As filed with the Securities and Exchange Commission on November 19 , 2018
Registration No. 333- 228285
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2001
REGISTRATION NO. 333-54208
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
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AMENDMENT NO.
Amendment No. 1 TO
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STEMCELLS,
MICROBOT MEDICAL INC.
(Exact name
(Exact Name of registrantRegistrant as specifiedSpecified in its charter)
Its Charter)
Delaware (State or | 2836 (Primary Standard Industrial | 94-3078125 (I.R.S. Employer |
25 Recreation Park Drive, Unit 108
Hingham, MA 02043
(781) 875-3605
(Address, Including Zip Code, and telephone number, including area code, Telephone Number, Including Area Code,
of Registrant's principal executive offices)
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IRIS BREST, ESQ.
STEMCELLS, INC.
525 DEL REY AVENUE, SUITE C
SUNNYVALE, CA 94085
(408)731-8670
(Name, address, including zip code,Registrant’s Principal Executive Offices)
Harel Gadot
President, Chief Executive Officer, Chairman
25 Recreation Park Drive, Unit 108
Hingham, MA 02043
(781) 875-3605
(Name, Address, Including Zip Code, and telephone number, including area code,Telephone Number, Including Area Code, of agentAgent for service)
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COPIES TO:
GEOFFREY B. DAVIS, ESQ.
Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
(617) 951-7050 (fax)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:Service)
Copies to:
Marc D. Mantell, Esq. and Popeo, P.C. | Stephen E. Fox, Esq. Ruskin Moscou Faltischek PC 1425 RXR Plaza 15thFloor, East Tower Uniondale, New York 11556 (516) 663-6600 | Steven Skolnick, Esq. Michael Lerner, Esq. Lowenstein Sandler LLP 1251 Avenue of the Americas New York, NY 10020 (212) 262-6700 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement becomes effective.
registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box. /X/
☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form☐
Indicate by check mark whether the registrant is a post-effective amendment filedlarge accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”).
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Rule 462(d)
underSection 7(a)(2)(B) of the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered(1) | Proposed Maximum Aggregate Offering Price(2)(3) | Amount of Registration Fee(3) | ||||||
| Common Stock, par value $0.01 per share | $ | 23,000,000 | $ | 2,787.60 | ||||
| Pre-funded warrants to purchase shares of common stock and common stock issuable upon exercise thereof | — | — | ||||||
| Underwriter ’s warrants to purchase shares of common stock issuable upon exercise thereof(4) | $ | 1,437,500 | $ | 174.23 | ||||
| Total | $ | 24,437,500 | $ | 2,961.83 | (5) | |||
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the purposeRegistrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. The maximum price
per share information is based1933, as amended, or until the registration statement shall become effective on such date as the average of the highSecurities and low sale
prices on the Nasdaq National Market on January 22, 2001.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTIONExchange Commission, acting pursuant to said Section 8(a), MAY DETERMINE.
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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS JANUARY 31, 2001
STEMCELLS, INC.
SHARES OF COMMON STOCK
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The selling stockholders listed on page 44SUBJECT TO COMPLETION, DATED NOVEMBER 19, 2018
5,865,102Shares of this prospectus or in an
accompanying supplementCommon Stock
5,865,102Pre-Funded Warrants to this prospectusPurchase Shares of Common Stock
We are offering to sell 65,0005,865,102 shares of our common stock.
We are also offering to certain purchasers whose purchase of shares of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to purchase, if any such purchaser so chooses, pre-funded warrants, in lieu of shares of common stock that would otherwise result in such purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock. The purchase price of each pre-funded warrant will be equal to the price per share at which shares of common stock are sold to the public in this offering, minus $0.01, and the exercise price of each pre-funded warrant will be $0.01 per share. This offering also relates to the shares of common stock issuable upon exercise of any pre-funded warrants sold in this offering. The pre-funded warrants will be exercisable immediately and may be exercised at any time until all of the pre-funded warrants are exercised in full. For each pre-funded warrant we sell, the number of shares of common stock we are offering will be decreased on a one-for-one basis.
Our common stock is tradedlisted on theThe Nasdaq NationalCapital Market under the symbol "STEM."
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THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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“MBOT.” On November 16 , 2018, the last reported sale price of our common stock on The Nasdaq Capital Market was $ 3.41 per share. The public offering price per share and any pre-funded warrant will be determined between us and the underwriter at the time of pricing, and may be at a discount to the current market price. There is no established public trading market for the pre-funded warrants and the Underwriter’s Warrants, and we do not expect a market to develop. In addition, we do not intend to apply for a listing of the pre-funded warrants and the Underwriter’s Warrants on any national securities exchange or other nationally recognized trading system.
Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 7 of this prospectus and in the documents incorporated by reference into this prospectus for a discussion of risks that should be considered in connection with an investment in our securities.
| Per Share | Per Pre-Funded Warrant | Total | ||||||||||
| Public offering price | $ | $ | $ | |||||||||
| Underwriting discounts and commissions(1) | $ | $ | $ | |||||||||
| Proceeds, before expenses, to us | $ | $ | $ | |||||||||
| (1) | See “Underwriting” beginning on page 20 of this prospectus for a description of compensation and reimbursement of expenses payable to the underwriter. |
The offering is being underwritten on a firm commitment basis. We have granted the underwriter an option for a period of 30 days from the date of this prospectus to purchase up to an additional 879,765 shares of our common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any. If the underwriter exercises this option in full, the total underwriting discounts and commissions payable by us will be $ , and the total proceeds to us, before expenses, will be $ .
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined ifpassed upon the adequacy or accuracy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.
Delivery of the shares of common stock and any pre-funded warrants to purchasers is expected on or about , 2018, subject to certain customary closing conditions.
Sole Book-Running Manager
H.C. Wainwright & Co.
The date of this prospectus is , 2018
TABLE OF CONTENTS
| Page | |
| PROSPECTUS SUMMARY | 1 |
| RISK FACTORS | 7 |
| SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | 11 |
| USE OF PROCEEDS | 12 |
| PRICE RANGE OF OUR COMMON STOCK | 13 |
| DIVIDEND POLICY | 14 |
| DILUTION | 15 |
| PRINCIPAL STOCKHOLDERS | 16 |
| DESCRIPTION OF CAPITAL STOCK | 17 |
| DESCRIPTION OF SECURITIES WE ARE OFFERING | 19 |
| UNDERWRITING | 20 |
| LEGAL MATTERS | 25 |
| EXPERTS | 25 |
| WHERE YOU CAN FIND ADDITIONAL INFORMATION | 25 |
| INCORPORATION OF CERTAIN INFORMATION BY REFERENCE | 25 |
| FINANCIAL STATEMENTS | F-1 |
We have not, and the underwriter has not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable, authorized free writing prospectus is current only as of its date, and any information in documents incorporated by reference is current only as of the date of the document incorporated by reference, regardless of its time of delivery or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: We have not, and the underwriter has not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States.
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION REGARDING OUR BUSINESS AND
THIS OFFERING. BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS AND RELATED
NOTES, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
STEMCELLS, INC.
We are engaged
This summary highlights information contained in other parts of this prospectus or information incorporated by reference into this prospectus from our filings with the Securities and Exchange Commission, or SEC, listed in the section of the prospectus entitled “Incorporation of Certain Information by Reference.” Because it is only a summary, it does not contain all of the information that you should consider before purchasing our securities in this offering and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere or incorporated by reference into this prospectus. You should read the entire prospectus, the registration statement of which this prospectus is a part, and the information incorporated by reference herein in their entirety, including the “Risk Factors” and our financial statements and the related notes incorporated by reference into this prospectus, before purchasing our securities in this offering. Unless the context requires otherwise, references in this prospectus to “Microbot,” “we,” “us” and “our” refer to Microbot Medical Inc. together with its wholly owned subsidiaries.
Overview
Our Company
Microbot is a pre-clinical medical device company specializing in the research, design and development effortsof next generation robotic endoluminal surgery devices targeting the minimally invasive surgery space. Microbot is primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes for patients.
Microbot’s current technological platforms, ViRobTM, CardioSertTM and TipCATTM , are comprised of proprietary innovative technologies. Using the ViRob platform, Microbot is currently developing its first product candidate: the Self Cleaning Shunt, or SCSTM, for the treatment of hydrocephalus and Normal Pressure Hydrocephalus, or NPH. Although the SCS utilizes one of our platforms, we are focused on the identification, isolationdevelopment of a Multi Generation Pipeline Portfolio utilizing all three of our proprietary technologies.
Microbot has a patent portfolio of 25 issued/allowed patents and expansion of stem cells15 patent applications pending worldwide.
Technological Platforms
ViRob
The ViRob is an autonomous crawling micro-robot which can be controlled remotely or within the body. Its miniature dimensions are expected to allow it to navigate and crawl in different natural spaces within the human body, including blood vessels, the digestive tract and the respiratory system as well as artificial spaces such as shunts, catheters, ports, etc. Its unique structure is expected to give it the ability to move in tight spaces and curved passages as well as the underlyingability to remain within the human body for prolonged time. The SCS product was developed using the ViRob technology.
CardioSert
On May 25, 2018, Microbot acquired a patent-protected technology from CardioSert Ltd., a privately-held medical device company based in Israel. The CardioSertTMtechnology contemplates a combination of a guidewire and microcatheter, technologies that are broadly used for developingsurgery within a tubular organ or structure such as a blood vessel or duct. The CardioSertTM technology features a unique guidewire delivery system with steering and stiffness control capabilities which when developed is expected to give the physician the ability to control the tip curvature, to adjust tip load to varying degrees of stiffness in a gradually continuous manner. The CardioSertTMtechnology was originally developed to support interventional cardiologists in crossing chronic total occlusions (CTO) during percutaneous coronary intervention (PCI) procedures and has the potential cell transplant therapies. Stem cells are
key cellsto be used in other spaces and applications, such as peripheral intervention, and neurosurgery. CardioSertTM was part of a technological incubator supported by the Israel Innovation Authorities (formerly known as the Office of the Chief Scientist, or OCS), and a device based on the technology has successfully completed pre-clinical testing.
TipCAT
The TipCAT is a disposable self-propelled locomotive device that is specially designed to advance in tubular anatomies. The TipCAT is a mechanism comprising a series of interconnected balloons at the device’s tip that provides the TipCAT with its forward locomotion capability. The device can self-propel within natural tubular lumens such as the blood vessels, respiratory and the urinary and GI tracts. A single channel of air/fluid supply sequentially inflates and deflates a series of balloons creating an inchworm like forward motion. The TipCAT maintains a standard working channel for treatments. Unlike standard access devices such as guidewires, catheters for vascular access and endoscopes, the TipCAT does not need to be pushed into the patient’s lumen using external pressure; rather, it will gently advance itself through the organ’s anatomy. As a result, the TipCAT is designed to be able to reach every part of the lumen under examination regardless of the topography, be less operator dependent, and greatly reduce the likelihood of damage to lumen structure. The TipCAT thus offers functionality features equivalent to modern tubular access devices, along with advantages associated with its physiologically adapted self-propelling mechanism, flexibility, and design.
Industry Overview
CSF Management
Hydrocephalus is a medical condition in which there is an abnormal accumulation of cerebrospinal fluid, or CSF, in the bodybrain that produce allcan cause increased intracranial pressure. It is estimated that one in every 500 babies are born with hydrocephalus, and over 1,000,000 people in the United States currently live with hydrocephalus.
Symptoms of hydrocephalus vary with age, disease progression and individual tolerance to the condition, but they can include convulsion, tunnel vision, mental disability or dementia-like symptoms and even death. NPH is a type of hydrocephalus that usually occurs in older adults. NPH is generally treated as distinct from other types of hydrocephalus because it develops slowly over time. In NPH, the drainage of CSF is blocked gradually and the excess fluid builds up slowly. This slow accumulation means that the fluid pressure may not be as high as in other types of hydrocephalus. It is estimated that more than 700,000 Americans have NPH, but less than 20% receive an appropriate diagnosis.
Hydrocephalus is most often treated by the surgical insertion of a shunt system. The shunt system diverts the flow of CSF from the brain’s ventricles (or the lumbar subarachnoid space) to another part of the functional mature cell types foundbody where the fluid can be more readily absorbed. Hydrocephalus shunt designs have changed little since their introduction in normal, healthy individuals. Our goalthe 1950s. A shunt system typically consists of three parts: the distal tubing or shunt (a flexible and sturdy plastic tube), the ventricular catheter (the proximal catheter), and a valve. The end of the shunt system with the proximal catheter is placed in the ventricles (within the CSF) and the distal catheter is placed in the site of the body where the CSF can be drained. A valve is located along the shunt to develop therapiesmaintain and regulate the rate of CSF flow. Current systems can be created from separate components or bought as complete units.
The treatment of hydrocephalus with existing shunt systems often includes complications. For example, approximately 50% of shunts used in the pediatric population fail within two years of placement and repeated neurosurgical operations are often required. Ventricular catheter blockage, or occlusion, is by far the most frequent event that will use
stemresults in shunt failure. Shunt occlusion occurs when there is a partial or complete blockage of the shunt that causes it to function intermittently or not at all. Such a shunt blockage can be caused by the accumulation of blood cells, tissue, or bacteria in any part of the shunt system. In the event of shunt occlusion, CSF begins to repopulateaccumulate in the brain or repair tissues,lumbar region again and the symptoms of untreated hydrocephalus can reappear until a shunt replacement surgery is performed.
Although several companies are active in the field of hydrocephalus treatment and the manufacturing of shunt systems and shunt components, Microbot believes that the majority of those companies are focusing on the development of valves. The development of a “smart shunt” – a shunt that could provide data to the physician on patient conditions and shunt function with sensor-based controls, or correct the high failure rate of existing shunt systems – is for the most part at an academic and conceptual level only. Reports of smart shunt technologies are typically focused on a subset of components with remaining factors left unspecified, such as thosehardware, control algorithms or power management. Microbot does not believe that a smart shunt that can prevent functional failures has been developed to date. Because of the limited innovation in this area, Microbot believes an opportunity exists to provide patients suffering from hydrocephalus or NPH with a more effective instrument for treating their condition.
An alternative, short-term solution to hydrocephalus is the implantation of an External Ventricular Drainage, or EVD, an implanted device used in neurosurgery for the short-term treatment and monitoring of elevated intracranial pressure when the normal flow of CSF inside the brain pancreas
or liver, that have been damaged or lostis obstructed. If after using an EVD, the underlying hydrocephalus does not eventually resolve, the EVD may then be converted to a cerebral shunt, a fully internalized, long-term treatment for hydrocephalus.
EVDs are also used in other instances when the normal flow of CSF inside the brain is obstructed, such as a result of disease or injury. Allhead trauma, intracerebral hemorrhage, brain tumors and infection. The EVD serves to divert excess fluids from the brain and allows for the monitoring of our programs are currently at the discovery or pre-clinical stage.
Many diseases,intracranial pressure. An EVD must be placed in a center with full neurosurgical capabilities because immediate neurosurgical intervention may be needed if a complication of EVD placement, such as Alzheimer's, Parkinson's and other degenerative
diseasesbleeding, is encountered. EVD is one of the brain or nervous system, involvemost commonly used and most important life-saving procedures in the failure of organs that
cannot be transplanted. Other diseases,neurologic ICU, with more than 200,000 neuro-intensive patients requiring EVD insertions annually.
Similar to shunts, EVDs are also prone to occlusion, mostly due to cellular debris, such as hepatitisblood clots and/or tissue fragments. Studies have shown that approximately 1-7% of EVDs require replacement secondary to occlusion. Current solutions for EVD occlusion include irrigation and diabetes, involve
organsreplacement, which we believe may be ineffective (in the case of irrigation) or costly (in the case of replacement) and in either case, put the patient at risk of unintended side effects. Microbot believes that with its portfolio of technologies, and its initial pre-clinical results, it is well-positioned to explore and expand its offerings as an alternative solution for EVD occlusion.
Minimally Invasive Endovascular Neurosurgery
Minimally Invasive Surgery, or MIS, refers to surgical procedures performed through tiny incisions instead of a single large opening. Because the incisions are small, patients tend to have quicker recovery times and experience less trauma than with conventional surgery. The global MIS market is expected to exceed $50 billion by 2019, with a CAGR of over 20% through 2023. MIS involves three major category of devices: surgical, monitoring and visualization, and endoscopy. The market for surgical devices, including ablation, electrosurgery and medical robotic systems, accounts for the largest share of revenue and is also expected to show the highest rate of growth.
As a subset of MIS, endovascular neurosurgery refers to surgeries performed by using devices that pass through the blood vessels to diagnose and treat neurological diseases and conditions such as stroke, arteriovenous malformations, aneurysms and atherosclerosis, rather than using open surgery.
