affect the marketability of the shares of common stock.
Sativum, Pacific Crest and Granite will pay all commissions and its own
expenses, if any, associated with the sale of the shares of common stock, other
than the expenses associated with preparing this prospectus and the registration
statement of which it is a part.
UNDERWRITING COMPENSATION AND EXPENSES
The underwriting compensation for Sativum will depend on the amount of
financing that we are able to obtain under the stock purchase agreement, up to a
maximum of $1,914,894 if we are able to obtain the entire $30,000,000 in
financing. Sativum will purchase shares under the stock purchase agreement at a
price equal to 94% of the volume-weighted average daily price of our common
stock reported on the Nasdaq National Market for each day in the pricing period
with respect to each drawdown request.
At the time of the initial closing under the common stock purchase
agreement, we also issued to Sativum a warrant to purchase 250,000 shares of our
common stock at an exercise price of $2.38 per share. The warrant expires May
10, 2004.
63
In addition, we are obligated to pay Pacific Crest, as compensation for its
services as Sativum's placement agent, a cash fee equal to 3% of the net
proceeds received from Sativum under the common stock purchase agreement for
draw downs under the equity line. The compensation to Pacific Crest will depend
on the amount of financing that we obtain under the common stock purchase
agreement, up to a maximum of $900,000 if we obtain the entire $30,000,000 in
financing. Pacific Crest has agreed to contribute one-third of all drawdown fees
to Granite Financial Group, Inc. We also issued to Pacific Crest a warrant to
purchase 75,000 shares of our common stock and to Granite a warrant to purchase
25,000 shares of our common stock. Each warrant has an exercise price of $2.38
per share and expires May 10, 2004.
LIMITED GRANT OF REGISTRATION RIGHTS
We granted registration rights to Sativum to enable it to sell the common
stock it purchases under the common stock purchase agreement. In connection with
any such registration, we will have no obligation:
- to assist or cooperate with Sativum in the offering or disposition of such
shares;
- to indemnify or hold harmless the holders of any such shares, other than
Sativum, or any underwriter designated by such holders;
- to obtain a commitment from an underwriter relative to the sale of any
such shares; or
- to include such shares within any underwritten offering we do.
We will assume no obligation or responsibility whatsoever to determine a
method of disposition for such shares or to otherwise include such shares within
the confines of any registered offering other than the registration statement of
which this prospectus is a part.
We will use commercially reasonable efforts to file, during any period
during which we are required to do so under our registration rights agreement
with Sativum, one or more post-effective amendments to the registration
statement of which this prospectus is a part to describe any material
information with respect to the plan of distribution not previously disclosed in
this prospectus or any material change to such information in this prospectus.
This obligation may include, to the extent required under the Securities Act of
1933, that a supplemental prospectus be filed, disclosing
- the name of any broker-dealers;
- the number of common shares involved;
- the price at which the common shares are to be sold;
- the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;
- that broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, as
supplemented; and
- any other facts material to the transaction.
Our registration rights agreement with Sativum permits us to restrict the
resale of the shares Sativum has purchased from us under the common stock
purchase agreement for a period of time sufficient to permit us to amend or
supplement this prospectus to include material information. If we restrict
Sativum during any pricing period or the five consecutive business days after a
pricing period and our stock price declines during the restricted period, we are
required to pay to Sativum cash to compensate Sativum for its inability to sell
shares during the restricted period. The amount we would be required to pay
would be the difference between the average daily volume weighed average price
of the common stock during the pricing period and the price at which the shares
were eventually sold, provided the sales are made within 5 business days of the
end of the restricted period and the difference in price is greater than 20% of
the average purchase price paid by Sativum during the relevant pricing period.
64
| 24 |
The validity of the shares of our common stocksecurities being offered herebyby this prospectus will be passed upon for us by Ropes & Gray,Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C., Boston, Massachusetts. EXPERTS
Ernst & YoungThe underwriter is being represented by Lowenstein Sandler, LLP, independent auditors, have audited ourNew York, New York.
The consolidated financial statements at December 31, 2000 and 1999, andof Microbot Medical Inc. appearing it its Annual Report on Form 10-K for each of the three
years in the periodyear ended December 31, 2000,2017, have been audited byBrightman Almagor Zohar & Co., a Member of Deloitte Touche Tohmatsu Limited,independent registered public accounting firm, as set forth in their report. We
havereport thereon, included thesetherein, and incorporated herein by reference. Such consolidated financial statements in the prospectus and elsewhere in the
registration statementare incorporated herein by reference in reliance on Ernst & Young LLP'supon such report given on theirthe authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MOREADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the common stock to be sold insecurities being offered by this offering.prospectus. This prospectus does not contain all of the information included in the registration statement and the related exhibits and schedules. You will find
additionalits exhibits. For further information aboutwith respect to us and our common stockthe securities offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. TheEach of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the registration statement, andover the related exhibits and schedules may
be inspected and copiedInternet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth100 F Street N.W.,NE, Washington, D.C. 20549,
and at the public reference facilities of the SEC's Regional Offices: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048;
and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of this material20549. You may also be obtained fromobtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth100 F Street N.W.N.E., Washington, D.C. 2054920549. Please call the SEC at prescribed rates. You can obtain1-800-SEC-0330 for further information on the operation of the public reference facilitiesfacilities. You may also request a copy of these filings, at no cost, by calling 1-800-SEC-0330. The SEC also maintains a site onwriting us at 25 Recreation Park Drive, Unit 108 Hingham, Massachusetts 02043 or telephoning us at (781) 875-3605.
We are subject to the World Wide Web (http://www.sec.gov) that containsinformation and periodic reporting requirements of the Exchange Act, and we file periodic reports, proxy and
information statements and other information regarding registrants, including
us, that file electronically with the SEC. Statements madeThese periodic reports, proxy statements and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at www.microbotmedical.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference in, and is not part of, this prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” information from other documents that we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. Information in this prospectus about legal documents may not necessarily be completesupersedes information incorporated by reference that we filed with the SEC prior to the date of this prospectus.
We incorporate by reference into this prospectus and you should read the
documents which are filed as exhibits or schedules to the registration statement of which this prospectus is a part the information or otherwisedocuments listed below that we have filed with the SEC.
65
STEMCELLS,SEC (Commission File No. 001-19871):
| ● | our annual report on Form 10-K for the year ended December 31, 2017 filed with the SEC on April 2, 2018; | |
| ● | our quarterly reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018, filed with the SEC on May 15, 2018 and August 14, 2018, respectively; | |
| ● | our Definitive Proxy Statement on Schedule 14A, filed with the SEC on July 27, 2018; | |
| ● | our current reports on Form 8-K and any amendments thereto on Form 8-K/A, filed with the SEC on January 8, 2018; January 31, 2018; March 28, 2018; April 5, 2018; April 16, 2018; September 4, 2018 and October 1, 2018 (in each case, except for information contained therein which is furnished rather than filed); and | |
| ● | the description of our common stock contained in our registration statement on Form 8-A, filed with the SEC on August 3, 1998, including all amendments and reports filed for the purpose of updating such description. |
In addition, all documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering (excluding any information furnished rather than filed) shall be deemed to be incorporated by reference into this prospectus.
We will provide to each person, including any beneficial owners, to whom a prospectus is delivered, a copy of any or all of the reports or documents that have been incorporated by reference in the prospectus contained in the registration statement but not delivered with the prospectus. We will provide these reports or documents upon written or oral request at no cost to the requester. You should direct any written requests for documents to Microbot Medical Inc. Attn: Chief Financial Officer, 25 Recreation Park Drive, Unit 108, Hingham, Massachusetts 02043. You may also telephone us at (781) 875-3605.
In accordance with Rule 412 of the Securities Act, any statement contained in a document incorporated by reference herein shall be deemed modified or superseded to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement.
MICROBOT MEDICAL INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
INDEX TO FINANCIAL STATEMENTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders andREGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors StemCells,and Stockholders of
MICROBOT MEDICAL, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of StemCells,Microbot Medical, Inc. (formerly CytoTherapeutics, Inc.and its subsidiary (the “Company”) as of December 31, 20002017 and 1999,2016 and the related consolidated statements of operations, changes in
redeemable common stock and stockholders'comprehensive loss, stockholders’ equity and cash flows for each of the threetwo years in the period ended December 31, 2000. 2017, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits.
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with auditingthe standards generally
accepted inof the United States.PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. AnOur audit also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion,
| /s/ Brightman Almagor Zohar & Co. | |
| Certified Public Accountants | |
| Member of Deloitte Touche Tohmatsu Limited |
Tel Aviv, Israel
April 2, 2018, except Note 1D, as to which the financial statements referred to above present fairly,date is November 8, 2018
We have served as the Company’s auditor since 2014.
| F-2 |
MICROBOT MEDICAL INC.
U.S. dollars in all material respects, the consolidated financial position of
StemCells, Inc. atthousands
(Except share data)
| As of December 31, | ||||||||||||
| Note | 2017 | 2016 | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 10,787 | $ | 2,709 | ||||||||
| Restricted cash | 27 | - | ||||||||||
| Other current assets | 3 | 116 | 606 | |||||||||
| 10,930 | 3,315 | |||||||||||
| Fixed assets, net | 4 | 90 | 53 | |||||||||
| Total assets | $ | 11,020 | $ | 3,368 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Trade payables | $ | 78 | $ | 512 | ||||||||
| Accrued liabilities | 5 | 450 | 271 | |||||||||
| Total current liabilities | 528 | 783 | ||||||||||
| Long-term liabilities: | ||||||||||||
| Convertible notes | 6 | - | 76 | |||||||||
| Derivative warrant liability | 7 | 28 | 313 | |||||||||
| 28 | 389 | |||||||||||
| Total liabilities | 556 | 1,172 | ||||||||||
| Commitments and contingencies | 8 | |||||||||||
| Temporary equity: | 9 | |||||||||||
| Common stock of $0.01 par value; issued and outstanding: 721,107 shares as of December 31, 2017 and 2016 | 500 | 500 | ||||||||||
| Shareholders’ equity: | ||||||||||||
| Preferred stock of $0.01 par value; Authorized: 1,000,000 shares as of December 31, 2017 and 2016;issued and outstanding: 4,001 and 9,736 shares as of December 31, 2017 and 2016, respectively | 9 | (*) | (*) | |||||||||
| Common stock of $0.01 par value; Authorized: 220,000,000 as of December 31, 2017 and 2016; issued and outstanding (**): 2,013,193 and 1,067,777 shares as of December 31, 2017, and December 31, 2016, respectively | 27 | 18 | ||||||||||
| Additional paid-in capital | 30,561 | 14,713 | ||||||||||
| Accumulated deficit | (20,624 | ) | (13,035 | ) | ||||||||
| 9,964 | 1,696 | |||||||||||
| $ | 11,020 | $ | 3,368 | |||||||||
(*) Less than 1
(**) December 31 20002017 and 1999, and2016 share data represents the consolidated resultsnumber of its operations and its cash flows for each ofshares adjusted to retroactively reflect the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
As1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
MICROBOT MEDICAL INC.
Consolidated Statements of Comprehensive Loss
U.S. dollars in thousands
(Except share data)
| Years ended | ||||||||||||
| December 31, | ||||||||||||
| Note | 2017 | 2016 | ||||||||||
| Research and development expenses, net | 11 | $ | 1,100 | $ | 901 | |||||||
| General and administrative expenses | 12 | 4,167 | 8,734 | |||||||||
| Operating loss | (5,267 | ) | (9,635 | ) | ||||||||
| Financing expenses, net | 13 | 2,322 | 28 | |||||||||
| Net loss | $ | (7,589 | ) | $ | (9,663 | ) | ||||||
| Net loss per share, basic and diluted(*) | 10 | $ | (2.67 | ) | $ | (5.94 | ) | |||||
| Weighted-average number of common shares outstanding, basic and diluted (*) | 2,201,992 | 963,047 | ||||||||||
(*) December 31 2017 and 2016 share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
MICROBOT MEDICAL INC.
Consolidated Statements of Shareholder’s Equity
U.S. dollars in thousands
(Except share data)
Preferred A Shares – Microbot Medical Ltd. (Pre - merger) * | Preferred A Shares – Microbot Medical Inc. (Post - merger) * | Common Stock (***) | Additional paid-in | Accumulated | Total shareholders’ | Temporary | ||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | capital | deficit | equity | equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2015 | 8,708,132 | $ | 87 | - | - | 888,188 | $ | 9 | $ | 3,212 | $ | (3,372 | ) | $ | (64 | ) | $ | - | ||||||||||||||||||||||
| Conversion of convertible notes and exercise of warrants issued upon conversion | 4,746,237 | 48 | - | - | - | - | 1,803 | - | 1,851 | - | ||||||||||||||||||||||||||||||
| Effect of reverse recapitalization | (13,454,369 | ) | (135 | ) | - | - | 1,030,957 | 10 | 597 | - | 472 | - | ||||||||||||||||||||||||||||
| Common Stock classified as temporary equity | - | - | - | - | - | - | (500 | ) | - | (500 | ) | 500 | ||||||||||||||||||||||||||||
| Beneficial Conversion Feature recorded on convertible debt acquired in reverse recapitalization | - | - | - | - | - | - | 2,029 | - | 2,029 | - | ||||||||||||||||||||||||||||||
| Transaction costs incurred in reverse recapitalization | - | - | - | - | 525,706 | 5 | 6,890 | - | 6,895 | - | ||||||||||||||||||||||||||||||
| Cancellation of ordinary shares and issuance of preferred shares | - | - | 9,736 | (*) | (655,967 | ) | (6 | ) | 6 | - | - | |||||||||||||||||||||||||||||
| Share based compensation | - | - | - | - | - | - | 676 | - | 676 | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (9,663 | ) | (9,663 | ) | - | ||||||||||||||||||||||||||||
| Balances, December 31, 2016 | - | - | 9,736 |
(*) | (**)1,788,884 | 18 | 14,713 | (13,035 | ) | 1,696 | 500 | |||||||||||||||||||||||||||||
| Issuance of common stock | - | - | - | - | 299,815 | 3 | 12,699 | - | 12,702 | - | ||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 8,085 | (*) | 479 | - | 479 | - | ||||||||||||||||||||||||||||||
| Exercise of options | - | - | - | - | 31,787 | (*) | (*) | - | - | - | ||||||||||||||||||||||||||||||
| Cashless exercise of warrants | - | - | - | - | 24 | (*) | - | - | (*) | - | ||||||||||||||||||||||||||||||
| Extinguishment of convertible notes and issuance of preferred A shares | - | - | 3,255 | (*) | - | - | 2,676 | - | 2,676 | - | ||||||||||||||||||||||||||||||
| Conversion of preferred A shares to common stock | - | - | (8,990 | ) | (*) | 605,705 | 6 | (6 | ) | - | - | - | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (7,589 | ) | (7,589 | ) | - | ||||||||||||||||||||||||||||
| Balances, December 31, 2017 | - | - | 4,001 | $ | (*) | **2,734,300 | $ | 27 | $ | 30,561 | $ | (20,624 | ) | $ | 9,964 | $ | 500 | |||||||||||||||||||||||
(*) Less than 1
* Share data for periods prior to the reverse recapitalization represents the legal equity structure of Microbot Ltd. with the number of shares adjusted to retroactively reflect the one-to-nine Reverse Stock Split effected on November 28, 2016 as well as the reverse recapitalization consummated on November 28, 2016.
** Includes 721,107 common stock classified as temporary equity.
(***) December 31 2017, 2016 and 2015 share data represent the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
MICROBOT MEDICAL INC.
Consolidated Statements of Cash Flows
U.S. dollars in thousands
(Except share data)
| Years ended | ||||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (7,589 | ) | $ | (9,663 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 21 | 10 | ||||||
| Interest and amortization of discount on convertible notes | 237 | 333 | ||||||
| Share-based transaction costs incurred in reverse recapitalization | - | 7,258 | ||||||
| Financing loss on debt extinguishment | 2,364 | - | ||||||
| Changes in fair value of derivative warrant liability | (285 | ) | (262 | ) | ||||
| Share-based compensation expense | 479 | 676 | ||||||
| Changes in assets and liabilities: | ||||||||
| Other receivables | (14 | ) | 538 | |||||
| Other payables and accrued liabilities | (69 | ) | 324 | |||||
| Net cash used in operating activities | (4,856 | ) | (786 | ) | ||||
| INVESTMENT ACTIVITIES | ||||||||
| Increase in restricted cash | (27 | ) | - | |||||
| Purchase of property and equipment | (58 | ) | (25 | ) | ||||
| Net cash used in investing activities | (85 | ) | (25 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Acquisition of a subsidiary in connection with reverse recapitalization | - | 269 | ||||||
| Transaction costs incurred in reverse recapitalization | - | (347 | ) | |||||
| Inflows in connection with current assets and liabilities acquired in reverse recapitalization, net | 317 | 2,002 | ||||||
| Exercise of warrants issued upon conversion of notes | - | 409 | ||||||
| Issuance of common stock, net of issuance costs | 12,702 | - | ||||||
| Issuance of convertible notes | - | 750 | ||||||
| Net cash provided by financing activities | 13,019 | 3,083 | ||||||
| Increase in cash and cash equivalents | 8,078 | 2,272 | ||||||
| Cash and cash equivalents at the beginning of the year | 2,709 | 437 | ||||||
| Cash and cash equivalents at the end of the year | $ | 10,787 | $ | 2,709 | ||||
Supplemental disclosure of cash flow information: | ||||||||
| Non-cash financing transactions: | ||||||||
| Cashless exercise of warrants | $ | (*) | $ | - | ||||
| Conversion of preferred A shares into common shares | $ | 90 | $ | - | ||||
| Extinguishment of convertible notes in exchange for preferred A shares | $ | 2,083 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
MICROBOT MEDICAL INC.
Consolidated Statements of Cash Flows
U.S. dollars in thousands
(Except share data)
| Assets acquired (liabilities assumed): | As of | |||
| November 28, | ||||
| 2016 | ||||
| (in thousands) | ||||
| Current assets excluding cash and cash equivalents | $ | (3,618 | ) | |
| Current liabilities | 811 | |||
| Derivative warrant liability | 575 | |||
| Convertible note | 2,029 | |||
| Reverse recapitalization effect on equity | 472 | |||
| Cash acquired in connection with reverse recapitalization | $ | 269 | ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
| A. | Description of business: |
Microbot Medical Inc. (the “Company”) is a pre-clinical medical device company specializing in the research, design and development of next generation micro-robotics assisted medical technologies targeting the minimally invasive surgery space. The Company is primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes for patients.
It was incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate of Incorporation was restated on February 14, 1992 to change the name of the Company to Cyto Therapeutics, Inc. On May 24, 2000, the Certificate of Incorporation as restated was further amended to change the name of the Company to StemCells, Inc.
On November 28, 2016, the Company consummated a transaction pursuant to an Agreement and Plan of Merger, dated August 15, 2016, with Microbot Medical Ltd., a private medical device company organized under the laws of the State of Israel (“Microbot Israel”), and C&RD Israel Ltd. (“Merger Sub”), an Israeli corporation and wholly-owned subsidiary of the Company, whereby Merger Sub merged with and into Microbot Israel and Microbot Israel surviving as a wholly-owned subsidiary of the Company (the “Merger”). Pursuant to the terms of the Merger, at the effective time of the Merger, each outstanding ordinary share of Microbot Israel capital stock was converted into the right to receive approximately 0.2 shares (2.9 shares before the Reverse Split described below) of the Company’s common stock, par value $0.01 per share, after giving effect to a one for nine reverse stock splits of the date of the merger, for an aggregate of 1,788,884 shares (26,550,974 shares before the Reverse Split) of Company’s common Stock issued to the former Microbot Israel shareholders. In addition, all outstanding options to purchase the ordinary shares of Microbot Israel were assumed by the Company and converted into options to purchase an aggregate of 176,181 shares (2,614,916 shares before the Reverse Split) of the Company’s common stock. Additionally, the Company issued an aggregate of 525,706 restricted shares (7,802,639 restricted shares before the Reverse Split) of its common stock or rights to receive the Company’s common stock, to certain advisers. On the same day and in connection with the Merger, the Company changed its name from StemCells, Inc. to Microbot Medical Inc. On November 29, 2016, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol “MBOT”.
As a result of the Merger, Microbot Israel became a wholly owned subsidiary of the Company. The transaction between the Company and Microbot Israel was accounted for as a reverse recapitalization. As the shareholders of Microbot Israel received the largest ownership interest in the Company, Microbot Israel was determined to be the “accounting acquirer” in the reverse recapitalization. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Microbot Israel. Unless indicated otherwise, pre-acquisition share, options and warrants data included in these financial statements is retroactively adjusted to reflect the Reverse Stock Split and the Merger.
Prior to the Merger, the Company was a biopharmaceutical company that conducts research, development, and commercialization of stem cell therapeutics and related technologies. Substantially the sale of all material assets relating to the stem cell business were completed on November 29, 2016.
