Our R&D expenses for the nine months ended September 30, 2014 decreased by $24,670 or 5%, to $431,274 from $455,944 for the nine months ended September 30, 2013. The decrease between the nine-month periods was primarily due to a consistent pace of progress in our proof of concept activities.
All R&D expenditures have been incurred in respect of our lead drug candidate, SM-88. We expect to incur further and larger amounts of R&D expenditures as we plan to prepare for and execute on a Phase II clinical trial of our lead drug candidate SM-88. Future R&D expenditures are subject to successfully raising the required capital needed to fund and securing the necessary people and processes to direct our activities.
Our general and administrative expenses for the nine months ended September 30, 2014 increased by $521,217 or 262%, to $719,851 from $198,634 for the nine months ended September 30, 2013. The increase between the nine-month periods was due to increased legal and accounting activities associated with our plans to seek further investment funds, preparations to complete the Merger and associated filings with the SEC and expenses related to filling domestic and international patent applications. We also incurred increased expenses associated with employing senior management to lead key operational activities.
We expect our G&A expenses, subject to securing ongoing funding, to increase as our operations grow. Key ongoing drivers for our G&A expenses may include legal,accounting, auditing and other costs associated with our planned R&D activities in support of contracts and potential patent related activities internationally, costs associated with migrating to a public company, corporate office expenses and further costs associated with hiring employees.
Our interest expense was $44,509 for the nine months ended September 30, 2014 as compared to interest expense of $2,037 for the nine months ended September 30, 2013. The increase was primarily due to interest expense incurred on the USVC debt and Bridge Note. The USVC debt was converted into equity in August of 2014 and the Bridge Note was converted into equity contemporaneous with the consummation of the Merger in December 2014.
The following table summarizes certain information for our Audited Condensed Consolidated Statement of Operations for fiscal years ended December 31, 2013 and 2012.
We did not recognize any revenues for our fiscal years ended December 31, 2013 and 2012.
Our R&D expenses for our fiscal year ended December 31, 2013 increased by $141,736 or 24%, to $744,717 from $602,981 for our fiscal year ended December 31, 2012. The increase between the fiscal years was primarily due to increased clinical development activities relating to our lead drug candidate, SM-88. All R&D expenditures relate to the development of our lead drug candidate, SM-88, its platform. We expect to incur further additional expenditures in respect of our R&D activities subject to securing necessary financial funding and hiring the necessary employees with the required skills to execute on our R&D plans.
Subject to securing the necessary capital, future clinical trials will drive material levels of expenditure, which are likely to be significantly greater than the expenditures we incurred in 2013 or 2012. There is no certainty at all that envisaged increased R&D expenditures will translate successfully into a regulatory-approved and commercially viable therapeutic product.
General and Administrative Expenses
Our G&A expenses for our fiscal year ended December 31, 2013 increased by $22,502, or 8%, to $307,100 from $284,598 for our fiscal year ended December 31, 2012. The increase was primarily due to an increase in consulting and legal fees relating to patent research and regulatory filings. We expect our G&A expenses to increase as we scale up our operations and move into further complex areas of the clinical trial process. Key drivers of G&A will relate to legal costs, costs associated with conducting our operations as a public company, corporate office expenses and the hiring of personnel, including consultants, to both execute and manage our operational activities.
Interest Expense
Our interest expense increased was $5,855 for our fiscal year ended December 31, 2013 as compared to $0 for our fiscal year ended December 31, 2012. The increase was primarily due to interest payable on the convertible debt we issued commencing in 2013. The USVC debt was converted into equity in August of 2014.
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since inception and have an accumulated deficit of $2,707,424 as of September 30, 2014. We incurred net losses of $1,057,672 and $887,579 for the years ended December 31, 2013 and December 31, 2012, respectively and net losses of $1,195,634 and $656,615 for the nine months ended September 30, 2014 and September 30, 2013, respectively. We anticipate incurring additional losses until such time, if ever, that we can generate significant revenues from our lead drug candidate, SM-88, which currently is in development and/or any other drug candidates we may develop.
Historically, we have financed our operations primarily through capital contributions and issuance of convertible debt. From inception through September 30, 2014, we have received proceeds of $2.663 million from capital contributions and $2.226 million from the issuance of convertible notes. The total proceeds from capital contributions and convertible debt issuance totaling $4.889 million were reduced by amounts advanced to stockholders and members of $1,455,838. At September 30, 2014, we had cash of $289,628.
In the second quarter of 2013, we began receiving funds from the issuance of another note. The total amount borrowed under this note was $1.126 million, of which $200,000 was funded in 2014 and $926,000 was funded in 2013.
During the third quarter of 2014, we received $1.1 million of proceeds from the issuance of a Bridge Note. In November of 2014, the holder of the Bridge Note loaned our Company an additional $250,000 and the Bridge Note was amended and restated to reflect the increased principal amount of $1.35 million. In January of 2015, the holder of such note loaned Tyme an additional $960,000 and the note was further amended and restated to reflect a principal amount of $2.31 million. In February of 2015, the note was further amended to reflect a change in its mandatory conversion feature to a fixed amount, as further discussed below. The note as amended and restated is referred to in this Current Report on Form 8-K as the “Bridge Note.”
We believe that the net proceeds from the PPO, together with our existing cash as of September 30, 2014 including the remaining funds from Tyme’s issuance of the Bridge Note that was converted in shares of our Common Stock upon consummation of the Merger and PPO, will enable us to fund our planned operating expenses and capital expenditure requirements for an estimated nine months. We will need to secure additional funding in the future, from one or more equity or debt financings, collaborations or other sources, in order to carry out all of our planned research and development and potential commercialization activities.
Cash Flows
The following is a summary of cash flows for the years ended December 31, 2013 and 2012 and the nine months ended September 30, 2014 and 2013:
- 73 -
| | | | | | | | | | | | |
| Nine Months Ended
September 30, | | Year Ended
December 31, | |
| 2014 | | 2013 | | 2013 | | 2012 | |
Net Cash Used in Operating Activities | $ | (975,682 | ) | $ | (738,888 | ) | $ | (1,199,246 | ) | $ | (706,696 | ) |
Net Cash Used in Investing Activities | $ | (2,710 | ) | $ | (12,473 | ) | $ | (19,953 | ) | $ | (2,200 | ) |
Net Cash Provided by Financing Activities | $ | 1,175,400 | | $ | 895,348 | | $ | 1,311,819 | | $ | 705,343 | |
Net Increase (Decrease) in Cash | $ | 197,008 | | $ | 143,987 | | $ | 92,620 | | $ | (3,553 | ) |
Operating Activities
Net cash used in operating activities was $975,682 for the nine months ended September 30, 2014, consisting primarily of a net loss of $1,195,634 offset by non-cash depreciation expense of $3,635 and a net change in operating assets and liabilities of $216,317. The change in operating assets and liabilities was driven by an increase in prepaid assets of $8,725 and a decrease in accounts payable and other current liabilities of $225,042. The decrease in accounts payable and accrued expenses was primarily due to the timing and volume of our payment of costs related to ongoing development of our product candidate.
Net cash used in operating activities was $738,888 for the nine months ended September 30, 2013, consisting primarily of a net loss of $656,615, offset by non-cash depreciation expense of $376 and a net change in operating assets and liabilities of $82,469. The change in operating assets and liabilities was driven by an increase in prepaid assets of $110,080 and a decrease in accounts payable and other current liabilities of $27,431. The net decrease in operating assets and liabilities was primarily due to the timing and volume of our payment of costs related to ongoing development of our product candidate.
Net cash used in operating activities was $1,199,246 for the year ended December 31, 2013, consisting primarily of a net loss of $1,057,672 offset by non-cash depreciation expense of $514 and a net change in operating assets and liabilities of $142,088. The net change in operating assets and liabilities comprised an increase in prepaid assets of $110,080 as we made advance payments to secure supplies required for our proof of concept activities and an increase in accounts payable and other current liabilities of $32,008, which was associated with the timing of payments made to our clinical partners in the ordinary course of business.
Net cash used in operating activities was $706,696 for the year ended December 31, 2012 and consisted primarily of a net loss of $887,579 offset by non-cash depreciation expense of $210 and a net change in operating assets and liabilities of $180,673. The change in operating activities and liabilities comprised a decrease in prepaid assets of $11,103 due to the timing of payments made in the ordinary course of business and an increase in accounts payable and other current liabilities of $169,570. The increase in accounts payable and other current liabilities was primarily due to the timing of our payments of costs related to ongoing development of our product candidate.
Investing Activities
Cash used in investing activities during the nine months ended September 30, 2014 decreased by $9,763 or 78%, to $2,710, as compared to $12,473 during the nine months ended September 30, 2013. The decrease was driven primarily by a reduction in the purchases of equipment.
Cash used in investing activities during the year ended December 31, 2013 increased by $17,753, to $19,953, as compared to $2,200 during the year ended December 31, 2012. The increase was driven primarily due to equipment purchases. We currently envision making office equipment purchases, principally computers and printers, in the near future as our R&D efforts continue and become more complex and in connection with our becoming a public company.
Financing Activities
Cash provided by financing activities during the nine months ended September 30, 2014 increased by $280,052 or 31%, to $1,175,400 from $895,348 for the nine months ended September 30, 2013. The net proceeds of $1,175,400 were primarily driven by proceeds from the sale of the Bridge Note of $1.1 million proceeds from the issuance of a convertible note totaling $200,000 and proceeds from capital contributions of $25,000. The gross proceeds of $1.325 million were reduced by advances made to stockholders/members totaling $149,600.
Cash provided by financing activities during the year ended December 31, 2013 increased by $606,476 or 86%, to $1,311,819 as compared to $705,343 during the year ended December 31, 2012. The net proceeds of $1,311,819 were primarily driven by proceeds in 2013 from the issuance of convertible notes of $926,000 and proceeds from capital contributions of $1,096,400. The gross proceeds of $2,022,400 in the year ended December 31, 2013 were reduced by advances made to stockholders/members totaling $710,581.
- 74 -
Ongoing and enhanced net inflows of financing, which are not guaranteed, will be critical to our ability to execute our plans to engage in R&D and other operational activities. There is no reliable and consistent established framework in place for us to receive financing.
Critical Accounting Policies and Significant Judgments and Estimates
We base this Management’s Discussion and Analysis of Financial Condition and Results of Operations on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Readers should consider their evaluations of our financial condition and results of operations with these policies, judgments and estimates in mind.
While we describe our significant accounting policies in the notes to our financial statements appearing elsewhere in this Current Report on Form 8-K, we believe the following accounting policies are the most critical to the judgments and estimates we use in the preparation of our financial statements.
Clinical Trial Expense Accruals
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. As we migrate to a more complex Phase II and later clinical trial phases, we envisage that our clinical trial accrual process will account for expenses resulting from our obligations under contracts with vendors, consultants and CROs and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which will vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts.
Our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching the appropriate expenses with the period in which services and efforts are expended. We will account for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial. We will determine accrual estimates through financial models that take into account discussion with applicable personnel and outside service providers as to the progress or state of completion of trials. During the course of a clinical trial, we will adjust our clinical expense recognition, if actual results differ from our estimates. We will make estimates of our accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Our clinical trial accrual and prepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Although we do not expect our estimates to differ materially from amounts we actually incur, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period.
Convertible Debt
We have issued convertible debt to help fund our growth and operations. We evaluate the features of our convertible debt in accordance with under FASB ASC Topic 470-20, Debt with Conversion and Other Options and 815-15, Derivatives and Hedging, Embedded Derivatives. The evaluation is done at the time of issuance of convertible debt.
We evaluated each issuance of its convertible debt and determined the embedded conversion features qualify for a scope exception for derivative instruments that are both indexed to our own stock and classified in stockholders equity. These embedded features therefore are not separately recorded as derivative instruments under ASC 815.
We account for potential beneficial conversion features under ASC 470-20, Debt with Conversion and Other Options. At the time of each of the issuances of convertible debt, our common stock into which each of the convertible debt issuances is convertible had an estimated fair value less than the effective conversion prices of the convertible debt. Therefore, there was no intrinsic value on the respective commitment dates, which required separate recognition and amortization.
- 75 -
ASC 820, Fair Value Measurement (ASC 820), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of our Company. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as the exchange price or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
| |
• | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. |
| |
• | Level 2 - Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly. |
| |
• | Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Items measured at fair value on a recurring basis include money market funds. The fair value of our stock, which is an element of the intrinsic value calculation for conversion feature embedded in our convertible debt was made at the time of issuance and is non-recurring. In the absence of publicly quoted stock price, our evaluation of the fair market value of our stock and the convertible feature of the convertible debt issues has required management to consider all three levels of fair value measurement noted above.
In the absence of a public trading market for our Common Stock, we must develop an estimate of the fair value of our Common Stock. We determined the fair value of our Common Stock based on values assigned by potential investors and other various objective and subjective factors including external market conditions affecting the biopharmaceutical industry, trends within the biopharmaceutical industry, our results of operations and financial position, the status of our research and development efforts and progress of our clinical programs, our stage of development and business strategy, the lack of an active public market for our Common Stock and the likelihood of achieving a liquidity event such as the Merger or PPO in light of prevailing market conditions.
As we make further progress in our maturing as a public company and should we need to issue other convertible instruments, we will utilize the process and methodologies detailed above. During the periods presented, we have not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs.
Operating and Capital Expenditure Requirements
We have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. We expect our cash expenditures to increase in the near term as we fund our planned clinical trials for our product candidate. As a result of the Merger, we will be a publicly traded company and will incur significant legal, accounting and other expenses that we were not required to incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules adopted by the SEC, requires public companies to implement specified corporate governance practices that were inapplicable to us as a private company. We expect these rules and regulations will increase our legal and financial compliance costs and will make certain activities more time-consuming and costly. At the current time, we are unable to estimate these costs.
We believe that the net proceeds from the PPO, together with our existing cash as of September 30, 2014 and remaining proceeds of our sale of the Bridge Note, will enable us to fund our planned operating expenses and capital expenditure requirements for at least the next nine months. However, we will need to raise funds in the future to pay for our operations in general and our planned clinical trials. In order to meet these additional cash requirements, we may seek to issue additional equity or convertible debt securities that may result in dilution to our then current stockholders. If we raise additional funds through the issuance of preferred stock or convertible debt securities, these securities could have rights senior to those of our Common Stock and could contain covenants that restrict our operations, ability to seek further financing and distributions on our Common Stock. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business, results of operations and financial condition.
- 76 -
Our future capital requirements will depend on many factors, including:
| |
• | the results of our pre-clinical studies and clinical trials; |
| |
• | the development, regulatory approval and commercialization of our product candidate, SM-88; |
| |
• | the scope, progress, results and costs of researching and developing our current product candidates or any other future product candidates and conducting pre-clinical studies and clinical trials; |
| |
• | the timing of and the costs involved in, obtaining regulatory approvals for our current product candidates or any other future product candidates; |
| |
• | the cost of commercialization activities if our current product candidates or any other future product candidates are approved for sale, including marketing, sales and distribution costs; |
| |
• | the cost of manufacturing our current product candidates or any other future product candidates for pre-clinical studies, clinical trials and, if approved, commercial sale; |
| |
• | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; |
| |
• | the results of any product liability, infringement or other lawsuits related to our current product candidates or future approved products, if any; |
| |
• | the expenses needed to attract and retain skilled personnel; |
| |
• | the costs associated with being a public company; |
| |
• | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and |
| |
• | the timing, receipt and amount of sales of or royalties on, future approved products, if any. |
In addition, the probability of success for our product candidates will depend on numerous factors, including regulatory approval, competition, manufacturing capability, commercial viability and the effects of significant and changing government regulations. Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved for sale, among physicians, patients, healthcare payors and the medical community. We will determine which commercializing programs to pursue and how much to fund each program in response to the scientific and clinical success of our product candidates, as well as an assessment of our product candidates’ commercial potential.
Please see “Risk Factors” above for additional risks associated with our substantial capital requirements.
Contractual Obligations and Commitments
At our current stage of development and at a stage where we have yet to secure material and recurring amounts of financial funding, we do not have any significant contractual obligations. We plan to enter into longer term obligations once we have a credible level of clarity on the financial resources consistently available to us.
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations.
We had cash and cash equivalents of $289,628 at September 30, 2014, consisting primarily of funds in cash and money market accounts. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 1.0% increase in interest rates would have a material effect on the fair market value of our portfolio and, accordingly, we do not expect a sudden change in market interest rates to materially affect our operating results or cash flows.
- 77 -
We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
JOBS Act
For as long as we remain an “emerging growth company” under the recently enacted JOBS Act, we will, among other things:
| |
• | be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting; |
| |
• | be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and |
| |
• | be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. |
Although we are still evaluating the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide in our public reports and filings with the SEC certain information, including financial information and information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our Company. As a result, investor confidence in our Company and the market price of our Common Stock may be materially and adversely affected.
Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Off-Balance Sheet Arrangements
The Company did not engage in any “off-balance sheet arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of September 30, 2014.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014 AND 2013
Basis of Presentation
The audited consolidated financial statements of Tyme for the years ended December 31, 2014 and 2013 include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these audited financial statements. All such adjustments are of a normal recurring nature.
Overview
Tyme is a clinical-stage, research and development pharmaceutical company focused on discovering and developing highly targeted cancer therapeutics for a broad range of oncology indications in humans. We are currently developing as our first drug product, subject to regulatory approval, SM-88, which we believe to be a first-in-class drug that harnesses the body’s own immune defenses to fight tumor cells. Our drug is based on a mechanism designed to utilize oxidative stress, among other techniques, to selectively kill cancer cells.
- 78 -
We believe that the net proceeds from the PPO issuance, completed on March 5, 2015 together with our existing cash as of December 31, 2014, including the remaining funds from Tyme’s issuance and funding of the Bridge Note that was converted into shares of our Common Stock upon consummation of the Merger and PPO, both completed on March 5, 2015, will enable us to fund our planned operating expenses and capital expenditure requirements for a currently forecast period of approximately the next nine months. This forecast period could vary and is subject to numerous factors, including actual research and development results and general and administrative costs and expenses differing from our current estimates of such future results and expenditures. We will need to secure additional funding in the future, from one or more equity or debt public or private financings, collaborations or other sources, in order to carry out all of our planned research and development and potential commercialization activities.
Financial Overview
Revenue
We have not generated any revenue from commercial product sales since we commenced operations. In the future, if any of our product candidates are approved for commercial sale, we may generate revenue from product sales or, alternatively, we may choose to select a collaborator or licensee to commercialize our product candidates and receive revenues through such arrangements.
Realizing any as yet speculative revenues will require that we develop not only a viable and regulatory-approved product candidate, but that we also build the necessary operational skills and secure appropriate employees and consultants to either commercialize such products directly or collaborate with partners. We have yet to fully develop such skills, retain appropriate employees and consultants or enter into any collaboration, if we deem entry into such collaborations to be beneficial to us.
Research and Development Expenses
Our research and development (“R&D”) costs are expensed as incurred and are primarily comprised of external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), independent clinical trial site operators and consultants and employee-related expenses including salaries and benefits. We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis as the majority of our past and planned expenses have been and will be in support of the development of our lead product candidate, SM-88, as well as our technology platform and IP portfolio and the further enhancement of our research and development activities.
Research and development activities are central to our business model. We plan to increase our research and development expenses for the foreseeable future. Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including the timing of the initiation of clinical trials and enrollment of patients in clinical trials. Research and development expenses are expected to increase as we advance the clinical development of SM-88 and further advance our technology platform and any other drug candidates we may choose to develop. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing and estimated costs of these efforts, when we will incur and recognize these costs that will be necessary to complete our development efforts or the period, if any, in which material net cash inflows may commence from any of our product candidates.
Additionally, we will incur substantial costs beyond our present and future clinical trials in order to file with the FDA relevant New Drug Applications for our product candidates, including SM-88, and, in each case, the nature, design, size and cost of further studies and trials will depend in large part on the outcome of preceding studies and trials and discussions with regulators. The cost of the nonclinical and clinical work may be substantially different from what we anticipate, due to factors outside our controls. We currently do not have the funds to support all expected and required R&D activities and will need to raise such funds through public or private offers of debt and or equity securities. No further definitive plans are in place at this time with respect to any further offering of our securities and we can give no assurance that any such offerings will be successful, on terms favorable to our Company or will raise sufficient funds that are needed at any time during the periods the R&D activities are planned.
It is difficult to determine with certainty the costs and duration of our current or future clinical trials and pre-clinical studies or if, when or to what extent we will generate revenues from the commercialization and sale of our product candidate if we obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of our clinical trials will depend on a variety of factors that include but are not limited to:
| |
• | per patient trial costs; |
| |
• | the number of patients that participate in the trials; |
- 79 -
| |
• | the number of sites included in the trials; |
| |
• | the countries in which the trials are conducted; |
| |
• | the length of time required to enroll eligible patients; |
| |
• | the number of doses that patients receive; |
| |
• | the drop-out or discontinuation rates of patients; |
| |
• | potential additional safety monitoring or other studies requested by regulatory agencies; |
| |
• | the duration of patient follow-up; |
| |
• | the efficacy and safety profile of the drug candidates; |
| |
• | slower than expected rate of subject recruitment and enrollment; |
| |
• | slower than projected Institutional Review Board, Independent Ethics Committee and other regulatory review and approval; |
| |
• | the Data Monitoring Committee of the FDA requires one or more of our clinical trials to be stopped; |
| |
• | failure of subjects to complete their full participation in one or more of our clinical trials or return for post-treatment follow-up; |
| |
• | unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by subjects, including the possibility of death; |
| |
• | withdrawal of participation by a principal investigator in one or more of our clinical trials; |
| |
• | inability or unwillingness of subjects or clinical investigators to comply with clinical trial procedures; |
| |
• | resolution of data discrepancies; |
| |
• | inadequate CRO management and/or monitoring in one or more of our clinical trials; |
| |
• | the need to repeat, reconstruct or terminate one or more of our clinical trials due to inconclusive or negative results or unforeseen complications in testing; and |
| |
• | a request by the FDA to abandon one of more of our current drug development programs. |
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. The full extent of costs we may incur is highly speculative and not defined.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist primarily of salaries and related costs for executive and other administrative personnel and consultants, including, travel expenses and expenses related to business development activities. Other general and administrative expenses include professional fees for legal, patent review, consulting and accounting services. General and administrative expenses are expensed when incurred.
We expect that our general and administrative expenses will increase in the future as a result of new employee hiring, stock based compensation, retaining and utilizing outside consultants, the scaling of operations to support more advanced clinical trials and building the appropriate infrastructure for our responsibilities as a public company, including establishing necessary financial controls and procedures for compliance with the requirements established by and under the Sarbanes–Oxley Act. We anticipate that our incremental costs per year associated with being a publicly traded company may be substantial and it is possible that our actual incremental costs will be higher than we currently estimate. These increases will likely include increased costs for insurance, hiring of additional personnel, board and outside consultant compensations, outside consultants, investor relations, legal, accounting and audit services, among other expenses.
- 80 -
Interest Expense
Interest expense represents, non-cash interest expense incurred on the convertible debt we have issued.
Results of Operations
Revenues
We did not recognize any revenues for the years ended December 31, 2014 and 2013. We do not anticipate recognizing any revenues until such time as one or more of our products has been approved for marketing by appropriate regulatory authorities or we enter into collaboration or licensing arrangement, none of which is anticipated to occur in the near future.
Comparison for the Years Ended December 31, 2014 and 2013
The following table summarizes certain information in our Audited Condensed Consolidated Statement of Operations for the years ended December 31, 2014 and 2013.
| | | | | | | |
| | 2014 | | 2013 | |
Operating expenses: | | | | | | | |
Research and development | | $ | 761,359 | | $ | 744,717 | |
General and administrative | | | 1,822,757 | | | 307,100 | |
Total operating expenses | | | 2,584,116 | | | 1,051,817 | |
Loss from operations | | | (2,584,116 | ) | | (1,051,817 | ) |
| | | | | | | |
Interest expense | | | 76,561 | | | 5,855 | |
| | | | | | | |
Net loss | | | (2,660,677 | ) | | (1,057,672 | ) |
Loss attributable to non-controlling interests | | | (10,851 | ) | | (285,847 | ) |
Loss attributable to controlling interests | | $ | (2,649,826 | ) | $ | (771,825 | ) |
Research and Development Expenses
Our R&D expenses for the year ended December 31, 2014 increased by $16,642 or 2%, to $761,359 from $744,717 for the year ended December 31, 2013. The increase between the years was primarily due to a continuation of progress in our proof of concept activities.
All R&D expenditures have been incurred in respect of our lead drug candidate, SM-88. We expect to incur further and larger amounts of R&D expenditures as we plan to prepare for and execute on a Phase II clinical trial of SM-88. Future R&D expenditures are subject to continuing to successfully raising the required capital needed to fund such R&D activities needed to fund such R&D activities and securing the necessary people and processes to direct all our activities.
General and Administrative Expenses
Our G&A expenses for the year ended December 31, 2014 increased by $1,515,657 or 494%, to $1,822,757 from $307,100 for the year ended December 31, 2013. The increase between the years was principally due to increased legal, accounting and audit activities associated with our executed plans to seek further investment funds, preparations to complete the Merger and associated filings with the SEC and expenses related to filling domestic and international patent applications. We also incurred increased expenses associated with employing senior management to lead key operational activities.
We expect our G&A expenses, subject to securing ongoing funding, to increase as our operations grow. Key ongoing drivers for our G&A expenses may include legal,accounting, auditing and other costs associated with our planned activities in support of contracts and potential patent related activities internationally, costs associated with migrating to a public company, corporate office expenses and further costs associated with hiring employees.
Interest Expense
Our interest expense was $76,561 for the year ended December 31, 2014 as compared to interest expense of $5,855 for the year ended December 31, 2013. The increase was primarily due to interest expense incurred on the USVC debt and Bridge Note. The USVC debt was converted into equity in August of 2014 and the Bridge Note was converted into equity contemporaneous with the consummation of the Merger on March 5, 2015.
- 81 -
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since inception and have an accumulated deficit of $4,172,572 as of December 31, 2014. We incurred net losses of $2,649,826 and $771,825 for the years ended December 31, 2014 and December 31, 2013, respectively. We anticipate incurring additional losses until such time, if ever, that we can generate significant revenues from our lead drug candidate, SM-88, which currently is in development and/or any other drug candidates we may develop.
Historically, we have financed our operations primarily through capital contributions and issuance of convertible debt. At December 31, 2014, we had cash of $9,724.
In the second quarter of 2013, we began receiving funds from the issuance of a convertible note. The total amount borrowed under this note was $1.126 million of which $200,000 was funded in 2014 and $926,000 was funded in 2013. This note was converted into Tyme common stock in August 2014.
During the third quarter of 2014, we received $1.1 million of proceeds from the issuance of a Bridge Note. In November of 2014, the holder of the Bridge Note loaned our Company an additional $250,000 and the Bridge Note was amended and restated to reflect the increased principal amount of $1.35 million. In January of 2015, the holder of such note loaned Tyme an additional $960,000 and the note was further amended and restated to reflect a principal amount of $2.31 million. In February of 2015, the note was further amended to reflect a change in its mandatory conversion feature to a fixed amount, as further discussed below. The note as amended and restated is referred to in this Current Report on Form 8-K as the “Bridge Note.” The Bridge Note was converted into shares of our Common Stock simultaneous with the closing of the Merger.
We believe that the net proceeds from the PPO, completed on March 5, 2015, together with our existing cash as of December 31, 2014, including the remaining funds from Tyme’s issuance of the Bridge Note that was converted in shares of our Common Stock upon consummation of the Merger and PPO, will enable us to fund our planned operating expenses and capital expenditure requirements for an estimated nine months.
We will need to secure additional funding in the future, from one or more equity or debt financings, collaborations or other sources, in order to carry out all of our planned research and development and potential commercialization activities.
Cash Flows
The following is a summary of cash flows for the years ended December 31, 2014 and 2013:
| | | | | | |
| Year Ended December 31, | |
| 2014 | | 2013 | |
Net Cash Used in Operating Activities | $ | (1,515,586 | ) | $ | (1,199,246 | ) |
Net Cash Used in Investing Activities | $ | (2,710 | ) | $ | (19,953 | ) |
Net Cash Provided by Financing Activities | $ | 1,435,400 | | $ | 1,311,819 | |
Net Increase (Decrease) in Cash | $ | 82,896 | | $ | 92,620 | |
Operating Activities
Net cash used in operating activities was $1,515,586 for the year ended December 31, 2014, consisting primarily of a net loss of $2,660,677 offset by non-cash depreciation expense of $4,293, a loss on disposal of $2,676 and a net change in operating assets and liabilities of $1,138,122. The change in operating assets and liabilities was mainly driven by a material increase in accounts payable and other current liabilities of $1,168,147. The increase in accounts payable was primarily due to the timing and volume of liabilities incurred with respect to our PPO and Merger, which was completed on March 5, 2014.
Net cash used in operating activities was $1,199,246 for the year ended December 31, 2013, consisting primarily of a net loss of $1,057,672 offset by non-cash depreciation expense of $514 and a net change in operating assets and liabilities of $142,088. The net change in operating assets and liabilities comprised an increase in prepaid assets of $110,080 as we made advance payments to secure supplies required for our proof of concept activities and a decrease in accounts payable and other current liabilities of $32,008, which was associated with the timing of payments made to our clinical partners in the ordinary course of business.