The global neurovascular device market was valued at $1.62 billion in 2015 and is expected to reach a value of $2.92 billion by 2024, growing at a CAGR of 6.5%. Increases in the liver or pancreas thatgeriatric population and a rise in the number of patients suffering from neurovascular disorders, implementation of advanced technological platforms, and favorable reimbursement policies across established markets are expected to drive this market’s growth. On the other hand, the high cost of the endovascular devices and scarcity of neurovascular surgeons may impede such growth.
Stroke is a devastating condition, affecting 33 million people worldwide every year. In the United States alone, there are nearly 800,000 instances of stroke yearly, with about three in four being first-time strokes. This number is expected to increase to one million annually in 2021. Stroke is the fifth leading cause of death in the United States and is a leading cause of long-term disability, with related care costs estimated at $70 billion annually.
Mechanical thrombectomy has only been approved as a first-line treatment for ischemic stroke since 2016. Prior to such aproval, chemical thrombolysis using tissue plasminogen activators was the only first-line treatment available, limiting the therapeutic window for ischemic stroke patients to as little as 3-4 hours from the onset of symptoms. With mechanical thrombectomy, treatment can be transplanted, but therestarted within 6-24 hours of the time the patient was last known to be well. The US mechanical thrombectomy market is projected to grow at a very limited supplyCAGR of those organs available for transplant. We estimate based
on information available23.9% between 2014-2020, to us fromreach a value over $350 million.
According to the Alzheimer's Association, the Centers for
Disease Control, the Family Caregiver's Alliance and the Spinal Cord Injury
Information Network, that these conditions affect more than 18Brain Aneurysm Foundation, an estimated 6 million people in the United States have an unruptured brain aneurysm, or 1 in 50 people. The annual rate of rupture is approximately 8 – 10 per 100,000 people, or about 30,000 people in the United States annually. Embolic coiling is the established gold-standard treatment for aneurysms, and the most established product line in the neurovascular market – it is a strong but relatively stagnant market, projected to grow at a CAGR of 1.7% between 2014-2020, to reach a value of over $800 million. New devices that improve treatment of complex aneurysms, such as embolization-enabling stents, bifurcations stents, flow-diversion stents, liquid embolics and intrasaccular devices, are expected to boost market growth.
The major companies in the field of neurovascular devices include Stryker Corporation, Medtronic Plc., Cerenovus (Johnson & Johnson), Terumo Corporation and Penumbra, Inc. Neurovascular access devices are the means for delivering neurovascular treatment tools and devices from an opening in the femoral or radial arteries into the brain vasculature. Such access devices include sheaths, guidewires and microcatheters. Wires and catheters account for more than $150 billion annually18.6% of the overall neurovascular market.
Navigating and placing access devices through tortuous and highly delicate brain arteries is a complex procedure that requires high-level surgical skills with specialist training. In many procedures, surgeons exchange numerous access devices before reaching the target and applying the therapeutic agent or device, increasing the risk of adverse events and the exposure of both patient and physician to radiation. Adverse events, such as perforation of brain arteries or the release of embolies from a thrombus or atherosclerotic lesion can have devastating or even fatal results.
Microbot believes that with its portfolio of technologies specifically CardioSertTM and TipCAT, it is well-positioned to explore and develop such technologies as neurovascular access devices, with a focus on improving the ease and access and enhancing the safety of endovascular neurosurgery.
Our Product Pipeline
Self-Cleaning Shunt
The SCS device is designed to act as the ventricular catheter portion of a CSF shunt system that is used to relieve hydrocephalus and NPH. It is designed to work as an alternative to any ventricular catheter options currently on the market and to connect to all existing shunt system valves currently on the market; therefore, the successful commercialization of the SCS is not dependent on any single shunt system. Initially, Microbot expects the SCS device to be an aftermarket purchase that would be deployed to modify existing products by the end user. Microbot believes that the use of its SCS device will be able to reduce, and potentially eliminate, shunt occlusions, and by doing so, Microbot believes its SCS has the potential to become the gold standard ventricular shunt in health care
costs.
We believethe treatment of hydrocephalus and NPH.
The SCS device embeds an internal robotic cleaning mechanism in the lumen, or inside space, of the ventricular catheter which prevents cell accumulation and tissue ingrowth into the catheter. The SCS device consists of a silicone tube with a perforated titanium tip, which connects to a standard shunt valve at its distal end. The internal cleaning mechanism is embedded in the lumen of the titanium tip. Once activated, the cleaning mechanism keeps tissue from entering the catheter perforations while maintaining the CSF flow in the ventricular catheter.
The internal cleaning mechanism of the SCS device is activated by means of an induced magnetic field, which is currently designed to be externally generated by the patient through a user-friendly headset that our stem cell technologies, if successfully developed, may
providetransmits the basis for effective therapies for thesemagnetic field at a pre-determined frequency and other conditions. Our
aimoperating sequence protocol. The magnetic field that is created by the headset is then captured by a flexible coil and circuit board that is placed just under the patient’s scalp in the location where the valve is located. The circuit board assembly converts the magnetic field into the power necessary to return patients to productive livesactivate the cleaning mechanism within the proximal part of the ventricular catheter.
Microbot has completed the development of an SCS prototype and significantly reduceis currently completing the substantial health care costs often associated with these diseasessafety testing, general proof of concept testing and disorders. We have made significant progress toward developing stem cell
therapiesperformance testing for the nervous system by identifying and characterizing the human
central nervous system stem cell. We have also made significant advancesdevice, which Microbot began in our
search for the stem cells of the pancreas and the liver by identifying novel
markers on the surface of cells so they can be isolated and tested to determine
whether they are stem cells.
We have established our intellectual property position with respect to stem
cell therapies for each of these three areas--the central nervous system, the
pancreas and the liver--by patenting or seeking patent protection for our
discoveries and by entering into exclusive licensing arrangements. Our portfolio
of issued patents includes a method of culturing normal human neural stem cells
in our proprietary medium, and our published studies show that our cultured and
expanded cells give rise to all three major cell types of the central nervous
system.mid-2013. In addition, the Company recentlyMay 2018, Microbot announced the results of two pre-clinical studies assessing the SCS, anin-vitro study and a newsmall animal study. The in-vitro study, which was performed at Wayne State University by Dr. Carolyn Harris, supports the SCS’s potential as a viable technology for preventing occlusion in shunts used to treat hydrocephalus. The animal study designed to assess the safety profile of the SCS, which was performed by James Patterson McAllister, PhD, a Professor of Neurosurgery at Washington University School of Medicine in St. Louis, met the primary goal to determine the safety of the SCS device that showedaims to prevent obstruction in CSF catheters. Since the completion of these initial studies, Microbot has commenced a follow-up study to further evaluate the safety and to investigate the efficacy of the SCS. The follow-up study is also being conducted by leading hydrocephalus experts at Washington University and Wayne State University. The study will include a larger sample size compared to the initial studies and the primary and secondary endpoints will seek to validate the safety and efficacy of the SCS that will be activated in bothin-vitro (lab) andin-vivo (animal) models. Microbot plans to use the findings for initial regulatory submissions in the United States, Europe and other jurisdictions, although upon the completion of animal studies, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would improve the marketability of the product candidate. Microbot believes that the animal study results of its first generation SCS device should be available during the second half of 2019 and we expect to submit that data to the FDA either in a regulatory submission or as part of a pre-submission meeting request, depending on the final results of this ongoing studies. The proposed indication for use of the SCS device would be for the treatment of hydrocephalus as a component of a shunt system when draining or shunting of CSF is indicated. It continues to be possible that the FDA could require us to conduct a human brain stem cells canclinical study to support the safety and efficacy of the SCS and that such clinical data would need to be submitted as part of a 510(k) notification to authorize marketing of the medical device in the U.S.
Microbot may also conduct clinical trials for the SCS in other countries where such trials are necessary for Microbot to sell its SCS device in such country’s market, although it has no current plans to do so.
TipCAT
A TipCAT prototype was shown to self-propel and self-navigate in curved plastic pipes and curved ex-vivo colon. In addition, in its first feasibility study, the prototype device was tested in a live animal experiment and successfully isolatedself-propelled through segments of the animal’s colon, with no post-procedural damage. All tests were conducted at AMIT (Alfred Mann Institute of Technology at the Technion), prior to the licensing of TipCAT by Microbot.
Microbot is no longer pursuing the development of the TipCAT as a colonoscopy tool but is currently exploring the use of markers presentthe TipCAT for minimally invasive endovascular neurosurgical applications.
Risks Associated with Our Business and this Offering
Our business and our ability to implement our business strategy are subject to numerous risks, as more fully described in the section of this prospectus entitled “Risk Factors” and under similarly titled headings of the documents incorporated herein by reference. You should read these risks before you invest in our securities. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include:
| ● | We will need to raise significant additional capital to support our operations. | |
| ● | We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future, and our future profitability is uncertain. | |
| ● | Our product candidates must undergo rigorous clinical testing, such clinical testing may fail to demonstrate safety and efficacy and any of our product candidates could cause undesirable side effects, which would substantially delay or prevent regulatory approval or commercialization. | |
| ● | We are dependent on patents and proprietary technology. If we fail to adequately protect this intellectual property or if we otherwise do not have exclusivity for the marketing of our products, our ability to commercialize products could suffer. | |
| ● | If our competitors are able to develop and market products that are more effective, safer or more affordable than ours, or obtain marketing approval before we do, our commercial opportunities may be limited. | |
| ● | If you purchase our securities in this offering, you will incur immediate and substantial dilution. | |
| ● | We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively. |
Corporate and Other Information
We were incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate of Incorporation was restated on February 14, 1992 to change our name to CytoTherapeutics, Inc. On May 24, 2000, the Certificate of Incorporation as restated was further amended to change our name to StemCells, Inc. On November 28, 2016, C&RD Israel Ltd., a wholly-owned subsidiary of ours, completed its merger with and into Microbot Medical Ltd., or Microbot Israel, an Israeli corporation that then owned our assets and operated our current business, with Microbot Israel surviving as a wholly-owned subsidiary of ours. We refer to this transaction as the Merger. On November 28, 2016, in connection with the Merger, we changed our name from “StemCells, Inc.” to Microbot Medical Inc., and each outstanding share of Microbot Israel capital stock was converted into the right to receive shares of our common stock. In addition, all outstanding options to purchase the ordinary shares of Microbot Israel were assumed by us and converted into options to purchase shares of the common stock of Microbot Medical Inc. On November 29, 2016, our common stock began trading on the surface of freshly obtained brain cells. We
believe this isNasdaq Capital Market under the first reproducible process for isolating highly purified
populations of well-characterized normal human neural stem cells, andsymbol “MBOT”. Prior to the Merger, we have
applied forwere a composition of matter patent. We also have filed an improved
process patent forbiopharmaceutical company that operated in one segment, the growth and expansion of these purified normal human
neural cells.
Historical Note: We were formerly known as CytoTherapeutics and were
incorporated in Delaware in 1988. We currently have one subsidiary, StemCells
California, Inc., a California corporation we acquired in September 1997. Until
mid-1999, we had programs in a different technology, encapsulated cell therapy,
as well as stem cell programs. In 1999, we embarked on a major restructuring of
our research, and development operations and sold the encapsulated cell therapy
technology. We now focus exclusively on the discovery, development, and commercialization of our proprietary platform of stem cell therapeutics and related technologies. 2
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)Substantially all of the material assets relating to the stem cell business were sold on November 29, 2016.
In May 2016, we effected a 1-for-12 reverse split of our common stock, and in November 2016, we effected a 1-for-9 reverse split of our common stock in connection with the Merger. In September 2018, we effected a 1-for-15 reverse split of our common stock. The following table summarizesshare and per share information described in this prospectus that occurred prior to these reverse splits have been adjusted to give retrospective effect to the reverse splits.
Our principal executive offices are located at 25 Recreation Park Drive, Unit 108, Hingham, MA 02043. The telephone number at our principal executive office is (781) 875-3605. Our website address iswww.microbotmedical.com. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on our website or any such information in making your decision whether to purchase our securities in this offering.
This prospectus contains references to our trademarks and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Implications of Being a Smaller Reporting Company
We are a “smaller reporting company” as defined in the Exchange Act and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies, including certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
The Offering
| Common stock offered by us in this offering | 5,865,102shares. | |
| Pre-funded warrants offered by us in this offering | We are also offering to certain purchasers whose purchase of shares of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to purchase, if such purchasers so choose, pre-funded warrants, in lieu of shares of common stock that would otherwise result in any such purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock. Each pre-funded warrant will be exercisable for one share of our common stock. The purchase price of each pre-funded warrant will equal the price per share at which the shares of common stock are being sold to the public in this offering, minus $0.01, and the exercise price of each pre-funded warrant will be $0.01 per share. The pre-funded warrants will be exercisable immediately and may be exercised at any time until all of the pre-funded warrants are exercised in full. This offering also relates to the shares of common stock issuable upon exercise of any pre-funded warrants sold in this offering. For each pre-funded warrant we sell, the number of shares of common stock we are offering will be decreased on a one-for-one basis. | |
| Option to purchase additional shares | The underwriter has an option to purchase up to an additional 879,765 shares of our common stock at the public offering price, less underwriting discounts and commissions, to cover over-allotments, if any. The underwriter may exercise this option for a period of 30 days from the date of this prospectus. | |
| Common stock to be outstanding after this offering | 8,840,778shares of common stock, assuming no sale of any pre-funded warrants (or 9,720,543 shares of common stock if the underwriter exercises in full its option to purchase additional shares of common stock, assuming no sale of pre-funded warrants). | |
| Use of proceeds | We intend to use the net proceeds from this offering for attaining regulatory approvals for and commercializing our SCS device in the treatment of hydrocephalus and NPH; expanding and developing the applications of our existing ViRob and SCS IP and prototypes into other areas of CSF management, such as EVD, through regulatory submission; developing the CardioSertTMtechnology for neurovascular disorders from proof of concept to pre-clinical studies; and for working capital and other general corporate purposes. See “Use of Proceeds.” | |
| Risk factors | You should read the “Risk Factors” section of this prospectus for a discussion of certain of the factors to consider carefully before deciding to purchase any shares of our common stock or pre-funded warrants in this offering. | |
| National Securities Exchange Listing | Our common stock is listed on The Nasdaq Capital Market under the symbol “MBOT.” We do not intend to list the pre-funded warrants on any securities exchange or nationally recognized trading system. |
The number of shares of our common stock to be outstanding after this offering is based on 2,975,676 shares of common stock outstanding as of September 30, 2018 , and excludes, as of September 30, 2018:
| ● | 4 2 2,478 shares of our common stock issuable upon the exercise of outstanding stock options, with exercise prices ranging from $0 to $19.35 and having a weighted-average exercise price of $11.70 per share; | |
| ● | 211,239 shares of our common stock reserved for future grant under our 2017 Equity Incentive Plan; | |
| ● | Approximately 7,531 shares of our common stock issuable upon the exercise of outstanding warrants, with exercise prices ranging from approximately $40.00 to $2,885 per share and having a weighted-average exercise price of $1,697 per share; and | |
| ● | An aggregate of approximately 36,667 shares of our common stock issuable upon the conversion of 550 shares of our Series A Convertible Preferred Stock. |
Unless otherwise indicated, all information contained in this prospectus assumes no exercise by the underwriter of its over-allotment option, no sale of any pre-funded warrants in this offering and no exercise by the underwriter of its warrants to purchase up to 337,243 shares of our common stock (including the number of shares of common stock issuable upon exercise of the option to purchase additional securities) at an exercise price per share which is equal to 125% of the public offering price per share of the shares of common stock offered in this offering.
| 6 |
Investing in our securities involves a high degree of risk. You should consider carefully the risks described below, together with all of the other information included or incorporated by reference in this prospectus, including the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, before deciding whether to purchase our securities in this offering. All of these risk factors are incorporated herein in their entirety. The risks described below and incorporated by reference are material risks currently known, expected or reasonably foreseeable by us. However, the risks described below or that we incorporate by reference are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, operating results, prospects or financial condition. If any of these risks actually materialize, our business, prospects, financial condition, and results of operations could be seriously harmed. This could cause the trading price of our common stock and the value of the warrants to decline, resulting in a loss of all or part of your investment.
Risks Relating to the Development and Commercialization of Microbot’s Product Candidates
Microbot’s business depends heavily on the success of its lead product candidate, the SCS. If Microbot is unable to commercialize the SCS or experiences significant delays in doing so, Microbot’s business will be materially harmed.