The Company and its subsidiaries are collectively referred to as the “Company”. “StemCells” or “StemCells, Inc.” refers to the Company prior to the Merger.
| F-8 |
| B. | Risk Factors: |
To date, the Company has not generated revenues from its operations. As of the date of issuance of these financial statements, the Company changed its method of accounting for the beneficial conversion of preferred
shares.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 23, 2001
F-2
STEMCELLS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------
2000 1999
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,068,947 $ 4,760,064
Short-term restricted investments......................... 16,356,334 --
Accrued interest receivable............................... 16,725 42,212
Technology sale receivable................................ -- 3,000,000
Debt service fund......................................... -- 609,905
Other current assets...................................... 524,509 558,674
------------- -------------
Total current assets........................................ 22,966,515 8,970,855
Property held for sale...................................... 3,203,491 3,203,491
Property, plant and equipment, net.......................... 1,451,061 1,747,885
Other assets, net........................................... 2,173,912 1,858,768
------------- -------------
Total assets................................................ $ 29,794,979 $ 15,780,999
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 526,191 $ 631,315
Accrued expenses.......................................... 837,358 970,546
Accrued wind-down costs................................... 1,780,579 1,634,522
Current maturities of capital lease obligations........... 332,083 324,167
------------- -------------
Total current liabilities................................... 3,476,211 3,560,550
Capital lease obligations, less current maturities.......... 2,605,000 2,937,083
Deposits.................................................... 26,000 26,000
Deferred rent............................................... 705,746 502,353
Commitments
Redeemable common stock, $.01 par value; 524,337 shares
issued and outstanding at December 31, 1999, none at
December 31, 2000......................................... -- 5,248,610
Stockholders' equity:
Convertible Preferred Stock, $.01 par value; 1,000,000
shares authorized, 2,626 designated as 6% Cumulative
Convertible Preferred Stock 1,500 shares issued and
outstanding at December 31, 2000, none at December 31,
1999.................................................... 1,500,000 --
Common stock, $.01 par value; 45,000,000 shares
authorized; 20,956,887 and 18,635,565 shares issued and
outstanding at December 31, 2000 and 1999,
respectively............................................ 209,569 186,355
Additional paid-in capital................................ 138,150,067 123,917,758
Accumulated deficit....................................... (130,498,187) (119,372,710)
Accumulated other comprehensive income.................... 16,356,334 --
Deferred compensation..................................... (2,735,761) (1,225,000)
------------- -------------
Total stockholders' equity.................................. 22,982,022 3,506,403
------------- -------------
Total liabilities and stockholders' equity.................. $ 29,794,979 $ 15,780,999
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
STEMCELLS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenue from collaborative and licensing
agreements........................................ $ 74,300 $ 5,021,707 $ 8,803,163
Operating expenses:
Research and development.......................... 5,979,007 9,984,027 17,658,530
General and administrative........................ 3,361,231 4,927,303 4,602,758
Encapsulated Cell Therapy wind-down and corporate
relocation...................................... 3,327,360 6,047,806 --
------------ ------------ ------------
12,667,598 20,959,136 22,261,288
------------ ------------ ------------
Loss from operations................................ (12,593,298) (15,937,429) (13,458,125)
Other income (expense):
Interest income................................... 303,746 564,006 1,253,781
Interest expense.................................. (272,513) (335,203) (472,400)
Gain on sale of Investment........................ 1,427,686 -- --
Other income...................................... 8,902 -- 48,914
------------ ------------ ------------
1,467,821 228,803 830,295
------------ ------------ ------------
Net loss............................................ $(11,125,477) $(15,708,626) $(12,627,830)
Deemed dividend to preferred shareholders........... (265,000) -- --
------------ ------------ ------------
Net loss applicable to common shareholders before a
cumulative effect of a change in accounting
principle......................................... $(11,390,477) $(15,708,626) $(12,627,830)
Cumulative effect of a change in accounting
principle due to deemed dividend.................. $ (216,000) $ -- $ --
------------ ------------ ------------
Net loss applicable to common shareholders.......... $(11,606,477) $(15,708,626) $ 12,627,830)
============ ============ ============
Basic and diluted net loss per share applicable to
common shareholders before cumulative effect...... $ (.57) $ (.84) $ (.69)
Cumulative effect of a change in accounting
principle......................................... $ (.01) -- --
------------ ------------ ------------
Basic and diluted net loss per share applicable to
common shareholders............................... $ (.58) $ (.84) $ (.69)
Shares used in computing basic and diluted net loss
per share......................................... 20,067,760 18,705,838 18,290,548
============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
STEMCELLS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND STOCKHOLDERS'
EQUITY
REDEEMABLE ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL OTHER
--------------------- --------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS)
-------- ---------- ---------- -------- ------------ ------------- --------------
Balances, December 31, 1997........ 557,754 $5,583,110 17,526,220 $175,262 $121,472,844 $ (91,036,254) $(8,877)
Issuance of common stock under the
stock purchase plan.............. -- -- 43,542 436 83,622
Common stock issued pursuant to
employee benefit plan............ -- -- 84,812 848 143,025 -- --
Issuance of common
stock--StemCells................. -- -- 101,320 1,013 505,587 -- --
Redeemable common stock lapses..... (33,417) (334,500) 33,417 334 334,166 -- --
Exercise of stock options.......... -- -- 11,012 110 1,254 -- --
Deferred compensation--amortization
and cancellations................ -- -- -- -- 321,108 -- --
Change in unrealized losses on
marketable securities............ -- -- -- -- -- -- 3,679
Net loss........................... -- -- -- -- -- (12,627,830) --
Comprehensive loss.................
------- ---------- ---------- -------- ------------ ------------- -------
Balances, December 31, 1998........ 524,337 5,248,610 17,800,323 178,003 122,861,606 (103,664,084) (5,198)
TOTAL
DEFERRED STOCKHOLDERS'
COMPENSATION EQUITY
------------- -------------
Balances, December 31, 1997........ $(1,702,820) $ 28,900,155
Issuance of common stock under the
stock purchase plan.............. 84,058
Common stock issued pursuant to
employee benefit plan............ -- 143,873
Issuance of common
stock--StemCells................. -- 506,600
Redeemable common stock lapses..... -- 334,500
Exercise of stock options.......... -- 1,364
Deferred compensation--amortization
and cancellations................ 229,901 551,009
Change in unrealized losses on
marketable securities............ -- 3,679
Net loss........................... -- (12,627,830)
------------
Comprehensive loss................. (12,624,151)
----------- ------------
Balances, December 31, 1998........ (1,472,919) 17,897,408
F-5
STEMCELLS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND STOCKHOLDERS'
EQUITY (CONTINUED)
REDEEMABLE ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL OTHER
--------------------- --------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS)
-------- ---------- ---------- -------- ------------ ------------- --------------
Balances, December 31, 1998........ 524,337 $5,248,610 17,800,323 $178,003 $122,861,606 $(103,664,084) $(5,198)
Issuance of common stock........... -- -- 196,213 $ 1,962 $ 318,221 -- --
Issuance of common stock under the
stock purchase plan.............. -- -- 57,398 574 41,619
Common stock issued pursuant to
employee benefit plan............ -- -- 90,798 908 102,502 -- --
Exercise of stock options.......... -- -- 490,833 4,908 513,534 -- --
Deferred compensation--amortization
and cancellations................ -- -- -- -- 80,276 -- --
Change in unrealized losses on
marketable securities............ -- -- -- -- -- -- 5,198
Net loss........................... -- -- -- -- -- (15,708,626) --
Comprehensive loss.................
------- ---------- ---------- -------- ------------ ------------- -------
Balances, December 31, 1999........ 524,337 5,248,610 18,635,565 186,355 123,917,758 (119,372,710) --
TOTAL
DEFERRED STOCKHOLDERS'
COMPENSATION EQUITY
------------- -------------
Balances, December 31, 1998........ $(1,472,919) $ 17,897,408
Issuance of common stock........... -- $ 320,183
Issuance of common stock under the
stock purchase plan.............. 42,193
Common stock issued pursuant to
employee benefit plan............ -- 103,410
Exercise of stock options.......... -- 518,442
Deferred compensation--amortization
and cancellations................ 247,919 328,195
Change in unrealized losses on
marketable securities............ -- 5,198
Net loss........................... -- (15,708,626)
Comprehensive loss................. (15,703,428)
----------- ------------
Balances, December 31, 1999........ (1,225,000) 3,506,403
F-6
STEMCELLS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND STOCKHOLDERS'
EQUITY (CONTINUED)
REDEEMABLE
COMMON
STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- --------------------- --------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- ----------- -------- ---------- ---------- -------- ------------
Balances, December 31, 1999... 524,337 $ 5,248,610 -- -- 18,635,565 $186,355 $123,917,758
Issuance of common stock to
Millennium Partners LP,
net of issuance costs of
$598,563.................. -- -- -- -- 1,104,435 $ 11,044 $ 4,390,393
Issuance of common stock
related to license
agreements.................. -- -- -- -- 77,800 $ 778 $ 364,222
Common stock issued pursuant
to employee benefit plan.... -- -- -- -- 6,672 $ 68 $ 27,112
Exercise of employee stock
options................... -- -- -- -- 608,078 $ 6,081 $ 651,828
Redeemable common stock
conversion.................. (524,337) $(5,248,610) -- -- 524,337 $ 5,243 $ 5,243,367
Issuance of preferred stock... -- -- 1,500 $1,500,000 -- -- --
Deferred
compensation--amortization
and cancellations........... -- -- -- -- -- -- $ 3,555,387
Unrealized gain on short-term
restricted investments...... -- -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- --
Comprehensive Income........
-------- ----------- ----- ---------- ---------- -------- ------------
Balances, December 31, 2000... -- -- 1,500 $1,500,000 20,956,887 $209,569 $138,150,067
======== =========== ===== ========== ========== ======== ============
ACCUMULATED
OTHER TOTAL
ACCUMULATED COMPREHENSIVE DEFERRED STOCKHOLDERS'
DEFICIT INCOME (LOSS) COMPENSATION EQUITY
------------- -------------- ------------- -------------
Balances, December 31, 1999... $(119,372,710) $ -- $(1,225,000) $ 3,506,403
Issuance of common stock to
Millennium Partners LP,
net of issuance costs of
$598,563.................. -- -- -- $ 4,401,437
Issuance of common stock
related to license
agreements.................. -- -- -- $ 365,000
Common stock issued pursuant
to employee benefit plan.... -- -- -- $ 27,180
Exercise of employee stock
options................... -- -- -- $ 657,909
Redeemable common stock
conversion.................. -- -- -- $ 5,248,610
Issuance of preferred stock... -- -- -- $ 1,500,000
Deferred
compensation--amortization
and cancellations........... -- -- $(1,510,760) $ 2,044,627
Unrealized gain on short-term
restricted investments...... -- $16,356,334 -- $ 16,356,334
Net loss...................... $ (11,125,477) -- -- $(11,125,477)
------------
Comprehensive Income........ $ 5,230,858
------------- ----------- ----------- ------------
Balances, December 31, 2000... $(130,498,187) $16,356,334 $(2,735,761) $ 22,982,022
============= =========== =========== ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
STEMCELLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(11,125,477) $(15,708,626) $(12,627,830)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 738,593 1,717,975 2,244,146
Acquired research and development....................... -- -- 551,009
Amortization of deferred compensation................... 2,044,627 328,195 --
Fair market adjustment for property held for sale....... 300,000
Other non-cash charges.................................. 320,183 410,173
Gain on investment...................................... (1,427,686) -- --
Loss on sale of property, plant and equipment........... -- 1,117,286 --
Loss on sale of intangibles............................. -- 440,486 --
Changes in operating assets and liabilities:
Accrued interest receivable........................... 25,488 164,397 346,577
Technology receivable................................. 3,000,000 -- --
Other current assets.................................. 315,213 283,000 (265,665)
Accounts payable and accrued expenses................. (92,255) 1,344,142 (2,378,613)
Deferred rent......................................... 203,393 279,680 --
Deferred revenue...................................... -- (2,500,000) 2,483,856
------------ ------------ ------------
Net cash used in operating activities....................... (6,318,104) (11,913,282) (9,236,347)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of Investments........................... 1,427,686 -- --
Purchases of marketable securities.......................... (4,397,676) (18,982,387)
Proceeds from sales of marketable securities................ 13,923,813 22,573,625
Purchases of property, plant and equipment.................. (151,212) (192,747) (2,153,525)
Proceeds on sale of fixed assets............................ -- 746,448 --
Acquisition of other assets................................. (886,751) (558,311) (400,219)
Disposal of other assets.................................... -- 440,486 --
------------ ------------ ------------
Net cash provided by investing activities................... 389,723 9,962,013 1,037,494
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... 4,401,437 145,603 227,931
Proceeds from the exercise of stock options................. 685,089 518,442 1,364
Common stock issued for agreements.......................... 365,000 -- --
Proceeds from issuance of preferred stock................... 1,500,000 -- --
Proceeds from debt financings............................... -- -- 1,259,300
Change in debt service fund................................. 609,905 -- --
Repayments of debt and lease obligations.................... (324,167) (1,817,500) (1,366,655)
------------ ------------ ------------
Net cash provided by (used in) financing activities......... 7,237,264 (1,153,455) 121,940
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents............ 1,308,883 (3,104,724) (8,076,913)
Cash and cash equivalents at beginning of year.............. 4,760,064 7,864,788 15,941,701
------------ ------------ ------------
Cash and cash equivalents at end of the year................ $ 6,068,947 $ 4,760,064 $ 7,864,788
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 272,513 $ 335,203 $ 444,047
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. NATURE OF BUSINESS
StemCells, Inc. (the "Company") is a biopharmaceutical company that operates
in one segment, engaged in the development of novel stem cell therapies designed
to treat human diseases and disorders. On May 23, 2000, the Company's name was
changed to Stem Cells, Inc. from CytoTherapeutics, Inc. by vote of the
shareholders at the Annual Meeting.
As of December 31, 2000, the Company hadhas cash and cash equivalentsequivalent balance of approximately $6.1$9.5 million, which management believes is sufficient to fund its operations for more than 12 months from the date of issuance of these financial statements and a restricted short-term equity investmentsufficient to fund its operations necessary to continue development activities of approximately $16.4 million in Modex Therapeutics, a Swiss Biotherapeutics
company. Since inception,its current proposed products. Due to continuing research and development activities, the Company has incurred annualexpects to continue to incur net losses and negative
cash flows from operations and has an accumulated deficit of approximately
$130.5 million at December 31, 2000.into the foreseeable future. The Company has not derived any revenuesplans to continue to fund its current operations as well as other development activities relating to additional product candidates, through future issuances of either debt and/or equity securities and possibly additional grants from the saleIsraeli Innovation Authority. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of any products,factors, including, but not limited to, the market demand for the Company’s stock, which itself is subject to a number of development and does not expectbusiness risks and uncertainties, as well as the uncertainty that the Company would be able to receive revenuesraise such additional capital at a price or on terms that are favorable to the Company.
| C. | Use of estimates: |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions pertaining to transactions and matters whose ultimate effect on the financial statements cannot precisely be determined at the time of financial statements preparation. Although these estimates are based on management’s best judgment, actual results may differ from product sales for at least several years.these estimates.
| D. | Reverse Stock Split |
On September 4, 2018, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to affect a one-for-15 reverse stock split of the Company’s common stock (the “Reverse Split”). As a result of the Company is dependent
upon external financing from equity and debt offerings and revenues from
collaborative research arrangements with corporate sponsors to finance its
operations. There are no such collaborative research arrangements at this time
and there can be no assurance that such financing or partnering revenuesReverse Split, every 15 shares of the Company’s old common stock will be available when needed or on terms acceptableconverted into one share of the Company’s new common stock. Fractional shares resulting from the Reverse Split will be rounded up to the Company.
As noted above,nearest whole number. The Reverse Split automatically and proportionately adjusted, based on the Company has a restricted investment in Modex
Therapeutics, a Swiss Biotherapeutics company with a fair market value of
approximately $16.4 million at December 31, 2000. On January 9, 2001, the
Company sold 22,616one-for-fifteen split ratio, all issued and outstanding shares of Modexthe Company’s common stock, for total proceeds of
approximately $2.5 million. The Company is restricted from selling anyas well as common stock underlying convertible preferred stock, stock options, warrants and other derivative securities outstanding at the time of the remaining 103,577 shares until April 12, 2001. The valueeffectiveness of the Company's
holdings is subjectreverse stock split. The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s equity-based plans was also proportionately reduced. Share and per share data (except par value) for the periods presented reflect the effects of this Reverse Split. References to market risknumbers of shares of common stock and foreign currency fluctuationper share data in the accompanying financial statements and could
decrease significantly. The Company is currently in discussions with Modexnotes thereto have been adjusted to sellreflect the remaining shares during 2001. If the Company decided to sell the Modex
shares, due to relatively small trading volume in Modex shares and the
relatively large size of the Company holdings, or other factors, the Company may
not be able to sell its Modex shares at their market value or at all, and the
Company may have to sell these shares atReverse Split on a significant discount to the market
price.
If the Company is unable to obtain the necessary proceeds from the sale of
Modex shares, significant reductions in spending and the delay or cancellation
of planned activities may be necessary. In such event, the Company intends to
implement expense reduction plans in a timely manner to enable the Company to
meet its operating cash requirements through December 31, 2001.
2.retroactive basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts ofsignificant accounting policies applied in the Company and
StemCells California, Inc., a wholly owned subsidiary. Significant intercompany
accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements are as follows:
| A. | Basis of presentation: |
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States that requires
managementof America (“US GAAP”).
| B. | Financial statement in U.S. dollars: |
The functional currency of the Company is the U.S. dollar (“dollar”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to make estimates and assumptions that affect the amounts reportedcontinue to operate in the consolidatedforeseeable future.
Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in foreign currencies have been re-measured to dollars in accordance with the provisions of ASC 830-10, “Foreign Currency Translation”.
All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial statementsincome or expenses, as appropriate.
| C. | Cash and cash equivalents: |
Cash and accompanying notes. Actual results
could differ from those estimates.
F-9
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS AND INVESTMENTS
Cashcash equivalents include funds heldconsist of cash and demand deposits in banks, and other short-term liquid investments (primarily interest-bearing time deposits) with original maturities of less than three months or less when purchased. months.
| D. | Fair value of financial instruments: |
The Company's policy regarding selectioncarrying values of investments, pendingcash and cash equivalents, other receivable and other accounts payable and accrued liabilities approximate their use, isfair value due to ensure safety, liquidity, and capital
preservation while obtaining a reasonable ratethe short-term maturity of return.
these instruments.
The Company determinesmeasures the appropriate classificationfair value of securities atcertain of its financial instruments (such as the timederivative warrant liabilities) on a recurring basis. The method of purchasedetermining the fair value of derivative warrant liabilities is discussed in Note 8.
A fair value hierarchy is used to rank the quality and reevaluates such designation asreliability of each balance sheet date.
The Company classifies such holdings as available-for-sale securities, which arethe information used to determine fair values. Financial assets and liabilities carried at fair value with unrealized gainswill be classified and losses reported as a separate
component of stockholders' equity.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). The only component of other comprehensive income
(loss) is unrealized gains and losses on our available-for-sale securities.
Comprehensive income (loss) has been disclosed in the statement of changes in
redeemable common stock and stockholders' Equity.
PROPERTY, PLANT AND EQUIPMENT
As a resultone of the Company's decisionfollowing three categories:
Level 1- Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to exit the encapsulated cell
technology and relocate its corporate headquarters to Sunnyvale, California,
certain property considered by management to no longer be necessary has been
made available for sale or lease. The aggregate carryingfair value of such property
has been reviewed by management, subject to appraisal and adjusted downward to
estimated market value.
Property, plant and equipment, including that held under capital lease
obligations,the assets or liabilities.
| E. | Fixed assets: |
Fixed assets are presented at costs less accumulated depreciation. Depreciation is stated at cost and depreciated usingcalculated based on the straight-line method over the estimated lifeuseful lives of the respective asset, orassets, as the lease term if shorter,
as follows:
following annual rates:
| % | ||||
| Research equipment and | 25-33 | |||
| Furniture and | 7 | |||
| F. | Liabilities due to termination of employment agreements |
Under Israeli employment laws, employees of Microbot Israel are amortized over the estimated economic lifeincluded under Article 14 of the patents,Severance Compensation Act, 1963 (“Article 14”). According to Article 14, these employees are entitled to monthly deposits made by Microbot Israel on their behalf with insurance companies.
Payments in accordance with Article 14 release Microbot Israel from any future severance payments (under the Israeli Severance Compensation Act, 1963) with respect of those employees. The aforementioned deposits are not recorded as an asset in the Company’s balance sheet,
| G. | Basic and diluted net loss per share |
Basic net loss per share is computed by dividing net loss, as adjusted to exceed 17 years,include s by the weighted average number of common shares outstanding during the year. Common shares and preferred shares contingently issuable for little or no cash are included in basic net loss per share on an as issued basis.