Investing Activities
Cash used in investing activities during the year ended December 31, 2014 decreased by $17,243 or 86%, to $2,710, as compared to $19,953 during the year ended December 31, 2013. The decrease was driven primarily by a reduction in the purchases of equipment.
- 82 -
Cash used in investing activities during the year ended December 31, 2013 was $19,953. This expenditure was driven primarily by equipment purchases.
We currently envision making office equipment purchases, principally computers and printers as our R&D efforts continue and become more complex and in connection with our becoming a public company.
Financing Activities
Cash provided by financing activities during the year ended December 31, 2014 increased by $123,581 or 9.4%, to $1,435,400 from $1,311,819 for the year ended December 31, 2013. The 2014 net proceeds from financing activities were primarily driven by proceeds from the issuance of a Bridge Note of $1.35 million, proceeds from the issuance of a convertible note totaling $200,000 and proceeds from capital contributions of $35,000. The gross proceeds from financing activities of $1.585 million were reduced by advances made to stockholders/ members totaling $149,600.
Cash provided by financing activities during the year ended December 31, 2013 totaled $1,311,819. The 2013 net proceeds from financing activities were primarily driven by proceeds from the issuance of convertible notes of $926,000 and proceeds from capital contributions of $1,096,400. The gross proceeds of $2,022,400 in the year ended December 31, 2013 were reduced by advances made to stockholders/members totaling $710,581.
Ongoing and enhanced net inflows of financing, which are not guaranteed, will be critical to our ability to execute our plans to engage in R&D and other operational activities. There is no reliable and consistent established framework in place for us to receive further, future financing.
Critical Accounting Policies and Significant Judgments and Estimates
We base this Management’s Discussion and Analysis of Financial Condition and Results of Operations on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Readers should consider their evaluations of our financial condition and results of operations with these policies, judgments and estimates in mind.
While we describe our significant accounting policies in the notes to our financial statements appearing elsewhere in this Current Report on Form 8-K, we believe the following accounting policies are the most critical to the judgments and estimates we use in the preparation of our financial statements.
Clinical Trial Expense Accruals
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. As we migrate to a more complex Phase II and later clinical trial phases, we envisage that our clinical trial accrual process will account for expenses resulting from our continued work with vendors, consultants and CROs and clinical site agreements in connection with conducting clinical trials. The financial terms of these current or future obligations are subject to negotiations, which will vary from supplier to supplier and may result in payment flows that do not match the periods over which materials or services are provided to us under the relevant contractual arrangements.
Our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching the appropriate expenses with the period in which services and efforts are expended. We will account for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial. We will determine accrual estimates through financial models that take into account discussion with applicable personnel and outside service providers as to the progress or state of completion of trials. During the course of a clinical trial, we will adjust our clinical expense recognition, if actual results differ from our estimates. We will record any relevant accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Our clinical trial accrual and prepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Although we do not expect our estimates to differ materially from amounts we actually incur, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period.
- 83 -
Convertible Debt
We have issued convertible debt to help fund our growth and operations. We evaluate the features of our convertible debt in accordance with under FASB ASC Topic 470-20, Debt with Conversion and Other Options and 815-15, Derivatives and Hedging, Embedded Derivatives. The evaluation is done at the time of issuance of convertible debt.
We evaluated each issuance of its convertible debt and determined the embedded conversion features qualify for a scope exception for derivative instruments that are both indexed to our own stock and classified in stockholders equity. These embedded features therefore are not separately recorded as derivative instruments under ASC 815.
We account for potential beneficial conversion features under ASC 470-20, Debt with Conversion and Other Options. At the time of each of the issuances of convertible debt, our Common Stock into which each of the convertible debt issuances is convertible had an estimated fair value less than the effective conversion prices of the convertible debt. Therefore, there was no intrinsic value on the respective commitment dates, which required separate recognition and amortization.
ASC 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of our Company. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as the exchange price or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
| |
• | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. |
| |
• | Level 2 - Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly. |
| |
• | Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Items measured at fair value on a recurring basis include money market funds. The fair value of our stock, which is an element of the intrinsic value calculation for conversion feature embedded in our convertible debt was made at the time of issuance and is non-recurring. In the absence of an actively traded publicly quoted stock price, our evaluation of the fair market value of our stock and the convertible feature of the convertible debt issues has required management to consider all three levels of fair value measurement noted above.
In the absence of an actively traded public market for our Common Stock, we must develop an estimate of the fair value of our Common Stock. We determined the fair value of our Common Stock based on values assigned by potential investors and other various objective and subjective factors including external market conditions affecting the biopharmaceutical industry, trends within the biopharmaceutical industry, our results of operations and financial position, the status of our research and development efforts and progress of our clinical programs, our stage of development and business strategy, the lack of an active public market for our Common Stock and the likelihood of achieving a liquidity event such as the Merger or PPO in light of prevailing market conditions.
As we make further progress in our maturing as a public company and should we need to issue other convertible instruments, we will utilize the process and methodologies detailed above. During the periods presented, we have not changed the manner in which the Company values assets and liabilities that are measured at fair value using Level 3 inputs.
- 84 -
Operating and Capital Expenditure Requirements
We have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. We expect our cash expenditures to increase in the near term as we fund our planned clinical trials for our product candidate. As a result of the Merger, we will be a publicly traded company and will incur significant legal, accounting and other expenses that we were not required to incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules adopted by the SEC, requires public companies to implement specified corporate governance practices that were inapplicable to us as a private company. We expect these rules and regulations will increase our legal and financial compliance costs and will make certain activities more time-consuming and costly. At the current time, we are unable to estimate these costs.
We believe that the net proceeds from the PPO (including the PPO Note), together with our existing cash as of December 31, 2014 and remaining proceeds of our sale of the Bridge Note, will enable us to fund our planned operating expenses and capital expenditure requirements for at least the next nine months. However, we will need to raise funds in the future to pay for our operations in general and our planned clinical trials. In order to meet these additional cash requirements, we may seek to issue additional equity or convertible debt securities that may result in dilution to our then current stockholders. If we raise additional funds through the issuance of preferred stock or convertible debt securities, these securities could have rights senior to those of our Common Stock and could contain covenants that restrict our operations, ability to seek further financing and distributions on our Common Stock. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business, results of operations and financial condition.
Our future capital requirements will depend on many factors, including:
| |
• | the results of our pre-clinical studies and clinical trials; |
| |
• | the development, regulatory approval and commercialization of our product candidate, SM-88; |
| |
• | the scope, progress, results and costs of researching and developing our current product candidates or any other future product candidates and conducting pre-clinical studies and clinical trials; |
| |
• | the timing of and the costs involved in, obtaining regulatory approvals for our current product candidates or any other future product candidates; |
| |
• | the cost of commercialization activities if our current product candidates or any other future product candidates are approved for sale, including marketing, sales and distribution costs; |
| |
• | the cost of manufacturing our current product candidates or any other future product candidates for pre-clinical studies, clinical trials and, if approved, commercial sale; |
| |
• | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; |
| |
• | the results of any product liability, infringement or other lawsuits related to our current product candidates or future approved products, if any; |
| |
• | the expenses needed to attract and retain skilled personnel; |
| |
• | the costs associated with being a public company; |
| |
• | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and |
| |
• | the timing, receipt and amount of sales of or royalties on, future approved products, if any. |
In addition, the probability of success for our product candidates will depend on numerous factors, including regulatory approval, competition, manufacturing capability, commercial viability and the effects of significant and changing government regulations. Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved for sale, among physicians, patients, healthcare payors and the medical community. We will determine which commercializing programs to pursue and how much to fund each program in response to the scientific and clinical success of our product candidates, as well as an assessment of our product candidates’ commercial potential.
- 85 -
Please see “Risk Factors” above for additional risks associated with our substantial capital requirements.
Contractual Obligations and Commitments
At our current stage of development and at a stage where we have yet to secure material and recurring amounts of financial funding, we do not have any significant contractual obligations. We plan to enter into longer term obligations once we have a credible level of clarity on the financial resources consistently available to us.
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations.
We had cash of $9,724 at December 31, 2014, consisting of funds in a Company bank account. The primary objective of any of our current or future investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of any investment portfolio we may have, we do not believe an immediate 1.0% increase in interest rates would have a material effect on the fair market value of our portfolio and, accordingly, we do not expect a sudden change in market interest rates to materially affect our operating results or cash flows.
We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
JOBS Act
For as long as we remain an “emerging growth company” under the recently enacted JOBS Act, we will, among other things:
| |
• | be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting; |
| |
• | be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and |
| |
• | be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements. |
Although we are still evaluating the JOBS Act, we currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an emerging growth company, we may elect not to provide in our public reports and filings with the SEC certain information, including financial information and information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our Company. As a result, investor confidence in our Company and the market price of our Common Stock may be materially and adversely affected.
Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Off-Balance Sheet Arrangements
The Company did not engage in any “off-balance sheet arrangements” (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of December 31, 2014.
- 86 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our Common Stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person.
The following table sets forth information with respect to the beneficial ownership of our Common Stock as of April 9, 2015 (the “Determination Date”), giving effect to the Merger, Split-Off Transaction, PPO, conversion of the Bridge Note, surrender of 26,276,600 shares by the Pre-Merger Company Stockholders pursuant to the Merger Agreement and the issuance of 250,000 shares to a consultant, by (i) each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock, (ii) each of our directors and executive officers and (iii) all of our directors and executive officers as a group. To the best of our knowledge, except as otherwise indicated and subject to community property laws, where applicable, (x) each of the persons named in the table has sole voting and investment power with respect to the shares of our Common Stock beneficially owned by such person and (y) none of the shares listed below are held under a voting trust or similar agreement.
Our Common Stock is our only class of voting securities currently outstanding.
The following table assumes that all of the 8.5 million shares of our Common Stock held in escrow pursuant to the PPO Note Escrow Agreement and Adjustment Shares Escrow Agreement and the 6.4 million shares of our Common Stock issued to the pre-Merger Tyme Stockholders in connection with the Merger but held in escrow pursuant to the Indemnification Shares Escrow Agreement will be released to the owners of such shares and not surrendered for cancellation.
Unless otherwise indicated in the following table, the address for each person named in the table is c/o Tyme Technologies, Inc., 48 Wall Street – Suite 1100, New York, New York 10005.
| | | | | |
| | Amount and Nature of Beneficial Ownership |
Name and Address of Beneficial Owner | | Number | | | Percentage |
Steve Hoffman (1) | | 28,277,800 | (2) | | 32.9% |
Michael Demurjian (3) | | 28,277,800 | (2) | | 32.9% |
GEM Global Yield Fund LLC SCS (4) | | 8,596,540 | (5) | | 9.9% |
U.S. VC Partners, LLC (6) | | 4,984,400 | | | 5.8% |
Patrick G. LePore (7) | | 1,812 | (8) | | * |
Dr. Gerald Sokol (7) | | 1,812 | (8) | | * |
Timothy C. Tyson (7) | | 1,812 | (8) | | * |
All directors and executive officers as a group (5 persons) | | 56,561,036 | | | 65.8% |
_______________
| |
* | Less than 0.1%. |
| |
(1) | Mr. Hoffman is a director, Chief Executive Officer, Chief Science Officer and President of our Company. Mr. Hoffman is also acting, along with Michael Demurjian, as a Co-Chief Financial Officer of our Company while we seek a qualified individual to serve as our Chief Financial Officer on a permanent basis. |
| |
(2) | Includes 1,413,890 shares of our Common Stock held in escrow pursuant to the Indemnification Shares Escrow Agreement. |
| |
(3) | Mr. Demurjian is a director, Chief Operating Officer and Executive Vice President of our Company. Mr. Demurjian is also acting, along with Steve Hoffman, as a Co-Chief Financial Officer of our Company while we seek a qualified individual to serve as our Chief Financial Officer on a permanent basis. |
| |
(4) | The address for GEM is 590 Madison Avenue – 36th Floor, New York, New York 10022. Christopher Brown is the manager of GEM and was the holder of the Bridge Note. Mr. Brown designated GEM to receive the Conversation Shares upon the conversion of the Bridge Note that occurred contemporaneously with the closing of the Merger and PPO. |
| |
(5) | Includes 5 million shares of our Common Stock held in escrow pursuant to the PPO Note Pledge Agreement and 3.5 million shares held in escrow pursuant to the Adjustment Shares Escrow Agreement. GEM would receive additional shares of our Common Stock, if all of the Qualified Offering Shares are issued. |
- 87 -
| |
(6) | The address of U.S. VC Partners, L.P. is 900 Third Avenue - 19th Floor, New York, New York 10022. |
| |
(7) | Patrick G. LePore, Dr. Gerald Sokol and Timothy C. Tyson each serve as a director of our Company. |
| |
(8) | Under our independent director compensation policy, each of our independent directors will be entitled to receive shares of our Common Stock effective the last day of each calendar quarter, provided such independent director is serving on our Board of Directors on such date. The number of shares each independent director is entitled to receive shall be based upon the market price of our Common Stock on the effective issuance date. The first issuance of shares under our independent director compensation policy occurred as of March 31, 2015. |
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
Set forth below are the names of and certain information regarding our current executive officers and directors, each of whom was appointed effective as of the closing of the Merger:
| | | | | | |
Name | | Age | | Position(s) | | Date Elected to Our
Board of Directors |
Steve Hoffman | | 52 | | Director, Chief Executive Officer and Chief Science Officer * | | March 5, 2015 ** |
Michael Demurjian | | 48 | | Director, Chief Operating Officer and Executive Vice President * | | March 5, 2015 ** |
Patrick G. LePore | | 59 | | Director | | March 10, 2015 |
Dr. Gerald Sokol | | 71 | | Director | | March 10, 2015 |
Timothy C. Tyson | | 62 | | Director | | March 10, 2015 |
__________
| |
* | Messrs. Hoffman and Demurjian are each currently serving as a Co-Chief Financial Officer of our Company as we seek a qualified individual to serve as our Chief Financial Officer. |
| |
** | Messrs. Hoffman and Demurjian served as the sole directors of Tyme since its formation on July 26, 2013. |
During the negotiations that resulted in the terms of the Merger Agreement, the parties, including representatives of GEM (including the purchaser of the Bridge Note), agreed that Steve Hoffman and Michael Demurjian would become directors of our Company following the consummation of the Merger and that Tyme would have the right to designate three individuals to serve as independent directors on our Board after the consummation of the Merger from a list of director candidates provided GEM and the holder of the Bridge Note. As a result of such negotiations and in accordance with the terms of the Merger Agreement, Messrs. Hoffman and Demurjian became our sole directors upon consummation of the Merger. Neither GEM nor any of its affiliates has any right to appoint or nominate any person to serve as a director of our Company. Following the consummation of the Merger, we expanded our Board of Directors by three members, each of whom we believe meets the NASDAQ Stock Market definition of independent director. These three new members are Patrick LePore, Dr. Gerald Sokol and Timothy Tyson.
In the future, our directors are to be elected at our Company’s annual stockholders’ meetings, each to serve until the next annual meeting of our stockholders and until their respective successors are elected and qualified. Directors are to be elected by a plurality of the votes cast at the annual meeting of our stockholders and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.
A majority of the number of directors then serving on our Board of Directors constitutes a quorum for the purpose of the transaction of business at a meeting of our Board. Directors must be present at the meeting for the purpose of determining a quorum. However, any action required or permitted to be taken by our Board may be taken without a meeting if all members of the Board of Directors consent in writing to the action.
Executive officers are appointed by our Board and serve at its pleasure.
The principal occupation and business experience during the past five years for our executive officers and directors is as follows:
- 88 -
Steve Hoffman has served as Chief Executive Officer of Tyme since its formation in July 2013 and as a manager of Luminant since its formation in September 2011. In such roles and continuing with his position as Chief Executive Officer, Chief Science Officer and President of our Company, he supervises the development of our product candidates. He has over 25 years of holding a variety of senior management positions with companies in the chemistry, aerospace and laser optics fields. Prior to the establishment of Luminant, Mr. Hoffman was a co-founder and, from 1993 to 2007, Chief Technology Officer of Mikronite Technologies Group Inc., a developer, licensor and marketer of material surfacing technologies for various manufacturing processes and applications. At Mikronite, Mr. Hoffman supervised its implementation of proprietary technology. He has received numerous patents and has pending other patent applications, including a patent and three patent applications that have been assigned to our Company. His efforts on behalf of Mikronite were recognized by The Home Depot and Lowe’s with a Best New Product award and an Innovative Technology award from the New Jersey Manufacturers Association. Mr. Hoffman attended New York University and Rutgers University with a concentration in mechanical engineering from 1980 to 1984 and continued his studies under the direct supervision of the chairman of the physics department at the University of Michigan specializing in physics and electro-optics.
Michael Demurjian has served as Chief Operating Officer of Tyme since its formation in July 2013 and as a manager of Luminant since its formation in September 2011. In such roles and continuing with his position as Chief Operating Officer and Executive Vice President of our Company, he leads the research teams in development, studies and data collection for our submissions to regulatory authorities, including the FDA. Prior to the establishment of Luminant, Mr. Demurjian was a co-founder and, from 1993 to 2007, Director of Marketing of Mikronite Technologies Group, Inc., a developer, licensor and marketer of material surfacing technologies for various manufacturing processes and applications. At Mikronite, Mr. Demurjian established all marketing activities and functions, marketing research and analysis, marketing strategy, implementation planning, project, process and vendor management organizational management and leadership. His efforts on behalf of Mikronite were recognized by The Home Depot and Lowe’s with a Best New Product award and an Innovative Technology award from the New Jersey Manufacturers Association. Mr. Demurjian received a BA in Economics from New York University in 1986.
Patrick G. LePore served as Chairman, CEO and President of Par Pharmaceuticals, Inc. (NYSE: PRX) from September 2006 through November 2012. Par is a healthcare company focusing on the development, licensing, manufacturing and distributing of generic and branded drugs, with facilities in New York, California and Chennai, India. Through Mr. LePore’s leadership, Par increased its value and market presence during his tenure culminating in its sale to Texas Pacific Group (TPG) in a going private transaction. Mr. LePore transitioned to Chairman of the new company beginning in November 2012. Mr. LePore’s leadership in the pharmaceutical industry has spanned both private and public sectors with board and operational experience in each. His experience includes building and running a large pharmaceutical service business as well as a fully integrated manufacturing business. Mr. LePore’s unique background makes him one of a handful of pharmaceutical executives with an in depth knowledge of the brand, generics and pharmaceutical service industries. He began his career with Hoffmann La Roche and then founded Boron LePore and Associates, a medical communications company, which he took public in 1997 and was eventually sold to Cardinal Health in 2002. As an accomplished and respected life science executive, Mr. LePore has extensive experience in all areas of executive management including human resources, executive development, strategic planning, mergers and acquisition, business development, investor relations and corporate governance. He also brings over 30 years of industry relationships and an impeccable reputation among his colleagues. Throughout his career, Mr. LePore has served on nonprofit and corporate boards. In addition to chairing the Par board, he is currently the Chairman of Agene Bio and serves on the boards of PharMerica (NYSE:PMC) and Villanova University. A graduate of Villanova University, he holds an MBA from Farleigh Dickinson University.
Gerald H. Sokol, MD, MSc, FCP, attained his medical degree from Indiana University’s Combined Degree Program in Experimental Medicine with a Master’s Degree in Pharmacology and an MD. He interned in Medicine at Temple University and attended the U.S. Public Health Service Hospital in affiliation with the National Cancer Institute, Johns Hopkins and the University of Maryland completing training in Internal Medicine. He then completed training at the Massachusetts General Hospital, Harvard Medical School in Radiation Oncology, Medical Oncology and Clinical Pharmacology attaining Board Certification in Internal Medicine, Medical Oncology, Radiation Oncology, Clinical Pharmacology, and later Quality Assurance and Utilization Review. He also is certified in Skin Cancer Medicine from the University of Queensland. Dr. Sokol has been Chief of Radiation Oncology at the University of South Florida’s Tampa General Hospital and has built or contributed to building over ten cancer centers. He is a board member and partner of Florida Cancer Specialists and Research Institute. Dr Sokol is a decorated retired Captain in the US Navy and served as Commanding Officer of the unit at the Uniformed Services University. Dr. Sokol currently holds professorships in Medicine and Pharmacology at that institution. While maintaining a medical practice, Dr. Sokol served on the review staff of the FDA for over 27 years as a senior regulatory scientist and officer composing over 300 white papers, IND and NDA reviews and opinion papers. Dr. Sokol has authored or coauthored over 100 books, book chapter, abstracts and papers on a multitude of clinical issues. He is a lifetime fellow and board member of the American Cancer Society and a fellow of the American College of Clinical Pharmacology.
- 89 -
Timothy C. Tyson serves as the President of Alkaloida Chemical Company Zrt. Mr. Tyson served as Interim Chief Executive Officer of Caldera Pharmaceuticals, Inc. from September 23, 2014 to November 21, 2014. He served as Interim Chief Executive Officer and Executive Chairman of Aptuitand at Laurus Labs Private Limite since August 2008. He has over 30 years of remarkable corporate career in the pharmaceutical industry. He served as Acting Chief Executive Officer of Aptuit LLC since September 2008. He served as the President of ICN Hungary Co., Ltd. (also called as ICN Hungary Ltd.). Mr. Tyson served as the Chief Executive Officer of Valeant Pharmaceuticals International (formerly, ICN Pharmaceuticals Inc.) from January 1, 2005 to February 1, 2008. He served as President of Valeant Pharmaceuticals International from November 2002 to February 1, 2008 and served as its Chief Operating Officer from November 2002 to December 2004. He served as President of Global Manufacturing and Supply for GlaxoSmithKline plc. from June 1998 to November 2002. From 1997 to 1998, Mr. Tyson served as GlaxoSmithKline’s Vice President and General Manager of Business Operations. During his 14-year tenure at GlaxoSmithKline, he served in a variety of roles with broad international and domestic responsibilities, including significant management experience running two divisions: Glaxo Dermatology and Cerenex Pharmaceuticals. He was responsible for managing all sales and marketing for the U.S. operations, where he launched over 30 new products. Prior to his tenure at GlaxoSmithKline, Mr. Tyson served in a number of executive positions at Bristol-Myers Company in Operations and Research and Development. Prior to his tenure at Bristol-Myers, he served as a Manufacturing Manager for Procter & Gamble. He served as an Officer in the United States Army from 1974 to 1979 and spent 14 years in the United States Army Reserves. He has been Independent Non-Executive Chairman of Caldera Pharmaceuticals since April 1, 2014 and has been a director since October 2013. He has been Chairman of the Board of Aptuit LLC since August 2008 and its Manager since August 2008. He has been Independent Director of Marken Limited since March 05, 2013. He serves as a Director of Alkaloida Chemical Company Zrt. He serves as Director of ICN Hungary Co., Ltd., and Valeant Pharmaceuticals. He served as a Director of Ventaira Pharmaceuticals, Inc. He serves as Director for the Pharmaceutical Research and Manufacturing Association; BICOM; the Chief Executive Officer Roundtable for the University of California at Irvine; the Dean’s Executive Forum at Cal State Fullerton; the Chief Executive Officer Council on Cancer; the Health Sector Advisory Board at Duke University; the Leadership Forum of the International Society of Pharmaceutical Engineers and as a visiting lecturer at Cambridge University. Mr. Tyson serves on the board of directors for a number of non-profit organizations. He served as a Director of Valeant Pharmaceuticals International from 2004 to February 1, 2008. In 2002, Mr. Tyson received a Bicentennial Leadership Award from the United States Military Academy at West Point and was named 2007 Alumnus of the Year at Jacksonville State University. Mr. Tyson received a Master in Business Administration and Master in Public Administration from Jacksonville State University in 1979 and 1976, respectively. He is also a 1974 graduate of the United States Military Academy at West Point.
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system that has requirements that a majority of the board of directors of a listed/quoted company is “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.” However, our Board was recently expanded by the addition of three directors, Patrick G. LePore, Dr. Gerald Sokol and Timothy C. Tyson, each of whom we believe meets the Nasdaq Stock Market definition of independent director.
Family Relationships
There are no family relationships among our directors or executive officers.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has been involved in any of the following events during the past ten years:
| |
• | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| |
• | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); |
| |
• | being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; or |
| |
• | being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law and the judgment has not been reversed, suspended or vacated. |
- 90 -
Board Committees
We have not established an executive, audit, compensation, nominating or any other committee of our Board of Directors. Our Board of Directors may designate from among its members an executive committee and/or one or more other committees in the future and adopt appropriate charters for such committees. Further, we do not have a policy with regard to the consideration of any director-candidates recommended by our stockholders. To date, no stockholder has made any such recommendations. Our entire Board of Directors performs all functions that could otherwise be performed by committees. In connection with and following the Merger, our Board underwent a complete change in membership. We intend to address in the near future the establishment of various Board committees, including the possible creation of separate audit, compensation and nominating and corporate governance committees.
Audit Committee Financial Expert
We have no separate audit committee at this time. Our entire Board of Directors oversees our audits and auditing procedures. Our Board has not determined whether any director is an “audit committee financial expert” within the meaning of Item 407(d)(5) of SEC Regulation S-K.
Compensation Committee Interlocks and Insider Participation
We have no separate compensation committee at this time. No executive officer of our Company has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as director of our Company during 2014.
Code of Ethics
In November 2012, we adopted a Code of Ethics that applies to our officers, directors and employees. A written copy of the Code is made an exhibit to this Current Report on Form 8-K. A copy of our Code of Ethics is posted on our website at www.tymetechnologiesinc.com. A copy of our Code of Ethics will be provided to any person requesting same without charge. To request a copy of our Code of Ethics please make written request to our Secretary, at 48 Wall Street – Suite 1100, New York, New York, NY 10005.
Compliance with Section 16(a) of the Exchange Act
Our Common Stock is not registered pursuant to Section 12 of the Exchange Act. Accordingly, our officers, directors and principal shareholders are not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act.
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Shareholder Communications
Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.
EXECUTIVE COMPENSATION
General
The following table sets forth, with respect to our fiscal years ended December 31, 2014 and 2013, all compensation earned by or paid to all persons who served as Chief Executive Officer of Tyme or our Company at any time during our fiscal year ended December 31, 2014 and such other executive officer and other employees of our Company who were employed by Tyme or our Company as of the close of business on December 31, 2014 and whose total annual salary and bonus earned during our fiscal year ended December 31, 2014 exceeded $100,000. No compensation in the form of stock, options or other equity were granted or issued to any of the persons set forth in the following table during the periods indicated as compensation.
- 91 -
SUMMARY COMPENSATION TABLE
| | | | | | | | | | | | |
Name and Principal Position | | Year (1) | | Salary | | All Other
Compensation | | Total | |
Peter de Svastich, CEO and President | | 2014 | | $ | 0 | | $ | 0 | | $ | 0 | |
of our Company (2) | | 2013 | | $ | 0 | | $ | 0 | | $ | 0 | |
| | | | | | | | | | | | |
Steve Hoffman, CEO of Tyme and | | 2014 | | $ | 225,000 | | | (4) | | $ | 225,000 | |
currently CEO of our Company (3) | | 2013 | | $ | 0 | | | (4) | | $ | 0 | |
| | | | | | | | | | | | |
Michael Demurjian, COO of Tyme and | | 2014 | | $ | 225,000 | | | (6) | | $ | 225,000 | |
currently COO of our Company (5) | | 2013 | | $ | 0 | | | (6) | | $ | 0 | |
_________
| |
(1) | Prior to the consummation of the Merger, our fiscal year ended on November 30th of each calendar year. In connection with the consummation of the Merger, our fiscal year was changed so as to end on December 31st of each calendar year to conform to the fiscal year historically used by Tyme. The compensation and other information contained for Peter de Svastich, the sole CEO and President of our Company throughout 2014, contained in the table is with respect to our fiscal years ended November 30, 2014 and 2013. Information in the table concerning Steve Hoffman and Michael Demurjian is with respect to Tyme’s fiscal years ended December 31, 2014 and 2013. |
| |
(2) | Mr. Svastich served as our Chief Executive Officer and President from April 26, 2013 to the date of the consummation of the Merger on February March 5, 2015. |
| |
(3) | Mr. Hoffman served as President and Chief Executive Officer of Tyme since its incorporation on July 26, 2013 and became our Chief Executive Officer upon the consummation of the Merger on March 5, 2015. |
| |
(4) | During 2012, Mr. Hoffman received advances from Luminant, a subsidiary of Tyme, totaling $250,000. During 2013, Mr. Hoffman received additional advances from Luminant totaling $250,000. In 2014, the rights to receive repayment of these advances was assigned to a third party in connection with such third party’s sale to Mr. Hoffman of one-half of the third party’s membership interest in Luminant, which acquired membership interest Mr. Hoffman then assigned and contributed to Tyme. Mr. Hoffman remains obligated to repay the amount of the advances to such third party. |
| |
| In addition, during 2013, Tyme made advances to Mr. Hoffman totaling $103,072. Prior to the consummation of the Merger and in order for our Company to be in compliance with applicable laws regarding loans by public entities to their executive officers and directors, the amount of the advances was recognized by Mr. Hoffman as income and we recognized an expense equal to the amount of such 2013 advances. Mr. Hoffman did not otherwise receive any compensation from Tyme or our Company during 2013 and 2014, other than salary totaling $225,000 in 2014 (as reflected in the table) and his other benefits consisted solely of Tyme or Luminant reimbursing him for health insurance premiums for him ($2,875 in 2013 and $6,919 in 2014). |
| |
(5) | Mr. Demurjian served as Vice President and Chief Operating Officer of Tyme from its incorporation on July 26, 2013 and became our Chief Operating Officer upon the consummation of the Merger on March 5, 2015. |
| |
(6) | During 2012, Mr. Demurjian received advances from Luminant, a subsidiary of Tyme, totaling $273,657. During 2013, Mr. Demurjian received additional advances from Luminant totaling $254,416. In 2014, the rights to receive repayment of these advances was assigned to a third party in connection with such third party’s sale to Mr. Demurjian of one-half of the third party’s membership interest in Luminant, which acquired membership interest Mr. Demurjian then assigned and contributed to Tyme. Mr. Demurjian remains obligated to repay the amount of the advances to such third party. |
| |
| In addition, during 2013, Tyme made advances to Mr. Demurjian totaling $102,293. Prior to the consummation of the Merger and in order for our Company to be in compliance with applicable laws regarding loans by public entities to their executive officers and directors, the amount of the advances was recognized by Mr. Demurjian as income and we recognized an expense equal to the amount of such 2013 advances. Mr. Demurjian did not otherwise receive any compensation from Tyme or our Company during 2013 and 2014, other than salary totaling $225,000 in 2014 (as reflected in the table) and his other benefits consisted solely of Tyme or Luminant reimbursing him for health insurance premiums for him and his family ($8,920 in 2013 and $16,144 in 2014). |
- 92 -
We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.