On January 27, 2017, Microbot entered into a research agreement with Washington University in St. Louis to develop the protocol for and to execute the necessary animal study to determine the effectiveness of the Microbot’s SCS prototype. The initial research was completed in 2017 with a comprehensive study expected to be completed in 2019. Upon the completion of animal studies, Microbot may conduct clinical trials if they are requested by the FDA or if Microbot decides that the data from such trials would improve the marketability of the product candidate. After all necessary clinical and performance data supporting the safety and effectiveness of SCS are collected, Microbot must still obtain FDA clearance or approval to market the device and those regulatory processes can take several months to several years to be completed. Therefore, Microbot’s ability to generate product revenues will not occur for at least the next few years, if at all, and will depend heavily on the successful commercialization of SCS in the treatment of hydrocephalus. The success of commercializing SCS will depend on a number of factors, including the following:
| ● | ourability to obtain additional capital; | |
| ● | successful completion of animal studies and, if necessary, human clinical trials and the collection of sufficient data to demonstrate that the device is safe and effective for its intended use; | |
| ● | receipt of marketing approvals or clearances from the FDA and other applicable regulatory authorities; | |
| ● | establishing commercial manufacturing arrangements with one or more third parties; | |
| ● | obtaining and maintaining patent and trade secret protections; | |
| ● | protecting Microbot’s rights in its intellectual property portfolio; | |
| ● | establishing sales, marketing and distribution capabilities; | |
| ● | generating commercial sales of SCS, if and when approved, whether alone or in collaboration with other entities; | |
| ● | acceptance of SCS, if and when commercially launched, by the medical community, patients and third-party payors; | |
| ● | effectively competing with existing shunt and endoscope products on the market and any new competing products that may enter the market; and | |
| ● | maintaining quality and an acceptable safety profile of SCS following clearance or approval. |
If Microbot does not achieve one or more of these factors in a timely manner or at all, it could experience significant delays or an inability to successfully commercialize SCS, which would materially harm its business.
Microbot’s ability to expand our technology platforms for other uses, including endovascular neurosurgery other than for the treatment of hydrocephalus, may be limited.
After spending time working with experts in the field, Microbot has recently decided to no longer pursue the use of TipCAT in colonoscopy and has instead committed to focus on expanding all of its technology platforms for use in segments of the endovascular neurosurgery market, including traumatic brain injury, to capitalize on its existing competencies in hydrocephalus and the market’s needs. Microbot’s ability to expand its technology platforms for use in the endovascular neurosurgery market will be limited by its ability to develop and/or refine the necessary technology, obtain the necessary regulatory approvals for their use on humans, and the marketing of its products and otherwise obtaining market acceptance of its product in the United States and in other countries.
Microbot operates in a competitive industry and if its competitors have products that are marketed more effectively or develop products, treatments or procedures that are similar, more advanced, safer or more effective, its commercial opportunities will be reduced or eliminated, which would materially harm its business.
Our competitors that have developed or are developing endoluminal robotics surgical systems include Corindus Vascular Robotics, Inc., Hansen Medical, Inc. Auris Health, Inc., Stereotaxis, Inc., Medrobotics Corporation and others. Our competitors may develop products, treatments or procedures that directly compete with our products and potential products and which are similar, more advanced, safer or more effective than ours. The medical device industry is very competitive and subject to significant technological and practice changes. Microbot expects to face competition from many different sources with respect to the SCS and products that it is seeking to develop or commercialize with respect to its other product candidates in the future.
Competing against large established competitors with significant resources may make establishing a market for any products that it develops difficult which would have a material adverse effect on Microbot’s business. Microbot’s commercial opportunities could also be reduced or eliminated if its competitors develop and commercialize products, treatments or procedures quicker, that are safer, more effective, are more convenient or are less expensive than the SCS or any product that Microbot may develop. Many of Microbot’s potential competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than Microbot may have. Mergers and acquisitions in the medical device industry market may result in even more resources being concentrated among a smaller number of Microbot’s potential competitors.
At this time, Microbot does not know whether the FDA will require it to submit clinical data in support of its future marketing applications for its SCS product candidate, particularly in light of recent initiatives by the FDA to enhance and modernize its approach to medical device safety and innovation, which creates uncertainty for Microbot as well as the possibility of increased product development costs and time to market.
Microbot anticipates that its lead product candidate, the SCS, will be classified by the FDA as Class II and thus be eligible for marketing pursuant to a cleared 510(k) notification. However, there is no guarantee that the FDA will agree with the Company’s determination or that the FDA would accept the predicate device that Microbot intends to submit in its 510(k) notification in order to establish that its new device product is substantially equivalent to one or more predicate devices. The FDA also may request additional data in response to a 510(k) notification, or require Microbot to conduct further testing or compile more data in support of its 510(k) submission. Such additional data could include clinical data that must be derived from human clinical studies that are designed appropriately to address the potential questions from the FDA regarding a proposed product’s safety or effectiveness. It is unclear at this time whether and how various activities recently initiated or announced by the FDA to modernize the U.S. medical device regulatory system could affect the marketing pathway or timeline for our product candidate, given the timing and the undeveloped nature of some of the FDA’s new medical device safety and innovation initiatives. One of the recent initiatives was announced in April 2018, when the FDA Commissioner issued a statement with the release of a Medical Device Safety Action Plan. Among other key areas of the Medical Device Safety Action Plan, the Commissioner stated that the FDA is “exploring what further actions we can take to spur innovation towards technologies that can make devices and their use safer. For instance, our Breakthrough Device Program that helps address unmet medical needs can be used to facilitate patient access to innovative new devices that have important improvements to patient safety. We’re considering developing a similar program to support the development of safer devices that do not otherwise meet the Breakthrough Program criteria, but are clearly intended to be safer than currently available technologies.” This type of program may negatively affect our existing development plan for the SCS product candidate or it may benefit Microbot, but at this time those potential impacts from recent FDA medical device initiatives are unknown and uncertain. Similarly, the FDA Commissioner announced various agency goals under a Medical Innovation Access Plan in 2017.
If the FDA does require clinical data to be submitted as part of the SCS marketing submission, any type of clinical study performed in humans will require the investment of substantial expense, professional resources and time. In order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness of a medical device, a company must, among other things, apply for and obtain Institutional Review Board, or IRB, approval of the proposed investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA) to human health, the sponsor of the investigation must also submit and obtain FDA approval of an Investigational Device Exemption, or IDE, application. Microbot may not be able to obtain FDA and/or IRB approval to undertake clinical trials in the United States for any new devices Microbot intends to market in the United States in the future. Moreover, the timing of the commencement, continuation and completion of any future clinical trial may be subject to significant delays attributable to various causes, including scheduling conflicts with participating clinicians and clinical institutions, difficulties in identifying and enrolling patients who meet trial eligibility criteria, failure of patients to complete the clinical trial, delay in or failure to obtain IRB approval to conduct a clinical trial at a prospective site, and shortages of supply in the investigational device.
Thus, the addition of one or more mandatory clinical trials to the development timeline for the SCS would significantly increase the costs associated with developing and commercializing the product and delay the timing of U.S. regulatory authorization. The current uncertainty regarding near-term medical device regulatory changes by the FDA could further affect our development plans for the SCS, depending on their nature, scope and applicability. Microbot and its business, financial condition and operating results could be materially and adversely affected as a result of any such costs, delays or uncertainty.
Risks Related to this Offering
You will experience immediate and substantial dilution if you purchase securities in this offering.
As of September 30, 2018, our net tangible book value was approximately $ 6.57 million, or $ 2.2066 per share. Since the price per share of our common stock being offered in this offering is substantially higher than the net tangible book value per share of our common stock, you will suffer substantial dilution with respect to the net tangible book value of the common stock you purchase in this offering. Based on the assumed public offering price of $ 3.41 per share of common stock being sold in this offering (the last reported sale price of our common stock on The Nasdaq Capital Market on November 16 , 2018), and our net tangible book value per share as of September 30, 2018, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $ 0.6421 per share with respect to the net tangible book value of the common stock. See the section entitled “Dilution” for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering. The discussion above assumes (i) no sale of pre-funded warrants, which, if sold, would reduce the number of shares of common stock that we are offering on a one-for-one basis until such warrants are exercised and (ii) no exercise by the underwriter of the Underwriter’s Warrants.
There is no public market for the pre-funded warrants being offered in this offering.
There is no established public trading market for the pre-funded warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply to list the pre-funded warrants on any securities exchange or nationally recognized trading system, including The Nasdaq Capital Market. Without an active market, the liquidity of the pre-funded warrants will be limited.
We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management may not apply the net proceeds from this offering in ways that ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities or as otherwise provided in our investment policies in effect from time to time. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
We are subject to a lawsuit that could adversely affect our business and our use of proceeds from this offering.
We are named as the defendant in a lawsuit, which we refer to as the Matter, captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, pending in the Supreme Court of the State of New York, County of New York (the “Court”) (Index No. 654581/2017). The complaint alleges, among other things, that we breached multiple representations and warranties contained in the Securities Purchase Agreement (the “SPA”) related to our June 8, 2017 equity financing, or the Financing, of which the Plaintiffs participated. The complaint seeks rescission of the SPA and return of the Plaintiffs’ $3,375,000 purchase price with respect to the Financing, and damages in an amount to be determined at trial, but alleged to exceed $1 million. On August 3, 2018, both Plaintiffs and Defendant filed motions for summary judgment. On September 27, 2018, the Court heard oral argument on the parties’ respective summary judgment motions. After oral argument, the Court denied Plaintiffs’ motion in its entirety from the bench. On September 28, 2018, the Court issued a decision granting our motion for summary judgment regarding Plaintiffs’ claim for monetary damages and denying our motion for summary judgment on Plaintiffs’ claim for rescission, finding that there were material questions of fact that would need to be resolved at trial. A trial date has been set for February 11, 2019.
On April 4, 2018, we entered into a Tolling and Standstill Agreement with Empery Asset Master, Ltd., Empery Tax Efficient LP, Empery Tax Efficient II LP, and Hudson Bay Master Fund, Ltd., the other investors in the Financing, of whom we refer to as the Other Investors. Pursuant to the Tolling Agreement, among other things, (a) the Other Investors agree not to bring any claims against us arising out of the Matter, (b) the parties agree that if we reach an agreement to settle the claims asserted by the Sabby Funds in the above suit, we will provide the same settlement terms on a pro rata basis to the Other Investors, and the Other Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of each party as of the effective date of the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.
We believe that the claims are without merit and have been and intend to continue to defend the action vigorously. However, management is unable to assess the likelihood of the claim and the amount of potential damages, if any, to be awarded. Accordingly, no assurance can be given that any adverse outcome would not be material to our consolidated financial dataposition. Additionally, in the event the court holds for the Plaintiffs in the Matter and we lose our appeals, we will likely be required to use the proceeds from this offering or available cash towards payment of damages to the Plaintiffs and the Other Investors, that we otherwise would have used to build our business and develop our technologies into commercial products. In such event, we would be required to raise additional capital sooner than we otherwise would, of which we can give no assurance of success.
There may be future sales of our securities or other dilution of our equity, which may adversely affect the market price of our common stock.
We are generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The market price of our common stock could decline as a result of sales of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, common stock after this offering or the perception that such sales could occur.
Holders of pre-funded warrants purchased in this offering will have no rights as common stockholders until such holders exercise their pre-funded warrants and acquire our common stock.
Until holders of pre-funded warrants acquire shares of our common stock upon exercise of the pre-funded warrants, holders of pre-funded warrants will have no rights with respect to the shares of our common stock underlying such pre-funded warrants. Upon exercise of the pre-funded warrants, the holders will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
Even if this offering is successful, we will need to raise additional capital in the future to continue operations, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We have had significant recurring losses from operations and we do not generate any cash from operations and must raise additional funds in order to continue operating our business. We expect to continue to fund our operations in the future primarily through equity and debt financings, grants from the Israel Innovation Authority and other sources. If additional capital is not available to us when needed or on acceptable terms, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely. As of September 30 , 2018, we had cash and cash equivalents of approximately $ 6.7 million. We estimate that we will receive net proceeds of approximately $ 17.9 million from the sale of the securities offered by us in this offering, based on the assumed public offering price of $ 3.41 per share (the last reported sale price of our common stock on The Nasdaq Capital Market on November 16 , 2018) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the pre-funded warrants issued pursuant to this offering. In the event of a decrease in the net proceeds to us from this offering as a result of a decrease in the assumed public offering price or the number of shares offered by us, if the Plaintiffs succeed in the Matter or if our use of proceeds changes from our plans as described under “Use of Proceeds”, we may need to raise additional capital sooner than we anticipate. In addition, we cannot provide assurances that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Our ability to raise additional funds will depend, in part, on the success of our product development activities, any clinical trials, regulatory events, our ability to identify and enter into in-licensing or other strategic arrangements, and other events or conditions that may affect our value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control. There can be no assurances that sufficient funds will be available to us when required or on acceptable terms, if at all.
If we are unable to secure additional funds when needed or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of technology or assets, pursue an acquisition of our company by a third party at a price that may result in a loss on investment for our business. You should read this table together with "Management'sstockholders, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether. Any of these events could have a material adverse effect on our business, financial condition and results of operations. Moreover, if we are unable to obtain additional funds on a timely basis, there will be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and up to a total loss of investment by our stockholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” and “Business” in this prospectus or the documents incorporated herein by reference. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | our estimates regarding anticipated operating losses, capital requirements and needs for additional funds; | |
| ● | our ability to raise additional capital when needed and to continue as a going concern; | |
| ● | our ability to manufacture, or otherwise secure the manufacture of, sufficient amounts of our product candidates for our preclinical studies and clinical trials; | |
| ● | our ability to find and develop applications for our technologies for other neurosurgical conditions besides hydrocephalus; | |
| ● | our clinical development and other research and development plans and expectations; | |
| ● | the safety and efficacy of our product candidates; | |
| ● | the anticipated regulatory pathways for our product candidates; | |
| ● | our ability to successfully complete preclinical and clinical development of, and obtain regulatory approval of our product candidates and commercialize any approved products on our expected timeframes or at all; | |
| ● | the content and timing of submissions to and decisions made by the U.S. Food and Drug Administration and other regulatory agencies; | |
| ● | our ability to leverage the experience of our management team; | |
| ● | our ability to attract and keep management and other key personnel; | |
| ● | the capacities and performance of our suppliers, manufacturers and other third parties over whom we have limited control; | |
| ● | the actions of our competitors and success of competing products that are or may become available; | |
| ● | our expectations with respect to future growth and investments in our infrastructure, and our ability to effectively manage any such growth; | |
| ● | the size and potential growth of the markets for any of our product candidates, and our ability to capture share in or impact the size of those markets; | |
| ● | the benefits of our product candidates; | |
| ● | market and industry trends; | |
| ● | the outcome of any litigation in which we or any of our officers or directors may be involved, including with respect to the Matter; | |
| ● | the effects of government regulation and regulatory developments, and our ability and the ability of the third parties with whom we engage to comply with applicable regulatory requirements; | |
| ● | the accuracy of our estimates regarding future expenses, revenues, capital requirements and need for additional financing; | |
| ● | our expectations regarding future planned expenditures; | |
| ● | our ability to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act; | |
| ● | our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of any of our products and product candidates; | |
| ● | our expected use of the net proceeds from this offering; and | |
| ● | our ability to operate our business without infringing the intellectual property rights of others. |
In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. We discuss many of these risks in greater detail in the documents incorporated by reference herein, usually under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our consolidated
financial statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
You should carefully read this prospectus, the documents that we incorporate by reference into this prospectus and notes included elsewherethe documents we reference in this prospectus.
Except as required by law, we realizedassume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a $1,427,686 gain and recognized an increaseresult of new information, future events or otherwise.
We estimate that we will receive net proceeds of approximately $ 17.9 million (or approximately $ 20.7 million if the underwriter’s over-allotment option is exercised in value related to our remaining holdingsfull) from the sale of $27,204,333 in connection with our
investment in Modex Therapeutics Ltd., a Swiss biotechnology company that
completed an initial public offering on June 23, 2000. For more information on
Modex see "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and notes included elsewherethe securities offered by us in this prospectus.
3
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION REGARDING STEMCELLS, INC. WE MAY FACE OTHER RISKS NOT
DESCRIBED BELOW THAT WE DO NOT PRESENTLY KNOW ABOUT OR THAT WE CURRENTLY DEEM
IMMATERIAL.
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE
MATERIALLY ADVERSELY AFFECTED BY ANY OF THESE RISKS. CONSEQUENTIALLY, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, RESULTING IN THE LOSS OF ALL OR
PART OF YOUR INVESTMENT.
OUR TECHNOLOGY IS AT AN EARLY STAGE OF DISCOVERY AND DEVELOPMENT AND WE MAY
FAIL TO DEVELOP ANY PRODUCTS.
