The Offering
Securities offered by the Selling Stockholders
1,798,940 shares of our Common Stock
Common stock outstanding
39,407,968 (as of May 26, 2020)
Common stock to be outstanding after this offering, assuming full conversion or exercise of all Warrants
41,206,908 shares
Use of proceeds
We will not receive any proceeds from the sale by the Selling Stockholders of the shares of Common Stock being offered by this prospectus.
NASDAQ Symbol
“CHFS”.
Risk Factors
Investing in our securities involves a high degree of risk. You should carefully review and
approveconsider the
individualsection of this prospectus entitled “Risk Factors” on page 8 of this prospectus for a discussion of factors to consider before deciding to invest in shares of our Common Stock. Except as otherwise indicated, all information in this prospectus is based on 39,407,968 shares of Common Stock outstanding as of May 26, 2020 and corporate performance goalsexcludes the shares of Common Stock being offered by this prospectus and objectivesissuable upon exercise of the Company’s other executive officers,Warrants and to determine and approvealso excludes the compensation and other termsfollowing:
523,213 shares of employmentcommon stock issuable upon the exercise of such executive officers, considering, among other things, the recommendationsoutstanding stock options, having a weighted average exercise price of $16.71 per share;
24,925,464 shares of our Chief Executive Officer;common stock issuable upon the exercise of outstanding warrants (other than the warrants offered hereby) with a weighted-average exercise price of $1.73 per share;
1,450,290 shares of common stock issuable upon the conversion of the 435 outstanding shares of our Series F Preferred Stock (excluding additional shares of common stock that we may be required to review the compensation paid to non-employee directors for their service on the Board and its committees and recommend any appropriate changesissue upon such conversion due to the boardfull ratchet anti-dilution price protection in the certificate of directorsdesignation for approval;
to recommend to the board of directorsSeries F Preferred Stock as described in the adoption, amendment and termination of the Company’s equity compensation plans and to administer such plans and approve grants and awards as permitted or required under such plans;following bullet); and
to evaluate risks associated with and potential consequences1,765,759 shares of our compensation policiescommon stock reserved for future issuance under our equity incentive plans.
All share and practices, as applicable toper share amounts for all of our employees.
The Compensation Committee may formperiods presented in this prospectus and delegate authority to subcommittees as appropriate. The responsibilities and activities of the Compensation Committee are described in greater detail in its charter, a copyregistration statement of which is availableit forms a part have been retroactively adjusted to reflect the reverse stock splits we previously effected on the Company’s website at http://ir.chf-solutions.com/corporate-governance.
Role of Compensation Consultant
During fiscal 2019, the Compensation Committee engaged Frederic W. Cook & Co. (“FW Cook”) to conduct an assessment of executive officer compensation for fiscal 2020January 12, 2017, October 12, 2017 and advise on employee equity compensation. In connection with such engagement, FW Cook evaluated our executive officers’ base salaries, incentive compensation, and total compensation relative to a peer group consisting of 15 companies similar to ours based on industry, market capitalization and revenue.
The Compensation Committee concluded that the advice the Company received from the compensation consultant in 2019 did not raise any conflict of interest, considering the following six factors: (i) the provision of other services to the Company by the consultant; (ii) the amount of fees received from us by the consultant, as a percentage of the total revenue of such consultant; (iii) the policies and procedures of the consultant that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the consultant with a member of the Compensation Committee; (v) any stock of the Company owned by the consultant; and (vi) any business or personal relationship of the consultant with an executive officer of our company.
See “Director Compensation” and “Executive Compensation—Narrative Discussion of Summary Compensation Table for 2019” below for additional information regarding our processes and procedures for consideration and determination of director and executive officer compensation.
Nominating and Corporate Governance Committee
The primary purpose of the Nominating and Corporate Governance Committee is to review the composition and performance of the board of directors and its committees and to oversee all aspects of our corporate governance functions. To implement this purpose, the committee is charged with the following responsibilities, among others:
to identify, review and evaluate candidates to serve on the board of directors, to review and evaluate incumbent directors, and to recommend to the board of directors nominees for election to the board of directors;January 2, 2019.
to monitor the size of the board of directors;
to review, discuss and assess, on an annual basis, the performance of management and the board of directors, including its committees;
to recommend to the board of directors, on an annual basis, the chairmanship and membership of each committee, considering the interests, independence and experience of individual directors and the independence and experience requirements of the SEC and Nasdaq; and
to exercise our general oversight over corporate governance policy matters of the Company, including developing, reviewing and assessing the Corporate Governance Guidelines and recommending appropriate changes to the board of directors for consideration.
The responsibilities and activities of the committee are described in greater detail in its charter, a copy of which is available on the Company’s website at http://ir.chf-solutions.com/corporate-governance.
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The Nominating and Corporate Governance Committee reviews and makes recommendations to the board of directors, from time to time, regarding the appropriate skills and characteristics required of our board of directors’ members in the context of the current make-up of the board of directors, the operations of the Company and the long-term interests of stockholders. The committee does not have a specific diversity policy underlying its nomination process, although it seeks to ensure the board of directors includes directors with diverse backgrounds, qualifications, skills and experience relevant to our business.
In the case of an incumbent director whose term of office is set to expire, the Nominating and Corporate Governance Committee will generally re-nominate incumbent directors who continue to satisfy the committee’s criteria for membership on the board of directors, continue to make important contributions to the board of directors and consent to continue their service on the board of directors.
If a vacancy on the board of directors occurs or the board of directors increases in size, the Nominating and Corporate Governance Committee will actively seek individuals that satisfy the committee’s criteria for membership on the board of directors and the committee may rely on multiple sources for identifying and evaluating potential nominees, including referrals from our current directors and management. In 2019, the committee did not employ a search firm or pay fees to other third parties in connection with identifying or evaluating board of director nominee candidates.
The Nominating and Corporate Governance Committee will consider recommendations of director nominees by stockholders so long as such recommendations are sent on a timely basis and are otherwise in accordance with our Amended and Restated Bylaws and applicable law.
Director Compensation
Our non-employee directors receive a mix of cash and share-based compensation. The compensation mix is intended to encourage non-employee directors to continue board of director service, further align the interests of the board of directors and stockholders and attract new non-employee directors with outstanding qualifications. Directors who are our employees or officers of do not receive any additional compensation for board of director service.
2019 Compensation Table
The table below sets forth the compensation of each non-employee director in 2019. As a named executive officer of the Company, compensation paid to Mr. Erb for the 2018 and 2019 fiscal years is fully reflected under “Named Executive Officer Compensation Tables—Summary Compensation Table for 2019”.
Name | Fees Earned or Paid in Cash ($) | Option Awards ($)(1) | All Other Compensation ($) | Total ($) |
Steve Brandt | | 52,019 | | | 5,576 | | 76,000(4) | | 133,595 | |
Maria Rosa Costanzo, M.D.(2) | | 15,667 | | | 2,713 | | — | | 18,380 | |
Jon W. Salveson | | 53,435 | | | 5,576 | | — | | 59,012 | |
Gregory D. Waller | | 58,685 | | | 5,576 | | — | | 64,262 | |
Warren S. Watson | | 66,185 | | | 5,576 | | — | | 71,762 | |
Matthew Likens(3) | | 41,935 | | | 5,576 | | — | | 47,512 | |
Total | | 287,926 | | | 30,593 | | — | | 394,523 | |
| (2) | Dr. Costanzo was elected to the Board of Directors on September 3, 2019. |
| (3) | Mr. Likens resigned from the Board of Directors on September 27, 2019. |
| (4) | Mr. Brandt received $76,000 for his services as a consultant from February to May 2019 as described under “Certain Relationships and Related Transactions.” |
Our Non-Employee Director Compensation Policy provides for (i) an annual cash retainer of $55,000 payable in equal quarterly installments in arrears on the last day of each quarter in which the service occurs and (ii) an annual
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stock option award of the number of shares equal to 0.15% of the fully-diluted shares of the Company, granted on the date of the annual meeting of stockholders with 1/12th of the shares underlying the awards vesting monthly so that all of the underlying shares are vested on the one-year anniversary of the grant date. We do not provide any perquisites to directors.
During the fourth quarter of fiscal 2017, the Compensation Committee engaged Compensia to conduct an assessment of non-employee director compensation for fiscal 2018. In connection with such engagement, Compensia evaluated our non-employee director compensation program including cash compensation and equity compensation, reporting directly to the Compensation Committee. We did not make any changes to our Non-Employee Director Compensation Policy in 2018 as a result of such assessment. However, in May 2019, we changed the calculation of the number of shares included in the annual stock option grant to a percentage of the full-diluted shares of the Company rather than a cash value and equity compensation is in the form of only stock options.
On the date of the 2018 annual meeting of stockholders, there were insufficient shares available under the 2013 Directors’ Plan to issue an equity award with an aggregate value on the date of grant of $35,000 to each of our non-employee directors. Therefore, each non-employee director received an option to purchase 714 shares of our common stock with a grant date fair value of $26,259 and a cash payment in the amount of $2,186 per quarter for the twelve months prior from the second quarter of 2018 through the first quarter of 2019, in lieu of the remaining equity award contemplated by our Non-Employee Director Compensation Policy. Our board of directors determined that the full equity award would be issued in the form of a stock option to simplify the grant in light of the limited number of shares available.
As of December 31, 2019, each non-employee director had the following number of shares underlying outstanding options (both vested and unvested): Mr. Brandt 5,009; Dr. Costanzo 1.313, Mr. Salveson 5,954; Mr. Waller 6,423, and Mr. Watson, 5,954. As of December 31, 2018, no RSUs were held by the non-employee directors.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires that our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, file reports of ownership and changes in ownership (Forms 3, 4, and 5) with the SEC. Executive officers, directors, and greater than 10% beneficial owners are required to furnish us with copies of all of the forms that they file.
Dr. Costanzo filed a late Form 4 on September 16, 2019 to report the acquisition of common shares of beneficial ownership on September 3, 2019. Other than this filing, based solely on our review of these reports or written representations from certain reporting persons, we believe that during the fiscal year ended December 31, 2019, filed with the SEC on March 5, 2020 (the “Annual Report”), and our officers, directors, greater than 10% beneficial owners, and other persons subject to Section 16(a)Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 14, 2020 (the “Quarterly Report”), each of which is incorporated by reference in this prospectus, together with all of the Exchange Act filed on a timely basis all reports requiredother information contained in this prospectus and documents incorporated by reference herein. If any of them under Section 16(a) so that therethe matters discussed in the risk factors were no late filingsto occur, our business, financial condition, results of any Form 3operations, cash flows or Form 5 reports or late Form 4 filings with respect to transactions relating toprospects could be materially adversely affected, the market price of our common stock.
stock could decline and you could lose all or part of your investment in our securities. Additional risks and uncertainties not presently known or which we consider immaterial as of the date hereof may also have an adverse effect on our business. There have been no other material changes to the Risk Factors described under Item 1A. “Risk Factors” in the Annual Report and the Quarterly Report.
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EXECUTIVE COMPENSATIONSummary Compensation Table for 2019
The following table sets forth certain information, forCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
years ended December 31, 2019 and December 31, 2018, regarding compensationmeaning of
our named executive officers.Name Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($)(1) | Nonequity Incentive Plan Compensation ($) | All Other Compensation ($)(2) | Total ($) |
John L. Erb Chief Executive Officer & President; Chairman of the Board
| 2019 | | 436,965 | | | — | | | — | | | 131,127 | | | 11,666 | | | 579,758 | |
2018 | | 424,754 | | | — | | | 2,043,696 | | | 159,283 | | | 11,670 | | | 2,639,169 | |
Claudia Drayton Chief Financial Officer
| 2019 | | 291,747 | | | — | | | — | | | 81,689 | | | 18,986 | | | 392,422 | |
2018 | | 283,250 | | | | | | 604,015 | | | 80,549 | | | 12,610 | | | 980,424 | |
Nestor Jaramillo, Jr. Chief Commercial Officer(3)
| 2019 | | 208,651 | | | — | | | 254,177 | (5) | | 58,412 | | | 6,558 | | | 527,762 | |
2018 | | — | | | — | | | — | | | — | | | — | | | — | |
Jim Breidenstein Former Chief Commercial Officer(4)
| 2019 | | — | | | — | | | — | | | — | | | 137,000 | (8) | | 137,000 | |
2018 | | 214,200 | | | — | | | 553,072 | (5)(6) | | 33,702(7 | ) | | 171,594 | (8) | | 972,568 | |
| (1) | Except as noted below, amounts in the Option Awards column relate to stock options granted under the 2017 Plan. The amounts reported reflect the grant date fair value of the stock options. Valuation assumptions used in determining the grant date fair value are included in Note 7 to the consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference in this prospectus. |
| (2) | For each named executive officer, amounts include employer matching contributions made on the officer’s behalf to the Company’s 401(k) Plan, contributions to the officer’s health savings account and Company payments for life insurance premiums. In addition, the amounts for Mr. Erb and Ms. Drayton include a one-time payment equal to 50% of such officer’s accrued paid-time-off that exceeded the amount that is permitted to carry over from one fiscal year to the next fiscal year due to a change in the Company’s paid-time-off policy effective January 1, 2019. |
| (3) | Mr. Jaramillo commenced employment with the Company effective May 7, 2019. |
| (4) | Mr. Breidenstein commenced employment with the Company effective April 24, 2017 and ended employment with the Company effective July 31, 2018. |
| (5) | Reflects a stock option granted under the Company’s New-Hire Equity Incentive Plan (the “New-Hire Plan”) in connection with such officer’s hiring. |
| (6) | Such officer surrendered his options in connection with his departure from the Company. |
| (7) | Represents a cash payment of 1.6% of the Company’s net sales from January to July 2018, as discussed below. Because he departed the Company in July 2018, such officer did not receive a bonus for 2018. |
| (8) | Includes salary continuation, reimbursement of monthly COBRA premiums, and payment for accrued paid time off, in each case paid pursuant to the Separation and Release Agreement between the Company and such officer. |
Narrative Discussion of Summary Compensation Table for 2019
Employment Agreements and Other Arrangements. Mr. Erb has a written employment agreement. We signed offer letters with each of our other named executive officers upon the commencement of their employment with us. AllSection 27A of the named executive officers have change in control agreements, which entitle them to payments fromSecurities Act of 1933, as amended, or the Company upon the happening of specified termination events. See “— Potential Payments Upon Termination or Change in Control”.
Base Salaries. The initial annual base salaries of our executive officers are negotiated in connection with their hiring. The Compensation Committee reviews the base salariesSecurities Act, and Section 21E of the executive officersExchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but are not always, made through the use of words or phrases such as “anticipates,” “estimates,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus, and in particular those factors included in the section entitled “Risk Factors.”
Because the factors referred to in the preceding paragraph could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements we make, you should not place undue reliance on an annual basisany such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and generally grants salary increases followingwe undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such reviews.statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In 2019,addition, we cannot assess the salaries forimpact of each of Mr. Erb and Ms. Drayton was increased by 3, representing afactor on our business or the extent to which any factor, or combination of a cost of livingfactors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should carefully read this prospectus and
inflation adjustmentany related free writing prospectus and
a merit raise.As discussed above under “Board Matters—Committeeswith the understanding that our actual future results may materially differ from what we expect.
Except as required by law, forward-looking statements speak only as of the
Board—Compensation Committee—Role of Compensation Consultant,”date they are made, and we assume no obligation to update any forward-looking statements publicly, or to update the
Compensation Committee engaged FW Cook 2019 to conduct a review of our executive compensation program. Based on the advice andreasons why actual results could differ materially from those anticipated in any forward-looking statements, even if new information
from FW Cook and taking into account information from publicly available industry surveys, the Compensation Committee approved base salary increases ranging from 2% to 4% for our officers and, specifically, a 3% increase for Mr. Erb, a 3.5% increase for Ms. Drayton and a 3% increase for Mr. Jaramillo (pro-rated because he commenced employment with the Company in May 2019).becomes available.
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Equity Compensation. Pursuant
SALE OF SECURITIES TO SELLING STOCKHOLDERS General
On May 1, 2020, we entered into the Purchase Agreement with the Selling Stockholders under which we agreed to issue and sell warrants to purchase an aggregate of 1,798,940 shares of Common Stock, pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) thereof and/or Rule 506 of Regulation D promulgated thereunder. We received gross proceeds of approximately $1,700,000 at the closing on May 5, 2020, before deducting fees owed to Ladenburg Thalmann & Co. Inc. (the “Placement Agent”) and other fees applicable to the
terms of his offer letter, Mr. Jaramillo was granted on May 23, 2019, an option to purchase 84,489 shares of our common stock with a grant date fair value of $254,176.71.In January 2018,to restore a meaningful equity interest inoffering. The Purchase Agreement contains customary representations, warranties and agreements by the Company, by our executive officers following the reverse stock splits and public offerings consummated in 2017 and following the increase in the number of shares reserved for issuance under the 2017 Plan on January 1, 2018 pursuantcustomary conditions to the “evergreen” provision in such plan, and considering the advice of Compensia, who was engaged in the fourth quarter of 2017 to provide an assessment of executive officer and non-employee director compensation for 2018, the board of directors and Compensation Committee granted options to purchase shares of our common stock to our named executive officers as follows:
Name | Option Awards (#)(1) | Exercise Price ($) | Option Awards ($)(2) |
John L. Erb | | 47,085 | | $ | 49.70 | | | 2,043,696 | |
Claudia Drayton | | 14,124 | | $ | 49.00 | | | 604,015 | |
Nestor Jaramillo, Jr.(3) | | — | | | — | | | — | |
Jim Breidenstein(4) | | 12,933 | | $ | 49.00 | | | 553,072 | |
Total | | 74,142 | | | — | | | 3,200,783 | |
| (1) | 25% will vest on the one-year anniversary of the date of grant, with the remaining shares vesting in 36 equal consecutive monthly installments. |
| (2) | The amounts reported represent the grant date fair value of the stock options. General valuation assumptions used in determining grant date fair values are included in Note 7 to the consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference in this prospectus. |
| (3) | Such officer was not employed by the Company in January 2018 and, therefore, did not receive a stock option grant under this program. |
| (4) | Such officer surrendered his options in connection with his departure from the Company effective July 31, 2018. |
Nonequity Incentive Plan Compensation. In 2019, the Compensation Committee made no change to the target bonuses, set forth as a percentage of annual base salary, for Mr. Erb which 50% of base salary. For Ms. Drayton, the target bonus was increased to 40% of base salary. The target bonus of 40% for Mr. Jaramillo was approved by the Compensation Committee in connection with commencement of his employment. The earned bonus was based on the achievement of corporate performance objectives defined and weighted by the Compensation Committee, in consultation with our Chief Executive Officer, and primarily related to our annual revenue, the management of cash to achieve our business objectives, the development and approval of a three-year strategic plan, and regulatory milestones for each of the Aquadex FlexFlow system and the modification of our label to include pediatric patients. The Compensation Committee assessed our achievement of the corporate objectives at 2019 year end and calculated a total weighted average performance to corporate objectives of 60%. While Mr. Erb’s bonus was based solely on the achievement of corporate objectives, Ms. Drayton and Mr. Jaramillo were also compensated based on the achievement of individual personal objectives, which accounted for 25% of their overall bonus. Because his employment with the Company commenced in May 2019, Mr. Jaramillo’s bonus was pro-rated for his time with the Company in 2019.
The following table sets forth target and earned non-equity incentive plan compensation for 2018 and 2019.
| 2018 | 2019 |
| Target | Earned | Target | Earned |
Name | % of Base Salary | $ | $ | % of Base Salary | $ | $ |
John L. Erb | | 50 | | | 212,377 | | | 159,283 | | | 50 | | | 218,482 | | | 152,981 | |
Claudia Drayton | | 35 | | | 99,137 | | | 80,549 | | | 40 | | | 116,699 | | | 90,442 | |
Nestor Jaramillo, Jr.(1) | | — | | | — | | | — | | | 40 | | | 83,446 | | | 64,671 | |
Jim Breidenstein(2) | | 35 | | | 145,068 | | | — | | | — | | | — | | | — | |
| (1) | Amounts reflect that such officer commenced employment with the Company effective May 7, 2019. |
| (2) | Because he departed the Company on July 31, 2018, such officer did not receive a bonus for 2018 or 2019 and had no target bonus for 2019. |
Pursuant to his offer letter, during 2017, Mr. Breidenstein was also entitled to receive 1.6% of the Company’s total net sales during each month of his employment. The Compensation Committee, taking into account the
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assessment of Compensia, who was engaged in the fourth quarter of 2017 to provide an assessment of executive officer and non-employee director compensation for 2018, elected to continue this payment for fiscal 2018, reflected as non-equity incentive compensation in the “Summary Compensation Table for 2019” above. Mr. Breidenstein departed the Company on July 31, 2018.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth certain information concerning equity awards held by our named executive officers that were outstanding as of December 31, 2019.
| Option Awards | Stock Awards |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested ($) | Market Value of Shares or Units of Stock That Have Not Vested ($)(5) |
John L. Erb | | 6 | (1) | | — | | | 69,468.00 | | | 09/11/2022 | | | | | | | |
| | — | (7) | | — | | | — | | | 05/28/2024 | | | | | | | |
| | — | (7) | | — | | | — | | | 05/20/2025 | | | | | | | |
| | 59 | (2) | | 4 | (2) | | 7,812.00 | | | 03/16/2026 | | | | | | | |
| | 22,561 | (3) | | 24,524 | (3) | | 49.70 | | | 01/17/2028 | | | | | | | |
| | | | | | | | | | | | | | — | | | 3 | (4) |
| | | | | | | | | | | | | | | | | | |
Claudia Drayton | | 13 | (6) | | — | | | 37,632.00 | | | 01/05/2025 | | | | | | | |
| | 6 | (2) | | — | | | 8,736.00 | | | 01/15/2026 | | | | | | | |
| | 6,768 | | | 7,356 | (3) | | 49.00 | | | 01/3/2028 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Nestor Jaramillo, Jr. | | — | | | 84,489 | (5) | | 3.01 | | | 05/22/2029 | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Jim Breidenstein(6) | | — | | | — | | | — | | | — | | | — | | | — | |
| (1) | Consists of stock options granted under the 2013 Directors’ Plan. 1/12th of the shares underlying the awards vests monthly, commencing on the one-month anniversary of the grant date, so that all of the shares are vested on the one-year anniversary of the grant date. |
| (2) | Consists of stock options granted under the Second Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”). The underlying shares generally vest as follows: 25% of the shares vest on the one-year anniversary of the grant date; the remaining shares vest in 36 equal consecutive monthly increments thereafter, so that all of the shares will be vested on the four-year anniversary of the grant date. |
| (3) | Consists of stock options granted under the 2017 Plan. The underlying shares generally vest as follows: 25% of the shares vest on the one-year anniversary of the grant date; the remaining shares vest in 36 equal consecutive monthly increments thereafter, so that all of the shares will be vested on the four-year anniversary of the grant date. |
| (4) | Consists of RSUs granted under the 2011 Plan. The RSUs vest in 36 consecutive monthly increments, commencing on the one-month anniversary of the grant date, so that all of the underlying shares will be vested on the three-year anniversary of the grant date. |
| (5) | Consists of stock options granted under the New-Hire Plan. The underlying shares generally vest as follows: 25% of the shares vest on the one-year anniversary of the grant date; the remaining shares vest in 36 equal consecutive monthly increments thereafter, so that all of the shares will be vested on the four-year anniversary of the grant date. |
| (6) | Such officer surrendered his options in connection with his departure from the Company effective July 31, 2018. |
| (7) | There are no shares underlying these options following application of the reverse stock split. |
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Potential Payments Upon Termination or Change of Control
Equity Compensation Plans
Equity awards have been issued to the named executive officers under the 2017 Plan, 2011 Plan and the New-Hire Plan. A termination or change in control may affect the vesting and/or exercisability of awards issued under the equity compensation plans, as further discussed below.
Stock Options Generally, if a participant’s continuous service terminates:
other than for cause or upon the participant’s death or disability, the participant may exercise his or her option (to the extent the option was vested as of the date of termination) within such period of time ending on the earlier of (i) the date three months following the termination or (ii) the expiration of the term of the option. If the option is not exercised within such period, it will terminate.
upon the participant’s disability, the participant may exercise his or her option (to the extent the option was vested as of the date of termination) within such period of time ending on the earlier of (i) the date 12 months following the termination or (ii) the expiration of the term of the option. If the option is not exercised within such period, it will terminate.
as a result of the participant’s death, or if the participant dies within the period during which the option may be exercised after the termination of the participant’s continuous service for a reason other than death, the option may be exercised (to the extent the option was vested as of the date of death) by the participant’s estate within the period ending on the earlier of (i) the date 18 months following the date of death or (ii) the expiration of the term of the option. If the option is not exercised within such period, it will terminate.
for cause, the option will terminate upon the date of termination, and the participant will be prohibited from exercising his or her option from and after such time.
RSUs. Upon termination of a participant’s continuous service for any reason, any unvested RSUs will be immediately canceled and forfeited, provided that the Compensation Committee may accelerate the vesting of all or a portion of the award in connection with such termination.
Acceleration of Vesting. Under the 2017 Plan, the 2011 Plan and the New Hire Plan, the board of directors or the Compensation Committee may accelerate the exercisability or vesting of an award at any time, including immediately prior to a participant’s termination or change of control.
Change in Control Agreements
We have entered into change in control agreements with the named executive officers who are currently executive officersclosing, indemnification obligations of the Company, that require us to provide compensation to the officer in the event of a change in control. Each agreement has a term that runs from its effective date through the later of: (i) the five-year anniversaryother obligations of the effective date, subject to automatic extension for successive two-year periods until notice of non-renewal is given by either party at least 60 days prior to the end of the then-effective term; or (ii) if a change in control occurs on or prior to the end of the then-effective term, then the one-year anniversary of the effective date of such change in control.
The change in control agreements provide that, if: (x) a change in control occurs during the term of the officer’s agreement;parties and (y) the officer’s employment terminates anytime during the one-year period after the effective date of the change in control; and (z) such termination is involuntary at the Company’s initiative without cause or is due to the officer’s voluntary resignation for good reason, then the Company will: (i) pay in a lump sum the officer’s salary for 12 months and any other earned but unpaid compensation; (ii) pay in a lump sum an amount equal to the incentive bonus payment received by the officer for the fiscal year immediately preceding the fiscal year in which the termination occurs; and (iii) provide healthcare benefits to the officer and the officer’s family until the earlier of (A) the date 12 months after the officer’s termination and (B) the date the officer is, and/or the officer’s covered dependents are, eligible to receive group medical and/or dental insurance coverage by a subsequent employer.
We are also obligated to make the foregoing payments and to provide the foregoing healthcare benefits in the event (i) the officer’s employment terminates (A) due to a voluntary resignation for good reason or (B) due to an involuntary termination by the Company without cause, and (ii) a change in control occurs within 90 days after the termination date and during the term of the agreement.
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In addition to the payments described above, each change in control agreement provides that if a change in control occurs while the officer is actively employed by the Company and during the term of the agreement, such change in control will cause the immediate acceleration of the vesting of 100% of any unvested portion of any stock option awards held by the officer on the effective date of such change in control.
We are not obligated to make the payments described above unless: (i) the officer signs a full release of any and all claims in favor of the Company; (ii) all applicable consideration periods and rescission periods have expired; and (iii) as of the dates we provide any payments to the named executive officer, the officer is in strict compliance with the terms of the applicable change in control agreement and any proprietary information agreement the officer has entered into with the Company.
Employment Agreement – Mr. Erb
On March 1, 2016, we entered into an executive employment agreement with Mr. Erb regarding his employment as our Chief Executive Officer and President.
The agreement has an initial term (the “Initial Term”) of twelve (12) months beginning on March 1, 2016 and automatically renews for an additional twelve (12) month period at the end of the Initial Term and each anniversary thereafter provided that at least ninety (90) days prior to the expiration of the Initial Term or any renewal term the board of directors does not notify Mr. Erb of its intention not to renew the employment period.
The agreement entitles Mr. Erb to, among other benefits, the following compensation:
an annual base salary of at least $400,000, reviewed at least annually;
initial equity grants of an option to purchase 63 shares of common stock and 42 restricted stock units, in each case, granted in accordance with the terms and conditions of the Company’s Second Amended and Restated 2011 Equity Incentive Plan;
an opportunity to receive additional annual equity awards as determined by the Compensation Committee based on Mr. Erb’s performance and commensurate with grants made to chief executive officers in the Company’s compensation peer group;
an opportunity for Mr. Erb to receive an annual performance bonus in an amount of up to 50% of Mr. Erb’s annual base salary for such fiscal year based upon achievement of certain performance goals to be established by the board of directors;
participation in welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent available generally or to other senior executive officers of the Company;
prompt reimbursement for all reasonable expenses incurred by Mr. Erb in accordance with the plans, practices, policies and programs of the Company; and
22 days paid time off, to accrue and to be used in accordance with our policies and practices in effect from time to time, as well as all recognized Company holidays.