Except as indicated below and our employment agreements with Messrs. Hoffman and Demurjian discussed in the section titled “Employment Agreements” below, we have no contracts, agreements, plans or arrangements, whether written or unwritten, that provide for payments to the named executive officers listed above.
Outstanding Equity Awards at Fiscal Year-End
We have one compensation plan approved by our stockholders, our 2015 Equity Incentive Plan (the “2015 Plan”), which was adopted by our Board of Directors and approved by our stockholders on March 5, 2015. Accordingly, as of end of our 2014 fiscal year we had not granted any awards under the 2015 Plan. Further, as of December 31, 2014, there were no other outstanding options, stock that had not vested or other equity incentive plan awards held by any of our executive officers.
Employment Agreements
We have entered into employment agreements with each of Steve Hoffman, our Chief Executive Officer and Chief Science Officer, and Michael Demurjian, our Chief Operating Officer. (Messrs. Hoffman and Demurjian are each currently serving as Co-Chief Financial Officer of our Company as we seek a qualified individual to serve as our Chief Financial Officer.) Under our employment agreements with Messrs. Hoffman and Demurjian, which were effective as of the consummation of the Merger, these principal executive officers will each be entitled to an annual base salary of $450,000 and such performance bonuses as our board of directors may determine, from time to time, in its sole discretion. The base salaries will be reviewed annually (commencing in 2016) by our board of directors; provided that the base salaries may not be decreased from their then current levels due to any board review. The employment agreements each have a term of five years; provided, however, that commencing on the first anniversary of the effective date of the agreements and on each anniversary thereafter, the term shall automatically be extended by one year, such that, at any time during the term of the agreement, the remaining employment term shall never be less than four years and one day. If the executive is terminated without “Cause” or for “Good Reason,” the executive will be entitled to receive his base salary plus any accrued but unpaid performance bonus, with the base salary payable at the same intervals as the base salary would have been payable if the termination had not occurred. If the employment is terminated for “Cause,” or in the case of the executive’s death or disability, the executive will only be entitled to his base salary through the termination date, plus any accrued and unpaid performance bonus as of the termination date. “Cause” is defined in the employment agreements as: (i) a breach by the executive of the agreement, (ii) the executive’s conviction of, guilty plea to or confession of guilt of, a felony involving us, (iii) materially fraudulent, dishonest or illegal conduct by the executive in the performance of services for or on behalf of us or any of our affiliates, (iv) any conduct by the executive in material violation of any company policy, (v) any conduct by the executive that is materially detrimental to the reputation of our Company or any of our affiliates, (vi) the executive’s misappropriation of our or any of our affiliates’ funds, (vii) the executive’s gross negligence or willful misconduct or willful failure to comply with written directions of our board of directors which directions are within the scope of the executive’s duties, (viii) the executive’s engaging in conduct involving an act of moral turpitude or (ix) a breach of the executive’s duty of loyalty to us or our affiliates. “Good Reason” is defined in each of the employment agreements as our failure to make all payments due the executive under the employment agreement after notice thereof.
All descriptions of Messrs. Hoffman’s and Demurjian’s Employment Agreements herein are qualified in their entireties by reference to the texts thereof filed as exhibits hereto, which are incorporated herein by reference.
Director Compensation
Prior to the consummation of the Merger, none of our directors or directors of Tyme received any cash compensation for their service as members of our Board of Directors, but they were reimbursed for reasonable out-of-pocket expenses incurred in connection with their duties as directors.
Our Board currently consists of five persons, including two directors who also serve as two of our principal executive officers, Steve Hoffman and Michael Demurjian. We believe that each of the three other directors meet the independent director standards of the NASDAQ Stock Market. Our Board has established a director compensation policy, effective as of March 10, 2015, pursuant to which we will compensate our independent directors at the annual rate of $100,000, of which 50% will be paid in cash quarterly in arrears and 50% in the form of restricted shares of our Common Stock to be issued under the 2015 Plan on a quarterly basis, also in arrears.
- 93 -
Science Advisory Board
We intend to establish a Science Advisory Board, consisting of persons with experience in the oncology, pharmaceutical and health industries. Members of this Advisory Board would provide advice to us, individually and as a group at meetings organized by our Company, subject to availability and their individual obligations to their employees and clients, as applicable. We intend to grant to each Advisory Board member at the time he/she joins the Advisory Board with an award, granted under the 2015 Plan, of an option to purchase 50,000 shares of our Common Stock, such option to have a term of five years, have an exercise price equal to the closing price of our Common Stock on the date of grant and vest over a three-year period commencing on the first anniversary of the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SEC rules require us to disclose any transaction or currently proposed transaction in which our Company is a participant and in which any related person has or will have a direct or indirect material interest involving the lesser of $120,000 or one percent (1%) of the average of the Company’s total assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director or holder of 5% or more of the Company’s common stock or an immediate family member of any of those persons.
The descriptions set forth above under the captions “The Merger and Related Transactions - Merger Agreement,” “- Split-Off,” “- the PPO,” “- Registration Rights,” “- Voting Agreement,” “- 2014 Equity Incentive Plan,” “- Lock-up Agreements and Other Restrictions” and “Executive Compensation -Employment Agreements” and “- Director Compensation” and below under “Description of Securities - Options” are incorporated herein by reference.
In addition, we note the following additional related party transactions:
| |
• | In connection with the incorporation of Tyme, Steve Hoffman and Michael Demurjian assigned and contributed to Tyme all of their membership interests in Luminant, each of such membership interests constituting one-third of the entire membership interests in Luminant then outstanding. Mr. Hoffman was the Chief Executive Officer of pre-Merger Tyme and is our current Chief Executive Officer and Chief Science Officer, a director of our Company and the beneficial owner of over 5% of our Common Stock currently outstanding. Mr. Demurjian was the Chief Operating Officer of pre-Merger Tyme and is our current Chief Operating Officer, a director of our Company and the beneficial owner of over 5% of our Common Stock as of the Determination Date of April 9, 2015. |
| |
• | During 2012, Mr. Hoffman received advances from Luminant, a subsidiary of Tyme, totaling $250,000. During 2013, Mr. Hoffman received additional advances from Luminant totaling $250,000 and, in 2014, another $10,000 was advanced to him by Luminant. In 2014, the rights to receive repayment of these advances was assigned to a third party in connection with such third party’s sale to Mr. Hoffman of one-half of the third party’s membership interest in Luminant, which acquired membership interest Mr. Hoffman then assigned and contributed to Tyme. Mr. Hoffman remains obligated to repay the amount of the advances to such third party. Such Luminant membership interest represented one-sixth of the total membership interests in Luminant outstanding as of its acquisition by Mr. Hoffman and subsequent assignment and contribution to Tyme. |
| |
• | Tyme made advances to Mr. Hoffman totaling $103,872 in 2013 and $37,600 in 2014. Prior to the consummation of the Merger and in order for our Company to be in compliance with applicable laws regarding loans by public entities to their executive officers and directors, the amount of the advances was recognized by Mr. Hoffman as income and we recognized an expense equal to the amount of such 2013 and 2014 advances. |
| |
• | During 2012, Mr. Demurjian received advances from Luminant, a subsidiary of Tyme, totaling $273,657. During 2013, Mr. Demurjian received additional advances from Luminant totaling $254,416 and, in 2014, another $10,000 was advanced to him by Luminant. In 2014, the rights to receive repayment of these advances was assigned to a third party in connection with such third party’s sale to Mr. Demurjian of one-half of the third party’s membership interest in Luminant, which acquired membership interest Mr. Demurjian then assigned and contributed to Tyme. Mr. Demurjian remains obligated to repay the amount of the advances to such third party. Such Luminant membership interest represented one-sixth of the total membership interests in Luminant outstanding as of its acquisition by Mr. Demurjian and subsequent assignment and contribution to Tyme. |
| |
• | Tyme made advances to Mr. Demurjian totaling $102,293 in 2013 and $112,000 in 2014. Prior to the consummation of the Merger and in order for our Company to be in compliance with applicable laws regarding loans by public entities to their executive officers and directors, the amount of the advances was recognized by Mr. Demurjian as income and we recognized an expense equal to the amount of such 2013 and 2014 advances. |
- 94 -
| |
• | As a condition to Tyme’s July 2014 sale of the original Bridge Note, our Chief Executive Officer, Steve Hoffman, assigned to Tyme all of his interest in certain patents and patent applications and Tyme granted Mr. Hoffman a perpetual, non-royalty license rights with respect to such patents and patent applications in all fields other than in connection with the treatment of cancer. |
| |
• | In 2013, Tyme borrowed funds totaling $1.26 million from U.S. VC Partners, L.P. (“USVC”). In August 2014, USVC converted this debt into 106.6 shares of Tyme common stock. Contemporaneously with such conversion and issuance of the 106.6 shares, Messrs. Hoffman and Demurjian each assigned and contributed to Tyme 53.3 shares of Tyme common stock that they owned such that no dilution was recognized by any of the other stockholders of Tyme. USVC currently owns a total of 4,984,400 shares of our Common Stock as a result of the conversion of its shares of Tyme common stock into shares of our Common Stock in the Merger. Such shares of our Common Stock owned by USVC represent approximately 5.8% of our Common Stock as of the Determination Date. |
| |
• | Christopher Brown is the Manager of GEM and was the holder of the Bridge Note. Mr. Brown designated GEM to receive the Conversation Shares upon the conversion of the Bridge Note that occurred contemporaneously with the closing of the Merger and PPO. |
| |
• | GEM has deposited with an escrow agent 5 million shares of our Common Stock which are subject to forfeiture under the PPO Note Escrow Agreement. GEM also has deposited with an escrow agent an additional 3.5 million shares of our Common Stock which are subject to forfeiture under the Adjustment Shares Escrow Agreement. |
| |
• | GEM purchased all of the 2.716 million shares of our Common Stock sold in the PPO. |
| |
• | All of the 26,276,600 Merger Related Surrendered Shares were surrendered for cancelation by GEM. |
| |
• | On November 22, 2011, we issued 39,000,600 shares of our Common Stock to our then-sole director and officer, Andrew Keck, for an aggregate purchase price of $9,000. |
| |
• | On February 27, 2013, GEM purchased a controlling interest in our Company. At the closing of that 2013 transaction, we entered into a Consulting Agreement with Andrew Keck, our then sole officer and director, pursuant to which Mr. Keck agreed to continue to provide services to us that are ordinarily and customarily performed by a chief executive officer for two months. In consideration for the services to be rendered by Mr. Keck, we agreed to pay Mr. Keck a monthly fee of $750, commencing on February 27, 2013. GEM made the two $750 payments to Mr. Keck on our behalf. The $1,500 advance was non-interest bearing and due on demand. In connection with the consummation of the Merger, such debt was forgiven. |
| |
• | GEM made additional advances to our Company during our fiscal years ended November 30, 2014 and 2013 of $57,670 (with respect to the 2014 fiscal year) and $31,501 (with respect to the 2013 fiscal year). In connection with the consummation of the Merger, all of such debt was forgiven. |
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is currently quoted on the OTC Markets, QB Tier, under the symbol “TYMI.” Previously and until September 26, 2014, our Common Stock was quoted on the OTC Markets, QB Tier, under the symbol “GGET.” Prior to March 12, 2015, there were no reported sales of our Common Stock on the OTC Market. Since such date, there have been only a few shares of our Common Stock reported by OTC Markets as having been traded. There can be no assurance given that a regular and active trading market for Common Stock will ever develop. OTC Markets securities are not listed and traded on the floor of an organized national or regional stock exchange. Instead, OTC Markets securities transactions are conducted through a telephone and computer network connecting dealers. OTC Markets issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
Holders
As of April 9, 2015, we have 86 million shares of Common Stock outstanding held by 21 stockholders of record.
- 95 -
Dividend Policy
We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The Company had no equity compensation plans as of the end of our fiscal year 2014.
2015 Equity Incentive Plan
On March 5, 2015, our Board of Directors adopted and our stockholders approved our Company’s 2015 Equity Incentive Plan (the “2015 Plan”), which reserves a total of 10 million shares of our Common Stock for issuance under the 2015 Plan.
We believe that the 2015 Plan is integral to our compensation strategies and programs. There is an ongoing “battle for talent” within the industry in which we operate and within the overall domestic employment market. In order to retain and secure employees in this intensely competitive employment environment, we believe that we must have competitive compensation programs, particularly with respect to equity-based awards. The use of stock options and other stock awards among public companies is widely prevalent. We believe that the 2015 Plan will give us more flexibility to keep pace with our competitors.
We expect to use stock options as our most widely used form of long-term incentives for our directors, executive officers, employees and consultants. The 2015 Plan also will permit stock bonus grants, restricted stock grants, performance stock grants, stock appreciation rights grants and other types of awards.
We have not granted any stock options or other awards under the 2015 Plan through April 9, 2015, other than the grant, effective as of March 31, 2015 and with respect to the fiscal quarter ended March 31, 2015, of 1,812 shares of our Common Stock to each of our three independent directors pursuant to our independent director compensation policy and a special advisor to our Board of Directors.
Plan Summary
A summary of the principal features of the 2015 Plan is provided below, but is qualified in its entirety by reference to the actual 2015 Plan. A copy of the 2015 Plan has been attached as an exhibit to the original Form 8-K.
Purposes
The purposes of the 2015 Plan is to:
| |
• | enable us and our subsidiaries and affiliates to attract and retain highly qualified personnel who will contribute to our success and |
| |
• | provide incentives to participants in the 2015 Plan that are linked directly to increases in stockholder value that will therefore inure to the benefit of all of our stockholders. |
Shares Available for Issuance
The maximum number of shares of our Common Stock that initially may be issued under the 2015 Plan is 10 million. The number of shares that may be granted pursuant to the 2015 Plan and the exercise prices of and number of shares subject to outstanding options and other awards will be proportionately adjusted, subject to any required action by our board of directors or stockholders and compliance with applicable securities laws, in the event of a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in our capital structure involving our common stock. No more than an aggregate of 3,333,333 shares of our Common Stock may be awarded during the twelve months following the 2015 Plan’s adoption by our stockholders, which occurred on March 5, 2015.
Administration
The 2015 Plan will be administered by of our Board of Directors or a committee of our Board in which each member will be an independent director. Throughout the remainder of this discussion of the 2015 Plan, the term “administrator” refers to our Board or the committee delegated authority to administer the 2015 Plan.
- 96 -
The 2015 Plan provides for the administrator to have full authority, in its discretion, to:
| |
• | select the persons to whom awards will be granted, |
| |
• | grant awards, |
| |
• | determine the number of shares to be covered by each award, |
| |
• | determine the type, nature, amount, pricing, timing and other terms of each award and |
| |
• | interpret, construe and implement the provisions of the 2015 Plan, including the authority to adopt rules and regulations. |
Eligibility
Participation in the 2015 Plan is limited to our, our subsidiaries and affiliates’:
| |
• | employees, including officers, |
| |
• | directors, |
| |
• | consultants and |
| |
• | advisors. |
Types of Awards
Under the 2015 Plan, the administrator is authorized to award:
| |
• | stock options, |
| |
• | stock bonuses, |
| |
• | restricted stock, |
| |
• | stock appreciation rights, commonly referred to as “SARs,” |
| |
• | performance grants and |
| |
• | other types of awards. |
Stock Options
The administrator is authorized to grant stock options, which may be either incentive stock options qualifying for favorable tax treatment under the Internal Revenue Code, referred to as “ISOs,” or nonqualified stock options, referred to as “NSOs.” The exercise price of all options awarded under the 2015 Plan must be no less than 100% of the fair market value of our common stock on the date of the grant. For purposes of the 2015 Plan, fair market value shall be equal to the closing market price of our Common Stock. In the absence of a market price, fair market value shall be determined in such manner as the administrator may deem equitable or as required by applicable law or regulation.
At the time of grant, the administrator will determine when options are exercisable and when they expire. In absence of such determination, each option will have a ten-year term, with one quarter of the shares subject to the option becoming exercisable on the first anniversary of the option grant and with an additional one-quarter becoming exercisable on each of the next three anniversary dates. The term of an option cannot exceed ten years, except in the case of an ISO granted to a person who beneficially owns 10% or more of the total combined voting power of all of our equity securities, referred to as a “10% stockholder.” An ISO granted to a 10% stockholder cannot have a term exceeding five years, nor may such an ISO be exercisable at less than 110% of the fair market value of our common stock on the date of grant. ISOs may not be granted more than ten years after the date of adoption of the 2015 Plan by our Board of Directors.
- 97 -
The aggregate fair market value of shares first exercisable in any calendar year by an individual holding ISOs, whether under the 2015 Plan or any other plan of our company, may not exceed $100,000. In such an event, the shares in excess of such $100,000 limitation shall be deemed granted as an NSO.
Payment for shares purchased upon exercise of a stock option must be made in full at the time of purchase. Payment may be made in cash or at the option of the administrator:
| |
• | by reduction of indebtedness we owe to the optionee, |
| |
• | by the transfer to us of shares of our Common Stock owned by the participant for at least six months or obtained in the public market and which are valued at fair market value on the date of transfer, |
| |
• | in the case of employees other than executive officers, by interest bearing promissory note, |
| |
• | except with respect to ISOs or where otherwise prohibited by applicable law and provided a public market for our common stock exists, by “cashless exercise,” or |
| |
• | through a “same day sale” or “margin” commitment by a broker-dealer that is a member of the Financial Industry Regulatory Authority. |
Restricted Stock Grants
Restricted stock consists of shares of our common stock which are sold or granted to a participant, but are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the participant. The administrator determines the eligible participants to whom and the time or times at which, grants of restricted stock will be made, the number of shares to be granted, the price to be paid, if any, the time within which the shares covered by such grants will be subject to forfeiture, the time at which the restrictions will terminate and all other terms and conditions of the grants. Restrictions could include, but are not limited to, performance criteria, continuous service with us, the passage of time or other restrictions. In the case of a 10% stockholder, restricted stock will only be issued at fair market value.
Any performance criteria may be used to measure our performance as a whole or the performance of any of our subsidiaries, affiliates or business units. Any performance criteria may be adjusted to include or exclude extraordinary items.
SARs
An SAR is a right, denominated in shares, to receive an amount, payable in shares, in cash or a combination of shares and cash, that is equal to the excess of: (a) the fair market value of our Common Stock on the date of exercise of the right over (b) the fair market value of our common stock on the date of grant of the right, multiplied by the number of shares for which the right is exercised. SARs may be awarded either in combination with the grant of an option or other type of award or individually.
Stock Bonus Awards
The administrator may award shares of our Common Stock to participants without payment therefor, as additional compensation for service to us, our subsidiaries or our affiliates.
Performance Grants
The 2015 Plan authorizes the administrator to award performance grants. Performance grant awards are earned over a performance period determined by the administrator at the time of the award. There may be more than one performance award in existence at any one time and the performance periods may differ or overlap. Further, performance grants can be awarded separately or in tandem with other awards.
At the time a performance grant is awarded, the administrator will establish minimum and maximum performance goals over the performance period. The portion of the performance award earned by the participant will be determined by the administrator, based on the degree to which the performance goals are achieved. No performance grants will be earned by the participant unless the minimum performance goals are met.
- 98 -
Amendment of the 2015 Plan
Except as may be required for compliance with Rule 16b-3 under the Exchange Act and Sections 162(m) or 422 of the Internal Revenue Code, our Board of Directors has the right and power to amend the 2015 Plan;provided,however, that our Board may not amend the 2015 Plan in a manner which would impair or adversely affect the rights of the holder of an outstanding award without such holder’s consent. If the Code or any other applicable statute, rule or regulation, including, but not limited to, those of any securities exchange, requires stockholder approval with respect to the 2015 Plan or any type of amendment thereto, then, to the extent so required, stockholder approval will be obtained.
Termination of the 2015 Plan
Subject to earlier termination by our board of directors, the 2015 Plan will terminate on March 5, 2025. Termination of the 2015 Plan will not, in any manner, impair or adversely affect any award outstanding at the time of termination.
Administrator’s Right to Modify Benefits
Any award granted may be converted, modified, forfeited or canceled, in whole or in part, by the administrator if and to the extent permitted in the 2015 Plan or applicable agreement entered into in connection with an award grant or with the consent of the participant to whom such award was granted.
Change in Control
An award agreement may provide that, upon a “change in control,” all or any portion of the award shall automatically become immediately vested and exercisable, that restrictions relating to the award shall lapse or that the award shall become immediately payable.
A change of control will be deemed to have occurred if:
| |
• | any person (other than a current stockholder or holder of rights entitling the holder to acquire our securities) acquires beneficial ownership of 50% or more of the voting power of our then-outstanding voting securities, |
| |
• | members of our current board cease to constitute a majority of our board without the approval of our current board (or those elected with the approval of the directors on the board at the time of such member’s election) or |
| |
• | we are a party to a merger, consolidation, liquidation, dissolution or sale of all or substantially all of our assets, other than a merger in which we are the surviving corporation and such merger does not result in any other manner in a change in control. |
The Merger has been expressly excluded from a transaction that would trigger a change of control under the 2015 Plan.
Reusage
If a stock option expires or is terminated, surrendered or canceled without having been fully exercised or if restricted stock or SARs are forfeited or terminated without the issuance of all of the shares subject to such award, the shares covered by such awards again will be available for use under the 2015 Plan. Shares covered by an award granted under the 2015 Plan will not be counted as used unless and until they are actually and unconditionally issued and delivered to a participant. The number of shares that are transferred to us by a participant to pay the exercise or purchase price of an award will be subtracted from the number of shares issued with respect to such award for the purpose of counting shares used. Shares covered by an award granted under the 2015 Plan that is settled in cash will not be counted as used.
Termination of Options
Upon the termination of an optionee’s employment or other service with us, the optionee will have three months to exercise options to the extent exercisable as of the date of termination, except where such termination is for cause, in which event the option will expire immediately. However, if, the termination is due to the optionee���s death or disability, then the optionee or the optionee’s estate or legal representative shall have the right to exercise any vested options for twelve months after such death or disability. The administrator, in its discretion, may delay the termination of such an option, but only for up to the earlier of: (x) five years from such termination or (y) the option’s original expiration date.
- 99 -
Federal Income Tax Consequences
The following is a general summary, as of the date of this Current Report on Form 8-K, of the federal income tax consequences to us and participants under the 2015 Plan. Federal tax laws may change and the federal, state and local tax consequences for any such participant will depend upon his, her or its individual circumstances. Each participant shall be encouraged to seek the advice of a qualified tax advisor regarding the tax consequences of participation in the 2015 Plan.
ISOs
An optionee generally does not recognize taxable income upon the grant or upon the exercise of an ISO.
If an optionee sells ISO shares before having held them for at least one year after the date of exercise and two years after the date of grant, the optionee recognizes ordinary income to the extent of the lesser of: (x) the gain realized upon the sale or (y) the difference between the fair market value of the shares on the date of exercise and the exercise price. Any additional gain is treated as long-term or short-term capital gain depending upon how long the optionee has held the ISO shares prior to disposing of them in a disqualifying disposition. In the year of disposition, we will receive a federal income tax deduction in an amount equal to the ordinary income that the optionee recognizes as a result of the disposition.
If an optionee sells ISO shares after having held them for at least one year from exercise and two years from the date of grant, the optionee recognizes income in an amount equal to the difference, if any, between the fair market value of those shares on the date of sale and the exercise price of the ISO shares. Such income will be taxed at long-term capital gains rates. In such an event, we will not be entitled to a federal income tax deduction. The holding period requirements generally are waived when an optionee dies.
The exercise of an ISO may, in some cases, trigger liability for the alternative minimum tax.
NSOs
An optionee does not recognize taxable income upon the grant of an NSO. Upon the exercise of an NSO, the optionee recognizes ordinary income to the extent the fair market value of the shares received upon exercise of the NSO on the date of exercise exceeds the exercise price, unless the optionee is subject to the provisions of Section 16 of the Securities Exchange Act of 1934. We will receive an income tax deduction in an amount equal to the ordinary income that the optionee recognizes upon the exercise of the stock option. If an optionee sells shares received upon the exercise of an NSO, the optionee recognizes capital gain income to the extent the sales proceeds exceed the fair market value of such shares on the date of exercise. If the optionee is subject to Section 16, absent an election to be taxed at the time of exercise, the optionee will be taxed when the insider trading restrictions of Section 16 lapse and then based upon the value of the shares at the time the trading restrictions lapse.
Restricted Stock
A participant who receives an award of restricted stock does not generally recognize taxable income at the time of the award or payment. Instead, the participant recognizes ordinary income in the taxable year in which his or her interest in the shares becomes either: (x) freely transferable or (y) no longer subject to substantial risk of forfeiture. On the date restrictions lapse, the participant includes in taxable income the fair market value of the shares less the cash, if any, paid for the shares.
A participant may elect to recognize income at the time he or she receives restricted stock in an amount equal to the fair market value of the restricted stock, less any cash paid for the shares, on the date of the award.
We will receive a compensation expense deduction in the taxable year in which restrictions lapse or in the taxable year of the award if, at that time, the participant had filed a timely election to accelerate recognition of income.
Other Benefits
In the case of an exercise of an SAR or an award of a performance grant or stock bonus, the participant will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery. In that taxable year, we will receive a federal income tax deduction in an amount equal to the ordinary income that the participant has recognized.
- 100 -
Million Dollar Deduction Limit
We may not deduct compensation of more than $1 million that is paid to an individual who, on the last day of the taxable year, is either our chief executive officer or is among one of the four other most highly-compensated officers for that taxable year. The limitation on deductions does not apply to certain types of compensation, including qualified performance-based compensation. We believe that awards in the form of stock options constitute qualified performance-based compensation and, as such, will be exempt from the $1 million limitation on deductible compensation.
Registration and Effect of Stock Issuance
We intend to register under the Securities Act the shares of our common stock issuable under the 2015 Plan. This will make such shares immediately eligible for resale in the public market.
The issuance of shares of our common stock under the 2015 Plan will dilute the voting power of our stockholders.
Miscellaneous
A new benefits table is not provided because no grants were made under the 2015 Plan during our fiscal year ended December 31, 2014 or any prior period. Accordingly, benefits are not determinable with respect to our chief executive officers, other named executive officers, all current executive officers as a group, all current directors and all executive officer as a group and all employees, including all current officers who are not executive officers, as a group.
DESCRIPTION OF SECURITIES
We have authorized capital stock consisting of 300 million shares of Common Stock and 10 million shares of preferred stock. As of the date of this Current Report on Form 8-K, we had 86 million shares of our Common Stock and no shares of preferred stock issued and outstanding.
Common Stock
The holders of outstanding shares of our Common Stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends at such times and in such amounts as our Board of Directors from time to time may determine. Holders of our Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing for election. Holders of our Common Stock are not entitled to pre-emptive rights and shares of our Common Stock are not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of our Common Stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding share of our Common Stock that is issued and outstanding is duly and validly issued, fully paid and non-assessable.
Preferred Stock
Shares of our preferred stock may be issued from time to time in one or more series and/or classes, each of which will have such distinctive designation or title as shall be determined by our Board of Directors prior to the issuance of any shares of such series or class. Our preferred stock will have such voting powers, full or limited or no voting powers and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such series or class of preferred stock as may be adopted from time to time by our Board of Directors prior to the issuance of any shares thereof. No shares of our preferred stock are currently issued or outstanding and our Board has not, as of the date of this Amendment No. 1, designated any class or series of preferred stock for use in the future.
While we do not currently have any plans for the issuance of shares of our preferred stock, the issuance of preferred stock could adversely affect the rights of the holders of our Common Stock and, therefore, reduce the value of our Common Stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of our Common Stock until our Board determines the specific rights of the holders of such shares of preferred stock; however, these effects may include:
| |
• | restricting dividends on our Common Stock; |
| |
• | diluting the voting power of our Common Stock; |
| |
• | impairing the liquidation rights of our Common Stock; and/or |
- 101 -
| |
• | delaying or preventing a change in control of our Company without further action by our stockholders. |
Other than in connection with shares of preferred stock (as explained above), which preferred stock is not currently designated nor contemplated by us, we do not believe that any provision of our charter or By-Laws would delay, defer or prevent a change in control.