Diluted net loss per share is computed by dividing net loss, as adjusted to include preferred shares dividend participation rights of preferred shares outstanding during the year as well as of preferred shares that would have been outstanding if all potentially dilutive preferred shares had been issued, by the weighted average number of common shares outstanding during the year, plus the number of common shares that would have been outstanding if all potentially dilutive common shares had been issued, using the straight-linetreasury stock method, commencingin accordance with ASC 260-10 “Earnings per Share”.
All outstanding stock options and warrants have been excluded from the calculation of the diluted loss per share for the years ended December 31, 2017 and December 31, 2016, since all such securities have an anti-dilutive effect.
The weighted average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result of the reverse recapitalization as if these shares had been outstanding as of the beginning of the earliest period presented.
| H. | Research and development expenses, net: |
Research and development expenses are charged to the statement of operations as incurred. Grants for funding of approved research and development projects are recognized at the time the patentCompany is issued.entitled to such grants, on the basis of the costs incurred and applied as a deduction from the research and development expenses.
| I. | Convertible Notes: |
Proceeds from the sale of debt securities with a conversion feature are allocated to equity based on the intrinsic value of such conversion feature in accordance with ASC 470-20 “Debt with Conversion and Other Options”, with a corresponding discount on the debt instrument recorded in liabilities which is amortized in finance expense over the term of the notes.
Convertible notes with characteristics of both liabilities and equity are classified as either debt or equity based on the characteristics of its monetary value, with convertible notes classified as debt being measured at fair value, in accordance with ASC 480-10, “Accounting for Certain Financial instruments with Characteristics of both Liabilities and Equity”.
| J. | Share-based compensation: |
The Company applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors including stock options under the Company’s stock plans based on estimated fair values.
ASC 718-10 requires companies to estimate the fair value of stock options using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statement of operations.
The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees” (“FASB ASC 505-50”). Under FASB ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The Company estimates the fair value of stock options granted as share-based payment awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). Expected volatility is estimated based on volatility of similar companies in the technology sector for equity awards granted prior to the Merger and on the Company’s trading share price for equity awards granted subsequent to the Merger. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected stock option term is calculated for stock options granted to employees and directors using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the stock options granted and the results of operations of the Company.
| F-11 |
| K. | Reclassification: |
Certain prior year amounts have been reclassified to conform to the current year presentation.
| L. | Transaction Costs |
Transaction costs incurred in the Merger were charged directly to equity to the extent of cash and net other current assets acquired. Transaction costs in excess of cash acquired were charged to general and administrative expenses.
| M. | Income Taxes |
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2017, and 2016, the Company had a full valuation allowance against deferred tax assets.
| N. | Recent Accounting Standards: |
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” to provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The ASU supersedes most current revenue recognition guidance, including industry-specific guidance. The FASB subsequently issued ASU 2015-14, ASU 2016-08 and ASU 2016-12, which clarified the guidance, provided scope improvements and amended the effective date of ASU 2014-09. As a result, ASU 2014-09 becomes effective for the Company in the first quarter of 2018, with early adoption permitted. The Company has not yet generated revenues to date, and does not yet know the impact the standard may have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For operating leases, the ASU requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The ASU retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. This ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company continues to evaluate the effect of the adoption of this ASU and expects the adoption will result in an increase in the assets and liabilities on the consolidated balance sheets for operating leases (refer to Note 9) and will likely have an insignificant impact on the consolidated statements of comprehensive loss.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This ASU is effective for the Company in the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the effect the adoption of this ASU will have on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18 “Restricted Cash” to provide guidance on the presentation of restricted cash in the statement of cash flows. Currently, the statement of cash flows explained the change in cash and cash equivalents for the period. The ASU requires that the statement of cash flows explain the change in cash, cash equivalents and restricted cash for the period. The ASU is effective for the Company in the first quarter of 2018, with early adoption permitted. The Company does not expect the adoption to have a material effect on the statements of cash flows as the Company’s restricted cash is not expected to be material.
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies when a change to terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the vesting condition, fair value or the award classification is not the same both before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018 and early adoption is permitted. The Company does not expect to change terms or conditions of share-based payment awards, and therefore, does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. The ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company has derivative warranty liabilities as discussed in Note 8 which upon adoption of the new standard are expected to be classified as equity.
NOTE 3 - OTHER CURRENT ASSETS
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Deposit in escrow account (*) | $ | - | $ | 400 | ||||
| Government institutions | 35 | 15 | ||||||
| Prepaid expenses and others | 81 | 191 | ||||||
| $ | 116 | $ | 606 | |||||
(*) Purchase Agreement with BOCO
On November 11, 2016, the Company, together with two of its wholly-owned subsidiaries, Stem Cell Sciences Holdings Limited and StemCells California, Inc. (collectively, with the Company, the “Sellers”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with BOCO Silicon Valley, Inc., a California corporation and wholly-owned subsidiary of Bright Oceans Corporation (“BOCO US”).
Pursuant to the terms and subject to the conditions set forth in the Asset Purchase Agreement, the Sellers sold to BOCO US certain stem and progenitor cell lines that have been researched, studied or manufactured by the Company since 2007 (the “Cell Lines”) and certain other tangible and intangible assets, including intellectual property and books and records, related to patent applications are chargedthe foregoing (together with the Cell Lines, the “Assets”) in exchange for $4 million in cash (the “Asset Consideration”).
| F-13 |
Of the Asset Consideration, $300 was provided to expensethe Company prior to November 11, 2016 in exchange for the Sellers’ agreement not to solicit or reach any agreement with any third party pertaining to the sale of the Assets, and $400 will remain in a twelve-month escrow for the benefit of BOCO US to satisfy certain indemnification obligations of the Sellers which may arise and which, subject to any valid indemnification claims of BOCO US, will be released to the Company at the timeend of such patents are deemed to have no continuing value. At
December 31, 2000 and 1999, total costs capitalized were $638,000 and $718,000
and the related accumulated amortization were $9,000 and $9,000, respectively.
Patent expense totaled $305,000, $539,000, and $3,000 in 2000, 1999 and 1998,
respectively.
In December 1999 the Company sold its Encapsulated Cell Technology ("ECT")
to Neurotech, S.A. for an initial payment of $3,000,000, which was paid in 2000,
royalties on future product sales, and a portion of certain Neurotech revenues
from third parties in return for the assignment to Neurotech
F-10
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of intellectual property assets relating to ECT.12-month period. In addition, the Company
retained certain non-exclusive rights to use ECT in combination with its
proprietary stem cell technology and in the fieldsixteen former employees of vaccines for prevention and
treatment of infectious diseases. The patent portfolio that was sold had a net
book value of $3,180,000. In year 2000 the Company received, $74,300 representingin the aggregate, $495 in accordance with their June 2016 agreements with the Company under which each accepted a portionmore than 50% reduction in his or her severance award otherwise payable.
The Asset Purchase Agreement contains certain covenants prohibiting the Sellers from, during the four-year period immediately following the completion of revenuesthe Asset Sale, (a) engaging in or having certain financial interests in a business that is engaged in the research, development or commercialization of the Cell Lines, or (b) soliciting for employment employees of BOCO US.
On November 29, 2016, the Sellers completed the sale of the Assets.
As of December 31, 2017, the Company received by Neurotech$320 from third parties.
STOCK BASED COMPENSATIONthe escrow account and paid $80 to certain consultant relating to BOCO transaction.
The opening balance sheet as of the Merger date included a receivable balance with respect to sale of the Assets of $3.5 which fully collected as of December 31 2017.
NOTE 4 - FIXED ASSETS, NET
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Cost: | ||||||||
| Research equipment and software | $ | 76 | $ | 54 | ||||
| Furniture and office equipment | 92 | 56 | ||||||
| 168 | 110 | |||||||
| Accumulated Depreciation: | ||||||||
| Research equipment and software | 42 | 29 | ||||||
| Furniture and office equipment | 36 | 28 | ||||||
| 78 | 57 | |||||||
| $ | 90 | $ | 53 | |||||
NOTE 5 - ACCRUED LIABILITIES
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Employees | $ | 64 | $ | 102 | ||||
| Government institution | 56 | 24 | ||||||
| Other current liabilities | 330 | 145 | ||||||
| $ | 450 | $ | 271 | |||||
| F-14 |
NOTE 6 - CONVERTIBLE LOAN FROM SHAREHOLDERS
On October 8, 2015, Microbot Israel entered into a convertible loan agreement with several investors who were also existing shareholders. According to the loan agreement, Microbot Israel received an amount of $419. The loan bore interest of 10% and was converted to both equity shares and preferred shares warrants of Microbot Israel on the nine-month anniversary of the loan. The Company grants qualified stock optionsconcluded the conversion feature is not a Beneficial Conversion Feature pursuant to the provisions of ASC 470-20, “Debt with Conversion and Other Options”. Accordingly, the proceeds were recorded in liabilities in their entirety at the date of issuance.
On July 7, 2016, the outstanding principal and accrued interest were converted into 1,315,023 Series A preferred shares, of Microbot Israel (the “Series A Preferred Shares”) and 1,188,275 warrants to purchase the Series A Preferred Shares, at an exercise price of $1.00 per share. The preferred shares warrants were exercised in full in September 2016 for total gross proceeds to Microbot Israel of $410.
On May 11, 2016, Microbot Israel entered into a convertible loan agreement with several investors who were also existing shareholders. The loan bore interest at a fixed rate of 10% per annum beginning on the issuance date.
At maturity, all of the outstanding principal and accrued interest was converted into Microbot Israel’s ordinary shares subject to the conversion or default events specified in the loan agreement, based on a conversion price that represents a 20% discount on Microbot Israel’s valuation upon such default events.
On November 28, 2016, upon the consummation of the Merger, the loan was converted into an aggregate of 151,119 shares (2,242,939 shares before the Reverse Split) of Company’s common stock.
The Company concluded the value of the loan is predominantly based on a fixed monetary amount known at the date of issuance as represented by the 20% discount on the Company’s valuation. Accordingly, the loan was classified as debt and was measured at its fair value, pursuant to the provisions of ASC 480-10, “Accounting for Certain Financial instruments with Characteristics of both Liabilities and Equity”.
The fair value of the loan was measured based on observable inputs as the fixed monetary value of the variable number of shares to be issued upon conversion (level 2 measurement).
Secured note to Alpha Capital Anstalt:
On August 15, 2016, concurrent with the execution of the Agreement and Plan of Merger (see Note 1A), StemCells Inc. issued a 6.0% secured note (the “Note”) to Alpha Capital Anstalt (“Alpha Capital”), in the principal amount of $2,000, for value received, payable upon the earlier of (i) 30 days following the consummation of the Merger and (ii) December 31, 2016. Proceeds from the Note were used for the payment of costs and expenses in connection with the Merger and operational expenses leading to such Closing.
The Note bears interest at 6% per annum, payable monthly in arrears on the first of the month, beginning on January 1, 2017 until the principal amount is paid in full. In addition, the Note is secured by a first priority security interest in all of the Company’s intellectual property and certain other general assets pursuant to a Security Agreement
Securities Exchange Agreement with Alpha Capital:
As of the effective time of the Merger, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Alpha Capital, providing for the issuance to Alpha Capital of a convertible promissory note by the Company (the “Convertible Note”) in a principal amount of $2,029, which is equal to the principal and accrued interest under the Note, in exchange for (a) the full satisfaction, termination and cancellation of the Note and (b) the release and termination of the Security Agreement and the first priority security interest granted thereunder.
The Convertible Note was convertible into the Company’s Common Stock any time after November 28, 2017 and until the maturity date of November 28, 2019, based on a conversion price of $9.60 ($0.64 before the Reverse Split), subject to adjustments as provided in the Exchange Agreement.
Pursuant to the terms of the Convertible Note, the Company was obligated to pay interest on the outstanding principal amount owed under the Convertible Note at a fixed rate per annum of 6.0%, payable at maturity or earlier upon conversion. The Exchange Agreement contains customary representations and warranties and usual and customary affirmative and negative covenants. The Convertible Note also contained certain customary events of default.
As the Exchange Agreement represented the consummation of the original intent of the Company and Alpha Capital, as of the date of execution of the Merger Agreement (August 2016), to enter into a $2 million convertible note sale transaction, upon the consummation of the Merger, the Company accounted for the convertible note in accordance with such economic substance, as if it had been issued for a cash consideration equal to the principal and accrued interest on the Note, as of the effective date of the Merger, in the amount of $2,029 (the “Assumed Consideration”), which is equal to the principal amount of the Convertible Note as determined in the Exchange Agreement.
The Company concluded the conversion feature of the Convertible Note, based on the commitment date of November 28 2016 (the Exchange Agreement date), is a Beneficial Conversion Feature pursuant to the provisions of ASC 470-20, “Debt with Conversion and Other Options”. Accordingly, $2,029 of the Assumed Consideration was recorded in equity with a corresponding discount on the Convertible Note, to be amortized over its term through maturity.
See also Note 10 – Securities Exchange Agreements with Alpha Capital.
The carrying value of the Convertible Note as of the periods below was calculated as follow:
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Convertible note | $ | - | $ | 2,029 | ||||
| Unamortized discount | - | (1,963 | ) | |||||
| Accrued interest | - | 10 | ||||||
| $ | - | $ | 76 | |||||
NOTE 7 - DERIVATIVE WARRANT LIABILITIES
As part of StemCell’s obligations under the Merger Agreement, in August 2016, StemCells negotiated with certain institutional holders of its 2016 Series A and Series B Warrants, issued by prior to the Merger, to have such holders surrender their 2016 Series B Warrants in exchange for a reduced exercise price of $4.45 ($0.30 before the Reverse Split) per share on their existing 2016 Series A Warrants and the elimination of the anti-dilution price protection in the 2016 Series A Warrants. As a result, the exercise price for all outstanding 2011 Series A Warrants and 2016 Series A and Series B Warrants was reset to of $4.45 ($0.30 before the Reverse Split) per share. Subsequent to the reset of the exercise price, an aggregate of 35,831 (531,814 before the Reverse Split) (from an outstanding aggregate of 38,948 (578,081 before the Reverse Split)) 2011 Series A Warrants were exercised. For the exercise of these warrants, the Company issued 35,831 shares (531,814 shares before the Reverse Split) of its common stock prior to the Merger.
The remaining outstanding warrants and terms as of December 31, 2017 and 2016 is as follows:
Issuance date | Outstanding as of December 31, 2016(*) | Outstanding as of December 31, 2017(*) | Exercise Price (*) | Exercisable as of December 31, 2017(*) | Exercisable Through | |||||||||||||
| Series A (2011) | 4,327 | - | $ | 2,244 | - | December 2016 | ||||||||||||
| Series A (2013) | 3,895 | 3,895 | $ | 2,885 | 3,895 | October 2018 | ||||||||||||
| Series A (2013) | 183 | 183 | $ | 2,725 | 183 | April 2023 | ||||||||||||
| Series A (2015) | 683 | 683 | $ | 1,363 | 683 | April 2020 | ||||||||||||
| Series A (2016)(a) | 677 | 625 | $ | 40 | 625 | March 2018 | ||||||||||||
| Series B (2016)(a) | 2,770 | 2,770 | $ | 40 | 2,770 | March 2022 | ||||||||||||
| (*) | December 31 2017 and 2016 warrants data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. | |
| a) | These warrants contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of any common stock or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the warrant exercise price will be reset to the lower common stock sales price. As such anti-dilution price protection does not meet the specific conditions for equity classification, the Company is required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The estimated fair value of our warrant liability at December 31, 2017 and December 31, 2016, was approximately $28 and $313, respectively. |
As quoted prices in active markets for identical or similar warrants are not available, the Company uses directly observable inputs in the valuation of its derivative warrant liabilities (level 2 measurement).
The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.
| b) | In March 2017, an institutional holder executed a cashless exercise of 51 warrants (768 before the Reverse Split) and 24 shares (359 shares before the Reverse Split) of Common Stock were issued in connection therewith. |
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of December 31, 2017 and December 31, 2016 (in thousands)(**):
Series |
Series A (2013) |
Series A (2013) |
Series A (2015) | Series A (2016) | Series B (2016) | Total | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| Balances at December 31, 2016 | $ | - | $ | 12 | $ | 9 | $ | 22 | $ | 43 | $ | 227 | $ | 313 | ||||||||||||||
| Exercised | - | - | - | - | - | - | - | |||||||||||||||||||||
| Cancelled | - | - | - | - | - | - | - | |||||||||||||||||||||
| Changes in fair value | - | (12 | ) | (9 | ) | (22 | ) | (43 | ) | (199 | ) | (285 | ) | |||||||||||||||
| Balances at December 31, 2017 | $ | - | $ | - | $ | - | $ | - | $ (*) | $ | 28 | $ | 28 | |||||||||||||||
| (*) | Less than 1 | |
| (**) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of December 31, 2017 and December 31, 2016:
As of December 31, 2017(*) | As of December 31, 2016(*) | |||||||||||||||
| Series A (2016) | Series B (2016) | Series A (2016) | Series B (2016) | |||||||||||||
| Share price | $ | 15.1 | $ | 15.1 | $ | 90.5 | $ | 90.5 | ||||||||
| Exercise price | $ | 40 | $ | 40 | $ | 40 | $ | 40 | ||||||||
| Expected volatility | 60 | % | 119 | % | 380 | % | 380 | % | ||||||||
| Risk-free interest | 1.24 | % | 1.89 | % | 0.85 | % | 1.93 | % | ||||||||
| Dividend yield | — | — | — | — | ||||||||||||
| Expected life of up to (years) | 0.25 | 4.25 | 1.2 | 5.2 | ||||||||||||
| (*) | December 31 2017 and 2016 options data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
Activity in such liabilities measured on a recurring basis is as follows:
| Derivative warrant liabilities | ||||
| (in thousands) | ||||
| As of December 31, 2016 | $ | 313 | ||
| Revaluation of warrants | (285 | ) | ||
| Exercise warrants | (* | ) | ||
| As of December 31, 2017 | $ | 28 | ||
(*) Less than 1
| Derivative warrant liabilities | ||||
| (in thousands) | ||||
| As of November 30, 2016 | $ | 575 | ||
| Revaluation of warrants | (262 | ) | ||
| Exercise warrants | (* | ) | ||
| As of December 31, 2016 | $ | 313 | ||
(*) Less than 1
In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 3 financial instruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary overtime, namely, the volatility and the risk-free rate. A 5.0% decrease in volatility would decrease the value of the warrants to $27; a 5.0% increase in volatility would increase the value of the warrants to $29. A 5.0% decrease or increase in the risk-free rate would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.
NOTE 8 - COMMITMENTS AND CONTIGENCIES
Microbot Israel obtained from the Israeli Innovation Authority (“IIA”) grants for participation in research and development for the years 2013 through December 31, 2017 in the total amount of approximately $1,183 and, in return, Microbot Israel is obligated to pay royalties amounting to 3% of its future sales up to the amount of the grant. The grant is linked to the exchange rate of the dollar to the New Israeli Shekel and bears interest of Libor per annum.
The repayment of the grants is contingent upon the successful completion of the Company’s research and development programs and generating sales. The Company has no obligation to repay these grants, if the project fails, is unsuccessful or aborted or if no sales are generated. The financial risk is assumed completely by the Government of Israel. The grants are received from the Government on a project-by-project basis.
Microbot Israel signed an agreement with the Technion Research and Development Foundation (“TRDF”) in June 2012 by which TRDF transferred to Microbot Israel a global, exclusive, royalty-bearing license. As partial consideration for the license, Microbot Israel shall pay TRDF royalties on net sales (between 1.5%-3%) and on sublicense income as detailed in the agreement.
Lease Agreements:
In June 2016, the Company entered into an office lease agreement, with a term ending on February 28, 2018. According to the lease agreement, the monthly office lease payment is approximately $3.
In December 2016, the Company entered into a cars lease agreement, which will end on December 31, 2019. According to the lease agreement, the monthly car lease payment is approximately $2.5.
In May 2017, the Company entered into an office lease agreement effective from February 1, 2018, with a term ending on December 31, 2020. According to the lease agreement, the monthly office lease payment is approximately $14
Compensation liability
The Company incurred compensation commitments of approximately $400 to a former executive that management estimates as remote that this amount will ever be paid out and therefore is not reflected in these consolidated financial statements.
Contract Research Agreement
On January 27, 2017, the Company entered into a Contract Research Agreement (the “Research Agreement”) with The Washington University (“Washington U.”), pursuant to which the parties will collaborate to determine the effectiveness of the Company’s self-cleaning shunt.