Our stem cell technology is at the early pre-clinical stage for the brain
stem cell and at the discovery phase for the liver and pancreas stem cells and
has not yet led to the development of any proposed product. We may fail to
discover the stem cells we are seeking, to develop any products, to obtain
regulatory approvals, to enter clinical trials, or to commercialize any
products. Any product using stem cell technology may fail to (i) survive and
persist in the desired location, (ii) provide the intended therapeutic benefits,
(iii) properly integrate into existing tissue in the desired manner, or
(iv) achieve benefits therapeutically equal to or better than the standard of
treatment at the time of testing. In addition, any such product may cause
undesirable side effects. Results of early pre-clinical research may not be
indicative of the results that will be obtained in later stages of preclinical
or clinical research. If the appropriate regulatory authorities do not approve
our products, or if we fail to maintain regulatory compliance, we would have
limited ability to commercialize our products, and our business and results of
operations would be harmed. Furthermore, since stem cells are a new form of
therapy, the marketplace may not accept any products we may develop.
If we do succeed in developing products, we will face many potential
obstacles such as the need to obtain regulatory approvals, and to develop or
obtain manufacturing, marketing and distribution capabilities. In addition, we
will face substantial additional risks such as product liability.
WE HAVE LIMITED LIQUIDITY AND CAPITAL RESOURCES AND MAY NOT OBTAIN THE
SIGNIFICANT CAPITAL RESOURCES WE WILL NEED TO SUSTAIN OUR RESEARCH AND
DEVELOPMENT EFFORTS.
We have limited liquidity and capital resources and must obtain substantial
additional capital to support our research and development programs, for
acquisition of technology and intellectual property rights, and, to the extent
we decide to undertake these activities ourselves, for pre-clinical and clinical
testing of our anticipated products, pursuit of regulatory approvals,
establishment of production capabilities, establishment of marketing and sales
capabilities and distribution channels, and general administrative expenses.
We owned 126,193 shares of Modex Therapeutics Ltd., stock with an estimated
fair market value on June 30, 2000 of $19,220,165offering, based on the assumed public offering price of $ 3.41 per share (the last reported sale price of approximately $152.00, which we convertedour common stock on The Nasdaq Capital Market on November 16 , 2018), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from a marketthe exercise of any pre-funded warrants issued pursuant to this offering.
A $ 0.25 increase (decrease) in the assumed public offering price of 247.50 Swiss
francs$ 3.41 per share would increase (decrease) the expected net proceeds to us from this offering by approximately $ 1.4 million, assuming that the number of shares offered by us, as set forth on June 30, 2000,the cover page of this prospectus, remains the same and we had been restrictedafter deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and excluding the proceeds, if any, from selling thesethe exercise of the pre-funded warrants issued pursuant to this offering.
Similarly, a one million share increase (decrease) in the number of shares until December 23, 2000. On January 2, 2001,offered by us, as set forth on the marketcover page of this prospectus, would increase (decrease) the net proceeds to us by approximately $ 3.1 million, assuming the assumed public offering price of Modex stock was
210.00 Swiss francs, which converts$ 3.41 per share remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and excluding the proceeds, if any, from the exercise of the pre-funded warrants issued pursuant to $130.39 usingthis offering.
We currently intend to use the exchange rates on that
date,net proceeds from this offering for attaining regulatory approvals for and represents an estimated fair market valuecommercializing our SCS device in the treatment of $16,453,825 for our
holdings on that date. The performance of Modex stock since Modex's initial
public offering does not predict its future valuehydrocephalus and NPH; expanding and developing the valueapplications of our holdings
is subjectexisting ViRob and SCS IP and prototypes into other areas of CSF management, such as EVD, through regulatory submission; developing the CardioSertTM technology for neurovascular disorders from proof of concept to changepre-clinical studies; and could decrease significantly. On January 9, 2001, we
sold 22,616 Modex sharesfor working capital and other general corporate purposes. See “Risk Factors” for a discussion of certain risks that may affect our intended use of the net price of 182.00 Swiss francs per share, which
converts to $112.76 per share, for total proceeds of $2,550,230.27. In
connectionfrom this offering, including with this sale, we agreed not to resell any more of our remaining
103,577 Modex shares until April 12, 2001. If we decide to sell more of our
Modex shares, duerespect to the relatively small trading volume in Modex shares and the
relatively large size of our holding, or other factors, we may not be able to
sell our Modex shares at their market value or at all, and we may have to sell
these shares at a significant discount to the market price. If we
4
sell some but not all of our Modex shares, it is likely that we would have to
agree, in connection with the sale, to refrain from selling additional shares
for several months. In addition, fluctuations in currency exchange rates could
decrease the proceeds we might realize on a potential sale of Modex shares.
We intend to pursue our needed capital resources through equity and debt
financings, corporate alliances, grants and collaborative research arrangements.
Our ability to complete any such arrangements successfully will depend upon
market conditions and, more specifically, on continued progress in our research
and development efforts.Matter. We may failalso use a portion of the net proceeds from this offering to obtain the necessary capital resources
from any such sources when neededin-license, acquire, or on terms acceptable to us. If we do not
obtain the necessary capital resources, we may have to delay, reduceinvest in complementary businesses, technologies, products or eliminate some or all of our research and development programs or license our
technology or any potential products to third parties rather than
commercializing them ourselves.
WE HAVE PAYMENT OBLIGATIONS RESULTING FROM REAL PROPERTY OWNED OR LEASED BY
US IN RHODE ISLAND, WHICH ADVERSELY AFFECT OUR ABILITY TO FUND OUR STEM CELL
RESEARCH AND DEVELOPMENT.
Prior to our reorganization in 1999 and the resulting consolidation of all
functions in California, we carried out our former encapsulated cell therapy
programs at facilities in Lincoln, Rhode Island, where we also had our
administrative offices. Althoughassets. However, we have vacated these facilities, we have
continuingno current commitments or obligations for lease payments and operating costs of approximately
$950,000 per year for our former science and administrative facility, which we
have leased through June 30, 2013, and debt service payments and operating costs
of approximately $1,000,000 per year for our former encapsulated cell therapy
pilot manufacturing facility. We are currently seeking to sublease the science
and administrative facility and to sell the pilot manufacturing facility, but
may not be able to do so. These continuing costs significantly reduce
We currently anticipate that our cashexisting resources, and adversely affect our ability to fund further development of our
stem cell technology. The lease fortogether with the science and administrative facility
contains a provision requiring occupancy of the premises and we currently may be
in violation ofexpected net proceeds from this provision. If the landlord decides to pursue its rights, we
may be required to pay the landlord the entire amount due for the rest of the
lease period.
WE MAY NEED BUT FAIL TO OBTAIN PARTNERS TO SUPPORT OUR STEM CELL DEVELOPMENT
EFFORTS AND TO COMMERCIALIZE OUR TECHNOLOGY.
Equity and debt financings alone may notoffering, will be sufficient to fund the costour planned operations until December 2021.
Our expected use of developingnet proceeds from this offering represents our stem cell technologiescurrent intentions based upon our present plans and we may need to rely on our ability to
reach partnering arrangements to provide financial support for our stem cell
discovery and development efforts. In addition, in order to successfully develop
and commercialize our technology, we may need to enter into a wide variety of
arrangements with corporate sponsors, pharmaceutical companies, universities,
research groups and others. While we have engaged, and expect to continue to
engage, in discussions regarding such arrangements, we have not reached any
agreement regarding any such arrangement and we may fail to obtain any such
agreement on terms acceptable to us, if at all. Even if we enter into these
arrangements, we may not be able to satisfy our obligations under them or renew
or replace them after their original terms. Furthermore, these arrangements may
require us to grant certain rights to third parties, including exclusive
marketing rights to one or more products, or may have other terms that are
burdensome to us, and may involve the acquisition of our securities. If any of
our collaborators terminates its relationship with us or fails to perform its
obligations in a timely manner, the development or commercialization of our
technology and potential products may be adversely affected.
We entered into a Sponsored Research Agreement with the Scripps Research
Institute under which we funded certain research in return for licenses or
options to license the inventions resulting from the research. This agreement
expired on November 14, 2000 and we are negotiating with Scripps to extend the
term of this agreement or to enter into a new agreement.business condition. As of the date of this prospectus, we have not yet completed our negotiations with Scrippscannot currently allocate specific percentages of the net proceeds that we may use for the purposes specified above, and we cannot give any assurance
5
that our negotiations willpredict with certainty all of the particular uses for the net proceeds to be successful. If we are unable to extendreceived upon the termcompletion of this agreementoffering, or enter into a new agreement, we will have to find a replacement
to perform this research or we will have to perform this research ourselves. In
either case, we may experience delay and additional expense in connection with
this research effort.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE MAY FAIL TO OBTAIN REVENUES OR
BECOME PROFITABLE.
We have incurred $124,237,900 in operating losses through September 30, 2000
and expect to continue to incur substantial operating losses in the future in
order to conduct our research and development activities, and if those
activities are successful, to fund clinical trials and other expenses. These
expenses include the cost of acquiring technology, product testing, acquiring
regulatory approvals, establishing production, marketing, sales and distribution
programs, and administrative expenses. We have not earned any revenues from
sales of any product. All of our past revenues have been derived from, and any
revenues we may obtain for the foreseeable future are expected to be derived
from, cooperative agreements, research grants, investments and interest on
invested capital. We have no cooperative agreements and we have received only
two research grants for our stem cell technology, and we may not obtain any such
agreements or additional grants in the future, or receive any revenues from
them.
WE DO NOT ANTICIPATE RECEIVING FUTURE REVENUES FROM THE SALE OF OUR
ENCAPSULATED CELL TECHNOLOGY.
In December 1999, we sold our encapsulated cell therapy technology to
Neurotech S.A. While under the terms of the sale we may receive royalty and
other payments from Neurotech under certain circumstances, we do not anticipate
receiving any material payments from Neurotech in the near future, if at all.
WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS TO PROTECT OUR INTELLECTUAL
PROPERTY FROM INFRINGEMENT. NEVERTHELESS, SUCH PROTECTION IS UNCERTAIN AND, IF
GAINED, MAY OFFER ONLY LIMITED PROTECTION. IF WE ARE UNABLE TO PROTECT OUR
PATENTS AND PROPRIETARY RIGHTS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATION WILL BE HARMED.
We own or license a number of patents or pending patent applications
covering human nerve stem cell cultures, central nervous system stem cell
cultures, neuroblast cultures, peripheral nervous system stem cell cultures, and
an animal model for liver failure. Patent protection for products such as those
we propose to develop is highly uncertain and involves complex and continually
evolving factual and legal questions. The governmental authorities that consider
patent applications can deny or significantly reduce the patent coverage
requested in an application before or after issuing the patent. Consequently, we
do not know whether any of our pending applications will result in the issuance
of patents, or if any existing or future patents will provide sufficient
protection or significant commercial advantage or if others will circumvent
these patents. Since patent applications are secret until patents are issued in
the United States or until the applications are published in foreign countries,
and since publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, we cannot be certain that we were the
first to make the inventions covered by each of our pending patent applications
or that we were the first to file patent applications for such inventions. Our
patents may not issue from our pending or future patent applications or, if
issued, may not be of commercial benefit to us, or may not afford us adequate
protection from competing products. In addition, third parties may challenge our
patents or governmental authorities may declare them invalid. In the event that
a third party has also filed a patent application relating to inventions claimed
in our patent applications, we may have to participate in proceedings to
determine priority of invention. This could result in substantial uncertainties
and cost for us, even if the eventual outcome is favorable to us, and the
outcome might not be favorable to us. Even if a patent issues, a court could
decide that the patent was issued invalidly.
6
IF OTHERS ARE FIRST TO DISCOVER AND PATENT ANY STEM CELLS WE ARE SEEKING TO
DISCOVER, WE COULD BE BLOCKED FROM FURTHER WORK ON THAT STEM CELL, AND OUR
BUSINESS WOULD BE HARMED.
Because the first person or entity to discover and obtain a valid patent to
a particular stem or progenitor cell may effectively block all others, it will
be important to our development efforts for us or our collaborators to be the
first to discover any stem cell that we are seeking. Failure to be the first
could prevent us from commercializing all of our research and development
related to such stem cell and have a material adverse effect on the Company.
WE MAY NEED TO OBTAIN LICENSES TO THIRD PARTY PATENTS, AND MAY NOT BE ABLE
TO GET THEM.
A number of pharmaceutical, biotechnology and other companies, universities
and research institutions have filed patent applications or have received
patents relating to cell therapy, stem cells and other technologies potentially
relevant to or necessary for our expected products. We cannot predict which, if
any, of the applications will issue as patents. We are also aware of a number of
patent applications and patents claiming use of genetically modified cells to
treat disease, disorder or injury. We are aware of three patents issued to two
competitors claiming certain methods for enriching central nervous system stem
cells through gene modification of in vitro cultured cells. These patents were
issued or licensed to NeuralStem and Layton Bioscience. It is possible that
NeuralStem or Layton Bioscience will be able to produce commercially available
stem cell products before we can. These genetically modified cells may be
effective in treating defective, diseased or damaged central nervous system
tissue.
If third party patents or patent applications contain claims infringed by
our technology and these claims are valid, we may be unable to obtain licenses
to these patents at a reasonable cost, if at all, and may also be unable to
develop or obtain alternative technology. If we are unable to obtain such
licenses at a reasonable cost, our business could be significantly harmed. We
may have to to defend ourselves in court against allegations of infringement of
third party patents. Patent litigation is very expensive and could consume
substantial resources and create significant uncertainties. An adverse outcome
in such a suit could subject us to significant liabilities to third parties,
require disputed rights to be licensed from third parties, or require us to
cease using such technology.
Proprietary trade secrets and unpatented know-how are also important to our
research and development activities. We cannot be certain that others will not
independently develop the same or similar technologies on their own or gain
access to our trade secrets or disclose such technology, oramounts that we will beactually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including our ability to obtain additional financing, the progress, cost and results of our preclinical and clinical development programs and whether we are able to meaningfully protect our trade secrets and unpatented know-how and keep them
secret.enter into future licensing or collaboration arrangements. We require our employees, consultants, and significant scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of an employmentmay find it necessary or consulting relationship with us. These
agreements may, however, fail to provide meaningful protection or adequate
remedies for us in the event of unauthorized use, transfer or disclosure of such
information or inventions.
We have obtained rights from universities and research institutions to
technologies, processes and compounds that we believe may be important to the
development of our products. Licensors may cancel our licenses or convert them
to non-exclusive licenses if we failadvisable to use the relevant technology or otherwise
breach these agreements. Lossnet proceeds for other purposes, and our management will have broad discretion in the application of such licenses could expose us to the risks of
third party patents and/or technology. We can give no assurance that any of
these licenses will provide effective protection against our competitors.
WE COMPETE WITH COMPANIES THAT HAVE SIGNIFICANT ADVANTAGES OVER US.
The market for therapeutic products that address degenerative diseases is
largenet proceeds, and competition is intense. We expect competition to increase. We believe
that our most significant competitorsinvestors will be 7
fully integrated pharmaceutical companies and more established biotechnology
companies, such as Biogen, Inc. and Genzyme, an Elan Corporation. These
companies already produce or are developing treatments for degenerative diseases
that are not stem-cell based, and they have significantly greater capital
resources and expertise in research and development, manufacturing, testing,
obtaining regulatory approvals and marketing than we do. Manyrelying on our judgment regarding the application of these potential
competitors have significant products approved or in development that could be
competitive with our potential products, and also operate large, well-funded
research and development programs. In addition, we expect to compete with
smaller companies such as NeuralStem and Layton Bioscience and with universities
and other research institutions who are developing treatments for degenerative
diseases that are stem-cell based.
Our competitors may succeed in developing technologies and products that are
more effective than those being developed by us, or that would render our
technology obsolete or non-competitive.
The relative speed with which we and our competitors can develop products,
complete the clinical testing and approval processes, and supply commercial
quantities of a product to market will affect our ability to gather market
acceptance and market share. With respect to clinical testing, competition may
delay progress by limiting the number of clinical investigators and patients
available to test our potential products.
DEVELOPMENT OF OUR TECHNOLOGY WILL BE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION.
Our research and development efforts, as well as any future clinical trials,
and the manufacturing and marketing of any products we may develop, will be
subject to extensive regulation by governmental authorities in the United States
and other countries. The process of obtaining U.S. Food and Drug Administration
and other necessary regulatory approvals is lengthy, expensive and uncertain. We
or our collaborators may fail to obtain the necessary approvals to commence or
continue clinical testing or to manufacture or market our potential products in
reasonable time frames, if at all. In addition, the United States Congress and
other legislative bodies may enact regulatory reforms or restrictions on the
development of new therapies that could adversely affect the regulatory
environment in which we operate or the development of any products we may
develop.
We base our research and development onnet proceeds from this offering.
Pending the use of human stem and progenitor
cells obtainedthe net proceeds from fetal tissue.this offering, we intend to invest the net proceeds in investment-grade, interest-bearing instruments.
PRICE RANGE OF OUR COMMON STOCK
Our common stock is listed on The federal and state governments and other
jurisdictions impose restrictions on the use of fetal tissue. These restrictions
change from time to time and may become more onerous. Additionally, we may not
be able to identify or develop reliable sources for the cells necessary for our
potential products--that is, sources that follow all state and federal
guidelines for cell procurement. Further, we may not be able to obtain such
cells in the quantity or quality sufficient to satisfy the commercial
requirements of our potential products. As a result we may be unable to develop
or produce our products in a profitable manner.