Options
No options or other awards have been granted to date under our 2015 Plan or otherwise, other than the grant, effective as of March 31, 2015 and with respect to the fiscal quarter ended March 31, 2015, to each of our three independent directors of 1,812 shares of our Common Stock pursuant to our independent director compensation policy and an additional 1,812 shares of our Common Stock to a special advisor to our Board of Directors. Accordingly, as of the date of this Amendment No. 1, we have outstanding no options or warrants to purchase shares of our Common Stock.
Registration Rights
See Item 2.01, “Completion of Acquisition or Disposition of Assets - The Merger and Related Transactions - Registration Rights” for a description of the registration rights granted to investors in the PPO, the designee of the former holder of the Bridge Note, the holders of the Tyme Stockholders Registrable Shares and a consultant, which description is incorporated herein by reference.
Other Convertible Securities
As of the date of this Amendment No. 1, other than the securities described above, our Company does not have any outstanding convertible or derivative securities.
Transfer Agent
The transfer agent for our Common Stock is Continental Stock Transfer & Trust Company. The transfer agent’s address is 17 Battery Place - 8th Floor, New York, New York 10004 and its telephone number is (212) 509-4000.
LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm business.
We are currently not aware of any pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware Law allows us to indemnify our officers and directors from certain liabilities. Pursuant to our Certificate of Incorporation, we shall indemnify, to the fullest extent permitted by applicable law any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature by reason of the fact that he or she is or was a director, officer, employee or agent of our Company or, while a director, officer, employee or agent of our Company, is or was serving at the request of our Company as a director, officer, trustee, employee or agent of or in any other capacity with another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines, penalties and amounts paid in settlement in connection with such action, suit or proceeding.
Pursuant to our Certificate of Incorporation, we shall advance to a director, officer, employee or agent of our Company expenses incurred in connection with defending any action, suit or proceeding referred to above or in our By-Laws at any time before the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the indemnified person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by us as authorized in our Certificate of Incorporation or as provided in the By-Laws.
The indemnification and other rights provided for in our Certificate of Incorporation shall not be exclusive of any provision with respect to indemnification or the payment of expenses in our By-Laws or any other contract or agreement between us and any officer, director, employee or agent of our Company or any other person.
- 102 -
Other than discussed above, neither our Certificate of Incorporation nor By-Laws includes any specific indemnification provisions for our officers or directors against liability under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of our Company pursuant to the foregoing provisions or otherwise, our Company has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
AUDIT FEES
The aggregate fees billed to us by Tyme’s principal accountants for professional services rendered during the years ended December 31, 2014 and 2013 are set forth in the table below:
| | | | | | |
| Year Ended December 31, | |
Fee Category | 2014 | | 2013 | |
Audit fees (1) | $ | 144,360 | | $ | 0 | |
Audit-related fees (2) | | 50,480 | | | 0 | |
Tax fees (3) | | 0 | | | 0 | |
All other fees (4) | | 0 | | | 0 | |
Total fees | $ | 194,840 | | $ | 0 | |
_________
| |
(1) | Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements. |
| |
(2) | Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.” |
| |
(3) | Tax fees consist of fees billed for professional services relating to tax compliance, tax planning and tax advice. |
| |
(4) | All other fees consist of fees billed for all other services. |
Audit Committee’s Pre-Approval Practice
We have retained WithumSmith+Brown as our independent registered public accounting firm for our fiscal year ending December 31, 2015. The services provided under this retention may include audit services, audit-related services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to report to our Board of Directors at least quarterly regarding the extent of services provided by the independent auditors, and the fees for their services performed to date. Our Board may also pre-approve particular services on a case-by-case basis. All audit-related fees and other fees incurred by us for the year ended December 31, 2014 were approved by our Board.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We are required under applicable regulations to maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our senior management, consisting of Steve Hoffman, our Chief Executive Officer, President and, currently, Co-Chief Financial Officer (Principal Executive Officer and Co-Principal Financial Officer), and Michael Demurjian, our Chief Operating Officer, Executive Vice President, and, currently, Co-Chief Financial Officer (Co-Principal Financial Officer), as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our senior management, consisting of Messrs. Hoffman and Demurjian, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014. Based on the evaluation of these disclosure controls and procedures and, in light of the material weaknesses found in our internal controls over financial reporting, Messrs. Hoffman and Demurjian concluded that our disclosure controls and procedures were not effective.
- 103 -
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| |
• | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| |
• | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and directors of our Company; and |
| |
• | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2014, our management, consisting of Steve Hoffman, our Chief Executive Officer, President and, currently, Co-Chief Financial Officer (Principal Executive Officer and Co-Principal Financial Officer), and Michael Demurjian, our Chief Operating Officer, Executive Vice President, and, currently, Co-Chief Financial Officer (Co-Principal Financial Officer), assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, we believe that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:
| |
• | lack of a functioning audit committee and a lack of independent directors on our Board, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; |
| |
• | inadequate segregation of duties consistent with control objectives; and |
| |
• | ineffective controls over period end financial disclosure and reporting processes. |
The aforementioned material weaknesses were identified by Messrs. Hoffman and Demurjian in connection with the review of our financial statements as of December 31, 2014. In addition, management noted further control and procedures deficiencies, including those relating to segregation of duties over cash disbursements and the prompt analysis of the financial impact of all transaction to which we are a party.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the until recently lack of independent directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods. Prior to the Merger, Tyme was a privately held company that was not required to have in place any specified financial controls and procedures, nor a requirement that Tyme’s
- 104 -
management conduct periodic assessments of the financial controls and procedures then in place. Subsequent to December 31, 2014, we changed management of our Company as a result of the Merger and expanded our Board of Directors with the addition of three independent directors. Such independent directors now constitute a majority of our entire Board.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
| |
• | Assuming we are able to secure additional working capital, we will create a position in order to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function. |
| |
• | We also plan to appoint one or more independent directors to an audit committee which will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management. |
We anticipate that these initiatives will be implemented in conjunction with the growth of our business.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2014, that occurred during our fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, as noted in “Management’s Remediation Initiatives” above, subsequent to December 31, 2014, our Board of Directors was expanded by the election of three independent directors and we intend for such independent directors to be appointed to a newly formed audit committee. We anticipate that such audit committee will discuss with management, including our Chief Financial Officer, and independent registered public accounting firm, the status of our financial controls and procedures and determine what changes are necessary to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
| |
Item 3.02 | Unregistered Sales of Equity Securities |
The Bridge Note and the PPO
The information regarding the Bridge Notes and the PPO set forth in Item 2.01, “Completion of Acquisition or Disposition of Assets - The Merger and Related Transactions - The Bridge Financing” and ” - The PPO” are incorporated herein by reference.
Shares Issued in Connection with the Merger
On March 5, 2015, pursuant to the terms of the Merger Agreement, all of the issued and outstanding shares of Tyme common stock were exchanged for 68 million shares of our Common Stock. This transaction was exempt from registration under Section 4(2) of the Securities Act as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.
Consultant’s Shares
We retained a consultant to provide investor relations services to us, effective as of the consummation of the Merger. In connection with such retention, we issued to the consultant 250,000 shares of our Common Stock. This transaction was exempt from registration under Section 4(2) of the Securities Act as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.
Sales of Unregistered Securities of Tyme
On July 26, 2013, Tyme issued to each of Steve Hoffman and Michael Demurjian 1,000 shares of Tyme’s common stock (34 million shares of our Common Stock) in exchange for their assignment to Tyme of all of their membership interests in Luminant. Each of such assigned membership interests represented one-third of the then outstanding membership interests of Luminant. Each of these issuances was exempt from registration under Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering.
- 105 -
Effective as of August 28, 2014, U.S. VC Partners, LLC (“USVC”) converted its convertible promissory note in the amended principal amount of $1.126 million into 102.6 shares of Tyme’s common stock (3,624,400 shares of our Common Stock). This issuance was exempt from registration under Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.
Subsequent to their acquisitions of their individual shares of Tyme’s common stock, at various times between July 2013 and August 2014, each of Messrs. Hoffman and Demurjian sold and transferred certain of their shares to a total of eight persons or entities, as well as each surrendering to us for cancellation 53.3 shares of Tyme’s common stock (1,812,200 shares of our Common Stock) in connection with the issuance to USVC of 102.6 shares of Tyme’s common stock (3,624,400 shares of our Common Stock) upon USVC’s conversion of Tyme’s $1.126 million debt owed to it, resulting in their ownership of shares of our Common Stock as reflected in the “Principal Stockholders Table” set forth above. Each of such sales and transfers was exempt from registration under Section 4(1) of the Securities Act as transactions by a person other than the issuer, underwriter or dealer and Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering.
| |
Item 4.01 | Changes in Registrant’s Certifying Accountant. |
On March 6, 2015, DKM Certified Public Accountants (“DKM”) was dismissed as our independent registered public accounting firm. On the same date, WithumSmith+Brown, PC (“WSB”) was engaged as our new independent registered public accounting firm. WSB acted as the independent registered public accounting firm of Tyme, with respect to Tyme’s fiscal year ended December 31, 2013 and Luminant, with respect to Luminant’s fiscal years ended December 31, 2013, 2012 and 2011, and has been engaged to act as Tyme’s independent registered public accounting firm for Tyme’s fiscal year ended December 31, 2014. Our Board of Directors approved the dismissal of DKM and approved the engagement of WSB as our independent registered public accounting firm to be effective upon consummation of the Merger, which occurred on March 5, 2015.
None of the reports of DKM on our financial statements for either of the past two years or subsequent interim period contained an adverse opinion or disclaimer of opinion or was qualified or modified as to uncertainty, audit scope or accounting principles, except that our audited financial statements contained in our Annual Reports on Form 10-K for the fiscal years ended November 30, 2014 and 2013 included a going concern qualification in the reports.
During our Company’s two most recent fiscal years ended November 30, 2014 and 2013 and the subsequent interim periods preceding their dismissal, there were no disagreements with DKM, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of DKM would have caused them to make reference to the subject matter of the disagreement in connection with their reports on our Company’s financial statements.
The Company provided DKM with a copy of the disclosures it made in the Original Form 8-K and requested that DKM furnish it with a letter addressed to the SEC stating whether they agree with the above statements. The letter furnished by DKM has been made an exhibit to the Original Form 8-K.
During the two most recent fiscal years and the interim periods preceding the engagement and through the date of this Form 8-K, neither the Company nor anyone on its behalf has previously consulted with WSB regarding either (a) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our Company’s financial statements and neither a written report was provided nor oral advice was provided to the Company that WSB concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (b) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(1)(iv) of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph 304(a)(1)(v)) of Regulation S-K).
| |
Item 5.01 | Changes in Control of Registrant. |
The information regarding change of control of the Company in connection with the Merger set forth in Item 2.01, “Completion of Acquisition or Disposition of Assets—The Merger and Related Transactions” is incorporated herein by reference.
| |
Item 5.02 | Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers. |
The information regarding departure and election of directors and departure and appointment of principal officers of the Company in connection with the Merger set forth in Item 2.01, “Completion of Acquisition or Disposition of Assets - The Merger and Related Transactions” is incorporated herein by reference.
- 106 -
| |
Item 5.03 | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On March 5, 2015, we changed our fiscal year from a fiscal year ending on November 30th of each year, which was used in our most recent filing with the SEC, to one ending on December 31st of each year, which is the fiscal year end of Tyme. We intend to file a Form 10-K with respect to our fiscal year ended December 31, 2014 within the time period required of a smaller reporting company and, thereafter, file our periodic reports based on the new fiscal year.
| |
Item 5.06 | Change in Shell Company Status. |
Prior to the Merger, we were a “shell company” (as such term is defined in Rule 12b-2 promulgated under the Exchange Act). As a result of the Merger, we have ceased to be a shell company. The information contained in this Current Report on Form 8-K, together with the information contained in our Annual Report on Form 10-K for the fiscal year ended November 30, 2013 and our subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as filed with the SEC, constitute the current “Form 10 information” necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act.
| |
Item 9.01 | Financial Statements and Exhibits. |
(a) Financial statements of business acquired.
In accordance with Item 9.01(a) of Form 8-K, Tyme’s audited financial statements as of and for the fiscal years ended December 31, 2013 and 2012 and Tyme’s unaudited condensed financial statements as of and for the three and nine months ended, September 30, 2014 and 2013 and the accompanying notes, were included in the Original Form 8-K. They are included in this Amendment No. 1. In addition, pursuant to applicable regulations promulgated, and telephone interpretations made, by the SEC, we are also providing in this Amendment No. 1 Tyme’s audited financial statements as of and for the fiscal year ended December 31, 2014.
(b) Pro forma financial information.
In accordance with Item 9.01(b) of Form 8-K, unaudited pro forma condensed combined financial information as of and for the fiscal years ended December 31, 2013 and as of and for the nine months ended September 30, 2014 and 2013 and the accompanying notes, were included in the Original Form 8-K. They are included in this Amendment No. 1. In addition, pursuant to applicable regulations promulgated, and telephone interpretations made, by the SEC, we are also providing in this Amendment No. 1 unaudited pro forma condensed combined financial information as of and for the fiscal year ended December 31, 2014.
(d) Exhibits
In reviewing the agreements included or incorporated by reference as exhibits to this Current Report on Form 8-K, please remember that they are included to provide the reader with information regarding their terms and are not intended to provide any other factual or disclosure information about our Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:
| |
• | should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
| |
• | have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
| |
• | may apply standards of materiality in a way that is different from what may be viewed as material to readers of this Form 8-K or other investors; and |
| |
• | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, such representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about our Company may be found elsewhere in this Form 8-K and our other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
- 107 -
| | |
Exhibit
Number | | Description |
2.1* | | Agreement and Plan of Merger and Reorganization, dated as of March 5, 2015, by and among Tyme Technologies, Tyme Acquisition Corp., Tyme, Inc. and other signatories thereto. |
2.2 | | Agreement and Plan of Merger, dated September 12, 2014, between Global Group Enterprises Corp. and Tyme Technologies, Inc. [Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.] |
3.1 | | Amended and Restated Certificate of Incorporation of Tyme Technologies, Inc. [Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.] |
3.2 | | Articles of Merger of Global Group Enterprises Corp. with and into Tyme Technologies, Inc., filed with the Secretary of State of the State of Florida on September 18, 2014. [Incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.] |
3.3 | | Certificate of Merger of Global Group Enterprises Corp. with and into Tyme Technologies, Inc., filed with the Secretary of State of the State of Delaware on September 18, 2014. [Incorporated by reference to Exhibit 3.4 to our Current Report on Form 8-K (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.] |
3.4* | | Certificate of Merger of Tyme Acquisition Corp. with and into Tyme Inc., filed with the Secretary of State of the State of Delaware on March 5, 2015. |
3.5 | | By-Laws of Tyme Technologies, Inc. [Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (Date of Report: September 12, 2014), filed with the SEC on September 19, 2014.] |
10.1* | | Split-Off Agreement, dated as of March 5, 2015, among Global Group Enterprises Corp., Tyme Technologies, Inc. and Andrew Keck. |
10.2* | | General Release Agreement, dated as of March 5, 2015, among Global Group Enterprises Corp., Tyme Technologies, Inc. and Andrew Keck. |
10.3* | | Lock-Up and No Shorting Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Steven Hoffman. |
10.4* | | Lock-Up and No Shorting Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Michael Demurjian. |
10.5* | | Form of Subscription Agreement between Tyme Technologies, Inc. and GEM Global Yield Fund LLC SCS. |
10.6* | | Subscription Note of GEM Global Yield Fund LLC SCS, dated March 5, 2015, in the amount of $2.5 million and payable to Tyme Technologies, Inc. |
10.7* | | Subscription Note Shares Escrow Agreement, dated March 5, 2015, between GEM Global Yield Fund LLC SCS and Tyme Technologies, Inc. and CKR Law LLP (as Escrow Agent). |
10.8*† | | 2015 Equity Incentive Plan of Tyme Technologies, Inc. |
10.9* | | Form of Registration Rights Agreement, dated as of March 5, 2015, among Tyme Technologies, Inc. and the other parties thereto. |
10.10* | | Indemnification Shares Escrow Agreement, dated as of March 5, 2015, among Tyme Technologies, Inc., Steven Hoffman (as Indemnification Representative) and CKR Law LLP. |
10.11* | | License Agreement, dated as of July 9, 2014, between Steven Hoffman and Tyme Inc. |
10.12*† | | Employment Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Steven Hoffman. |
10.13*† | | Employment Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Michael Demurjian. |
10.14*† | | Consulting Agreement, dated as of March 5, 2015, between Tyme Technologies, Inc. and Beryllium Advisory Consulting, Limited Liability Company. |
10.15* | | Adjustment Shares Escrow Agreement, dated as of March 5, 2015, among Tyme Technologies, Inc., the depositor parties thereto, CKR Law LLP (as Escrow Agent). |
10.16* | | 10% Secured Convertible Promissory Note of Tyme Inc. in the principal amount of $1,100,000, issued on July 11, 2014. |
10.17* | | Amended and Restated 10% Secured Convertible Promissory Note of Tyme Inc. in the principal amount of $1,350,000 issued on November 24, 2014. |
10.18* | | Second Amended and Restated 10% Secured Convertible Promissory Note of Tyme Inc. in the principal amount of $2,310,000 issued on January 15, 2015. |
10.19* | | Letter Agreement, dated as of March 5, 2015, among Christopher Brown, Tyme Technologies, Inc. and Tyme Inc. |
14. | | Code of Ethics. [Incorporated by reference to Exhibit 14.1 to our Registration Statement on Form 5-1, filed with the SEC on February 2, 2012.] |
16.* | | Letter of DKM, dated March 10, 2015 |
21.* | | Subsidiaries of the Registrant. |
| | |
* | | Filed with the Original Form 8-K. |
† | | Management contract or compensatory plan or arrangement. |
- 108 -
FINANCIAL STATEMENTS
Table of Contents
| |
| Page |
| Number |
Tyme Inc. | |
| |
Audited Consolidated Financial Statements for the Fiscal Years Ended December 31, 2013 and 2012 | |
Report of Independent Registered Public Accounting Firm | F-1 |
Balance Sheets | F-2 |
Statements of Operations | F-3 |
Statements of Stockholders’ Deficit | F-4 |
Statements of Cash Flows | F-5 |
Notes to Financial Statements | F-6 |
| |
Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2014 (Unaudited) | |
Balance Sheets | F-14 |
Statements of Operations | F-15 |
Statements of Stockholders’ Deficiency | F-16 |
Statements of Cash Flows | F-17 |
Notes to Financial Statements | F-18 |
| |
Audited Consolidated Financial Statements for the Fiscal Years Ended December 31, 2014 and 2013 | |
Report of Independent Registered Public Accounting Firm | F-28 |
Balance Sheets | F-29 |
Statements of Operations | F-30 |
Statements of Stockholders’ Deficiency | F-31 |
Statements of Cash Flows | F-32 |
Notes to Financial Statements | F-33 |
| |
Pro Forma Financial Information (Unaudited) | |
| |
Unaudited Pro Forma Combined Consolidated Financial Data Information | F-43 |
Pro Forma Balance Sheet as of September 30, 2014 | F-44 |
Pro Forma Statements of Operations as of November 30, 2014 and December 31, 2013 | F-45 |
Pro Forma Statements of Operations as of August 31, 2014 and September 30, 2013 | F-46 |
Notes to Pro Forma Financial Information | F-47 |
| |
Unaudited Pro Forma Combined Consolidated Financial Data Information | F-48 |
Pro Forma Balance Sheet as of December 31, 2014 | F-49 |
Pro Forma Statements of Operations as of December 31, 2014 | F-50 |
Notes to Pro Forma Financial Information | F-51 |
- 109 -
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Tyme Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Tyme Inc. and Subsidiary (the “Company”) as of December 31, 2013 and 2012, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tyme Inc. and Subsidiary as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses and negative cash flows since inception and has a stockholders’ deficit of $850,281 as of December 31, 2013. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenues from its product candidates currently in development. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regards to these matters is also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As disclosed in Note 2 to the financial statements, the Company elected to early adopt amended guidance related to Accounting Standards Codification Topic 915, Development Stage Entities, which eliminates the requirements to present inception-to-date information for the consolidated statement of operations, cash flows, and stockholders’ equity, along with certain other disclosures which were historically required for development stage entities. Our opinion has not been modified with respect to this matter.
/s/ WithumSmith+Brown, PC
New Brunswick, New Jersey
November 14, 2014
F - 1
TYME INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2013 and 2012
| | | | | | | |
| | 2013 | | 2012 | |
Assets | | | | | | | |
| | | | | | | |
Current assets | | | | | | | |
Cash | | $ | 92,620 | | $ | — | |
Prepaid assets | | | 110,180 | | | 100 | |
Total current assets | | | 202,800 | | | 100 | |
| | | | | | | |
Property and equipment, net of accumulated depreciation of $724 and $210, respectively | | | 21,429 | | | 1,990 | |
Total assets | | $ | 224,229 | | $ | 2,090 | |
| | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | |
| | | | | | | |
Current liabilities | | | | | | | |
Accounts payable and other current liabilities | | $ | 148,510 | | $ | 180,518 | |
Current maturities of convertible notes | | | 347,249 | | | — | |
Total current liabilities | | | 495,759 | | | 180,518 | |
| | | | | | | |
Convertible notes less current maturities | | | 578,751 | | | — | |
Total liabilities | | | 1,074,510 | | | 180,518 | |
| | | | | | | |
Commitments | | | | | | | |
| | | | | | | |
Stockholders’ deficit | | | | | | | |
Common stock, $0.001 par value, 1,000,000 shares authorized, 2,000 shares issued and outstanding at December 31, 2013 | | | 2 | | | — | |
Additional paid in capital | | | 2,008 | | | 2,010 | |
Accumulated deficit | | | (1,522,746 | ) | | (750,921 | ) |
Total Tyme Inc stockholders’ deficit | | | (1,520,736 | ) | | (748,911 | ) |
| | | | | | | |
Noncontrolling interests | | | 1,976,693 | | | 1,166,140 | |
Due from stockholders/members | | | (1,306,238 | ) | | (595,657 | ) |
Total stockholders’ deficit | | | (850,281 | ) | | (178,428 | ) |
Total liabilities and stockholders’ deficit | | $ | 224,229 | | $ | 2,090 | |
The Notes to Consolidated Financial Statements are an integral part of this statement.
F - 2
TYME INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 2013 and 2012
| | | | | | | |
| | 2013 | | 2012 | |
Operating expenses: | | | | | | | |
Research and development | | $ | 744,717 | | $ | 602,981 | |
General and administrative | | | 307,100 | | | 284,598 | |
Total operating expenses | | | 1,051,817 | | | 887,579 | |
Loss from operations | | | (1,051,817 | ) | | (887,579 | ) |
| | | | | | | |
Interest expense | | | 5,855 | | | — | |
| | | | | | | |
Net loss | | | (1,057,672 | ) | | (887,579 | ) |
Loss attributable to noncontrolling interests | | | 285,847 | | | 295,860 | |
Loss attributable to controlling interests | | $ | (771,825 | ) | $ | (591,719 | ) |
The Notes to Consolidated Financial Statements are an integral part of this statement.
F - 3
TYME INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Deficit
Years Ended December 31, 2013 and 2012
| | | | | | | | | | | | | | | | | | | | |
| | | Additional | | | | Non | | Due from | | Total | |
| Common stock | | Paid-in- | | Accumulated | | Controlling | | Stockholders/ | | Stockholders’ | |
| Shares | | Amount | | capital | | deficit | | interests | | Members | | Deficit | |
Balance January 1, 2012 | — | | $ | — | | $ | 2,010 | | $ | (159,202 | ) | $ | 233,000 | | $ | (72,000 | ) | $ | 3,808 | |
Capital Contributions | — | | | — | | | — | | | — | | | 1,229,000 | | | — | | | 1,229,000 | |
Advances to stockholders/members | — | | | — | | | — | | | — | | | — | | | (523,657 | ) | | (523,657 | ) |
Net Loss | — | | | — | | | — | | | (591,719 | ) | | (295,860 | ) | | — | | | (887,579 | ) |
Balance , December 31, 2012 | — | | | — | | | 2,010 | | | (750,921 | ) | | 1,166,140 | | | (595,657 | ) | | (178,428 | ) |
Shares Issued | 2,000 | | | 2 | | | (2 | ) | | — | | | — | | | — | | | — | |
Capital Contributions | — | | | — | | | — | | | — | | | 1,096,400 | | | — | | | 1,096,400 | |
Advances to stockholders/members | — | | | — | | | — | | | — | | | — | | | (710,581 | ) | | (710,581 | ) |
Net Loss | — | | | — | | | — | | | (771,825 | ) | | (285,847 | ) | | — | | | (1,057,672 | ) |
Balance, December 31, 2013 | 2,000 | | $ | 2 | | $ | 2,008 | | $ | (1,522,746 | ) | $ | 1,976,693 | | $ | (1,306,238 | ) | $ | (850,281 | ) |
The Notes to Consolidated Financial Statements are an integral part of this statement.
F - 4
TYME INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 2013 and 2012
| | | | | | | |
| | 2013 | | 2012 | |
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (1,057,672 | ) | $ | (887,579 | ) |
Adjustments to reconcile net loss to net cash from operating activities | | | | | | | |
Depreciation | | | 514 | | | 210 | |
Changes in operating assets and liabilities | | | | | | | |
Prepaid assets | | | (110,080 | ) | | 11,103 | |
Accounts payable and other current liabilities | | | (32,008 | ) | | 169,570 | |
Net cash used in operating activities | | | (1,199,246 | ) | | (706,696 | ) |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of property and equipment | | | (19,953 | ) | | (2,200 | ) |
Net cash used in investing activities | | | (19,953 | ) | | (2,200 | ) |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Capital contributions | | | 1,096,400 | | | 1,229,000 | |
Changes in due from stockholders/members | | | (710,581 | ) | | (523,657 | ) |
Proceeds from issuance of convertible notes | | | 926,000 | | | — | |
Net cash provided by financing activities | | | 1,311,819 | | | 705,343 | |
| | | | | | | |
Net increase (decrease) in cash | | | 92,620 | | | (3,553 | ) |
| | | | | | | |
Cash - beginning of year | | | — | | | 3,553 | |
| | | | | | | |
Cash - end of year | | $ | 92,620 | | $ | — | |
| | | | | | | |
Supplemental Cash Flow Information: | | | | | | | |
Cash paid for interest and income taxes are as follows: | | | | | | | |
Interest | | $ | — | | $ | — | |
Income taxes | | $ | — | | $ | — | |
| | | | | | | |
Noncash investing and financing activities: | | | | | | | |
Issuance of common stock as a result of contribution of member interest in Luminant Biosciences LLC | | $ | 2 | | $ | — | |
The Notes to Consolidated Financial Statements are an integral part of this statement.
F - 5
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
(1) Background and Nature of Business
Tyme Inc. and Subsidiary (the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of highly targeted cancer therapeutics with a broad range of oncology indications. Tyme Inc. (“Tyme”) was incorporated in Delaware in 2013 and its operations to date have been directed primarily toward developing business strategies, research and development activities and preparing for clinical trials for its product candidates. The Company has focused its research and development efforts on a proprietary platform technology for which it retains global intellectual property (IP) and commercial rights.
The Company is currently formulating its regulatory and drug development program for SM-88, working towards the initiation of its first phase II clinical trial.
Assignment of Interest in Luminant
On July 26, 2013, the founding stockholders (“the Founders”) of the Company entered into a Founder Contribution and Exchange Agreement under which the Founders contributed their membership units in Luminant Biosciences, LLC. (“Luminant”) to the Company in exchange for 2,000 shares of common stock, par value $0.001 per share (the “Company Common Stock”) of the Company. As a result of the transaction, as of December 31, 2013, Luminant Biosciences, LLC is 66 2/3% owned by the Company. The two Founders are two executive officers of the Company and collectively own more than 50 percent of the Company’s outstanding stock as of December 31, 2013. Since this transaction is among entities under common control, no gain or loss is recognized in the consolidated financial statements and the carrying amounts of the net assets are eliminated in consolidation.
Going Concern
The Company has incurred losses and negative cash flows from operations since inception and has an accumulated deficit of $850 thousand as of December 31, 2013. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenues from its product candidates currently in development. The Company’s primary sources of liquidity to date has been the issuance of a convertible promissory note on August 2, 2013 and contributed capital by a member of Luminant. The Company received $926 thousand from the issuance of a convertible promissory note in 2013 and approximately $2.6 million of historical capital contributions in Luminant by one of its members. Substantial additional financing will be needed by the Company to fund its operations, gain regulatory approval of and to commercially develop its technologies and product candidates. There can be no assurance that such financing will be available when needed or on acceptable terms. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Management is currently evaluating different strategies to obtain the required funding of future operations. These strategies may include, but are not limited to: additional funding from current or new investors, borrowings of debt, a public offering of the Company’s equity or debt securities, and/or a merger with a publically traded company with available cash and liquid assets. There can be no assurance that these future funding efforts will be successful.
The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change, and is largely dependent on the services of its employees and consultants.