The study in WU includes several phases. The first phase (initial research) was completed. The parties are in the final stage of planning the next phase, including the related various costs.Pursuant to the Research Agreement, all rights, title and interest in the data, information and results obtained or arrived at by Washington U. in the performance of its services under the Research Agreement, as well as any patentable inventions obtained or arrived at in the performance of such services, will be jointly owned by the Company and Washington U., and each will have full right to practice and grant licenses in joint inventions. Additionally, Washington U. granted to the Company: (a) a non-exclusive, worldwide, royalty-free, fully paid-up, perpetual and irrevocable license to use and practice patentable inventions (other than joint inventions and improvements to Washington U.’s animal models) obtained or arrived at by Washington U. in the provision of its services under the Research Agreement (“University Inventions”) with respect to the self-cleaning shunt; and (b) an exclusive option to obtain an exclusive worldwide license in University Inventions, on terms to be negotiated between the parties.
Litigation
The Company is named as the defendant in a lawsuit, captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, pending in the Supreme Court of the State of New York, County of New York. The complaint alleges, among other things, that the Company breached multiple representations and warranties contained in the Securities Purchase Agreement (the “SPA”) related to the June 8, 2017 equity financing of the Company (the “Financing”), of which the Plaintiffs participated. The complaint seeks rescission of the SPA and return of the Plaintiffs’ $3,375 purchase price with respect to the Financing, and damages in an amount to be determined at trial, but alleged to exceed $1 million. The parties presently are engaged in discovery.
Due to the early stage in the ligation process, management is unable to assess the likelihood of the claim and the amount of potential damages, if any, to be awarded. Management believes that the claims made against it are without merit and intends to vigorously defend itself against these claims.
See Note 16 – Subsequent Events, below.
| F-19 |
NOTE 9 - SHARE CAPITAL
Each share of the Series A Convertible Preferred Stock, par value $0.01 per share, issued by the Company in December 2016 and in May 2017 (the “Series A Convertible Preferred Stock”), is convertible, at the option of the holder, into 67 shares ( 1,000 shares before the Reverse Split) of Common Stock, and confer upon the holder dividend rights on an as converted basis.
Exercise of Warrants
On March 2017, an institutional holder exercised, in a cashless transaction, of 52 warrants ( 768 before the Reverse Split) and 24 shares ( 359 shares before the Reverse Split) of Common Stock were issued in connection therewith.
Share capital developments:
The authorized capital stock consists of 221,000,000 shares of capital stock, which consists of 220,000,000 shares of Common Stock and 1,000,000 shares of undesignated preferred stock, par value $0.01 (the “Preferred Stock”). As of December 31, 2017, the Company had 2,734,300 shares (40,583,127 shares before the Reverse Split) of Common Stock issued and outstanding, and 4,001 shares of Series A Convertible Preferred Stock issued and outstanding.
On November 28, 2016, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to (i) effect the Reverse Stock Split, (ii) change its name from “StemCells, Inc.” to “Microbot Medical Inc.” and (iii) increase the number of authorized shares of the Common Stock from 200,000,000 to 220,000,000 shares (the “Certificate of Amendment”).
As a result of the Reverse Stock Split, the number of issued and outstanding shares of the Common Stock immediately prior to the Reverse Stock Split were reduced into a smaller number of shares, such that every nine shares of the Common Stock held by a stockholder immediately prior to the Reverse Stock Split were combined and reclassified into one share of the Common Stock.
Immediately following the Reverse Stock Split and the Merger, there were 2,442,646 shares (36,254,240 shares before the Reverse Split) of the Common Stock issued and outstanding, which included certain rights to receive shares of Common Stock or equivalent securities but excludes shares underlying outstanding stock options and warrants and the Convertible Note.
On December 27, 2016, the Company exchanged 655,962 shares (9,735,925 shares before the Reverse Split) or rights to acquire shares of its Common Stock, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock. See “- Securities Exchange Agreement with Alpha Capital” below. See also Note 6 – Securities Exchange Agreement with Alpha Capital, above.
On January 5, 2017, the Company entered into a definitive securities purchase agreement with an institutional investor (the “Purchaser”) for the purchase and sale of an aggregate of 47,163 shares (700,000 shares before the Reverse Split) of Common Stock in a registered direct offering for $74 ($5.00 per share before the Reverse Split) or gross proceeds of $3,500. The Company paid the placement agent a fee of $210 plus reimbursement of out-of-pocket expenses, as well as other offering-related expenses.
On June 5, 2017, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Investors”) providing for the issuance and sale by the Company to the Investors of an aggregate of 252,658 shares (3,750,000 shares before the Reverse Split) of Common Stock, at a purchase price per share of $40 ($2.70 per share before the Reverse Split). The gross proceeds to the Company was $10,125,000 before deducting placement agent fees and offering expenses of $922.
| F-20 |
Employee stock option grant:
In September 2014, Microbot Israel’s board of directors approved a grant of 26,906 (403,592 stock options before the Reverse Split) (77,846 stock options as retroactively adjusted to reflect the Merger and the Reverse Split) to its CEO, through MEDX Venture Group LLC. Each option was exercisable into an ordinary share, at an exercise price of $12 ($0.8 before the Reverse Split) ($4.2 as retroactively adjusted to reflect the Merger and the Reverse Split). The stock options were fully vested at the date of grant.
On May 2, 2016, Microbot Israel’s board of directors approved a grant of 33,333 stock options (500,000 stock options before the Reverse Split) (96,482 as retroactively adjusted to reflect the Merger and the Reverse Split) to certain of its employees withand directors. Each stock option was exercisable into an ordinary share, NIS 0.001 par value, of Microbot Israel, at an exercise price equal to the ordinary share’s par value. The stock options were fully vested at the date of grant. As a result, the Company recognized compensation expenses in the amount of $675 included in general and administrative expenses. As the exercise price of the stock options is nominal, Microbot Ltd estimated the fair value of the options as equal to the Company’s share price of $20.25 ($1.35 before the Reverse Split) ($7.05 as retroactively adjusted to reflect the Merger and the Reverse Split) at the date of grant.
On September 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”), which Plan authorizes, among other things, the grant of options to purchase shares of Common Stock to directors, officers and employees of the Company and to other individuals.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 120,847 shares (1,812,712 shares before the Reverse Split) of Common Stock to Mr. Harel Gadot, the Company’s Chairman of the Board, President and CEO, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3-5 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $156 included in general and administrative expenses for the period ended December 31, 2017.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 72,508 shares (1,087,627 shares before the Reverse Split) of Common Stock to Mr. Hezi Himelfarb, the company’s General Manager, COO and a member of the Board, at an exercise price per share of $19.35 ($1.29 before the Reverse Split). The grant was subject to the Israeli Tax Authority’s approval of the plan which occurred on October 14, 2017. In accordance with the option agreement, the options vest for period of 3 years starting from the grand date. As a result, the Company recognized compensation expenses in the amount of $92 included in general and administrative expenses for the period ended December 31, 2017.
On December 6, 2017, the board of directors approved a grant of 12,698 stock options (190,475 stock options before the Reverse Split) to purchase an aggregate of up to 12,698 shares (190,475 shares before the Reverse Split) of Common Stock to certain of its directors, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $4 included in general and administrative expenses for the period ended December 31, 2017.
On December 28, 2017, the board of directors approved a grant of 66,036 stock options (990,543 stock options before the Reverse Split) to purchase an aggregate of up to 66,036 shares (990,543 shares before the Reverse Split) of Common Stock to certain of its employees, at an exercise price per share of $15.3 ($1.02 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $95 included in general and administrative expenses for the period ended December 31, 2017.
On November, 2017, certain employees and consultant exercised 31,453 options (471,794 options before the Reverse Split) to 31,453 ordinary shares (471,794 ordinary shares before the Reverse Split) at exercise price of 0.001 NIS.
A summary of the Company’s option activity related to options to employees and directors, and related information is as follows:
For the year ended December 31, 2017(**) | ||||||||||||
| Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 174,328 | $ | 1.95 | $ | 3,739 | |||||||
| Granted | 272,090 | 16.5 | - | |||||||||
| Exercised | (31,453 | ) | - | - | ||||||||
| Cancelled | - | - | - | |||||||||
| 414,965 | $ | 11.7 | $ | 1,859 | ||||||||
| Outstanding at end of period | 142,875 | $ | 1.95 | $ | 1,375 | |||||||
| Vested and expected-to-vest at end of period | 174,328 | $ | 1.95 | $ | 3,739 | |||||||
For the year ended December 31, 2016(**) | ||||||||||||
| Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 77,846 | $ | 4.2 | - | ||||||||
| Granted | 96,482 | (*) | - | |||||||||
| Exercised | - | - | - | |||||||||
| Cancelled | - | - | - | |||||||||
| Outstanding at end of period | 174,328 | $ | 1.95 | $ | 15,624 | |||||||
| Vested and expected-to-vest at end of period | 174,328 | $ | 1.95 | $ | 15,624 | |||||||
(*) Less than 1
(**) December 31 2017 and 2016 options data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018.
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Common Stock and the exercise price, multiplied by the number of in-the-money stock options on those dates that would have been received by the stock option holders had all stock option holders exercised their stock options on those dates.) as of December 31, 2017 and December 31, 2016 respectively,
| F-22 |
The stock options outstanding as of December 31, 2017 and December 31, 2016, separated by exercise prices, are as follows:
| Exercise price | Stock options outstanding as of December 31, (**) | Weighted average remaining contractual life – years as of December 31, (**) | Stock options exercisable as of December 31, (**) | |||||||||||||||||||||||
| $ | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
| 4.2 | 77,846 | 77,846 | 8.0 | 8.0 | 77,846 | 77,846 | ||||||||||||||||||||
| 15.75 | 133,546 | - | 9.75 | - | - | - | ||||||||||||||||||||
| 19.35 | 72,508 | - | 9.75 | - | - | - | ||||||||||||||||||||
| 15.3 | 66,036 | - | 10 | - | - | - | ||||||||||||||||||||
| (* | ) | 65,029 | 96,482 | 8.75 | 9.5 | 65,029 | 96,482 | |||||||||||||||||||
| 414,965 | 174,328 | - | - | 142,875 | 174,328 | |||||||||||||||||||||
(*) Less than 1
(**) December 31 2017 and 2016 options data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018.
Compensation expense recorded by the Company in respect of its stock-based employee compensation awards in accordance with ASC 718-10 for the year ended December 31, 2017 and 2016 was $ 254 and $ 675, respectively.
The fair value of the stock options is estimated at the date of grant using Black-Scholes options pricing model with the following weighted-average assumptions:
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Expected volatility | 122.5 | % | 77.3 | % | ||||
| Risk-free interest | 1.64 | % | 0.6 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected life of up to (years) | 6.25 | 5.0 | ||||||
Shares issued to service provider
In connection with the Merger, the Company issued an aggregate of 525,706 restricted shares (7,802,639 restricted shares before the Reverse Split) of its Common Stock to certain advisors. The fair value of the award of approximately $10,000 was estimated based on the share price of the Common Stock of $19.2 ($1.28 before the Reverse Split) as of the date of grant. The Company accounts for stock option grantsportion of the expense in accordance
with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and,
accordingly, recognizes no compensation expense for qualified stock option
grants.
For certain non-qualified stock options granted to non-employees, the
Company accounts for these grants in accordance with FAS No. 123--ACCOUNTING FOR
STOCK-BASED COMPENSATION AND EITF96-18--ACCOUNTING FOR EQUITY INSTRUMENTS THAT
ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH
SELLING, GOODS OR SERVICES, and accordingly, recognizes as consulting expenses
the estimated fair value of such options as calculated using the Black-Scholes
valuation model, and is remeasured during the vesting period. Fair value is
determined using methodologies allowable by FAS No. 123. The cost is amortized
over the vesting period of each option or the recipient's contractual
arrangement, if shorter.
LONG LIVED ASSETS
The Company routinely evaluates the carrying value of its long-lived assets.
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that assets may be impaired and the
undiscounted cash flows estimated to be generated by the assets are less than
the carrying amount of those assets. If an impairment exists, the charge to
operations is measured as the excess of the carryingcash and other current assets acquired in the Merger, in the amount overof $7,300 was included in general and administrative expenses in the Statements of Comprehensive Loss.
During 2017 the Company issued an aggregate of 8, 085 nonrefundable shares (120,000 nonrefundable shares before the Reverse Split) of Common Stock to a consultant as part of investor relations services. The Company recorded expenses of approximately $225 with respect to the issuance of these shares included in general and administrative expenses.
Securities Exchange Agreement with Alpha Capital
On December 16, 2016, the Company entered into a Securities Exchange Agreement with Alpha Capital, pursuant to which Alpha Capital exchanged 655,967 shares (9,736,000 shares before the Reverse Split) of common stock or rights to acquire shares of the common stock held by it, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”). The common stock and common stock underlying the rights to acquire common stock include all of the shares of common stock issued or issuable to Alpha Capital pursuant to the Merger. The 655,967 shares (9,735,925 shares before the Reverse Split) of common stock and the rights to acquire common stock were cancelled and the Company’s issued and outstanding shares of Common Stock were reduced to 1,786,684 (26,518,315 before the Reverse Split).
| F-23 |
On May 9, 2017, the Company entered into a Securities Exchange Agreement with Alpha Capital pursuant to which the Company agreed to issue 3,254 shares of the Series A Convertible Preferred Stock, in exchange for the full satisfaction, termination and cancellation of the outstanding 6% convertible promissory note of the Company in the principal amount of approximately $2,029 issued on November 28, 2016 and held by Alpha Capital. The Series A Convertible Preferred Stock is the same series of securities as the Company’s existing Series A Convertible Preferred Stock issued in December 2016. As a result of the extinguishment of the convertible note and issuance of the preferred shares, the Company recorded a financial loss in the amount of $2,360.
During the year 2017, the holder of the Series A Convertible Preferred Stock converted 8,990 shares of the Series A Convertible Preferred Stock for 605,705 shares (8,990,000 shares before the Reverse Split) of Common Stock, pursuant to the terms of conversion of the Series A Convertible Preferred Stock.
Repurchase of Shares
The Company intends to enter into a definitive agreement with up to three Israeli shareholders, some of whom are directors of the Company, that were former shareholders of Microbot Israel, pursuant to which the Company would repurchase, at a discount on the fair value of the assets.
INCOME TAXESshare at the date of repurchase, up to $500 of Common Stock held by them, in the aggregate, if and to the extent such shareholders are unable to sell enough of their shares to cover certain of their Israeli tax liabilities resulting from the Merger. Such repurchase(s), if any, would occur only after the two-year anniversary of the Merger. The liability methodtransaction is usedsubject to account for income taxes. Deferred tax
assetsnegotiating final terms and liabilities are determined based on differences between financial
reporting and income tax bases of assets and liabilities as well as net
operating loss carry forwards and are measured using the enacted tax rates and
lawsentering into definitive agreements with such shareholders.
The Company evaluated whether an embedded derivative that are expected to be in effect when the differences reverse. Deferred
tax assetsrequires bifurcation exists within such shares that may be reduced by a valuation allowancesubject to reflect the uncertainty
associated with their ultimate realization.
REVENUE RECOGNITION
Revenues from collaborative agreements are recognized as earned upon either
the incurring of reimbursable expenses directly related to the particular
research plan or the completion of certain development milestones as defined
within the terms of the collaborative agreement. Payments received in advance of
research performed are designated as deferred revenue. StemCells recognizes
non-refundable upfront license fees and certain other related fees on a
straight-line basis over the development period. Fees associated with
substantive at risk, performance milestones are recognized as revenue upon their
completion, as defined in the respective agreements.
F-11
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133."repurchase. The Company is required to adopt SFAS 133 effective
January 1, 2001. Because the Company does we does not hold any derivative
instruments and does not engage in hedging activities, management does not
believe the adoption of SFAS 133 will have an impact on our financial position
or results of operations.
In November 2000, the FASB issued Emerging Issues Task Force Issue No.
00-27, "Application of EITF Issue No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, to Certain Convertible Instruments" ("EITF 00-27") which is
effective retroactively to September 1999 for all such instruments. EITF 00-27
clarifies the accounting for instruments with beneficial conversion features or
contingently adjustable conversion ratios. According to the new accounting
principle, the beneficial conversion features should be calculated by first
allocating the proceeds received from the financing among the convertible
instrument and the detachable warrants and then, measuring the beneficial
conversion feature between the stated conversion price of the convertible
instrument and the effective conversion price based on the allocated proceeds.
Previously, the beneficial conversion feature calculation was based on the
difference between the stated conversion price of the convertible instrument andconcluded the fair value of such derivative instrument would be nominal and, in any case, would represent an asset to the Company's stock priceCompany as (a) the settlement requires acquiring the shares at a discount on the closing datefair market value of the financing. As a resultshare at the time of re purchase and in no circumstances the acquisition price will be higher than approximately one dollar per share (representing 25% discount on the fair market value of the new accounting principle,share at the merger closing date) and (b) it is assumed that the selling shareholders would use such right as last resort as such repurchase at a discount on the fair market value of such shares results in a loss to be incurred by the selling shareholders.
In accordance with ASC 480-10-S99-3A (formerly EITF D-98), the Company modifiedclassified the calculation ofmaximum amount it may be required to pay in the beneficial conversion features associated with its 6%
cumulative convertible preferred stock.
The Company has presentedevent the effect of adopting the new accounting
principlerepurchase right is exercised ($500) as a cumulative effect of a change in accounting principle as allowed
for in EITF 00-27. Accordingly, the Company has recognized an additional
$216,000 of deemed dividend on preferred stock.
RESEARCHtemporary equity.
NOTE10-BASIC AND DEVELOPMENT COSTS
The Company expenses all research and development costs as incurred.DILUTED NET LOSS PER SHARE
Basic
The basic and diluted net loss per share has been computed usingand weighted average number of common shares used in the weighted-averagecalculation of basic and diluted net loss per share are as follows (in thousands, except share and per share data):
Year Ended December 31, | ||||||||
| 2017(*) | 2016(*) | |||||||
| Net loss attributable to shareholders of the Company | $ | 7,589 | $ | 9,663 | ||||
| Net loss attributable to shareholders of preferred shares | 1,582 | 3,954 | ||||||
| Net loss used in the calculation of basic net loss per share | $ | 6,007 | $ | 5,709 | ||||
| Net loss per share | $ | (2.67 | ) | $ | (5.94 | ) | ||
| Weighted average number of common shares | 2,201,992 | 963,047 | ||||||
(*) December 31 2017 and 2016 shares data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018.
As the inclusion of common stock outstanding during the period,
less shares subject to repurchase. The Company has excluded outstanding stock
options and warrants, and shares subject to repurchase fromshare equivalents in the calculation of
diluted loss per common share because all such securities arewould be anti-dilutive for all applicable periods presented.
3. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY RESEARCH AND DEVELOPMENT PROGRAM
Until mid-1999,presented, diluted net loss per share is the Company engaged in research and development in
encapsulated cell therapy technology, including a pain control program funded by
AstraZeneca Group plc. same as basic net loss per share.
The results from the
F-12
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY RESEARCH AND DEVELOPMENT PROGRAM
(CONTINUED)
85-patient double-blind, placebo-controlled trialweighted average number of our encapsulated bovine
cell implantcommon shares outstanding has been retroactively restated for the treatmentequivalent number of severe, chronic pain in cancer patients did
not, however, meet the criteria AstraZeneca had established for continuing
trials for the therapy, and in June 1999 AstraZeneca terminated the
collaboration, as allowed under the terms of the original collaborative
agreement signed in 1995.
As a result of termination, management determined in July 1999 to
restructure its research operations to abandon all further encapsulated cell
technology research and concentrate its resources on the research and
development of its proprietary platform of stem cell technologies.
The Company wound down its research and manufacturing operations in Lincoln,
Rhode Island, and relocated its remaining research and development activities,
and its corporate headquarters, to the facilities of its wholly owned
subsidiary, StemCells California, Inc., in Sunnyvale, California, in
October 1999. The Company terminated legal, professional and consulting
contractual arrangements in support of ECT research. The Company had used these
legal, professional and consulting contractual arrangements to meet regulatory
requirements in support of its research work, to support contractual
arrangements with clinical sites, to provide assistance at clinical sites in
administrating therapy and documenting activities, and to assist in compliance
with FDA and other regulations regarding its clinical trials. ECT related patent
law work was also terminated. The Company also engaged professional consultants
in connection with the determination to exit its ECT activities and restructure
its operations, which concluded with the exit from ECT activities and relocation
of its corporate headquarters to California. The Company reduced its workforce
by approximately 58 employees who had been focused on ECT programs and 10
administrative employees. As a result, the Company sold excess furniture and
equipment in December 1999 and is seeking to sublease the science and
administrative facility and to sell the pilot manufacturing facility.
Wind-down expenses totaled $3,327,360 and $6,047,806, for the year ended
December 31, 2000 and 1999, respectively. No such expenses were incurred in
1998. These expenses relate to the wind-down of our encapsulated cell technology
research and other Rhode Island operations and the transfer of the corporate
headquarters to Sunnyvale, California. Expenses for the year 2000, includes an
accrual for the estimated lease and facility costs related to the facilities in
Rhode Island through 2001. Expenses for the year 1999 also includes an accrual
for the estimate of the costs of settlement of a 1989 funding agreement with the
Rhode Island Partnership for Science and Technology ("RIPSAT").