In connection with the equity grant contemplatedPurchase Agreement, we separately entered into a placement agent engagement letter with the Placement Agent pursuant to which we agreed to pay the Placement Agent an aggregate cash placement fee equal to 8% of the aggregate purchase price raised in the transaction. Subject to certain conditions, we also have agreed to reimburse certain out-of-pocket expenses of the Placement Agent, including but not limited to legal fees. The engagement letter contains customary representations, warranties and agreements by us and customary conditions to closing. We have further agreed to indemnify the agreement, Mr. Erb received an option to purchase 63 sharesPlacement Agent against certain liabilities arising out of our common stockor in connection with the transactions.
The Warrants
Each Warrant is exercisable beginning on May 5, 2020 (the “Warrant Initial Exercise Date”) at an exercise price of
$7,812.00$0.41 per share,
subject to adjustment as provided therein, and
an awardterminates five and a half years after the Warrant Initial Exercise Date. A holder of
42 restricted stock units, both of which were issued on March 16, 2016.The agreement also includes a “claw-back” provision providing for the recoupment of unearned incentive compensation ifWarrants will not have the board of directors, or an appropriate committee thereof, determines that Mr. Erb engaged inright to exercise any fraud, negligence, or intentional misconduct that caused or significantly contributed to the Company having to restate all or a portion of its financial statements, or if we are required to seek reimbursement by applicable laws or regulations, the board of directors or committee may require reimbursement of any bonus or incentive compensation paid to Mr. Erb.
Upon termination of Mr. Erb’s employment, Mr. Erb may be entitled to certain payments and benefits, depending on the reason for his termination. In the event Mr. Erb resigns his employment without good reason, the Company terminates Mr. Erb’s employment for cause, or Mr. Erb’s employment terminates as a result of his death or disability, Mr. Erb is entitled to receive the Unconditional Entitlements, but not the Conditional Benefits (each as
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defined below). In the event Mr. Erb resigns with good reason or the Company terminates Mr. Erb’s employment for reason other than cause, Mr. Erb is entitled to receive the Unconditional Entitlements, as well as the Conditional Benefits, provided that Mr. Erb signs and delivers to the Company, and does not revoke, a general release of claims in favor of the Company and certain related parties.
The “Unconditional Entitlements” include the following: (i) any annual base salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the employment period ends; (ii) in the event Mr. Erb’s employment terminates after the end of a fiscal year but before payment of the annual bonus payable for his services rendered in that fiscal year, the annual bonus that would have been payable to Mr. Erb for such completed fiscal year, provided that such termination is not due to the Company’s termination of Mr. Erb for cause or Mr. Erb’s resignation without good reason; and (iii) certain other benefits contemplated by the agreement.
The “Conditional Benefits” include the following: (i) a lump sum amount equal to one times Mr. Erb’s annual base salary as of the termination date; (ii) continued medical coverage for 12 months following the termination date; (iii) continued vesting of equity awards for 12 months following the termination date; and (iv) a pro-rata annual bonus for the year in which the termination date occurs, determined on the basis of an assumed full-year target bonus and the number of days in the applicable fiscal year occurring on or before the termination date.
Offer Letter – Ms. Drayton
On December 9, 2014, we entered into an offer letter with Ms. Drayton regarding her employment as our Chief Financial Officer effective January 5, 2015. Ms. Drayton was offered an annualized salary of $240,000, paid in monthly installments in accordance with the Company’s payroll procedures. Ms. Drayton was also made eligible for a bonus of up to 25% of her base salary. The Company also agreed to discuss a performance bonus based upon mutually agreed objectives upon commencement of her employment. Ms. Drayton also received a grant of stock options as a result of her employment and was made eligible to participate in the employee stock option program, and benefit programs generally made available to employees.
Offer Letter – Mr. Breidenstein
On April 12, 2017, we entered into an offer letter with Mr. Breidenstein regarding his employment as our Chief Commercial Officer effective April 24, 2017. In addition to the compensation described above under “—Narrative Discussion of Summary Compensation Table for 2019,” Mr. Breidenstein was also entitled to salary continuation and reimbursement of monthly COBRA premiums paid by him, in each case, for the 9-month period following the termination date,Warrants if the Company terminates his employment without cause; provided that Mr. Breidenstein signs and delivers to the Company, and does not revoke, a general release of claims. On July 31, 2018, Mr. Breidenstein ended employmentholder, together with the Company and received the salary continuation and other benefits under the offer letter.
Offer Letter – Mr. Jaramillo
On April 12, 2019, we entered into an offer letter with Mr. Jaramillo regarding his employment as our Chief Commercial Officer effective May 7, 2019. Mr. Jaramillo was offered an annualized salary of $320,000, paid in semi-monthly installments in accordance with the Company’s payroll procedures. Mr. Jaramillo was also made eligible for a bonus of up to 40% his base salary, pro-rated for 2019, dependent upon Mr. Jaramillo’s good standing with the Company as of such bonus payment date. Mr. Jaramillo also received a grant of stock options as a result of his employment and was made eligible to participate in the employee stock option program, and benefit programs generally made available to employees.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We give careful attention to related person transactions because they may present the potential for conflicts of interest. Under SEC rules, a related person transaction is any transaction or series of transactions in which: the Company or a subsidiary is a participant; the amount involved exceeds the lesser of $120,000 or 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years; and a related person has a direct or indirect material interest. A “related person” is a director, executive officer, nominee for director or a more than 5% stockholder, and any immediate family member of the foregoing.
To identify related person transactions in advance, we rely on information supplied by our executive officers, directors and certain significant stockholders. We maintain a written policy for the review, approval or ratification of related person transactions, and our Audit Committee reviews all related person transactions identified by us. The Committee approves or ratifies only those related person transactions that are determined by it to be, under all of the circumstances, in the best interests of the Company and its stockholders.
Scott Erb, who served as our Senior Manager of Operations and Director of Marketing during 2017, is the son of John Erb, our Chief Executive Officer, President and Chairman of the Board. Scott Erb was paid $78,974 in 2017 as an employee of the Company. Following Scott Erb’s departure from the Company, the Company paid $15,010 in 2017 to Infinitum Analytics, LLC, of which Scott Erb is Owner/Principal, for consulting services.
In January 2019, we entered into a consulting agreement with Steven Brandt, one of our non-employee directors, pursuant to which Mr. Brandt provided services, on an interim basis, until May 31, 2019, to support our commercial strategy under the direction of our Chief Executive Officer. Mr. Brandt was paid a fee of $19,000 per month, for a total of $76,000 for his services. Mr. Brandt also received $2,453 for reimbursement of expenses.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of our common stock as of December 31, 2019 by (i) each of the directors and named executive officers, (ii) all of the directors and executive officers as a group, and (iii) to our knowledge, beneficial owners of more than 5% of our common stock. As of December 31, 2019, there were 4,674,068 shares of our common stock outstanding. Unless otherwise indicated and subject to applicable community property laws, each owner has sole voting and investment powers with respect to the securities listed below.
Name of Beneficial Owner | Number of Shares | Right to Acquire(1) | Total | Aggregate Percent of Class(2) |
John L. Erb | | 11,617 | | | 48,987 | (3) | | 60,604 | | | 1.28 | % |
Steve Brandt | | 5 | | | 4,533 | | | 4,538 | | | | * |
Maria Rosa Costanzo, M.D. | | | | | 548 | | | 548 | | | | * |
Matthew E. Likens(4) | | 5 | | | — | | | 5 | | | | * |
Jon W. Salveson | | 3 | | | 5,478 | | | 5,481 | | | | * |
Gregory D. Waller | | 2 | | | 5,947 | | | 5,949 | | | | * |
Warren S. Watson | | 3 | | | 5,478 | | | 5,481 | | | | * |
Claudia Drayton | | 2 | | | 7,376 | | | 7,378 | | | | * |
Nestor Jaramillo, Jr. | | — | | | — | | | — | | | — | |
All current directors and executive officers as a group (8 persons)(4) | | 11,632 | | | 78,347 | | | 89,979 | | | 1.91 | % |
Bigger Capital Fund, L.P.(5) 175 W. Carver Street Huntington, New York 11743
| | 83,154 | | | 661,041 | | | 774,195 | | | 9.99 | % |
Anson Funds Management LP(6) 5950 Berkshire Lane, Suite 210 Dallas, Texas 75225
| | 51,000 | | | 1,102,106 | | | 1,153,106 | | | 9.99 | % |
Altium Capital Management, L.P.(7) 551 Fifth Avenue, Floor 19 New York, New York 10176
| | 25,000 | | | 832,142 | | | 857,142 | | | 9.99 | % |
| (1) | Except as otherwise described below, amounts reflect the number of shares that such holder could acquire through (i) the exercise of outstanding stock options, (ii) the vesting/settlement of outstanding RSUs, (iii) the exercise of outstanding warrants to purchase common stock and (iv) the conversion of outstanding Series F convertible preferred stock, in each case within 60 days after December 31, 2019. |
| (2) | Based on 4,674,068 shares outstanding as of December 31, 2019. |
| (3) | Consists of (i) 23,609 shares issuable upon the exercise of outstanding stock options, (ii) 20,996 shares issuable upon the exercise of outstanding warrants to purchase common stock and (iv) 3,400 shares issuable upon conversion of outstanding shares of Series F Convertible Preferred Stock (assuming all 100 shares of Series F Convertible Preferred Stock held by Mr. Erb are converted at once and rounded up to the nearest whole share). |
| (4) | Mr. Likens resigned as a director on September 24, 2019 and is not included in the total for all current directors and officers. |
| (5) | Based on the Schedule 13G/A filed by Bigger Capital Fund, LP, Bigger Capital Fund GP, LLC, District 2 Capital Fund LP, District 2 Capital LP, District 2 GP LLC, District 2 Holdings LLC and Michael Bigger with the SEC on November 27, 2019. Consists of 83,154 shares of common stock beneficially owned by Bigger Capital Fund, LP. The number of shares under “Right to Acquire” consists of (i) 561,041 shares of common stock issuable upon the exercise of outstanding warrants to purchase common stock beneficially owned by Bigger Capital Fund, LP and (ii) 100,000 shares of common stock issuable upon the exercise of outstanding warrants to purchase common stock beneficially owned by District 2 Capital Fund LP. Bigger Capital Fund GP, LLC is the general partner of, and may be deemed to beneficially own the securities owned by, Bigger Capital Fund, LP. Each of (i) District 2 Capital LP, as the investment manager of District 2 Capital Fund LP, (ii) District 2 GP LLC, as the general partner of District 2 Capital Fund LP, and (iii) District 2 Holdings LLC, as the managing member of District 2 GP LLC, may be deemed to beneficially own securities owned by District 2 Capital Fund LP. Mr. Bigger is the managing member of Bigger Capital Fund GP, LLC and is the managing member of District 2 Holdings LLC and may be deemed to beneficially own the securities held by Bigger Capital Fund, LP and District 2 Capital Fund LP. The percentage in this table reflects that the reporting persons may not exercise the warrants to the extent such exerciseaffiliates, would cause the reporting persons to beneficially own a number of shares of common stock that would exceed 4.99% of our then outstanding common stock following such exercise; provided, however, that upon prior notice to us, such holder may increase its ownership, provided that in no event will the ownership exceed 9.99%. |
| (6) | Based on the Schedule 13G filed by Anson Funds Management LP, Anson Management GP LLC, Bruce R. Winson, Anson Advisors Inc. Amin Nathoo, and Moez Kassam on March 15, 2019 relating to common stock purchased by a private fund to which Anson Funds Management LP and Anson Advisors Inc. serve as co-investment advisors. The number of shares under “Right to Acquire” consists of |
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(i) 772,154 shares such holder could acquire upon exercise of outstanding warrants to purchase common stock and (ii) 329,952 shares such holder could acquire upon conversion of outstanding Series G Preferred Stock. Each of the reporting persons shares voting and disposal power over the shares. The percentage in this table reflects that the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock that would exceedover 4.99% of our then outstanding common stock following such exercise;; provided, however, that upon prior notice to us, suchthe holder may increase its ownership, provided that in no event will the ownership exceed 9.99%.
| (7) | Based on the Schedule 13G filed by Altium Capital Management, LP, Altium Growth Fund, LP, and Altium Growth GP, LLC on March 15, 2019. Altium Growth Fund, LP is the record and direct beneficial owner of the securities. Altium Capital Management, LP is the investment advisor of, and may be deemed to beneficially own securities owned by Altium Growth Fund, LP. Altium Growth GP, LLC is the general partner of, and may be deemed to beneficially own securities owned by, Altium Growth Fund, LP. The number of shares under “Right to Acquire” consists of (i) 571,428 shares such holder could acquire upon exercise of outstanding warrants to purchase common stock and (ii) 260,714 shares such holder could acquire upon conversion of outstanding Series G Preferred Stock. Each of the reporting persons shares voting and disposal power over the shares. The percentage in this table reflects that the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock that would exceed 4.99% of our then outstanding common stock following such exercise; provided, however, that upon prior notice to us, such holder may increase its ownership, provided that in no event will the ownership exceed 9.99%. |
The exercise price and number of the shares of our Common Stock issuable upon exercising the Warrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described therein.
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DESCRIPTIONUSE OF SECURITIESDescription of Units
PROCEEDS
We are
offering up to 1,627,907 Class A Units, with each Class A Unit consisting of one share of common stocknot selling any securities under this prospectus and
a warrant to purchase one share of our common stock (together withwill not receive any proceeds from the
shares of common stock underlying such warrants) at an assumed public offering price of $0.86 per Class A Unit. Each warrant included in the Class A Units entitles its holder to purchase one share of Common Stock at an exercise price of $[ ].We are also offering 6,511,628 Class B Units to purchasers who prefer not to beneficially own more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock following the consummation of this offering with each Class B Unit consisting of one share of Series H Preferred Stock, par value $0.0001 per share, convertible into one share of common stock and a warrant to purchase one share of common stock (together with the shares of common stock underlying such warrants) at an assumed public offering price of $0.86 per Class B Unit. Each warrant included in the Class B Units entitles its holder to purchase a numbersale of shares of Common Stock equaloffered by this prospectus by the Selling Stockholders. However, we may receive proceeds from the cash exercise of the Warrants, which, if exercised in cash at the current exercise price with respect to 100% of theall 1,798,940 shares of Common Stock, issuable upon conversionwould result in gross proceeds of $737,565 to us.
MARKET INFORMATION AND DIVIDEND POLICY Our common stock is currently listed on The Nasdaq Capital Market under the
Series H Preferred Stock included in such units at an exercise price of $[ ] per share.The securities of which the units are composed (the “underlying securities”) are being soldsymbol “CHFS.” See “Prospectus Summary— Recent Developments” in this offering only as partprospectus for important information about the listing of the units. However, the Class A Units and Class B Unitsour common stock on The Nasdaq Capital Market. The Warrants will not be certificatedtraded on a national securities exchange.
As of May 26, 2020, the last reported sale price of our common stock on The Nasdaq Capital Market was $0.40.
As of May 26, 2020, there were approximately 21 stockholders of record for our common stock. A substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.
We have not historically paid cash dividends on our capital stock. We intend to retain our future earnings, if any, to finance the
underlying securities comprising such units are immediately separable. Each underlying security purchasedexpansion and growth of our business, and we do not expect to pay cash dividends on our capital stock in
this offeringthe foreseeable future. Payment of future cash dividends, if any, will be
issued independentat the sole discretion of
eachour board of directors after taking into account various factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with any debt obligations, legal requirements, regulatory constraints and other
underlying security and not as partfactors deemed relevant by our board of
a unit. Upon issuance, each underlying security may be transferred independent ofdirectors. Moreover, if we determine to pay any
other underlying security, subject to applicable law and transfer restrictions.Description of Warrants Includeddividends in the Unitsfuture, there can be no assurance that we will continue to pay such dividends.
Our transfer agent is American Stock Transfer & Trust Company LLC, 6201 15th Avenue, Brooklyn, New York 11219; Telephone: 800-937-5449.
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DESCRIPTION OF CAPITAL STOCK The
material termsfollowing description of our Common Stock is a summary only and
provisionsis qualified in its entirety by reference to our certificate of
the warrants being offered pursuant to this prospectusincorporation and bylaws, both of which are
summarized below. This summary of some provisions of the warrants is not complete. For the complete terms of the warrants, you should refer to the form of warrant filed as an exhibitexhibits to the registration statement of which this prospectus is a part.
Pursuant to a warrant agency agreement between us and American Stock Transfer & Trust Company LLC, as warrant agent, the warrants will be issued in book-entry form and shall initially be represented only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
Each Class A Unit and each Class B Unit includes a warrant to purchase one share of our common stock at an exercise price of $[ ] per share at any time for up to five years after the date of the closing of this offering. The warrants issued in this offering will be governed by the terms of a global warrant held in book-entry form. The holder of a warrant will not be deemed a holder of our underlying common stock until the warrant is exercised, except as set forth in the warrants.
Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of common stock in excess of 4.99% (or, upon election by a holder prior to the issuance of any warrants, 9.99%) of the shares of our common stock then outstanding after giving effect to such exercise (the “Beneficial Ownership Limitation”); provided, however, that upon notice to the Company, the holder may increase or decrease the Beneficial Ownership Limitation, provided that in no event shall the Beneficial Ownership Limitation exceed 9.99% and any increase in the Beneficial Ownership Limitation will not be effective until 61 days following notice of such increase from the holder to us.
The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our common stock. The warrant holders must pay the exercise price in cash upon exercise of the warrants, unless such warrant holders are utilizing the cashless exercise provision of the warrants, which is only available in certain circumstances such as if the underlying shares are not registered with the SEC pursuant to an effective registration statement. We intend to use commercially reasonable efforts to have the registration statement of which this prospectus forms a part, effective when the warrants are exercised.
In addition, in the event we consummate a merger or consolidation with or into another person or other reorganization event in which our common shares are converted or exchanged for securities, cash or other property, or we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding shares of common stock, then following such event, the
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holders of the warrants will be entitled to receive upon exercise of the warrants the same kind and amount of securities, cash or property which the holders would have received had they exercised the warrants immediately prior to such fundamental transaction. Any successor to us or surviving entity shall assume the obligations under the warrants. Further, as more fully described in the warrants, in the event of certain fundamental transactions, the holders of the warrants will be entitled to receive consideration in an amount equal to the Black-Scholes value of the warrants as of the date of consummation of such transaction.
Upon the holder’s exercise of a warrant, we will issue the shares of common stock issuable upon exercise of the warrant within the earlier of three trading days following our receipt of a notice of exercise or the standard settlement period for the market on which the common stock is then listed, provided that payment of the exercise price has been made (unless exercised via the “cashless” exercise provision).
Prior to the exercise of any warrants to purchase common stock, holders of the warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including the right to vote, except as set forth therein.
Warrant holders may exercise warrants only if the issuance of the shares of common stock upon exercise of the warrants is covered by an effective registration statement, or an exemption from registration is available under the Securities Act and the securities laws of the state in which the holder resides. We intend to use commercially reasonable efforts to have the registration statement of which this prospectus forms a part effective when the warrants are exercised. The warrant holders must pay the exercise price in cash upon exercise of the warrants unless there is not an effective registration statement or, if required, there is not an effective state law registration or exemption covering the issuance of the shares underlying the warrants (in which case, the warrants may only be exercised via a “cashless” exercise provision).
The warrants are callable by us in certain circumstances. Subject to certain exceptions, in the event that the warrants are outstanding, following the date that is 180 days after the closing date, (i) the volume weighted average price of our common stock for each of 30 consecutive trading days (the “Measurement Period”), which Measurement Period commences after the date that is 180 days after the closing date, exceeds 300% of the initial exercise price (subject to adjustment for forward and reverse stock splits, recapitalizations, stock dividends and similar transactions), (ii) the average daily trading volume for such Measurement Period exceeds $500,000 per trading day and (iii) the holder is not in possession of any information that constitutes or might constitute, material non-public information which was provided by the Company, and subject to the Beneficial Ownership Limitation, then we may, within one trading day of the end of such Measurement Period, upon notice (a “Call Notice”), call for cancellation of all or any portion of the warrants for which a notice of exercise has not yet been delivered (a “Call”) for consideration equal to $0.0001 per share. Any portion of a warrant subject to such Call Notice for which a notice of exercise shall not have been received by the Call Date (as hereinafter defined) will be canceled at 6:30 p.m. (New York City time) on the tenth trading day after the date the Call Notice is received by the Holder (such date and time, the “Call Date”). Our right to call the warrants shall be exercised ratably among the holders based on the outstanding warrants.
We do not intend to apply for listing of the warrants on any securities exchange or other trading system.
Description of Capital Stock
Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.0001 per share, and 40,000,000 shares of preferred stock, par value $0.0001 per share, (i) 30,000 of which are designated as Series A Junior Participating Preferred Stock and 535(ii) 435 of which are designated Series F Convertible Preferred Stock (the “Series F Preferred Stock”) as of December 31, 2019.May 26, 2020. Once shares of Series F Preferred Stock are converted, redeemed or reacquired by us, such shares shall resume the status of authorized but unissued shares of undesignated preferred stock.
As of
December 31, 2019,May 26, 2020, we had (i)
4,674,06839,407,968 outstanding shares of common stock, (ii)
535435 outstanding shares of Series F Preferred Stock, which, at the currently applicable conversion price, would convert into
538,2101,450,290 shares of common stock, subject to future adjustment, (iii) outstanding options to acquire
405,730523,458 shares of our common stock, and (iv) outstanding warrants to purchase
6,948,46626,724,404 shares of our common
stock.stock (which includes the warrants offered hereby). In December 2018, the Company’s stockholders approved a reverse split of its outstanding common stock at a ratio in the range of 1-for-2 to 1-for 14 and, in January 2019, the board of directors approved a 1-for-14 reverse split of the Company’s outstanding common stock that became effective after trading on January 2, 2019. All share and per share amounts presented herein have been retroactively adjusted to reflect the reverse stock split.
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The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description you should refer to our certificate of incorporation, bylaws and certificate of designation of preferences, rights and limitations of Series F Preferred Stock, copies of which have been incorporated by reference as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of the Delaware General Corporation Law.
Holders of our common stock are entitled to receive dividends when and as declared by our board of directors out of funds legally available.
Holders of our common stock are entitled to one vote for each share on each matter properly submitted to our stockholders for their vote; provided however, that except as otherwise required by law, holders of our common stock will not be entitled to vote on any amendment to our certificate of incorporation (including any certificate of designation filed with respect to any series of preferred stock) that relates solely to the terms of a series of outstanding preferred stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to our certificate of incorporation (including any certificate of designation filed with respect to any series of preferred stock).
Subject to the voting restrictions described above, holders of our common stock may adopt, amend or repeal our bylaws and/or alter certain provisions of our certificate of incorporation with the affirmative vote of the holders of at least 662∕3%⁄3% of the voting power of all of the then-outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, in addition to any vote of the holders of a class or series of our stock required by law or our certificate of incorporation. Those provisions of our certificate of incorporation that may be altered only by the super-majority vote described above relate to:
the number of directors on our board of directors, the classification of our board of directors and the terms of the members of our board of directors;
the limitations on removal of any of our directors described below under “—Anti-Takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws and Delaware Law;”
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the ability of our directors to fill any vacancy on our board of directors by the affirmative vote of a majority of the directors then in office under certain circumstances;
the ability of our board of directors to adopt, amend or repeal our bylaws and the super-majority vote of our stockholders required to adopt, amend or repeal our bylaws described above;
the limitation on action of our stockholders by written action described below under “—Anti-Takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws and Delaware Law;”
the choice of forum provision described below under “—Choice of Forum;”
the limitations on director liability and indemnification described below under the heading “—Limitation on Liability of Directors and Indemnification;” and
the super-majority voting requirement to amend our certificate of incorporation described above.
Conversion, Redemption and Preemptive Rights
Holders of our common stock do not have any conversion, redemption or preemptive rights pursuant to our organizational documents.
Liquidation, Dissolution and Winding-up
In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in any assets remaining after the satisfaction in full of the prior rights of creditors and the aggregate of any liquidation preference pursuant to the terms of any certificate of designation filed with respect to any series of preferred stock, including our outstanding Series F Preferred
Stock and the Series H Preferred Stock being offered hereby.Stock.TABLE OF CONTENTS
Listing
Our common stock is listed on The Nasdaq Capital Market under the symbol “CHFS.” See “Prospectus Summary—Recent Developments” in this prospectus for important information about the listing of our common stock on The Nasdaq Capital Market.
We may issue any class of preferred stock in any series. Our board of directors has the authority to establish and designate series, and to fix the number of shares included in each such series and to determine or alter for each such series, such voting powers, designation, preferences, and relative participating, optional, or other rights and such qualifications, limitations or restrictions thereof. Our board of directors is not restricted in repurchasing or redeeming such stock while there is any arrearage in the payment of dividends or sinking fund installments. Our board of directors is authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. The number of authorized shares of preferred stock may be increased or decreased, but not below the number of shares thereof then outstanding, by the affirmative vote of the holders of a majority of the common stock, without a vote of the holders of the preferred stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of preferred stock.
Prior to issuance of shares of any series of preferred stock, our board of directors is required by Delaware law to adopt resolutions and file a certificate of designation with the Secretary of State of the State of Delaware. The certificate of designation fixes for each class or series the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Any shares of preferred stock will, when issued, be fully paid and non-assessable.
Outstanding Series F Convertible Preferred Stock. Our Board designated 18,000 shares of preferred stock as Series F convertible preferred stock, $0.0001 par value. As of December 31, 2019, there were 535 shares of Series F Preferred Stock outstanding with a conversion price of $0.9942.
Liquidation. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series F Preferred Stock will be entitled to receive distributions out of our assets, whether capital or surplus, of an amount equal to $0.0001 per share of Series F Preferred Stock before any distributions shall be made on the common stock or any series of preferred stock ranked junior to the Series F Preferred Stock.
Dividends. Holders of the Series F Preferred Stock are entitled to receive dividends equal (on an “as converted to common stock” basis) to and in the same form as dividends actually paid on shares of our common stock when, as and if such dividends are paid on shares of our common stock. No other dividends will be paid on shares of Series F Preferred Stock.
Conversion. Each share of Series F Preferred Stock is convertible, at any time and from time to time at the option of the holder thereof, into that number of shares of common stock determined by dividing $1,000 by the conversion price of $0.9942 (subject to adjustment described below). This right to convert is limited by the beneficial ownership limitation described below.
Forced Conversion. Subject to certain ownership limitations as described below and certain equity conditions being met, until such time that during any 20 of 30 consecutive trading days, the volume weighted average price of our common stock exceeds 300% of the conversion price and the daily dollar trading volume during such period exceeds $200,000 per trading day, we have the right to force the conversion of the Series F Preferred Stock into common stock.
Beneficial Ownership Limitation. A holder shall have no right to convert any portion of Series F Preferred Stock, to the extent that, after giving effect to such conversion, such holder, together with such holder’s affiliates, and any persons acting as a group together with such holder or any such affiliate, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon such conversion (subject to the right of the holder to increase such beneficial ownership limitation upon not less than 61 days prior notice provided that such limitation can never exceed 9.99% and such 61 day period cannot be waived). Beneficial ownership of the holder and its affiliates will be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Holders of Series F Preferred Stock who are subject to such beneficial ownership limitation are and will remain responsible for ensuring their own compliance with Regulation 13D-G promulgated under the
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Securities Exchange Act of 1934, as amended, consistent with their individual facts and circumstances. In addition, pursuant to Rule 13d-3(d)(1) (i) promulgated under the Securities Exchange Act of 1934, as amended, any person who acquires Series F Preferred Stock with the purpose or effect of changing or influencing the control of our company, or in connection with or as a participant in any transaction having such purpose or effect, immediately upon such acquisition will be deemed to be the beneficial owner of the underlying common stock.
Optional Redemption. Subject to the terms of the certificate of designation, the Company holds an option to redeem some or all the Series F Preferred Stock six months after its issuance date at a 200% premium to the stated value of the Series F Preferred Stock subject to the redemption, upon 30 days prior written notice to the holder of the Series F Preferred Stock. The Series F Preferred Stock would be redeemed by the Company for cash.
Conversion Price Adjustment
Subsequent Equity Sales. The Series F Preferred Stock has full ratchet price based anti-dilution protection, subject to customary carve outs, in the event of a down-round financing at a price per share below the conversion price of the Series F Preferred Stock, including in this offering. If during any 20 of 30 consecutive trading days the volume weighted average price of our common stock exceeds 300% of the then-effective conversion price of the Series F Preferred Stock and the daily dollar trading volume for each trading day during such period exceeds $200,000, the anti-dilution protection in the Series F Preferred Stock will expire and cease to apply.
Stock Dividends and Stock Splits. If we pay a stock dividend or otherwise make a distribution payable in shares of common stock on shares of common stock or any other common stock equivalents, subdivide or combine outstanding common stock, or reclassify common stock, the conversion price will be adjusted by multiplying the then conversion price by a fraction, the numerator of which shall be the number of shares of common stock outstanding immediately before such event, and the denominator of which shall be the number of shares outstanding immediately after such event.