F - 6
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
December 31, 2013 and 2012
(2) Summary of Significant Accounting Policies
Basis of Presentation
On July 26, 2013, the controlling members of Luminant elected to transfer their membership units in Luminant to a newly formed company, Tyme Inc., in exchange for 2,000 shares of Company Common Stock (see Note 1). The Company has evaluated this transaction in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and has concluded that this transaction represents a recapitalization of entities under common control. Accordingly, the consolidated financial statements presented herein have been adjusted to reflect this recapitalization, by reporting assets, liabilities and equity at their carrying values and operations as of beginning of the year of the earliest comparative financial statements. The Company’s consolidated financial statements have been prepared in conformity with U.S. GAAP and include the accounts of Tyme Inc. and its subsidiary Luminant Biosciences, LLC. All significant intercompany accounts have been eliminated in consolidation.
Since its inception, the Company has not generated any significant revenues related to its operations. In June 2014, the Financial Accounting Standards Board released Accounting Standards Update No. 2014-10, which amended Topic 915 of the Accounting Standards Codification, Development Stage Entities, to eliminate the requirements to present inception-to-date information for the consolidated statement of operations, cash flows, and stockholders’ equity, along with certain other disclosures, which were historically required for development stage entities. This guidance is effective for annual reporting periods beginning after December 15, 2014 (for both public and nonpublic entities) and interim reporting periods beginning after December 15, 2014 for public entities and interim reporting periods beginning after December 15, 2015 for other entities. Early application of this amended guidance is permitted, provided that the entity’s financial statements have either not yet been issued (for public business entities) or made available for issuance (for other entities). The Company has evaluated this amended guidance and has elected to early adopt the amended guidance. This early adoption has no impact on the consolidated financial condition, results of operations, or cash flows of the Company.
Use of Estimates
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 and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimation include the stated value of the Company underlying the conversion feature of the outstanding convertible notes payable. Actual results could differ from such estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including accounts payable and accrued expenses approximates fair value given their short-term nature. The carrying amount of the convertible promissory notes payable approximates fair value because the interest rates on these instruments are reflective of rates that the Company could obtain on unaffiliated third party debt with similar terms and conditions.
Prepaid Assets
Prepaid assets represents expenditures made in advance of when the economic benefit of the cost will be realized, and which will be expensed in future periods with the passage of time or when a triggering event occurs.
Property and Equipment, Net
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives. The Company estimates a life of five to seven years for equipment and furniture and fixtures. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operating expenses. Repairs and maintenance costs are expensed as incurred.
F - 7
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
December 31, 2013 and 2012
(2) Summary of Significant Accounting Policies (Continued)
Impairment of Long-Lived Assets
The Company assesses the recoverability of its long-lived assets, which include fixed assets whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the years ended December 31, 2013 and 2012, the Company determined that there was no impairment of its long-lived assets.
Research and Development
Research and development costs are expensed as incurred and are primarily comprised of, but not limited to, external research and development expenses incurred under arrangements with third parties, such as contract research organizations (CROs), contract manufacturing organizations (CMOs) and consultants that conduct clinical and preclinical studies, costs associated with preclinical and development activities, costs associated with regulatory operations, depreciation expense for assets used in research and development activities and employee related expenses including salaries and benefits for research and development personnel. Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense, which are reported in prepaid assets or accounts payable and other current liabilities.
Noncontrolling Interests
Noncontrolling interests represents the minority member’s interest in the Company’s subsidiary, Luminant (see Note 1). At December 31, 2013, the Company owned 66 2/3 percent of Luminant representing 66 2/3 percent of the voting control which requires that Luminant’s operations be included in the consolidated financial statements. The 33 1/3 percent interest of Luminant that is not owned by the Company is shown as noncontrolling interests in the 2013 and 2012 consolidated statement of operations and consolidated balance sheet.
Income Taxes
The Company’s subsidiary, Luminant, operates as a limited liability corporation for federal and state income tax purposes. Accordingly, the taxable income or loss of Luminant passes to the individual members rather than pay taxes at the corporate level through the date the Founders contributed their 66 2/3 ownership in Luminant to the Company and accordingly there is no provision for income or deferred taxes for the year ended December 31, 2012.
From the date of inception July 26, 2013 through December 31, 2013, the Company operates as a C-Corporation and includes in its income its share of the income of Luminant. Deferred tax assets or liabilities are recorded for temporary differences between financial reporting and tax basis of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse.
A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. The Company has provided a full valuation allowance on its deferred tax assets that consists of cumulative net operating losses of $666 thousand for the period from inception (July 26, 2013) to December 31, 2013. Due to its cumulative loss position, history of operating losses and losses expected to be incurred in the foreseeable future, a full valuation allowance was considered necessary (Note 6).
F - 8
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
December 31, 2013 and 2012
(2) Summary of Significant Accounting Policies (Continued)
Income Taxes (Continued)
The utilization of net operating losses for Federal income tax purposes sustained by the Company could be substantially limited annually if there were an “ownership change” (as defined by Section 382 of the Internal Revenue Code of 1986, as amended). If it were determined that there is a change in ownership, or if the Company undergoes a change of ownership in the future, the utilization of the Company’s net operating loss carry-forward may be materially limited. This could result in a reduction in equal amounts to the deferred tax assets and the related valuation reserves.
The Company is required to evaluate uncertain tax positions taken or expected to be taken in the course of preparing the Company’s consolidated financial statements to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions with respect to tax at the Company level deemed not to meet the “more-likely than-not” threshold would be recorded as a tax expense in the current year. The Company has concluded that no provision for uncertain tax positions is required in the Company’s consolidated financial statements.
The Company had no unrecognized tax benefits at December 31, 2013 and 2012. The tax years which currently remain subject to examination by major tax jurisdictions as of December 31, 2013 are the years ended December 31, 2011 through 2013. In addition, the Company had no income tax related penalties or interest for periods presented in these consolidated financial statements.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views their operations and manages their business in one segment.
(3) Property and Equipment, Net
Property and equipment consisted of equipment and furniture and fixtures that had a net book value of $21,429 and $1,990 as of December 31, 2013 and 2012, respectively. Depreciation expense was $514 and $210 for the years ended December 31, 2013 and 2012, respectively.
(4) Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of the following:
| | | | | | | |
| | December 31, | |
| | 2013 | | 2012 | |
Interest | | $ | 5,855 | | $ | — | |
Legal | | | 67,908 | | | 161,502 | |
Consulting | | | 7,730 | | | — | |
Research and development | | | 58,750 | | | 11,000 | |
Other | | | 8,267 | | | 8,016 | |
| | $ | 148,510 | | $ | 180,518 | |
F - 9
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
December 31, 2013 and 2012
(5) Convertible Notes Payable
On August 2, 2013, the Company entered into a Convertible Promissory Note Agreement (“Convertible Notes���) to be funded in a series of loans up to a maximum principal amount of $997,000. As of December 31, 2013, the Company received $926,000 in proceeds under the Convertible Notes. The Convertible Notes accrue interest at a rate of 2.5% per year. Principal repayments commence on April 30, 2014 equal to 1/24th of the then outstanding balance, with the entire principal amount due and payable on April 30, 2016.
If, prior to April 30, 2014, the Company enters into any financing transaction with the lender or an affiliate thereof, upon the closing the outstanding principal balance of the Convertible Notes shall automatically convert on a dollar for dollar basis into the securities being issued and sold at a conversion price equal to the purchase price per share implied by a pre-investment valuation of the Company equal to $20 million, (“Conversion Price”), Further, if the Company enters into an agreement with a third party, other than the lender or affiliate thereof, into any debt or equity financing, exclusive license of any portion of the IP Rights, a sale of substantially all of the assets of the Company, or subsidiary thereof, or any transaction or series of transactions resulting in the current stockholders holding less than a majority of the voting interests, then, at the lender’s option, effective immediately prior to closing of the third party transaction the outstanding principal balance of the Convertible Notes shall be converted on a dollar for dollar basis into shares of Company Common Stock. In the case of conversion of principal under either scenario, the Company would have no further obligations or liabilities under the Convertible Notes.
In connection with the issuance of the Convertible Notes the Company determined that the conversion feature was not an embedded derivative requiring bifurcation and separate accounting treatment as the conversion feature was indexed to the Company’s own stock. The Company also determined the conversion feature did not result in a beneficial conversion feature requiring separate accounting treatment because the conversion rate approximated the fair value of the Company Common Stock at the commitment date.
The Company recorded interest expense of $5,855 during 2013, on the Convertible Notes. This amount is included in Accounts payable and other current liabilities. The Convertible Notes outstanding principal and accrued interest balance at December 31, 2013 was $931,855. As of December 31, 2013, future maturities of the Convertible Notes are $347,250 in 2014, $463,000 in 2015 and $115,750 in 2016.
In January 2014, the lender increased the aggregate principal amount of the Convertible Notes from $997 thousand to $1.126 million and advanced funds to the Company to the effect, that the total amount funded to the Company was equal to the increased principal amount of the Convertible Notes. On August 28, 2014, the Company was notified by the lender that the lender was exercising the conversion feature in the Convertible Notes (See Note 10).
(6) Income Taxes
No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets as of December 31, 2013 and 2012 consist of the following:
| | | | | | | |
| | | 2013 | | | 2012 | |
Net deferred tax assets | | | | | | | |
Tax loss carry-forwards | | $ | 266,000 | | $ | — | |
Other assets | | | — | | | — | |
Research and development credits | | | — | | | — | |
Other liabilities | | | — | | | — | |
Valuation allowance | | | (266,000 | ) | | — | |
| | | | | | | |
Total net deferred income taxes | | $ | — | | $ | — | |
F - 10
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
December 31, 2013 and 2012
(6) Income Taxes (Continued)
A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 2013 and 2012 is as follows:
| | | | | | | | |
| | 2013 | | | 2012 | |
U.S. federal tax rate | | | 35.00 | % | | | — | % |
State tax rate | | | 5.00 | % | | | — | % |
Valuation allowance | | | (40.00 | )% | | | — | % |
| | | | | | | | |
| | | — | % | | | — | % |
Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Due to the Company’s history of operating losses, the deferred tax assets arising from the aforementioned future tax benefits are currently not likely to be realized and, accordingly, are offset by a full valuation allowance. The income tax provision varies from the expected provision determined by applying the federal statutory income tax rate to income (loss).
As of December 31, 2013, the Company has net operating loss carry-forwards of approximately $ 666 thousand available to offset federal and state income tax, which expire through 2033. Utilization of the net operating loss carry-forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, or the IRC, and similar state provisions. The effect of an ownership change could be an imposition of an annual limitation on the use of net operating loss carry-forwards attributable to periods before the change.
(7) Stockholders’ Deficit
Common Stock
Authorized, Issued and Outstanding
The Company is authorized to issue 1,000,000 shares of common stock, with a par value of $0.001, of which 2,000 shares were issued and outstanding at December 31, 2013. As a result of the recapitalization as described in Note 2, stockholders’ deficiency has been presented to reflect this recapitalization as of the earliest period presented in these consolidated financial statements.
Voting
Each holder of Company Common Stock is entitled to one vote for each share thereof held by such holder at all meetings of stockholders (and written action in lieu of meetings). The number of authorized shares of Company Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of majority of the combined number of issued and outstanding shares of the Company.
Dividends
Dividends may be declared and paid on the Company Common Stock from funds lawfully available therefore, as and when determined by the board of directors.
Liquidation
In the event of the liquidation, dissolution, or winding-up of the Company, holders of Company Common Stock will be entitled to receive all assets of the Company available for distribution to its stockholders.
F - 11
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
December 31, 2013 and 2012
(8) Commitments
Contract Service Providers
In the course of the Company’s normal business operations, it has agreements with contract service providers to assist in the performance of its research and development and clinical research activities. Substantially all of these arrangements are on an as needed basis.
(9) Related Party Transactions
Due from Stockholders/Members
The Company obtains from and grants cash advances to certain of its stockholders. These net advances are non-interest bearing and have no terms for repayment. The amounts due as of December 31, 2013 and 2012 were $1,306,238 and $595,657, respectively. Such amounts have been reflected as a reduction of stockholders’ equity. For financial statement presentation, $20,000 has been reclassified from accounts payable relating to amounts owed to stockholders in arriving at the amount presented for 2013. Certain amounts due at December 31, 2013 have been satisfied subsequent to year end (see Note 10).
(10) Subsequent Events
The Company evaluates events or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For its consolidated financial statements as of December 31, 2013 and for the year then ended, the Company evaluated subsequent events through the date of the issuance of the consolidated financial statements. There are no subsequent events to be recognized or reported are as follows:
During January 2014, the Convertible Notes which provided for funding in a series of loans up to a maximum principal amount of $997,000 was increased to a maximum principal amount of $1,126,000 and the lender made additional advances under the Convertible Notes totaling $200,000.
In May 2014, certain stockholders of the Company individually purchased 100 percent of the noncontrolling interest in the Company’s subsidiary, Luminant, which in turn was contributed to the Company by them in satisfaction of certain outstanding amounts included in due from stockholders/members as of December 31, 2013.
On June 6, 2014, the Company entered into a Term Sheet (the “GEM Term Sheet”) whereby GEM Global Yield Fund, LLC SCS and/or its affiliates and assigns (GEM) will assist the Company and Global Group Enterprises Corp., a U.S. publicly traded company, in connection with a merger and private placement offering (PPO). The proposed date of the merger and the First PPO was to be August 31, 2014. This date has since been extended to November 15, 2014. The GEM Term Sheet also contemplated a fifteen month bridge loan which would convert into Company Common Stock upon completion of the PPO.
On July 3, 2014, a stockholder conveyed personal ownership of certain patents relating to the field of cancer treatment to the Company, which were filed and disclosed in the US Patent Office. On July 9, 2014 the Company entered into a License Agreement with this stockholder as the stockholder desired to retain the right to certain assigned patents to use and commercialize the patents in all other fields other than the treatment of cancer. Pursuant to the License Agreement, the Company has granted the stockholder an exclusive, worldwide, royalty-free license to develop, make, have made, use, sell, offer to sell, import, export and distribute products or services in fields other than the treatment of cancer. This license is to include the right to sublicense to any third party so long as such sublicense is consistent with the terms of the License Agreement and contains terms reasonably sufficient for the third party to satisfy its obligations thereunder.
F - 12
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
December 31, 2013 and 2012
(10) Subsequent Events (Continued)
On July 11, 2014, the Company entered into a Securities Purchase Agreement (SPA) and received $1,100,000 in proceeds from the issuance of a convertible promissory note (the “Bridge Note”) from an investor who is an affiliate of GEM. The Bridge Note bears interest at a rate of 10% per year, maturing fifteen months from the date of issue and is secured by all assets of the Company. The Bridge Note is mandatorily convertible upon the closing of the PPO. The Company issued in the name of the purchaser of the Bridge Note but placed into escrow 100 shares of Company Common Stock. These shares currently are not deemed outstanding, but will either be delivered to the Bridge Note purchaser or returned to the Company for cancellation pursuant to the terms of the Termination Shares Escrow Agreement, dated as of July 3, 2014.
On August 28, 2014, the lender converted its Convertible Notes in the aggregate principal amount of $1.126 million into 106.6 shares of the Company’s Common Stock. Simultaneous with the issuance of the 106.6 shares to the Lender, the two principal stockholders of the Company, as capital contributions, surrendered to the Company for cancellation an aggregate of 106.6 shares of Company Common Stock. The net effect of such issuance and cancellations resulted ins no change in the total number of shares of Company Common Stock issued (2,100) and outstanding (2,000).
F - 13
TYME INC. AND SUBSIDIARY
Consolidated Balance Sheets
| | | | | | | |
| | September 30, | | December 31, | |
| | 2014 | | 2013 | |
| | (Unaudited) | | | | |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash | | $ | 289,628 | | $ | 92,620 | |
Prepaid assets | | | 118,905 | | | 110,180 | |
Total current assets | | | 408,533 | | | 202,800 | |
| | | | | | | |
Property and equipment, net | | | 20,503 | | | 21,429 | |
Total assets | | $ | 429,036 | | $ | 224,229 | |
| | | | | | | |
Liabilities and Stockholders’ Deficiency | | | | | | | |
| | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable and other current liabilities | | $ | 347,309 | | $ | 148,510 | |
Current maturities of convertible notes | | | — | | | 347,249 | |
Current maturities of senior secured bridge notes | | | 1,100,000 | | | — | |
Total current liabilities | | | 1,447,309 | | | 495,759 | |
| | | | | | | |
Convertible notes less current maturities | | | — | | | 578,751 | |
Total liabilities | | | 1,447,309 | | | 1,074,510 | |
| | | | | | | |
Commitments | | | | | | | |
| | | | | | | |
Stockholders’ deficit | | | | | | | |
Common stock, $0.001 par value, 1,000,000 shares authorized, 2,100 shares issued and 2,000 shares outstanding at September 30, 2014 and 2,000 shares issued and outstanding at December 31, 2013, respectively | | | 2 | | | 2 | |
Additional paid in capital | | | 2,044,914 | | | 2,008 | |
Accumulated deficit | | | (2,707,424 | ) | | (1,522,746 | ) |
Total Tyme Inc stockholders’ deficit | | | (662,508 | ) | | (1,520,736 | ) |
| | | | | | | |
Noncontrolling interests | | | — | | | 1,976,693 | |
Due from stockholders/members | | | (355,765 | ) | | (1,306,238 | ) |
Total stockholders’ deficit | | | (1,018,273 | ) | | (850,281 | ) |
Total liabilities and stockholders’ deficiency | | $ | 429,036 | | $ | 224,229 | |
See accompanying notes to condensed financial statements.
F - 14
TYME INC. AND SUBSIDIARY
Consolidated Statements of Operations
| | | | | | | | | | | | | |
| | (Unaudited) | | (Unaudited) | |
| | For the three months ended
September 30, | | For the nine months ended
September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | | $ | 286,979 | | $ | 167,494 | | $ | 431,274 | | $ | 455,944 | |
General and administrative | | | 601,473 | | | 126,003 | | | 719,851 | | | 198,634 | |
Total operating expenses | | | 888,452 | | | 293,497 | | | 1,151,125 | | | 654,578 | |
Loss from operations | | | (888,452 | ) | | (293,497 | ) | | (1,151,125 | ) | | (654,578 | ) |
| | | | | | | | | | | | | |
Interest expense | | | 30,544 | | | 2,037 | | | 44,509 | | | 2,037 | |
| | | | | | | | | | | | | |
Net loss | | | (918,996 | ) | | (295,534 | ) | | (1,195,634 | ) | | (656,615 | ) |
Loss attributable to noncontrolling interests | | | (83 | ) | | (68,213 | ) | | (10,956 | ) | | (188,573 | ) |
Loss attributable to controlling interests | | $ | (918,913 | ) | $ | (227,321 | ) | $ | (1,184,678 | ) | $ | (468,042 | ) |
See accompanying notes to condensed financial statements.
F - 15
TYME INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Deficiency
For the periods ended September 30, 2014
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Additional | | | | Non | | Due from | | Total | |
| Common stock | | paid-in- | | Accumulated | | Controlling | | stockholders/ | | stockholders’ | |
| Shares | | Amount | | capital | | deficit | | interests | | members | | deficiency | |
Balance, January 1, 2013 | — | | $ | — | | $ | 2,010 | | $ | (750,921 | ) | $ | 1,166,140 | | $ | (595,657 | ) | $ | (178,428 | ) |
Shares issued | 2,000 | | | 2 | | | (2 | ) | | — | | | — | | | — | | | — | |
Capital contributions | — | | | — | | | — | | | — | | | 1,096,400 | | | — | | | 1,096,400 | |
Advances to stockholders/members | — | | | — | | | — | | | — | | | — | | | (710,581 | ) | | (710,581 | ) |
Net loss | — | | | — | | | — | | | (771,825 | ) | | (285,847 | ) | | — | | | (1,057,672 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2013 | 2,000 | | | 2 | | | 2,008 | | | (1,522,746 | ) | | 1,976,693 | | | (1,306,238 | ) | | (850,281 | ) |
Conversion of $1.126 million plus interest of conversion debt into 106.6 shares of common stock | 106.6 | | | — | | | 1,152,242 | | | — | | | — | | | — | | | 1,152,242 | |
Surrender of common stock by two principal shareholders of the Company for cancellation of 106.6 shares of Company common stock | (106.6 | ) | | — | | | — | | | — | | | — | | | — | | | — | |
Capital contributions | — | | | — | | | — | | | — | | | 25,000 | | | — | | | 25,000 | |
Advances to stockholders/members | — | | | — | | | — | | | — | | | — | | | (149,600 | ) | | (149,600 | ) |
Luminant stockholder loans assigned in buyout of noncontrolling interests by certain stockholders of Tyme | — | | | — | | | (1,100,073 | ) | | — | | | — | | | 1,100,073 | | | — | |
Net loss | — | | | — | | | — | | | (1,184,678 | ) | | (10,956 | ) | | — | | | (1,195,634 | ) |
Contribution of noncontrolling interest | — | | | — | | | 1,990,737 | | | — | | | (1,990,737 | ) | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2014 | 2,000 | | $ | 2 | | $ | 2,044,914 | | $ | (2,707,424 | ) | $ | — | | $ | (355,765 | ) | $ | (1,018,273 | ) |
See accompanying notes to condensed financial statements.
F - 16
TYME INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | |
| | For the nine months ended
September 30, | |
| | 2014 | | 2013 | |
Cash flows from operating activities: | | | | | | | |
Net loss | | $ | (1,195,634 | ) | $ | (656,615 | ) |
Adjustments to reconcile net loss to net cash from operating activities: | | | | | | | |
Depreciation | | | 3,635 | | | 376 | |
Changes in operating assets and liabilities: | | | | | | | |
Prepaid assets | | | (8,725 | ) | | (110,080 | ) |
Accounts payable and other current liabilities | | | 225,042 | | | 27,431 | |
Net cash used in operating activities | | | (975,682 | ) | | (738,888 | ) |
| | | | | | | |
Cash flows from investing activity: | | | | | | | |
Purchases of property and equipment | | | (2,710 | ) | | (12,473 | ) |
Net cash used in investing activities | | | (2,710 | ) | | (12,473 | ) |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Capital contributions - noncontrolling interest | | | 25,000 | | | 831,400 | |
Proceeds from issuance of convertible notes | | | 200,000 | | | 500,000 | |
Proceeds from secured bridge note | | | 1,100,000 | | | — | |
Changes in due from stockholders/members | | | (149,600 | ) | | (436,052 | ) |
Net cash provided by financing activities | | | 1,175,400 | | | 895,348 | |
| | | | | | | |
Net increase in cash | | | 197,008 | | | 143,987 | |
| | | | | | | |
Cash - beginning of year | | | 92,620 | | | — | |
| | | | | | | |
Cash - end of year | | $ | 289,628 | | $ | 143,987 | |
| | | | | | | |
Supplemental Cash Flow Information: | | | | | | | |
Cash paid for interest and income taxes are as follows: | | | | | | | |
Interest | | $ | — | | $ | — | |
Income taxes | | $ | — | | $ | — | |
| | | | | | | |
Noncash investing and financing activities: | | | | | | | |
Issuance of common stock as a result of contribution of member interest in Luminant Biosciences LLC | | $ | — | | $ | 2 | |
Conversion of $1.126 million of convertible debt into 106.6 shares of common stock. Simultaneously, stockholders surrendered an equal amount of their own common stock, thereby having no change in the total number of shares outstanding. | | $ | 1,152,242 | | $ | — | |
Luminant stockholder loans assigned in buyout of noncontrolling interests by certain stockholders of Tyme | | $ | 1,100,703 | | $ | — | |
Contribution of noncontrolling interests by stockholders of Tyme | | $ | 1,990,737 | | $ | — | |
See accompanying notes to condensed financial statements.
F - 17
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements
September 30, 2014
(1) Background and Nature of Business
Tyme Inc. and Subsidiary (the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of highly targeted cancer therapeutics with a broad range of oncology indications. Tyme Inc. (“Tyme”) was incorporated in Delaware in 2013 and its operations to date have been directed primarily toward developing business strategies, research and development activities and preparing for clinical trials for its product candidates. The Company has focused its research and development efforts on a proprietary platform technology for which it retains global intellectual property (IP) and commercial rights.
The Company is currently formulating its regulatory and drug development program for SM-88, working towards the initiation of its first phase II clinical trial.
Assignment of Interest in Luminant
On July 26, 2013, the founding stockholders (“the Founders”) of the Company entered into a Founder Contribution and Exchange Agreement under which the Founders contributed their membership units in Luminant Biosciences, LLC. (“Luminant”) to the Company in exchange for 2,000 shares of common stock, par value $0.001 per share (the “Company Common Stock”) of the Company. As a result of the transaction, as of December 31, 2013, Luminant Biosciences, LLC is 66 2/3% owned by the Company. The two Founders are two executive officers of the Company and collectively own more than 50 percent of the Company’s outstanding stock as of December 31, 2013. Since this transaction is among entities under common control, no gain or loss is recognized in the consolidated financial statements and the carrying amounts of the net assets are eliminated in consolidation.
In May 2014, the Founders of the Company individually acquired the noncontrolling interest in Luminant and contributed it to the Company making Luminant a wholly owned subsidiary of the Company (SeeNoncontrolling Interests).
Term Sheet for Pending Merger
On June 6, 2014, the Company entered into a Term Sheet (the “GEM Term Sheet”) whereby GEM Global Yield Fund, LLC SCS and/or its affiliates and assigns (GEM) will assist the Company and Global Group Enterprises Corp., a U.S. publicly traded company, in connection with a merger and private placement offering (PPO). The proposed date of the merger and the First PPO was to be August 31, 2014. This date was extended to November 15, 2014. The GEM Term Sheet also contemplated a fifteen month bridge loan which would convert into Company Common Stock upon completion of a contemplated offering of securities. Such Bridge Loan was consummated as of July 11, 2014 (See Note 6).
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim financial statements of the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information. In the opinion of management, the accompanying financial statements of the Company, include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2014 and its results of operations and cash flows for the nine months ended September 30, 2014 and 2013. Operating results for the nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The interim financial statements, presented herein, do not contain the required disclosures under U.S. GAAP for annual financial statements. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2013.
F - 18
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(2) Summary of Significant Accounting Policies (continued)
Liquidity and Going Concern
The Company has incurred losses and negative cash flows from operations since inception (July 26, 2013) and has an accumulated deficit of approximately $1.0 million and $850 thousand as of September 30, 2014 and December 31, 2013, respectively. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenues from its product candidates currently in development. The Company’s primary sources of liquidity to date has been the issuance of convertible promissory notes on August 2, 2013 and July 3, 2014 and contributed capital by the founders. The Company received approximately $2.2 million from the issuance of convertible promissory notes and approximately $2.7 million in of historical capital contributions in Luminant by one of its members. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its technologies and product candidates. There is no assurance that such financing will be available when needed or on acceptable terms. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities the might result from the outcome of this uncertainty.
Notwithstanding the Bridge Note and Merger as further discussed in Note 11, management is evaluating different strategies to obtain the required additional funding of future operations. These strategies may include, but are not limited to: additional funding from current or new investors, borrowings of debt, and/or a public offering of the Company’s equity or debt securities s. There can be no assurance that these future funding efforts will be successful.
The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimation include the stated value of the Company underlying the conversion feature of the outstanding convertible notes payable. Actual results could differ from such estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including accounts payable and accrued expenses approximates fair value given their short-term nature. The carrying amount of the convertible promissory notes payable approximates fair value because the interest rates on these instruments are reflective of rates that the Company could obtain on unaffiliated third party debt with similar terms and conditions.
Prepaid Assets
Prepaid assets represents expenditures made in advance of when the economic benefit of the cost will be realized, and which will be expensed in future periods with the passage of time or when a triggering event occurs.
F - 19
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(2) Summary of Significant Accounting Policies (continued)
Property and Equipment, Net
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives. The Company estimates a life of five to seven years for equipment and furniture and fixtures. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operating expenses. Repairs and maintenance costs are expensed as incurred.
Intangible Assets
The Company’s intangible assets consist of patents and patent applications contributed by the founders. This intellectual property value has been recorded as a de Minimis amount of $2,000 and included in the respective stockholder receivable accounts since no monies have been transferred. The patents have not been amortized and have a useful life of twenty years.
Impairment of Long-Lived Assets
The Company assesses the recoverability of its long-lived assets, which include fixed assets whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the periods ended September 30, 2014 and 2013, the Company determined that there was no impairment of its long-lived assets.
Research and Development
Research and development costs are expensed as incurred and are primarily comprised of, but not limited to, external research and development expenses incurred under arrangements with third parties, such as contract research organizations (CROs), contract manufacturing organizations (CMOs) and consultants that conduct clinical and preclinical studies, costs associated with preclinical and development activities, costs associated with regulatory operations, depreciation expense for assets used in research and development activities and employee related expenses including salaries and benefits for research and development personnel. Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense, which are reported in prepaid assets or accounts payable and other current liabilities.
Noncontrolling interest
Noncontrolling interests represents the minority member’s interest in the Company’s subsidiary, Luminant. At December 31, 2013, the Company owned 66 2/3 percent of Luminant representing 66 2/3 percent of the voting control, which requires that Luminant’s operations be included in the consolidated financial statements. The 33 1/3 percent interest of Luminant that is not owned by the Company is shown as noncontrolling interests in the 2014 and 2013 consolidated statement of operations and consolidated balance sheet.