At December 31, 1999, the Company's $1.6 million wind-down reserve included
approximately $1.2 million for the RIPSAT settlement and approximately
$0.4 million for Rhode Island facility for the estimated lease payments and
operating costs of the Rhode Island facilities through an expected disposal date
of June 30, 2000. In 2000 the Company settled with RIPSAT, paid $1.2 million and
paid 0.4 million related to Rhode Island facilities. The Company did not sublet
the Rhode Island facilities in 2000 and therefore made a change in estimate to
accrue additional expenses of $3.3 million to cover operating lease payments,
utilities, taxes, insurance, maintenance, interest and other non-employee
expenses through 2001. At December 31, 2000 the remaining wind-down reserve
totaled $1.7 million.
F-13
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY RESEARCH AND DEVELOPMENT PROGRAM
(CONTINUED)
A description of wind-down expenses, including the amounts and periods of
recognition, are as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 2000
----------------- -----------------
Employee severance costs.................... $1,554,000
Impairment losses(1):
Fixed assets.............................. 800,000
ECT patents............................... 260,000
----------
1,060,000
Rhode Island facilities carrying costs(2):
Corporate headquarters.................... 702,000 $3,327,000
PILOT MANUFACTURING PLANT................. 562,000
----------
1,264,000 3,327,000
EMPLOYEE OUTPLACEMENT....................... 200,000
RIPSAT settlement(3)........................ 1,172,000
Loss on sale of assets(4):
Fixed assets.............................. 318,000
ECT patents............................... 180,000
----------
498,000
Write-down of pilot plant(5)................ 300,000
----------
$6,048,000 $3,327,000
========== ==========
- ------------------------
(1) Management's estimate of the fixed asset impairment was derived from
communications with an outside auction house. The patent impairment loss was
based on preliminary negotiations with parties interested in acquiring the
patents.
(2) Facilities carrying costs include operating lease payments, utilities,
property taxes, insurance, maintenance, interest and other non-employee
related expenses necessary to maintaining these facilities through the
expected date of disposition (December 31, 2001)
(3) The Company originallycommon shares received funding from the Rhode Island Partnership
for Science and Technology (RIPSAT) for purposes of conducting ECT
activities conditioned upon maintaining the operation within the state.
RIPSAT claimed that the Company's decision to exit ECT activities and close
the Rhode Island operation was in violation of the funding arrangement and
that the Company was obligated to return a portion of the funding proceeds.
Although the Company disputed these claims, during the fourth quarter of
1999, management determined it was in the best interest of the Company to
settle the issue.
(4) The Company held an auction to sell all ECT fixed assets. Proceeds from that
sale resulted in a loss, which was related to machinery and equipment
($292,000), and furniture and fixtures ($26,000).
(5) The write-down of the pilot plant was based on an independent property
appraisal.
F-14
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY RESEARCH AND DEVELOPMENT PROGRAM
(CONTINUED)
Property held for sale at December 31, 2000 and 1999, consisted of
$3.2 million relating to the Company's pilot plant facility located in Lincoln,
Rhode Island. The company suspended depreciation of these assets in 1999. The
balance reflected the $300,000 write-down included as part of the additional
wind-down expenses recognized in accordance with Financial Accounting Standards
Board Statement 121, which requires that long-lived assets be reviewed for
impairment whenever events or circumstances indicate that the carrying value of
the asset may not be recoverable. There were no such assets at December 31,
1998.
4. STEMCELLS CALIFORNIA, INC.
In September 1997, a merger of a wholly owned subsidiary of the company and
StemCells California, Inc. was completed. As part of the acquisition of
StemCells, Richard M. Rose, M.D., became President, Chief Executive Officer and
director of the Company and Dr. Irving Weissman became a director of the
Company. Upon consummation of the merger, the Company entered into consulting
arrangements with the principal scientific founders of StemCells: Dr. Irving
Weissman, Dr. Fred H. Gage and Dr. David Anderson. Additionally, in connection
with the merger, the Company was granted an option by the former shareholders of
StemCells to repurchase 500,000 of the Company's shares of Common Stock
exchanged for StemCells shares, upon the occurrence of certain events. To
attract and retain Drs. Rose, Weissman, Gage and Anderson, and to expedite the
progress of the Company's stem cell program, the Company awarded these
individuals options to acquire a total of approximately 1.6 million shares of
the Company's common stock, at an exercise price of $5.25 per share, the quoted
market price at the grant date. The Company also designated a pool of 400,000
options to be granted to persons in a position to make a significant
contribution to the success of the stem cell program. Under the original grants,
approximately 100,000 of these options were exercisable immediately on the date
of grant, 1,031,000 of these options would vest and become exercisable only upon
the achievement of specified milestones related to the Company's stem cell
development program and the remaining 468,750 options would vest over eight
years. In connection with the 468,750 options issued to a non-employee,
Dr. Anderson, the Company recorded deferred compensation of $1,750,000, the fair
value of such options at the date of grant, which will be amortized over an
eight-year period. The fair value was determined using the Black-Scholes method.
Effective October 31, 2000, the Company agreed with Drs. Weissman and Gage
to revise their 468,750 milestone-vesting stock options to time-based vesting,
on the same scheduleaccounting acquirer as Dr. Anderson's option. Under each of the revised
options, 168,750 shares vested immediately, and the remaining 300,000 shares
will vest at 50,000 per year on September 25, until September 25, 2005, when the
final 100,000 shares will vest. The exercise price remains $5.25 per share. The
Company recorded $1,647,000 as compensation expense for the fair market value of
the vested portion of such options in an amount determined using the
Black-Scholes method. The deferred compensation expense associated with the
unvested portion of the grants was determined to be approximately $1,338,000. As
part of the revision of the options, Drs. Weissman and Gage relinquished all
rights under an agreement. These individuals had the right to license the
non-brain stem cell technology in exchange for a payment to the Company equal to
all prior funding for such research plus royalty payments. We plan to revalue
the options using the Black-Scholes method on a quarterly basis and recognize
additional compensation expense accordingly.
F-15
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
5. INVESTMENTS
In October 1997, the Company completed a series of transactions, which
resulted in the establishment of its previously 50%-owned Swiss subsidiary,
Modex Therapeutics, Ltd., (Modex) as an independent company.
In April 1998, Modex completed an additional equity offering, in which the
Company did not participate. This resulted in a reduction in the Company's
ownership to less than 20% ownership; therefore, the Company accounted for this
investment under the cost method from that date.
At December 31, 2000 the Company owned 126,193 shares of Modex. Modex
completed an initial public offering of shares on the Swiss Exchange on
June 23, 2000. Accordingly, with an established market value, the investment is
recorded as available-for-sale at a fair market value of $16,356,334 as at
December 31, 2000. The unrealized gain was reported as other comprehensive
income in the statement of stockholders' equity.
The pre-existing royalty-bearing Cross License Agreement between the Company
and Modex was assigned by the Company to Neurotech S.A., a privately held French
company, as part of the sale of the intellectual property assets related to the
Company's encapsulated cell therapy technology to Neurotech. Under the terms of
the sale to Neurotech, the Company will receive a portion of revenues Neurotech
receives from Modex under the Cross License Agreement.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Building and improvements............................ $ 703,095 $ 665,890
Machinery and equipment.............................. 1,766,448 1,691,136
Furniture and fixtures............................... 188,736 219,260
---------- ----------
2,658,279 2,576,286
Less accumulated depreciation and amortization....... (1,207,218) (828,401)
---------- ----------
$1,451,061 $1,747,885
========== ==========
Depreciation expense was $451,000, $1,436,000, and $1,720,000 for the years
ending December 31, 2000, 1999 and 1998, respectively.
As part of restructuring our operations, sale of our encapsulated cell
technology ("ECT"), and relocation of our corporate headquarters to Sunnyvale,
California, we identified fixed assets associated with the ECT or otherwise no
longer needed. In December of 1999, we disposed of these excess fixed assets,
realizing proceeds of approximately $746,000. These assets had a net book value
of approximately $1,063,000 after a write-down of 800,000, which was based on an
estimate of expected sale proceeds.
Certain property, plant and equipment have been acquired under capital lease
obligations. These assets totaled $5,827,000 at December 31, 2000 and 1999,
respectively, with related accumulated amortization of $2,747,000 at
December 31, 2000 and 1999, respectively. As a result of the Company's
F-16
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
6. PROPERTY, PLANTreverse recapitalization and reverse stock split as if these common shares had been outstanding as of the beginning of the earliest period presented.
NOTE11 -RESEARCH AND EQUIPMENT (CONTINUED)
decision to exit ECT and relocate to Sunnyvale, California, this property has
been classified as held for sale.
7. OTHER ASSETS
Other assets are as follows:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Patents, net......................................... $ 629,203 $ 708,823
License agreements, net.............................. 669,000 282,750
Security deposit--building lease..................... 750,000 750,000
Deposit--other....................................... 16,321 --
Deferred financing costs, net........................ 109,388 117,195
---------- ----------
$2,173,912 $1,858,768
========== ==========
At December 31, 2000 and 1999, accumulated amortization was $1,140,000 and
$857,000, respectively, for patents and license agreements.
8. ACCRUEDDEVELOPMENT EXPENSES, Accrued expenses are as follows:
NET
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Payroll and related expenses | $ | 634 | $ | 491 | ||||
| Share-based compensation | 1 | - | ||||||
| Materials | 266 | 155 | ||||||
| Patents | 66 | 75 | ||||||
| Office and maintenance expenses | 27 | 21 | ||||||
| Rent | 34 | 36 | ||||||
| Professional services | 174 | 253 | ||||||
| Depreciation | 12 | 7 | ||||||
| Other | 65 | 76 | ||||||
| Less: Grants received from IIA | (179 | ) | (213 | ) | ||||
| $ | 1,100 | $ | 901 | |||||
NOTE12 -GENERAL AND ADMINISTRATIVE EXPENSES
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Payroll and related expenses | $ | 1,213 | $ | 45 | ||||
| Share-based compensation | 253 | 676 | ||||||
| Professional services | 1,217 | 528 | ||||||
| Common shares issued for services | - | 7,258 | ||||||
| Travel | 284 | 180 | ||||||
| Marketing expenses | 26 | - | ||||||
| Office and maintenance expenses | 121 | - | ||||||
| Depreciation | 9 | - | ||||||
| Public and Investor Relations | 515 | - | ||||||
| Insurance | 226 | - | ||||||
| Governmental Fees | 251 | |||||||
| Other | 52 | 47 | ||||||
| $ | 4,167 | $ | 8,734 | |||||
NOTE 13 - FINANCE EXPENSES, NET
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Bank fees and interest | $ | 1 | $ | 1 | ||||
| Change in fair value of derivative warrant liability | (285 | ) | (262 | ) | ||||
| Financing loss on debt extinguishment | 2,364 | - | ||||||
| Exchange rate differences | 5 | (44 | ) | |||||
| Revaluation and interest on convertible loans | 237 | 333 | ||||||
| $ | 2,322 | $ | 28 | |||||
NOTE 14 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
| A. | Transactions: |
| Year ended | ||||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Payroll and related expenses | $ | 851 | $ | - | ||||
| Directors fees and insurance | 463 | 58 | ||||||
| Subcontracted work and consulting | 67 | 253 | ||||||
| $ | 1,381 | $ | 311 | |||||
| B. | Balances: |
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| Other accounts payable | $ | 46 | - | |||||
| $ | 46 | - | ||||||
NOTE 15 - TAXES ON INCOME
The Company has undertaken direct financing transactions withis subject to income taxes under the StateIsraeli and U.S. tax laws:
Corporate tax rates
The Company is subject to Israeli corporate tax rate of Rhode Island25% in the year 2016, 24% in 2017 and received proceeds23% from 2018. The Company is subject to a blended U.S. tax rate (Federal as well as state corporate tax) of 35%.
On December 22, 2017, the issuance of industrial revenue bonds
totaling $5,000,000 to financeTax Cuts and Jobs Act (the “Tax Act”) was signed into law in the construction of its pilot manufacturing
facility.United States. The related leases are structured such that lease payments will fully
fund all semiannual interest payments and annual principal payments through
maturity in August 2014. Fixed interest rates vary with the respective bonds'
maturities, ranging from 5.1% to 9.5%. The bonds contain certain restrictive
covenants which limit,Tax Act, among other things,provisions, introduces changes in the payment of cash dividendsU.S corporate tax rate, business related exclusions and the
saledeductions and credits, and has internationally tax consequences for companies that operate international. Most of the related assets. In addition, the Company was required to maintain a
debt service reserve until December 1999. On March 3, 2000 the Company entered
into a settlement agreement with RIPSAT, the Rhode Island Industrial
Recreational Building Authority ("IRBA") and the Rhode Island Industrial
Facilities Corporation ("RIIFC"). The Company agreed to pay RIPSAT $1,172,000 in
full satisfaction of all obligations of the Company to RIPSAT under the
F-17
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
9. LEASES (CONTINUED)
Funding Agreement dated as of June 22, 1989. On execution and delivery of this
Agreement, IRBA agreed to return to the Company the full amount of the Company's
debt serve reserve ("Reserve Funds") of approximately $610,000 of principal and
interest, relating to the bonds the Company has with IRBA and RIIFC. In order to
avoid the loss of interest on the Reserve Funds due to early termination of
certain investments, the parties agreed that the Company would render a net
payment to RIPSATchanges introduced in the amountTax Act are effective beginning on January 1, 2018. The Tax Act introduces a reduced federal tax rate of approximately $562,000.
The Company entered into a fifteen-year lease for a laboratory facility in
connection with a sale21% from January 1, 2018 and leaseback arrangement in 1997. The lease has a rent
escalation clause and accordingly, the Company is recognizing rent expense on a
straight line basis. At December 31, 2000, the Company has $705,746 in deferred
rent expense.
As of February 1, 2001, the Company entered into a 5-year lease for a 40,000
square foot facility located in the Stanford Research Park in Palo Alto, CA. The
new facility includes vivarium space, laboratories, offices, and a GMP (Good
Manufacturing Practices) suite. GMP facilities can be used to manufacture
materials for clinical trials. The rent will average approximately
$3.15 million per year over the term of the lease.
onward.
| A. | As of December 31, 2017, the Company generated net operating losses in Israel of approximately $5,267 which may be carried forward and offset against taxable income in the future for an indefinite period. |
As of December 31, 2000, future minimum lease payments under operating and
capital leases and principal payments on equipment loans are as follows:
| B. | The Company is still in its development stage and has not yet generated revenues, therefore, it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts. |
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| Net operating loss carry-forward | $ | 488,603 | $ | 481,052 | ||||
| Total deferred tax assets | 117,265 | 120,263 | ||||||
| Valuation allowance | (117,265 | ) | (120,263 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
Reconciliation of Income Taxes:
The following is a reconciliation of the Company's deferredtaxes on income assuming that all income is taxed at the ordinary statutory corporate tax assetsrate in Israel and liabilities
are as follows:
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Net loss as reported in the statements of operations | $ | 7,589 | $ | 9,663 | ||||
| Statutory tax rate | 24 | % | 25 | % | ||||
| Income Tax under statutory tax rate | 1,821 | 2,416 | ||||||
| Change in valuation allowance | (1,821 | ) | (2,416 | ) | ||||
| Actual income tax | $ | - | $ | - | ||||
NOTE 16 - SUBSEQUENT EVENTS
On January 4, 2018, Microbot Medical Ltd. entered into an agreement with CardioSert Ltd. to acquire certain patent-protected technology owned by CardioSert. With the closing of deferred tax assets is dependent upon future earnings, if
any, the timingacquisition expected in April 2018, CardioSert’s issued U.S. patent and amountthree patent applications pending worldwide will be added to Microbot’s patent portfolio which will then have a patent portfolio of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $6,272,000 during 1999,25 issued/allowed patents and $5,459,000 during 1998.
13. EMPLOYEE RETIREMENT PLAN
The Company has a qualified defined contribution plan covering substantially
all employees. Participants are allowed to contribute a fixed percentage of
their annual compensation15 patent applications pending worldwide.
Pursuant to the planAgreement, Microbot Medical Ltd made an initial payment of $50 to CardioSert and has 90-days to complete the acquisition. At the end of the 90-day period, at Microbot’s sole option, CardioSert shall assign and transfer the Technology to Microbot Medical Ltd and Microbot Medical Ltd shall pay to CardioSert additional amounts and options as determined in the agreements.
The Agreement may be terminated by Microbot at any time during the 90-day pre-closing period, and otherwise for convenience upon 90-days’ notice. The Agreement may be terminated by CardioSert in case the first commercial sale does not occur by the third anniversary of the date of signing of the Agreement except in the event that Microbot has invested more than $2,000 in certain development stages, or the first commercial sale does not occur within 50 months. In each of the above termination events, or in case of breach by Microbot, CardioSert shall have the right to buy back the Technology from Microbot for $1.00, upon 60 days prior written notice, but only 1 year after such termination. Additionally, the Agreement may be terminated by either party upon breach of the other (subject to cure).
CardioSert agreed to assist Microbot in the development of the Technology for a minimum of one year, for a monthly consultation fee of NIS40,000 covering up to 60 consulting hours per month.
Share Capital Developments
In 2018, through March 30, 2018, the Company may match a percentageissued an aggregate of that contribution. The Company matches 50%101,063 shares (1,500,000 shares before the Reverse Split) of employee contributions, up to 6%its Common Stock upon the conversion of employee compensation, with the Company's common stock. The related expense
was $33,000, $103,000, and $146,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
14. SUBSEQUENT EVENTS (UNAUDITED)
Asan aggregate of February 1, 2001,1,500 shares of its Series A Convertible Preferred Stock.
Tolling Agreement
On April 2, 2018, the Company entered into a 5-year lease for a 40,000
square foot facility locatedTolling and Standstill Agreement (the “Tolling Agreement”) with Empery Asset Master, Ltd., Empery Tax Efficient LP, Empery Tax Efficient II LP, and Hudson Bay Master Fund, Ltd., the other investors in the Stanford Research Park in Palo Alto,
California. The new facility includes animal space, laboratories, offices, and a
GMP (Good Manufacturing Practices) suite. GMP facilities can be usedFinancing (the “Other Investors”). Pursuant to manufacture materials for clinical trials. The rent will average approximately
$3.15 million per year over the termTolling Agreement, among other things, (a) the Other Investors agree not to bring any claims against the Company arising out of the lease.Matter, (b) the parties agree that if the Company reaches an agreement to settle the claims asserted by the Sabby Funds in the above suit, the Company will provide the same settlement terms on a pro rata basis to the Other Investors, and the Other Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of each party as of the effective date of the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.
MICROBOT MEDICAL INC.
Interim Consolidated Balance Sheets
U.S. dollars in thousands
(Except share data)
| Note | As of June 30, 2018 | As of December 31, 2017 | ||||||||||
| Unaudited | Audited | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 8,020 | $ | 10,787 | ||||||||
| Restricted cash | 27 | 27 | ||||||||||
| Other current assets | 254 | 116 | ||||||||||
| 8,301 | 10,930 | |||||||||||
| Fixed assets, net | 291 | 90 | ||||||||||
| Total assets | $ | 8,592 | $ | 11,020 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Trade payables | $ | 192 | $ | 78 | ||||||||
| Accrued liabilities | 388 | 450 | ||||||||||
| Total current liabilities | 580 | 528 | ||||||||||
| Derivative warrant liability | 4 | 14 | 28 | |||||||||
| Total liabilities | 594 | 556 | ||||||||||
| Commitments and contingencies | 5 | |||||||||||
| Temporary equity: | 6 | |||||||||||
| Common stock of $0.01 par value; issued and outstanding: 721,107 shares as of June 30, 2018 and December 31, 2017 | 500 | 500 | ||||||||||
| Shareholders’ equity: | ||||||||||||
| Preferred stock of $0.01 par value; Authorized: 1,000,000 shares as of June 30, 2018 and December 31, 2017; issued and outstanding: 1,001 and 4,001 shares as of June 30, 2018 and December 31, 2017, respectively | 6 | (* | ) | (* | ) | |||||||
| Common stock of $0.01 par value; Authorized: 220,000,000 as of June 30, 2018 and December 31, 2017; issued and outstanding (**): 2,224,569 and 2,013,193 shares as of June 30, 2018, and December 31, 2017, respectively | 30 | 27 | ||||||||||
| Additional paid-in capital | 31,454 | 30,561 | ||||||||||
| Accumulated deficit | (23,986 | ) | (20,624 | ) | ||||||||
| 7,498 | 9,964 | |||||||||||
| $ | 8,592 | $ | 11,020 | |||||||||
(*) Less than 1
(**) Share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these interim consolidated financial statements.
| F-29 |
MICROBOT MEDICAL INC.