Fundamental Transaction. If we effect a fundamental transaction in which we are the surviving entity, then upon any subsequent conversion of Series F Preferred Stock, the holder thereof shall have the right to receive, for each share of common stock that would have been issuable upon such conversion immediately prior to the occurrence of such fundamental transaction, the number of shares of our common stock and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock into which Series F Preferred Stock is convertible immediately prior to such fundamental transaction. If we effect a fundamental transaction in which we are not the surviving entity or a reverse merger in which we are the surviving entity, then the surviving entity shall purchase the outstanding Series F Preferred Stock by paying and issuing, in the event that such consideration given to common stockholders is non-cash consideration, as the case may be, to such holder (or canceling such holder’s outstanding Series F Preferred Stock and converting it into the right to receive) an amount equal to the greater of (i) the cash consideration plus the non-cash consideration (in the form issuable to the holders of common stock) per share of the common stock in the fundamental transaction multiplied by the number of conversion shares underlying the shares of Series F Preferred Stock held by the holder on the date of the consummation of the fundamental transaction or (ii) 130% of the stated value of the Series F Preferred Stock then outstanding on the date immediately prior to the consummation of the fundamental transaction. Such amount shall be paid in the same form and mix (be it securities, cash or property, or any combination of the foregoing) as the consideration received by the common stock in such fundamental transaction. A fundamental transaction means: (i) our merger or consolidation with or into another entity, (ii) any sale or other disposition of all or substantially all of our assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer allowing holders of our common stock to tender or exchange their shares for cash, property or securities, and has been accepted by the holders of 50% or more of the outstanding common stock (iv) any reclassification of our common stock or any compulsory share exchange by which common stock is effectively converted into or exchanged for other securities, cash or property, or (v) consummation of a stock or share purchase agreement or other business combination with another person whereby such other person acquires more than 50% of the outstanding shares of common stock.
Voting Rights, etc. Except as otherwise provided in the Series F Preferred Stock certificate of designation or required by law, the Series F Preferred Stock has no voting rights. However, as long as any shares of Series F Preferred Stock are outstanding, we may not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series F Preferred Stock, alter or change adversely the powers, preferences or rights given to the Series F Preferred Stock, amend its certificate of designation, amend our certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders, increase the number of authorized
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shares of Series F Preferred Stock, or enter into any agreement with respect to any of the foregoing. The Series F Preferred Stock certificate of designation provides that if any party commences an action or proceeding to enforce any provisions of the certificate of designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding. This provision may, under certain circumstances, be inconsistent with federal securities laws and Delaware general corporation law.
Fractional Shares. No fractional shares of common stock will be issued upon conversion of Series F Preferred Stock. Rather, we shall, at our election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the conversion price or round up to the next whole share.
The Series F Preferred Stock was issued in book-entry form under a preferred stock agent agreement between American Stock Transfer & Trust as preferred stock agent, and us, and shall initially be represented by one or more book-entry certificates deposited with The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. There is no established public trading market for the Series F Preferred Stock, and the Series F Preferred Stock is not listed on The Nasdaq Capital Market, any other national securities exchange or any other nationally recognized trading system.
Series H Convertible Preferred Stock Being Offered Pursuant to this Prospectus. Our Board has designated [___] shares of preferred stock as Series H convertible preferred stock, $0.0001 par value (“Series H Preferred Stock”), none of which are issued and outstanding prior to this offering. Although there is no current intent to do so, our Board may, without stockholder approval, issue shares of an additional class or series of preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of the common stock or the convertible preferred stock, except as prohibited by the certificate of designation of preferences, rights and limitations of Series H Preferred Stock.
The following is a summary of the material terms of our Series H Preferred Stock. For more information, please refer to the certificate of designation of preferences, rights and limitations of Series H Preferred Stock to be filed as an exhibit to the registration statement of which this prospectus is a part.
Liquidation. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series H Preferred Stock will be entitled to receive distributions out of our assets, whether capital or surplus, of an amount equal to $0.0001 per share of Series H Preferred Stock before any distributions shall be made on the common stock or any series of preferred stock ranked junior to the Series H Preferred Stock, but after distributions shall be made on any outstanding Series F Preferred Stock and any of our existing or future indebtedness.
Dividends. Holders of the Series H Preferred Stock will be entitled to receive dividends equal (on an “as converted to common stock” basis) to and in the same form as dividends actually paid on shares of our common stock when, as and if such dividends are paid on shares of our common stock. No other dividends will be paid on shares of Series H Preferred Stock.
Conversion. Each share of Series H Preferred Stock is convertible, at any time and from time to time at the option of the holder thereof, into one share of common stock (subject to adjustment described below). This right to convert is limited by the beneficial ownership limitation described below.
Forced Conversion. Subject to certain ownership limitations as described below and certain equity conditions being met, until such time that during any 20 of 30 consecutive trading days, the volume weighted average price of our common stock exceeds 300% of the conversion price and the daily dollar trading volume during such period exceeds $200,000 per trading day, we shall have the right to force the conversion of the Series H Preferred Stock into common stock.
Beneficial Ownership Limitation. A holder shall have no right to convert any portion of Series H Preferred Stock, to the extent that, after giving effect to such conversion, such holder, together with such holder’s affiliates, and any persons acting as a group together with such holder or any such affiliate, would beneficially own in excess of 4.99% (or, upon the election by a holder prior to the issuance of any shares of Series H Preferred Stock, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon such conversion (subject to the right of the holder to increase such beneficial ownership limitation upon not less than 61 days prior notice provided that such limitation can never exceed 9.99% and such 61 day period cannot be waived). Beneficial ownership of the holder and its affiliates will be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations
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promulgated thereunder. Holders of Series H Preferred Stock who are subject to such beneficial ownership limitation are and will remain responsible for ensuring their own compliance with Regulation 13D-G promulgated under the Securities Exchange Act of 1934, as amended, consistent with their individual facts and circumstances. In addition, pursuant to Rule 13d-3(d)(1)(i) promulgated under the Securities Exchange Act of 1934, as amended, any person who acquires Series H Preferred Stock with the purpose or effect of changing or influencing the control of our company, or in connection with or as a participant in any transaction having such purpose or effect, immediately upon such acquisition will be deemed to be the beneficial owner of the underlying common stock.
Conversion Price Adjustment
Stock Dividends and Stock Splits. If we pay a stock dividend or otherwise make a distribution payable in shares of common stock on shares of common stock or any other common stock equivalents, subdivide or combine outstanding common stock, or reclassify common stock, the conversion price will be adjusted by multiplying the then conversion price by a fraction, the numerator of which shall be the number of shares of common stock outstanding immediately before such event, and the denominator of which shall be the number of shares outstanding immediately after such event.
Fundamental Transaction. If we effect a fundamental transaction in which we are the surviving entity, then upon any subsequent conversion of Series H Preferred Stock, the holder thereof shall have the right to receive, for each share of common stock that would have been issuable upon such conversion immediately prior to the occurrence of such fundamental transaction, the number of shares of our common stock and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of common stock into which Series H Preferred Stock is convertible immediately prior to such fundamental transaction. A fundamental transaction means: (i) our merger or consolidation with or into another entity, (ii) any sale or other disposition of all or substantially all of our assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer allowing holders of our common stock to tender or exchange their shares for cash, property or securities, and has been accepted by the holders of 50% or more of the outstanding common stock (iv) any reclassification of our common stock or any compulsory share exchange by which common stock is effectively converted into or exchanged for other securities, cash or property, or (v) consummation of a stock or share purchase agreement or other business combination with another person whereby such other person acquires more than 50% of the outstanding shares of common stock.
Voting Rights, etc. Except as otherwise provided in the Series H Preferred Stock certificate of designation or required by law, the Series H Preferred Stock has no voting rights. However, as long as any shares of Series H Preferred Stock are outstanding, we may not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series H Preferred Stock, alter or change adversely the powers, preferences or rights given to the Series H Preferred Stock, amend its certificate of designation, amend our certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders, increase the number of authorized shares of Series H Preferred Stock, or enter into any agreement with respect to any of the foregoing. The Series H Preferred Stock certificate of designation provides that if any party commences an action or proceeding to enforce any provisions of the certificate of designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding. This provision may, under certain circumstances, be inconsistent with federal securities laws and Delaware general corporation law.
Fractional Shares. No fractional shares of common stock will be issued upon conversion of Series H Preferred Stock. Rather, we shall, at our election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the conversion price or round up to the next whole share.
The Series H Preferred Stock will be issued in book-entry form under a preferred stock agent agreement between American Stock Transfer & Trust as preferred stock agent, and us, and shall initially be represented by one or more book-entry certificates deposited with The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. There is no established public trading market for the Series H Preferred Stock and we do not expect a market to develop. We do not plan on applying to list the Series H Preferred Stock on The Nasdaq Capital Market, any other national securities exchange or any other nationally recognized trading system.
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Description of Outstanding Warrants
As of December 31, 2019,May 26, 2020, there were warrants outstanding to purchase a total of 6,948,46626,724,404 shares of our common stock (which includes the warrants offered hereby), which expire between 20202021 and 2025. Each of these warrants entitles the holder to purchase one share of common stock at prices ranging from $0.9942$0.30 to $43,848 per common share, with a weighted average exercise price of $7.06$1.65 per share. Certain of these warrants have a net exercise
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provision under which its holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our common stock at the time of exercise of the warrant after deduction of the aggregate exercise price.
Certain of these warrants have price protection in the event we sell any common stock or securities convertible into common stock for a price less than the exercise price per share of the warrants then in effect (but in no event lower than $0.055). Each of these warrants also contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of dividends, share splits, reorganizations and reclassifications and consolidations. Certain of these warrants provide that, subject to limited exceptions, a holder will not have the right to exercise any portion of its warrants if the holder, together with its affiliates, would beneficially own over 4.99% of our then outstanding common stock following such exercise; provided, however, that upon prior notice to us, the warrant holder may increase its ownership, provided that in no event will the ownership exceed 9.99%.
Anti-Takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws and
Delaware Law
Delaware Law Certificate of Incorporation and Bylaws
Certain provisions of our certificate of incorporation and bylaws may be considered to have an anti-takeover effect, such as those provisions:
providing for our board of directors to be divided into three classes with staggered three-year terms, with only one class of directors being elected at each annual meeting of our stockholders and the other classes continuing for the remainder of their respective three-year terms;
authorizing our board of directors to issue from time to time any series of preferred stock and fix the voting powers, designation, powers, preferences and rights of the shares of such series of preferred stock;
prohibiting stockholders from acting by written consent in lieu of a meeting;
requiring advance notice of stockholder intention to put forth director nominees or bring up other business at a stockholders’ meeting;
prohibiting stockholders from calling a special meeting of stockholders;
requiring a 66 2/3% super-majority stockholder approval in order for stockholders to alter, amend or repeal certain provisions of our certificate of incorporation;
| • | requiring a 662∕3% super-majority stockholder approval in order for stockholders to alter, amend or repeal certain provisions of our certificate of incorporation; |
| • | requiring a 662∕3%requiring a 66 2/3% super-majority stockholder approval in order for stockholders to adopt, amend or repeal our bylaws; |
providing that, subject to the rights of the holders of any series of preferred stock to elect additional directors under specified circumstances, neither the board of directors nor any individual director may be removed without cause;
creating the possibility that our board of directors could prevent a coercive takeover of our Company due to the significant amount of authorized, but unissued shares of our common stock and preferred stock;
providing that, subject to the rights of the holders of any series of preferred stock, the number of directors shall be fixed from time to time exclusively by our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and
providing that any vacancies on our board of directors under certain circumstances will be filled only by a majority of our board of directors then in office, even if less than a quorum, and not by the stockholders.
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We are also subject to Section 203 of the DGCL,Delaware General Corporation Law (“DGCL”), which generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
prior to that date, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
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upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned by (i) persons who are directors and also officers and (ii) 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 tender or exchange offer; or
| • | on or subsequent to that date, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662∕3%⁄3% of the outstanding voting stock that is not owned by the interested stockholder. |
In general, Section 203 of the DGCL defines an interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons.
The above-summarized provisions of our certificate of incorporation and bylaws and the above-summarized provisions of the DGCL could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions are expected to discourage certain types of coercive takeover practices and takeover bids that our board of directors may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Our
Fourth Amended and Restated Certificatecertificate of
Incorporation, as amended,incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law; or any action asserting a claim against us that is governed by the internal affairs doctrine. These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. Our
Fourth Amended and Restated Certificatecertificate of
Incorporation, as amended,incorporation will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, subject to applicable law. Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to these provisions. Our exclusive forum provision will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
The provisions of the Delaware General Corporation Law, our Fourth Amended and Restated Certificatecertificate of Incorporation,incorporation, as amended, and our Second Amended and Restated Bylawsbylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
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Limitation on Liability of Directors and Indemnification
Our certificate of incorporation limits the liability of our directors to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any:
breach of their duty of loyalty to us or our stockholders;
act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
unlawful payment of dividends or redemption of shares as provided in Section 174 of the DGCL; or
transaction from which the directors derived an improper personal benefit.
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These limitations of liability do not apply to liabilities arising under federal securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we will indemnify and advance expenses to our directors and officers to the fullest extent permitted by law or, if applicable, pursuant to indemnification agreements. They further provide that we may choose to indemnify our other employees or agents from time to time. Subject to certain exceptions and procedures, our bylaws also require us to advance to any person who was or is a party, or is threatened to be made a party, to any proceeding by reason of the person’s service as one of our directors or officers all expenses incurred by the person in connection with such proceeding.
Section 145(g) of the DGCL and our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our bylaws permit indemnification. We maintain a directors’ and officers’ liability insurance policy.
We entered into indemnification agreements with each of our directors and executive officers that provide, in general, that we will indemnify them to the fullest extent permitted by law in connection with their service to us or on our behalf and, subject to certain exceptions and procedures, that we will advance to them all expenses that they incur in connection with any proceeding to which they are, or are threatened to be made, a party.
At present, there is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Registration Rights
Outstanding Warrants. We intend
In the Purchase Agreement, we agreed to
register for resale the shares of common stock underlying certain replacement warrants issued to investors underprepare and file a
letter agreement dated February 15, 2017 that was entered into between us and such affiliates to encourage such affiliates to exercise their then-outstanding warrants for cash on or before March 31, 2017. See our Current Reports on Form 8-K filed with the SEC on February 16, 2017 and March 29, 2017 for additional information about the letter agreement and replacement warrants.In addition, we agreedregistration statement to register for resale the shares of common stock underlying certain warrants issued in a private placement transactions to investors pursuant to a securities purchase agreement, each dated October 23, 2019 and November 4, 2019. See our Current Reports on Form 8-K filed with the SEC on October 23, 2019 and November 4, 2019 for additional information about the private placement transaction and these warrants.
transaction. We agreed to use our commercially reasonable efforts to cause such registration to become effective within 60 days following May 1, 2020. We have filed the registration statement of which this prospectus forms a part pursuant to the requirements in the Agreement to register for resale the shares of Common Stock issuable upon conversion of the Warrants that were issued at the closing.
Aquadex Acquisition
. On August 5, 2016, upon closing of the acquisition of the Aquadex Business,FlexFlow system, we entered into a registration rights agreement with Baxter International, Inc. (“Baxter”), pursuant to which Baxter or its affiliates has the right to request that we file a registration statement with the SEC to register all or part of the 1,666 shares of common stock that Baxter received in connection with the acquisition. Upon receipt of any such request, we have agreed to use reasonable best efforts to prepare and file a registration statement as expeditiously as possible but in any event within 30 days of such request, to cause the registration statement to become effective in accordance with Baxter’s intended method of distribution, and to pay the expenses incurred in connection with any such registration.Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company LLC.
Listing
Our common stock trades on The Nasdaq Capital Market under the symbol “CHFS.” See “Prospectus Summary—Recent Developments” in this prospectus for important information about the listing of our common stock on The Nasdaq Capital Market.
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UNDERWRITINGWePLAN OF DISTRIBUTION
Each Selling Stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal trading market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or at prices then prevailing or related to the then current market price or at negotiated prices. The offering price of the units describedshares from time to time will be determined by the Selling Stockholders and, at the time of the determination, may be higher or lower than the market price of our Common Stock. A Selling Stockholder may use any one or more of the following methods when selling securities:
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
settlement of short sales;
in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
a combination of any such methods of sale; or
any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, throughin the underwriters named below. Ladenburg Thalmann & Co. Inc. is acting as book-running managercase of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the offering. Subjectsecurities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the terms and conditionsregistration of the underwriting agreement, the underwriters havesecurities. The Company has agreed to purchaseindemnify the number ofSelling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
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We agreed to use our
securities set forth opposite its name below.Underwriters
| Class A Units
| Class B Units
|
Ladenburg Thalmann & Co. Inc.
| | [__]
| | | [__]
| |
Total
| | [__]
| | | [__]
| |
A copy of the underwriting agreement will be filed as an exhibitcommercially reasonable efforts to keep the registration statement of which this prospectus is part.
Weforms a part effective until no purchaser owns any Warrants or Warrant shares issuable upon exercise of the Warrants. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been advisedregistered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Common Stock by the underwriters that they proposeSelling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
We will not receive any proceeds from the sale of the shares by the Selling Stockholders.
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The shares of Common Stock being offered by the Selling Stockholders are those issuable to the Selling Stockholders upon exercise of the Warrants. For additional information regarding the issuances of those Warrants, see “Sale of Securities to Selling Stockholders”. We are registering the shares of Common Stock in order to permit the Selling Stockholders to offer the Units directlyshares for resale from time to time. Except for the public atownership of shares of Common Stock, preferred stock and warrants, the public offering price set forthSelling Stockholders have not had any material relationship with us within the past three years.
The percentage of each Selling Stockholder’s ownership is based on
the cover page of this prospectus. The underwriters may sell Class A Units or Class B Units separately to purchasers or may sell a combination of Class A Units and Class B Units to purchasers in any proportion. Any securities sold by the underwriters to securities dealers will be sold at the public offering price less a selling concession not in excess of $[ ] per share and $[ ] per warrant.The underwriting agreement provides that the underwriters’ obligation to purchase the securities we are offering is subject to conditions contained in the underwriting agreement.
No action has been taken by us or the underwriters that would permit a public offering of the Units, or the39,407,968 shares of common stock outstanding as of May 26, 2020. In computing the number of shares beneficially owned by a Selling Stockholder and the percentage ownership of that Selling Stockholder, shares of preferred stockCommon Stock underlying the Warrants held by that Selling Stockholder that are exercisable as of May 26, 2020, or exercisable within 60 days after May 26, 2020, are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. The percentage of beneficial ownership after this offering is based on shares outstanding on May 26, 2020 and warrants included inalso includes the Units in any jurisdiction outside the United States where action for that purpose is required. Noneshares of our securities includedCommon Stock registered in this offeringoffering.
The registration of the shares of Common Stock issuable to the Selling Stockholders upon exercise of the Warrants does not mean that the Selling Stockholders will sell or otherwise dispose of all or any of those securities. The Selling Stockholders may sell or otherwise dispose of all, a portion or none of such shares from time to time. We do not know the number of shares, if any, that will be offered for sale or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sales ofdisposition by any of the securities offeringSelling Stockholders under this prospectus. Furthermore, the Selling Stockholders may have sold, transferred or disposed of the shares of Common Stock covered hereby be distributedin transactions exempt from the registration requirements of the Securities Act since the date on which we filed this prospectus.
To our knowledge and except as noted below, none of the Selling Stockholders has, or
published inwithin the past three years has had, any
jurisdictionposition, office or other material relationship with us or any of our predecessors or affiliates. None of the Selling Stockholders is a broker-dealer or an affiliate of a broker-dealer, except
under circumstances that will result in compliance withas noted below. The Selling Stockholders may sell all, some or none of the
applicable rules and regulationsshares of
that jurisdiction. Persons who receive this prospectus are advised to inform themselves about and to observe any restrictions relatingCommon Stock subject to this
offeringprospectus. See “Plan of
securities and the distribution of this prospectus. This prospectus is neither an offer to sell nor a solicitation of any offer to buy the securities in any jurisdiction where that would not be permitted or legal.The underwriters have advised us that they do not intend to confirm sales to any account over which they exercise discretionary authority.
Underwriting Discount and Expenses
The following table summarizes the underwriting discount and commission to be paid to the underwriters by us.
| Per
Class A
Unit(1)
| Per
Class B
Unit(1)
| Total
| Total with Full
Exercise of
Overallotment
|
Public offering price
| | | | | | | | | | | | |
Underwriting discount to be paid to the underwriters by us (8.0%)(2)(3)
| | | | | | | | | | | | |
Proceeds to us (before expenses)
| | | | | | | | | | | | |
Distribution.”
Anson Investments Master Fund LP(3) | | | 9,482,916 | | | 4.99% | | | 899,470 | | | 7,683,976 | | | 4.99% | |
Empery Asset Master, LTD(4) | | | 3,998,252(5) | | | 4.99% | | | 578,906 | | | 3,419,346 | | | 4.99% | |
Empery Tax Efficient, LP(6) | | | 780,370(7) | | | 1.94% | | | 166,289 | | | 614,081 | | | 1.47% | |
Empery Tax Efficient III, LP(8) | | | 154,275(9) | | | * | | | 154,275 | | | 0 | | | * | |
Total:
| | | 14,415,813 | | | 11.92% | | | 1,798,940 | | | 11,717,403 | | | 11.45% | |
*
| (1) | The public offering price and underwriting discount corresponds to (x) in respectRepresents beneficial ownership of less than one percent (1%) of the Class A Unitsoutstanding shares of our common stock. |
(1)
| This table and the information in the notes below are based upon information supplied by the Selling Stockholders and are based on shares of common stock outstanding as of May 26, 2020. Only those shares issuable upon exercise of the Warrants are being registered for resale pursuant to this registration statement, and not any other securities held by the Selling Stockholders. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Act, and includes any shares as to which the Selling Stockholder has sole or shared voting power or investment power, and also any shares which the Selling Stockholder has the right to acquire within 60 days of the date hereof, whether through the exercise or conversion of any stock option, convertible security, warrant or other right. The indication herein that shares are beneficially owned is not an admission on the part of the Selling Stockholder that he, she or it is a direct or indirect beneficial owner of those shares. |
(2)
| All warrants and convertible securities of the Company held by the Selling Stockholders are subject to beneficial ownership limitations such that the shares issuable upon conversion or exercise of such securities may not be converted or exercised, respectively, if it would result in the holder exceeding the beneficial ownership limitation. The beneficial ownership limitation is either 4.99% or 9.99% for each Selling Stockholder. The numbers set forth in columns (2) and (5) above do not give effect to any such beneficial ownership limitations, but the percentages set forth in columns (3) and (6) above do give effect to such beneficial ownership limitations. |
(3)
| Includes (i) 339,756 shares of common stock disclosed on a public offering price per13G filed by Anson Funds Management LP on February 14, 2020 with the SEC, (ii) 2,080,696 shares of common stock and 2,565,114 share of common stock of $[ ]purchased in the Company’s registered direct offerings on March 23, 2020 and (ii) a public offering price per warrant of $[ ] and (y) in respect of the Class B Units (i) a public offering price per share of Series H Preferred Stock of $[ ] and (ii) a public offering price per warrant of $[ ]. |
| (2) | We have also agreed to reimburse the accountable expenses of the representative, including legal fees, in this offering, up to a maximum of $85,000. |
| (3) | We have granted a 45 day option to the representative to purchase up to [ ] additionalApril 1, 2020, respectively, (iii) 1,798,940 shares of common stock (uppurchased in the Company’s registered direct offering on May 5, 2020, (iv) 899,470 warrants to 15%purchase common stock purchased pursuant to the Company’s |
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private placement of shares on May 1, 2020, and (v) 1,282,557 warrants to purchase common stock purchased pursuant to the Company’s private placement of shares on April 1, 2020. Excludes (i) 432,398 of warrants that are not currently exercisable due to a beneficial ownership limitation of 4.99% and (ii) 2,080,696 warrants to purchase common stock purchased pursuant to the Company’s private placement of shares on March 23, 2020 that are not currently exercisable. The percentages in this table reflect that the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock that would exceed 4.99% of our then outstanding common stock following such exercise; provided, however, that upon 61 days prior notice to us, such holder may increase its ownership, provided that in no event will the ownership exceed 9.99%.
(4)
| Empery Asset Management LP, the authorized agent of Empery Asset Master Ltd (“EAM”), has discretionary authority to vote and dispose of the shares held by EAM and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by EAM. EAM, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. |
(5)
| Represents (i) 578,906 shares of common stock plusissuable upon exercise of warrants to purchase common stock purchased pursuant to the Company’s private placement of warrants on May 5, 2020 and (ii) 3,419,346 shares of common stock issuable upon exercise of other warrants to purchase common stock held by the Selling Stockholder. The percentages in this table reflect that the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock issuablethat would exceed 4.99% of our then outstanding common stock following such exercise; provided, however, that upon conversion61 days prior notice to us, such holder may increase its ownership, provided that in no event will the ownership exceed 9.99%. |
(6)
| Empery Asset Management LP, the authorized agent of Empery Tax Efficient, LP (“ETE”), has discretionary authority to vote and dispose of the shares held by ETE and may be deemed to be the beneficial owner of Series H Preferred Stock) and/or additional warrants exercisable for upthese shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to an additional [ ]have investment discretion and voting power over the shares held by ETE. ETE, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. |
(7)
| Represents (i) 166,289 shares of common stock (upissuable upon exercise of warrants to 15%purchase common stock purchased pursuant to the Company’s private placement of the warrants sold in this offering) at the assumed public offering price per shareon May 5, 2020 and (ii) 614,081 shares of common stock andissuable upon exercise of other warrants to purchase common stock held by the assumed public offering price per warrant set forth above lessSelling Stockholder. The percentages in this table reflect that the underwriting discounts and commissions solelyreporting persons may not exercise the warrants to cover over-allotments, if any.the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock that would exceed 4.99% of our then outstanding common stock following such exercise; provided, however, that upon 61 days prior notice to us, such holder may increase its ownership, provided that in no event will the ownership exceed 9.99%. |
(8)
| Empery Asset Management LP, the authorized agent of Empery Tax Efficient III, LP (“ETE III”), has discretionary authority to vote and dispose of the shares held by ETE III and may be deemed to be the beneficial owner of these shares. Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery Asset Management LP, may also be deemed to have investment discretion and voting power over the shares held by ETE III. ETE III, Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. |
(9)
| Represents 154,275 shares of common stock issuable upon exercise of warrants to purchase common stock purchased pursuant to the Company’s private placement of warrants on May 5, 2020. The percentages in this table reflect that the reporting persons may not exercise the warrants to the extent such exercise would cause the reporting persons to beneficially own a number of shares of common stock that would exceed 4.99% of our then outstanding common stock following such exercise; provided, however, that upon 61 days prior notice to us, such holder may increase its ownership, provided that in no event will the ownership exceed 9.99% |
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We estimate the total expenses payable by us for this offering to be approximately $805,165, which amount includes (i) the underwriting discount of $560,000 and (ii) reimbursement of the accountable expenses of the underwriters, including the legal fees of the representative and (iii) other estimated company expenses of approximately $245,165 which includes legal accounting printing costs and various fees associated with the registration and listing of our shares.
The
securities we are offering are being offered by the underwriters subject to certain conditions specified in the underwriting agreement.Over-allotment Option
We have granted to the underwriters an option exercisable not later than 45 days after the date of this prospectus to purchase up to a number of additional shares of common stock and/or warrants equal to 15% of the number of shares of common stock sold in the primary offering (including the number of shares of common stock issuable upon conversion of shares of Series H Preferred Stock but excluding any shares of common stock underlying the warrants issued in this offering and any shares of common stock issued upon any exercise of the underwriters’ over-allotment option) and/or 15% of the warrants sold in the primary offering at the public offering price per share of common stock and the public offering price per warrant set forth on the cover page hereto less the underwriting discounts and commissions. The underwriters may exercise the option solely to cover overallotments, if any, made in connection with this offering. If any additional shares of common stock and/or warrants are purchased, the underwriters will offer these shares of common stock and/or warrants on the same terms as those on which the other securities are being offered.
Other Relationships
Upon completion of this offering, we have granted the representative a right of first refusal to act as lead bookrunner or lead placement agent in connection with any subsequent public or private offering of equity securities or other capital markets financing by us. This right of first refusal extends for 12 months from the closing date of this offering. The terms of any such engagement of the representative will be determined by separate agreement. The representative and its respective affiliates have in the past and may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. The representative has received, or may in the future receive, customary fees and commissions for these transactions.
Determination of Offering Price
Our common stock is currently traded on The Nasdaq Capital Market under the symbol “CHFS.” See “Prospectus Summary—Recent Developments” for important information about the listing of our common stock on The Nasdaq Capital Market. On December 31, 2019, the closing price of our common stock was $0.86 per share. We do not intend to apply for listing of the Series H Preferred Stock or the warrants on any securities exchange or other trading system.
The public offering pricevalidity of the securities offered by this prospectus will be determinedpassed upon for us by negotiation between us and the underwriters among the factors considered in determining the public offering price of the shares were;
our history and our prospects;
the industry in which we operate;
our past and present operating results;
the previous experience of our executive officers; and
the general condition of the securities markets at the time of this offering, including discussions between the underwriters and prospective investors.
The offering price stated on the cover page of this prospectus should not be considered an indication of the actual value of the securities sold in this offering. That price is subject to change as a result of market conditions and other factors and we cannot assure you that the securities sold in this offering can be resold at or above the public offering price.