In May 2014, certain stockholders of the Company individually purchased 100 percent of the noncontrolling interest in the Company’s subsidiary, Luminant, which in turn was contributed to the Company by them in satisfaction of certain outstanding amounts included in due from stockholders/members’ as of December 31, 2013. As the result of the contribution of the noncontrolling interest, Luminant became a wholly owned subsidiary of the Company.
F - 20
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(2) Summary of Significant Accounting Policies (continued)
Income Taxes
The Company’s subsidiary, Luminant, operates as a limited liability corporation for federal and state income tax purposes. Accordingly, the taxable income or loss of Luminant passes to the individual members rather than pay taxes at the corporate level through the date the Founders contributed their 66 2/3 ownership in Luminant to the Company and accordingly there is no provision for income or deferred taxes for the year ended December 31, 2013.
From the date of inception (July 26, 2013) through September 30, 2014, the Company operates as a C-Corporation and includes in its income its share of the income/loss of Luminant. Deferred tax assets or liabilities are recorded for temporary differences between financial reporting and tax basis of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse.
A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. The Company has provided a full valuation allowance on its deferred tax assets that consists of cumulative net operating losses of $1.829 million for the period from inception (July 26, 2013) to September 30, 2014. Due to its cumulative loss position, history of operating losses and losses expected to be incurred in the foreseeable future, a full valuation allowance was considered necessary.
The utilization of net operating losses for Federal income tax purposes sustained by the Company could be substantially limited annually if there were an “ownership change” (as defined by Section 382 of the Internal Revenue Code of 1986, as amended). If it were determined that there is a change in ownership, of if the Company undergoes a change of ownership in the future, the utilization of the Company’s net operating loss carry-forward may be materially limited. This could result in a reduction in equal amounts to the deferred tax assets and the related valuation reserves.
The Company is required to evaluate uncertain tax positions taken or expected to be taken in the course of preparing the Company’s consolidated financial statements to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions with respect to tax at the Company level deemed not to meet the “more-likely than-not” threshold would be recorded as a tax expense in the current year. The Company has concluded that no provision for uncertain tax positions is required in the Company’s consolidated financial statements.
The Company had no unrecognized tax benefits at September 30, 2014 and 2013. The tax years which currently remain subject to examination by major tax jurisdictions as of September 30, 2014 are the years ended December 31, 2011 through 2013. In addition, the Company had no income tax related penalties or interest for periods presented in these consolidated financial statements.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views their operations and manages their business in one segment.
Concentration of Credit Risk
Financial instruments that potentially expose Tyme to concentration of credit risk consist primarily of cash. Cash is deposited with major banks and at times, such balances with any one financial institution may be in excess of FDIC insurance limits. The Company believes no significant concentration of credit risk exists.
F - 21
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(3) Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | |
| September 30, | | December 31, | |
| 2014 | | 2013 | |
| (Unaudited) | | | |
Furniture and fixtures | $ | 2,200 | | $ | 2,200 | |
Machinery and equipment | | 22,662 | | | 1,200 | |
Construction in process | | — | | | 18,753 | |
| | 24,862 | | | 22,153 | |
Less: accumulated depreciation | | 4,359 | | | 724 | |
| $ | 20,503 | | $ | 21,429 | |
Depreciation expense was $3,635 and $-0- for the nine months ended September 30, 2014 and 2013, respectively. Depreciation expense was $1,073 and $139 for the three months ended September 30, 2014 and 2013, respectively.
(4) Intangible Assets
On July 3, 2014, a stockholder conveyed personal ownership of certain patents and patent applications relating to the field of cancer treatment to the Company, which were filed and disclosed in the US Patent Office. On July 9, 2014 the Company entered into a License Agreement with this stockholder as the stockholder desired to retain the right to certain assigned patents and patent applications to use and commercialize the patents in all other fields other than the treatment of cancer. Pursuant to the License Agreement, the Company has granted the stockholder an exclusive, worldwide, royalty-free license to develop, make, have made, use, sell, offer to sell, import, export and distribute products or services in fields other than the treatment of cancer. This license includes the right to sublicense to any third party so long as such sublicense is consistent with the terms of the License Agreement and contains terms reasonably sufficient for the third party to satisfy its obligations thereunder.
(5) Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of the following:
| | | | | | |
| September 30, | | December 31, | |
| 2014 | | 2013 | |
| (Unaudited) | | | |
Interest | $ | 24,122 | | $ | 5,855 | |
Legal | | 206,025 | | | 67,908 | |
Consulting | | 7,730 | | | 7,730 | |
Research and development | | 58,750 | | | 58,750 | |
Professional | | 42,263 | | | — | |
Other | | 8,419 | | | 8,267 | |
| $ | 347,309 | | $ | 148,510 | |
F - 22
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(6) Debt
Convertible Notes Payable
On August 2, 2013, the Company entered into a Convertible Promissory Note Agreement (the” Convertible Note Agreement”) to be funded in a series of loans up to a maximum principal amount of $997,000 (“Convertible Notes”). As of December 31, 2013, the Company received $926,000 in proceeds under the Convertible Notes. The Convertible Notes accrue interest at a rate of 2.5% per year. Principal repayments were to commence on April 30, 2014 equal to 1/24th of the then outstanding balance, with the entire principal amount due and payable on April 30, 2016.
The Convertible Note Agreement provided that if, prior to April 30, 2014, the Company enters into any financing transaction with the lender or an affiliate thereof, upon the closing the outstanding principal balance of the Convertible Notes shall automatically convert on a dollar for dollar basis into the securities being issued and sold at a conversion price equal to the purchase price per share implied by a pre-investment valuation of the Company equal to $20 million (“Conversion Price”). The Convertible Note Agreement further provided that if the Company enters into an agreement with a third party, other than the lender or affiliate thereof, into any debt or equity financing, exclusive license of any portion of the IP Rights, a sale of substantially all of the assets of the Company, or subsidiary thereof, or any transaction or series of transactions resulting in the current stockholders holding less than a majority of the voting interests, then, at the lender’s option, effective immediately prior to closing of the third party transaction the outstanding principal balance of the Convertible Notes shall be converted on a dollar for dollar basis into shares of Company Common Stock. The Convertible Note Agreement provided that in the case of conversion of principal under either scenario, the Company would have no further obligations or liabilities under the Convertible Notes.
In January 2014, the lender increased the aggregate principal amount of the Convertible Notes from $997 thousand to $1.126 million and advanced funds to the Company to the effect, that the total amount funded to the Company was equal to the increased principal amount of the Convertible Notes.
On August 28, 2014, the lender converted the Convertible Notes in the aggregate principal amount of $1.126 million into 106.6 shares of the Company Common Stock. Simultaneous with the issuance of the 106.6 shares to the Lender, the two principal stockholders of the Company, as capital contributions, surrendered to the Company for cancellation an aggregate of 106.6 shares of Company Common Stock. The net effect of such issuance and cancellations resulted in no change in the total number of shares of Company Common Stock issued (2,100) and outstanding (2,000).
The Company recorded interest expense relating to these Convertible Notes of $20,387 and $2,037 during the nine months ended September 30, 2014 and 2013, respectively. The Company recorded interest expense relating to these Convertible Notes of $6,422 and $2,037 during the three months ended September 30, 2014 and 2013, respectively. The outstanding principal and accrued interest balance at September 30, 2014 and 2013 was $-0- and $502,037, respectively.
On July 11, 2014, the Company entered into a Securities Purchase Agreement (SPA) and received $1,100,000 in proceeds from the issuance of a convertible promissory note (the “Bridge Note”) from an investor who is an affiliate of GEM. The Bridge Note bears interest at a rate of 10% per year, maturing fifteen months from the date of issue and is secured by all assets of the Company. The Bridge Note is mandatorily convertible upon the closing of the PPO at the conversion price as defined in the merger agreement contemplated in the GEM Term Sheet. The Company issued in the name of the purchaser of the Bridge Note but placed into escrow 100 shares of Company Common Stock. These shares currently are not deemed outstanding, but will either be delivered to the Bridge Note purchaser or returned to the Company for cancellation pursuant to the terms of a Termination Shares Escrow Agreement, dated as of July 3, 2014 among the Company, the holder of the Bridge Note, and the escrow agents.
On November 24, 2014, the Bridge Note was amended and revised to increase the principal amount to $1.35 million. On January 15, 2015, the Bridge Notes was further amended and revised to increase the principal amount to $2.31 million (see Note 11).
The Company recorded interest expense of $24,122 and $-0- during the nine months ended September 30, 2014 and 2013, respectively, on this convertible promissory note. The Company recorded interest expense of $24,122 and $-0- during the three months ended September 30, 2014 and 2013, respectively, on this convertible promissory note. The outstanding principal and accrued interest balance at September 30, 2014 and 2013 was $1,124,122 and $-0-, respectively.
F - 23
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(7) Income Taxes
No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets as of September 30, 2014 and December 31, 2013 consist of the following:
| | | | | | | |
| | September 30,
2014 | | December 31,
2013 | |
| | (Unaudited) | | | |
Net deferred tax assets | | | | | | | |
Tax loss carry-forwards | | $ | 731,500 | | $ | 266,000 | |
Other assets | | | — | | | — | |
Research and development credits | | | — | | | — | |
Other liabilities | | | — | | | — | |
Valuation allowance | | | (731,500 | ) | | (266,000 | ) |
| | | | | | | |
Total net deferred income taxes | | $ | — | | $ | — | |
A reconciliation of the statutory tax rates and the effective tax rates for the periods ended September 30, 2014 and December 2013 is as follows:
| | | | | | | | |
| | September 30,
2014 | | | December 31,
2013 | |
| | (Unaudited) | | | | |
U.S. federal tax rate | | | 35.00 | % | | | 35.0 | % |
State tax rate | | | 5.00 | % | | | 5.0 | % |
Valuation allowance | | | (40.00 | )% | | | (40.0 | )% |
| | | | | | | | |
| | | — | % | | | — | % |
Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Due to the Company’s history of operating losses, the deferred tax assets arising from the aforementioned future tax benefits are currently not likely to be realized and, accordingly, are offset by a full valuation allowance. The income tax provision varies from the expected provision determined by applying the federal statutory income tax rate to income (loss).
As of September 30, 2014 and December 31, 2013, the Company has net operating loss carry-forwards of approximately $1.829 million available to offset federal and state income tax, which expire through 2033. Utilization of the net operating loss carry-forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, or the IRC, and similar state provisions. The effect of an ownership change could be an imposition of an annual limitation on the use of net operating loss carry-forwards attributable to periods before the change.
F - 24
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(8) Stockholders’ Deficit
Common Stock
Authorized, Issued and Outstanding
The Company is authorized to issue 1,000,000 shares of common stock, with a par value of $0.001, of which 2,100 and 2,000 shares were issued and 2,000 and 2,000 shares were outstanding at September 30, 2014 and December 31, 2013, respectively. As a result of the recapitalization, stockholders’ deficiency has been presented to reflect this recapitalization as of the earliest period presented in these consolidated financial statements.
Voting
Each holder of Company Common Stock is entitled to one vote for each share thereof held by such holder at all meetings of stockholders (and written action in lieu of meetings). The number of authorized shares of Company Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of majority of the combined number of issued and outstanding shares of the Company.
Dividends
Dividends may be declared and paid on the Company Common Stock from funds lawfully available therefore, as and when determined by the board of directors.
Liquidation
In the event of the liquidation, dissolution, or winding-up of the Company, holders of Company Common Stock will be entitled to receive all assets of the Company available for distribution to its stockholders.
(9) Commitments
Contract Service Providers
In the course of the Company’s normal business operations, it has agreements with contract service providers to assist in the performance of its research and development and clinical research activities. Substantially all of these arrangements are on an as needed basis.
(10) Related Party Transactions
Due from Stockholders/Members
The Company obtains from and grants cash advances to certain of its stockholders. These net advances are non-interest bearing and have no terms for repayment. The amounts due as of September 30, 2014 and December 31, 2013 were $355,765 and $1,306,238, respectively. Such amounts have been reflected as a reduction of stockholders’ equity. For financial statement presentation, $20,000 has been reclassified from accounts payable relating to amounts owed to stockholders in arriving at the amount presented for September 30, 2014 and December 31, 2013.
In May 2014, certain stockholders of the Company individually purchased 100 percent of the noncontrolling interest in the Company’s subsidiary, Luminant, which in turn was contributed to the Company by them in satisfaction of certain outstanding amounts included in due from stockholders/members as of December 31, 2013.
F - 25
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(11) Subsequent Events
The Company evaluates events or transactions that occur after the balance sheet date but prior to the issuance of financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For its interim financial statements as of September 30, 2014 and for the quarter then ended, the Company evaluated subsequent events through the date of the issuance of the financial statements. There are no subsequent events to be recognized or reported that are not already previously disclosed including the following:
On November 24, 2014, the holder of the Bridge Note loaned the Company an additional $250,000. In connection with the funding of such loan, the Bridge Note was amended and restated to reflect a principal amount of $1.35 million. On January 15, 2015, the holder of the Bridge Note loaned the Company a further $960,000. In connection with the funding of such further loan, the Bridge Note was amended and restated to reflect a principal amount of $2.31 million. On March 5, 2015, the Bridge Note was further amended and restated to the effect that the mandatory conversion feature was amended to a set fixed conversion amount such that, upon mandatory conversion, the Bridge Note holder would receive one share of a specified company’s common stock for each $1.00 of principal of the Bridge Note outstanding as of the date of the mandatory conversion. The Company has evaluated the modification to the conversion rate as an inducement to convert the Bridge Note and has concluded that it provided the holder of the Bridge Note an incremental value of $3.465 million which will be charged as interest expense at the time of modification.
On March 5, 2015, the Company consummated a reverse triangular merger (the “Merger”) whereby a newly formed subsidiary of Tyme Technologies, Inc. (“Parent”) merged with and into the Company. The Merger resulted in the Company becoming a wholly-owned subsidiary of Parent and the stockholders of the Company as of immediately prior to the effective time of the Merger, receiving, in the aggregate, common stock of Parent equal to approximately 79% of the total number of shares of Parent common stock outstanding immediately following such issuance to such former Company stockholders. Contemporaneous with the closing of the Merger, among other matters, Parent completed a private placement of 2.716 million shares of Parent common stock for gross proceeds of $6.79 million (of which, $4.29 million was tendered in cash and the remaining subscription price paid by the delivery of a three-month promissory note in the principal amount of
$2.5 million (“PPO Note”) and the Bridge Note was converted into 2.31 million shares of Parent common stock. Parent common stock was the only equity securities of Parent outstanding prior to and immediately following consummation of the Merger, Parent’s private placement and the Bridge Note conversion. The foregoing aggregate 79% ownership of the post-Merger Parent by the former Company stockholders was calculated giving effect to the issuances of Parent common stock in Parent’s private placement and the conversion of the Bridge Note.
The PPO Note is secured by the escrow of 5 million shares of the post-merger Parent Common Stock. To the extent that the PPO Note is not paid at or prior to the Maturity Date, the escrowed shares will be forfeited to us for cancellation at the rate of one share for every $0.50 of PPO Note principal not paid to us.
Another condition to consummating the Merger is that Parent will retain a firm (the “IR Firm”) to provide investor relations services to the post-Merger Parent and the Parent has allocated 250,000 shares (the “IR Firm Shares”) of the Parents Common Stock for issuance to such firm. The appropriate accounting for the IR Firm Shares, which represents in substance a payment to a service provider, will be reflected as a charge to operations.
The investors in the PPO, along with the Bridge Note holder who received the Bridge Note Conversion Shares upon the automatic conversion of the Bridge Note which occured simultaneous with the closing of the PPO, will have anti-dilution protection on the shares purchased in the PPO or Bridge Note Conversion Shares (as the case may be) such that, if within two years after the closing of the Merger, Parent shall issue additional shares of Common Stock or common stock equivalents, for a consideration per share less than $0.50 (the “Lower Price”), each such investor and holder will be entitled to receive from the post-Merger Parent, additional shares, (“Lower Price Shares”) of Parent common stock in an amount such that, when added to the number of shares initially purchased by such investor or received upon conversion of the Bridge Note, will equal the number of shares that such investor’s PPO subscription amount would have purchased or the Bridge Note holder would have received upon conversion of the Bridge Note at the Lower Price. Management has not completed its assessment of the embedded feature related to the price protection provision and therefore has not included any adjustment(s) that may be required as a result of that analysis.
F - 26
TYME INC. AND SUBSIDIARY
Notes to Unaudited Interim Consolidated Financial Statements (continued)
September 30, 2014
(11) Subsequent Events (continued)
In connection with the PPO, post-merger Parent entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the purchasers in the PPO, holder of the Bridge Note and the IR Firm, pursuant to which Parent agreed that promptly, but no later than 90 calendar days following the maturity date of the PPO Note (such maturity date being 90 calendar days after the closing of the PPO), the Parent will file a registration statement with the SEC (the “Registration Statement”) covering (a) all of the PPO Shares issued in the PPO, (b) the Bridge Note Conversion Shares issued upon conversion of the Bridge Note, (c) the Lower Price Shares, if any, (d) the IR Firm Shares and (e) any shares of the Parent Common Stock issued or issuable with respect to the PPO Shares, Conversion Shares and Lower Price Shares upon any stock split, dividend or other distribution, recapitalization or similar event (collectively, the “PPO/Bridge Note Conversion Registrable Shares”). The Registration Statement will also cover 9% of the total number of shares issued to the former stockholders of the Company in connection with the Merger. The Parent is required to use commercially reasonable efforts to ensure that the Registration Statement is declared effective within 180 calendar days of filing with the SEC. If the Parent is late in filing the Registration Statement or if the Registration Statement is not declared effective within 180 days of its filing with the SEC, liquidated damages payable in cash by the post-Merger Parent to the holders of the PPO/Bridge Note Conversion Registrable Shares that have not been so registered will commence to accrue at a rate equal to $0.01 per Conversion Share and $0.025 per PPO Share for each full month that (i) Parent is late in filing the Registration Statement or (ii) the Registration Statement is late in being declared effective by the SEC; provided, however, that in no event shall the aggregate of any such per share liquidated damages exceed $0.08 per Conversion Share and $0.20 per PPO Share. Management has not completed its assessment of the embedded feature related to the registration rights provision and therefore has not included any adjustment(s) that may be required as a result of that analysis.
At the point of Merger and since inception, Parent was essentially a “Public Reporting Shell” with no substantive business operations. As such, Parent had negligible revenues and operating profits that require separate identification.
The Merger will begin to establish a public forum for the Company. Subject to executing on our goals, Management envisages that the public forum may help the Company secure necessary future funding in the public markets as it develops further its principal business focus as a clinical-stage biopharmaceutical enterprise focused on the development and commercialization of highly targeted cancer therapeutics with a broad range of oncology indications.
The transaction costs associated with the Merger relate to professional fees incurred in respect of Legal, Accounting and Audit. All such transaction costs, being associated with the final merger and issuance of equity, will be expensed as incurred and total approximately $1 million.
For accounting purposes the acquisition of the Company by Parent was considered a reverse acquisition, an acquisition transaction where the acquired company, the Company, is considered the acquirer for accounting purposes, notwithstanding the form of the transaction. The primary reason the transaction was treated as a purchase by the Company rather than a purchase by Parent was because Parent was a Public Reporting Shell company with limited operations and the Company’s stockholders gaining control of the voting power and outstanding share of Parent. Consequently, reverse acquisition accounting will be applied to the transaction. No additional goodwill or intangible assets are anticipated to be recognized in conjunction with the completion of the transaction..
On February 27, 2015, consistent with the Merger Agreement terms, non-interest bearing advances made to stockholders totaling $355,765 (See Note 10. Related Party Transactions) were settled by bonus compensation due to such stockholders being retained by the Company in lieu of payment.
F - 27
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Tyme Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Tyme Inc. and Subsidiary (the “Company”) as of December 31, 2014 and 2013, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tyme Inc. and Subsidiary as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred losses and negative cash flows since inception and has a stockholders’ deficit of $2,473,316 as of December 31, 2014. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenues from its product candidates currently in development. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regards to these matters is also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ WithumSmith+Brown, PC
New Brunswick, New Jersey
April 13, 2015
F - 28
TYME INC. AND SUBSIDIARY
Consolidated Balance Sheets
| | | | | | | |
| | December 31, | |
| | 2014 | | 2013 | |
| | | | | | |
Assets | | | | | | | |
| | | | | | | |
Current assets | | | | | | | |
Cash | | $ | 9,724 | | $ | 92,620 | |
Prepaid and other current assets | | | 140,205 | | | 110,180 | |
Total current assets | | | 149,929 | | | 202,800 | |
| | | | | | | |
Property and equipment, net of accumulated depreciation of $4,293 and $724, respectively | | | 17,170 | | | 21,429 | |
Total assets | | $ | 167,099 | | $ | 224,229 | |
| | | | | | | |
Liabilities and Stockholders’ Deficiency | | | | | | | |
| | | | | | | |
Current liabilities | | | | | | | |
Accounts payable and other current liabilities | | $ | 1,290,415 | | $ | 148,510 | |
Current maturities of convertible notes | | | — | | | 347,249 | |
Current maturities of convertible senior secured bridge notes | | | 1,350,000 | | | — | |
Total current liabilities | | | 2,640,415 | | | 495,759 | |
| | | | | | | |
Convertible notes less current maturities | | | — | | | 578,751 | |
Total liabilities | | | 2,640,415 | | | 1,074,510 | |
| | | | | | | |
Commitments | | | | | | | |
| | | | | | | |
Stockholders’ deficit | | | | | | | |
Common stock, $0.001 par value; 1,000,000 shares authorized; 2,100 shares issued and 2,000 shares outstanding at December 31, 2014 and 2,000 shares issued and outstanding at December 31, 2013, respectively | | | 2 | | | 2 | |
Additional paid in capital | | | 2,055,020 | | | 2,008 | |
Accumulated deficit | | | (4,172,572 | ) | | (1,522,746 | ) |
Stockholders’ deficit - controlling interest | | | (2,117,550 | ) | | (1,520,736 | ) |
| | | | | | | |
Noncontrolling interests | | | — | | | 1,976,693 | |
Due from stockholders/members | | | (355,766 | ) | | (1,306,238 | ) |
Total stockholders’ deficit | | | (2,473,316 | ) | | (850,281 | ) |
Total liabilities and stockholders’ deficit | | $ | 167,099 | | $ | 224,229 | |
The Notes to Consolidated Financial Statements are an integral part of these statements.
F - 29
TYME INC. AND SUBSIDIARY
Consolidated Statements of Operations
| | | | | | | |
| | December 31, | |
| | 2014 | | 2013 | |
Operating expenses: | | | | | | | |
Research and development | | $ | 761,359 | | $ | 744,717 | |
General and administrative | | | 1,822,757 | | | 307,100 | |
Total operating expenses | | | 2,584,116 | | | 1,051,817 | |
Loss from operations | | | (2,584,116 | ) | | (1,051,817 | ) |
| | | | | | | |
Interest expense | | | 76,561 | | | 5,855 | |
| | | | | | | |
Net loss before noncontrolling interests | | | (2,660,677 | ) | | (1,057,672 | ) |
Loss attributable to noncontrolling interests - prior to acquisition of minority interests | | | (10,851 | ) | | (285,847 | ) |
Net loss | | $ | (2,649,826 | ) | $ | (771,825 | ) |
The Notes to Consolidated Financial Statements are an integral part of these statements.
F - 30
TYME INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Deficiency
Years Ended December 31, 2014 and 2013
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Additional | | | | Non- | | Due from | | Total | |
| Common stock | | Paid-in- | | Accumulated | | Controlling | | Stockholders/ | | Stockholders’ | |
| Shares | | Amount | | Capital | | Deficit | | Interests | | Members | | Deficit | |
Balance, January 1, 2013 | — | | $ | — | | $ | 2,010 | | $ | (750,921 | ) | $ | 1,166,140 | | $ | (595,657 | ) | $ | (178,428 | ) |
Shares issued | 2,000 | | | 2 | | | (2 | ) | | — | | | — | | | — | | | — | |
Capital contributions | — | | | — | | | — | | | — | | | 1,096,400 | | | — | | | 1,096,400 | |
Advances to stockholders/members | — | | | — | | | — | | | — | | | — | | | (710,581 | ) | | (710,581 | ) |
Net loss | — | | | — | | | — | | | (771,825 | ) | | (285,847 | ) | | — | | | (1,057,672 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2013 | 2,000 | | | 2 | | | 2,008 | | | (1,522,746 | ) | | 1,976,693 | | | (1,306,238 | ) | | (850,281 | ) |
Conversion of $1.126 million convertible debt plus accrued interest of $26,242 into 106.6 shares of common stock | 106.6 | | | — | | | 1,152,242 | | | — | | | — | | | — | | | 1,152,242 | |
Surrender of 106.6 common stock by two principal stockholders of the Company | (106.6 | ) | | — | | | — | | | — | | | — | | | — | | | — | |
Capital contributions | — | | | — | | | — | | | — | | | 35,000 | | | — | | | 35,000 | |
Advances to stockholders/members | — | | | — | | | — | | | — | | | — | | | (149,600 | ) | | (149,600 | ) |
Luminant stockholder loans assigned in buyout of noncontrolling interests by certain stockholders of Tyme (Note 10) | — | | | — | | | (1,100,072 | ) | | — | | | — | | | 1,100,072 | | | — | |
Contribution of noncontrolling interests | — | | | — | | | 2,000,842 | | | — | | | (2,000,842 | ) | | — | | | — | |
Net Loss attributable to noncontrolling interests prior to contribution of noncontrolling interests (Note 1) | — | | | — | | | — | | | — | | | (10,851 | ) | | — | | | (10,851 | ) |
Net loss | — | | | — | | | — | | | (2,649,826 | ) | | — | | | — | | | (2,649,826 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2014 | 2,000 | | $ | 2 | | $ | 2,055,020 | | $ | (4,172,572 | ) | $ | — | | $ | (355,766 | ) | $ | (2,473,316 | ) |
The Notes to Consolidated Financial Statements are an integral part of these statements.
F - 31
TYME INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
| | | | | | | |
| | December 31, | |
| | 2014 | | 2013 | |
Cash flows from operating activities: | | | | | | | |
Net loss before noncontrolling interests | | $ | (2,660,677 | ) | $ | (1,057,672 | ) |
Adjustments to reconcile net loss to net cash from operating activities: | | | | | | | |
Depreciation | | | 4,293 | | | 514 | |
Loss on disposal of fixed assets | | | 2,676 | ) | | — | |
Changes in operating assets and liabilities - | | | | | | | |
Prepaid assets | | | (30,025 | ) | | (110,080 | ) |
Accounts payable and other current liabilities | | | 1,168,147 | | | (32,008 | ) |
Net cash used in operating activities | | | (1,515,586 | ) | | (1,199,246 | ) |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of property and equipment | | | (2,710 | ) | | (19,953 | ) |
Net cash used in investing activities | | | (2,710 | ) | | (19,953 | ) |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Capital contributions | | | 35,000 | | | 1,096,400 | |
Increase in due from stockholders/members | | | (149,600 | ) | | (710,581 | ) |
Proceeds from convertible senior secured bridge loan | | | 1,350,000 | | | — | |
Proceeds from issuance of convertible notes | | | 200,000 | | | 926,000 | |
Net cash provided by financing activities | | | 1,435,400 | | | 1,311,819 | |
| | | | | | | |
Net increase (decrease) in cash | | | (82,896 | ) | | 92,620 | |
| | | | | | | |
Cash - beginning of year | | | 92,620 | | | — | |
Cash - end of year | | $ | 9,724 | | $ | 92,620 | |
| | | | | | | |
Supplemental Cash Flow Information: | | | | | | | |
Cash paid for interest and income taxes is as follows: | | | | | | | |
Interest | | $ | — | | $ | — | |
Income taxes | | $ | — | | $ | — | |
| | | | | | | |
Noncash investing and financing activities: | | | | | | | |
Issuance of common stock as a result of contribution of member interest in Luminant Biosciences LLC | | $ | — | | $ | 2 | |
Conversion of $1.126 million of convertible debt and $26,242 of accrued interest into 106.6 shares of common stock. Simultaneously, stockholders surrendered an equal amount of their own common stock, thereby having no change in the total number of shares outstanding | | $ | 1,152,242 | | $ | — | |
The Notes to Consolidated Financial Statements are an integral part of these statements.
F - 32
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Background and Nature of Business
Tyme Inc. and Subsidiary (the “Company”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of highly targeted cancer therapeutics with a broad range of oncology indications. Tyme Inc. (“Tyme”) was incorporated in Delaware in 2013 and its operations to date have been directed primarily toward developing business strategies, research and development activities and preparing for clinical trials for its product candidates. The Company has focused its research and development efforts on a proprietary platform technology for which it retains global intellectual property (IP) and commercial rights.
The Company is currently formulating its regulatory and drug development program for its lead drug candidate, SM-88, and working towards the initiation of its first phase II clinical trial.