We may apply for statusNasdaq Capital Market under the Orphan Drug Act for certain of our
therapies, in order to gain a seven year period of marketing exclusivity for
those therapies. The U.S. Congress insymbol “MBOT.” On November 16 , 2018, the past considered, and in the future
again may consider, legislation that would restrict the extent and duration of
the market exclusivity of an orphan drug. If enacted, such legislation could
prevent us from obtaining some or all of the benefits of the existing statute
even if we were to apply for and be granted orphan drug status with respect to a
potential product.
WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL.
We are highly dependent on the principal members of our management and
scientific staff and certain of our outside consultants, including the members
of our scientific advisory board, our chief executive officer, each of our vice
presidents and the directors of our neural stem cell and liver stem cell
programs. Although we have entered into employment agreements with some of these
individuals, they may terminate their agreements at any time. We currently have
outside consultants and interim
8
personnel in key management and scientific positions who are not permanent
employees. Loss of services of any of these individuals could have a material
adverse effect on our operations, because these individuals possess management
experience or specialized scientific skills which we do not otherwise have and
which we may not be able to replace. In addition, our operations are dependent
upon our ability to attract and retain additional qualified scientific and
management personnel. More generally, we may not be able to attract and retain
the personnel we need on acceptable terms given the competition for experienced
personnel among pharmaceutical, biotechnology and health care companies,
universities and research institutions. If we lose the services of these key
personnel or are unable to attract and retain additional qualified personnel, we
may have to delay, reduce or eliminate some or all of our research and
development programs.
HEALTHCARE INSURERS AND OTHER ORGANIZATIONS MAY NOT PAY FOR OUR PRODUCTS OR
MAY IMPOSE LIMITS ON REIMBURSEMENTS.
In both domestic and foreign markets, sales of potential products are likely
to depend in part upon the availability and amounts of reimbursement from third
party health care payor organizations, including government agencies, private
health care insurers and other health care payors such as health maintenance
organizations and self-insured employee plans. There is considerable pressure to
reduce the cost of therapeutic products, and government and other third party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products, and by
refusing, in some cases, to provide any coverage for uses of approved products
for disease indications for which the Food and Drug Administration has not
granted marketing approval. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. We can give no
assurance that reimbursement will be provided by such payors at all or without
substantial delay, or, if such reimbursement is provided, that the approved
reimbursement amounts will be sufficient to enable us to sell products we
develop on a profitable basis. Changes in reimbursement policy could also
adversely affect the willingness of pharmaceutical companies to collaborate with
us on the development of our stem cell technology.
In certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. We expect that there will
continue to be a number of Federal and state proposals to implement government
control over health care costs. Efforts at healthcare reform are likely to
continue in future legislative sessions. We do not know what legislative
proposals Federal or state governments will adopt or what actions Federal, state
or private payers for healthcare goods and services may take in response to
healthcare reform proposals or legislation. We cannot predict the effect
government control and other healthcare reforms may have on our business.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.
Our operating results have varied, and may in the future continue to vary,
significantly from quarter to quarter due to a variety of factors. These factors
include the receipt of one-time license or milestone payments under
collaborative agreements, costs associated with the winddown of our encapsulated
cell therapy programs, variation in the level of expenses related to our
research and development efforts, receipt of grants or other support for our
research and development efforts, and other factors. Quarterly comparisons of
our financial results are not necessarily meaningful and you should not rely
upon them as an indication of future performance.
OUR STOCK PRICE MAY BE VOLATILE AND THIS VOLATILITY COULD RESULT IN LAWSUITS
OR MAKE IT DIFFICULT TO RAISE CAPITAL.
The marketclosing price for our common stock has been volatileas reported on The Nasdaq Capital Market was $ 3.41 per share. The following table sets forth the ranges of high and could decline
below the offering price for the shares. We believe that the market price for
our common stock could fluctuate substantially due to some or all of the risk
factors enumerated above.
9
The stock market has recently experienced extreme price and volume
fluctuations. These fluctuations have especially affected the market price of
the stock of many high technology and health care-related companies. Such
fluctuations have often been unrelated to the operating performance of these
companies. Nonetheless, these broad market fluctuations may negatively affect
the market price of our common stock. In the past, companies that have
experienced volatility in the market price of their stock have been the objects
of securities class action litigation. If we were the object of securities class
action litigation, we could incur material costs and suffer a diversion of our
management's attention and resources. In addition, volatility in our stock price
may make it difficult for us to obtain additional capital resources through
financings on terms acceptable to us.
EVENTS WITH RESPECT TO OUR SHARE CAPITAL COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE.
Sales of substantial amountslow sales prices per share of our common stock as reported on The Nasdaq Capital Market for the open market,period indicated. Such quotations represent inter-dealer prices without retail markup, markdown or the
availabilitycommission and may not necessarily represent actual transactions.
| High(1) | Low(1) | |||||||
| Year Ended December 31, 2017 | ||||||||
| First Quarter | $ | 149.10 | $ | 64.50 | ||||
| Second Quarter | $ | 90.00 | $ | 19.80 | ||||
| Third Quarter | $ | 23.25 | $ | 15.00 | ||||
| Fourth Quarter | $ | 22.80 | $ | 15.15 | ||||
| Year Ending December 31, 2018 | ||||||||
| First Quarter | $ | 17.25 | $ | 9.97 | ||||
| Second Quarter | $ | 15.30 | $ | 8.70 | ||||
| Third Quarter | $ | 11.55 | $ | 5.47 | ||||
| Fourth Quarter (through November 16 , 2018) | $ | 8.30 | $ | 3.25 | ||||
| (1) | Adjusted for our one-for-fifteen reverse stock split on September 4, 2018. |
As of such shares for sale, could adversely affect the priceNovember 16 , 2018, there were approximately 184 holders of record of our common stock. In particular, as of October 31, 2000, we had outstanding stock, options to purchase approximately 2,566,530which excludes stockholders whose shares were held in nominee or street name by brokers. The actual number of common stock, at an
average exercise pricestockholders is greater than the number of approximately $4.402 per share, subject to adjustment
in certain circumstances. Of this total, options covering approximately 941,309record holders, and includes stockholders who are beneficial owners, but whose shares are currently exercisable at an average exercise priceheld in street name by brokers and other nominees. This number of approximately
$4.742 per share.
10
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. You can identify these
statementsholders of record also does not include stockholders whose shares may be held in trust by forward-looking words such as "may," "will," "possibly," "expect,"
"anticipate," "project," "believe," "estimate" and "continue" or similar words.
You should read statements that contain these words carefully because they
discuss our future expectations, contain projections of our future results of
operations or of our financial condition, or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there will be events in the future that
we have not been able to accurately predict or control and that may cause our
actual results to differ materially from those discussed. For example,
contaminations at our facilities, changes in the pharmaceutical or biotechnology
industries, competition and changes in government regulations or general
economic or market conditions could all have significant effects on our results.
These factors should be considered carefully and readers should not place undue
reliance on our forward-looking statements. Before you invest in our common
stock, you should be aware that the occurrence of the events described in the
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" sections and elsewhere in this prospectus
could harm our business, operating results and financial condition. All forward
looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements and risk
factors contained throughout this prospectus.
INDUSTRY AND MARKET DATA
In this prospectus, we rely on and refer to information and statistics
regarding disease occurrences, costs of treatment, biotechnology, and the market
sectors in which we may compete in the future. We obtained this information and
statistics from various third party sources, discussions with our consultants
and/or our own internal estimates. We believe that these sources and estimates
are reliable, but we have not independently verified them.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered
pursuant to this prospectus.
entities.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to fund the developmentstock and growth of our business. Wewe do not therefore, anticipate paying any cash dividends on common stock in the foreseeable future. Any future determination toThe payment of dividends on our common stock will depend on earnings, financial condition, debt covenants in place, and other business and economic factors affecting us at such time as our Board of Directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on a stockholders’ investment will be at the discretion ofonly occur if our board of directors and will be dependent on
then existing conditions, including our financial stability, results of
operations, contractual restrictions, capital requirements, business prospects
and other factors our board of directors deems relevant.
11
CAPITALIZATION
The following table presents our consolidated capitalizationstock price appreciates.
Our historical net tangible book value as of September 30, 2000. This table excludes
- 2,797,518 shares2018 was approximately $ 6.57 million, or $ 2.2066 per share of common stock issuable uponstock. Our historical net tangible book value is the exercise of outstanding
stock options and warrants as follows:
a) as of September 30, 2000, 2,501,031 shares of common stock upon the
exercise of stock options pursuant to our stock option plans at a
weighted average price of $4.209 per share.
b) 101,587 shares of common stock upon the exercise of a warrant held by
Millennium Partners, L.P in conjunction with the aforementioned
August 3, 2000 financing at an exercise price of $4.725 per share.
c) 19,900 shares of common stock upon the exercise of a warrant held by
Millennium Partners, L.P. in conjunction with the aforementioned
August 30, 2000 financing at an exercise price of $6.03 per share.
d) 100,000 shares of common stock upon the exercise of warrants granted to
May Davis Group, Inc. and four of its affiliates in connection with the
aforementioned financing at an exercise price of $5.0375 per share.
e) 75,000 shares of common stock upon the exercise of warrants at $6.58125
per share held by holdersamount of our 6% cumulative convertible preferred
stock purchased on April 13, 2000 for $1,500,000.
- The right under certain circumstances for holders oftotal tangible assets less our 6% cumulative
convertible preferred stock to acquire up to a total of 1,126 additional
shares of our 6% cumulative convertible preferred stock, which is
convertible at the option of the holders into common stock at $6.33 per
share subject to customary antidilution protection.
- Millennium Partners, L.P.'s option to purchase up to an additional
$2,000,000 of common stock through August 3, 2001.
- The right of the holders of our 6% cumulative convertible preferred stock
to convert their preferred shares into 397,878 shares of common stock at
$3.77 per share.
- 65,000 shares issued to NeuroSpheres, Ltd. on October 30, 2000.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes thereto included elsewhere in this prospectus.
After giving effect to the Fund continues to
hold on each date andsale of 5,865,102 shares of our common stock at the marketassumed public offering price of $ 3.41 per share (the last reported sale price of our common stock over a period prior
to each date. We will haveon The Nasdaq Capital Market on November 16 , 2018), and after deducting the right, under certain circumstances, to capestimated underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the number of additional shares by purchasing part of the entitlementproceeds, if any, from the Fund.
exercise of any pre-funded warrants issued pursuant to this offering, our as adjusted net tangible book value as of September 30, 2018 would have been approximately $ 24.5 million, or $ 2.7679 per share of common stock. This represents an immediate increase in as adjusted net tangible book value of $ 0.5613 per share to our existing stockholders, and an immediate dilution of $ 0.6421 per share to new investors purchasing securities in this offering at the assumed public offering price.
The Fund also receivedfollowing table illustrates this dilution on a warrantper share basis:
| Assumed public offering price per share | $ | 3.4100 | ||||||
| Historical net tangible book value per share as of September 30, 2018 | $ | 2.2066 | ||||||
| Pro forma increase in net tangible book value per share attributable to investors in this offering | 0.5613 | |||||||
| As adjusted net tangible book value per share after this offering | 2.7679 | |||||||
| Dilution per share to investors participating in this offering | $ | 0.6421 |
If the underwriter exercises in full its option to purchase up to 101,587879,765 additional shares of common stock at $4.725the assumed public offering price of $ 3.41 per share. This warrant is callableshare (the last reported sale price of our common stock on The Nasdaq Capital Market on November 16 , 2018), the as adjusted net tangible book value after this offering would be approximately $27.2 million, or $ 2.8013 per share, representing an increase in net tangible book value of $ 0.5947 per share to existing stockholders and immediate dilution in net tangible book value of $ 0.6087 per share to investors purchasing our securities in this offering at the assumed public offering price.
Each $0.25 increase (decrease) in the assumed public offering price of $3.41 per share of common stock would increase (decrease) the as adjusted net tangible book value by $0.1527 per share of common stock and the dilution to new investors by $0.0973 per share, assuming that the number of shares offered by us, at $7.875as set forth on the cover page of this prospectus, remains the same, after deducting the estimated placement agent fees and expenses and estimated offering expenses payable by us.
We may also increase or decrease the number of shares we are offering. An increase of 1,000,000 shares offered by us, as set forth on the cover page of this prospectus, would increase our as adjusted net tangible book value by approximately $3.1 million, or approximately $0.0378 per underlying share.
In addition, the Fund has the option for twelve months to purchase up to
$3 millionshare of additional common stock. On August 23, 2000 the Fund exercised
$1,000,000 of its option to purchase additional common stock, at $5.53and decrease the dilution per share.share to investors in this offering by approximately $0.0378 per share, assuming that the assumed public offering price per share of common stock remains the same, and after deducting the estimated placement agent fees and expenses and estimated offering expenses payable by us. Similarly, a decrease of 1,000,000 shares offered by us, as set forth on the cover page of this prospectus, would decrease our as adjusted net tangible book value by approximately $3.1 million, or approximately $0.0471 per share, and increase the dilution per share to investors in this offering by approximately $0.0471 per share, assuming that the assumed public offering price per share of common stock remains the same, and after deducting the estimated placement agent fees and expenses and estimated offering expenses payable by us. The Fund paid $750,000information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of the purchase price in connection with the closing on
August 30, 2000, and paid the remaining $250,000 upon effectiveness of a
registration statement covering the shares owned by the Fund. At the closing on
August 30, 2000, we issued to the Fund an adjustable warrant similar to the one
issued on August 3, 2000. This adjustable warrant was canceled by agreement
between us and the Fund on November 1, 2000. The Fund also received a warrant to
purchase up to 19,900 shares of common stock that we offer in this offering, our actual expenses, and other terms of this offering determined at $6.03pricing.
The foregoing discussion and table does not take into account further dilution to investors in this offering that could occur upon the exercise of outstanding options and warrants, including the pre-funded warrants offered pursuant to this offering and the Underwriter’s Warrants, having a per share. This warrant is
callable by us at $10.05share exercise price less than the public offering price per underlying share.
Weshare in this offering.
The foregoing discussion and table are based on 2,9 7 5,676 shares of common stock outstanding as of September 30, 2018, and excludes, as of September 30, 2018:
| ● | 4 2 2,478 shares of our common stock issuable upon the exercise of outstanding stock options, with exercise prices ranging from $0 to $19.35 and having a weighted-average exercise price of $11.70 per share; | |
| ● | 211,239 shares of our common stock reserved for future grant under our 2017 Equity Incentive Plan; | |
| ● | Approximately 7,531 shares of our common stock issuable upon the exercise of outstanding warrants, with exercise prices ranging from approximately $40.00 to $2,885 per share and having a weighted-average exercise price of $1,967 per share; and | |
| ● | An aggregate of approximately 36,667 shares of our common stock issuable upon the conversion of 550 shares of our Series A Convertible Preferred Stock. |
To the extent that options, warrants or other convertible securities outstanding as of September 30, 2018 have limited liquidity and capital resources and must obtain significantbeen or may be exercised, converted or other shares issued, investors purchasing securities in this offering may experience further dilution. In addition, we may seek to raise additional capital resources in the future in order to sustain our product
development efforts. Substantial additional funds will be required to support
our research and development programs, for acquisition of technologies and
intellectual property rights, for preclinical and clinical testing of our
anticipated products, pursuit of regulatory approvals, acquisition of capital
equipment, laboratory and office facilities, establishment of production
capabilities and for general and administrative expenses. Our ability to obtain
additional capital will be substantially dependent on our ability to obtain
partnering support for our stem cell technology and, in the near term, on our
ability to realize proceeds from the sale, assignment or sublease of our
facilities in Rhode Island. Failure to do so will have a material effect on our
liquidity and capital resources. Until our operations generate significant
revenues from product sales, we must rely on cash reserves and proceeds from
equity and debt offerings, proceeds from the transfer or sale of our
intellectual property rights, equipment, facilities or investments, government
grants and funding from collaborative arrangements, if obtainable, to fund our
operations.
We intend to pursue opportunities to obtain additional financing in the future through equity and debt financings, grants and collaborative research
arrangements. The source, timing and availability of any future financing will
depend principally upon market conditions, interest rates and, more
specifically, on our progress in our exploratory, preclinical and future
clinical development programs. Lack of necessary funds may require us to delay,
reduce or eliminate some or all of our research and product development programs
or to license our potential products or technologies to third parties. Funding
may not be available when needed--at all, or on terms acceptable to us.
While our cash requirements may vary, as noted above, we currently expect
that our existing capital resources, including income earned on invested
capital, will be sufficient to fund our operations into the first quarter of
2001. Our cash requirements may vary, however, depending on numerous factors.
Lack of necessary funds may require us to delay, scale back or eliminate some or
all of our research and product development programs and/or our capital
expenditures or to license our potential products or technologies to third
parties.