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Lock-up Agreements
Our officers, directors and each of their respective affiliates and associated partners have agreed with the underwriters 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 shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common stock. Certain 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 issuance and sale of our securities for 90 days following the closing of this offering, although we will be permitted to issue stock options or stock awards to directors, officers and employees under our existing plans. The representative may, in their sole discretion and without notice, waive the terms of any of these lock-up agreements.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company LLC.
Stabilization, Short Positions and Penalty Bids
The underwriters 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 underwriters are 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 underwriters 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 decline in the market prices of our securities. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on the Nasdaq Capital Market, in the over-the-counter market or on any other trading market and, if commenced, may be discontinued at any time.
In connection with this offering, the underwriters 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 shares of our common stock 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 underwriters 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 underwriters make any representation that the underwriters will engage in these transactions or that any transactions, once commenced will not be discontinued without notice.
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including certain liabilities arising under the Securities Act or to contribute to payments that the underwriters may be required to make for these liabilities.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material U.S. federal income considerations relating to the purchase, ownership and disposition of our common stock, Series H Preferred Stock or warrants. This discussion is based on current provisions of the Internal Revenue Codeon payment t, existing and proposed U.S. Treasury Regulations promulgated or proposed thereunder and current administrative and judicial interpretations thereof, all as in effect as of the date of this prospectus and all of which are subject to change or to differing interpretation, possibly with retroactive effect. We have not sought and will not seek any rulings from the Internal Revenue Service (the “IRS”) regarding the matters discussed below. There can be no assurance that the IRS or a court will not take a contrary position.
This discussion is limited to U.S. holders and non-U.S. holders who hold our common stock, Series H Preferred Stock or warrants as capital assets within the meaning of Section 1221 of the Internal Revenue Code (generally, as property held for investment). This discussion does not address all aspects of U.S. federal income taxation, such as the U.S. alternative minimum income tax and the additional tax on net investment income, nor does it address any aspect of state, local or non-U.S. taxes, or U.S. federal taxes other than income taxes, such as federal estate taxes. This discussion does not consider any specific facts or circumstances that may apply to a holder and does not address the special tax considerations that may be applicable to particular holders, such as:
insurance companies;
tax-exempt organizations;
financial institutions;
brokers or dealers in securities;
regulated investment companies;
pension plans;
controlled foreign corporations;
passive foreign investment companies;
corporations that accumulate earnings to avoid U.S. federal income tax;
certain U.S. expatriates;
U.S. persons that have a “functional currency” other than the U.S. dollar;
persons that acquire our common stock as compensation for services;
owners that hold our common stock, Series H Preferred Stock or warrants as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment;
entities that are treated as disregarded entities for U.S. federal income tax purposes (regardless of their places of organization or formation) and their investors; and
partnerships or other entities treated as partnerships for U.S. federal income tax purposes and their investors.
If any entity taxable as a partnership for U.S. federal income tax purposes holds our common stock, Series H Preferred Stock or warrants, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. An investor in a partnership or entity treated as disregarded for U.S. federal income tax purposes should consult his, her or its own tax advisor regarding the applicable tax consequences relating to the purchase, ownership and disposition of our common stock, Series H Preferred Stock or warrants.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of our common stock, Series H Preferred Stock or warrants that is, for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation created or organized in or under the laws of the United States or of any political subdivision of the United States;
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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust, if (i) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (ii) the trust has a valid election to be treated as a U.S. person under applicable U.S. Treasury Regulations.
A “non-U.S. holder” is a beneficial owner of our common stock, Series H Preferred Stock or warrants that is, for U.S. federal income tax purposes, an individual, corporation, estate or trust that is not a U.S. holder.
Prospective investors should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of purchasing, holding and disposing of our common stock, Series H Preferred Stock or warrants.
U.S. Holders
Purchase of Units
For U.S. federal income tax purposes, the purchase of a Class A Unit will be treated as the purchase of two components: a component consisting of one share of our common stock and a component consisting of one warrant to purchase one share of our common stock. The purchase of a Class B Unit will be treated as the purchase of two components: a component consisting of one share of our Series H Preferred Stock and a component consisting of a warrant to purchase one share of common stock. The purchase price for each Unit will be allocated between its components in proportion to the relative fair market value of each at the time the Unit is purchased by the holder. This allocation of the purchase price for each Unit will establish a holder’s initial tax basis for U.S. federal income tax purposes in the shares and warrants that compose each Unit.
Exercise of Warrants
A U.S. holder generally will not recognize gain or loss on the exercise of a warrant and related receipt of shares of our common stock (unless cash is received in lieu of the issuance of a fractional share of our common stock). A U.S. holder’s initial tax basis in the shares of our common stock received upon the exercise of a warrant will be equal to the sum of (a) such U.S. holder’s tax basis in such warrant plus (b) the exercise price paid by such U.S. holder on the exercise of such warrant. A U.S. holder’s holding period for the shares of our common stock received upon the exercise of a warrant will begin on the day after the date that the warrant is exercised.
In certain limited circumstances, a U.S. holder may be permitted to undertake a cashless exercise of warrants into shares of our common stock. The U.S. federal income tax treatment of a cashless exercise of warrants into shares of common stock is unclear, and the tax consequences of a cashless exercise could differ from the consequences upon the exercise of a warrant described in the preceding paragraph. U.S. holders should consult their own tax advisors regarding the U.S. federal income tax consequences of a cashless exercise of warrants.
Certain Adjustments to the Warrants or Series H Preferred Stock
An adjustment to the number of shares of our common stock that will be issued upon the exercise of a warrant or conversion of a share of Series H Preferred Stock, or an adjustment to the exercise price of a warrant, may be treated as a constructive distribution to a U.S. holder of the warrant or share depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to our shareholders). Adjustments to the exercise price of warrants or conversion price of Series H Preferred Stock made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders thereof generally should not be considered to result in a constructive distribution. Any such constructive distribution would be taxable whether or not there is an actual distribution of cash or other property. See the more detailed discussion of the rules applicable to distributions made by us under the heading “Distributions on Common Stock or Series H Preferred Stock” below.
Expiration of the Warrants without Exercise
Upon the lapse or expiration of a warrant, a U.S. holder will recognize a loss in an amount equal to such U.S. holder’s tax basis in the warrant. Any such loss generally will be a capital loss and will be long-term capital loss if the warrant is held for more than one year. Deductions for capital losses are subject to certain limitations.
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Conversion of Series H Preferred Stock
A U.S. holder generally will not recognize gain or loss upon the conversion of a share of Series H Preferred Stock into common stock. A U.S. holder’s initial tax basis in the shares of our common stock received upon the conversion of a share of Series H Preferred Stock will be equal to such U.S. holder’s tax basis in the share of Series H Preferred Stock. A U.S. holder’s holding period for the shares of our common stock received upon the conversion of a share of Series H Preferred Stock will include the U.S. holder’s holding period in such share of Series H Preferred Stock.
Distributions on Common Stock or Series H Preferred Stock
If we pay distributions of cash or property with respect to our common stock or Series H Preferred Stock (including constructive distributions as described above under the heading “Certain Adjustments to the Warrants or Series H Preferred Stock”), those distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the U.S. holder’s investment, up to such holder’s tax basis in its shares of our common stock or Series H Preferred Stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under the heading “—Gain on Sale, Exchange or Other Taxable Disposition.”
Gain on Sale, Exchange or Other Taxable Disposition
Upon the sale or other taxable disposition of common shares, Series H Preferred Stock or warrants, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. holder’s tax basis in such common shares, Series H Preferred Stock or warrants sold or otherwise disposed of. Such gain or loss generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the common shares, Series H Preferred Stock or warrants have been held by the U.S. holder for more than one year. Preferential tax rates may apply to long-term capital gain of a U.S. holder that is an individual, estate, or trust. Deductions for capital losses are subject to certain limitations.
Non-U.S. Holders
Distributions on Common Stock or Series H Preferred Stock
If we pay distributions of cash or property with respect to our common stock or Series H Preferred Stock (including constructive distributions as described above under the heading “Certain Adjustments to the Warrants or Series H Preferred Stock”), those distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holder’s investment, up to such holder’s tax basis in its shares of our common stock or Series H Preferred Stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under the heading “—Gain on Sale, Exchange or Other Taxable Disposition.” Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder’s country of residence. In the case of any constructive distribution, it is possible that this tax would be withheld from any amount owed to the non-U.S. holder, including, but not limited to, distributions of cash, common stock or sales proceeds subsequently paid or credited to that holder. If we are unable to determine, at the time of payment of a distribution, whether the distribution will constitute a dividend, we may nonetheless choose to withhold any U.S. federal income tax on the distribution as permitted by U.S. Treasury Regulations.
Distributions that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States are generally not subject to the 30% withholding tax if the non-U.S. holder provides a properly executed IRS Form W-8ECI stating that the distributions are not subject to withholding because they are effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States. If a non-U.S. holder is engaged in a trade or business in the United States and the distribution is effectively connected with the conduct of that trade or business, the distribution will generally have the consequences described above for a U.S. holder (subject to any modification provided under an applicable income tax treaty). Any U.S. effectively connected income received by a non-U.S. holder that is treated as a corporation for U.S. federal income tax purposes may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty).
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A non-U.S. holder who claims the benefit of an applicable income tax treaty between the United States and such holder’s country of residence generally will be required to provide a properly executed IRS Form W-8BEN or W-8BEN-E, as applicable, and satisfy applicable certification and other requirements. A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty generally may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim with the IRS. Non-U.S. holders should consult their own tax advisors regarding their entitlement to benefits under a relevant income tax treaty.
Gain on Sale, Exchange or Other Taxable Disposition
Subject to the discussion below in “—Information Reporting and Backup Withholding” and “—Foreign Account Tax Compliance Act,” a non-U.S. holder generally will not be subject to U.S. federal income tax on gain recognized on a sale, exchange or other taxable disposition of our common stock, Series H Preferred Stock or warrants unless:
the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if an applicable income tax treaty so provides, the gain is attributable to a permanent establishment maintained by the non-U.S. holder in the United States; in these cases, the non-U.S. holder will be taxed on a net income basis at the regular graduated rates and in the manner applicable to a U.S. holder, and, if the non-U.S. holder is a corporation, an additional branch profits tax at a rate of 30%, or a lower rate as may be specified by an applicable income tax treaty, may also apply;
the non-U.S. holder is an individual present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax (or such lower rate as may be specified by an applicable income tax treaty) on the amount by which such non-U.S. holder’s capital gains allocable to U.S. sources exceed capital losses allocable to U.S. sources during the taxable year of the disposition; or
we are or were a “U.S. real property holding corporation” during the shorter of the five-year period ending on the date of the disposition or the period that the non-U.S. holder held our common stock. Generally, a corporation is a “U.S. real property holding corporation” if the fair market value of its “U.S. real property interests” (within the meaning of the Internal Revenue Code) equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. We believe that we are not currently, and we do not anticipate becoming, a “U.S. real property holding corporation” for U.S. federal income tax purposes.
Information Reporting and Backup Withholding
Distributions on, and the payment of the proceeds of a disposition of, our common stock, Series H Preferred Stock or warrants generally will be subject to information reporting if made within the United States or through certain U.S.-related financial intermediaries. Information returns are required to be filed with the IRS and copies of information returns may be made available to the tax authorities of the country in which a holder resides or is incorporated under the provisions of a specific treaty or agreement.
Backup withholding may also apply if the holder fails to provide certification of exempt status or a correct U.S. taxpayer identification number and otherwise comply with the applicable backup withholding requirements. Generally, a holder will not be subject to backup withholding if it provides a properly completed and executed IRS Form W-9 or appropriate IRS Form W-8, as applicable. Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be refunded or credited against the holder’s U.S. federal income tax liability, if any, provided certain information is timely filed with the IRS.
Foreign Account Tax Compliance Act
Legislation commonly referred to as the Foreign Account Tax Compliance Act, or FATCA, generally imposes a U.S. federal withholding tax of 30% on dividends paid to certain non-U.S. entities (including certain intermediaries) unless such persons comply with FATCA’s information reporting and withholding regime. We will not pay any additional amounts to stockholders in respect of any amounts withheld. This regime and its requirements are different from, and in addition to, the certification requirements described elsewhere in this discussion. If a payment is both subject to withholding under FATCA and subject to withholding tax discussed above, the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax.
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The United States has entered into, and continues to negotiate, intergovernmental agreements (each, an “IGA”) with a number of other jurisdictions to facilitate the implementation of FATCA. An IGA may significantly alter the application of FATCA and its information reporting and withholding requirements with respect to any particular investor. FATCA is particularly complex and its application remains uncertain. Prospective investors should consult their own tax advisors regarding how these rules may apply in their particular circumstances.
LEGAL MATTERS
Honigman LLP, Kalamazoo, Michigan, will issue a legal opinion as to the validity of the securities offered by this prospectus. Ellenoff Grossman & Schole LLP, New York, New York is acting as counsel for the underwriters in connection with certain legal matters in connection with this offering.
Michigan.
The consolidated financial statements of CHF Solutions, Inc. and
its subsidiaries as of
December 31, 2018 and 2017 and for the years
then ended
included in this ProspectusDecember 31, 2019 and 2018 from the Company’s Annual Report on Form 10-K have been audited by Baker Tilly Virchow Krause, LLP, our independent registered public accounting firm, as
set forthstated in their report,
inwhich is incorporated herein by reference (which report expresses an unqualified opinion on the
Form 10-K (which containsconsolidated financial statements and includes an explanatory paragraph
describing conditions that raiserelated to the substantial doubt about the Company’s ability to continue as a going concern as described in Note 1 to the consolidated financial statements)
, and are included. Such consolidated financial statements have been so incorporated in reliance upon
suchthe report
given on the authority of such firm
given their authority as experts in accounting and auditing.
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of CHF Solutions, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CHF Solutions, Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows, for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 of the consolidated financial statements, the Company has recurring losses from operations, an accumulated deficit, expects to incur losses for the foreseeable future and needs additional working capital. These are the reasons that raise substantial doubt about their ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not contain any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits 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 audits included performing procedures to assess the risks of material misstatement of the consolidated 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 regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Baker Tilly Virchow Krause, LLP
We have served as the Company’s auditor since 2017.
Minneapolis, Minnesota
February 21, 2019
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
| December 31, 2018 | December 31, 2017 |
ASSETS
| | | | | | |
Current assets
| | | | | | |
Cash and cash equivalents | $ | 5,480 | | $ | 15,595 | |
Accounts receivable | | 786 | | | 545 | |
Inventories | | 1,658 | | | 1,588 | |
Other current assets | | 203 | | | 136 | |
Total current assets | | 8,127 | | | 17,864 | |
Property, plant and equipment, net | | 536 | | | 570 | |
Other assets | | 113 | | | 21 | |
TOTAL ASSETS | $ | 8,776 | | $ | 18,455 | |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY
| | | | | | |
Current liabilities
| | | | | | |
Accounts payable | $ | 1,133 | | $ | 862 | |
Accrued compensation | | 1,498 | | | 1,021 | |
Other current liabilities | | 209 | | | 208 | |
Total current liabilities | | 2,840 | | | 2,091 | |
Other liabilities | | — | | | 126 | |
Total liabilities | | 2,840 | | | 2,217 | |
Commitments and contingencies
| | | | | | |
| | | | | | |
Stockholders’ equity
| | | | | | |
Series A junior participating preferred stock as of December 31, 2018 and December 31, 2017, par value $0.0001 per share; authorized 30,000 shares, none outstanding | | — | | | — | |
Series F convertible preferred stock as of December 31, 2018 and December 31, 2017, par value $0.0001 per share; authorized 535 and 3,780 shares, respectively, issued and outstanding 535 and 3,780, respectively | | | | | | |
Preferred stock as of December 31, 2018 and December 31, 2017, par value $0.0001 per share; authorized 39,969,465 and 39,966,220 shares, respectively, none outstanding | | — | | | — | |
Common stock as of December 31, 2018 and December 31, 2017, par value $0.0001 per share; authorized 100,000,000 shares, issued and outstanding 513,445 and 271,357, respectively | | — | | | — | |
Additional paid-in capital | | 204,101 | | | 197,367 | |
Accumulated other comprehensive income:
| | | | | | |
Foreign currency translation adjustment | | 1,223 | | | 1,227 | |
Accumulated deficit | | (199,388 | ) | | (182,356 | ) |
Total stockholders’ equity | | 5,936 | | | 16,238 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 8,776 | | $ | 18,455 | |
See notes to the consolidated financial statements
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
| Year Ended December 31, |
| 2018 | 2017 |
Net sales | $ | 4,998 | | $ | 3,553 | |
Costs and Expenses:
| | | | | | |
Cost of goods sold | | 3,670 | | | 2,763 | |
Selling, general and administrative | | 15,311 | | | 10,170 | |
Research and development | | 3,053 | | | 1,481 | |
Goodwill and intangibles impairment | | — | | | 3,951 | |
Total costs and expenses | | 22,034 | | | 18,365 | |
Loss from operations | | (17,036 | ) | | (14,812 | ) |
Other income (expense):
| | | | | | |
Other income, net | | 10 | | | 28 | |
Warrant valuation expense | | — | | | (67 | ) |
Change in fair value of warrant liability | | — | | | 1,475 | |
Total other income, net | | 10 | | | 1,436 | |
Loss before income taxes | | (17,026 | ) | | (13,376 | ) |
Income tax expense | | (6 | ) | | (6 | ) |
Net loss | $ | (17,032 | ) | $ | (13,382 | ) |
| | | | | | |
Basic and diluted loss per share | $ | (42.14 | ) | $ | (525.01 | ) |
| | | | | | |
Weighted average shares outstanding – basic and diluted | | 404 | | | 48 | |
| | | | | | |
Other comprehensive loss:
| | | | | | |
Foreign currency translation adjustment | $ | (4 | ) | $ | (8 | ) |
Total comprehensive loss | $ | (17,036 | ) | $ | (13,390 | ) |
See notes to the consolidated financial statements
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
| Outstanding Shares of Common Stock | Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Stockholders’ Equity |
Balance December 31, 2016 | | 2,801 | | $ | — | | $ | 169,496 | | $ | 1,235 | | $ | (168,974 | ) | $ | 1,757 | |
Net loss | | — | | | — | | | — | | | — | | | (13,382 | ) | | (13,382 | ) |
Foreign currency translation adjustment | | — | | | — | | | — | | | (8 | ) | | — | | | (8 | ) |
Stock-based compensation, net | | 17 | | | — | | | 499 | | | — | | | — | | | 499 | |
Issuance of common stock, net | | 42,017 | | | — | | | 5,399 | | | — | | | — | | | 5,399 | |
Issuance of preferred stock, net | | — | | | — | | | 21,973 | | | — | | | — | | | 21,973 | |
Conversion of preferred stock into common stock | | 226,522 | | | — | | | — | | | — | | | — | | | — | |
Balance December 31, 2017 | | 271,357 | | $ | — | | $ | 197,367 | | $ | 1,227 | | $ | (182,356 | ) | $ | 16,238 | |
Net loss | | — | | | — | | | — | | | — | | | (17,032 | ) | | (17,032 | ) |
Foreign currency translation adjustment | | — | | | — | | | | | | (4 | ) | | | | | (4 | ) |
Stock-based compensation, net | | 12 | | | — | | | 2,087 | | | — | | | — | | | 2,087 | |
Issuance of unregistered shares | | 7,116 | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock, net | | 181,941 | | | — | | | 4,647 | | | — | | | — | | | 4,647 | |
Conversion of preferred stock into common stock | | 53,019 | | | — | | | — | | | — | | | — | | | — | |
Balance December 31, 2018 | | 513,445 | | $ | — | | $ | 204,101 | | $ | 1,223 | | $ | (199,388 | ) | $ | 5,936 | |
See notes to the consolidated financial statements
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
| For the years ended December 31, |
| 2018 | 2017 |
Operating Activities
| | | | | | |
Net loss | $ | (17,032 | ) | $ | (13,382 | ) |
Adjustments to reconcile net loss to cash flows from operating activities:
| | | | | | |
Depreciation and amortization | | 232 | | | 769 | |
Stock-based compensation expense | | 2,087 | | | 499 | |
Goodwill and intangibles impairment | | — | | | 3,951 | |
Change in fair value of warrant liability | | — | | | (1,475 | ) |
Warrant valuation expense | | — | | | 67 | |
Changes in assets and liabilities:
| | | | | | |
Accounts receivable | | (241 | ) | | (263 | ) |
Inventories | | (70 | ) | | (911 | ) |
Other current assets | | (67 | ) | | 1 | |
Other assets and liabilities | | (14 | ) | | — | |
Accounts payable and accrued expenses | | 545 | | | (1,176 | ) |
Net cash used in operations | | (14,560 | ) | | (11,920 | ) |
| | | | | | |
Investing activities:
| | | | | | |
Purchase of property and equipment | | (198 | ) | | (259 | ) |
Net cash used in investing activities | | (198 | ) | | (259 | ) |
| | | | | | |
Financing activities:
| | | | | | |
Net proceeds from public stock offerings | | 4,647 | | | 24,281 | |
Net proceeds from exercise of warrants | | — | | | 1,989 | |
Net proceeds from the sale of preferred stock, common stock and warrants | | — | | | 184 | |
Net cash provided by financing activities | | 4,647 | | | 26,454 | |
| | | | | | |
Effect of exchange rate changes on cash | | (4 | ) | | (3 | ) |
Net increase (decrease) in cash and cash equivalents | | (10,115 | ) | | 14,272 | |
Cash and cash equivalents—beginning of period | | 15,595 | | | 1,323 | |
Cash and cash equivalents—end of period | $ | 5,480 | | $ | 15,595 | |
| | | | | | |
Supplemental schedule of non-cash activities
| | | | | | |
Financing fees incurred for subsequent equity financing included in other assets and accounts payable | $ | 78 | | $ | — | |
Warrants issued as inducement to warrant exercise | $ | — | | $ | 509 | |
Conversion of temporary equity to permanent equity | $ | — | | $ | 485 | |
| | | | | | |
Supplemental cash flow information
| | | | | | |
Cash paid for income taxes | $ | 2 | | $ | 6 | |
See notes to the consolidated financial statements
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1—Nature of Business and Significant Accounting Policies
Nature of Business
CHF Solutions, Inc. (the “Company”) is a medical device company focused on commercializing the Aquadex FlexFlow® system for aquapheresis therapy. The Aquadex FlexFlow system (Aquadex) is indicated for temporary (up to eight hours) ultrafiltration treatment of patients with fluid overload who have failed diuretic therapy and extended (longer than 8 hours) ultrafiltration treatment of patients with fluid overload who have failed diuretic therapy and require hospitalization. CHF Solutions, Inc. is a Delaware corporation headquartered in Minneapolis with wholly owned subsidiaries in Australia, Ireland and Delaware. The Company has been listed on Nasdaq since February 2012.
Prior to July 2016, the Company was focused on developing the C-Pulse® Heart Assist System for treatment of Class III and ambulatory Class IV heart failure. In August 2016, the Company acquired the Aquadex FlexFlow business from a subsidiary of Baxter International, Inc. (“Baxter”), a global leader in the hospital products and dialysis markets (herein referred to as the “Aquadex Business”). In September 2016, the Company announced a strategic refocus of its strategy that included halting all clinical evaluations of its C-Pulse related technology to fully focus all of its resources on its recently acquired Aquadex Business.
On May 23, 2017, the Company announced it was changing its name from Sunshine Heart, Inc. to CHF Solutions, Inc. to more appropriately reflect the direction of its business.
In December 2018, the Company’s stockholders approved a reverse split of its outstanding common stock at a ratio in the range of 1-for-2 to 1-for-14 and, in January 2019, the board of directors approved a 1-for-14 reverse split of the Company’s outstanding common stock that became effective after trading on January 2, 2019. In addition, during 2017, the Company’s stockholders and board of directors approved two reverse stock splits. The first reverse stock split was a 1-for-30 reverse split of the Company’s outstanding common stock that became effective after trading on January 12, 2017. The second reverse stock split was a 1-for-20 reverse split of the Company’s outstanding common stock that became effective after trading on October 12, 2017. These reverse stock splits did not change the par value of the Company’s common stock or the number of common or preferred shares authorized by the Company’s Fourth Amended and Restated Certificate of Incorporation. All share and per-share amounts have been retroactively adjusted to reflect the reverse stock splits for all periods presented.
Going Concern
The Company’s financial statements have been prepared and presented on a basis assuming it continues as a going concern. During the years ended December 31, 2018 and 2017, the Company incurred losses from operations and net cash outflows from operating activities as disclosed in the consolidated statements of operations and cash flows, respectively. At December 31, 2018, the Company had an accumulated deficit of $199.4 million and it expects to incur losses for the foreseeable future. To date, the Company has been funded by debt and equity financings, and although the Company believes that it will be able to successfully fund its operations, there can be no assurance that it will be able to do so or that it will ever operate profitably. These factors raise substantial doubt about the Company’s ability to continue as a going concern through at least twelve months from the report date.
The Company became a revenue generating company after acquiring the Aquadex Business in August 2016. The Company expects to incur additional losses in the near-term as it grows the Aquadex Business, including investments in expanding its sales and marketing capabilities, purchasing inventory, manufacturing components, and complying with the requirements related to being a U.S. public company. To become and remain profitable, the Company must succeed in expanding the adoption and market acceptance of the Aquadex FlexFlow system. This will require the Company to succeed in training personnel at hospitals and effectively and efficiently manufacturing, marketing and distributing the Aquadex FlexFlow system and related components. There can be no assurance that the Company will succeed in these activities, and it may never generate revenues sufficient to achieve profitability.
On April 24, 2017, November 27, 2017, and on July 3, 2018, the Company closed on underwritten public equity offerings for aggregate net proceeds of approximately $28.8 million after deducting the underwriting discounts and commissions and other costs associated with the offerings (see Note 6 – Shareholder’s Equity). The Company will
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require additional funding to grow its Aquadex Business, which may not be available on terms favorable to the Company, or at all. The Company may receive those funds from the proceeds from future warrant exercises, issuances of equity securities, or other financing transactions. Should warrant exercises not materialize or future capital raising be unsuccessful, the Company may not be able to continue as a going concern. No adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of CHF Solutions, Inc. and its wholly-owned subsidiaries, CHF Solutions, LLC, Sunshine Heart Company Pty Limited, and Sunshine Heart Ireland Limited. All intercompany accounts and transactions between consolidated entities have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and term deposits with original maturities of three months or less. The carrying value of these instruments approximate fair value. The balances, at times, may exceed federally insured limits. The Company has not experienced any losses on its cash and cash equivalents.
Accounts Receivable
Accounts receivable are unsecured, are recorded at net realizable value, and do not bear interest. The Company makes judgments as to its ability to collect outstanding receivables based upon significant patterns of uncollectability, historical experience, and managements’ evaluation of specific accounts and will provide an allowance for credit losses when collection becomes doubtful. The Company performs credit evaluations of its customers’ financial condition on an as-needed basis. Payment is generally due 30 days from the invoice date and accounts past 30 days are individually analyzed for collectability. When all collection efforts have been exhausted, the account is written off against the related allowance. To date the Company has not experienced any write-offs or significant deterioration of its accounts receivable aging, and therefore, no allowance for doubtful accounts was considered necessary as of December 31, 2018 or 2017.
Inventories
Inventories are recorded at the lower of cost or net realizable value using the first-in, first out method. Inventories consisted of the following as of December 31 (in thousands):
| 2018 | 2017 |
Finished Goods | $ | 517 | | $ | 902 | |
Work in Process | | 34 | | | 217 | |
Raw Materials | | 1,107 | | | 469 | |
Total | $ | 1,658 | | $ | 1,588 | |
Other Current Assets
Other current assets represent prepayments and deposits made by the Company.
Property, Plant and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed based upon the estimated useful lives of the respective assets. Leasehold improvements and capital lease assets are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the assets. Repairs and
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maintenance costs are expensed as incurred. The cost and accumulated depreciation of property, plant and equipment retired, or otherwise disposed of are removed from the related accounts, and any residual values are charged to expense. Depreciation expense has been calculated using the following estimated useful lives:
Office furniture and equipment
| 3-5 years
|
Computer software and equipment
| 3-4 years
|
Laboratory and research equipment
| 3-5 years
|
Production equipment
| 3-7 years
|
Leasehold improvements and capital lease asset
| 3-5 years
|
Depreciation expense was $232,000 and $229,000 for the years ended December 31, 2018, and 2017, respectively.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If the impairment tests indicate that the carrying value of the asset, or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, further analysis is performed to determine the fair value of the asset or asset group. To the extent the fair value of the asset or asset group is less than its carrying value, an impairment loss is recognized equal to the amount the fair value of the asset or asset group exceeds its carrying amount. The Company generally measures fair value by considering sale prices for similar assets or asset groups, or by discounting estimated future cash flows from such assets or asset groups using an appropriate discount rate. Assets to be disposed of are carried at the lower of their carrying value or fair value less costs to sell. Considerable management judgment is necessary to estimate the fair value of assets or asset groups, and accordingly, actual results could vary significantly from such estimates. The Company periodically reviews its property and equipment for potential impairment and determines if the fair value of property and equipment equals or exceeds its carrying value. There have been no impairment losses recognized for the years ended December 31, 2018 or 2017.