Going Concern
The Company has incurred losses and negative cash flows from operations since inception (July 26, 2013) and has an accumulated deficit of approximately $4.2 million and $1.5 million as of December 31, 2014 and December 31, 2013, respectively. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenues from its products currently in development. The Company’s primary sources of liquidity to date has been the issuance of convertible promissory notes and contributed capital by its founders. The Company received approximately $2.5 million from the issuance of convertible promissory notes and approximately $2.4 million of historical capital contributions in Luminant by one of its members. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its technologies and product candidates. There is no assurance that such financing will be available when needed or on acceptable terms. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Notwithstanding the Bridge Note and Merger as further discussed in Note 11, management is evaluating different strategies to obtain the required additional funding of future operations. These strategies may include, but are not limited to: additional funding from current or new investors, borrowings of debt, and/or a public offering of the Company’s equity or debt securities. There can be no assurance that these future-funding efforts will be successful.
The Company is subject to those risks associated with any specialty pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.
Assignment of Interest in Luminant
On July 26, 2013, the founding stockholders (“the Founders”) of the Company entered into a Founder Contribution and Exchange Agreement under which the Founders contributed their membership units in Luminant Biosciences, LLC. (“Luminant”) to the Company in exchange for 2,000 shares of common stock, par value $0.001 per share (the “Company Common Stock”) of the Company. As a result of the transaction, as of December 31, 2013, Luminant Biosciences, LLC is 66-2/3% owned by the Company. The two Founders are two executive officers of the Company. Since this transaction is among entities under common control, no gain or loss is recognized in the consolidated financial statements and the carrying amounts of the net assets are eliminated in consolidation.
In May 2014, the Founders individually acquired the noncontrolling interest in Luminant and contributed it to the Company making Luminant a wholly owned subsidiary of the Company. (SeeNoncontrolling Interests.)
F - 33
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
Term Sheet for Pending Merger
On June 6, 2014, the Company entered into a Term Sheet (the “GEM Term Sheet”) with GEM Global Yield Fund, LLC SCS and/or its affiliates and assigns (“GEM”) which contemplated a merger involving the Company and a U.S. publicly traded company and a private placement offering (“PPO”) by the publicly traded company. The proposed date of the consummation of the merger and the PPO was to be August 31, 2014. This date was then extended to November 15, 2014. The merger was completed on March 5, 2015, when the Company consummated a reverse triangular merger (the “Merger”) whereby a newly formed subsidiary of Tyme Technologies, Inc. (“Parent”) merged with and into the Company. (See Note 11.)
The GEM Term Sheet also contemplated a fifteen-month bridge loan, which would convert into common stock of the publically traded company upon completion of the Merger. The funding of such bridge loan was consummated as of July 11, 2014. (See Note 6.)
(2) Summary of Significant Accounting Policies
Basis of Presentation
On July 26, 2013, the controlling members of Luminant elected to transfer their membership units in Luminant to Tyme, a newly formed company, in exchange for 2,000 shares of Company Common Stock. (See Note 1) The Company has evaluated this transaction in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and has concluded that this transaction represents a recapitalization of entities under common control. Accordingly, the consolidated financial statements presented herein have been adjusted to reflect this recapitalization, by reporting assets, liabilities and equity at their carrying values and operations as of beginning of the year of the earliest comparative financial statements. The Company’s consolidated financial statements have been prepared in conformity with U.S. GAAP and include the accounts of Tyme and its Luminant subsidiary. All significant intercompany accounts have been eliminated in consolidation.
In June 2014, the Financial Accounting Standards Board released Accounting Standards Update No. 2014-10, which amended Topic 915 of the Accounting Standards Codification, Development Stage Entities, to eliminate the requirements to present inception-to-date information for the consolidated statement of operations, cash flows and stockholders’ equity, along with certain other disclosures, which were historically required for development stage entities. This guidance is effective for annual reporting periods beginning after December 15, 2014 (for both public and nonpublic entities) and interim reporting periods beginning after December 15, 2014 for public entities and interim reporting periods beginning after December 15, 2015 for other entities. Early application of this amended guidance is permitted, provided that the entity’s financial statements have either not yet been issued (for public business entities) or made available for issuance (for other entities). The Company has evaluated this amended guidance and has elected to early adopt the amended guidance. This early adoption has no impact on the consolidated financial condition, results of operations, or cash flows of the Company.
Use of Estimates
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 and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimation include the stated value of the Company underlying the conversion feature of the outstanding convertible notes payable. Actual results could differ from such estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including accounts payable and accrued expenses approximates fair value given their short-term nature. The carrying amount of the convertible promissory notes payable approximates fair value because the interest rates on these instruments are reflective of rates that the Company could obtain on unaffiliated third party debt with similar terms and conditions.
F - 34
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
Prepaid and Other Current Assets
Prepaid assets represents expenditures made in advance of when the economic benefit of the cost will be realized, and which will be expensed in future periods with the passage of time or when a triggering event occurs.
Property and Equipment, Net
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives. The Company estimates a life of five to seven years for equipment and furniture and fixtures. Upon sale or retirement, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operating expenses. Repairs and maintenance costs are expensed as incurred.
Intangible Assets
The Company’s intangible assets consist of patents and patent applications contributed by the founders. The value of these patents is immaterial to these consolidated financial statements.
Impairment of Long-Lived Assets
The Company assesses the recoverability of its long-lived assets, which include fixed assets whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the years ended December 31, 2014 and 2013, the Company determined that there was no impairment of its long-lived assets.
Research and Development
Research and development costs are expensed as incurred and are primarily comprised of, but not limited to, external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”) and consultants that conduct clinical and preclinical studies, costs associated with preclinical and development activities, costs associated with regulatory operations, depreciation expense for assets used in research and development activities and employee related expenses, including salaries and benefits for research and development personnel. Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense, which are reported in prepaid assets or accounts payable and other current liabilities.
Noncontrolling interest
Noncontrolling interests represents the minority member’s interest in the Company’s subsidiary, Luminant. At December 31, 2013, the Company owned 66-2/3 percent of Luminant representing 66-2/3 percent of the voting control, which required that Luminant’s operations be included in the consolidated financial statements. The 33-1/3 percent interest of Luminant that was not owned by the Company was shown as noncontrolling interests in the 2014 and 2013 consolidated statements of operations and consolidated balance sheets.
In May 2014, certain stockholders of the Company individually purchased 100 percent of the noncontrolling interest in the Company subsidiary, Luminant, which interest in turn was contributed to the Company. As the result of the contribution of the noncontrolling interest, Luminant became a wholly owned subsidiary of the Company. (See Note 10.)
F - 35
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
Income Taxes
The Company’s subsidiary, Luminant, operates as a limited liability corporation for federal and state income tax purposes. Accordingly, the taxable income or loss of Luminant passes to the individual members, rather than Luminant paying taxes at the corporate level, through the date the date the Company acquired its interest in Luminant through the Founders contributing their 66-2/3 ownership in Luminant to the Company in July 2013. In May 2014, certain stockholders of the Company individually purchased 100 percent of the noncontrolling interest in Luminant which in turn was contributed to the Company. (See Note 10.) As the result of the contribution of the noncontrolling interest, Luminant became a wholly owned subsidiary of the Company.
From the date of inception (July 26, 2013) through December 31, 2014, the Company operated as a C-Corporation and includes in its income/(loss) its share of the income/(loss) of Luminant. Deferred tax assets or liabilities are recorded for temporary differences between financial reporting and tax basis of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse.
A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. The Company has provided a full valuation allowance on its deferred tax assets that consists of cumulative net operating losses of $3,312,651 for the period from inception (July 26, 2013) to December 31, 2014. Due to its cumulative loss position, history of operating losses and losses expected to be incurred in the foreseeable future, a full valuation allowance was considered necessary.
The utilization of net operating losses for Federal income tax purposes sustained by the Company could be substantially limited annually if there were an “ownership change” (as defined by Section 382 of the Internal Revenue Code of 1986, as amended). If it were determined that there is a change in ownership, or if theCompany undergoes a change of ownership in the future, the utilization of the Company’s net operating loss carry-forward may be materially limited. This could result in a reduction in equal amounts to the deferred tax assets and the related valuation reserves.
The Company is required to evaluate uncertain tax positions taken or expected to be taken in the course of preparing the Company’s consolidated financial statements to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions with respect to tax at the Company level deemed not to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The Company has concluded that no provision for uncertain tax positions is required in the Company’s consolidated financial statements.
The Company had no unrecognized tax benefits at December 31, 2014 and 2013. The tax years, which currently remain subject to examination by major tax jurisdictions as of December 31, 2014, are the years ended December 31, 2012 through 2014. In addition, the Company had no income tax related penalties or interest for periods presented in these consolidated financial statements.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views their operations and manages their business in one segment.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash. Cash is deposited with major banks and at times, such balances with any one financial institution may be in excess of FDIC insurance limits. The Company believes no significant concentration of credit risk exists.
F - 36
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(3) Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | |
| December 31, | |
| 2014 | | 2013 | |
| | | | |
Furniture and fixtures | $ | — | | $ | 2,200 | |
Machinery and equipment | | 21,463 | | | 1,200 | |
Total | | 21,463 | | | 3,400 | |
Less: accumulated depreciation | | 4,293 | | | 724 | |
| | 17,170 | | | 2,676 | |
Construction in process | | — | | | 18,753 | |
| $ | 17,170 | | $ | 21,429 | |
Depreciation expense was $4,293 and $514 for the years ended December 31, 2014 and 2013, respectively.
(4) Intangible Assets
On July 3, 2014, a stockholder conveyed personal ownership of certain patents and patent applications relating to the field of cancer treatment to the Company, which were filed and disclosed in the US Patent Office. On July 9, 2014, the Company entered into a License Agreement with this stockholder pursuant to which the stockholder retained the right to certain assigned patents and patent applications to use and commercialize the patents in all other fields other than the treatment of cancer. Pursuant to the License Agreement, the Company has granted the stockholder an exclusive, worldwide, royalty-free license to develop, make, have made, use, sell, offer to sell, import, export and distribute products or services in fields other than the treatment of cancer. This license includes the right to sublicense to any third party so long as such sublicense is consistent with the terms of the License Agreement and contains terms reasonably sufficient for the third party to satisfy its obligations thereunder.
(5) Accounts Payable and Other Current Liabilities
Accounts payable and other current liabilities consisted of the following:
| | | | | | |
| December 31, | |
| 2014 | | 2013 | |
| | | | |
Interest | $ | 56,174 | | $ | 5,855 | |
Legal | | 844,602 | | | 67,908 | |
Consulting | | 43,314 | | | 7,730 | |
Accounting and auditing | | 272,913 | | | — | |
Research and development | | 58,750 | | | 58,750 | |
Other | | 14,662 | | | 8,267 | |
| $ | 1,290,415 | | $ | 148,510 | |
F - 37
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(6) Debt
Convertible Notes Payable
On August 2, 2013, the Company entered into a Convertible Promissory Note Agreement (the” Convertible Note Agreement”) to be funded in a series of loans up to a maximum principal amount of $997,000 (“Convertible Notes”). As of December 31, 2013, the Company received $926,000 in proceeds under the Convertible Notes. The Convertible Notes accrued interest at a rate of 2.5% per year. Principal repayments were to commence on April 30, 2014 equal to 1/24th of the then outstanding balance, with the entire principal amount due and payable on April 30, 2016. The lender opted not to collect principal payments, which were to commence on April 30, 2014, in anticipation of converting the convertible note.
The Convertible Note Agreement provided that if, prior to April 30, 2014, the Company entered into any financing transaction with the lender or an affiliate thereof, upon the closing of such transaction, the outstanding principal balance of the Convertible Notes shall automatically convert on a dollar for dollar basis into the securities being issued and sold at a conversion price equal to the purchase price per share implied by a pre-investment valuation of the Company equal to $20 million (“Conversion Price”). The Convertible Note Agreement further provided that if the Company entered into an agreement with a third party, other than the lender or affiliate thereof, into any debt or equity financing, exclusive license of any portion of the IP Rights, a sale of substantially all of the assets of the Company, or subsidiary thereof, or any transaction or series of transactions resulting in the current stockholders holding less than a majority of the voting interests, then, at the lender’s option, effective immediately prior to closing of the third party transaction, the outstanding principal balance of the Convertible Notes would have been converted on a dollar for dollar basis into shares of Company Common Stock. The Convertible Note Agreement provided that in the case of conversion of principal under either scenario, the Company would have no further obligations or liabilities under the Convertible Notes.
In January 2014, the lender increased the aggregate principal amount of the Convertible Notes from $997 thousand to $1.126 million and advanced funds to the Company to that effect, such that the total amount funded to the Company was equal to the increased principal amount of the Convertible Notes.
On August 28, 2014, the lender converted the Convertible Notes in the aggregate principal amount of $1.126 million plus accrued interest of $26,242, into 106.6 shares of the Company Common Stock. Simultaneous with the issuance of the 106.6 shares to the Lender, the two principal stockholders of the Company, as capital contributions, surrendered to the Company for cancellation an aggregate of 106.6 shares of Company Common Stock. The net effect of such issuance and cancellations resulted in no change in the total number of shares of Company Common Stock issued (2,100) and outstanding (2,000) at such time.
For the years ended December 31, 2014 and 2013, the Company recorded interest expense on the Convertible Note amounting to $20,387 and $5,855, respectively. As of December 31, 2013, the accrued interest of $5,855 associated with this Convertible Note was included in Accounts payable and other current liabilities
On July 11, 2014, the Company entered into a Securities Purchase Agreement and received $1,100,000 in proceeds from the issuance of a convertible promissory note (the “Bridge Note”) of the Company, from an investor who is an affiliate of GEM. The Bridge Note bears interest at a rate of 10% per year, maturing fifteen months from the date of issue and is secured by all assets of the Company. The Bridge Note is mandatorily convertible upon the closing of the PPO at the conversion price as defined in the merger agreement contemplated in the GEM Term Sheet. The Company issued in the name of the purchaser of the Bridge Note but placed into escrow 100 shares of Company Common Stock. These shares currently are not deemed outstanding, but will either be delivered to the Bridge Note purchaser or returned to the Company for cancellation pursuant to the terms of a Termination Shares Escrow Agreement, dated as of July 11, 2014, among the Company, the holder of the Bridge Note, and the escrow agents.
On November 24, 2014, the holder of the Bridge Note loaned the Company an additional $250,000. In connection with the funding of such loan, the Bridge Note was amended and restated to reflect a principal amount of $1.35 million. Subsequent to year-end, on January 15, 2015, the Bridge Notes was further amended and revised to increase the principal amount to $2.31 million. (See Note 11.)
The Company recorded interest expense of $56,174 and $-0- during the twelve months ended December 31, 2014 and 2013, respectively, on the Bridge Note. The outstanding principal and accrued interest balance at December 31, 2014 and 2013 was $1,406,174 and $-0-, respectively.
F - 38
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
(7) Income Taxes
No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets as of December 31, 2014 and December 31, 2013 consist of the following:
| | | | | | | |
| | December 31, | |
| | 2014 | | 2013 | |
| | | | | |
Net deferred tax assets | | | | | | | |
Tax loss carry-forwards | | $ | 1,330,660 | | $ | 266,000 | |
Other assets | | | — | | | — | |
Research and development credits | | | — | | | — | |
Other liabilities | | | — | | | — | |
Valuation allowance | | | (1,330,660 | ) | | (266,000 | ) |
Total net deferred income taxes | | $ | — | | $ | — | |
A reconciliation of the statutory tax rates and the effective tax rates for the periods ended December 31, 2014 and December 2013 is as follows:
| | | | | | | |
| | December 31, | |
| | 2014 | | 2013 | |
| | | | | |
U.S. federal tax rate | | | 35 | % | | 35 | % |
State tax rate | | | 5 | % | | 5 | % |
Valuation allowance | | | (40) | % | | (40) | % |
Total net deferred income taxes | | $ | — | % | $ | — | % |
Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Due to the Company’s history of operating losses, the deferred tax assets arising from the aforementioned future tax benefits are currently not likely to be realized and, accordingly, are offset by a full valuation allowance. The income tax provision varies from the expected provision determined by applying the federal statutory income tax rate to income (loss).
As of December 31, 2014 and 2013, the Company has net operating loss carry-forwards of approximately $3.3 million and $666 thousand, respectively, available to offset federal and state income tax, which expire through 2034. Utilization of the net operating loss carry-forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The effect of an ownership change could be an imposition of an annual limitation on the use of net operating loss carry-forwards attributable to periods before the change.
(8) Stockholders’ Deficit
Common Stock
Authorized, Issued and Outstanding
The Company is authorized to issue 1,000,000 shares of common stock, with a par value of $0.001, of which 2,100 shares were issued and 2,000 shares outstanding at December 31, 2014 and 2,000 shares issued and outstanding at December 31, 2013. As a result of the recapitalization, stockholders’ deficiency has been presented to reflect this recapitalization as of the earliest period presented in these consolidated financial statements.
F - 39
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
Voting
Each holder of Company Common Stock is entitled to one vote for each share thereof held by such holder at all meetings of stockholders (and written action in lieu of meetings). The number of authorized shares of Company Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of majority of the combined number of issued and outstanding shares of the Company.
Dividends
Dividends may be declared and paid on the Company Common Stock from funds lawfully available therefore, as and when determined by the board of directors.
Liquidation
In the event of the liquidation, dissolution, or winding-up of the Company, holders of Company Common Stock will be entitled to receive all assets of the Company available for distribution to its stockholders.
(9) Commitments
Contract Service Providers
In the course of the Company’s normal business operations, it has agreements with contract service providers to assist in the performance of its research and development and clinical research activities. Substantially all of these arrangements are on an as needed basis.
(10) Related Party Transactions
Due from Stockholders/Members
The Company obtained from and granted cash advances to certain of its stockholders. These net advances are non-interest bearing and have no terms for repayment. The amounts due as of December 31, 2014 and December 31, 2013 were $355,766 and $1,306,238, respectively. Such amounts have been reflected as a reduction of stockholders equity. (See Note 11.) For consolidated financial statement presentation, $20,000 has been reclassified from accounts payable relating to amounts owed to stockholders in arriving at the amount presented for December 31, 2014 and December 31, 2013.
Effective May 29, 2014, certain stockholders of the Company individually purchased 100 percent of the noncontrolling interest in the subsidiary, Luminant, which in turn was contributed to the Company by them. In exchange, the amounts of the outstanding advances from them were assigned to the former holder of the noncontrolling interest. Accordingly, the advances are payable to the former noncontrolling interest holder and not the Company subsequent to May 29, 2014.
(11) Subsequent Events
The Company evaluates events or transactions that occur after the balance sheet date but prior to the issuance of consolidated financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For its consolidated financial statements as of December 31, 2014, the Company evaluated subsequent events through the date of the issuance of the consolidated financial statements, April 15, 2015. Based on this evaluation, the Company has determined that the following subsequent events have occurred which require disclosure in or adjustment to the financial statements.
F - 40
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
On January 15, 2015, the holder of the Bridge Note loaned the Company a further $960,000. In connection with the funding of such further loan, the Bridge Note was amended and restated to reflect a principal amount of $2.31 million. On March 5, 2015, the Bridge Note was further amended and restated to the effect that the mandatory conversion feature was amended to a set fixed conversion amount such that, upon mandatory conversion, the Bridge Note holder would receive one share of a specified company’s common stock for each $1.00 of principal of the Bridge Note outstanding as of the date of the mandatory conversion. The Company has evaluated the modification to the conversion rate as an inducement to convert the Bridge Note and has concluded that it provided the holder of the Bridge Note an incremental value of $3.465 million which will be charged as interest expense at the time of modification.
On March 5, 2015, the Company consummated a reverse triangular merger (the “Merger”) whereby a newly formed subsidiary of Parent merged with and into the Company. The Merger resulted in the Company becoming a wholly-owned subsidiary of Parent and the stockholders of the Company as of immediately prior to the effective time of the Merger, receiving, in the aggregate, common stock of Parent equal to approximately 79% of the total number of shares of Parent common stock outstanding immediately following such issuance to such former Company stockholders (34,000 shares of Parent common stock for every one share of Company common stock outstanding as of the closing of the Merger). Contemporaneous with the closing of the Merger, among other matters, Parent completed a private placement of 2.716 million shares of Parent common stock for gross proceeds of $6.79 million (of which, $4.29 million was tendered in cash and the remaining subscription price paid by the delivery of a three-month promissory note in the principal amount of$2.5 million (“PPO Note”) and the Bridge Note was converted into 2.31 million shares of Parent common stock. Parent common stock was the only equity securities of Parent outstanding prior to and immediately following consummation of the Merger, Parent’s private placement and the Bridge Note conversion. The foregoing aggregate 79% ownership of the post-Merger Parent by the former Company stockholders was calculated giving effect to the issuances of Parent common stock in Parent’s private placement and the conversion of the Bridge Note. The PPO Note is secured by the escrow of 5 million shares of the post-merger Parent common stock. To the extent that the PPO Note is not paid at or prior to the Maturity Date, the escrowed shares will be forfeited to us for cancellation at the rate of one share for every $0.50 of PPO Note principal not paid to us.
Another condition to consummating the Merger was that Parent retained a firm (the “IR Firm”) to provide investor relations’ services to the post-Merger Parent and Parent allocated 250,000 shares (the “IR Firm Shares”) of the Parent common stock for issuance to such firm upon the consummation of the Merger. These shares were issued effective the closing date of the Merger on March 5, 2015. The appropriate accounting for the IR Firm Shares, which represents in substance a payment to a service provider, will be reflected as a charge to operations.
The investor in the PPO, along with the designee of the Bridge Note holder who received the Bridge Note Conversion Shares upon the automatic conversion of the Bridge Note which occurred simultaneous with the closing of the PPO, will have anti-dilution protection on the shares purchased in the PPO or Bridge Note Conversion Shares (as the case may be) such that, if within two years after the closing of the Merger, Parent shall issue additional shares of Parent common stock or common stock equivalents, for a consideration per share less than $0.50 per share (the “Lower Price”), each such investor and holder will be entitled to receive from the post-Merger Parent, additional shares, (“Lower Price Shares”) of Parent common stock in an amount such that, when added to the number of shares initially purchased by such investor or received upon conversion of the Bridge Note, will equal the number of shares that such investor’s PPO subscription amount would have purchased or the Bridge Note holder would have received upon conversion of the Bridge Note at the Lower Price. The Company has determined that this anti-dilution protection is a freestanding financial instrument that will be carried as a liability at fair value.
In connection with the PPO, post-merger Parent entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the purchasers in the PPO, the holder of the Bridge Note and the IR Firm, pursuant to which Parent agreed that promptly, but no later than 90 calendar days following the maturity date of the PPO Note (such maturity date being 90 calendar days after the closing of the PPO), the Parent will file a registration statement with the SEC (the “Registration Statement”) covering (a) all of the PPO Shares issued in the PPO, (b) the Bridge Note Conversion Shares issued upon conversion of the Bridge Note, (c) the Lower Price Shares, if any, (d) the IR Firm Shares and (e) any shares of the Parent Common Stock issued or issuable with respect to the PPO Shares, Conversion Shares and Lower Price Shares upon any stock split, dividend or other distribution, recapitalization or similar event (collectively, the “PPO/Bridge Note Conversion Registrable Shares”). The Registration Statement will also cover 9% of the total number of shares issued to the former stockholders of the Company in connection with the Merger. Parent is required to use commercially reasonable efforts to ensure that the Registration Statement is declared effective within 180 calendar days of filing with
F - 41
TYME INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Continued)
the SEC. If Parent is late in filing the Registration Statement or if the Registration Statement is not declared effective within 180 days of its filing with the SEC, liquidated damages payable in cash by the post-Merger Parent to the holders of the PPO/Bridge Note Conversion Registrable Shares that have not been so registered will commence to accrue at a rate equal to $0.01 per Conversion Share and $0.025 per PPO Share for each full month that (i) Parent is late in filing the Registration Statement or (ii) the Registration Statement is late in being declared effective by the SEC; provided, however, that in no event shall the aggregate of any such per share liquidated damages exceed $0.08 per Conversion Share and $0.20 per PPO Share.
At the point of Merger and since inception, Parent was essentially a “public reporting shell” with no substantive business operations. As such, Parent had negligible revenues and operating profits that require separate identification.
The Merger will begin to establish a public forum for the Company. Subject to executing on our goals, management envisages that the public forum may help the Company secure necessary future funding in the public markets as the Company further develops its principal business as a clinical-stage biopharmaceutical enterprise focused on the development and commercialization of highly targeted cancer therapeutics with a broad range of oncology indications.
The transaction costs associated with the Merger relate to professional fees incurred in respect of legal, accounting and audit. All such transaction costs, being associated with the final Merger and issuance of equity, will be expensed as incurred and total approximately $1 million.
For accounting purposes, the acquisition of the Company by Parent was considered a reverse acquisition, an acquisition transaction where the acquired company, the Company, is considered the acquirer for accounting purposes, notwithstanding the form of the transaction. The primary reason the transaction was treated as a purchase by the Company rather than a purchase by Parent was because Parent was a public reporting shell company with limited operations and the Company’s stockholders gained control of the voting power and majority of the outstanding shares of Parent common stock. Consequently, reverse acquisition accounting will be applied to the transaction. No additional goodwill or intangible assets are anticipated to be recognized in conjunction with the completion of the Merger.
On February 27, 2015, the non-interest bearing advances made to stockholders totaling $355,766 were settled by the bonus compensation payable to such stockholders being retained by the Company in lieu of payment. (See Note 10)
On March 5, 2015, effective as of the consummation of the Merger, the Company entered into employment agreements with each of Steve Hoffman, our Chief Executive Officer and Chief Science Officer and Michael Demurjian, our Chief Operating Officer. Under these agreements, Messrs. Hoffman and Demurjian will each be entitled to an annual base salary of $450,000 and such performance bonuses as our board of directors may determine, from time to time, in its sole discretion. The base salaries will be reviewed annually (commencing in 2016) by the Company’s board of directors; provided that the base salaries may not be decreased from their then current levels due to any board review. The employment agreements each have a term of five years; provided, however, that commencing on the first anniversary of the effective date of the agreements and on each anniversary thereafter, the term shall automatically be extended by one year, such that, at any time during the term of the agreement, the remaining employment term shall never be less than four years and one day. If the executive is terminated without “Cause” (as defined in the agreements) or for “Good Reason” (as defined in the agreements), the executive will be entitled to receive his base salary plus any accrued but unpaid performance bonus, with the base salary payable at the same intervals as the base salary would have been payable if the termination had not occurred. If the employment is terminated for “Cause,” or in the case of the executive’s death or disability, the executive will only be entitled to his base salary through the termination date, plus any accrued and unpaid performance bonus as of the termination date.
On March 5, 2015, Parent’s Board of Directors adopted and Parent’s stockholders approved Parent’s 2015 Equity Incentive Plan (the “2015 Plan”), which reserves a total of 10 million shares of Parent common stock for issuance under the 2015 Plan. No more than an aggregate of 3,333,333 shares of Parent common stock may be awarded during the twelve months following the 2015 Plan adoption. The exercise price of all options awarded under the 2015 Plan must be no less than 100% of the fair market value of Parent’s common stock on the date of the grant. Parent has not granted any stock options or other awards under the 2015 Plan through April 9, 2015, other than the grant, effective as of March 31, 2015 and with respect to the fiscal quarter ended March 31, 2015, of 1,812 shares of Parent common stock to each of Parent’s three independent directors pursuant to Parent’s independent director compensation policy and a special advisor to Parent’s Board of Directors. The shares were valued at an amount equal to the closing price of Parent’s common stock on the last trading day of the quarter ended March 31, 2015.
F - 42
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA INFORMATION
On June 6, 2014 Global Group Enterprise Corp. (“Global”) entered into a combination agreement contemplating a plan of arrangement with Tyme Inc. (“Tyme”). Global is a Florida corporation and Tyme is a Delaware corporation. Global formed a Delaware subsidiary, Tyme Technologies, Inc. (“Technologies”) the surviving company in the merger, to facilitate the plan of arrangement. On March 5, 2015 Technologies and Tyme completed the transaction contemplated by the plan of arrangement. The combined companies now operate under the name “Tyme Inc.”.
The unaudited pro forma combined consolidated statement of operations of Tyme has been prepared by management after giving effect to the reverse merger transaction between Tyme and Technologies. The unaudited pro forma combined consolidated balance sheet has been presented as of September 30, 2014 and gives effect to the transaction as if it occurred on that date. The unaudited combined consolidated statement of operations for the fiscal year ended December 31, 2013 and the nine months ended September 30, 2014 are presented as if the merger occurred at the beginning of the respective periods.
The unaudited pro forma combined consolidated balance sheet has been constructed from the audited balance sheet of Tyme as of September 30, 2014 prepared in accordance with U.S. Generally Accepted Accounting Principles and the audited balance sheet of Technologies as of August 31, 2014 prepared in accordance with U.S. Generally Accepted Accounting Principles.
The unaudited pro forma combined consolidated statement of operations for the year ended December 31, 2013 has been constructed using the following:
• Audited statement of operations for the year ended December 31, 2013 of Tyme
• Audited statement of operations for the year ended November 30, 2014 of Technologies
The unaudited pro forma combined consolidated statement of operations for the nine months ended September 30, 2014 has been constructed using the following:
• Unaudited interim statement of operations for the nine months ended September 30, 2014 of Tyme
• Unaudited interim statement of operations for the nine months ended August 31, 2014 of Technologies
The unaudited pro forma combined consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Tyme as of and for the year ended December 31, 2013 and 2012 and the audited financial statements of Technologies for the year ended November 30, 2014 and 2013.