21
BUSINESS
OVERVIEW
We are engaged in research aimed at the development of therapies that would
use stem and progenitor cells derived from fetal or adult sources to treat, and
possibly cure, human diseases and injuries such as Parkinson's disease,
hepatitis, diabetes, and spinal cord injuries. The body uses certain key cells
known as stem cells to produce all the functional mature cell types found in
normal organs of healthy individuals. Progenitor cells are cells that have
already developed from the stem cells, but can still produce one or more types
of mature cells within an organ.
Many diseases, such as Alzheimer's, Parkinson's, and other degenerative
diseases of the brain or nervous system, involve the failure of organs that
cannot be transplanted. Other diseases, such as hepatitis and diabetes, involve
organs such as the liver or pancreas that can be transplanted, but there is a
very limited supply of those organs available for transplant. We estimate, based
on information available to us from the Alzheimer's Association, the Centers for
Disease Control, the Family Caregiver's Alliance and the Spinal Cord Injury
Information Network, that these conditions affect more than 18 million people in
the United States and account for more than $150 billion annually in health care
costs.
Our proposed therapies are based on the transplanting of healthy human stem
and progenitor cells to repair or replace central nervous system, pancreas or
liver tissue that has been damaged or lost as a result of disease or injury,
potentially returning patients to productive lives and significantly reducing
health care costs. We believe that we have achieved significant progress in
research regarding stem cells of the central nervous system through the advances
we have made in the isolation, purification and transplantation of central
nervous system stem and progenitor cells. We have also made advances in our
research programs to discover the stem cells of the pancreas and of the liver.
We have established an intellectual property position in all three areas of our
stem cell research--the central nervous system, the pancreas and the liver--by
patenting our discoveries and entering into exclusive licensing arrangements. We
believe that, if successfully developed, our platform of stem cell technologies
may create the basis for therapies that would address a number of conditions
with significant unmet medical needs.
CELL THERAPY BACKGROUND
ROLE OF CELLS IN HUMAN HEALTH AND TRADITIONAL THERAPIES
Cells maintain normal physiological function in healthy individuals by
secreting or metabolizing substances, such as sugars, amino acids,
neurotransmitters and hormones, which are essential to life. When cells are
damaged or destroyed, they no longer produce, metabolize or accurately regulate
those substances. Impaired cellular function is associated with the progressive
decline common to many degenerative diseases of the nervous system, such as
Parkinson's disease, Alzheimer's disease and amyotrophic lateral sclerosis.
Recent advances in medical science have identified cell loss or impaired
cellular function as leading causes of degenerative diseases. Biotechnology
advances have led to the identification of some of the specific substances or
proteins that are deficient. While administering these substances or proteins as
medication does overcome some of the limitations of traditional pharmaceuticals
such as lack of specificity, there is no existing technology that can deliver
them to the precise sites of action and in the appropriate physiological
quantities or for the duration required to cure the degenerative condition.
Cells, however, do this naturally. As a result, investigators have
considered replacing failing cells that are no longer producing the needed
substances or proteins by implanting stem or progenitor cells capable of
regenerating the cell that the degenerative condition has damaged or destroyed.
Where
22
there has been irreversible tissue damage or organ failure, transplantation of
stem cells offers the possibility of generating new and healthy tissue, thus
potentially restoring the organ function and the patient's health.
THE POTENTIAL OF OUR STEM CELL-BASED THERAPY
We believe that, if successfully developed, stem cell-based therapy--the use
of stem or progenitor cells to treat diseases--has the potential to provide a
broad therapeutic approach comparable in importance to traditional
pharmaceuticals and genetically engineered biologics.
Stem cells are rare and only available in limited supply, whether from the
patients themselves or from donors. Cells obtained from the same person who will
receive them may be abnormal if the patient is ill or the tissue is contaminated
with disease-causing cells. Also, the cells can often be obtained only through
significant surgical procedures. The challenge, therefore, has been three-fold:
1) to identify the stem cells;
2) to create techniques and processes that can be used to expand these rare
cells in sufficient quantities for effective transplants; and
3) to establish a bank of normal human stem or progenitor cells that can be
used for transplantation into individuals whose own cells are not
suitable because of disease or other reasons.
We have developed and demonstrated a process, based on a proprietary IN
VITRO culture system in chemically defined media, that reproducibly grows normal
human central nervous system, or CNS, stem and progenitor cells. We believe this
is the first reproducible process for growing normal human CNS stem cells. More
recently, we have discovered markers on the cell surface that identify the human
CNS stem cells. This allows us to purify them and eliminate other unwanted cell
types. Together, these discoveries enable us to select normal human CNS stem
cells and to expand them in culture to produce a large number of pure stem
cells.
Because these cells have not been genetically modified, they may be
especially suitable for transplantation and may provide a safer and more
effective alternative to therapies that are based on cells derived from cancer
cells, from cells modified by a cancer gene to make them grow, from an
unpurified mixture of many different cell types, or from animal derived cells.
We believe our proprietary stem cell technologies may enable therapies to
replace specific cells that have been damaged or destroyed, permitting the
restoration of function through the replacement of normal cells where this has
not been possible in the past. In our research, we have shown that stem cells of
the central nervous system transplanted into hosts are accepted, migrate, and
successfully specialize to produce mature neurons and glial cells.
More generally, because the stem cell is the pivotal cell that produces all
the functional mature cell types in an organ, we believe these cells, if
successfully identified and developed for transplantation, may serve as
platforms for five major areas of regenerative medicine and biotechnology:
- tissue repair and replacement,
- correction of genetic disorders,
- drug discovery and screening,
- gene discovery and use, and
- diagnostics.
23
We will be pursuing key alliances in these areas.
OUR PLATFORM OF STEM CELL TECHNOLOGIES
Stem cells have two defining characteristics:
- some of the cells developed from stem cells produce all the kinds of
mature cells making up the particular organ; and
- they "self renew"--that is, other cells developed from stem cells are
themselves new stem cells, thus permitting the process to continue again
and again.
Stem cells are known to exist for many systems of the human body, including
the blood and immune system, the central and peripheral nervous systems
(including the brain), and the liver, pancreas endocrine, and the skin systems.
These cells are responsible for organ regeneration during normal cell
replacement and, to a more or less limited extent, after injury. We believe that
further research and development will allow stem cells to be cultivated and
administered in ways that enhance their natural function, so as to form the
basis of therapies that will replace specific subsets of cells that have been
damaged or lost through disease, injury or genetic defect.
We also believe that the person or entity that first identifies and isolates
a stem cell and defines methods to culture any of the finite number of different
types of human stem cells will be able to obtain patent protection for the
methods and the composition, making the commercial development of stem cell
treatment and possible cure of currently intractable diseases financially
feasible.
Our strategy is to be the first to identify, isolate and patent multiple
types of human stem and progenitor cells with commercial importance. Our
portfolio of issued patents includes a method of culturing normal human central
nervous system stem and progenitor cells in our proprietary chemically defined
medium, and our published studies show that these cultured and expanded cells
give rise to all three major cell types of the central nervous system. Also, a
separate study sponsored by us using these cultured stem and progenitor cells
showed that the cells are accepted, migrate, and successfully specialize to
produce neurons and glial cells.
More recently, we announced the results of a new study that showed that
human central nervous system stem cells can be successfully isolated by markers
present on the surface of freshly obtained brain cells. We believe this is the
first reproducible process for isolating highly purified populations of
well-characterized normal human central nervous system stem cells, and have
applied for a composition of matter patent. Because the cells are highly
purified and have not been genetically modified, they may be especially suitable
for transplantation and may provide a safer and more effective alternative than
therapies that are based on cells derived from cancer cells, or from cells
modified by a cancer gene to make them grow, or from an unpurified mixture of
many different cell types or cells derived from animals. We have also filed an
improved process patent for the growth and expansion of these purified normal
human central nervous system cells.
Neurological disorders such as Parkinson's disease, epilepsy, Alzheimer's
disease, and the side effects of stroke, affect a significant portion of the
U.S. population and there currently are no effective long-term therapies for
them. We believe that therapies based on our process for identifying, isolating
and culturing neural stem and progenitor cells may be useful in treating such
diseases. We are continuing our research into, and have initiated the
development of, human central nervous system stem and progenitor cell-based
therapies for these diseases.
We continue to advance our research programs to discover the islet stem cell
in the human pancreas and the liver stem cell. Islet cells are the cells that
produce insulin, so islet stem cells may be useful in the treatment of Type 1
diabetes and those cases of Type 2 diabetes where insulin secretion is
24
defective. Liver stem cells may be useful in the treatment of diseases such as
hepatitis, cirrhosis of the liver and liver cancer.
EXPECTED ADVANTAGES OF OUR STEM CELL TECHNOLOGY
NO OTHER TREATMENT
To the best of our knowledge, no one has developed an FDA-approved method
for replacing lost or damaged tissues from the human nervous system. Replacement
of tissues in other areas of the human body is limited to those few sites, such
as bone marrow or peripheral blood cell transplants, where transplantation of
the patient's own cells is now feasible. In a few additional areas, including
the liver, transplantation of donor organs is now used, but is limited by the
scarcity of organs available through donation. We believe that our stem cell
technologies have the potential to reestablish function in at least some of the
patients who have suffered the losses referred to above.
REPLACED CELLS PROVIDE NORMAL FUNCTION
Because stem cells can duplicate themselves, or self-renew, and specialize
into the multiple kinds of cells that are commonly lost in various diseases,
transplanted stem cells may be able to migrate limited distances to the proper
location within the body, to expand and specialize and to replace damaged or
defective cells, facilitating the return to proper function. We believe that
such replacement of damaged or defective cells by functional cells is unlikely
to be achieved with any other treatment.
RESEARCH EFFORTS AND PRODUCT DEVELOPMENT PROGRAMS
OVERVIEW OF RESEARCH AND PRODUCT DEVELOPMENT STRATEGY
We have devoted substantial resources to our research programs to isolate
and develop a series of stem and progenitor cells that we believe can serve as a
basis for replacing diseased or injured cells. Our efforts to date have been
directed at methods to identify, isolate and culture large varieties of stem and
progenitor cells of the human nervous system, liver and pancreas and to develop
therapies utilizing these stem and progenitor cells.
The following table lists the potential therapeutic indications for, and
current status of, our primary research and product development programs and
projects. The table is qualified in its entirety by reference to the more
detailed descriptions of such programs and projects appearing elsewhere in this
prospectus. We continually evaluate our research and product development efforts
and reallocate resources among existing programs or to new programs in light of
experimental results, commercial potential, availability of third party funding,
likelihood of near-term efficacy, collaboration success or significant
technology enhancement, as well as other factors. Our research and product
development
25
programs are at relatively early stages of development and will require
substantial resources to commercialize.
RESEARCH AND PRODUCT DEVELOPMENT PROGRAMS
------------------------------------------------------------
PROGRAM DESCRIPTION AND OBJECTIVE STAGE/STATUS(1)
- --------------------------------- ------------------------------------------------------------
HUMAN NEURAL STEM CELL PRECLINICAL
Repair or replace damaged central - Demonstrated IN VITRO the ability to initiate and expand
nervous system tissue (including stem cell-containing human neural cultures and
spinal cord, degenerated retinas specialization into three types of central nervous system
and tissue affected by certain cells
genetic disorders) - Demonstrated the ability of neurosphere-initiating stem
cells from human brain
- Demonstrated in rodent studies that transplanted human
brain-derived stem cells are accepted and properly
specialized into the three major cell types of the
central nervous system.
PANCREAS ISLET STEM CELL RESEARCH
Repair or replace damaged pancreas - Identified markers on the surface of cells to identify,
islet tissue isolate and culture islet stem cells of the pancreas
- Commenced small animal testing
LIVER STEM CELL RESEARCH
Repair or replace damaged liver - Demonstrated the production of hepatocytes from purified
tissue including tissue resulting mouse hematopoietic stem cells
from certain metabolic genetic - Identified IN VITRO culture assay for growth of human
diseases bipotent liver progenitor cells that can produce both
bile duct and hepatocytes
- Showed that the in vitro culture of human bipotent liver
cells can also grow human hepatitis virus
- ------------------------
(1) "Research" refers to early stage research and product development activities
IN VITRO, including the selection and characterization of product candidates
for preclinical testing. "Preclinical" refers to further testing of a
defined product candidate IN VITRO and in animals prior to clinical studies.
RESEARCH AND DEVELOPMENT PROGRAMS
Our portfolio of stem cell technology results from our exclusive licensing
of central nervous system, stem and progenitor cell technology, animal models
for the identification and/or testing of stem and progenitor cells and our own
research and development efforts to date. We believe that therapies using stem
cells represent a fundamentally new approach to the treatment of diseases caused
by lost or damaged tissue. We have assembled an experienced team of scientists
and scientific advisors to consult with and advise our scientists on their
continuing research and development of stem and progenitor cells. This team
includes, among others, Irving L. Weissman, M.D., of Stanford University, Fred
H. Gage, Ph.D., of The Salk Institute and David Anderson, Ph.D., of the
California Institute of Technology.
BRAIN STEM AND PROGENITOR CELL RESEARCH AND DEVELOPMENT PROGRAM
We began our work with central nervous system stem and progenitor cell
cultures in collaboration with NeuroSpheres, Ltd., in 1992. We believe that
NeuroSpheres was the first to invent these cultures. We are the exclusive,
worldwide licensee from NeuroSpheres to such inventions and associated patents
and patent applications for all uses, including transplantation in the human
body, as embodied in these patents. See "License Agreements and Sponsored
Research Agreements--NeuroSpheres, Ltd."
26
In 1997, our scientists invented a reproducible method for growing human
CNS, stem and progenitor cells in cultures. In preclinical IN VITRO and early IN
VIVO studies, we demonstrated that these cells specialize into all three of the
cell types of the central nervous system. Because of these results, we believe
that these cells may form the basis for replacement of cells lost in certain
degenerative diseases. We are continuing research into, and have initiated the
development of, our human CNS stem and progenitor cell cultures. We have
initiated the cultures and demonstrated that these cultures can be expanded for
a number of generations IN VITRO in chemically defined media. In collaboration
with us, Dr. Anders Bjorklund has shown that cells from these cultures can be
successfully transplanted and accepted into the brains of rodents where they
subsequently migrated and specialized into the appropriate cell types for the
site of the brain into which they were placed.
In 1998, we expanded our preclinical efforts in this area by initiating
programs aimed at the discovery and use of specific monoclonal antibodies to
facilitate identification and isolation of CNS and other stem and progenitor
cells or their specialized progeny. Also in 1998, our researchers devised
methods to advance the IN VITRO culture and passage of human CNS stem cells that
resulted in a 100-fold increase in CNS stem and progenitor cell production after
6 passages. We are expanding our preclinical efforts toward the goal of
selecting the proper indications to pursue.
In December 1998, we announced that the US Patent and Trademark Office had
granted patent No. 5,851,832, covering our methods for the human CNS cell
cultures containing central nervous system stem cells, for compositions of human
CNS cells expanded by these methods, and for use of these cultures in human
transplantation. These human CNS stem and progenitor cells expanded in culture
may be useful for repairing or replacing damaged central nervous system tissue,
including the brain and the spinal cord.
In October 1999, the US Patent and Trademark Office granted patent number
5,968,829 entitled "Human CNS Neural Stem Cells," covering our composition of
matter patent for human CNS stem cells, and also allowed a separate patent
application for our media for culturing human CNS stem cells.
Also in 1999, we announced the filing of a US patent application covering
our proprietary process for the direct isolation of normal human CNS stem cells
based on the markers found to be present on the surface of freshly obtained
brain cells. Since the filing of this patent application, our researchers have
completed a study designed to identify, isolate and culture human CNS stem cells
utilizing this proprietary process. In November 1999, we announced the study's
first results: Our researchers, by using our proprietary markers on the surface
of the cell, had succeeded in identifying, isolating and purifying human CNS
stem cells from brain tissue, and were able to expand the number of these cells
in culture.
We believe that this is the first study to show a reproducible process for
isolating highly purified populations of well-characterized normal human CNS
stem cells. Because the cells are normal human CNS stem cells and have not been
genetically modified, they may be especially suitable for transplantation and
may provide a safer and more effective alternative to therapies that are based
on cells derived from cancer cells or from an unpurified mix of many different
cell types, or from animal derived cells.
In January 2000, we reported what we regard as an even more important
result: In long term animal studies, our researchers were able to take these
purified and expanded stem cells and transplant them into normal mouse brain
hosts, where they take hold and grow into neurons and glial cells.