Interim Consolidated Statements of Comprehensive Loss
U.S. dollars in thousands
(Except share data)
| Three months ended | Six months ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| Note | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||
| Research and development expenses, net | $ | 747 | $ | 377 | $ | 1,130 | $ | 561 | ||||||||||||
| General and administrative expenses | 1,145 | 885 | 2,277 | 1,934 | ||||||||||||||||
| Operating loss | (1,892 | ) | (1,262 | ) | (3,407 | ) | (2,495 | ) | ||||||||||||
| Financing income (expenses), net | (1 | ) | (2,246 | ) | 45 | (2,320 | ) | |||||||||||||
| Net loss | $ | (1,893 | ) | $ | (3,508 | ) | $ | (3,362 | ) | $ | (4,815 | ) | ||||||||
| Net loss per share, basic and diluted (*) | 7 | $ | (0.6 | ) | $ | (1.35 | ) | $ | (1.2 | ) | $ | (1.95 | ) | |||||||
| Weighted-average number of common shares outstanding, basic and diluted (*) | 2,855,428 | 1,940,561 | 2,809,754 | 1,877,701 | ||||||||||||||||
(*) Share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these interim consolidated financial statements.
MICROBOT MEDICAL INC.
Interim Consolidated Statements of Shareholder’s Equity
U.S. dollars in thousands
(Except share data)
| Preferred A Shares | Common Stock(***) | Additional paid-in capital | Accumulated deficit | Total shareholders’ equity | Temporary equity | |||||||||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||||||||
| Balance, December 31, 2016 | 9,736 | $ | (* | ) | **1,788,884 | $ | 18 | $ | 14,713 | $ | (13,035 | ) | $ | 1,696 | $ | 500 | ||||||||||||||||
| Issuance of Common Stock | - | - | 299,815 | 3 | 12,699 | - | 12,702 | - | ||||||||||||||||||||||||
| Share-based compensation | - | - | 8,085 | (* | ) | 479 | - | 479 | - | |||||||||||||||||||||||
| Exercise of options | - | - | 31,787 | (* | ) | (*) | - | - | - | |||||||||||||||||||||||
| Cashless exercise of warrants | - | - | 24 | (* | ) | - | - | (* | ) | - | ||||||||||||||||||||||
| Extinguishment of convertible notes and issuance of preferred A shares | 3,255 | (* | ) | - | - | 2,676 | - | 2,676 | - | |||||||||||||||||||||||
| Conversion of preferred A shares to common stock | (8,990 | ) | (* | ) | 605,705 | 6 | (6 | ) | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (7,589 | ) | (7,589 | ) | - | ||||||||||||||||||||||
| Balances, December 31, 2017 | 4,001 | $ | (* | ) | **2,734,300 | $ | 27 | $ | 30,561 | $ | (20,624 | ) | $ | 9,964 | $ | 500 | ||||||||||||||||
| Share-based compensation | - | - | 822 | - | 822 | - | ||||||||||||||||||||||||||
| Shares issued as consideration-vendor | - | - | 6,738 | 1 | 73 | - | 74 | - | ||||||||||||||||||||||||
| Exercise of options | - | - | 2,487 | - | - | - | - | - | ||||||||||||||||||||||||
| Conversion of preferred A shares to common stock | (3,000 | ) | (* | ) | 202,151 | 2 | (2 | ) | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,362 | ) | (3,362 | ) | - | ||||||||||||||||||||||
| Balances, June 30, 2018 | 1,001 | $ | (* | ) | **2,945,676 | $ | 30 | $ | 31,454 | $ | (23,986 | ) | $ | 7,498 | $ | 500 | ||||||||||||||||
(*) Less than 1
** Includes 721,107 common stock classified as temporary equity.
(***) Share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these interim consolidated financial statements.
MICROBOT MEDICAL INC.
Interim Consolidated Statements of Cash Flows
U.S. dollars in thousands
(Except share data)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||
| Net loss | $ | (1,893 | ) | $ | (3,508 | ) | $ | (3,362 | ) | $ | (4,815 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Depreciation | 13 | 6 | 23 | 12 | ||||||||||||
| Interest and revaluation of convertible notes, net | - | 66 | - | 237 | ||||||||||||
| Financing loss on debt extinguishment | - | 2,364 | - | 2,364 | ||||||||||||
| Changes in fair value of derivative warrant liability | (1 | ) | (187 | ) | (14 | ) | (275 | ) | ||||||||
| Shares issued as consideration-vendor | 74 | - | 74 | - | ||||||||||||
| Share-based compensation expense | 406 | 154 | 822 | 154 | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||||
| Other receivables | (60 | ) | (165 | ) | (138 | ) | (268 | ) | ||||||||
| Other payables and accrued liabilities | 112 | (161 | ) | 52 | 396 | |||||||||||
| Net cash used in operating activities | (1,349 | ) | (1,431 | ) | (2,543 | ) | (2,198 | ) | ||||||||
| INVESTMENT ACTIVITIES | ||||||||||||||||
| Increase in restricted cash | - | (27 | ) | - | (27 | ) | ||||||||||
| Purchase of property and equipment | (91 | ) | (6 | ) | (224 | ) | (28 | ) | ||||||||
| Net cash used in investing activities | (91 | ) | (33 | ) | (224 | ) | (55 | ) | ||||||||
| FINANCING ACTIVITIES | ||||||||||||||||
| Outflow (inflow) in connection with current assets and liabilities acquired in reverse recapitalization, net | - | 126 | - | (82 | ) | |||||||||||
| Issuance of common stock, net of issuance costs | - | 9,414 | - | 12,704 | ||||||||||||
| Net cash provided by financing activities | - | 9,540 | - | 12,622 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | (1,440 | ) | 8,076 | (2,767 | ) | 10,369 | ||||||||||
| Cash and cash equivalents and restricted cash at the beginning of the period | 9,487 | 5,002 | 10,814 | 2,709 | ||||||||||||
| Cash and cash equivalents and restricted cash at the end of the period | $ | 8,047 | $ | 13,078 | $ | 8,047 | $ | 13,078 | ||||||||
Supplemental disclosure of cash flow information: Non-cash financing transactions: | ||||||||||||||||
| Cashless exercise of warrants | $ | - | $ | - | $ | - | $ | (* | ) | |||||||
| Conversion of preferred A shares into common shares | $ | 15 | $ | 2,083 | $ | 30 | $ | 2,083 | ||||||||
(*) Less than 1
The accompanying notes are an integral part of these interim consolidated financial statements.
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
NOTE 1 - GENERAL
| A. | Description of Business |
Microbot Medical Inc. (the “Company”) is a pre-clinical medical device company specializing in the research, design and development of next generation micro-robotics assisted medical technologies targeting the minimally invasive surgery space. The Company continuesis primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes for patients.
It was incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate of Incorporation was restated on February 14, 1992 to leasechange the facilities in Lincoln, Rhode Island
F-25
STEMCELLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,name of the Company to Cyto Therapeutics, Inc. On May 24, 2000, 14. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
obtainedthe Certificate of Incorporation as restated was further amended to change the name of the Company to StemCells, Inc.
On November 28, 2016, the Company consummated a transaction pursuant to an Agreement and Plan of Merger, dated August 15, 2016, with Microbot Medical Ltd., a private medical device company organized under the laws of the State of Israel (“Microbot Israel”), and C&RD Israel Ltd. (“Merger Sub”), an Israeli corporation and wholly-owned subsidiary of the Company, whereby Merger Sub merged with and into Microbot Israel and Microbot Israel surviving as a wholly-owned subsidiary of the Company (the “Merger”). Pursuant to the terms of the Merger, at the effective time of the Merger, each outstanding ordinary share of Microbot Israel capital stock was converted into the right to receive approximately 2.9 shares of the Company’s common stock, par value $0.01 per share, after giving effect to a one for nine reverse stock split (the “Reverse Stock Split”), for an aggregate of 1,788,884 shares (26,550,974 shares before the Reverse Split described below) of Company’s common Stock issued to the former Microbot Israel shareholders. In addition, all outstanding options to purchase the ordinary shares of Microbot Israel were assumed by the Company and converted into options to purchase an aggregate of 176,182 shares (2,614,916 shares before the Reverse Split) of the Company’s common stock. Additionally, the Company issued an aggregate of 7,802,639 restricted shares of its common stock or rights to receive the Company’s common stock, to certain advisers. On the same day and in connection with the Merger, the Company changed its former encapsulatedname from StemCells, Inc. to Microbot Medical Inc. On November 29, 2016, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol “MBOT”.
As a result of the Merger, Microbot Israel became a wholly owned subsidiary of the Company. The transaction between the Company and Microbot Israel was accounted for as a reverse recapitalization. As the shareholders of Microbot Israel received the largest ownership interest in the Company, Microbot Israel was determined to be the “accounting acquirer” in the reverse recapitalization. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Microbot Israel. Unless indicated otherwise, pre-acquisition share, options and warrants data included in these financial statements is retroactively adjusted to reflect the Reverse Stock Split and the Merger.
Prior to the Merger, the Company was a biopharmaceutical company that conducted research, development, and commercialization of stem cell technology, buttherapeutics and related technologies. The sale of substantially all material assets relating to the stem cell business were completed on November 29, 2016.
The Company and its subsidiaries are collectively referred to as the “Company”. “StemCells” or “StemCells, Inc.” refers to the Company prior to the Merger.
| B. | Risk Factors |
To date, the Company has now
succeeded in subleasing partsnot generated revenues from its operations. As of those facilities:June 30, 2018, the 3,000 square-foot cell
processing facilityCompany had cash and cash equivalent balance of approximately one-third$8,020, which management believes is sufficient to fund its operations for more than 12 months from the date of issuance of these financial statements and sufficient to fund its operations necessary to continue development activities of its former scientificcurrent proposed products. Due to continuing research and administrative facility ("SAF").development activities, the Company expects to continue to incur net losses into the foreseeable future. The Company continuesplans to seekcontinue to subletfund its current operations as well as other development activities relating to additional product candidates, through future issuances of either debt and/or equity securities and possibly additional grants from the remainderIsraeli Innovation Authority and others. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the approximately 65,000 square foot SAFmarket demand for the Company’s stock, which itself is subject to a number of development and business risks and uncertainties, as well as the 21,000 square-foot
pilot manufacturing facility, or to assign or sell its interests in these
properties. There can be no assurance however,uncertainty that we willthe Company would be able to dispose
of these properties inraise such additional capital at a reasonable time, if at all.
In February 2001, the Company was awarded a two-year, $300,000 per year
grant from the NIH's Small Business Innovation Research (SBIR) office. The
grant, which will support joint work with virologist Dr. Jeffrey Glenn at
Stanford University, is aimed at characterizing the human cells that can be
infected by human hepatitis viruses and to develop a small animal model using
the cellsprice or on terms that are most infectable by these virusesfavorable to develop screening assaysthe Company.
| F-33 |
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
| C. | Use of Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and identify novel drug for the disease.
On January 9, 2001, the Company sold 22,616 Modex shares for a net price of
182.00 Swiss francs per share, which convertsassumptions pertaining to $112.76 per share, for total
proceeds of $2,550,000. In connection with this sale, the Company agreed not to
resell any more of its Modex shares until April 12, 2001. On March 07, 2001 the
market price of Modex stock was 145.00 Swiss francs which converts to $84.31
using exchange rates on that date, which represents an estimated fair market
value of $8,732,797 for the remaining shares. If the Company were to seek to
liquidate all or part of the remaining 103,577 Modex shares, the proceeds would
dependtransactions and matters whose ultimate effect on the share price and foreign currency exchange ratesfinancial statements cannot precisely be determined at the time of conversion.
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
financial statements preparation. Although these estimates are based on management’s best judgment, actual results may differ from these estimates.
| D. | Reverse Stock |
On May 23, 2000,September 4, 2018, the company's name was changedCompany filed a Certificate of Amendment to Stem Cells, Inc. from
CytoTherapeutics, Inc. by voteits Restated Certificate of Incorporation with the Secretary of State of the shareholdersState of Delaware to affect a one-for-15 reverse stock split of the Company’s common stock (the “Reverse Split”). As a result of the Reverse Split, every 15 shares of the Company’s old common stock will be converted into one share of the Company’s new common stock. Fractional shares resulting from the Reverse Split will be rounded up to the nearest whole number. The Reverse Split automatically and proportionately adjusted, based on the one-for-fifteen split ratio, all issued and outstanding shares of the Company’s common stock, as well as common stock underlying convertible preferred stock, stock options, warrants and other derivative securities outstanding at the Annual Meeting. time of the effectiveness of the Reverse Split. The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s equity-based plans was also proportionately reduced. Share and per share data (except par value) for the periods presented reflect the effects of this Reverse Split. References to numbers of shares of common stock and per share data in the accompanying financial statements and notes thereto have been adjusted to reflect the Reverse Split on a retroactive basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of the financial statements are as follows:
Unaudited Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting
principlesU.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.U.S. Securities and Exchange Commission (“SEC”) regulations. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principlesGAAP for complete financial statements. In the opinion of management, the
accompanying financial statements include all adjustments consisting of normal
recurring accruals, considered necessary for a fair presentation have been included (consisting only of the
financial position,normal recurring adjustments except as otherwise discussed).
Operating results of operations and cash flows for the periods
presented. Results of operations for the three monthssix-month period ended March 31, 2001June 30, 2018, are not necessarily indicative of the results that may be expected for the entire
fiscal year endingended December 31, 2001.
2018.
Significant Accounting Policies
The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual audited financial statements.
Recent Accounting Standards
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” to provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The ASU supersedes most current revenue recognition guidance, including industry-specific guidance. The FASB subsequently issued ASU 2015-14, ASU 2016-08 and ASU 2016-12, which clarified the guidance, provided scope improvements and amended the effective date of ASU 2014-09. As a result, ASU 2014-09 becomes effective for the Company in the first quarter of 2018, with early adoption permitted. The adoption of this standard did not have a material impact on our interim consolidated statements of comprehensive loss since the Company has not yet generated revenues to date.
In February 2016, the FASB issued ASU 2016-02 “Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For operating leases, the ASU requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The ASU retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. This ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company continues to evaluate the effect of the adoption of this ASU and expects the adoption will result in an increase in the assets and liabilities on the consolidated balance sheets for operating leases (refer to Note 5) and will likely have an insignificant impact on the consolidated statements of comprehensive loss.
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This ASU is effective for the Company in the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the effect the adoption of this ASU will have on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. The ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company has derivative warranty liabilities as discussed in Note 4 which upon adoption of the new standard are expected to be classified as equity.
NOTE 3 - CONVERTIBLE LOAN FROM SHAREHOLDERS
Secured Note to Alpha Capital Anstalt
On August 15, 2016, concurrent with the execution of the Agreement and Plan of Merger (see Note 1A), StemCells Inc. issued a 6.0% secured note (the “Note”) to Alpha Capital Anstalt (“Alpha Capital”), in the principal amount of $2,000, for value received, payable upon the earlier of (i) 30 days following the consummation of the Merger and (ii) December 31, 2000 has been2016. Proceeds from the Note were used for the payment of costs and expenses in connection with the Merger and operational expenses leading to such closing.
The Note bore interest at 6% per annum, payable monthly in arrears on the first of the month, beginning on January 1, 2017 until the principal amount is paid in full. In addition, the Note was secured by a first priority security interest in all of the Company’s intellectual property and certain other general assets pursuant to a Security Agreement
Securities Exchange Agreement with Alpha Capital
As of the effective time of the Merger, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Alpha Capital, providing for the issuance to Alpha Capital of a convertible promissory note by the Company (the “Convertible Note”) in a principal amount of $2,029, which is equal to the principal and accrued interest under the Note, in exchange for (a) the full satisfaction, termination and cancellation of the Note and (b) the release and termination of the Security Agreement and the first priority security interest granted thereunder.
The Convertible Note was convertible into the Company’s Common Stock any time after November 28, 2017 and until the maturity date of November 28, 2019, based on a conversion price of $9.6 ($0.64 before the Reverse Split), subject to adjustments as provided in the Exchange Agreement.
NOTE 4 - DERIVATIVE WARRANT LIABILITIES
The remaining outstanding warrants and terms as of June 30, 2018 and December 31, 2017 is as follows (*):
| Issuance date | Outstanding as of December 31, 2017 | Outstanding as of June 30, 2018 | Exercise Price | Exercisable as of June 30, 2018 | Exercisable Through | |||||||||||||
| Series A (2013) | 3,895 | 3,895 | $ | 2,885 | 3,895 | October 2018 | ||||||||||||
| Series A (2013) | 183 | 183 | $ | 2,725 | 183 | April 2023 | ||||||||||||
| Series A (2015) | 683 | 683 | $ | 1,363 | 683 | April 2020 | ||||||||||||
| Series A (2016) (a) | 625 | - | $ | - | - | March 2018 | ||||||||||||
| Series B (2016) (a) | 2,770 | 2,770 | $ | 40 | 2,770 | March 2022 | ||||||||||||
| (*) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
| a) | These warrants contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of any common stock or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the warrant exercise price will be reset to the lower common stock sales price. As such anti-dilution price protection does not meet the specific conditions for equity classification, the Company is required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The estimated fair value of our warrant liability at June 30, 2018 and December 31, 2017, was approximately $14 and $28, respectively. |
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
As quoted prices in active markets for identical or similar warrants are not available, the Company uses directly observable inputs in the valuation of its derivative warrant liabilities (level 3 measurement).
The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the auditedyield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.
In March 2017, an institutional holder executed a cashless exercise of 768 warrants and 359 shares of Common Stock were issued in connection therewith.
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of June 30, 2018 and December 31, 2017(**):
| Series A (2011) | Series A (2013) | Series A (2013) | Series A (2015) | Series A (2016) | Series B (2016) | Total | ||||||||||||||||||||||
| Balances at December 31, 2017 | $ | - | $ | - | $ | - | $ | - | $ | (* | ) | $ | 28 | $ | 28 | |||||||||||||
| Exercised | - | - | - | - | - | - | - | |||||||||||||||||||||
| expiration | - | - | - | - | (* | ) | - | (* | ) | |||||||||||||||||||
| Changes in fair value | - | - | - | - | - | (14 | ) | (14 | ) | |||||||||||||||||||
| Balances at June 30, 2018 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 14 | $ | 14 | ||||||||||||||
(*) Less than 1
| (**) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of June 30, 2018 and December 31, 2017(*):
| As of June 30, 2018 | As of December 31, 2017 | |||||||||||||||
| Series A (2016) | Series B (2016) | Series A (2016) | Series B (2016) | |||||||||||||
| Share price | — | $ | 11 | $ | 15.1 | $ | 15.1 | |||||||||
| Exercise price | — | $ | 40 | $ | 40 | $ | 40 | |||||||||
| Expected volatility | — | 102.8 | % | 60 | % | 119 | % | |||||||||
| Risk-free interest | — | 2.39 | % | 1.24 | % | 1.89 | % | |||||||||
| Dividend yield | — | — | — | — | ||||||||||||
| Expected life of up to (years) | — | 3.75 | 0.25 | 4.25 | ||||||||||||
| (*) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
| F-36 |
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
Activity in such liabilities measured on a recurring basis is as follows:
| Derivative Warrant Liabilities | ||||
| As of December 31, 2017 | $ | 28 | ||
| Revaluation of warrants | (14 | ) | ||
| As of June 30, 2018 | $ | 14 | ||
Derivative Warrant Liabilities | ||||
| As of December 31, 2016 | $ | 313 | ||
| Revaluation of warrants | (285 | ) | ||
| Exercise warrants | (* | ) | ||
| As of December 31, 2017 | $ | 28 | ||
(*) Less than 1
In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 3 financial instruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary overtime, namely, the volatility and the risk-free rate. A 5.0% decrease or increase in volatility would not have materially changed the value of the warrants. A 5.0% decrease or increase in the risk-free rate would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Microbot Israel obtained from the Israeli Innovation Authority (“IIA”) grants for participation in research and development for the years 2013 through June 30, 2018 in the total amount of approximately $1,310 and, in return, Microbot Israel is obligated to pay royalties amounting to 3% of its future sales up to the amount of the grant. The grant is linked to the exchange rate of the dollar to the New Israeli Shekel and bears interest of Libor per annum.
The repayment of the grants is contingent upon the successful completion of the Company’s research and development programs and generating sales. The Company has no obligation to repay these grants, if the project fails, is unsuccessful or aborted or if no sales are generated. The financial risk is assumed completely by the Government of Israel. The grants are received from the Government on a project-by-project basis.
Microbot Israel signed an agreement with the Technion Research and Development Foundation (“TRDF”) in June 2012 by which TRDF transferred to Microbot Israel a global, exclusive, royalty-bearing license. As partial consideration for the license, Microbot Israel shall pay TRDF royalties on net sales (between 1.5%-3%) and on sublicense income as detailed in the agreement.