Intangible assets
The Company’s intangible assets consisted of customer relationships, developed technology, and trademarks and tradenames. All intangible assets recognized by the Company resulted from the acquisition of the Aquadex Business. All intangible assets were estimated to have a useful life of 7 years. The Company reviewed its definite lived intangible assets for impairment when impairment indicators existed. When impairment indicators existed, the Company determined if the carrying value of the intangible assets exceeded the related undiscounted cash flows. In cases where the carrying value exceeded the undiscounted cash flows, and the carrying amount was not considered recoverable, the carrying value was written down to its fair value, generally using a discounted cash flow analysis. An impairment loss was recognized for the amount that the intangible assets exceeded their fair value, generally based on discounted cash flow methods and other fair market value indicators. The Company’s review of its intangible assets during the year ended December 31, 2017 resulted in $3.8 million of impairment charges related to its definite lived intangible assets.
The Company had a single reporting unit. The impairment charges were based on fair values determined using market value indicators such as the quoted market prices of the Company’s common stock on Nasdaq, as well discounted cash flow models. Discounted cash flow models included assumptions related to the Company’s product revenues, gross margins, and operating margins, under varying assumptions about the Company’s ability to either achieve profitability or obtain the necessary financings to realize such projections. As discussed above, the Company became a revenue generating company after acquiring the Aquadex Business in August 2016 and expects to incur losses in the near-term as it grows the Aquadex Business. To become and remain profitable, and to generate cash flows from operations, the Company must succeed in expanding the adoption and market acceptance of its products. This will require that the Company succeed in training personnel at hospitals and in effectively and efficiently manufacturing, marketing, and distributing its products. There can be no assurance that the Company will succeed in these activities, and it may never generate revenues sufficient to achieve profitability or positive cash flows. The discounted cash flow models reflected these uncertainties by assigning future cash flow estimations probability factors and an overall discount rate of 30%.
Amortization expense was $0 and $540,000 for the years ended December 31, 2018 and 2017, respectively.
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Goodwill
Goodwill was the cost paid for the Aquadex Business in excess of the fair value of acquired assets and liabilities, and was recorded as an asset on the balance sheet. Goodwill was not subject to amortization but was to be tested for impairment at least annually. This test required the Company to determine if the implied fair value of the goodwill was less than its carrying amount.
The Company evaluated its recorded goodwill for impairment annually on November 1st of each calendar year, or to the extent events or conditions indicate a risk of possible impairment during the interim periods prior to its annual impairment test. As described below, the Company early adopted Accounting Standards Update No, 2017-04, Simplifying the Test for Goodwill Impairment, and performed a single step in performing its impairment analysis, which is to determine the estimated fair value of its reporting unit and compare it to the carrying value of the reporting unit, including goodwill. The remaining implied goodwill was then compared to the actual carrying amount of the goodwill for the reporting unit. To the extent the carrying amount of goodwill exceeded the implied goodwill, the difference was the amount of the goodwill impairment. The Company’s annual impairment test on November 1, 2017, resulted in $0.2 million of impairment charges related to goodwill.
The Company had a single reporting unit. The impairment charge was based on fair values determined using market value indicators such as the quoted market prices of the Company’s common stock on Nasdaq, as well discounted cash flow models. Discounted cash flow models included assumptions related to the Company’s product revenues, gross margins, and operating margins, under varying assumptions about the Company’s ability to either achieve profitability or obtain the necessary financings to realize such projections. As discussed above, the Company became a revenue generating company after acquiring the Aquadex Business in August 2016 and expects to incur losses in the near-term as it grows the Aquadex Business. To become and remain profitable, and to generate cash flows from operations, the Company must succeed in expanding the adoption and market acceptance of its products. This will require that the Company succeed in training personnel at hospitals and in effectively and efficiently manufacturing, marketing, and distributing its products. There can be no assurance that the Company will succeed in these activities, and it may never generate revenues sufficient to achieve profitability or positive cash flows. The discounted cash flow models reflected these uncertainties by assigning future cash flow estimations probability factors and an overall discount rate of 30%.
Contingent consideration
In connection with the Company’s purchase of the Aquadex Business in August 2016, the Company has an obligation to pay additional consideration that is contingent upon the occurrence of certain future events (see Note 10- Commitments and Contingencies). Contingent consideration is recognized at the acquisition date at the estimated fair value of the contingent milestone payments. The fair value of the contingent consideration is remeasured to its estimated fair value at the end of each reporting period, with changes recorded to earnings. As of December 31, 2018, the contingent consideration was recorded in current liabilities in the accompanying balance sheet to reflect its maturity during 2019.
Common stock warrant liability
The Company recorded its common stock warrant liability at fair value at the date of issuance using primarily a Monte Carlo valuation model. The fair value was remeasured to its estimated fair value at the end of each reporting period with changes recorded to earnings.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2018. Accordingly, the Company recognizes revenue when its customers obtain control of their products or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods and services. See Note 2 – Revenue Recognition for additional accounting policies and transition disclosures.
Foreign Currency Translation
Sales and expenses denominated in foreign currencies are translated at average exchange rates in effect throughout the year. Assets and liabilities of foreign operations are translated at period-end exchange rates with the impacts of
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foreign currency translation recognized to cumulative translation adjustment, a component of accumulated other comprehensive income. Foreign currency transactions gains and losses are included in other expense, net in the consolidated statements of operations and other comprehensive loss.
Stock-Based Compensation
The Company recognizes all share-based payments to employees and directors, including grants of stock options, restricted stock units (RSUs) and common stock awards in the consolidated statements of operations and other comprehensive loss as an operating expense, based on their fair value. The Company’s stock awards use a graded vesting schedule. The Company recognizes the option expense over the requisite service period, which is generally the vesting period.
The Company computes the estimated fair values of stock options and certain of its warrants using the Black-Scholes option pricing model. The closing market price of the Company’s common stock at the date of grant is used to calculate the fair value of restricted stock units and common stock awards. Stock-based compensation expense is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Equity instruments issued to non-employees include RSUs or warrants to purchase shares of the Company’s common stock. These RSUs or warrants are either fully-vested and exercisable at the date of grant or vest over a certain period during which services are provided. The Company expenses the fair market value of fully vested awards at the time of grant, and of unvested awards over the period in which the related services are received. Unvested awards are remeasured to fair value until they vest.
See Note 7- Stock-Based Compensation, for further information regarding the assumptions used to calculate the fair value of share-based compensation.
Income Taxes
Deferred income taxes are provided on a liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences, which are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Tax Reform Act was enacted December 22, 2017. The new legislation made significant changes to U.S. tax law including a reduction in the corporate tax rates, changes to operating loss carry-forwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S corporate income tax rates from 34% to 21%. As a result of the enacted law, the Company was required to revalue its deferred tax assets and liabilities at the new enacted rate. There was no income tax impact from the re-measurement due to the 100% valuation allowance on the Company’s deferred tax assets.
Loss per share
Basic loss per share is computed based on the net loss for each period divided by the weighted average number of common shares outstanding. The net loss allocable to common stockholders for the year ended December 31, 2017, reflects increases for net deemed dividends to preferred stockholders provided in connection with the close of the public offering of Series E Convertible Preferred Stock in April of 2017, and the close of the public offering of Series F Convertible Preferred Stock in November of 2017, of $1.0 million and $8.7 million, respectively, representing the intrinsic value of the shares at the time of issuance. In addition, the net loss allocable to common stockholders for the year ended December 31, 2017, reflects an increase for net deemed dividends of $1.8 million to preferred stockholders provided in connection with the shareholder approval of the Series C and D Convertible Preferred Stock transactions in January of 2017, representing the intrinsic value of the shares at the time of issuance. (See Note 6). There were no deemed dividends during 2018.
Diluted earnings per share is computed based on the net loss allocable to common stockholders for each period divided by the weighted average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued, and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include shares underlying outstanding convertible preferred stock, warrants, stock options and other stock-based awards granted under stock-based compensation plans.
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The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each year presented:
| December 31, |
| 2018 | 2017 |
Stock options | | 140,546 | | | 2,766 | |
Restricted stock units | | 3 | | | 15 | |
Warrants to purchase common stock | | 599,293 | | | 608,787 | |
Series F convertible preferred stock | | 18,190 | | | 60,480 | |
Total | | 758,032 | | | 672,048 | |
The following table reconciles reported net loss with reported net loss per share for the years ended December 31:
(in thousands, except per share amounts) | 2018 | 2017 |
Net loss | $ | (17,032 | ) | $ | (13,382 | ) |
Deemed dividend to preferred shareholders (see Note 6) | | — | | | (11,590 | ) |
Net loss after deemed dividend | | (17,032 | ) | | (24,972 | ) |
Weighted average shares outstanding | | 404 | | | 48 | |
Basic and diluted loss per share | $ | (42.14 | ) | $ | (525.01 | ) |
Research and Development
Research and development costs include activities related to research, development, design, and testing improvements of the Aquadex FlexFlow system and potential related products. Research and development costs also include expenses related to clinical research that the Company may sponsor or conduct to enhance understanding of the product and its use. Research and development expenses are expensed as incurred.
Recent Accounting Pronouncements
In May 2014, August 2015, March 2016, April 2016 and May 2016, the Financial Accounting Standards Board (“FASB”) issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The Company adopted this new standard on January 1, 2018, utilizing the modified retrospective approach. There was no impact to the amount or timing of revenue that the Company had recognized in prior periods. See Note 2 - Revenue Recognition for additional accounting policy and transition disclosures.
In January 2017, the FASB issued amended guidance to simplify the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. This guidance was to be applied on a prospective basis effective for the Company’s interim and annual periods beginning after January 1, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company adopted this amended guidance during the year ended December 31, 2017, and recognized a $0.2 million impairment loss related to its goodwill.
In February 2016, the FASB issued updated guidance to improve financial reporting about leasing transactions. This guidance will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued new guidance which includes an option to not restate comparative periods in transition. This guidance is effective for the Company’s annual and quarterly periods beginning January 1, 2019. The Company has nearly completed evaluating the impact that the adoption of this standard will have on its consolidated financial statements. The Company expects that the adoption of this
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guidance will result in an increase in both the assets and liabilities recorded on its consolidated balance sheets in an amount ranging from $575,000 to $625,000. The Company does not expect that the adoption of this standard will have a material impact on the consolidated statement of operations and comprehensive loss or in the statement of cash flows. We do expect to include additional qualitative and quantitative disclosures as required. The Company expects to use the effective date of this standard as the date of initial application, with no retrospective adjustments to prior comparative periods.
The Company evaluates events through the date the consolidated financial statements are filed for events requiring adjustment to or disclosure in the consolidated financial statements.
Note 2 – Revenue Recognition
Net Sales
The Company sells its products in the United States primarily through a direct sales force. Customers who purchase the Company’s products include hospitals and clinics throughout the United States. In countries outside the United States, the Company sells its products through a limited number of specialty healthcare distributors in the United Kingdom, Italy, Spain, Germany, Southeast Asia, Brazil and India. The majority of these distributors resell the Company’s products to hospitals and clinics in their respective geographies.
Revenue from product sales are recognized when the customer or distributor obtains control of the product, which occurs at a point in time, most frequently upon shipment of the product or receipt of the product, depending on shipment terms. The Company’s standard shipping terms are FOB shipping point, unless the customer requests that control and title to the inventory transfer upon delivery. Revenue includes shipment and handling fees charged to customers.
Revenue is measured as the amount of consideration the Company expects to receive, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when the Company satisfies its performance obligations under the contract. The majority of the Company’s contracts have a single performance obligation and are short-term in nature. The Company has entered into extended service plans with customers that are recognized over time. Revenue from extended service plans represented less than 1% of net sales during each of the years ended December 31, 2018 and 2017. The unfulfilled performance obligations related to these extended service plans is included in deferred revenue in the amount of $43,000 and $38,000 as of December 31, 2018 and 2017, respectively. Deferred revenue is included in other current liabilities on the consolidated balance sheets. The majority of the deferred revenue is expected to be recognized within one year.
Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Revenue includes shipment and handling fees charged to customers. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
Product Returns: The Company offers customers a limited right of return for its product in case of non-conformity or performance issues. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using available industry data and its own historical sales and returns information. The Company has not received any returns to date and believes that future returns of its products will be minimal. Therefore, revenue recognized is not currently impacted by variable consideration related to product returns.
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Note 3—Property, Plant and Equipment
Property, plant and equipment were as follows:
(in thousands) | December 31, 2018 | December 31, 2017 |
Office Furniture & Fixtures | $ | 291 | | $ | 287 | |
Leasehold Improvements | | 224 | | | 224 | |
Software | | 142 | | | 129 | |
Production Equipment | | 991 | | | 926 | |
Computer Equipment | | 357 | | | 277 | |
Capital Lease Asset | | 309 | | | 307 | |
Total | | 2,314 | | | 2,150 | |
Accumulated Depreciation | | (1,778 | ) | | (1,580 | ) |
| $ | 536 | | $ | 570 | |
Note 4—Intangible Assets
The Company’s review of its intangible assets during the year ended December 31, 2017, resulted in $3.8 million of impairment charges related to its definite lived intangible assets. The impairment charges were based on fair values determined using market value indicators such as the quoted market prices of the Company’s common stock on Nasdaq, as well discounted cash flow models. Discounted cash flow models included assumptions related to the Company’s product revenues, gross margins, and operating margins, under varying assumptions about the Company’s ability to either achieve profitability or obtain the necessary financings to realize such projections. As discussed in Note 1, the Company became a revenue generating company after acquiring the Aquadex Business in August 2016 and expects to incur losses in the near-term as it grows the Aquadex Business. To become and remain profitable, and to generate cash flows from operations, the Company must succeed in expanding the adoption and market acceptance of its products. This will require that the Company succeed in training personnel at hospitals and in effectively and efficiently manufacturing, marketing, and distributing its products. There can be no assurance that the Company will succeed in these activities, and it may never generate revenues sufficient to achieve profitability or positive cash flows. The discounted cash flow models reflected these uncertainties by assigning future cash flow estimations probability factors and an overall discount rate of 30%.
Note 5—Debt
On August 5, 2016, the Company entered into a loan and security agreement with Silicon Valley Bank (the Bank). Under the agreement, the Bank agreed to provide the Company with up to $5.0 million in debt financing, consisting of a term loan in an aggregate original principal amount not to exceed $4.0 million (the “Term Loan”) and a revolving line of credit in an aggregate principal amount not to exceed $1.0 million outstanding at any time (the “Revolving Line”; together with the Term Loan, the “Loans”). Proceeds from the Loans were to be used for general corporate and working capital purposes. The Term Loan expired unused on November 30, 2016. Advances under the Revolving Line, if any, are available to the Company until March 31, 2020 and accrue interest at a floating annual rate equal to 1.75% or 1.0% above the prime rate, depending on liquidity factors. Outstanding borrowings, if any, are collateralized by all of the Company’s assets, excluding intellectual property which is subject to a negative pledge. There were no borrowings outstanding under this facility as of December 31, 2018 or 2017.
Warrants: In connection with the funding of term loans under prior agreements, the Company issued warrants to the Bank and one of its affiliates to purchase 9 shares of common stock at an exercise price of $43,848 per share and warrants to purchase 4 shares of common stock at an exercise price of $30,912 per share. The Company valued these warrants at $32,424 per share and $22,764 per share, respectively, utilizing the Black Scholes option pricing model and the following assumptions: an expected dividend yield of 0%, an expected stock price volatility of 88.07% and 87.04%, a risk-free interest rate of 1.86% and 2.20%, and an expected life of 6.25 years. The warrants were fully vested on the date of grant and expire on February 2025, and June 2025, respectively.
Note 6—Shareholder’s Equity
Series B/B-1 Convertible Preferred Stock: On July 20, 2016, the Company entered into a securities purchase agreement with an institutional investor for an offering of shares of convertible preferred stock and warrants with gross proceeds of approximately $3.5 million in a registered direct offering. The Series B issued under the securities
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purchase agreement was exchanged for Series B-1 Convertible Preferred Stock on October 30, 2016. The Series B-1 Convertible Preferred Stock was non-voting and was convertible into shares of common stock at the holder’s election at any time. Approximately $1.6 million of the proceeds were allocated to the preferred stock, representing the residual proceeds after the warrants were recorded at fair value (see below.) As of both December 31, 2018, and 2017, all Series B/B-1-Convertible Preferred Stock had been converted into common stock and none were outstanding.
Series C and D Convertible Preferred Stock: On October 30, 2016, the Company entered into a securities purchase agreement with an institutional investor for shares of convertible preferred stock and warrants with an aggregate purchase price of $3.8 million in a registered direct offering and simultaneous private placement. The first closing of the transaction occurred on November 3, 2016, whereby the Company received $3.6 million in gross proceeds and the second closing occurred on January 10, 2017, whereby the Company received gross proceeds of $0.2 million. The Series C and D Convertible Preferred Stock included a contingent beneficial conversion amount of $1.3 million and $0.5 million, respectively, representing the intrinsic value of the shares at the time of issuance. This amount is reflected as an increase to the loss per share allocable to common stockholders in the first quarter of 2017 when the contingency for the conversion was resolved with the shareholder approval allowing for the conversion of the preferred stock into common stock. As of both December 31, 2018, and 2017, all shares of the Series C and D Convertible Preferred Stock had been converted into shares of common stock and none remained outstanding.
Series E Convertible Preferred Stock: On April 24, 2017, the Company closed on an underwritten public offering of common stock, Series E Convertible Preferred Stock and warrants to purchase shares of common stock for gross proceeds of $9.2 million, which included the full exercise of the underwriter’s over-allotment option to purchase additional shares and warrants. Net proceeds totaled approximately $8.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering.
The Series E Convertible Preferred Stock included a beneficial conversion amount of $1.0 million, representing the intrinsic value of the shares at the time of issuance. This amount is reflected as an increase to the loss per share allocable to common stockholders in the year ended December 31, 2017. As of both December 31, 2018. and 2017, all shares of the Series E Convertible Preferred Stock had been converted into common stock and none remained outstanding.
Series F Convertible Preferred Stock: On November 27, 2017, the Company closed on an underwritten public offering Series F Convertible Preferred Stock and warrants to purchase shares of common stock for gross proceeds of $18.0 million. Net proceeds totaled approximately $16.2 million after deducting the underwriting discounts and commissions and other costs associated with the offering.
The offering was comprised of Series F preferred stock, convertible into shares of the Company’s common stock at an initial conversion price of $63.00 per share. Each share of Series F preferred stock was accompanied by a Series 1 warrant, which was to expire on the first anniversary of its issuance, to purchase 16 shares of the Company’s common stock at an exercise price of $63.00 per share, and a Series 2 warrant, which expires on the seventh anniversary of its issuance, to purchase 16 shares of the Company’s common stock at an exercise price of $63.00 per share. The Series F preferred stock and the warrants were immediately separable and were issued separately. The conversion price of the Series F preferred stock will be adjusted in the event of a stock split, combination, reclassification or stock dividend or if the Company consummates a fundamental transaction. The Series F preferred stock also has full ratchet price based anti-dilution protection, subject to customary carve outs, in the event of a down-round financing at a price per share below the conversion price of the Series F preferred stock (which protection will expire if, during any 20 of 30 consecutive trading days, the volume weighted average price of the Company’s common stock exceeds 300% of the then-effective conversion price of the Series F preferred stock and the daily dollar trading volume for each trading day during such period exceeds $200,000). The exercise price of the warrants are fixed and do not contain any variable pricing features, nor any price based anti-dilutive features, apart from customary adjustments for stock splits, combinations, reclassifications, stock dividends or fundamental transactions. A total of 18,000 shares of Series F Convertible Preferred Stock initially convertible into 286,714 shares of common stock and warrants to purchase approximately 573,310 shares of common stock were issued in the offering. The Series F Convertible Preferred Stock included a beneficial conversion amount of $8.7 million, representing the intrinsic value of the shares at the time of issuance. This amount is reflected as an increase to the loss per share allocable to common stockholders in the year ended December 31, 2017.
As noted below, effective July 3, 2018, the conversion price of the Series F preferred stock was reduced from $63.00 to $29.68, the per share price to public in the July 2018 Offering described below, and now each share of the
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remaining Series F preferred stock is convertible into 34 shares of the Company’s common stock. As of December 31, 2018, and 2017, 17,465 and 14,220 shares of the Series F Convertible Preferred Stock had been converted into an aggregate of 279,526 and 226,504 shares of common stock and 535 and 3,780 remained outstanding, respectively.
July 2018 Offering: On July 3, 2018, the Company closed on an underwritten public offering of 181,941 shares of its common stock at a public offering price of $29.68 per share, for gross proceeds of $5.4 million, including the full exercise of the underwriters’ over-allotment option to purchase additional shares of the Company’s common stock, prior to deducting underwriting discounts and commissions and offering expenses (the “July 2018 Offering”).
In connection with the July 2018 Offering, and to induce certain institutional investors who hold warrants issued by the Company in November 2017 (“November 2017 Warrants”) to participate in the July 2018 Offering, the Company entered into letter agreements with such institutional investors. Pursuant to the terms of these agreements, the Company agreed, effective July 3, 2018, to reduce the per share exercise price of the November 2017 Warrants held by such institutional investors to $29.68 and to extend the expiration date of the warrants that were to expire on November 27, 2018 to November 27, 2019. The number of common shares underlying the warrants that were repriced did not change. The repriced warrants are exercisable for 554,322 shares of common stock in the aggregate, of which, following such amendment, half expire on November 27, 2019 and half expire on November 27, 2024. The repricing of the warrants was accounted as an equity financing cost, with no impact to net proceeds from the offering.
As noted above, the Company’s outstanding Series F preferred stock is subject to full-ratchet anti-dilution protection in the event the Company sells any common stock at a price lower than the then-conversion price of the Series F preferred stock. As a result of the July 2018 Offering, effective July 3, 2018, the conversion price of the Series F preferred stock was reduced from $63.00 to $29.68, the per share price to public in the July 2018 Offering.
Placement Agent Fees In connection with the issuance of the Series B, C and D Convertible Preferred Shares, the Company paid the placement agent an aggregate cash placement fee equal to 6% of the aggregate gross proceeds raised in the offering and issued warrants as described below. In connection with the financings completed in April 2017, November 2017, and July 2018, the Company paid the placement agent an aggregate cash placement fee equal to 9%, 8%, and 8%, respectively, of the aggregate gross proceeds raised in the offering and issued no warrants to the placement agent.
Investor Warrants: In connection with the issuance of the Series B Convertible Preferred Stock in July 2016, the Company issued the investor, at no additional cost, warrants to purchase 440 shares of common stock at an exercise price of $7,896 per share. The warrants were exercisable for 36 months commencing six months from the closing date and were subject to a reduction of the exercise price if the Company subsequently issued common stock or equivalents at an effective price less than the current exercise price of such warrants. Concurrently with the closing of the Series C and D Convertible Preferred Stock and warrant financing on November 3, 2016, the exercise price for these warrants was adjusted to $1,428 per share.
In connection with the issuance of the Series C and D Convertible Preferred Stock in November 2016, the Company issued the investor, at no additional cost, warrants to purchase 2,522 shares of common stock at an exercise price of $1,512 per share. In connection with the issuance of the Series D Convertible Preferred Stock at the second closing in January 2017, the Company issued the investor, at no additional cost, warrants to purchase 141 shares of common stock at an exercise price of $1,512 per share. The warrants were exercisable for 60 months commencing on the earlier of the day of the receipt of approval of the Company’s stockholders of a proposal to approve the issuance of the shares of common stock underlying the warrants, or the six-month anniversary of the date of issuance. These warrants were subject to a reduction of the exercise price if the Company subsequently issued common stock or equivalents at an effective price less than the current exercise price of such warrants.
Warrant Exercise Agreement: On February 15, 2017, the Company entered into a letter agreement with the institutional investors that held the majority of its outstanding warrants (the “Original Warrants”), to incent the cash exercise of these warrants on or before March 31, 2017. In exchange for any such exercise, the Company agreed to provide the investors a replacement warrant (the “Replacement Warrants”) to purchase the same number of shares of common stock as were issued upon exercise of the Original Warrants, with an exercise price equal to the consolidated closing bid price of its common stock on the date of issuance. The Replacement Warrants were issued in the same form as the Original Warrants except the exercise prices are not subject to reduction for subsequent equity issuances and the Replacement Warrants do not allow the investor to demand that the Company purchase the
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Replacement Warrants in the event of a fundamental transaction involving the Company. In connection with this agreement, between February and March 2017, the investors exercised all of the Original Warrants for gross cash proceeds to the Company of $2.0 million, and the Company issued 3,105 Replacement Warrants with exercise prices ranging from $484.4 per share to $1,397.2 per share.
The Company entered into the letter agreement with the investors to incent the exercise of the Original Warrants in order to receive the cash proceeds from the exercise of the Original Warrants and because the exercise of the Original Warrants would allow the Company to remove the warrant liability from its balance sheet and avoid future fair value adjustments and associated volatility in its consolidated financial statements, as the Replacement Warrants are not accounted for as liabilities based on their terms. As of December 31, 2018, and 2017, there were no Original Warrants outstanding and all Replacement Warrants under the letter agreement had been issued.
Warrant Valuation: Both the Original Warrants and placement agent warrants were accounted for as liabilities and were recorded at fair value on the date of issuance. These warrants must be measured and recorded at fair value for each subsequent reporting period that the warrants remain outstanding, and any changes in fair value must be recognized in the consolidated statement of operations. In connection with the warrant exchange agreement described above, the Company remeasured each Original Warrant as of the date of exercise and recorded $1.5 million for the change in fair value of these warrants as an unrealized gain in the accompanying consolidated statement of operations for year ended December 31, 2017. There were no warrants outstanding at December 31, 2018 or 2017 that were accounted for as liabilities.
The Replacement Warrants were valued at $0.5 million using the Black Scholes option pricing model with the following assumptions: an expected dividend yield of 0%, expected stock price volatility of 49.65%-50.38%, risk-free interest rates of 1.95%-1.97% and an expected life of 5 years. The warrants have a five-year life and were fully vested at the date of grant. The terms of the Replacement Warrants do not require them to be accounted for as liabilities and are therefore recorded in equity. As in incentive to early exercise the Original Warrants, the fair value provided to investors through the Replacement Warrants exceeded the fair value of the Original Warrants that was relinquished by the warrant holders by approximately $0.1 million, which has been reflected as an expense in the consolidated statement of operations for the year ended December 31, 2017.
Note 7— Stock-Based Compensation
Stock Options and Restricted Stock Awards
The Company has various share-based compensation plans, including the Amended and Restated 2002 Stock Plan, the Third Amended and Restated 2017 Equity Incentive Plan, the 2013 Non-Employee Directors’ Equity Incentive Plan and the New-Hire Equity Incentive Plan (collectively, the “Plans”). The Plans are designed to assist in attracting, motivating and retaining employees and directors and to recognize the importance of employees to the long-term performance and success of the Company. The Company has also granted stock options to certain non-employees outside of the Plans.
The Company recognized stock-based compensation expense related to grants of stock options, RSUs and common stock awards to employees, directors and consultants of $2.1 million, and $0.5 million during the years ended December 31, 2018 and 2017, respectively. The following table summarizes the stock-based compensation expense which was recognized in the consolidated statements of operations for the years ended December 31,
(Dollars in thousands) | 2018 | 2017 |
Selling, general and administrative | $ | 1,958 | | $ | 452 | |
Research and development | | 129 | | | 50 | |
Total | $ | 2,087 | | $ | 502 | |
The majority of the RSUs and options to purchase common stock vest on the anniversary of the date of grant, which ranges from one to four years. Stock-based compensation expense related to these awards is recognized on a straight-line basis over the related vesting term in most cases, which generally is the service period. It is the Company’s policy to issue new shares upon the exercise of options.
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Stock Options: The following is a summary of the Plans’ stock option activity during the years ended December 31:
| 2018 | 2017 |
| Options Outstanding | Weighted Average Exercise Price | Options Outstanding | Weighted Average Exercise Price |
Beginning Balance | | 2,562 | | $ | 1,049.93 | | | 272 | | $ | 31,021.57 | |
Granted | | 163,997 | | | 45.76 | | | 2,461 | | | 167.30 | |
Exercised | | — | | | — | | | — | | | — | |
Forfeited/expired | | (26,013 | ) | | 61.01 | | | (171 | ) | | 36,429.90 | |
Outstanding at December 31 | | 140,546 | | $ | 61.25 | | | 2,562 | | $ | 1,049.93 | |
Vested at December 31 | | 16,206 | | $ | 169.07 | | | 148 | | $ | 11,338.37 | |
For options outstanding and vested at December 31, 2018, the weighted average remaining contractual life was 9.12 years and 9.07 years, respectively. There were no option exercises in 2018 or 2017. The total fair value of options that vested in 2018 and 2017 was $0.9 million, and $0.7 million, respectively, at the fair value of the options as of the date of grant.
Valuation Assumptions: The fair value of each stock option is estimated at the grant date using the Black-Scholes option pricing model. The fair value of stock options under the Black-Scholes option pricing model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price, and expected dividends.