During the course of the study, the transplanted human CNS stem cells
survived for as long as one year and migrated to specific functional domains of
the host brain, with no sign of tumor formation or adverse effects on the animal
recipients; moreover, the cells were still dividing. These findings show that
when CNS stem cells isolated and cultured with our proprietary processes are
transplanted, they adopt the characteristics of the host brain and act like
normal stem cells. In other words, the study suggests the possibility of a
continual replenishment of normal human brain cells.
27
As noted above, human CNS stem and progenitor cells harvested and purified
and expanded using our proprietary processes may be useful for creating
therapies for the treatment of degenerative brain diseases such as Parkinson's,
Huntington's and Alzheimer's disease. These conditions affect more than
5 million people in the United States and there are no effective long-term
therapies currently available. We believe the ability to purify human brain stem
cells directly from fresh tissue is important because:
- it provides an enriched source of normal stem cells, not contaminated by
other unwanted or diseased cell types, that can be expanded in culture
without fear of also expanding some unwanted cell types;
- it opens the way to a better understanding of the properties of these
cells and how they might be manipulated to treat specific diseases. For
example, in certain genetic diseases such as Tay Sachs and Gaucher's, a
key metabolic enzyme required for normal development and function of the
brain is absent. Brain-derived stem cell cultures might be genetically
modified to produce those proteins. The modified brain stem cells could be
transplanted into patients with these genetic diseases;
- the efficient acceptance of these non-transformed normal human stem cells
into host brains means that the cell product can be tested in animal
models for its ability to correct deficiencies caused by various human
neurological diseases. This technology could also provide a unique animal
model for the testing of drugs that act on human brain cells either for
effectiveness of the drug against the disease or its toxicity to human
nerve cells.
PANCREAS STEM CELLS DISCOVERY RESEARCH PROGRAMS
Our discovery program directed to the identification, isolation and
culturing of the pancreas stem and progenitor cells is currently being conducted
by Nora Sarvetnick, Ph.D., of The Scripps Research Institute, in collaboration
with some of our senior researchers.
According to diabetes and juvenile diabetes foundations, between 800,000 and
1.5 million Americans have Type 1 diabetes, which is often called "juvenile
diabetes" and most commonly diagnosed in childhood; and 30,000 new patients are
diagnosed with the disease every year. It is a costly, serious, lifelong
condition, requiring constant attention and insulin injections every day for
survival.
About 15 million other people in the United States have Type 2 diabetes
mellitus, which is also a chronic and potentially fatal condition; and more than
700,000 new patients are diagnosed annually.
In 1998, we obtained an exclusive, worldwide license from The Scripps
Research Institute to novel technology developed by Dr. Sarvetnick which may
facilitate the identification and isolation of pancreas stem and progenitor
cells by using a mouse model that continuously regenerates the pancreas. We
believe that stem cells produce the regeneration, in which case this animal
model may be useful for identifying specific markers on the cell surface unique
to the pancreas stem cells. We believe this may lead to the development of
cell-based treatments for Type 1 diabetes and that portion of Type 2 diabetes
characterized by defective secretion of insulin.
In 1999, advances in the research sponsored by us resulted in our obtaining
additional exclusive, worldwide licenses from The Scripps Research Institute to
novel markers on the cell surface identified by Dr. Sarvetnick and her research
team as being unique to the pancreas islet stem cell for which we have now filed
a US patent application. In collaboration with Dr. Sarvetnick, we continue to
advance the discovery program directed at the identification, isolation and
culturing of pancreas stem and progenitor cells utilizing this technology.
28
LIVER STEM CELLS DISCOVERY RESEARCH PROGRAMS
We initiated our discovery work for the liver stem and progenitor cell
through a sponsored research agreement with Markus Grompe, Ph.D., of Oregon
Health Sciences University. Dr. Grompe's work focuses on the discovery and
development of a suitable method for identifying and assessing liver stem and
progenitor cells for use in transplantation. We have also obtained a worldwide
exclusive license to a novel mouse model of liver failure for evaluating cell
transplantation developed by Dr. Grompe.
Approximately 1 in 10 Americans suffers from diseases and disorders of the
liver for which there are currently no effective, long-term treatments.
In 1998, our researchers continued to advance methods for establishing
enriched cell populations suitable for transplantation in preclinical animal
models. We are focused on discovering and utilizing our proprietary methods to
identify, isolate and culture liver stem and progenitor cells and to evaluate
these cells in preclinical animal models.
In 1999, our researchers devised a culture assay that we will use in our
efforts to identify liver stem and progenitor cells. In addition to supporting
the growth of an early human liver bipotent progenitor cell, it is also possible
to infect this culture with human hepatitis virus, providing a valuable system
for study of the virus. This technology could also provide a unique IN VITRO
model for the testing of drugs that act on, or are metabolized by, human liver
cells.
An important element of our stem cell discovery program is the further
development of intellectual property positions with respect to stem and
progenitor cells. We have also obtained rights to certain inventions relating to
stem cells from, and are conducting stem cell related research at, several
academic institutions. We expect to expand our search for new stem and
progenitor cells and to seek to acquire rights to additional inventions relating
to stem and progenitor cells from third parties.
WIND-DOWN OF ENCAPSULATED CELL THERAPY RESEARCH AND DEVELOPMENT PROGRAMS
Until mid-1999, we engaged in research and development in encapsulated cell
therapy technology, or ECT, including a pain control program funded by
AstraZeneca Group plc. The results from the 85-patient double-blind,
placebo-controlled trial of our encapsulated bovine cell implant for the
treatment of severe, chronic pain in cancer patients did not, however, meet the
criteria AstraZeneca had established for continuing trials for the therapy, and
in June 1999, AstraZeneca terminated the collaboration.
Consequently, in July 1999, we announced plans for the restructuring of our
research operations to abandon all further ECT research and to concentrate our
resources on the research and development of our proprietary platform of stem
cell technology. We reduced our workforce by approximately 68 full-time
employees who had been focused on ECT programs, wound down our research and
manufacturing operations in Lincoln, Rhode Island, and relocated our remaining
research and development activities, and our corporate headquarters, to the
facilities of our wholly owned subsidiary, StemCells California, Inc., in
Sunnyvale, California. We are actively seeking to sublease, assign or sell our
interest in our former corporate headquarters building and our pilot
manufacturing and cell processing facility in Rhode Island.
In December 1999 we sold our intellectual property assets related to our ECT
to Neurotech S.A., a privately held French company, in exchange for a payment of
$3 million, royalties on future product sales, and a portion of certain revenues
Neurotech may in the future receive from third parties. We retained certain
non-exclusive rights to use the ECT in combination with our proprietary stem
cell technology, and in the field of vaccines for prevention and treatment of
infectious diseases.
29
In a related development, by mutual consent we and the Advanced Technology
Program of the National Institute of Standards and Technology terminated two
grants previously awarded to us for our encapsulated cell therapy and stem
cell-related research. The encapsulated cell therapy grant was obviated by the sale of equity or convertible debt securities. To the technology to Neurotech. The funding agency has invited us to
resubmit a proposal consistent with the new directions we are taking in our
research and development of our platform of stem cell technologies.
SUBSIDIARY
STEMCELLS CALIFORNIA, INC.
On September 26, 1997, we acquired by merger StemCells, Inc. (now StemCells
California, Inc.), a California corporation, in exchange for 1,320,691 shares of
our common stock and options and warrants for the purchase of 259,296 common
shares. Simultaneously with the acquisition, its President, Richard M. Rose,
M.D., became our President, Chief Executive Officer and a director, and Irving
L. Weissman, M.D., a founder of the California corporation, became a member of
our board of directors. We, as the sole stockholder of our subsidiary, voted on
February 23, 2000, to amend its Certificate of Incorporation to change its name
to StemCells California, Inc.
CORPORATE INVESTMENT
In July 1996, we, together with certain founding scientists, established
Modex Therapeutics SA, a Swiss biotherapeutics company, to pursue extensions of
our former technology of ECT for certain applications outside the central
nervous system. Modex, headquartered in Lausanne, Switzerland, was formed to
integrate technologies developed by us and by several other institutions to
develop products to treat diseases such as diabetes, obesity and anemia. After
our disposition of the encapsulated cell technology in December 1999, we no
longer had common research or development interests with Modex, but we held
approximate 17% of its stock. Modex completed an initial public offering on
June 23, 2000, in the course of which we realized a gain of approximately
$1.4 million fromextent that additional capital is raised through the sale of certain shares. After Modex's IPO, we owned
126,193 shares,equity or approximately 9%, of Modex's equity, subject to a lockup
until December 23, 2000. The closing market price of Modex stock on the Swiss
Neue Market exchange on January 2, 2001 was 210.00 Swiss francs, or
approximately $130.39, per share. On January 9, 2001, we sold 22,616 Modex
shares for a net price of 182.00 Swiss francs per share, which converts to
$112.76 per share, for total proceeds of $2,550,230.27. In connection with this
sale, we agreed not to resell any more of our remaining 103,577 Modex shares
until April 12, 2001.
LICENSE AGREEMENTS AND SPONSORED RESEARCH AGREEMENTS
We have entered into a number of license agreements with commercial and
non-profit institutions, as well as a number of research-plus-license agreements
with academic organizations. The research agreements provide that we will fund
certain research costs, and in return, will have a license or an option for a
license to the resulting inventions. Under the license agreements, we will
typically be subject to obligations of due diligence and the requirement to pay
royalties on products that use patented technology licensed under such
agreements.
NEUROSPHERES, LTD.
In March 1994, we entered into a Contract Research and License Agreement
with NeuroSpheres, Ltd., which was clarified in a License Agreement dated as of
April 1, 1997. Under the agreement as clarified, we obtained an exclusive patent
license from NeuroSpheres in the field of transplantation, subject to a limited
right of NeuroSpheres to purchase a nonexclusive license from us, which right
was not exercised and has expired. We have developed additional intellectual
property relating to the subject matter of the license. We entered into an
additional license agreement with
30
NeuroSpheres as of October 30, 2000, under which we obtained an exclusive
license in the field of non-transplant uses, such as drug discovery and drug
testing, so that together the licenses are exclusive for all uses of the
technology. We made up-front payments to NeuroSpheres of 65,000 shares of our
common stock and $50,000, and we will make additional cash payments when
milestones are achieved in the non-transplant field, or in any products
employing NeuroSpheres patents for generating cells of the blood and immune
system from neural stem cells. Milestone payments would total $500,000 for each
product that is approved for market. Our agreements with NeuroSpheres will
terminate at the expiration of all patents licensed to us, but can terminate
earlier if we breach without curing our obligations under the agreement or if we
declare bankruptcy. We would have a security interest in the licensed technology
in the event that NeuroSpheres declares bankruptcy.
SIGNAL PHARMACEUTICALS, INC.
In December 1997, we entered into two license agreements with Signal
Pharmaceuticals, Inc. under which each party licensed to the other certain
patent rights and biological materials for use in defined fields. An initial
disagreement as to the interpretation of the licensed rights was resolved by the
parties, and the agreements are operating in accordance with their terms. Signal
has now been acquired by Celgene. Each agreement with Signal will terminate at
the expiration of all patents licensed under it, but the licensing party can
terminate earlier if the other party breaches its obligations under the
agreement or declares bankruptcy. Also, the party receiving the license can
terminate the agreement at any time upon notice to the other party. Under these
agreements, we must reimburse Signal for payments it must make to the University
of California based on products we develop and for 50% of certain other payments
Signal must make.
SPONSORED RESEARCH AGREEMENTS
Under Sponsored Research Agreements with The Scripps Research Institute and
Oregon Health Sciences University, we funded certain research in return for
licenses or options to license the inventions resulting from the research. We
have also entered into license agreements with the California Institute of
Technology. All of these agreements relate largely to stem or progenitor cells
and or to processes and methods for the isolation, identification, expansion or
culturing of stem or progenitor cells.
Our research agreement with Scripps expired on November 14, 2000 and we are
negotiating with Scripps to extend the term of this agreement or to enter into a
new agreement. As of the date of this prospectus, we have not yet completed our
negotiations with Scripps and we cannot give any assurance that our negotiations
will be successful. If we are unable to extend the term of this agreement, we
will have to find a replacement to perform this research or we will have to
perform this research ourselves. In either case, we may experience delay and
additional expense in connection with this research effort. Our license
agreements with Scripps will terminate upon expiration, revocation or
invalidation of the patents licensed to us, unless governmental regulations
require a shorter term. These license agreements also will terminate earlier if
we breach without curing our obligations under the agreement or if we declare
bankruptcy, and we can terminate the license agreements at any time upon notice.
Upon the initiation of the Phase II trial for our first product using Scripps
licensed technology, we must pay Scripps $50,000 and upon completion of that
Phase II trial we must pay Scripps an additional $125,000. Upon approval of the
first product for sale in the market, we must pay Scripps $250,000.
Our license agreements with the California Institute of Technology will
expire upon expiration, revocation, invalidation or abandonment of the patents
licensed to us. We can terminate any of these license agreements by giving 30
days' notice to the California Institute of Technology. Either party can
terminate these license agreements upon a material breach by the other party. We
paid $10,000 to the California Institute of Technology upon execution of the
license agreements, and we must pay an additional $10,000 uponconvertible debt securities, the issuance of the patent licensed to us under the relevant agreement. We
31
also will pay $5,000 on the anniversary of the issuance of the patent licensed
to us under the relevant agreement. These amounts are creditable against
royalties we must pay under the license agreements. The maximum royalties that
we will have to pay to the California Institute of Technology will be
$2 million per year, with an overall maximum of $15 million. Once we pay the
$15 million maximum royalty, the licenses will become fully paid and
irrevocable.
MANUFACTURING
The keys to successful commercialization of brain stem and progenitor cells
are efficacy, safety, consistency of the product, and economy of the process. We
expect to address these issues by appropriate testing and banking representative
vials of large-scale cultures. Commercial production is expected to involve
expansion of banked cells and packaging themsecurities could result in appropriate containers after
formulating the cells in an effective carrier. The carrier may also be used to
improve the stability and acceptance of the stem cells or their progeny. Because
of the early stage of our stem and progenitor cell programs, all of the issues
that will affect manufacture of stem and progenitor cell products are not yet
clear.
MARKETING
We expect to market and sell our products primarily through co-marketing,
licensing or other arrangements with third parties. There are a number of
substantial companies with existing distribution channels and large marketing
resources who are well equipped to market and sell our products. It is our
intent to have the marketing of our products undertaken by such partners,
although we may seek to retain limited marketing rights in specific narrow
markets where the product may be addressed by a specialty or niche sales force.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
We believe that proprietary protection of our inventions will be of major
importancefurther dilution to our future business. We have an aggressive program of vigorously
seeking and protecting our intellectual property which we believe might be
useful in connection with our products. We believe that our know-how will also
provide a significant competitive advantage, and we intend to continue to
develop and protect our proprietary know-how. We may also from time to time seek
to acquire licenses to important externally developed technologies.
We have exclusive or non-exclusive rights to a portfolio of patents and
patent applications related to various stem and progenitor cells and methods of
deriving and using them. These patents and patent applications relate mainly to
compositions of matter, methods of obtaining such cells, and methods for
preparing, transplanting and utilizing such cells. Currently, our U.S. patent
portfolio in the stem cell therapy area includes nineteen issued U.S. patents,
six of which have issued within the last year. An additional thirteen patent
applications are pending, one of which has been allowed.
We own or have filed patent applications which have been published for the
following U.S. patents: Patent Number 5,968,829 (Human CNS neural stem cells);
Patent Number 6,103,530 (Human CNS neural stem cells--culture media);
Application Number WO 99/11758 (Cultures of human CNS neural stem cells); and
Application Number WO 00/36091 (An animal model for identifying a common
stem/progenitor to liver cells and pancreatic cells). We have licensed the
following patents or pending patent applications from Neurospheres Holdings
Ltd.: Patent Number 5,851,832 (In vitro proliferation); Patent Number 5,750,376
(In vitro genetic modification); Patent Number 5,981,165 (In vitro production of
dopaminergic cells from mammalian central nervous system multipotent stem cell
compositions); Patent Number 6,093,531 (Generation of hematopoietic cells from
multipotent neural stem cells); Application Number WO 93/01275 (Mammalian
central nervous system multipotent stem cell compositions); Application Number
WO 94/09119 (Remyelination using mammalian central nervous
32
system multipotent stem cell compositions); Application Number WO 94/10292
(Biological factors useful in differentiating mammalian central nervous system
multipotent stem cell compositions); Application Number WO 94/16718 (Genetically
engineered mammalian central nervous system multipotent stem cell compositions);
Application Number WO 96/15224 (Differentiation of mammalian central nervous
system multipotent stem cell compositions); and Application Number WO 96/15226
(In vitro production of dopaminergic cells from mammalian central nervous system
multipotent stem cell composition). We have licensed the following patents or
pending patent applications from the University of California, San Diego: Patent
Number 5,776,948 (Method of production of neuroblasts); Patent Number 6,013,521
(Method of production of neuroblasts); Patent Number 6,020,197 (Method of
production of neuroblasts); and Application Number WO 94/16059 (Method of
production of neuroblasts). We have licensed the following patents or pending
patent applications from the California Institute of Technology: Patent
Number 5,629,159 (Immortalization and disimmortalization of cells); Application
Number WO 96/40877 (Immortalization and disimmortalization of cells); Patent
Number 5,935,811 (Neuron restrictive silencer factor proteins); Application
Number WO 96/27665 (Neuron restrictive silencer factor proteins); Patent
Number 5,589,376 (Mammalian neural crest stem cells); Patent Number 5,824,489
(Methods for isolating mammalian multipotent neural crest stem cells);
Application Number WO 94/02593 (Mammalian neural crest stem cells); Patent
Number 5,654,183 (Genetically engineered mammalian neural crest stem cells);
Patent Number 5,928,947 (Mammalian multipotent neural crest stem cells); Patent
Number 5,693,482 (In vitro neural crest stem cell assay); Patent
Number 6,001,654 (Methods for differentiating neural stem cells to neurons or
smooth muscle cells (TGFb)); Application Number WO 98/48001 (Methods for
differentiating neural stem cells to neurons or smooth muscle cells (TGFb));
Patent Number 5,672,499 (Methods for immortalizing multipotent neural crest stem
cells); Patent Number 5,849,553 (Immortalizing and disimmortalizing multipotent
neural crest stem cells); and Patent Number 6,033,906 (Differentiating mammalian
neural stem cells to glial cells using neuregulins).