The unaudited pro forma combined consolidated financial statements are prepared for illustrative purposes only and, are not necessarily indicative of the actual financial position and result of operations that would have been for the periods presented, nor do such financial statements purport to represent the result of future periods. The pro forma adjustments are based upon available information.
It is management’s opinion that these pro forma financial statements include all known adjustments necessary for the fair presentation, in all material respects, of the proposed transaction described above in accordance with U.S. GAAP applied on a consistent basis with the Company’s accounting policies. At the time of the preparation of the pro forma financial statements, management has not completed its assessment of certain embedded features related to price protection and registration rights as contemplated in the merger agreement and therefore has not included pro forma adjustment(s) that may be required as a result of that analysis. No potential cost savings, non-recurring charges, or credits are anticipated by the Company’s management subsequent to completion of the transaction.
For accounting purposes the acquisition of Tyme by Technologies was considered a reverse acquisition, an acquisition transaction where the acquired company, Tyme is considered the acquirer for accounting purposes, notwithstanding the form of the transaction. The primary reason the transaction was treated as a purchase by Tyme rather than a purchase of Tyme, by Technologies was because Technologies was a shell company.
Consequently, reverse acquisition accounting was applied to the transaction. No additional goodwill or intangible assets were recognized on completion of the transaction. The capital structure, including the number and type of shares issued, appearing in the consolidated balance sheet reflects that of the legal parent, Technologies now known as Tyme, including the shares issued to affect the reverse acquisition. The assets, liabilities and dollar amounts attributable to share capital are those of Tyme. Future financial statements will present a continuation of as Tyme’s financial statements with the adjustments described above.
F - 43
Tyme Inc.
(Formerly Tyme Technologies, Inc.)
Pro Forma Combined Consolidated Balance Sheet
As of September 30, 2014
(Unaudited)
| | | | | | | | | | | | | | | | |
| Nine Months | | Nine Months | | | | | | | | |
| Ended | | Ended | | | | | | | | |
| August 31, | | September 30, | | | | | | | | |
| 2014 | | 2014 | | | | | | | Tyme Inc. | |
| Technologies | | Tyme | | | | | | | Pro Forma | |
| (Unaudited) | | (Unaudited) | | Combined | | Adjustments | | | (Unaudited) | |
| | | | | | | | | | (Note 1) | | | | | |
ASSETS | | | | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — | | $ | 289,628 | | $ | 289,628 | | $ | 250,000 | | c | $ | 5,789,628 | |
| | | | | | | | | | | 960,000 | | d | | | |
| | | | | | | | | | | 4,290,000 | | h | | | |
Prepaid assets | | — | | | 118,905 | | | 118,905 | | | — | | | | 118,905 | |
Total current assets | | — | | | 408,533 | | | 408,533 | | | 5,500,000 | | | | 5,908,533 | |
| | | | | | | | | | | | | | | | |
Property and equipment, net | | — | | | 20,503 | | | 20,503 | | | — | | | | 20,503 | |
| | | | | | | | | | | | | | | | |
Total assets | $ | — | | $ | 429,036 | | $ | 429,036 | | $ | 5,500,000 | | | $ | 5,929,036 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | 11,627 | | $ | 347,309 | | $ | 358,936 | | $ | (11,627 | ) | a | $ | 323,187 | |
| | | | | | | | | | | (91,295 | ) | i | | | |
| | | | | | | | | | | 67,173 | | f | | | |
Shareholder advances | | 70,990 | | | — | | | 70,990 | | | (70,990 | ) | a | | — | |
Current maturities of senior secured bridge notes | | — | | | 1,100,000 | | | 1,100,000 | | | 250,000 | | c | | — | |
| | | | | | | | | | | (2,310,000 | ) | i | | | |
| | | | | | | | | | | 960,000 | | d | | | |
Total current liabilities | | 82,617 | | | 1,447,309 | | | 1,529,926 | | | (1,206,739 | ) | | | 323,187 | |
Total liabilities | | 82,617 | | | 1,447,309 | | | 1,529,926 | | | (1,206,739 | ) | | | 323,187 | |
| | | | | | | | | | | | | | | | |
Stockholders’ Deficit: | | | | | | | | | | | | | | | | |
Common stock | | 5,200 | | | 2 | | | 5,202 | | | (5,200 | ) | b | | 7,578 | |
| | | | | | | | | | | 6,798 | | j | | | |
| | | | | | | | | | | 231 | | i | | | |
| | | | | | | | | | | 522 | | h | | | |
| | | | | | | | | | | 25 | | l | | | |
Additional paid-in capital | | 38,300 | | | 2,044,914 | | | 2,083,214 | | | (38,300 | ) | b | | 15,318,633 | |
| | | | | | | | | | | 2,401,064 | | i | | | |
| | | | | | | | | | | (6,798 | ) | j | | | |
| | | | | | | | | | | 6,789,478 | | h | | | |
| | | | | | | | | | | 3,465,000 | | k | | | |
| | | | | | | | | | | 624,975 | | l | | | |
Subscriptions receivable | | — | | | — | | | — | | | (2,500,000 | ) | h | | (2,500,000 | ) |
Accumulated deficit | | (126,117 | ) | | (2,707,424 | ) | | (2,833,541 | ) | | 82,617 | | a | | (7,220,362 | ) |
| | | | | | | | | | | 43,500 | | b | | | |
| | | | | | | | | | | (67,173 | ) | f | | | |
| | | | | | | | | | | (355,765 | ) | e | | | |
| | | | | | | | | | | (3,465,000 | ) | k | | | |
| | | | | | | | | | | (625,000 | ) | l | | | |
Stockholder’s deficiency | | (82,617 | ) | | (662,508 | ) | | (745,125 | ) | | 6,350,974 | | | | 5,605,849 | |
Due from stockholders/members | | — | | | (355,765 | ) | | (355,765 | ) | | 355,765 | | e | | — | |
Total stockholders’ deficit | | (82,617 | ) | | (1,018,273 | ) | | (1,100,890 | ) | | 6,706,739 | | | | 5,605,849 | |
| | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ deficit | $ | — | | $ | 429,036 | | $ | 429,036 | | $ | 5,500,000 | | | $ | 5,929,036 | |
F - 44
Tyme Inc.
(Formerly Tyme Technologies, Inc.)
Pro Forma Combined Consolidated Statement of Operations
As of November 30, 2014 and December 31, 2013
(Audited)
| | | | | | | | | | | | | | | | |
| Year Ended | | Year Ended | | | | | | | | |
| November 30, | | December 31, | | | | | | | Tyme Inc. | |
| 2014 | | 2013 | | | | | | | Pro Forma | |
| Technologies | | Tyme | | Combined | | Adjustments | | | (Unaudited) | |
| | | | | | | (Note 1) | | | | |
Revenue | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Research and development | | — | | | 744,717 | | | 744,717 | | | | | | | 744,717 | |
General and administrative | | 14,653 | | | 307,100 | | | 321,753 | | | 141,472 | | e | | 1,302,518 | |
| | | | | | | | | | | 214,293 | | e | | | |
| | | | | | | | | | | 625,000 | | l | | | |
Professional fees | | 39,260 | | | — | | | 39,260 | | | — | | | | 39,260 | |
Total operating expenses | | 53,913 | | | 1,051,817 | | | 1,105,730 | | | 980,765 | | | | 2,086,495 | |
Loss from operations | | (53,913 | ) | | (1,051,817 | ) | | (1,105,730 | ) | | (980,765 | ) | | | (2,086,495 | ) |
| | | | | | | | | | | | | | | | |
Interest expense | | — | | | 5,855 | | | 5,855 | | | 67,173 | | f | | 3,538,028 | |
| | | | | | | | | | | 3,465,000 | | k | | | |
Loss before income taxes | | (53,913 | ) | | (1,057,672 | ) | | (1,111,585 | ) | | (4,512,938 | ) | | | (5,624,523 | ) |
| | | | | | | | | | | | | | | | |
Provision for income taxes | | — | | | — | | | — | | | | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | (53,913 | ) | | (1,057,672 | ) | | (1,111,585 | ) | | (4,512,938 | ) | | | (5,624,523 | ) |
| | | | | | | | | | | | | | | | |
Loss attributable to noncontrolling interests | | — | | | (285,847 | ) | | (285,847 | ) | | 285,847 | | g | | — | |
| | | | | | | | | | | | | | | | |
Loss attributable to controlling interests | $ | (53,913 | ) | $ | (771,825 | ) | $ | (825,738 | ) | $ | (4,798,785 | ) | | $ | (5,624,523 | ) |
| | | | | | | | | | | | | | | | |
Basic earnings (loss) per common share | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | | | | | $ | (0.07 | ) |
| | | | | | | | | | | | | | | | |
Diluted earnings (loss) per common share | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | | | | | $ | (0.07 | ) |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | | | | |
Basic | | 12,724,000 | * | | 68,000,000 | | | 80,724,000 | | | 5,276,000 | ** | | | 86,000,000 | |
Diluted | | 12,724,000 | * | | 68,000,000 | | | 80,724,000 | | | 5,276,000 | ** | | | 86,000,000 | |
* The shares reflected have been adjusted to the capital structure of Technologies in anticipation of the Merger.
** The shares indicated are the shares issued in conjunction with the pro forma adjustments reflected above.
F - 45
Tyme Inc.
(Formerly Tyme Technologies, Inc.)
Pro Forma Combined Consolidated Statement of Operations
As of August 31, 2014 and September 30, 2014
(Unaudited)
| | | | | | | | | | | | | | | | |
| Nine Months | | Nine Months | | | | | | | | |
| Ended | | Ended | | | | | | | | |
| August 31, | | September 30, | | | | | | | Tyme Inc. | |
| 2014 | | 2014 | | | | | | | Pro Forma | |
| Technologies | | Tyme | | Combined | | Adjustments | | | (Unaudited) | |
| | | | | | | (Note 1) | | | | |
Revenue | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Research and development | | — | | | 431,274 | | | 431,274 | | | | | | | 431,274 | |
General and administrative | | 8,659 | | | 719,851 | | | 728,510 | | | 141,472 | | e | | 1,709,275 | |
| | | | | | | | | | | 214,293 | | e | | | |
| | | | | | | | | | | 625,000 | | l | | | |
Professional fees | | 31,343 | | | — | | | 31,343 | | | | | | | 31,343 | |
Total operating expenses | | 40,002 | | | 1,151,125 | | | 1,191,127 | | | 980,765 | | | | 2,171,892 | |
Loss from operations | | (40,002 | ) | | (1,151,125 | ) | | (1,191,127 | ) | | (980,765 | ) | | | (2,171,892 | ) |
| | | | | | | | | | | | | | | | |
Interest expense | | — | | | 44,509 | | | 44,509 | | | 67,173 | | f | | 3,576,682 | |
| | | | | | | | | | | 3,465,000 | | k | | | |
Loss before income taxes | | (40,002 | ) | | (1,195,634 | ) | | (1,235,636 | ) | | (4,512,938 | ) | | | (5,748,574 | ) |
| | | | | | | | | | | | | | | | |
Provision for income taxes | | — | | | — | | | — | | | | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | (40,002 | ) | | (1,195,634 | ) | | (1,235,636 | ) | | (4,512,938 | ) | | | (5,748,574 | ) |
| | | | | | | | | | | | | | | | |
Loss attributable to noncontrolling interests | | — | | | (10,956 | ) | | (10,956 | ) | | 10,956 | | g | | — | |
| | | | | | | | | | | | | | | | |
Loss attributable to controlling interests | $ | (40,002 | ) | $ | (1,184,678 | ) | $ | (1,224,680 | ) | $ | (4,523,894 | ) | | $ | (5,748,574 | ) |
| | | | | | | | | | | | | | | | |
Basic earnings (loss) per common share | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.02 | ) | | | | | $ | (0.07 | ) |
| | | | | | | | | | | | | | | | |
Diluted earnings (loss) per common share | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.02 | ) | | | | | $ | (0.07 | ) |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | | | | |
Basic | | 12,724,000 | * | | 68,000,000 | | | 80,724,000 | | | 5,276,000 | ** | | | 86,000,000 | |
Diluted | | 12,724,000 | * | | 68,000,000 | | | 80,724,000 | | | 5,276,000 | ** | | | 86,000,000 | |
* The shares reflected have been adjusted to the capital structure of Technologies in anticipation of the Merger.
** The shares indicated are the shares issued in conjunction with the pro forma adjustments reflected above.
F - 46
NOTES TO PRO FORMA FINANCIAL INFORMATION
1. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
The unaudited pro forma financial statements incorporate the following pro forma assumptions and adjustments:
| | |
| a. | Outstanding liabilities of Technologies have been assumed by certain stockholders of Technologies in a separate transaction in contemplation of the reverse merger with Tyme. |
| | |
| b. | Technologies historic deficit, common stock and additional paid in capital, after the adjustment for the assumption of outstanding liabilities by certain stockholders of Technologies, have been eliminated. |
| | |
| c. | On November 24, 2014, the Company received an additional $250,000 under an amendment to the Bridge Note. |
| | |
| d. | On January 15, 2015, the Company received an additional $960,000 under an amendment to the Bridge Note. |
| | |
| e. | Tyme’s amounts due from shareholders/members were distributed as compensation to such shareholders on February 27, 2015 and therefore have been reclassified. |
| | |
| f. | Additional interest relating to Bridge Note from October 1, 2014 through March 5, 2015 has been recorded as the Bridge Note was converted at the time of the Merger. |
| | |
| g. | Tyme acquired the noncontrolling interest in its subsidiary in May 2014 therefore all amounts related to noncontrolling interest have been eliminated. |
| | |
| h. | Contemporaneous with the closing of the Merger, Technologies completed a private placement of 2.716 million shares of common stock for gross proceeds of $6.79 million of which, $4.29 million was tendered in cash and the remaining subscription price will be paid by the delivery of a three-month promissory note in the principal amount of $2.5 million. The 2.716 million shares have been recorded at the $.0001 par value per share of Technologies common stock. |
| | |
| i. | Contemporaneous with the closing of the Merger, the Bridge Note converted to shares of common stock at a fixed conversion of one share of Technologies common stock for each $1.00 of principal of the Bridge Note outstanding as of the date of the conversion. All accrued interested, which in the event of conversion is not due or payable was converted to additional paid in capital for no additional share issuance. |
| | |
| j. | The 68,000,000 shares of common stock of Technologies issued to the shareholders of Tyme in exchange for the 2,000 shares of Tyme’s common stock outstanding at the date of the merger have been recorded at the $0.0001 par value per share of Technologies common stock. |
| | |
| k. | The $3.465 million represents the incremental value of the modification to the Bridge Note conversion rate as an inducement to convert the Bridge Note. |
| | |
| l. | Pursuant to a separate consulting agreement included in the merger agreement, 250,000 shares of Technologies’ common stock were issued to the consultant as part of its compensation under such consulting agreement. The fair value of the shares issued ($625,000) has been recorded as an operating expense with a corresponding offset to common stock and additional paid in capital. |
2. EARNINGS (LOSS) PER SHARE
Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible notes payable, which would result in the issuance or vesting of incremental shares of common stock. In computing the basic and diluted net loss per share, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation.
The unaudited pro forma net loss per share is computed using the weighted average number of shares of common stock outstanding after giving effect to the conversion of convertible notes, the issuance of shares sold in the PPO and shares issued in conjunction with a consulting agreement resulting in an aggregate of 86,000,000 shares of common stock, as if they had occurred at the beginning of the period.
F - 47
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA INFORMATION
On March 5, 2015, Tyme Inc., a Delaware corporation (“Tyme”), entered into and consummated the transaction contemplated by an Agreement and Plan of Merger (The “Merger Agreement”) with Tyme Technologies Inc., a Delaware corporation formerly known as Global Group Enterprises Corp. (“Technologies”), pursuant to which, among other matters, a newly formed subsidiary of Technologies merged with and into Tyme and Tyme’s former stockholders exchanged their equity interests in Tyme for approximately 79% of the equity interests in Technologies immediately following consummation of the merger and the other transactions contemplated by the Merger Agreement.
For accounting purposes the acquisition of Tyme by Technologies was considered a reverse acquisition, an acquisition transaction where the acquired company, Tyme, is considered the acquirer for accounting purposes, notwithstanding the form of the transaction. The primary reason the transaction was treated as a purchase by Tyme rather than a purchase of Tyme by Technologies was because Technologies was a shell company and the change in control of Technologies resulting from the merger transaction.
Consequently, reverse acquisition accounting was applied to the transaction. No additional goodwill or intangible assets were recognized on completion of the transaction. The capital structure, including the number and type of shares issued, appearing in the consolidated balance sheet reflects that of the legal parent, Technologies including the shares issued to affect the reverse acquisition. The assets, liabilities and dollar amounts attributable to share capital are those of Tyme. Future financial statements will present a continuation of Tyme’s financial statements with the appropriate adjustments.
The unaudited pro forma combined consolidated statement of operations of Tyme has been prepared by management after giving effect to the reverse merger transaction between Tyme and Technologies. The unaudited pro forma combined consolidated balance sheet has been presented as of December 31, 2014 and gives effect to the transaction as if it occurred on that date.
The unaudited pro forma combined consolidated balance sheet has been constructed from the audited balance sheet of Tyme as of December 31, 2014 prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and the audited balance sheet of Technologies as of November 30, 2014 prepared in accordance with U.S. GAAP.
The unaudited pro forma combined consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Tyme as of and for the year ended December 31, 2014 and the audited financial statements of Technologies for the year ended November 30, 2014.
The unaudited pro forma combined consolidated financial statements are prepared for illustrative purposes only and, are not necessarily indicative of the actual financial position and result of operations that would have been for the periods presented, nor do such financial statements purport to represent the result of future periods. The pro forma adjustments are based upon available information.
It is management’s opinion that these pro forma financial statements include all known adjustments necessary for the fair presentation, in all material respects, of the transaction described above in accordance with U.S. GAAP applied on a consistent basis with the Company’s accounting policies. At the time of the preparation of the pro forma financial statements, management has not completed its assessment of certain embedded features related to price protection and registration rights as contemplated in the merger agreement and therefore has not included pro forma adjustment(s) that may be required as a result of that analysis. No potential cost savings, non-recurring charges, or credits are anticipated by the Company’s management subsequent to completion of the transaction.
F - 48
Tyme Inc.
(Formerly Tyme Technologies, Inc.)
Pro Forma Combined Consolidated Balance Sheet
As of November 30, 2014 and December 31, 2014
(Audited)
| | | | | | | | | | | | | | | | |
| November 30, | | December 31, | | | | | | | | | Tyme Inc | |
| 2014 | | 2014 | | | | | | | | | Pro Forma | |
| Technologies | | Tyme | | Combined | | Adjustments | | | (Unaudited) | |
| | | | | | | | | | (Note 1) | | | | | |
ASSETS | | | | | | | | | | | | | | | | |
Current Assets: | | | | | | | | | | | | | | | | |
Cash | $ | — | | $ | 9,724 | | $ | 9,724 | | $ | 960,000 | | c | $ | 5,259,724 | |
| | | | | | | | | | | 4,290,000 | | g | | | |
Prepaid and other current assets | | — | | | 140,205 | | | 140,205 | | | — | | | | 140,205 | |
Total current assets | | — | | | 149,929 | | | 149,929 | | | 5,250,000 | | | | 5,399,929 | |
| | | | | | | | | | | | | | | | |
Property and equipment, net | | — | | | 17,170 | | | 17,170 | | | — | | | | 17,170 | |
| | | | | | | | | | | | | | | | |
Total assets | $ | — | | $ | 167,099 | | $ | 167,099 | | $ | 5,250,000 | | | $ | 5,417,099 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | | | | | | | | | |
Current Liabilities: | | | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | $ | 7,357 | | $ | 1,290,415 | | $ | 1,297,772 | | $ | (7,357 | ) | a | $ | 1,234,242 | |
| | | | | | | | | | | (93,807 | ) | h | | | |
| | | | | | | | | | | 37,634 | | e | | | |
Shareholder advances | | 89,171 | | | — | | | 89,171 | | | (89,171 | ) | a | | — | |
Current maturities of convertible notes | | — | | | — | | | — | | | — | | | | — | |
Current maturities of convertible senior secured bridge notes | | — | | | 1,350,000 | | | 1,350,000 | | | (2,310,000 | ) | h | | — | |
| | | | | | | | | | | 960,000 | | c | | | |
Total current liabilities | | 96,528 | | | 2,640,415 | | | 2,736,943 | | | (1,502,701 | ) | | | 1,234,242 | |
Total liabilities | | 96,528 | | | 2,640,415 | | | 2,736,943 | | | (1,502,701 | ) | | | 1,234,242 | |
| | | | | | | | | | | | | | | | |
Stockholders’ deficit: | | | | | | | | | | | | | | | | |
Common stock, $0.001 par value; 1,000,000 shares authorized; 2,100 shares issued and 2,000 shares outstanding at December 31, 2014 and 2,000 shares issued and outstanding at December 31, 2013, respectively. | | 5,200 | | | 2 | | | 5,202 | | | (5,200 | ) | b | | 7,587 | |
| | | | | | | | | | 6,798 | | i | | | |
| | | | | | | | | | 240 | | h | | | |
| | | | | | | | | | 522 | | g | | | |
| | | | | | | | | | 25 | | k | | | |
Additional paid-in capital | | 38,300 | | | 2,055,020 | | | 2,093,320 | | | (38,300 | ) | b | | 15,331,242 | |
| | | | | | | | | | | 2,403,567 | | h | | | |
| | | | | | | | | | | (6,798 | ) | i | | | |
| | | | | | | | | | | 6,789,478 | | g | | | |
| | | | | | | | | | | 3,465,000 | | j | | | |
| | | | | | | | | | | 624,975 | | k | | | |
Subscriptions receivable | | — | | | — | | | — | | | (2,500,000 | ) | g | | (2,500,000 | ) |
Accumulated deficit | | (140,028 | ) | | (4,172,572 | ) | | (4,312,600 | ) | | 96,528 | | a | | (8,655,972 | ) |
| | | | | | | | | | | 43,500 | | b | | | |
| | | | | | | | | | | (37,634 | ) | e | | | |
| | | | | | | | | | | (355,766 | ) | d | | | |
| | | | | | | | | | | (3,465,000 | ) | j | | | |
| | | | | | | | | | | (625,000 | ) | k | | | |
Stockholders’ deficiency | | (96,528 | ) | | (2,117,550 | ) | | (2,214,078 | ) | | 6,396,935 | | | | 4,182,857 | |
Due from stockholders/members | | — | | | (355,766 | ) | | (355,766 | ) | | 355,766 | | d | | — | |
Total stockholders’ deficit | | (96,528 | ) | | (2,473,316 | ) | | (2,569,844 | ) | | 6,752,701 | | | | 4,182,857 | |
| | | | | | | | | | | | | | | | |
Total liabilities and stockholders’ deficit | $ | — | | $ | 167,099 | | $ | 167,099 | | $ | 5,250,000 | | | $ | 5,417,099 | |
F - 49
Tyme Inc.
(Formerly Tyme Technologies, Inc.)
Pro Forma Combined Consolidated Statement of Operations
As of November 30, 2014 and December 31, 2014
(Audited)
| | | | | | | | | | | | | | | | |
| Year Ended | | Year Ended | | | | | | | | | | | |
| November 30, | | December 31, | | | | | | | | | Tyme Inc | |
| 2014 | | 2014 | | | | | | | | | Pro Forma | |
| Technologies | | Tyme | | Combined | | Adjustments | | | (Unaudited) | |
| | | | | | | | | | (Note 1) | | | | | |
Revenue | $ | — | | $ | — | | $ | — | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | |
Research and development | | — | | | 761,359 | | | 761,359 | | | | | | | 761,359 | |
General and administrative | | 14,653 | | | 1,822,757 | | | 1,837,410 | | | 141,472 | | d | | 2,818,176 | |
| | | | | | | | | | | 214,294 | | d | | | |
| | | | | | | | | | | 625,000 | | k | | | |
Professional fees | | 39,260 | | | — | | | 39,260 | | | — | | | | 39,260 | |
Total operating expenses | | 53,913 | | | 2,584,116 | | | 2,638,029 | | | 980,766 | | | | 3,618,795 | |
Loss from operations | | (53,913 | ) | | (2,584,116 | ) | | (2,638,029 | ) | | (980,766 | ) | | | (3,618,795 | ) |
| | | | | | | | | | | | | | | | |
Interest expense | | — | | | 76,561 | | | 76,561 | | | 37,634 | | e | | 3,579,195 | |
| | | | | | | | | | | 3,465,000 | | j | | | |
Loss before income taxes | | (53,913 | ) | | (2,660,677 | ) | | (2,714,590 | ) | | (4,483,400 | ) | | | (7,197,990 | ) |
| | | | | | | | | | | | | | | | |
Provision for income taxes | | — | | | — | | | — | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss before noncontrolling interests | | (53,913 | ) | | (2,660,677 | ) | | (2,714,590 | ) | | (4,483,400 | ) | | | (7,197,990 | ) |
| | | | | | | | | | | | | | | | |
Loss attributable to noncontrolling interests - prior to acquisition of minority interests | | — | | | (10,851 | ) | | (10,851 | ) | | 10,851 | | f | | — | |
| | | | | | | | | | | | | | | | |
Net loss | $ | (53,913 | ) | $ | (2,649,826 | ) | $ | (2,703,739 | ) | $ | (4,494,251 | ) | | $ | (7,197,990 | ) |
| | | | | | | | | | | | | | | | |
Basic earnings (loss) per common share | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.03 | ) | | | | | $ | (0.08 | ) |
| | | | | | | | | | | | | | | | |
Diluted earnings (loss) per common share | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.03 | ) | | | | | $ | (0.08 | ) |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | | | | |
Basic | | 12,724,000 | * | | 68,000,000 | | | 80,724,000.00 | | | 5,276,000 | ** | | | 86,000,000 | |
Diluted | | 12,724,000 | * | | 68,000,000 | | | 80,724,000.00 | | | 5,276,000 | ** | | | 86,000,000 | |
* The shares reflected have been adjusted to the capital structure of Technologies in anticipation of the Merger.
** The shares indicated are the shares issued in conjunction with the pro forma adjustments reflected above.
F - 50
1. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
The unaudited pro forma financial statements incorporate the following pro forma assumptions and adjustments:
| | |
| a. | Outstanding liabilities of Technologies have been assumed by certain stockholders of Technologies in a separate transaction in contemplation of the reverse merger with Tyme. |
| | |
| b. | Technologies historic deficit, common stock and additional paid in capital, after the adjustment for the assumption of outstanding liabilities by certain stockholders of Technologies, have been eliminated. |
| | |
| c. | On January 15, 2015, the Company received an additional $960,000 under an amendment to the Bridge Note. |
| | |
| d. | Tyme’s amounts due from shareholders/members were distributed as compensation to such shareholders on February 25, 2015 and therefore have been reclassified. |
| | |
| e. | Additional interest relating to Bridge Note from January 1, 2015 through March 4, 2015 [date of conversion was March 5, 2015] has been recorded as the Bridge Note was converted at the time of the Merger. |
| | |
| f. | Tyme acquired the noncontrolling interest in its subsidiary in May 2014. Therefore, all amounts related to noncontrolling interest have been eliminated. |
| | |
| g. | Contemporaneous with the closing of the Merger, Technologies completed a private placement of 2.716 million shares of common stock for gross proceeds of $6.79 million, of which, $4.29 million was tendered in cash and the remaining subscription price was paid by the delivery of a three-month promissory note in the principal amount of $2.5 million. The 2.716 million shares have been recorded at the $.0001 par value per share of Technologies common stock sold at $2.50 per share. |
| | |
| h. | Contemporaneous with the closing of the Merger, the Bridge Note converted to shares of common stock at a fixed conversion of one share of Technologies common stock for each $1.00 of principal of the Bridge Note outstanding as of the date of the conversion. All accrued interested, which in the event of conversion is not due or payable, was converted to additional paid in capital for no additional share issuance. |
| | |
| i. | The 68,000,000 shares of common stock of Technologies issued to the shareholders of Tyme in exchange for the 2,000 shares of Tyme’s common stock outstanding at the date of the merger have been recorded at the $0.0001 par value per share of Technologies common stock. |
| | |
| j. | The $3.465 million represents the incremental value of the modification to the Bridge Note conversion rate as an inducement to convert the Bridge Note. |
| | |
| k. | Pursuant to a separate consulting agreement contemplated by the Merger Agreement, 250,000 shares of Technologies common stock were issued to the consultant as part of its compensation under such consulting agreement. The fair value of the shares issued ($625,000) has been recorded as an operating expense with a corresponding offset to common stock and additional paid in capital. |
2. EARNINGS (LOSS) PER SHARE
Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible notes payable, which would result in the issuance or vesting of incremental shares of common stock. In computing the basic and diluted net loss per share, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation.
The unaudited pro forma net loss per share is computed using the weighted average number of shares of common stock outstanding after giving effect to the conversion of convertible notes, the issuance of shares sold in the PPO and shares issued pursuant to the consulting agreement resulting, in an aggregate of 86,000,000 shares of common stock, as if they had occurred at the beginning of the period.
F - 51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
| | |
| Tyme Technologies, Inc. |
| | |
Dated: April 15, 2015 | By: | /s/ Steve Hoffman |
| | Steve Hoffman, Chief Executive Officer |