The Company has not historically paid cash dividends to its stockholders, and currently does not anticipate paying any cash dividends in the foreseeable future. As a result, the Company has assumed a dividend yield of 0%. The risk-free interest rate is based upon the rates of U.S. Treasury bills with a term that approximates the expected life of the option. Since the Company has limited historical exercise data to reasonably estimate the expected life of its option awards, the expected life is calculated using a simplified method. Expected volatility is based on historical volatility of the Company’s stock.
The following table provides the weighted average assumptions used in the Black-Scholes option pricing model for the years ended December 31:
| 2018 | 2017 |
Expected dividend yield | | 0 | % | | 0 | % |
Risk-free interest rate | | 2.49 | % | | 1.97 | % |
Expected volatility | | 120.54 | % | | 103 | % |
Expected life (in years) | | 6.23 | | | 6.25 | |
The weighted-average fair value of stock options granted in 2018 and 2017 was $41.04 and $167.3, respectively. As of December 31, 2018, the total compensation cost related to all non-vested stock option awards not yet recognized was approximately $3.9 and is expected to be recognized over the remaining weighted-average period of 3.1 years.
Restricted Stock Awards: The following table summarizes restricted stock award activity during 2018 and 2017:
| 2018 | 2017 |
| RSUs | Weighted Average Grant Price | RSUs | Weighted Average Grant Price |
Nonvested, beginning balance | | 15 | | $ | 7,297.22 | | | 33 | | $ | 9,052.37 | |
Granted | | — | | | — | | | 11 | | | 1,514.80 | |
Vested | | (12 | ) | | 7,297.22 | | | (29 | ) | | 1,854.56 | |
Forfeited | | — | | | — | | | — | | | — | |
Nonvested at December 31 | | 3 | | $ | 7,297.22 | | | 15 | | $ | 7,297.22 | |
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Warrants
Warrants to purchase 599,293, and 608,764 shares of common stock were outstanding at December 31, 2018 and 2017, respectively. As of December 31, 2018, warrants outstanding were exercisable at prices ranging from $29.68 to $43,848 per share, and are exercisable over a period ranging from eleven months to 6.5 years.
Note 8 - Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, warrants, and contingent consideration.
Pursuant to the requirements of ASC Topic 820 “Fair Value Measurement,” the Company’s financial assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:
| • | Level 1 - Financial instruments with unadjusted quoted prices listed on active market exchanges. |
| • | Level 2 - Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over the counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. |
| • | Level 3 - Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques. |
The fair value of the Company’s common stock warrant liability related to the investor warrants was calculated using a Monte Carlo valuation model and was classified as Level 3 in the fair value hierarchy. The fair value of the Company’s common stock warrant liability related to the placement agent warrants is calculated using a Black Scholes option pricing model and was classified as Level 3 in the fair value hierarchy.
The following is a rollforward of the fair value of Level 3 warrants:
(in thousands) | |
Balance December 31, 2016 | $ | 1,843 | |
Change in fair value | | (1,475 | ) |
Exercise of warrants | | (368 | ) |
Balance as of December 31, 2017 | $ | — | |
A significant change in the inputs used for the Monte Carlo and Black Scholes option pricing models such as the expected volatility, bond yield of equivalent securities, or probability of future equity financings, in isolation, would result in significantly higher or lower fair value measurements. In combination, changes in these inputs could result in a significantly higher or lower fair value measurement if the input changes were to be aligned or could result in a minimally higher or lower fair value measurement if the input changes were of a compensating nature.
The fair value of the Company’s contingent consideration, was initially measured based on the consideration expected to be transferred (probability-weighted), discounted back to present value, and it is considered a Level 3 instrument. The discount rate used was determined at the time of measurement in accordance with accepted valuation methods. The Company measures the liability on a recurring basis using Level 3 inputs including probabilities of payment and projected payment dates. Changes to any of the inputs may result in significantly higher or lower fair value measurements. There were no changes in the fair value of the contingent consideration subsequent to the initial measurement.
All cash equivalents are considered Level 1 measurements for all periods presented. The Company does not have any financial instruments classified as Level 2 or any other classified as Level 3 and there were no movements between these categories during the periods ended December 31, 2018 and 2017. The Company believes that the carrying amounts of all remaining financial instruments approximate their fair value due to their relatively short maturities.
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Note 9—Income Taxes
Domestic and foreign loss before income taxes, consists of the following for the years ended December 31:
(in thousands) | 2018 | 2017 |
Domestic | $ | (17,027 | ) | $ | (13,367 | ) |
Foreign | | 1 | | | (9 | ) |
Loss before income taxes | $ | (17,026 | ) | $ | (13,376 | ) |
The components of income tax expense consist of the following for the years ended December 31:
(in thousands) | 2018 | 2017 |
Current:
| | | | | | |
United States and state | $ | — | | $ | — | |
Foreign, net | | (6 | ) | | (6 | ) |
Deferred:
| | | | | | |
United States and state | | — | | | — | |
Foreign | | — | | | — | |
Total income tax expense | $ | (6 | ) | $ | (6 | ) |
Actual income tax expense differs from statutory federal income tax expense as follows for the years ended December 31:
(in thousands) | 2018 | 2017 |
Statutory federal income tax benefit | $ | 3,578 | | $ | 4,548 | |
State tax benefit, net of federal taxes | | 45 | | | 48 | |
Foreign tax | | (2 | ) | | — | |
Foreign deferred exchange rate adjustments | | (1,112 | ) | | 899 | |
Nondeductible/nontaxable items | | (259 | ) | | (114 | ) |
New federal rate adjustment | | — | | | (16,081 | ) |
Other | | (72 | ) | | (1,085 | ) |
Valuation allowance decrease (increase) | | (2,184 | ) | | 11,779 | |
Total income tax benefit expense | $ | (6 | ) | $ | (6 | ) |
Deferred taxes consist of the following as of December 31:
(in thousands) | 2018 | 2017 |
Deferred tax assets:
| | | | | | |
Noncurrent:
| | | | | | |
Accrued leave | $ | 50 | | $ | 32 | |
Other accrued expenses | | — | | | 28 | |
Stock based compensation | | 483 | | | 336 | |
Net operating loss carryforward | | 41,032 | | | 38,947 | |
Other | | 125 | | | 115 | |
Intangibles | | 847 | | | 895 | |
R&D credit carryforward | | 531 | | | 531 | |
Total deferred tax assets | | 43,068 | | | 40,884 | |
Less: valuation allowance | | (43,068 | ) | | (40,884 | ) |
Total | $ | — | | $ | — | |
As of December 31, 2017, the Company had federal net operating loss (“NOLs”) carryforwards of approximately $135.2 million and $29.5 million of state NOL carryforwards., Approximately $120.1 million of federal NOL carryforwards will expire between 2024 and 2037. Pursuant to the Tax Cuts and Jobs Act of 2017, the NOL generated during the current year of approximately $15.1 million does not expire. The expiration of state NOL carryforwards
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will vary by jurisdiction. As of December 31, 2018, the Company had tax losses in the Commonwealth of Australia of approximately AU$49.0 million which can carry forward indefinitely. Federal or state NOLs cannot be used to offset taxable income in foreign jurisdictions. In addition, future utilization of NOL carryforwards in the U.S. may be subject to certain limitations under Section 382 of the Internal Revenue Code.
The Company provides for a valuation allowance when it is more likely than not that it will not realize a portion of the deferred tax assets. The Company has established a valuation allowance for U.S. and foreign deferred tax assets due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions to utilize the assets. Therefore, the Company has not reflected any benefit of such deferred tax assets in the accompanying consolidated financial statements. For the year ended December 31, 2018, the valuation allowance increased by $2.2 million primarily due to current year operating losses. For the year ended December 31, 2017, the valuation allowance decreased by $11.8 million primarily as result of the impact of the 2017 tax reform re-measurement of deferred tax assets.
During 2017 and 2018, the Company believes it experienced an ownership change as defined in Section 382 of the Internal Revenue Code which will limit the ability to utilize the Company’s net operating losses (NOLs). The Company may have experienced additional ownership changes in earlier years further limiting the NOL carry-forwards that may be utilized. The Company has not yet completed a formal Section 382 analysis. The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.
The accounting guidance related to uncertain tax positions prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company had no material uncertain tax positions as of December 31, 2018 or 2017.
The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. At December 31, 2018 and 2017, the Company recorded no accrued interest or penalties related to uncertain tax positions.
The tax years ended December 31, 2015 through December 31, 2018 remain open to examination by the Internal Revenue Service and for the various states where we are subject to taxation. Additionally, the returns of the Company’s Australian and Irish subsidiary are subject to examination by tax authorities of those jurisdictions for the tax years ended and subsequent to June 30, 2013 and December 31, 2014, respectively.
Note 10—Commitments and Contingencies
Leases
The Company leases office space under a non-cancelable operating lease that expires in March 2022. In August 2018, the Company entered into a Third Amendment to the lease, extending the term of the lease from March 31, 2019 to March 31, 2022. Beginning on April 1, 2019, the annual base rent shall be $9.00 per square foot, subject to annual increases of $0.25 per square foot. Rent expense is recognized using the straight-line method over the term of the lease.
The Company leases office equipment under non-cancelable operating leases that expire at various times through September 2020.
Rent expense related to operating leases was approximately $293,000, and $290,000 for the years ended December 31, 2018 and 2017, respectively. Future minimum lease payments under non-cancelable operating leases as of December 31, 2018, were approximately $217,000, $220,000, $219,000, $55,000, and $0 for each of the years ended December 31, 2019, through 2023, respectively.
Employee Retirement Plan
The Company has a 401(k)-profit sharing plan that provides retirement benefit to substantially all full-time U.S. employees. Eligible employees may contribute a percentage of their annual compensation, subject to Internal Revenue Service limitations, with the Company matching a portion of the employee’s contributions at the discretion of the Company. Matching contributions totaled $197,000 and $138,000 for the years ended December 31, 2018 and 2017, respectively.
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Contingent Consideration
The Company agreed that if it disposes of any of the Aquadex assets for a price that exceeds $4.0 million within three years of the closing of the purchase of the Aquadex Business, it will pay Baxter 40% of the amount of such excess. In addition, it also agreed that if shares of its common stock cease to be publicly traded on Nasdaq, Baxter has the option to require the Company to repurchase, in cash, all or any part of the common shares held by Baxter at a price equal to their fair market value, as determined by a third-party appraiser.
Note 11—Segment and Geographic Information
The Company has one reportable segment, cardiac and coronary disease products.
At December 31, 2018, long-lived assets were located primarily in the United States.
Note 12 – Subsequent Event
The Company filed an S-1 on December 31, 2018, which was amended January 22, 2019, to raise additional capital. Changing circumstances may cause the Company to consume capital significantly faster than it currently anticipates and could adversely affect the Company’s ability to raise additional capital. Additional financing may not be available when the Company needs it or may not be available on favorable terms.
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHF SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
| September 30, 2019 | December 31, 2018 |
| (unaudited) | |
ASSETS
| | | | | | |
Current assets
| | | | | | |
Cash and cash equivalents | $ | 3,634 | | $ | 5,480 | |
Accounts receivable | | 528 | | | 786 | |
Inventory | | 1,612 | | | 1,658 | |
Other current assets | | 277 | | | 203 | |
Total current assets | | 6,051 | | | 8,127 | |
Property, plant and equipment, net | | 1,025 | | | 536 | |
Operating lease right-of-use asset, net | | 487 | | | — | |
Other assets | | 21 | | | 113 | |
TOTAL ASSETS | $ | 7,584 | | $ | 8,776 | |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY
| | | | | | |
Current liabilities
| | | | | | |
Accounts payable | $ | 1,427 | | $ | 1,133 | |
Accrued compensation | | 1,242 | | | 1,498 | |
Current portion of operating lease liability | | 181 | | | — | |
Other current liabilities | | 87 | | | 209 | |
Total current liabilities | | 2,937 | | | 2,840 | |
Operating lease liability | | 309 | | | — | |
Total liabilities | | 3,246 | | | 2,840 | |
| | | | | | |
Commitments and contingencies | | — | | | — | |
| | | | | | |
Stockholders’ equity
| | | | | | |
Series A junior participating preferred stock as of September 30, 2019 and December 31, 2018, par value $0.0001 per share; authorized 30,000 shares, none outstanding | | — | | | — | |
Series F convertible preferred stock as of September 30, 2019 and December 31, 2018, par value $0.0001 per share; authorized 535 and 535 shares, respectively, issued and outstanding 535 and 535, respectively | | — | | | — | |
Series G convertible preferred stock as of September 30, 2019 and December 31, 2018, par value $0.0001 per share; authorized 0 and 0 shares, respectively, issued and outstanding 0 and 0, respectively | | | | | | |
Preferred stock as of September 30, 2019 and December 31, 2018, par value $0.0001 per share; authorized 39,969,465 and 39,969,465 shares, respectively, none outstanding | | — | | | — | |
Common stock as of September 30, 2019 and December 31, 2018, par value $0.0001 per share; authorized 100,000,000 shares, issued and outstanding 2,879,162 and 513,445, respectively | | — | | | — | |
Additional paid-in capital | | 216,173 | | | 204,101 | |
Accumulated other comprehensive income:
| | | | | | |
Foreign currency translation adjustment | | 1,219 | | | 1,223 | |
Accumulated deficit | | (213,054 | ) | | (199,388 | ) |
Total stockholders’ equity | | 4,338 | | | 5,936 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 7,584 | | $ | 8,776 | |
See notes to the condensed consolidated financial statements.
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except per share amounts)
| Three months ended September 30, | Nine months ended September 30, |
| 2019 | 2018 | 2019 | 2018 |
Net sales | $ | 1,252 | | $ | 1,363 | | $ | 4,144 | | $ | 3,499 | |
Costs and expenses:
| | | | | | | | | | | | |
Cost of goods sold | | 540 | | | 915 | | | 1,987 | | | 2,686 | |
Selling, general and administrative | | 4,107 | | | 3,713 | | | 12,098 | | | 11,489 | |
Research and development | | 1,112 | | | 985 | | | 3,719 | | | 2,107 | |
Total costs and expenses | | 5,759 | | | 5,613 | | | 17,804 | | | 16,282 | |
Loss from operations | | (4,507 | ) | | (4,250 | ) | | (13,660 | ) | | (12,783 | ) |
Other income (loss), net | | (1 | ) | | 10 | | | (1 | ) | | 10 | |
Loss before income taxes | | (4,508 | ) | | (4,240 | ) | | (13,661 | ) | | (12,773 | ) |
Income tax expense | | (1 | ) | | (1 | ) | | (5 | ) | | (3 | ) |
Net loss | $ | (4,509 | ) | $ | (4,241 | ) | $ | (13,666 | ) | $ | (12,776 | ) |
| | | | | | | | | | | | |
Basic and diluted loss per share | $ | (1.70 | ) | $ | (8.50 | ) | $ | (9.49 | ) | $ | (34.59 | ) |
| | | | | | | | | | | | |
Weighted average shares outstanding – basic and diluted | | 2,646 | | | 499 | | | 1,915 | | | 369 | |
| | | | | | | | | | | | |
Other comprehensive loss:
| | | | | | | | | | | | |
Foreign currency translation adjustments | $ | 1 | | $ | (1 | ) | $ | (4 | ) | $ | (2 | ) |
Total comprehensive loss | $ | (4,508 | ) | $ | (4,242 | ) | $ | (13,670 | ) | $ | (12,778 | ) |
See notes to the condensed consolidated financial statements.
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
| Outstanding Shares of Common Stock | Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Stockholders’ Equity |
Balance December 31, 2017 | | 271,357 | | $ | — | | $ | 197,367 | | $ | 1,227 | | $ | (182,356 | ) | $ | 16,238 | |
Net loss | | — | | | — | | | — | | | — | | | (4,354 | ) | | (4,354 | ) |
Foreign currency translation adjustment | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Stock-based compensation, net | | 3 | | | — | | | 501 | | | — | | | — | | | 501 | |
Conversion of preferred stock into common stock | | 32,365 | | | — | | | — | | | — | | | — | | | — | |
Balance March 31, 2018 | | 303,725 | | $ | — | | $ | 197,868 | | $ | 1,228 | | $ | (186,710 | ) | $ | 12,386 | |
Net loss | | — | | | — | | | — | | | — | | | (4,181 | ) | | (4,181 | ) |
Foreign currency translation adjustment | | — | | | — | | | — | | | (2 | ) | | — | | | (2 | ) |
Stock-based compensation and stock awards, net | | 3 | | | — | | | 606 | | | — | | | — | | | 606 | |
Conversion of preferred stock into common stock | | 18,127 | | | — | | | — | | | — | | | — | | | — | |
Balance June 30, 2018 | | 321,855 | | $ | — | | $ | 198,474 | | $ | 1,226 | | $ | (190,891 | ) | $ | 8,809 | |
Net loss | | — | | | — | | | — | | | — | | | (4,241 | ) | | (4,241 | ) |
Foreign currency translation adjustment | | — | | | — | | | — | | | (1 | ) | | — | | | (1 | ) |
Stock-based compensation and stock awards, net | | 3 | | | — | | | 437 | | | — | | | — | | | 437 | |
Issuance of common stock, net | | 181,941 | | | — | | | 4,649 | | | — | | | — | | | 4,649 | |
Conversion of preferred stock into common stock | | 1,516 | | | — | | | — | | | — | | | — | | | — | |
Balance September 30, 2018 | | 505,315 | | $ | — | | $ | 203,560 | | $ | 1,225 | | $ | (195,132 | ) | $ | 9,653 | |
| Outstanding Shares of Common Stock | Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Stockholders’ Equity |
Balance December 31, 2018 | | 513,445 | | $ | — | | $ | 204,101 | | $ | 1,223 | | $ | (199,388 | ) | $ | 5,936 | |
Net loss | | — | | | — | | | — | | | — | | | (4,727 | ) | | (4,727 | ) |
Foreign currency translation adjustment | | — | | | — | | | — | | | (2 | ) | | — | | | (2 | ) |
Stock-based compensation, net | | 3 | | | — | | | 362 | | | — | | | — | | | 362 | |
Issuance of common and preferred stock, net | | 455,178 | | | — | | | 10,959 | | | — | | | — | | | 10,959 | |
Conversion of preferred stock into common stock | | 1,100,394 | | | — | | | — | | | — | | | — | | | — | |
Balance March 31, 2019 | | 2,069,020 | | $ | — | | $ | 215,422 | | $ | 1,221 | | $ | (204,115 | ) | $ | 12,528 | |
Net loss | | — | | | — | | | — | | | — | | | (4,430 | ) | | (4,430 | ) |
Foreign currency translation adjustment | | — | | | — | | | — | | | (3 | ) | | — | | | (3 | ) |
Stock-based compensation, net | | — | | | — | | | 339 | | | — | | | — | | | 339 | |
Conversion of preferred stock into common stock | | 259,300 | | | — | | | — | | | — | | | — | | | — | |
Balance June 30, 2019 | | 2,328,320 | | $ | — | | $ | 215,761 | | $ | 1,218 | | $ | (208,545 | ) | $ | 8,434 | |
Net loss | | — | | | — | | | — | | | — | | | (4,509 | ) | | (4,509 | ) |
Foreign currency translation adjustment | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Stock-based compensation, net | | — | | | — | | | 412 | | | — | | | — | | | 412 | |
Conversion of preferred stock into common stock | | 550,842 | | | — | | | — | | | — | | | — | | | — | |
Balance September 30, 2019 | | 2,879,162 | | $ | — | | $ | 216,173 | | $ | 1,219 | | $ | (213,054 | ) | $ | 4,338 | |
See notes to the condensed consolidated financial statements.
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Nine months ended September 30, |
| 2019 | 2018 |
Operating Activities:
| | | | | | |
Net loss | $ | (13,666 | ) | $ | (12,776 | ) |
Adjustments to reconcile net loss to cash flows used in operating activities:
| | | | | | |
Depreciation and amortization | | 179 | | | 174 | |
Stock-based compensation expense, net | | 1,113 | | | 1,544 | |
Changes in operating assets and liabilities:
| | | | | | |
Accounts receivable | | 258 | | | (242 | ) |
Inventory | | (158 | ) | | (360 | ) |
Other current assets | | (74 | ) | | (104 | ) |
Other assets and liabilities | | (27 | ) | | — | |
Accounts payable and accrued expenses | | 38 | | | (79 | ) |
Net cash used in operating activities | | (12,337 | ) | | (11,843 | ) |
| | | | | | |
Investing Activities:
| | | | | | |
Purchases of property, plant and equipment | | (464 | ) | | (177 | ) |
Net cash used in investing activities | | (464 | ) | | (177 | ) |
| | | | | | |
Financing Activities:
| | | | | | |
Net proceeds from public stock offering, net | | 10,959 | | | 4,649 | |
Net cash provided by financing activities | | 10,959 | | | 4,649 | |
| | | | | | |
Effect of exchange rate changes on cash | | (4 | ) | | (2 | ) |
Net decrease in cash and cash equivalents | | (1,846 | ) | | (7,373 | ) |
Cash and cash equivalents - beginning of period | | 5,480 | | | 15,595 | |
Cash and cash equivalents - end of period | $ | 3,634 | | $ | 8,222 | |
| | | | | | |
Supplemental schedule of non-cash activities:
| | | | | | |
Inventory transferred to property, plant and equipment | $ | 204 | | $ | — | |
See notes to the condensed consolidated financial statements.
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CHF SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of Business and Basis of Presentation
Nature of Business: CHF Solutions, Inc. (the “Company”) is a medical device company focused on developing, manufacturing and commercializing the Aquadex FlexFlow® system for aquapheresis therapy. The Aquadex FlexFlow system (“Aquadex FlexFlow”) is indicated for temporary (up to eight hours) ultrafiltration treatment of patients with fluid overload who have failed diuretic therapy and extended (longer than 8 hours) ultrafiltration treatment of patients with fluid overload who have failed diuretic therapy and require hospitalization. The Company has submitted an application to the FDA requesting for 510(k) clearance of the Aquadex FlexFlow system to include pediatric patients who weigh 20kg or more. CHF Solutions, Inc. is a Delaware corporation headquartered in Minneapolis with wholly owned subsidiaries in Australia, Ireland and Delaware. The Company has been listed on Nasdaq since February 2012.
Previously, the Company was focused on developing the C-Pulse® Heart Assist System for treatment of Class III and ambulatory Class IV heart failure. In August 2016, the Company acquired the business associated with the Aquadex FlexFlow system (herein referred to as the “Aquadex Business”) from a subsidiary of Baxter International, Inc. (“Baxter”), and refocused its strategy to fully devote its resources to the Aquadex Business.
In December 2018, the Company’s stockholders approved a reverse split of its outstanding common stock at a ratio in the range of 1-for-2 to 1-for 14 and, in January 2019, the board of directors approved a 1-for-14 reverse split of the Company’s outstanding common stock that became effective after trading on January 2, 2019. This reverse stock split did not change the par value of the Company’s common stock or the number of common or preferred shares authorized by the Company’s Fourth Amended and Restated Certificate of Incorporation. All share and per-share amounts have been retroactively adjusted to reflect the reverse stock split for all periods presented.
Principles of Consolidation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information and note disclosures normally included in the audited annual consolidated financial statements have been condensed or omitted pursuant to those rules and regulations. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, comprehensive loss, financial condition, and cash flows in conformity with U.S. GAAP. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for the year as a whole. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the consolidated financial statements and during the reporting period. Actual results could materially differ from these estimates.
For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Going Concern: The Company’s consolidated financial statements have been prepared and presented on a basis assuming it continues as a going concern. During the years ended December 31, 2018 and 2017 and through September 30, 2019, the Company incurred losses from operations and net cash outflows from operating activities as disclosed in the consolidated statements of operations and cash flows, respectively. As of September 30, 2019, the Company had an accumulated deficit of $213.1 million and it expects to incur losses for the immediate future. To date, the Company has been funded by debt and equity financings, and although the Company believes that it will be able to successfully fund its operations, there can be no assurance that it will be able to do so or that it will ever operate profitably. These factors raise substantial doubt about the Company’s ability to continue as a going concern through the next twelve months.
The Company became a revenue generating company after acquiring the Aquadex Business in August 2016. The Company expects to incur additional losses in the near-term as it grows the Aquadex Business, including investments in expanding its sales and marketing capabilities, purchasing inventory, manufacturing components, and complying with the requirements related to being a U.S. public company. To become and remain profitable, the
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Company must succeed in expanding the adoption and market acceptance of the Aquadex FlexFlow. This will require the Company to succeed in training personnel at hospitals and effectively and efficiently manufacturing, marketing and distributing the Aquadex FlexFlow and related components. There can be no assurance that the Company will succeed in these activities, and it may never generate revenues sufficient to achieve profitability.
On April 24, 2017, November 27, 2017, July 3, 2018, March 12, 2019, October 25, 2019 and November 6, 2019, the Company closed on underwritten public equity offerings for aggregate net proceeds of approximately $41.4 million after deducting the underwriting discounts and commissions and other costs associated with the offerings (see Note 4 –Equity and Note 10-Subsequent Events). The Company will require additional funding to grow its Aquadex Business, which may not be available on terms favorable to the Company, or at all. The Company may receive those funds from the proceeds from future warrant exercises, issuances of equity securities, or other financing transactions. Should warrant exercises not materialize or future capital raising be unsuccessful, the Company may not be able to continue as a going concern. No adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.
Revenue Recognition: The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2018. Accordingly, the Company recognizes revenue when its customers obtain control of its products or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods and services. See Note 2 – Revenue Recognition, for additional disclosures. For the three months ended September 30, 2019, three customers represented 11%, 12% and 12% of net sales. For the nine months ended September 30, 2019, one customer represented 10% of net sales. For the three months ended September 30, 2018, two customers represented 15% and 10% of net sales. For the nine months ended September 30, 2018, one customer represented 10% of net sales.
Accounts Receivable: Accounts receivable are unsecured, recorded at net realizable value, and do not bear interest. The Company makes judgments as to its ability to collect outstanding receivables based upon significant patterns of collectability, historical experience, and managements’ evaluation of specific accounts and will provide an allowance for credit losses when collection becomes doubtful. The Company performs credit evaluations of its customers’ financial condition on an as-needed basis. Payment is generally due 30 days from the invoice date and accounts past 30 days are individually analyzed for collectability. When all collection efforts have been exhausted, the account is written off against the related allowance. To date the Company has not experienced any write-offs or significant deterioration of the aging of its accounts receivable, and therefore, no allowance for doubtful accounts was considered necessary as of September 30, 2019 or December 31, 2018. As of September 30, 2019, two customers represented 14% and 12% of the accounts receivable balance. As of December 31, 2018, three customers represented 18%, 13% and 13% of the accounts receivable balance.
Inventories: Inventories are recorded as the lower of cost or net realizable value using the first-in, first out method. Overhead is allocated to manufactured finished goods inventory based on the normal capacity of the Company’s production facilities. Abnormal amounts of overhead, if any, are expensed as incurred. Inventories consisted of the following:
(in thousands) | September 30, 2019 | December 31, 2018 |
Finished Goods | $ | 468 | | $ | 517 | |
Work in Process | | 185 | | | 34 | |
Raw Materials | | 959 | | | 1,107 | |
Total | $ | 1,612 | | $ | 1,658 | |
Contingent consideration: In connection with the Company’s purchase of the Aquadex Business in August 2016, the Company had an obligation to pay additional consideration that was contingent upon the occurrence of certain future events (see Note 9 - Commitments and Contingencies). Contingent consideration was recognized at the acquisition date at $126,000, the estimated fair value of the contingent milestone payments. The fair value of the contingent consideration was remeasured to its estimated fair value at the end of each reporting period, with changes recorded to earnings. As of September 30, 2019, this contingency had expired, therefore its fair value was $0.
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Loss per share: Basic loss per share is computed based on the net loss for each period divided by the weighted average number of common shares outstanding. The net loss allocable to common stockholders for the nine months ended September 30, 2019, reflects a $4.5 million increase for the net deemed dividend to preferred stockholders provided in connection with the close of the public offering of Series G Convertible Preferred Stock on March 12, 2019 (see Note 4 - Equity), representing the intrinsic value of the shares at the time of issuance.
Diluted earnings per share is computed based on the net loss allocable to common stockholders for each period divided by the weighted average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued, and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include shares underlying outstanding convertible preferred stock, warrants, stock options and other stock-based awards granted under stock-based compensation plans.
The following table sets forth the potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:
| September 30, |
| 2019 | 2018 |
Warrants to purchase common stock | | 5,430,721 | | | 608,787 | |
Series F convertible preferred stock | | 102,185 | | | 19,210 | |
Stock options | | 332,722 | | | 139,439 | |
Restricted stock units | | — | | | 3 | |
Total | | 5,865,628 | | | 767,439 | |
The following table reconciles reported net loss with reported net loss per share for the periods ended September 30, 2019:
(in thousands, except per share amounts) | Three months | Nine months |
Net loss | $ | (4,509 | ) | $ | (13,666 | ) |
Deemed dividend to preferred shareholders (see Note 4) | | — | | | (4,509 | ) |
Net loss after deemed dividend | | (4,509 | ) | | (18,175 | ) |
Weighted average shares outstanding | | 2,646 | | | 1,915 | |
Basic and diluted loss per share | $ | (1.70 | ) | $ | (9.49 | ) |
New Accounting Pronouncements: In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance to improve financial reporting about leasing transactions. This guidance required organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued new guidance which included an option to not restate comparative periods in transition. The Company adopted this new standard on January 1, 2019 with no retrospective adjustments to prior comparative periods. The adoption of this standard on January 1, 2019 resulted in an increase of approximately $0.6 million in the Company’s other long-term assets and in short and long-term liabilities recorded on its consolidated balance sheet. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard which allowed it to carry forward the historical lease classification. See Note 7 –Operating Leases for additional qualitative and quantitative disclosures.