Lease Agreements
In December 2016, the Company entered into car lease agreements, which will end on December 31, 2019. According to the lease agreement, the monthly car lease payment is approximately $2.5.
In May 2017, the Company entered into an office lease agreement effective from February 1, 2018, with a term ending on December 31, 2020. According to the lease agreement, the monthly office lease payment is approximately $14.
Compensation Liability
The Company incurred compensation commitments of approximately $400 to a former executive that management estimates as remote that this amount will ever be paid out and therefore is not reflected in these consolidated financial statements.
Contract Research Agreement
On January 27, 2017, the Company entered into a Contract Research Agreement (the “Research Agreement”) with The Washington University (“Washington U.”), pursuant to which the parties are collaborating to determine the effectiveness of the Company’s self-cleaning shunt.
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
The study in Washington U. includes several phases. The first phase (initial research) was completed. The parties are in the final stage of planning the next phase, including the related various costs. Pursuant to the Research Agreement, all rights, title and interest in the data, information and results obtained or arrived at by Washington U. in the performance of its services under the Research Agreement, as well as any patentable inventions obtained or arrived at in the performance of such services, will be jointly owned by the Company and Washington U., and each will have full right to practice and grant licenses in joint inventions. Additionally, Washington U. granted to the Company: (a) a non-exclusive, worldwide, royalty-free, fully paid-up, perpetual and irrevocable license to use and practice patentable inventions (other than joint inventions and improvements to Washington U.’s animal models) obtained or arrived at by Washington U. in the provision of its services under the Research Agreement (“University Inventions”) with respect to the self-cleaning shunt; and (b) an exclusive option to obtain an exclusive worldwide license in University Inventions, on terms to be negotiated between the parties.
Litigation
The Company is named as the defendant in a lawsuit, captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, pending in the Supreme Court of the State of New York, County of New York. The complaint alleges, among other things, that the Company breached multiple representations and warranties contained in the Securities Purchase Agreement (the “SPA”) related to the June 8, 2017 equity financing of the Company (the “Financing”), of which the Plaintiffs participated. The complaint seeks rescission of the SPA and return of the Plaintiffs’ $3,375 purchase price with respect to the Financing, and damages in an amount to be determined at trial but alleged to exceed $1 million. The parties presently are engaged in discovery.
Due to the early stage in the ligation process, management is unable to assess the likelihood of the claim and the amount of potential damages, if any, to be awarded. Management believes that the claims made against it are without merit and intends to vigorously defend itself against these claims.
Tolling and Standstill Agreement
On April 4, 2018, the Company entered into a Tolling and Standstill Agreement (the “Tolling Agreement”) with Empery Asset Master, Ltd., Empery Tax Efficient LP, Empery Tax Efficient II LP, and Hudson Bay Master Fund, Ltd., the other investors in the Financing (the “Other Investors”). Pursuant to the Tolling Agreement, among other things, (a) the Other Investors agree not to bring any claims against the Company arising out of the Matter, (b) the parties agree that if the Company reaches an agreement to settle the claims asserted by the Sabby Funds in the above suit, the Company will provide the same settlement terms on a pro rata basis to the Other Investors, and the Other Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of each party as of the effective date butof the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.
Agreement with CardioSert Ltd.
On January 4, 2018, Microbot Israel entered into an agreement with CardioSert Ltd. (“CardioSert”) to acquire certain patent-protected technology owned by CardioSert (the “Technology”).
Pursuant to the Agreement, Microbot Israel made an initial payment of $50 to CardioSert and has 90-days to elect to complete the acquisition. At the end of the 90-day period, at Microbot Israel’s sole option, CardioSert shall assign and transfer the Technology to Microbot Israel and Microbot Israel shall pay to CardioSert additional amounts and securities as determined in the agreement.
On April 10, 2018, Microbot delivered an Exercise Notice to CardioSert Ltd., notifying it that Microbot elected to exercise the option to acquire the Technology owned by CardioSert and therefore made an additional cash payment of $250 and 6,738 common shares (100,000 common shares before the Reverse Split) estimated of $74. (see note 6).
The agreement may be terminated by Microbot Israel at any time for convenience upon 90-days’ notice. The agreement may be terminated by CardioSert in case the first commercial sale does not occur by the third anniversary of the date of signing of the agreement except if Microbot Israel has invested more than $2,000 in certain development stages, or the first commercial sale does not occur within 50 months. In each of the above termination events, or in case of breach by Microbot Israel, CardioSert shall have the right to buy back the Technology from Microbot Israel for $1.00, upon 60 days prior written notice, but only 1 year after such termination. Additionally, the agreement may be terminated by either party upon breach of the other (subject to cure).
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
CardioSert agreed to assist Microbot Israel in the development of the Technology for a minimum of one year, for a monthly consultation fee of NIS 40,000 covering up to 60 consulting hours per month.
Agreement with Mr Simon Sharon
Effective as of April 1, 2018, the Company hired Simon Sharon as the Company’s Chief Technology Officer. Pursuant to the terms thereof, among other things, Mr. Sharon is entitled to options to purchase 10,000 shares (150,000 shares before the Reverse Split) of the Company’s common stock, subject and pursuant to the Company’s 2017 Equity Incentive Plan.
NOTE 6 - SHARE CAPITAL
Each share of the Series A Convertible Preferred Stock, par value $0.01 per share, issued by the Company in December 2016 and in May 2017 (the “Series A Convertible Preferred Stock”), is convertible, at the option of the holder, into 1,000 shares of Common Stock, and confer upon the holder dividend rights on an as converted basis.
Exercise of Warrants
On March 2017, an institutional holder exercised, in a cashless transaction, 52 warrants (768 warrants before the spilt) and 24 shares (359 shares before the Reverse Split) of Common Stock were issued in connection therewith.
Share Capital Developments
The authorized capital stock consists of 221,000,000 shares of capital stock, which consists of 220,000,000 shares of Common Stock and 1,000,000 shares of undesignated preferred stock, par value $0.01 (the “Preferred Stock”). As of March 31, 2018, the Company had 2,837,863 shares (42,120,127 shares before the Reverse Split) of Common Stock issued and outstanding, and 2,464 shares of Series A Convertible Preferred Stock issued and outstanding.
On December 27, 2016, the Company exchanged 655,962 shares (9,735,925 shares before the Reverse Split) or rights to acquire shares of its Common Stock, for 656 shares (9,736 shares before the Reverse Split) of a newly designated class of Series A Convertible Preferred Stock.
On January 5, 2017, the Company entered into a definitive securities purchase agreement with an institutional investor (the “Purchaser”) for the purchase and sale of an aggregate of 47,163 shares (700,000 shares before the Reverse Split) of Common Stock in a registered direct offering for $74 per share ($5.00 per share before the Reverse Split) or gross proceeds of $3,500. The Company paid the placement agent a fee of $210 plus reimbursement of out-of-pocket expenses, as well as other offering-related expenses.
On June 5, 2017, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Investors”) providing for the issuance and sale by the Company to the Investors of an aggregate of 252,658 shares (3,750,000 shares before the Reverse Split) of Common Stock, at a purchase price per share of $40 ($2.70 before the Reverse Split). The gross proceeds to the Company was $10,125 before deducting placement agent fees and offering expenses of $922.
Employee Stock Option Grant
In September 2014, Microbot Israel’s board of directors approved a grant of 26,906 stock options (403,592 stock options before the Reverse Split) (77,846 stock options as retroactively adjusted to reflect the Merger) to its CEO, through MEDX Venture Group LLC. Each option was exercisable into an ordinary share, at an exercise price of $12 ($0.8 before the Reverse Split) ($4.2 as retroactively adjusted to reflect the Merger). The stock options were fully vested at the date of grant.
On May 2, 2016, Microbot Israel’s board of directors approved a grant of 33,333 stock options (500,000 stock options before the Reverse Split) (96,482 as retroactively adjusted to reflect the Merger) to certain of its employees and directors. Each stock option was exercisable into an ordinary share, NIS 0.001 par value, of Microbot Israel, at an exercise price equal to the ordinary share’s par value. The stock options were fully vested at the date of grant. As a result, the Company recognized compensation expenses in the amount of $675 included in general and administrative expenses. As the exercise price of the stock options is nominal, Microbot Israel estimated the fair value of the options as equal to the Company’s share price of $20.25 ($1.35 before the Reverse Split) ($7.05 as retroactively adjusted to reflect the Merger) at the date of grant.
| F-39 |
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
On September 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”), which Plan authorizes, among other things, the grant of options to purchase shares of Common Stock to directors, officers and employees of the Company and to other individuals.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 120,848 shares (1,812,712 shares before the Reverse Split) of Common Stock to Mr. Harel Gadot, the Company’s Chairman of the Board, President and CEO, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3-5 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $339 and $0 included in general and administrative expenses for the period ended June 30, 2018 and 2017 respectively.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 72,508 shares (1,087,627 shares before the Reverse Split) of Common Stock to Mr. Hezi Himelfarb, the company’s General Manager, COO and a member of the Board, at an exercise price per share of $19.35 ($1.29 before the Reverse Split). The grant was subject to the Israeli Tax Authority’s approval of the plan which occurred on October 14, 2017. In accordance with the option agreement, the options vest for period of 3 years starting from the grand date. As a result, the Company recognized compensation expenses in the amount of $231 and $0 included in general and administrative expenses for the period ended June 30, 2018 and 2017 respectively.
On December 6, 2017, the board of directors approved a grant of 12,698 stock options (190,475 stock options before the Reverse Split) to purchase an aggregate of up to 12,698 shares of Common Stock to certain of its directors, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $41 and $0 included in general and administrative expenses for the period ended June 30, 2018 and 2017 respectively.
On December 28, 2017, the board of directors approved a grant of 66,036 stock options (990,543 stock options before the Reverse Split) to purchase an aggregate of up to 66,036 shares of Common Stock to certain of its employees, at an exercise price per share of $15.3 ($1.02 before the Reverse Split)
The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $211 and $0 included in general and administrative expenses and research and development expenses for the period ended June 30, 2018 and 2017 respectively.
On November 2017, certain employees and consultant exercised 31,453 options (471,794 options before the Reverse Split) to 31,453 ordinary shares at exercise price of 0.001 NIS.
In February 2018, an employee exercised options to purchase 2,487 (37,300 shares of common stock before the Reverse Split) at an exercise price of $0.001 per share
A summary of the Company’s option activity related to options to employees and directors, and related information is as follows:
| For the six months ended June 30, 2018(*) | ||||||||||||
Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 414,965 | $ | 11.7 | $ | 1,859 | |||||||
| Granted | - | - | - | |||||||||
| Exercised | (2,487 | ) | - | - | ||||||||
| Cancelled | - | - | - | |||||||||
| Outstanding at end of period | 412,478 | $ | 11.7 | $ | 1,259 | |||||||
| Vested and expected-to-vest at end of period | 205,024 | $ | 6.9 | $ | 1,248 | |||||||
| (*) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
| For the year ended December 31, 2017(*) | ||||||||||||
| Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 174,328 | $ | 1.95 | $ | 3,739 | |||||||
| Granted | 272,090 | 16.5 | - | |||||||||
| Exercised | (31,453 | ) | - | - | ||||||||
| Cancelled | - | - | - | |||||||||
| Outstanding at end of period | 414,965 | $ | 11.7 | $ | 1,859 | |||||||
| Vested and expected-to-vest at end of period | 142,875 | $ | 1.95 | $ | 1,375 | |||||||
| (*) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Common Stock and the exercise price, multiplied by the number of in-the-money stock options on those dates that would have been received by the stock option holders had all stock option holders exercised their stock options on those dates.) as of June 30, 2018 and December 31, 2017 respectively.
The stock options outstanding as of June 30, 2018 and December 31, 2017, separated by exercise prices, are as follows(**):
Exercise price $ | Stock options outstanding as of June 30, 2018 | Stock options outstanding as of December 31, 2017 | Weighted average remaining contractual life – years as of June 30, 2018 | Weighted average remaining contractual life – years as of December 31, 2017 | Stock options exercisable as of June 30, 2018 | Stock options exercisable as of December 31, 2017 | ||||||||||||||||||||
| 4.2 | 77,846 | 77,846 | 7.50 | 8.0 | 77,846 | 77,846 | ||||||||||||||||||||
| 15.75 | 133,546 | 133,546 | 9.25 | 9.75 | 32,133 | - | ||||||||||||||||||||
| 19.35 | 72,508 | 72,508 | 9.25 | 9.75 | 18,127 | - | ||||||||||||||||||||
| 15.3 | 66,036 | 66,036 | 9.50 | 10 | 14,376 | - | ||||||||||||||||||||
| (*) | 62,542 | 65,029 | 8.25 | 8.75 | 62,542 | 65,029 | ||||||||||||||||||||
| 412,478 | 414,965 | 8.80 | 9.3 | 205,024 | 142,875 | |||||||||||||||||||||
| (*) | Less than 0.01 | |
| (**) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
Compensation expense recorded by the Company in respect of its stock-based employee compensation awards in accordance with ASC 718-10 for the six-month ended June 31, 2018 and the year ended December 2017 was $ 822 and $ 254, respectively.
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
The fair value of the stock options is estimated at the date of grant using Black-Scholes options pricing model with the following weighted-average assumptions:
| Six months ended June 30, 2018 | Year ended December 31, 2017 | |||||||
| Expected volatility | 109 | % | 122.5 | % | ||||
| Risk-free interest | 2.39 | % | 1.64 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected life of up to (years) | 2.75 | 6.25 | ||||||
Shares issued to service provider
In connection with the Merger, the Company issued an aggregate of 525,706 restricted shares (7,802,639 restricted shares before the Reverse Split) of its Common Stock to certain advisors. The fair value of the award of approximately $10,000 was estimated based on the share price of the Common Stock of $19.2 ($1.28 before the Reverse Split) as of the date of grant. The portion of the expense in excess of the cash and other current assets acquired in the Merger, in the amount of $7,300 was included in general and administrative expenses in the Statements of Comprehensive Loss.
During 2017, the Company issued an aggregate of 8,085 nonrefundable shares (120,000 nonrefundable shares before the Reverse Split) of Common Stock to a consultant as part of investor relations services. The Company recorded expenses of approximately $225 with respect to the issuance of these shares included in general and administrative expenses.
On May 24, 2018 the Company issued an aggregate of 6,738 nonrefundable shares (100,000 nonrefundable shares before the Reverse Split) of Common Stock to CardioSert as part of certain patent acquisition. The Company recorded expenses of approximately $74 with respect to the issuance of these shares included in research and development expenses.
Securities Exchange Agreement with Alpha Capital
On December 16, 2016, the Company entered into a Securities Exchange Agreement with Alpha Capital, pursuant to which Alpha Capital exchanged 655,967 shares (9,736,000 shares before the Reverse Split) of common stock or rights to acquire shares of the common stock held by it, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”). The common stock and common stock underlying the rights to acquire common stock include all of the informationshares of common stock issued or issuable to Alpha Capital pursuant to the Merger. The 655,967 shares (9,735,925 shares before the Reverse Split) of common stock and footnotes requiredthe rights to acquire common stock were cancelled and the Company’s issued and outstanding shares of Common Stock were reduced to 1,786,684 (26,518,315 before the Reverse Split).
On May 9, 2017, the Company entered into a Securities Exchange Agreement with Alpha Capital pursuant to which the Company agreed to issue 3,254 shares of the Series A Convertible Preferred Stock, in exchange for completethe full satisfaction, termination and cancellation of the outstanding 6% convertible promissory note of the Company in the principal amount of approximately $2,029 issued on November 28, 2016 and held by Alpha Capital. The Series A Convertible Preferred Stock is the same series of securities as the Company’s existing Series A Convertible Preferred Stock issued in December 2016. As a result of the extinguishment of the convertible note and issuance of the preferred shares, the Company recorded a financial loss in the amount of $2,360.
During the year 2017, the holder of the Series A Convertible Preferred Stock converted 8,990 shares of the Series A Convertible Preferred Stock for 605,705 shares (8,990,000 shares before the Reverse Split) of Common Stock, pursuant to the terms of conversion of the Series A Convertible Preferred Stock.
For the six-month ended June 30, 2018, the holder of the Series A Convertible Preferred Stock converted 3,000 shares of the Series A Convertible Preferred Stock for 202,151 shares (3,000,000 shares before the Reverse Split) of Common Stock, pursuant to the terms of conversion of the Series A Convertible Preferred Stock.
| F-42 |
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
Repurchase of Shares
The Company intends to enter into a definitive agreement with up to three Israeli shareholders, one of which is a director of the Company, that were former shareholders of Microbot Israel, pursuant to which the Company would repurchase, at a discount on the fair value of the share at the date of repurchase, up to $500 of Common Stock held by them, in the aggregate, if and to the extent such shareholders are unable to sell enough of their shares to cover certain of their Israeli tax liabilities resulting from the Merger. Such repurchase(s), if any, would occur only after the two-year anniversary of the Merger. The transaction is subject to negotiating final terms and entering into definitive agreements with such shareholders.
The Company evaluated whether an embedded derivative that requires bifurcation exists within such shares that may be subject to repurchase. The Company concluded the fair value of such derivative instrument would be nominal and, in any case, would represent an asset to the Company as (a) the settlement requires acquiring the shares at a discount on the fair market value of the share at the time of repurchase and in no circumstances the acquisition price will be higher than approximately one dollar per share (representing 25% discount on the fair market value of the share at the merger closing date) and (b) it is assumed that the selling shareholders would use such right as last resort as such repurchase at a discount on the fair market value of such shares results in a loss to be incurred by the selling shareholders.
In accordance with accounting principles generally acceptedASC 480-10-S99-3A (formerly EITF D-98), the Company classified the maximum amount it may be required to pay in the United States. Forevent the complete
financial statements, refer to the audited financial statementsrepurchase right is exercised ($500) as temporary equity.
NOTE 7 - BASIC AND DILUTED NET LOSS PER SHARE
The basic and footnotes
thereto as of December 31, 2000, included on form 10-K as amended.
NOTE 2. NET INCOME (LOSS) PER SHARE
Basicdiluted net income (loss)loss per common share is computed using theand weighted average number of common shares outstanding duringused in the period. Dilutedcalculation of basic and diluted net incomeloss per share are as follows (in thousands, except share and per share data):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net loss attributable to shareholders of the Company | $ | (1,893 | ) | $ | (3,508 | ) | $ | (3,362 | ) | $ | (4,815 | ) | ||||
| Net loss attributable to shareholders of preferred shares | (76 | ) | (938 | ) | (185 | ) | (1,279 | ) | ||||||||
| Net loss used in the calculation of basic net loss per share | $ | (1,817 | ) | $ | (2,570 | ) | $ | (3,177 | ) | $ | (3,536 | ) | ||||
| Net loss per share (*) | $ | (0.6 | ) | $ | (1.35 | ) | $ | (1.2 | ) | $ | (1.95 | ) | ||||
| Weighted average number of common shares (*) | 2,855,428 | 1,940,561 | 2,809,754 | 1,877,701 | ||||||||||||
| (*) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
As the inclusion of common share equivalents in the calculation would be anti-dilutive for all periods presented, diluted net loss per share is computed using the weighted averagesame as basic net loss per share.
NOTE 8 - TAXES ON INCOME
The Company is subject to income taxes under the Israeli and U.S. tax laws:
Corporate tax rates
The Company is subject to Israeli corporate tax rate of common23% from 2018.
The Company is subject to a Federal tax rate of 21% starting from 2018.
MICROBOT MEDICAL INC.
Notes to the interim consolidated financial statements
U.S. dollars in thousands
(Except share data)
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and diluted
equivalent stock optionsJobs Act (the “Tax Act”). The Tax Act makes broad and warrants outstanding duringcomplex changes to the period. We excluded
all stock optionsU.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (AMT) and warrantschanging how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of NOL carryforwards created in tax years beginning after December 31, 2017.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the calculationTax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of diluted loss per common
sharethose aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
As of June 30, 2018, the Company’s assessment of the Tax Act is incomplete, and the Company has not yet been able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded.
For the six and three-month period ended June 30, 2018, the Company generated net operating losses in Israel of approximately $1,170 and $776 respectively which may be carried forward and offset against taxable income in the future for an indefinite period.
For the six and three-month period ended June 30, 2018, the Company generated net operating losses in the U.S. of approximately $1,416 and $694 respectively. Net operating losses in the United States are available through 2035. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
The Company is still in its development stage and has not yet generated revenues, therefore, it is more likely than not that sufficient taxable income will not be available for the period ended March 31, 2000, because these securities are
antidilutive during that period.
NOTE 3. COMPREHENSIVE LOSS
tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts.
| As of June 30, | ||||||||
| 2018 | 2017 | |||||||
| Net operating loss carry-forward | $ | 491,965 | $ | 485,830 | ||||
| Total deferred tax assets | $ | 103,313 | $ | 111,740 | ||||
| Valuation allowance | (103,313 | ) | (111,740 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
Reconciliation of Income Taxes:
The only component of other comprehensive lossfollowing is unrealized gains and
losses on available for sale securities. For the three months ended March 31,
2001 and 2000, total comprehensive loss was $7,675,143 and $1,794,258
respectively.