In August 2018, the FASB issued updated guidance to improve and simplify the disclosure requirements on fair value measurements for level 3 assets and liabilities valued at fair value. The Company early-adopted the guidance effective in its second quarter and the effect on the consolidated financial statements was not material.
Note 2 – Revenue Recognition
Net Sales
The Company sells its products in the United States primarily through a direct sales force. Customers who purchase the Company’s products include hospitals and clinics throughout the United States. In countries outside the United States, the Company sells its products through a limited number of specialty healthcare distributors in the United
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Kingdom, Italy, Spain, Germany, Southeast Asia, Brazil, India and Greece. These distributors resell the Company’s products to hospitals and clinics in their respective geographies.
Revenue from product sales are recognized when the customer or distributor obtains control of the product, which occurs at a point in time, most frequently upon shipment of the product or receipt of the product, depending on shipment terms. The Company’s standard shipping terms are FOB shipping point, unless the customer requests that control and title to the inventory transfer upon delivery. Revenue includes shipment and handling fees charged to customers.
Revenue is measured as the amount of consideration we expect to receive, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. The majority of our contracts have a single performance obligation and are short term in nature. The Company has entered into extended service plans with customers which are recognized over time. This revenue represents less than 1% of net sales for the three and nine months ended September 30, 2019 and 2018. The unfulfilled performance obligations related to these extended service plans is included in deferred revenue, which is included in other current liabilities on the condensed consolidated balance sheet. The majority of the deferred revenue is expected to be recognized within one year.
Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Revenue includes shipment and handling fees charged to customers. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
Product Returns: The Company offers customers a limited right of return for its product in case of non-conformity or performance issues. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using available industry data and its own historical sales and returns information. The Company has not received any returns to date and believes that future returns of its products will be minimal. Therefore, revenue recognized is not currently impacted by variable consideration related to product returns.
Note 3 – Debt
On August 5, 2016, the Company entered into a loan and security agreement with Silicon Valley Bank (the Bank). Under this agreement, the Bank agreed to provide the Company with up to $5.0 million in debt financing, consisting of a term loan in an aggregate original principal amount not to exceed $4.0 million (the “Term Loan”) and a revolving line of credit in an aggregate principal amount not to exceed $1.0 million outstanding at any time (the “Revolving Line”). Proceeds from the loans were to be used for general corporate and working capital purposes. Advances under the Term Loan were available to the Company until November 30, 2016 and were subject to the Company’s compliance with liquidity covenants. The Term Loan expired unused on November 30, 2016 and the Term Loan is no longer available to be drawn. Advances under the Revolving Line are available to the Company until March 31, 2020 and accrue interest at a floating annual rate equal to 1.75% or 1.0% above the prime rate, depending on liquidity factors. Outstanding borrowings, if any, are collateralized by all of the Company’s assets, excluding intellectual property which is subject to a negative pledge. There were no borrowings outstanding under this facility as of September 30, 2019 or December 31, 2018.
Note 4 – Equity
Series F Convertible Preferred Stock: On November 27, 2017, the Company closed on an underwritten public offering of Series F convertible preferred stock and warrants to purchase shares of common stock for gross proceeds of $18.0 million. Net proceeds totaled approximately $16.2 million after deducting the underwriting discounts and commissions and other costs associated with the offering.
The offering was comprised of Series F convertible preferred stock, convertible into shares of the Company’s common stock at an initial conversion price of $63.00 per share. Each share of Series F preferred stock was accompanied by a Series 1 warrant, which was to expire on the first anniversary of its issuance, to purchase 16 shares of the Company’s common stock at an exercise price of $63.00 per share, and a Series 2 warrant, which expires on the seventh anniversary of its issuance, to purchase 16 shares of the Company’s common stock at an exercise price
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of $63.00 per share. The Series F preferred stock and the warrants were immediately separable and were issued separately. The conversion price of the Series F preferred stock will be adjusted in the event of a stock split, combination, reclassification or stock dividend or if the Company consummates a fundamental transaction. The Series F preferred stock also has full ratchet price based anti-dilution protection, subject to customary carve outs, in the event of a down-round financing at a price per share below the conversion price of the Series F preferred stock (which protection will expire if, during any 20 of 30 consecutive trading days, the volume weighted average price of the Company’s common stock exceeds 300% of the then-effective conversion price of the Series F preferred stock and the daily dollar trading volume for each trading day during such period exceeds $200,000). The exercise price of the warrants is fixed and does not contain any variable pricing features, nor any price based anti-dilutive features, apart from customary adjustments for stock splits, combinations, reclassifications, stock dividends or fundamental transactions. A total of 18,000 shares of Series F Convertible Preferred Stock initially convertible into 286,714 shares of common stock and warrants to purchase 573,310 shares of common stock were issued in the offering.
As noted below, effective July 3, 2018, the conversion price of the Series F convertible preferred stock was reduced from $63.00 to $29.68, the per share price in the July 2018 Offering described below. Effective March 12, 2019, the conversion price of the Series F convertible preferred stock was reduced again from $29.68 to $5.25, the per share price to the public of the Series G convertible preferred stock which closed in an underwritten public offering on March 12, 2019, and each share of the remaining Series F convertible preferred stock is convertible into 191 shares of the Company’s common stock. As of both September 30, 2019, and December 31, 2018, 535 shares of the Series F convertible preferred stock remained outstanding.
July 2018 Offering: On July 3, 2018, the Company closed on an underwritten public offering of 181,941 shares of its common stock at a public offering price of $29.68 per share, for gross proceeds of $5.4 million, including the full exercise of the underwriters’ over-allotment option to purchase additional shares of the Company’s common stock (the “July 2018 Offering”). Net proceeds totaled approximately $4.6 million after deducting underwriting discounts and commissions and offering expenses.
In connection with the July 2018 Offering, and to induce certain institutional investors who hold warrants issued by the Company in November 2017 (“November 2017 Warrants”) to participate in the July 2018 Offering, the Company entered into letter agreements with such institutional investors. Pursuant to the terms of these agreements, the Company agreed, effective July 3, 2018, to reduce the per share exercise price of the November 2017 Warrants held by such institutional investors to $29.68 and to extend the expiration date of the warrants that were to expire on November 27, 2018 to November 27, 2019. The number of common shares underlying the warrants that were repriced did not change. The repriced warrants are exercisable for 554,322 shares of common stock in the aggregate, of which, following such amendment, half expire on November 27, 2019 and half expire on November 27, 2024. The repricing of the warrants was accounted as an equity financing cost, with no impact to net proceeds from the offering.
As noted above, the Company’s outstanding Series F preferred stock is subject to full-ratchet anti-dilution protection in the event the Company sells any common stock at a price lower than the then-conversion price of the Series F preferred stock. As a result of the July 2018 Offering, effective July 3, 2018, the conversion price of the Series F preferred stock was reduced from $63.00 to $29.68, the per share price in the July 2018 Offering.
Series G Convertible Preferred Stock and March 2019 Offering: On March 12, 2019, the Company closed on an underwritten public offering of common stock, Series G convertible preferred stock and warrants to purchase shares of common stock for gross proceeds of $12.4 million, which included the full exercise of the underwriter’s over-allotment option to purchase additional shares and warrants (“March 2019 Offering”). Net proceeds totaled approximately $11.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering. The Series G convertible preferred stock included a beneficial conversion amount of $4.5 million, representing the intrinsic value of the shares at the time of issuance. This amount is reflected as an increase to the loss per share allocable to common stockholders in the nine months ended September 30, 2019.
The March 2019 Offering was comprised of 455,178 shares of common stock priced at $5.25 per share and 1,910,536 shares of Series G convertible preferred stock, convertible into common stock at $5.25 per share. Each share of Series G convertible preferred stock and each share of common stock was accompanied by a Series 1 warrant and a Series 2 warrant. The Series 1 warrants are exercisable into 2,365,714 shares of common stock and the Series 2 warrants are exercisable into 2,365,714 shares of common stock. Series 1 warrants expire on the fifth anniversary of the date of issuance and are exercisable at $5.25 to purchase one share of common stock. Series 2 warrants expire on the earlier of: (i) the eighteen-month anniversary of the date of issuance and (ii) the 30th trading day following the public
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announcement of the receipt from the U.S. Food and Drug Administration of clearance or approval of a modification to the product label for the Aquadex FlexFlow system to include pediatric patients. Series 2 warrants are exercisable at $5.25 per share of common stock. The conversion price of the Series G convertible preferred stock as well as the exercise price of the warrants are fixed and do not contain any variable pricing features, nor any price based anti-dilutive features apart from customary adjustments for splits and reverse splits of common stock. The Series G convertible preferred stock included a beneficial ownership limitation of 4.99% but had no dividend preference (except to extent dividends are also paid on the common stock), liquidation preference or other preferences over common stock. The securities comprising the units were immediately separable and were issued separately.
As of September 30, 2019, all 1,910,536 shares of the Series G convertible preferred stock had been converted into common stock and none remained outstanding.
As noted above, the Company’s outstanding Series F convertible preferred stock is subject to full-ratchet anti-dilution protection in the event the Company sells any common stock at a price lower than the then-conversion price of the Series F convertible preferred stock. As a result of the March 2019 Offering, the conversion price of the Series F convertible preferred stock was reduced from $29.68, to $5.25, the per share price of the Series G convertible preferred stock.
Placement Agent Fees: In connection with the issuance of the Series F convertible preferred stock, the July 2018 Offering, and the March 2019 Offering, the Company paid the placement agent an aggregate cash placement fee equal to 8% of the aggregate gross proceeds raised in the offering and issued no warrants to the placement agent.
Market-Based Warrants: On May 30, 2019, the Company granted a market-based warrant to a consultant in exchange for investor relations services. The warrant represents the right to acquire up to 100,000 shares of the Company’s common stock at an exercise price of $3.18 per share, the closing stock price of the Company’s common shares on May 30, 2019. The warrant is subject to a vesting schedule based on the Company achieving certain market stock prices within a specified period of time. The warrant expires on May 30, 2024. The warrant was valued at $1.93 per share using the Monte Carlo valuation methodology and is being expensed over the term of the consulting engagement which is twelve months. Significant inputs used for the Monte Carlo valuation were the expected stock price volatility of 136.21%, and management’s expectations regarding the timing of regulatory clearance for an expanded label in pediatrics.
Note 5 – Stock-Based Compensation
Under the fair value recognition provisions of U.S. GAAP for accounting for stock-based compensation, the Company measures stock-based compensation expense at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is generally the vesting period.
The following table presents the classification of stock-based compensation expense recognized for the periods below:
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2019 | 2018 | 2019 | 2018 |
Selling, general and administrative expense | $ | 383 | | $ | 440 | | $ | 1,018 | | $ | 1,446 | |
Research and development expense | | 29 | | | (3 | ) | | 95 | | | 98 | |
Total stock-based compensation expense | $ | 412 | | $ | 437 | | $ | 1,113 | | $ | 1,544 | |
Note 6 – Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, warrants, and contingent consideration.
Pursuant to the requirements of ASC Topic 820 “Fair Value Measurement,” the Company’s financial assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:
| • | Level 1 - Financial instruments with unadjusted quoted prices listed on active market exchanges. |
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| • | Level 2 - Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over the counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. |
| • | Level 3 - Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques. |
The fair value of the Company’s contingent consideration, as described in Note 1, was initially measured based on the consideration expected to be transferred (probability-weighted), discounted back to present value, and it was considered a Level 3 instrument. The discount rate used was determined at the time of measurement in accordance with accepted valuation methods. The Company measured the liability on a recurring basis using Level 3 inputs including probabilities of payment and projected payment dates. As of September 30, 2019, this contingency had expired, therefore its fair value was recorded at $0.
The following is a rollforward of the fair value of Level 3 items:
(in thousands) | |
Balance December 31, 2018 | $ | 126 | |
Change in fair value | | (126 | ) |
Balance as of September 30, 2019 | $ | — | |
The fair value of the market-based warrants described in Note 4 was calculated using a Monte Carlo valuation model and was classified as Level 3 in the fair value hierarchy. These warrants are classified as permanent equity and as a result, were measured at the grant date and are not required to be remeasured to fair value at each reporting period end.
All cash equivalents are considered Level 1 measurements for all periods presented. The Company does not have any financial instruments classified as Level 2 or any other classified as Level 3 and there were no movements between these categories during the periods ended September 30, 2019 and December 31, 2018. The Company believes that the carrying amounts of all remaining financial instruments approximate their fair value due to their relatively short maturities.
Note 7 – Operating Leases
The Company leases office and manufacturing space under a non-cancelable operating lease that expires in March 2022. In August 2018, the Company entered into a third amendment to the lease, extending the term of the lease from March 31, 2019 to March 31, 2022. Beginning on April 1, 2019, the annual base rent is $9.00 per square foot, subject to annual increases of $0.25 per square foot.
The cost components of the Company’s operating lease were as follows for the three and nine months ended September 30, 2019:
(in thousands) | Three Months | Nine Months |
Operating lease cost | $ | 53 | | $ | 158 | |
Variable lease cost | | 26 | | | 85 | |
Total | $ | 79 | | $ | 243 | |
Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased office and manufacturing space.
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Maturities of our lease liability for the Company’s operating lease are as follows as of September 30, 2019:
(in thousands) | |
2019 | $ | 52 | |
2020 | | 213 | |
2021 | | 219 | |
2022 | | 55 | |
Total lease payments | | 539 | |
Less: Interest | | (49 | ) |
Present value of lease liability | $ | 490 | |
As of September 30, 2019, the remaining lease term was 2.5 years and discount rate was 7.5%. For the nine months ended September 30, 2019, the operating cash outflows from the Company’s operating lease for office and manufacturing space were $154,000.
Rent expense related to operating leases for office and manufacturing space and office equipment was approximately $54,000 and $160,000 for the three and nine months ended September 30, 2018, respectively. Future minimum lease payments, under non-cancelable operating leases as of December 31, 2018, were approximately $217,000, $220,000, $219,000, $55,000, and $0 for each of the years ended December 31, 2019, through 2023, respectively.
Note 8 – Income Taxes
The Company provides for a valuation allowance when it is more likely than not that it will not realize a portion of the deferred tax assets. The Company has established a full valuation allowance for U.S. and foreign deferred tax assets due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions to utilize the assets. Therefore, the Company has not reflected any benefit of such deferred tax assets in the accompanying condensed consolidated financial statements.
As of September 30, 2019, there were no material changes to what the Company disclosed regarding tax uncertainties or penalties in its Annual Report on Form 10-K for the year ended December 31, 2018.
Note 9 – Commitments and Contingencies
Employee Retirement Plan: The Company has a 401(k)-profit sharing plan that provides retirement benefit to substantially all full-time U.S. employees. Eligible employees may contribute a percentage of their annual compensation, subject to Internal Revenue Service (“IRS”) limitations, with the Company matching a portion of the employee’s contributions at the discretion of the Company.
Contingent Consideration: As part of the acquisition of the Aquadex Business from Baxter in August 2016, the Company agreed that if it disposed of any of the Aquadex assets for a price that exceeded $4.0 million within three years of the closing, it would pay Baxter 40% of the amount of such excess. This commitment expired on August 6, 2019.
In addition, it also agreed that if shares of its common stock cease to be publicly traded on the Nasdaq Capital Market, Baxter has the option to require the Company to repurchase, in cash, all or any part of the common shares held by Baxter at a price equal to their fair market value, as determined by a third-party appraiser.
Note 10 – Subsequent Events
On October 25, 2019, the Company closed on a registered direct offering of 575,830 shares of its common stock at a price of $1.15 per share, for gross proceeds of approximately $660,000, prior to deducting commissions and expenses related to the transaction. In a concurrent private placement, the Company agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 575,830 shares of the Company’s common stock at an exercise price of $1.41 per share, which will be exercisable six months from the date of issuance, and will expire five years from the initial exercise date.
Additionally, the Company’s outstanding Series F preferred stock is subject to full-ratchet anti-dilution protection in the event the Company sells any common stock at a price lower than the then-conversion price of the Series F preferred stock. As a result of this offering, effective October 25, 2019, the conversion price of the Series F preferred stock was reduced from $5.25 to $1.15 per share, the per share price to the public in this transaction.
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On November 6, 2019, the Company closed on a registered direct offering of 1,219,076 shares of its common stock, or common equivalents, at a price of $1.12 per share, for gross proceeds of approximately $1.36 million prior to deduction of commissions and offering expenses related to the transaction. In a concurrent private placement, the Company agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 1,219,076 shares of the Company’s common stock at an exercise price of $0.9942 per share, which will be exercisable upon the date of issuance, and will expire five years from the initial exercise date. Effective November 6, 2019, the conversion price of the Series F preferred stock was reduced from $1.15 to $0.9942, the exercise price of the warrants issued in connection with this financing.
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INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 13.
| Other Expenses of Issuance and Distribution. |
The following table sets forth the estimated costs and expenses to be incurred in connection with the issuance and distribution of the securities registered under this Registration Statement. All amounts are estimates except the Securities and Exchange Commission registration fee.
| Amount to be Paid |
SEC registration fee | $ | 2,090 | |
FINRA filing fee | $ | 2,415 | |
Legal fees and expenses | $ | 150,000 | |
Printing expenses | $ | 30,000 | |
Accountant’s fees and expenses | $ | 40,000 | |
Transfer agent and registrar fees | $ | 7,500 | |
Miscellaneous expenses | $ | 13,160 | |
Total | $ | 245,165 | |
SEC registration fee | | | $93.40 |
Legal fees and expenses | | | $10,000 |
Printing expenses | | | $5,000 |
Accounting fees and expenses | | | $4,000 |
Transfer agent and registrar fees | | | $7,500 |
Miscellaneous expenses | | | $3,406.60 |
Total | | | $30,000 |
Item 14.
| Indemnification of Directors and Officers. |
Our certificate of incorporation and bylaws provide that each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or an officer of CHF Solutions, Inc. or is or was serving at our request as a director, officer, or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by us to the fullest extent authorized by the Delaware General Corporation Law, as amended (the “DGCL”), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such.
Section 145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, our certificate of incorporation eliminates the liability of a director to us or our stockholders for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising:
from any breach of the director’s duty of loyalty to us or our stockholders;
from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
under Section 174 of the DGCL; and
from any transaction from which the director derived an improper personal benefit.
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We carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacities as directors and officers.
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The Company has entered into indemnification agreements with each of its directors and executive officers. Pursuant to the indemnification agreements, the Company agrees to hold harmless and indemnify its directors and executive officers to the fullest extent authorized or permitted by the provisions of the Company’s certificate of incorporation and bylaws and the DGCL, including for any amounts that such director or officer becomes obligated to pay because of any claim to which such director or officer is made or threatened to be made a party, witness or participant, by reason of such director’s or officer’s service as a director, officer, employee or other agent of the Company.
There are certain exceptions from the Company’s obligation to indemnify its directors and executive officers pursuant to the indemnification agreements, including for “short-swing” profit claims under Section 16(b) of the Exchange Act, losses that result from conduct that is established by a final judgment as knowingly fraudulent or deliberately dishonest or that constituted willful misconduct, or that constituted a breach of the duty of loyalty to the Company or resulted in any improper personal profit or advantage, where payment is actually made to a director or officer under an insurance policy, indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement, for indemnification which is not lawful, or in connection with any proceeding initiated by such director or officer, or any proceeding against the Company or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the Company, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the DGCL, or (iv) the proceeding is initiated to enforce a claim for indemnification pursuant to the indemnification agreement.
All agreements and obligations of the Company contained in the indemnification agreements shall continue during the period when the director or officer who is a party to an indemnification agreement is a director, officer, employee or other agent of the Company (or is or is serving at the request of the Company as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as such director or officer shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative. In addition, the indemnification agreements provide for partial indemnification and advance of expenses.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
| Item 15.
| Recent Sales of Unregistered Securities. |
The following sets forth information regarding all unregistered securities sold by the registrant in the three years preceding the date of this registration statement. This information has been retroactively adjusted to reflect the reverse stock splits for all periods presented.
On July 20, 2016, the registrant entered into a securities purchase agreement with Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd. (collectively, Sabby) under which the registrant issued and sold, on July 26, 2016, 3,468 shares of Series B Convertible Preferred Stock at $1,000 per share directly to Sabby in a registered direct offering. In a concurrent private placement, the registrant issued warrants to purchase an aggregate of 440 shares of its common stock to Sabby. Each warrant was exercisable beginning on the six month anniversary of the date of issuance at an exercise price of $7,896 per share (as adjusted), subject to further adjustment as provided therein and for 36 months from the initial exercise date, but not thereafter. Northland Securities, Inc. acted as placement agent and the registrant issued Northland Securities, Inc. and its designees warrants to purchase an aggregate of 27 shares of common stock. The Northland warrants were exercisable beginning immediately upon the closing at an exercise price of $11,340 per share, subject to adjustment as provided there in, and for 5 years thereafter. The warrants were issued under an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D.
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On August 5, 2016, the registrant entered into and consummated the transactions contemplated by an asset purchase agreement with Gambro UF Solutions, Inc. (the “Seller”), pursuant to which the registrant acquired certain assets exclusively related to the production and sale of Seller’s Aquadex FlexFlow products for consideration consisting of $4.0 million paid in cash and 120 shares of the registrant’s common stock. The shares of common stock were issued to Seller under an exemption from the registration requirement of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D.
On October 30, 2016, the registrant entered into a securities exchange agreement with Sabby, as holder of the registrant’s Series B Convertible Preferred Stock pursuant to which the registrant agreed to issue Sabby 2,227.2 shares of Series B-1 Convertible Preferred Stock in exchange for the cancellation of all shares of Series B Convertible Preferred Stock held by Sabby in reliance on an exemption from registration provided by Section 3(a)(9) of the Securities Act, and consummated such exchange on November 3, 2016.
On October 30, 2016, the registrant entered into securities purchase agreements with Sabby under which it agreed to issue and sell 2,900 shares of Series C Convertible Preferred Stock at $1,000 per share directly to Sabby in a registered direct offering. In a concurrent private placement, the registrant agreed to issue and sell 900 shares of Series D Convertible Preferred Stock at $1,000 per share directly to Sabby and warrants to purchase an aggregate of 2,662 shares of common stock. The registered direct offering closed on November 3, 2016, and the registrant concurrently sold 700 shares of the Series D Convertible Preferred Stock and warrants to purchase 2,522 shares of common stock. The remaining 200 shares of Series D Convertible Preferred Stock and warrants to purchase 141 shares of common stock were issued and sold at a second closing on January 11, 2017. The Series D Convertible Preferred Stock had a stated value of $1,000 per share and a conversion price of $1,428 (as adjusted) subject to further adjustment and may be converted to shares of common stock at any time following the receipt of stockholder approval of such issuance upon conversion. Each warrant became exercisable beginning on the day that is the later of the date stockholder approval of the issuance of common stock underlying such warrants is obtained or the six month anniversary of the date of issuance at an exercise price of $1,512 per share (as adjusted), subject to further adjustment as provided therein, and terminate five years thereafter. Northland Securities, Inc. acted as placement agent and the registrant issued Northland Securities, Inc. and its designees warrants to purchase an aggregate of 160 shares of common stock, with an exercise price of $1,786.40 per share. Subject to limited exceptions, a holder of Series D Convertible Preferred Stock or warrants will not have the right to convert or exercise if the holder, together with its affiliates, would beneficially own over 4.99% of the number of shares of the registrant’s common stock outstanding immediately after giving effect to such exercise; provided, however, that upon not less than 61 days’ prior notice, the holder may increase the limitation, provided that in no event will the limitation exceed 9.99%. The Series D Convertible Preferred Stock and the warrants were issued pursuant to an exemption from the registration requirement of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D.
On February 15, 2017, the registrant entered into a letter agreement with Sabby Volatility Warrant Master Fund, Ltd. and Sabby Healthcare Master Fund, Ltd. (collectively, “Sabby”), to incent the cash exercise of the warrants held by Sabby on or before March 31, 2017 (the “Exercise Period”). In exchange for any such exercise, the registrant agreed to provide Sabby replacement warrants (the “Replacement Warrants”) to purchase the same number of shares of common stock as were issued upon exercise of the exercised warrants, with an exercise price equal to the consolidated closing bid price of the registrant’s common stock on the date of issuance. The agreement also (i) amends the definition of “Beneficial Ownership” in the existing warrants to mean, solely for purposes of any exercises of warrants that occur during the Exercise Period, “9.99%” and (ii) amends the Initial Exercise Date of the existing warrants issued on November 3, 2016 and January 11, 2017 so that such warrants are exercisable on or after the receipt of stockholder approval. Since such stockholder approval was received on January 9, 2017, such warrants were immediately exercisable as of the date of the agreement. The Replacement Warrants will be in the same form as the exercised warrants except the exercise price will not be subject to reduction for subsequent equity issuances and (ii) the Replacement Warrants will not allow Sabby to demand that the registrant purchase the Replacement Warrants in the event of a fundamental transaction involving the registrant. Concurrent with the signing
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of the agreement, Sabby exercised warrants to purchase 373 shares of common stock for cash proceeds of approximately $564,000, and the registrant issued Replacement Warrants to purchase 373 shares of common stock at an exercise price of $1,397.20 per share. From March 10, 2017 to March 28, 2017, Sabby exercised warrants to purchase 2,727 shares of common stock for cash proceeds of approximately $1.4 million, and the registrant issued Replacement Warrants to purchase 2,727 shares of
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common stock with exercise prices equal to the closing consolidated bid price of its common stock available on the date of issuance (ranging from $484.40 to $1,055.60 per share). The Replacement Warrants were issued pursuant to an exemption from the registration requirement of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D.
On, November 15, 2018, the registrant entered into a letter agreement with Maxim Group LLC (“Maxim”), under which Maxim would provide general financial advisory and investment banking services to the registrant on a non-exclusive basis. In exchange for such services, the registrant agreed to issue to Maxim, 7,143 shares of its common stock. The shares were issued pursuant to an exemption from the registration requirement of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D.
On May 30, 2019, the registrant granted a market-based warrant to a consultant in exchange for investor relations services. The warrant represents the right to acquire up to 100,000 shares of the registrant’s common stock at an exercise price $3.18 per share, the closing stock price of the registrant’s common shares on May 30, 2019. The warrant is subject to a vesting schedule based on the registrant achieving certain market stock prices within a specified period of time. The warrant expires on May 30, 2024. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On October 25, 2019, the registrant closed on a registered direct offering of its common stock and in a concurrent private placement, the registrant agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 575,830 shares of the registrant’s common stock at an exercise price of $1.41 per share, which will be exercisable six months from the date of issuance, and will expire five years from the initial exercise date. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On November 6, 2019, the registrant closed on a registered direct offering of its common stock, or common equivalents, and in a concurrent private placement, the registrant agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 1,219,076 shares of the registrant’s common stock at an exercise price of $0.9942 per share, which will be exercisable upon the date of issuance, and will expire five years from the initial exercise date. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On March 23, 2020, the registrant closed on a registered direct offering of its common stock, or common equivalents, and in a concurrent private placement, the registrant agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 4,161,392 shares of the registrant’s common stock at an exercise price of $0.3726 per share, which will be exercisable on the six-month anniversary of the date of issuance, and will expire five years from the date of issuance. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On April 1, 2020, the registrant closed on a registered direct offering of its common stock, or common equivalents, and in a concurrent private placement, the registrant agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 2,565,114 shares of the registrant’s common stock at an exercise price of $0.3715 per share, which will be exercisable upon the date of issuance, and will expire five and a half years from the initial exercise date. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On May 5, 2020, the registrant closed on a registered direct offering of its common stock, or common equivalents, and in a concurrent private placement, the registrant agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 1,798,940 shares of the registrant’s
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common stock at an exercise price of $0.41 per share, which will be exercisable upon the date of issuance, and will expire five and a half years from the initial exercise date. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act
| Item 16.
| Exhibits and Financial Statement Schedules. |
The following exhibits are filed as part of this registration statement.