NOTE 4. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY RESEARCH AND DEVELOPMENT
PROGRAM
As previously reported, in 1999 the Company restructured its operations to
abandon all further encapsulated cell technology research and concentrate its
resources on the research and development of its proprietary platform of stem
cell technologies. The Company relocated its remaining research and development
activities and its corporate headquarters to California, and has been seeking to
dispose of its former science and administrative and pilot manufacturing
facilities in Rhode Island. In December 2000, the company had a reserve of
$1,780,000 related to the carrying costs for the Rhode Island facilities through
2001. On February 2001, the Company subleased portionsreconciliation of the facilities and are
actively seeking to sublease, assign or sell our remaining intereststaxes on income assuming that all income is taxed at the ordinary statutory corporate tax rate in the
properties. However, there can be no assurance that the Company will be able to
dispose of these facilities in a reasonable time, if at all. At March 31,2001
the reserve was $1,381,000.
| As of June 30, | ||||||||
| 2018 | 2017 | |||||||
| Net loss as reported in the statements of operations | $ | 3,362 | $ | 4,815 | ||||
| Statutory tax rate | 23 | % | 24 | % | ||||
| Income Tax under statutory tax rate | 773 | 1,156 | ||||||
| Change in valuation allowance | (773 | ) | (1,156 | ) | ||||
| Actual income tax | $ | - | $ | - | ||||
Shares of Common Stock.
NOTE 7. LEASES
AsStock
Pre-Funded Warrants to Purchase Shares of February 1, 2001, the Company entered into a 5-year lease for a 40,000
square foot facility located in the Stanford Research Park in Palo Alto,
California. The new facility includes animal space, laboratories, offices, and a
GMP (Good Manufacturing Practices) suite. GMP facilities can be used to
manufacture materials for clinical trials. The rent will average approximately
$3.2 million per year over the term of the lease. The company paid $1.2 million
upfront related to this new lease. Approximately $909,000 of this payment has
been recorded as prepaid rent and is being amortized over seven months. The
Company continues to lease the facilities in Lincoln, Rhode Island obtained in
connection with its former encapsulated cell technology, but has now succeeded
in subleasing parts of those facilities: the 3,000 square-foot cell processing
facility and approximately one-third of its former scientific and administrative
facility ("SAF"). The Company continues to seek to sublet the remainder of the
approximately 65,000 square foot SAF and the 21,000 square-foot pilot
manufacturing facility, or to assign or sell its interests in these properties.
There can be no assurance however, that we will be able to dispose of these
properties in a reasonable time, if at all.
NOTE 8. GRANT
In February 2001, the Company was awarded a two-year, $300,000 per year
grant from the NIH's Small Business Innovation Research (SBIR) office. The
grant, which will support joint work with virologist Dr. Jeffrey Glenn at
Stanford University, is aimed at characterizing the human cells that can be
infected by human hepatitis viruses and to develop a small animal model using
the cells that are most infectable by these viruses to develop screening assays
and identify novel drug for the disease. The company received and recognized as
revenue $100,000 from a prior SBIR grant relating to the neural program.
NOTE 9. SUBSEQUENT EVENTS
On April 30, 2001, StemCells sold its remaining 103,577 shares of Modex
Therapeutics at 87.3 Swiss francs per share, or $50.51 per share at the exchange
rate on that date, for total proceeds of $5,232,168 net of commissions and other
fees. In addition, on April 30, 2001, in consideration for $300,000 received
from Modex and the assistance of Modex in executing the sale of StemCells
holding of Modex shares, StemCells agreed to assign to Modex the rights
concerning future payments under the Asset Purchase and License Agreement
between StemCells, Inc. and Neurotech SA, by which Neurotech SA purchased the
Company's former encapsulated cell therapy technology.
F-32
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 2001 AND 2000
NOTE 9. SUBSEQUENT EVENTS (CONTINUED)
On April 27, 2001, the Company reached an agreement to terminate as of May
15, 2001, without cost, its lease on part of its former Sunnyvale headquarters.
NOTE 10. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133"). The Statement requires the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value of derivatives are either offset against the change in fair value of
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. As the
Company had no derivative instruments and does not currently engage in hedging
activities, the adoption of Statement No. 133 on January 1, 2001 had no impact
on StemCells results, operations or financial statement.
F-33
PROSPECTUS
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other Expenses of Issuance and Distribution.
The following table sets forth theall costs and expenses, other than underwriting discounts and commissions, paid or payable by Microbot Medical Inc. (the “Company” or the Registrant“Registrant”) in connection with the sale of the securities being registered.registered under this registration statement. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee and the FINRA filing fee.
| | Amount | |||
| SEC registration fee | $ | 2,961.83 | ||
| FINRA filing fee | $ | 4,166.00 | ||
| Blue-sky qualification fees and expenses | * | |||
| Legal fees and expenses | * | |||
| Accounting fees and expenses | * | |||
| Transfer agent and registrar fees and expenses | * | |||
| Miscellaneous expenses | * | |||
| Total | $ | * | ||
*
Legal fees and expenses..................................... $ *
Accounting fees and expenses................................ $ *
Blue sky fees and expenses.................................. $ *
Transfer agent and registrar fees........................... $ *
Miscellaneous............................................... $ *
-------
Total....................................................... $ *
=======
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that(“DGCL”) permits, in general, a Delaware corporation, mayto indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative, other(other than an action by, or in the right of, the corporation,corporation) by reason of the fact that the
personor she is or was a director, officer, employee or agentofficer, of the corporation, or is
or was servingserved another business enterprise in any capacity at the corporation's request as a director, officer, employee or
agent of anotherthe corporation, partnership, joint venture, trust or other
enterprise, against liability incurred in connection with such proceeding, including the expenses including attorneys' fees,(including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the personhim in connection with the action, suit orsuch proceeding if thesuch person acted in good faith and in a manner the personhe or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to anyin criminal actionactions or proceeding,proceedings, additionally had no reasonable cause to believe the person'sthat his or her conduct was unlawful. TheA Delaware corporation’s power to indemnify applies to actions brought by or in the right of the corporation, as well, but only to the extent of expenses including
attorneys' fees but excluding judgments, fines and amounts paid in settlement,(including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit, and with the further limitationprovided that in these
actions no indemnification shall be madeprovided in such actions in the event of any adjudication of negligence or misconduct in the performance of hissuch person’s duties to the corporation, unless a court believes that in light of all the circumstances indemnification should apply. Section Ten of our Restated Certificate of Incorporation provides that we
shall, to the maximum extent legally permitted, indemnify and upon request
advance expenses to each person who is or was a party or is threatened to be
made a party to any threatened, pending or completed action, suit proceeding, or
claim (civil, criminal, administrative or investigative) by reason145 of the fact
that he is or was, or has agreed to become,DGCL also permits, in general, a director or officer of the
Company, or is or was serving, or has agreed to serve, at the request of the
Company, as a director, officer, partner, employee, agent or trustee of, or in a
similar capacity with, anotherDelaware corporation partnership, joint venture, trust or
other enterprises, provided, however, that the Company is not required to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. The
indemnification provided for in Section Ten is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement or vote of directors
II-1
or stockholders or otherwise, and shall inure to the benefit of the heirs and
legal representatives of such persons.
Section 145(g) of the Delaware General Corporation Law provides that the
Company shall have the power to purchase and maintain insurance on behalf of its
officers, directors, employees and agents,any person who is or was a director or officer of the corporation, or served another entity in any capacity at the request of the corporation, against any liability asserted
against and incurred by such personsperson in any such capacity.
Wecapacity, whether or not the corporation would have obtained insurance covering our directors and officersthe power to indemnify such person against certain liabilities.
such liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides thatDGCL permits a corporation may eliminateto include in its certificate of incorporation a provision eliminating or limitlimiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provisionsprovision shall not eliminate or limit the liability of a director (i) for any breach of the director'sdirector’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or whichthat involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware,DGCL or (iv) for any transaction from which the director derived an improper personal benefit. No such provision
The Company’s restated certificate of incorporation provides that the Company’s directors shall eliminate or limit
the liability of a director for any act or omission occurring priornot be liable to the date
when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Section Nine of the
Company's Restated Certificate of Incorporation eliminates a director's personal
liabilityCompany or its stockholders for monetary damages for breach of fiduciary duty as a director except to the extent that exculpation from liabilities is not permitted under the DGCL as in circumstances involvingeffect at the time such liability is determined. The Company’s restated certificate of incorporation further provides that the Company shall indemnify its directors and officers to the fullest extent permitted by the DGCL.
We maintain a breachdirectors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe that these indemnification provisions and insurance are necessary to attract and retain qualified directors and officers.
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Indemnification Agreements
The Company has entered into indemnification agreements with each of its directors and executive officers. These indemnification agreements may require the Company, among other things, to indemnify its directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of the director's duty of loyalty to
StemCells, Inc.Company’s directors or its shareholders, actsofficers, or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing or the
unlawful payment of dividends or repurchase of stock.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The shares of capital stock and other securities issued in the following
transactions were offered and sold in reliance upon the following exemptions:
(i) in the case of the transactions described in (a) and (c) below,
Section 4(2) of a the Securities Act or Regulation D promulgated thereunder
relative to sales by an issuer not involving a public offering; and (ii) in the
case of the transactions (b) below, Section 3(b) of the Securities Act and
Rule 701 promulgated thereunder relative to sales pursuant to certain
compensatory benefits plans.
(a) On April 13, 2000, the Registrant sold 1,500 shares of 6% cumulative
convertible preferred stock plus warrants for a total of 75,000 shares of the
Registrant's common stock to two membersany of its Board of Directors for
$1,500,000, on terms more favorable than it was then ablesubsidiaries or any other company or enterprise to obtain from outside
investors. The sale was made in reliance on Rule 506 of Regulation D promulgated
underwhich the Securities Act of 1933, as amended. The shares of preferred stock are
convertibleperson provides services at the option of the holdersour request.
In any underwriting agreement we enter into common stock at $3.77 per share
(based on the face value of the shares). The holders of the preferred stock have
liquidation rights equal to their original investments plus accrued but unpaid
dividends. Any unconverted preferred stock is converted, at the applicable
conversion price, on April 13, 2002. The warrants, which are exercisable at
$6.58 per share, expire on April 13, 2005.
On August 3, 2000, the Registrant completed a $4 million common stock
financing transaction with Millennium Partners, LP, or the Fund. The sale was
made in reliance on Rule 506 of Regulation D promulgated under the Securities
Act of 1933, as amended. The Registrant received $3 million of the purchase
price at the closing and received the remaining $1 million upon effectiveness of
a registration statement covering the shares owned by the Fund. The Fund
purchased the Registrant's common stock at $4.33 per share. The Fund may be
entitled, pursuant to an adjustable warrant issued in connection with the sale of common stock being registered hereby, the underwriter will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding securities issued and options granted by the Company within the past three years that were not registered under the Securities Act of 1933, as amended, and the rules promulgated thereunder (the “Securities Act”). Also included is the consideration, if any, received by the Registrant, for such securities and options and information relating to the Fund,Securities Act, or rule of the SEC, under which exemption from registration was claimed. Except with respect to receiveissuances subsequent to September 4, 2018, the below issuances do not reflect the Company’s September 4, 2018 1-for-15 reverse stock split.
On September 24, 2018, the holder of the Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”), of the Company, converted 30 shares of the Preferred Stock for 30,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Company. The issuances of the 30,000 shares of common stock on
eight dates beginning six monthswere exempt from registration under Section 4(a)(2) under the closingSecurities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and every three months
thereafter. The numberno commission or other remuneration was paid.
On May 31, 2018, the holder of additional shares the Fund may be entitled to on each
date will be based on the number ofPreferred Stock converted 700 shares of II-2
the Fund continues to hold on each date and the market price of the Registrant's common stock over a period prior to each date.Company. The Registrant will
have the right, under certain circumstances, to cap the number of additional
shares by purchasing partissuances of the entitlement from the Fund. On January 27, 2001,
Millennium's August 3, 2000 adjustable warrant became exercisable for 463,369
shares of our common stock, and Millennium purchased all of those shares for
$4,634 on March 30, 2001. On April 27, 2001, the adjustable warrant became
exercisable for an additional 622,469 shares of our common stock, and the
warrant has not been exercised with respect to those shares. The Fund also
received a warrant to purchase up to 101,587700,000 shares of common stock at $4.725
per share. This warrantwere exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is callable byan accredited investor, and/or 3(a)(9) under the Registrant at $7.875 per underlying
share.
The Fund also hasSecurities Act as the optionPreferred Stock was exchanged for twelve months to purchase up to $3 million
of additional common stock. On August 23, 2000, the Fund exercised $1,000,000 of
that option to purchase Registrant's common stock at $5.53 per share.by an existing security holder and no commission or other remuneration was paid.
On May 24, 2018, the Company issued 100,000 shares of common stock to CardioSert Ltd. as partial consideration for the acquisition of certain intellectual property assets from CardioSert. The Registrant received $750,000issuance was exempt from registration under Section 4(a)(2) under the Securities Act as a transaction not involving a public offering to a single stockholder as part of a negotiated transaction.
On March 7, 2018, the holder of the purchase price in connection with the
closing on August 30, 2000 and received the remaining $250,000 upon
effectivenessPreferred Stock converted an aggregate of a registration statement covering the shares owned by the Fund.
At the closing on August 30, 2000, the Fund also received an adjustable warrant
similar to the one issued on August 3, 2000. This adjustable warrant was
canceled by agreement of the Registrant and the Fund on November 1, 2000. The
Fund also received a five year warrant to purchase up to 19,900500 shares of the Registrant'sPreferred Stock for an aggregate of 500,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock at $6.03 per share. This warrantof the Registrant. The issuances of the 500,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is callablean accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
On May 11, 2018, the holder of the Preferred Stock converted 800 shares of the Preferred Stock for 800,000 shares of the Company’s common stock, pursuant to the terms of conversion of the Preferred Stock. The issuance of the 800,000 shares of common stock was exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
From November 22, 2017 through January 25, 2018, the holder of the Preferred Stock converted an aggregate of 2,436 shares of the Preferred Stock for an aggregate of 2,436,000 shares of the Registrant’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Registrant. The issuances of the 2,436,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
On December 11, 2017, the Registrant at any time at $10.05 per underlying share.
Weissued an aggregate of 70,000 shares of the Registrant’s common stock to a consultant as consideration for services. The issuance of the shares was exempt from registration under Section 4(a)(2) under the Securities Act as a transaction not involving a public offering, as the issuance thereof was made to a limited number of persons or entities as compensation for services rendered.
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From October 4, 2017 through October 25, 2017, the holder of the Preferred Stock converted an aggregate of 1,600 shares of the Preferred Stock for an aggregate of 1,600,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Registrant. The issuances of the 1,600,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
From August 7, 2017 through September 19, 2017, the holder of the Preferred Stock converted an aggregate of 2,200 shares of the Preferred Stock for an aggregate of 2,200,000 shares of the Registrant’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Registrant. The issuances of the 2,200,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
Between June 19, 2017 and August 7, 2017, the holder of the Preferred Stock converted an aggregate of 2,029 shares of the Preferred Stock for an aggregate of 2,029,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Company. The issuances of the 2,029,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
Between May 18, 2017 and June 12, 2017, the holder of the Preferred Stock converted an aggregate of 1,525 shares of the Preferred Stock for an aggregate of 1,525,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Company. The issuances of the 1,525,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
On May 26, 2017, the Company issued an aggregate of 50,000 shares of common stock to a consultant. The issuance of the shares was exempt from registration under Section 4(a)(2) under the Securities Act as a transaction not involving a public offering, as the issuance thereof was made to a limited number of persons or entities as compensation for services rendered.
On May 10, 2017, the Company entered into a license agreementSecurities Exchange Agreement (the “Exchange Agreement”) with NeuroSpheres, Ltd.Alpha Capital Anstalt (“Alpha Capital”), pursuant to which the Company agreed to issue 3,255 shares of Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”), in exchange for the full satisfaction, termination and cancellation of that outstanding 6% convertible promissory note of the Company in the principal amount of $2,028,767, issued on October 30,
2000 expanding ourNovember 28, 2016 and held by Alpha Capital (the “Convertible Note”). Effective as of May 10, 2017, the Company issued 3,255 shares of Preferred Stock to Alpha Capital pursuant to the Exchange Agreement. The issuance of the 3,255 shares of Preferred Stock was exempt from registration under Section 4(a)(2) and/or 3(a)(9) under the Securities Act.
In March 2017, an institutional holder exercised, in a cashless transaction, 768 warrants and 359 shares of common stock were issued in connection therewith. The issuance of the 359 share of common stock was exempt from registration under Section 4(a)(2) and/or 3(a)(9) under the Securities Act.
Effective as of December 27, 2016, the Company closed on the exchange (the “Exchange”) of approximately 9,735,925 shares or rights to the intellectual property covered by the license
agreement. See "Business--License Agreements and Sponsored Research
Agreements--Neurospheres, Ltd." Under that license agreement, on October 30,
2000, we issued 65,000acquire shares of ourits common stock to NeuroSpheres and we agreed
to file a registration statement covering the resale of those sharesheld by NeuroSpheres.
(b) On May 25, 2000 we issued 2,800Alpha Capital Anstalt, for 9,736 shares of unregistered Rule 144Preferred Stock. The issuance of the 9,736 shares of Preferred Stock was exempt from registration under Section 4(a)(2) and/or 3(a)(9) under the Securities Act.
The Company issued 26,644,979 shares of common stock to the California Instituteexisting shareholders of Technology.
(c) On May 10, 2001, we entered into aMicrobot Israel Ltd. (“Microbot Israel”) and assumed options to purchase an aggregate of 2,614,916 shares of common stock purchase agreement with
Sativum Investments Limited, forof the potential future issuance and saleexisting optionholders of up to
$30,000,000 millionMicrobot Israel. Additionally, the Company issued an aggregate of our7,802,639 restricted shares of its common stock subjector rights to restrictions and other
obligations that are described throughout this prospectus. We, at our sole
discretion, may draw down on this facility, sometimes termed an equity line,
from time to time, and Sativum is obligated to purchase shares of ourreceive common stock at a 6% discount to a volume weighted average market price overcertain advisors. Such sales were exempt from registration under Section 4(a)(2) and Regulation D under the 20
trading days followingSecurities Act.
Item 16. Exhibits and financial statement schedules.
(a) Exhibits.
See the drawdown notice. Our volume weighted average market
price is calculated by addingExhibit Index immediately preceding the total dollars traded in every transaction in a
given trading day and dividing that number by the total number of shares traded
during that trading day. We are limited with respectsignature page to how often we can
exercise a drawdown and the amount of each drawdown.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The following exhibits are filed as part of this registration statement:
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(b) Financial statement schedules.
No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Registrant's Quarterly Report on Form 10-Q forunderwriter at the quarter ended March 31, 1996.
!! Previously filed withclosing specified in the CommissionUnderwriting Agreement certificates in such denominations and registered in such names as an Exhibitrequired by the underwriter to and incorporated by
referencepermit prompt delivery to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
!!! Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and filed on March 31, 1997.
!!!! Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
*** Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 and filed on November 14, 1997.
**** Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-8, File No. 333-37313.
### Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's annual report on Form 10-K for
the fiscal year ended December 31, 1997 and filed on March 30, 1998.
[*] Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's current report on Form 8-K filed
on August 3, 1998.
Section Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's annual report on
Form 10-K for the fiscal year ended December 31, 1998 and filed on
March 31, 1999.
SectionSection Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report on
Form 8-K on January 14, 2000.
X Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Registration Statement on Form
S-1, File No. 333-45496.
XX Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 and filed on April 2, 2001.
ITEM 17. UNDERTAKINGS.
each investor.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is
II-7
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by section 10(a)(3) of the
Securities Act.
II-8
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act; | |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; | |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | |
| (4) | That, for the purpose of determining liability under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter); | |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; | |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and | |
| (iv) | Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
| (5) | The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (6) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
| (7) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
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| II-5 |
| † | To be filed by amendment |
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Pursuant to the requirements of the Securities Act of 1933, the Registrantregistrant has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Palo Alto, StateHingham, Commonwealth of California,Massachusetts, on November 8, 2018.
| MICROBOT MEDICAL INC. | |
| /s/ Harel Gadot | |
| Harel Gadot | |
| President, Chief Executive Officer and Chairman |
Each person whose signature appears below hereby constitutes and appoints Harel Gadot and Yehezkel (Hezi) Himelfarb, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments and registration statements filed pursuant to Rule 462) to this registration statement, and to file the 25th day of May, 2001.
Pursuant to the requirementrequirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby constitutes
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| Harel Gadot | Chairman, President and
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