2.1 | | | | | | 8-K | | | 001-35312 | | | August 8, 2016 | | | 2.1 | | | |
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3.1 | | | | | | 10 | | | 001-35312 | | | February 1, 2012 | | | 3.1 | | | |
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3.2 | | | | | | 8-K | | | 001-35312 | | | January 13, 2017 | | | 3.1 | | | |
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3.3 | | | | | | 8-K | | | 001-35312 | | | May 23, 2017 | | | 3.1 | | | |
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3.4 | | | | | | 8-K | | | 001-35312 | | | October 12, 2017 | | | 3.1 | | | |
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3.5 | | | | | | 8-K | | | 001-35312 | | | January 2, 2019 | | | 3.1 | | | |
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3.6 | | | | | | 8-K | | | 001-35312 | | | May 23, 2017 | | | 3.2 | | | |
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3.7 | | | | | | 8-K | | | 001-35312 | | | June 14, 2013 | | | 3.1 | | | |
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3.8 | | | | | | S-1/A | | | 333-221010 | | | November 17, 2017 | | | 3.7 | | | |
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3.9 | | | | | | 8-K | | | 001-35312 | | | March 13, 2019 | | | 3.1 | | | |
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3.10 | | | | | | 8-K | | | 001-35312 | | | January 29, 2020 | | | 3.1 | | | |
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4.1 | | | | | | 8-K | | | 001-35312 | | | February 19, 2015 | | | 4.1 | | | |
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4.2 | | | | | | 8-K | | | 001-35312 | | | February 19, 2015 | | | 4.2 | | | |
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4.3 | | | | | | 8-K | | | 001-35312 | | | July 22, 2016 | | | 4.2 | | | |
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4.4 | | | | | | 8-K | | | 001-35312 | | | July 22, 2016 | | | 4.3 | | | |
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4.5 | | | | | | 8-K | | | 001-35312 | | | August 8, 2016 | | | 4.1 | | | |
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4.6 | | | | | | 8-K | | | 001-35312 | | | October 31, 2016 | | | 4.1 | | | |
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4.7 | | | | | | 8-K | | | 001-35312 | | | February 16, 2017 | | | 4.1 | | | |
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4.8 | | | | | | S-1/A | | | 333-216841 | | | April 5, 2017 | | | 4.8 | | | |
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4.9 | | | | | | S-1/A | | | 333-221010 | | | November 17, 2017 | | | 4.9 | | | |
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4.10 | | | | | | S-1/A | | | 333-209102 | | | February 25, 2019 | | | 4.10 | | | |
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4.11 | | | | | | 10-Q | | | 001-35312 | | | August 8, 2019 | | | 4.1 | | | |
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4.12 | | | | | | 8-K | | | 001-35312 | | | October 23, 2019 | | | 4.1 | | | |
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4.13 | | | | | | 8-K | | | 001-35312 | | | November 4, 2019 | | | 4.1 | | | |
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4.14 | | | | | | 8-K | | | 001-35312 | | | November 4, 2019 | | | 4.2 | | | |
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4.15 | | | | | | S-1/A | | | 333-235385 | | | January 23, 2020 | | | 4.15 | | | |
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4.16 | | | | | | 8-K | | | 001-35312 | | | March 20, 2020 | | | 4.1 | | | |
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4.17 | | | | | | 8-K | | | 001-35312 | | | March 30, 2020 | | | 4.1 | | | |
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4.18 | | | | | | 8-K | | | 001-35312 | | | May 4, 2020 | | | 4.1 | | | |
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5.1 | | | | | | | | | | | | | | | | | | X |
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10.1 | | | | | | 8-K | | | 001-35312 | | | August 8, 2016 | | | 10.1 | | | |
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10.2 | | | | | | 8-K | | | 001-35312 | | | August 8, 2016 | | | 10.2 | | | |
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10.3 | | | | | | 10 | | | 001-35312 | | | December 16, 2011 | | | 10.2 | | | |
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10.4 | | | | | | 10 | | | 001-35312 | | | September 30, 2011 | | | 10.3 | | | |
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10.5 | | | | | | 14A | | | 001-35312 | | | July 27, 2012 | | | App. A | | | |
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10.6 | | | | | | 10 | | | 001-35312 | | | September 30, 2011 | | | 10.5 | | | |
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10.7 | | | | | | 10 | | | 001-35312 | | | September 30, 2011 | | | 10.6 | | | |
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10.8 | | | | | | 8-K | | | 001-35312 | | | September 18, 2012 | | | 10.1 | | | |
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10.9 | | | | | | 8-K | | | 001-35312 | | | September 10, 2013 | | | 10.1 | | | |
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10.10 | | | | | | 8-K | | | 001-35312 | | | September 10, 2013 | | | 10.2 | | | |
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10.11 | | | | | | 14A | | | 001-35312 | | | April 5, 2013 | | | App. A | | | |
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10.12 | | | | | | 10-K | | | 001-35312 | | | May 29, 2013 | | | 10.2 | | | |
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10.13 | | | | | | 10-K | | | 001-35312 | | | March 20, 2015 | | | 10.11 | | | |
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10.14 | | | | | | 10-Q | | | 001-35312 | | | August 8, 2013 | | | 10.1 | | | |
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10.15 | | | | | | 10-Q | | | 001-35312 | | | November 12, 2013 | | | 10.1 | | | |
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10.16 | | | | | | S-8 | | | 333-202904 | | | March 20, 2015 | | | 99.12 | | | |
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10.17 | | | | | | S-8 | | | 333-210215 | | | March 15, 2016 | | | 99.13 | | | |
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10.18 | | | | | | 8-K | | | 001-35312 | | | May 30, 2017 | | | 10.4 | | | |
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10.19 | | | | | | 8-K | | | 001-35312 | | | January 18, 2018 | | | 10.1 | | | |
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10.20 | | | | | | 10-Q | | | 001-35312 | | | November 12, 2013 | | | 10.2 | | | |
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10.21 | | | | | | 8-K | | | 001-35312 | | | May 30, 2017 | | | 10.1 | | | |
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10.22 | | | | | | 8-K | | | 001-35312 | | | May 30, 2017 | | | 10.2 | | | |
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10.23 | | | | | | 8-K | | | 001-35312 | | | May 30, 2017 | | | 10.3 | | | |
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10.24 | | | | | | 10 | | | 001-35312 | | | September 30, 2011 | | | 10.1 | | | |
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10.25 | | | | | | 10-K | | | 001-35312 | | | March 20, 2015 | | | 10.16 | | | |
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10.26 | | | | | | 10-Q | | | 001-35312 | | | November 8, 2019 | | | 10.1 | | | |
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10.27 | | | | | | 10 | | | 001-35312 | | | December 16, 2011 | | | 10.18 | | | |
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10.28 | | | | | | 8-K | | | 001-35312 | | | April 23, 2015 | | | 10.1 | | | |
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10.29 | | | | | | 10-Q | | | 001-35312 | | | November 7, 2018 | | | 10.2 | | | |
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10.30 | | | | | | 8-K | | | 001-35312 | | | March 2, 2016 | | | 10.1 | | | |
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10.31 | | | | | | 8-K | | | 001-35312 | | | December 16, 2016 | | | 10.1 | | | |
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10.32 | | | | | | 8-K | | | 003-35312 | | | February 16, 2017 | | | 10.1 | | | |
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10.33 | | | | | | 8-K | | | 001-35312 | | | April 25, 2017 | | | 10.1 | | | |
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10.34 | | | | | | 8-K | | | 001-35312 | | | November 28, 2017 | | | 10.1 | | | |
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10.35 | | | | | | 8-K | | | 001-35312 | | | June 29, 2018 | | | 10.1 | | | |
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10.36 | | | | | | 10-K | | | 001-35312 | | | February 21, 2019 | | | 10.44 | | | |
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10.38 | | | | | | 8-K | | | 001-35312 | | | March 13, 2019 | | | 4.2 | | | |
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10.39 | | | | | | 8-K | | | 001-35312 | | | March 13, 2019 | | | 1.1 | | | |
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10.40 | | | | | | 10-Q | | | 001-35312 | | | May, 9, 2019 | | | 10.3 | | | |
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10.41 | | | | | | 10-Q | | | 001-35312 | | | May 9, 2019 | | | 10.4 | | | |
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10.42 | | | | | | 10-Q | | | 001-35312 | | | May 9, 2019 | | | 10.5 | | | |
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10.43 | | | | | | 10-Q | | | 001-35312 | | | August 8, 2019 | | | 10.2 | | | |
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10.44 | | | | | | 8-K | | | 001-35312 | | | October 23, 2019 | | | 1.1 | | | |
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10.45 | | | | | | 8-K | | | 001-35312 | | | October 23, 2019 | | | 10.1 | | | |
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10.46 | | | | | | 8-K | | | 001-35312 | | | November 4, 2019 | | | 1.1 | | | |
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10.47 | | | | | | 8-K | | | 001-35312 | | | November 4, 2019 | | | 10.1 | | | |
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10.48 | | | | | | 10-Q | | | 001-35312 | | | November 8, 2019 | | | 10.1 | | | |
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10.49 | | | | | | 8-K | | | 001-35312 | | | December 6, 2019 | | | 10.1 | | | |
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10.50 | | | | | | 8-K | | | 001-35312 | | | January 29, 2020 | | | 1.1 | | | |
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10.51 | | | | | | 8-K | | | 001-35312 | | | January 29, 2020 | | | 4.2 | | | |
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10.52 | | | | | | 8-K | | | 001-35312 | | | March 20, 2020 | | | 1.1 | | | |
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10.53 | | | | | | 8-K | | | 001-35312 | | | March 20, 2020 | | | 10.1 | | | |
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10.54 | | | | | | 8-K | | | 001-35312 | | | March 30, 2020 | | | 1.1 | | | |
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10.55 | | | | | | 8-K | | | 001-35312 | | | March 30, 2020 | | | 10.1 | | | |
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10.56 | | | | | | 8-K | | | 001-35312 | | | May 4, 2020 | | | 1.1 | | | |
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10.57 | | | | | | 8-K | | | 001-35312 | | | May 4, 2020 | | | 10.1 | | | |
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21 | | | | | | 10-K | | | 001-35312 | | | March 5, 2020 | | | | | | |
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23.1 | | | | | | | | | | | | | | | | | | X |
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23.2 | | | | | | | | | | | | | | | | | | Included in Exhibit 5.1 |
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24 | | | | | | | | | | | | | | | | | | X |
†
| (a) | ExhibitsIndicates management compensatory plan, contract or arrangement. |
See the Exhibit Index attached to this Registration Statement, which is incorporated by reference herein.
| (b) | Financial Statement Schedules |
No financial statement schedules are provided because the information called for is not required or is shown in the financial statements or the notes thereto.
1.
| The undersigned registrant hereby undertakes that, for the purpose of determining any liability under the Securities Act of 1933, as amended, 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. |
2.
| The undersigned registrant hereby undertakes to remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering. |
3.
| The undersigned registrant hereby undertakes that, for the purposes of determining liability to any purchaser: |
The undersigned registrant hereby undertakes that, for the purpose of determining any liability under the Securities Act of 1933, as amended, 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.
The undersigned registrant hereby undertakes to remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for the purposes of determining liability to any purchaser, ifIf the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into
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the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
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The undersigned registrant hereby undertakes that, for the purpose of determining liability of the registrant under the Securities Act of 1933 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 underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
4.
| (i) | Any preliminary prospectus or prospectusInsofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the undersigned registrant relating toaccording the offering required to be filed pursuant to Rule 424; |
| (ii) | Any free writing prospectus relating to the offering prepared byforegoing provisions, or on behalf ofotherwise, the undersigned registrant or used or referred tohas been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the undersigned registrant;Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue. |
| (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. |
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the undersigned registrant according the foregoing provisions, or otherwise, the undersigned registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) 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.
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EXHIBIT INDEX
| | Incorporated By Reference | | | |
Exhibit Number | Exhibit Description | Form | File Number | Date of First Filing | Exhibit Number | Filed Herewith | Furnished Herewith |
| Form of Underwriting Agreement | | | | | X | |
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| Asset Purchase Agreement between Sunshine Heart, Inc. and Gambro UF Solutions, Inc. dated August 5, 2016 | 8-K | 001-35312 | August 8, 2016 | 2.1 | | |
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| Fourth Amended and Restated Certificate of Incorporation | 10 | 001-35312 | February 1, 2012 | 3.1 | | |
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| Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation | 8-K | 001-35312 | January 13, 2017 | 3.1 | | |
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| Certificate of Amendment to Fourth Amended and Restated Certificate of Incorporation | 8-K | 001-35312 | May 23, 2017 | 3.1 | | |
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| Certificate of Amendment to Fourth Amended and Restated Certificate of Incorporation | 8-K | 001-35312 | October 12, 2017 | 3.1 | | |
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| Certificate of Amendment to Fourth Amended and Restated Certificate of Incorporation | 8-K | 001-35312 | January 2, 2019 | 3.1 | | |
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| Second Amended and Restated Bylaws | 8-K | 001-35312 | May 23, 2017 | 3.2 | | |
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| Form of Certificate of Designation of Series A Junior Participating Preferred Stock | 8-K | 001-35312 | June 14, 2013 | 3.1 | | |
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| Form of Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock | S-1/A | 333-221010 | November 17, 2017 | 3.7 | | |
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| Form of Certificate of Designation of Preferences, Rights and Limitations of Series G Convertible Preferred Stock | S-1/A | 333-229102 | February 25, 2019 | 3.9 | | |
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| Form of Certificate of Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock | | | | | X | |
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| Warrant to Purchase Stock, dated February 18, 2015, issued to Silicon Valley Bank | 8-K | 001-35312 | February 19, 2015 | 4.1 | | |
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| Warrant to Purchase Stock, dated February 18, 2015, issued to Life Science Loans, LLC | 8-K | 001-35312 | February 19, 2015 | 4.2 | | |
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| Form of common stock Purchase Warrant issued pursuant to the Securities Purchase Agreement, dated July 20, 2016, among the Company and the purchasers signatory thereto | 8-K | 001-35312 | July 22, 2016 | 4.2 | | |
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| | Incorporated By Reference | | | |
Exhibit Number | Exhibit Description | Form | File Number | Date of First Filing | Exhibit Number | Filed Herewith | Furnished Herewith |
| Form of common stock Purchase Warrant issued to Northland Securities, Inc. | 8-K | 001-35312 | July 22, 2016 | 4.3 | | |
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| Registration Rights Agreement between Sunshine Heart, Inc. and Gambro UF Solutions, Inc. dated August 5, 2016 | 8-K | 001-35312 | August 8, 2016 | 4.1 | | |
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| Form of common stock Purchase Warrant issued pursuant to the Securities Purchase Agreement, dated October 30, 2016, among the Company and the purchasers signatory thereto | 8-K | 001-35312 | October 31, 2016 | 4.1 | | |
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| Form of common stock Purchase Warrant issued pursuant to the Letter Agreement between the Company and the purchasers signatory thereto, dated February 15, 2017 | 8-K | 001-35312 | February 16, 2017 | 4.1 | | |
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| Form of common stock Purchase Warrant issued pursuant to the Underwriting Agreement between the Company and Ladenburg Thalmann & Co. Inc., dated April 19, 2017 | S-1/A | 333-216841 | April 4, 2017 | 4.8 | | |
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| Form of common stock Purchase Warrant issued pursuant to the Underwriting Agreement between the Company and Ladenburg Thalmann & Co. Inc., dated November 22, 2017 | S-1/A | 333-221010 | November 17, 2017 | 4.9 | | |
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| Form of Series 1 and Series 2 common stock Purchase Warrants issued pursuant to the Underwriting Agreement between the Company and Ladenburg Thalmann & Co. Inc., dated March 8, 2019 | S-1/A | 333-229102 | February 25, 2019 | 4.10 | | |
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| Common Stock Purchase Warrant, dated May 30, 2019, between CHF Solutions, Inc. and Redington, Inc. | 10-Q | 001-35312 | August 6, 2019 | 4.1 | | |
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| Form of common stock Purchase Warrant issued pursuant to the Securities Purchase Agreement, dated October 23, 2019, among the Company and the purchasers signatory thereto | 8-K | 001-35312 | October 23, 2019 | 4.1 | | |
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| Form of common stock Purchase Warrant issued pursuant to the Securities Purchase Agreement, dated November 4, 2019, among the Company and the purchasers signatory thereto | 8-K | 001-35312 | November 4, 2019 | 4.1 | | |
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| Form of common stock Pre-Funded Purchase Warrant issued pursuant to the Securities Purchase Agreement, dated November 4, 2019, among the Company and the purchasers signatory thereto | 8-K | 001-35312 | November 4, 2019 | 4.2 | | |
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| | Incorporated By Reference | | | |
Exhibit Number | Exhibit Description | Form | File Number | Date of First Filing | Exhibit Number | Filed Herewith | Furnished Herewith |
| Form of Warrant to purchase shares of common stock | | | | | X | |
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| Opinion of Honigman LLP | | | | | X | |
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| Securities Purchase Agreement, dated July 20, 2016 among the Company and the purchasers signatory thereto | 8-K | 001-35312 | July 22, 2016 | 10.1 | | |
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| Patent License Agreement between Sunshine Heart, Inc. and Gambro UF Solutions, Inc. dated August 5, 2016 | 8-K | 001-35312 | August 8, 2016 | 10.1 | | |
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| Loan and Security Agreement between Sunshine Heart, Inc. and Silicon Valley Bank dated August 5, 2016 | 8-K | 001-35312 | August 8, 2016 | 10.2 | | |
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| Amended and Restated 2002 Stock Plan† | 10 | 001-35312 | December 16, 2011 | 10.2 | | |
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| Form of Notice of Stock Option Grant and Option Agreement for Amended and Restated 2002 Stock Plan† | 10 | 001-35312 | September 30, 2011 | 10.3 | | |
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| Second Amended and Restated 2011 Equity Incentive Plan, as amended† | 14A | 001-35312 | July 27, 2012 | App. A | | |
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| Form of Stock Option Grant Notice and Option Agreement for 2011 Equity Incentive Plan† | 10 | 001-35312 | September 30, 2011 | 10.5 | | |
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| Form of Stock Option Grant Notice and Option Agreement (Senior Management) for 2011 Equity Incentive Plan† | 10 | 001-35312 | September 30, 2011 | 10.6 | | |
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| Form of Stock Option Grant Notice and Option Agreement (Director) for 2011 Equity Incentive Plan† | 8-K | 001-35312 | September 18, 2012 | 10.1 | | |
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| Form of Stock Grant Notice and Award Agreement for 2011 Equity Incentive Plan† | 8-K | 001-35312 | September 10, 2013 | 10.1 | | |
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| Form of Restricted Stock Unit Grant Notice and Agreement for 2011 Equity Incentive Plan† | 8-K | 001-35312 | September 10, 2013 | 10.2 | | |
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| 2013 Non-Employee Directors’ Equity Incentive Plan† | 14A | 001-35312 | April 5, 2013 | App. A | | |
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| Form of Stock Option Grant Notice and Option Agreement for 2013 Non-Employee Directors’ Equity Incentive Plan† | 10-K | 001-35312 | May 29, 2013 | 10.2 | | |
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| Form of Restricted Stock Unit Award Grant Notice and Agreement for 2013 Non-Employee Directors’ Equity Incentive Plan† | 10-K | 001-35312 | March 20, 2015 | 10.11 | | |
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| | Incorporated By Reference | | | |
Exhibit Number | Exhibit Description | Form | File Number | Date of First Filing | Exhibit Number | Filed Herewith | Furnished Herewith |
| New-Hire Equity Incentive Plan† | 10-Q | 001-35312 | August 8, 2013 | 10.1 | | |
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| First Amendment to New-Hire Equity Incentive Plan† | 10-Q | 001-35312 | November 12, 2013 | 10.1 | | |
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| Second Amendment to New-Hire Equity Incentive Plan† | S-8 | 333-202904 | March 20, 2015 | 99.12 | | |
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| Third Amendment to New-Hire Equity Incentive Plan† | S-8 | 333-210215 | March 15, 2016 | 99.13 | | |
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| Fourth Amendment to New-Hire Equity Incentive Plan† | 8-K | 001-35312 | May 30, 2017 | 10.4 | | |
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| Fifth Amendment to New-Hire Equity Incentive Plan† | 8-K | 001-35312 | January 18, 2018 | 10.1 | | |
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| Form of Stock Option Grant Notice and Option Agreement for New-Hire Equity Incentive Plan† | 10-Q | 001-35312 | November 12, 2013 | 10.2 | | |
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| 2017 Equity Incentive Plan† | 8-K | 001-35312 | May 30, 2017 | 10.1 | | |
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| Form of Stock Option Grant Notice and Option Agreement for 2017 Equity Incentive Plan† | 8-K | 001-35312 | May 30, 2017 | 10.2 | | |
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| Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for 2017 Equity Incentive Plan† | 8-K | 001-35312 | May 30, 2017 | 10.3 | | |
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| Form of Indemnity Agreement for the Company’s executive officers and directors† | 10 | 001-35312 | September 30, 2011 | 10.1 | | |
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| Form of Change in Control Agreement for the Company’s executive officers† | 10-K | 001-35312 | March 20, 2015 | 10.16 | | |
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| Non-Employee Director Compensation Policy† | 10-Q | 001-35312 | August 8, 2013 | 10.2 | | |
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| Lease Agreement dated October 21, 2011 by and between the Company and Silver Prairie Crossroads, LLC | 10 | 001-35312 | December 16, 2011 | 10.18 | | |
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| Sales Agreement dated March 21, 2014 by and between the Company and Cowen and Company, LLC | S-3 | 333-194731 | March 21, 2014 | 1.2 | | |
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| Second Amendment to Lease, dated as of April 20, 2015, by and between the Company and Capital Partners Industrial Fund I, LLLP dba Prairie Crossroads Business Center | 8-K | 001-35312 | April 23, 2015 | 10.1 | | |
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| Third Amendment to Lease, dated as of August 3, 2018, by and between the Company and Capital Partners Industrial Fund I, LLLP | 10-Q | 001-35312 | November 7, 2018 | 10.2 | | |
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| | Incorporated By Reference | | | |
Exhibit Number | Exhibit Description | Form | File Number | Date of First Filing | Exhibit Number | Filed Herewith | Furnished Herewith |
| Separation and Release Agreement between the Company and David A. Rosa, dated November 30, 2015† | 8-K | 001-35312 | November 30, 2015 | 99.1 | | |
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| Executive Employment Agreement between Sunshine Heart, Inc. and John L. Erb, dated March 1, 2016† | 8-K | 001-35312 | March 2, 2016 | 10.1 | | |
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| Separation and Release Agreement by and between Sunshine Heart, Inc. and Brian J. Brown, dated February 3, 2016† | 10-Q | 001-35312 | May 5, 2015 | 10.2 | | |
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| Separation and Release Agreement by and between Sunshine Heart, Inc. and Debra Kridner, dated January 24, 2016† | 10-Q | 001-35312 | May 5, 2016 | 10.3 | | |
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| Claudia Drayton Retention Bonus Letter, dated as of December 12, 2016† | 8-K | 001-35312 | December 16, 2016 | 10.1 | | |
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| Molly Wade Retention Bonus Letter, dated as of December 12, 2016† | S-1 | 333-221010 | October 18, 2017 | 10.35 | | |
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| Letter Agreement dated February 15, 2017 among the Company, Sabby Volatility Warrant Master Fund, Ltd. and Sabby Healthcare Master Fund, Ltd. | 8-K | 003-35312 | February 16, 2017 | 10.1 | | |
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| Offer Letter by and between the Company and Jim Breidenstein dated April 12, 2017† | 10-Q | 001-35312 | May 12, 2017 | 10.4 | | |
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| Separation and Release Agreement, dated as of August 6, 2018, between the Company and James Breidenstein† | 10-Q | 001-35312 | November 7, 2018 | 10.1 | | |
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| Warrant Agency Agreement between the Company and American Stock Transfer & Trust Company, LLC dated April 24, 2017 | 8-K | 001-35312 | April 25, 2017 | 10.1 | | |
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| Warrant Agency Agreement between the Company and American Stock Transfer & Trust Company, LLC dated November 27, 2017 | 8-K | 001-35312 | November 28, 2017 | 10.1 | | |
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| Form of Warrant Reprice Agreement | 8-K | 001-35312 | June 29, 2018 | 10.1 | | |
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| Third Amendment to Lease, dated as of August 3, 2018, by and between the Company and Capital Partners Industrial Fund I, LLLP | 10-Q | 001-35312 | November 7, 2018 | 10.2 | | |
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| Consulting Agreement, dated as of January 28, 2019, between CHF Solutions, Inc. and Steve Brandt† | 10-K | 001-35312 | February 21, 2019 | 10.44 | | |
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| Underwriting Agreement, dated as of March 8, 2019, by and between CHF Solutions, Inc. and Ladenburg Thalmann & Co. Inc. | 8-K | 001-35312 | March 13, 2019 | 1.1 | | |
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| | Incorporated By Reference | | | |
Exhibit Number | Exhibit Description | Form | File Number | Date of First Filing | Exhibit Number | Filed Herewith | Furnished Herewith |
| Warrant Agency Agreement between the Company and American Stock Transfer & Trust Company, LLC dated March 12, 2019 | 8-K | 001-35312 | March 13, 2019 | 4.2 | | |
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| Form of Employee Proprietary Information, Inventions Assignment and Non-Competition Agreement for the Company’s employees, including executive officers† | 10-Q | 001-35312 | May 9, 2019 | 10.3 | | |
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| Offer Letter, by and between CHF Solutions, Inc. and Claudia Drayton, dated December 9, 2014† | 10-Q | 001-35312 | May 9, 2019 | 10.4 | | |
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| Offer Letter, by and between CHF Solutions, Inc. and Nestor Jaramillo, dated May 7, 2019† | 10-Q | 001-35312 | May 9, 2019 | 10.5 | | |
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| Sixth Amendment to New-Hire Equity Incentive Plan† | 10-Q | 001-35312 | August 8, 2019 | 10.2 | | |
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| Placement Agency Agreement, dated as of October 23, 2019, by and between CHF Solutions, Inc. and Ladenburg Thalmann & Co. Inc. | 8-K | 001-35312 | October 23, 2019 | 1.1 | | |
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| Securities Purchase Agreement, dated as of October 23, 2019, by and among CHF Solutions, Inc. and the purchasers identfied therein | 8-K | 001-35312 | October 23, 2019 | 10.1 | | |
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| Placement Agency Agreement, dated as of November 4, 2019, by and between CHF Solutions, Inc. and Ladenburg Thalmann & Co. Inc. | 8-K | 001-35312 | November 4, 2019 | 1.1 | | |
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| Securities Purchase Agreement, dated as of November 4, 2019, by and among CHF Solutions, Inc. and the purchasers identified therein | 8-K | 001-35312 | November 4, 2019 | 10.1 | | |
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| Non-Employee Director Compensation Policy† | 10-Q | 001-35312 | November 8, 2019 | 10.1 | | |
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| Seventh Amendment to New-Hire Equity Incentive Plan† | 8-K | 001-35312 | December 6, 2019 | 10.1 | | |
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| Letter regarding unaudited interim financial information | S-1/A | 333-221010 | November 6, 2017 | 15.1 | | |
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| List of Subsidiaries | 10-K | 001-35312 | March 22, 2018 | 21 | | |
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| Consent of Baker Tilly Virchow Krause, LLP | | | | | X | |
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| Consent of Honigman LLP | | | | | Included in Exhibit 5.1 | |
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| Power of Attorney (included on signature page) | S-1 | 333-235385 | December 6, 2019 | 24.1 | | |
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101.INS | XBRL Instance Document | | | | | X | |
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| | Incorporated By Reference
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Exhibit
Number
| Exhibit
Description
| Form
| File
Number
| Date of
First Filing
| Exhibit
Number
| Filed
Herewith
| Furnished
Herewith
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101.SCH
| XBRL Taxonomy Extension Schema Document
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101.CAL
| XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
| XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
| XBRL Taxonomy Extension Definition Linkbase Document
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101.PRE
| XBRL Taxonomy Extension Presentation Linkbase Document
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| † | Indicates management compensatory plan, contract or arrangement. |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Eden Prairie, State of Minnesota, on this 3rdthis 29th day of JanuaryMay 2020.
| | | CHF SOLUTIONS, INC. |
| | | | | | |
| | | By: | | | /s/ John L. Erb |
| | | | | | John L. Erb |
| | | | | | Chief Executive Officer and Chairman of the Board |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below, hereby constitutes and appoints John L. Erb and Claudia Drayton, or either of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to the registration statement, including post-effective amendments, and registration statements filed pursuant to Rule 462 under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and does hereby grant unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| | Date |
/s/ John L. Erb | | | Principal Executive Officer and Chairman of the Board | | | January 3,May 29, 2020
|
John L. Erb | | | |
| | | | | | |
/s/ Claudia Drayton | | | Principal Financial Officer and Principal Accounting Officer | | | January 3,May 29, 2020
|
Claudia Drayton | | | |
| | | | | | |
*/s/ Steve Brandt
| | | Director | | | January 3,May 29, 2020
|
Steve Brandt | | | | | | |
| | | | | | |
*/s/ Maria Rosa Costanzo
| | | Director | | | January 3,May 29, 2020
|
Maria Rosa Costanzo | | | | | | |
| | | | | | |
*/s/ Jon W. Salveson
| | | Director | | | January 3,May 29, 2020
|
Jon W. Salveson | | | | | | |
| | | | | | |
*/s/ Gregory Waller
| | | Director | | | January 3,May 29, 2020
|
Gregory Waller | | | | | | |
| | | | | | |
*/s/ Warren Watson
| | | Director | | | January 3,May 29, 2020
|
Warren Watson | | | | | | |
*By:
| /s/ John L. Erb
| |
| John L. Erb
| |
| Attorney-in-fact
| |
II-14