We also rely upon trade-secret protection for our confidential and
proprietary information and take active measures to control access to that
information.
Our policy is to require our employees, consultants and significant
scientific collaborators and sponsored researchers to execute confidentiality
agreements upon the commencement of an employment or consulting relationship
with us. These agreements generally provide that all confidential information
developed or made known to the individual by us during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of employees and
consultants, the agreements generally provide that all inventions conceived by
the individual in the course of rendering services to us shall be our exclusive
property.
We have obtained rights from universities and research institutions to
technologies, processes and compounds that we believe may be important to the
development of our products. These agreements typically require us to pay
license fees, meet certain diligence obligations and, upon commercial
introduction of certain products, pay royalties. These include exclusive license
agreements with NeuroSpheres, The Scripps Institute, the California Institute of
Technology and the Oregon Health Sciences University, to certain patents and
know-how regarding present and certain future developments in CNS and pancreas
stem cells.
COMPETITION
The targeted disease states for our initial products in some instances
currently have no effective long-term therapies. However, we do expect that our
initial products will have to compete with a variety of therapeutic products and
procedures. Major pharmaceutical companies currently offer a number of
pharmaceutical products to treat neurodegenerative and liver diseases, diabetes
and other diseases for which our technologies may be applicable. Many
pharmaceutical and biotechnology
33
companies are investigating new drugs and therapeutic approaches for the same
purposes, which may achieve new efficacy profiles, extend the therapeutic window
for such products, alter the prognosis of these diseases, or prevent their
onset. We believe that our products, when successfully developed, will compete
with these products principally on the basis of improved and extended efficacy
and safety and their overall economic benefit to the health care system.
The market for therapeutic products that address degenerative diseases is
large, and competition is intense. We expect competition to increase. We believe
that our most significant competitors will be fully integrated pharmaceutical
companies and more established biotechnology companies. Smaller companies may
also be significant competitors, particularly through collaborative arrangements
with large pharmaceutical or biotechnology companies. Many of these competitors
have significant products approved or in development that could be competitive
with our potential products.
Competition for our stem and progenitor cell products may be in the form of
existing and new drugs, other forms of cell transplantation, ablative and
simulative procedures, and gene therapy. We believe that some of our competitors
are also trying to develop stem and progenitor cell-based technologies. We
expect that all of these products will compete with our potential stem and
progenitor cell products based on efficacy, safety, cost and intellectual
property positions.
We may also face competition from companies that have filed patent
applications relating to the use of genetically modified cells to treat disease,
disorder or injury. We may be required to seek licenses from these competitors
in order to commercialize certain of our proposed products.
Once our products are developed and receive regulatory approval, they must
then compete for market acceptance and market share. For certain of our
potential products, an important success factor will be the timing of market
introduction of competitive products. This is a function of the relative speed
with which we and our competitors can develop products, complete the clinical
testing and approval processes, and supply commercial quantities of a product to
market. These competitive products may also impact the timing of clinical
testing and approval processes by limiting the number of clinical investigators
and patients available to test our potential products.
While we believe that the primary competitive factors will be product
efficacy, safety, and the timing and scope of regulatory approvals, other
factors include, in certain instances, obtaining marketing exclusivity under the
Orphan Drug Act, availability of supply, marketing and sales capability,
reimbursement coverage, price, and patent and technology position.
GOVERNMENT REGULATION
Our research and development activities and the future manufacturing and
marketing of our potential products are, and will continue to be, subject to
regulation for safety and efficacy by numerous governmental authorities in the
United States and other countries.
In the United States, pharmaceuticals, biologicals and medical devices are
subject to rigorous Food and Drug Administration, or FDA, regulation. The
Federal Food, Drug and Cosmetic Act, as amended, and the Public Health Service
Act, as amended, the regulations promulgated thereunder, and other Federal and
state statutes and regulations govern, among other things, the testing,
manufacture, safety, efficacy, labeling, storage, export, record keeping,
approval, marketing, advertising and promotion of our potential products.
Product development and approval within this regulatory framework takes a
number of years and involves significant uncertainty combined with the
expenditure of substantial resources. In addition, the federal, state, and other
jurisdictions have restrictions on the use of fetal tissue.
34
FDA APPROVAL
The steps required before our potential products may be marketed in the
United States include:
STEPS CONSIDERATIONS
1. Preclinical laboratory and animal tests Preclinical tests include laboratory
evaluation of the product and animal studies
in specific disease models to assess the
potential safety and efficacy of the product
and our formulation as well as the quality
and consistency of the manufacturing process.
2. Submission to the FDA of an application The results of the preclinical tests are
for an Investigational New Drug Exemption, or submitted to the FDA as part of an IND, and
IND, which must become effective before U.S. the IND becomes effective 30 days following
human clinical trials may commence its receipt by the FDA, as long as there are
no questions, requests for delay or
objections from the FDA.
3. Adequate and well-controlled human Clinical trials involve the evaluation of the
clinical trials to establish the safety and product in healthy volunteers or, as may be
efficacy of the product the case with our potential products, in a
small number of patients under the
supervision of a qualified physician.
Clinical trials are conducted in accordance
with protocols that detail the objectives of
the study, the parameters to be used to
monitor safety and the efficacy criteria to
be evaluated. Any product administered in a
U.S. clinical trial must be manufactured in
accordance with clinical Good Manufacturing
Practices, or cGMP, determined by the FDA.
Each protocol is submitted to the FDA as part
of the IND. The protocol for each clinical
study must be approved by an independent
Institutional Review Board, or IRB, at the
institution at which the study is conducted
and the informed consent of all participants
must be obtained. The IRB will consider,
among other things, the existing information
on the product, ethical factors, the safety
of human subjects, the potential benefits of
the therapy and the possible liability of the
institution.
Clinical development is traditionally
conducted in three sequential phases, which
may overlap:
- In Phase I, products are typically
introduced into healthy human subjects or
into selected patient populations to test
for adverse reactions, dosage tolerance,
absorption and distribution, metabolism,
excretion and clinical pharmacology.
35
- Phase II involves studies in a limited
patient population to (i) determine the
efficacy of the product for specific
targeted indications and populations, (ii)
determine optimal dosage and dosage
tolerance and (iii) identify possible
adverse effects and safety risks. When a
dose is chosen and a candidate product is
found to be effective and to have an
acceptable safety profile in Phase II
evaluations, Phase III trials begin.
- Phase III trials are undertaken to
conclusively demonstrate clinical efficacy
and to test further for safety within an
expanded patient population, generally at
multiple study sites.
The FDA continually reviews the clinical
trial plans and results and may suggest
changes or may require discontinuance of the
trials at any time if significant safety
issues arise.
4. Submission to the FDA of marketing The results of the preclinical studies and
authorization applications clinical studies are submitted to the FDA in
the form of marketing approval authorization
applications.
5. FDA approval of the application(s) prior The testing and approval process will require
to any commercial sale or shipment of the substantial time, effort and expense. The
drug. Biologic product manufacturing time for approval is affected by a number of
establishments located in certain states also factors, including relative risks and
may be subject to separate regulatory and benefits demonstrated in clinical trials, the
licensing requirement availability of alternative treatments and
the severity of the disease. Additional
animal studies or clinical trials may be
requested during the FDA review period which
might add to that time.
After FDA approval for the initial indications and requisite approval of the
manufacturing facility, further clinical trials may be required to gain approval
for the use of the product for additional indications. The FDA may also require
unusual or restrictive post-marketing testing and surveillance to monitor for
adverse effects, which could involve significant expense, or may elect to grant
only conditional approvals.
FDA MANUFACTURING REQUIREMENTS
Among the conditions for product licensure is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's cGMP requirement. Even after product licensure approval, the
manufacturer must comply with cGMP on a continuing basis, and what constitutes
cGMP may change as the state of the art of manufacturing changes. Domestic
manufacturing facilities are subject to regular FDA inspections for cGMP
compliance which are normally held at least every two years. Foreign
manufacturing facilities are subject to periodic FDA inspections or inspections
by the foreign regulatory authorities with reciprocal inspection agreements with
the FDA. Domestic manufacturing facilities may also be subject to inspection by
foreign authorities.
ORPHAN DRUG ACT
The Orphan Drug Act provides incentives to drug manufacturers to develop and
manufacture drugs for the treatment of diseases or conditions that affect fewer
than 200,000 individuals in the United States. Orphan drug status can also be
sought for treatments for diseases or conditions that
36
affect more than 200,000 individuals in the United States if the sponsor does
not realistically anticipate its product becoming profitable from sales in the
United States. We may apply for orphan drug status for certain of our therapies.
Under the Orphan Drug Act, a manufacturer of a designated orphan product can
seek tax benefits, and the holder of the first FDA approval of a designated
orphan product will be granted a seven-year period of marketing exclusivity in
the United States for that product for the orphan indication. While the
marketing exclusivity of an orphan drug would prevent other sponsors from
obtaining approval of the same compound for the same indication, it would not
prevent other types of products from being approved for the same use including,
in some cases, slight variations on the originally designated orphan product.
PROPOSED FDA REGULATIONS
Proposed regulations of the FDA and other governmental agencies would place
restrictions, including disclosure requirements, on researchers who have a
financial interest in the outcome of their research. Under the proposed
regulations, the FDA could also apply heightened scrutiny to, or exclude the
results of, studies conducted by such researchers when reviewing applications to
the FDA, which contain such research. Certain of our collaborators have stock
options or other equity interests in us that could subject such collaborators
and us to the proposed regulations.
Our research and development is based on the use of human stem and
progenitor cells. The FDA has published a "Proposed Approach to Regulation of
Cellular and Tissue-Based Products" which relates to the use of human cells. We
cannot now determine the effects of that approach or what regulatory actions
might be taken from it. Restrictions exist on the testing or use of cells,
whether human or non-human.
OTHER REGULATIONS
In addition to safety regulations enforced by the FDA, we are also subject
to regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act and other present and potential
future foreign, Federal, state and local regulations.
Outside the United States, we will be subject to regulations which govern
the import of drug products from the United States or other manufacturing sites
and foreign regulatory requirements governing human clinical trials and
marketing approval for our products. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursements vary widely from
country to country. In particular, the European Union, or EU, is revising its
regulatory approach to high tech products, and representatives from the United
States, Japan and the EU are in the process of harmonizing and making more
uniform the regulations for the registration of pharmaceutical products in these
three markets.
37
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On December 29, 2000, our investment in 126,193 shares of Modex Therapeutics
Ltd. Stock was valued at $16,356,333 based on the per share price of $129.61,
which we converted from a market price of 210.00 Swiss francs. Our value in this
investment is subject to both equity price risk and foreign currency exchange
risk. Modex shares were offered in an IPO on the Swiss Neue Market on June 23,
2000 at a price of 168.00 Swiss francs. From the date of the IPO to the date of
this prospectus, the Modex closing share price has fluctuated from a low of
150.50 Swiss francs on January 16, 2001 to a high of 390.00 Swiss francs on
October 6, 2000. The market price of the Modex stock on January 2, 2001 was
210.00 Swiss francs, which converts to $130.39 using exchange rates on that
date, which represents an estimated fair market value of $16,453,825 for our
holdings on that date. On January 9, 2001, we sold 22,616 Modex shares for a net
price of 182.00 Swiss francs per share, which converts to $112.76 per share, for
total proceeds of $2,550,230.27. In connection with this sale, we agreed not to
resell any more of our Modex shares until April 12, 2001. If we were to seek to
liquidate all or part of our remaining 103,577 Modex shares, our proceeds would
depend on the share price and foreign currency exchange rates at the time of
conversion. Additionally, if we sell a sizable portion of our holdings, we may
have to sell these shares at a discount to market price.
The company's sole market risk sensitive instrument is:
MARKET VALUE EXPECTED
ASSOCIATED AT DECEMBER 29, FUTURE
NO. OF SHARES DESCRIPTION RISKS 2000 CASH FLOWS
126,193 Modex Equity/Foreign $16,356,333 (1)
Therapeutics Currency
Translation
- ------------------------
(1) Although we have not formally adopted a liquidation plan for this
investment, liquidation may be necessary to meet operating cash flow
requirements. Under the agreement with Modex, we had been restricted from
selling our holding through December 23, 2000 and, as noted above, we sold
22,616 shares on January 9, 2001 and agreed not to sell any more shares
until April 12, 2001. If we sell some but not all of our remaining 103,577
shares, we likely would have to agree, in connection with the sale, to
refrain from selling additional shares for several months.
REIMBURSEMENT AND HEALTH CARE COST CONTROL
Reimbursement for the costs of treatments and products such as ours from
government health administration authorities, private health insurers and others
both in the United States and abroad is a key element in the success of new
health care products. Significant uncertainty often exists as to the
reimbursement status of newly approved health care products.
The revenues and profitability of some health care-related companies have
been affected by the continuing efforts of governmental and third party payers
to contain or reduce the cost of health care through various means. Payers are
increasingly attempting to limit both coverage and the level of reimbursement
for new therapeutic products approved for marketing by the FDA, and are
refusing, in some cases, to provide any coverage for uses of approved products
for disease indications for which the FDA has not granted marketing approval.
For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been a number of Federal and state proposals to implement
government control over health care costs.
38
EMPLOYEES
As of December 31, 2000, we had twenty-six full-time employees, of whom six
have Ph.D. degrees, as well as two half-time employees. The equivalent of
fifteen full-time employees work in research and development and laboratory
support services. A number of our employees have held positions with other
biotechnology or pharmaceutical companies or have worked in university research
programs. No employees are covered by collective bargaining agreements.
SCIENTIFIC ADVISORY BOARD
Members of our Scientific Advisory Board provide us with strategic guidance
in regard to our research and product development programs, as well as
assistance in recruiting employees and collaborators. Each Scientific Advisory
Board member has entered into a consulting agreement with us. These consulting
agreements specify the compensation to be paid to the consultant and require
that all information about our products and technology be kept confidential. All
of the Scientific Advisory Board members are employed by employers other than us
and may have commitments to or consulting or advising agreements with other
entities that limit their availability to us. The Scientific Advisory Board
members have generally agreed, however, for so long as they serve as consultants
to us, not to provide any services to any other entities which would conflict
with the services the member provides to us. Members of the Scientific Advisory
Board offer consultation on specific issues encountered by us as well as general
advice on the directions of appropriate scientific inquiry for us. In addition,
Scientific Advisory Board members assist us in assessing the appropriateness of
moving our projects to more advanced stages. The following persons are members
of our Scientific Advisory Board:
- Irving L. Weissman, M.D., is the Karel and Avice Beekhuis Professor of
Cancer Biology, Professor of Pathology and Professor of Developmental
Biology at Stanford University. Dr. Weissman was a cofounder of
SyStemix, Inc., and Chairman of its Scientific Advisory Board. He has
served on the Scientific Advisory Boards of Amgen Inc., DNAX and T-Cell
Sciences, Inc. Dr. Weissman is Chairman of the Scientific Advisory Board
of StemCells, Inc.
- David J. Anderson, Ph.D., is Professor of Biology, California Institute of
Technology, Pasadena, California and Investigator, Howard Hughes Medical
Institute.
- Fred H. Gage, Ph.D., is Professor, Laboratory of Genetics, The Salk
Institute for Biological Studies, La Jolla, California and Adjunct
Professor, Department of Neurosciences, University of California, San
Diego, California.
39
MANAGEMENT
stockholders.
The following table sets forth the name, age and position of each of our
executive officers, key members of management, and directors.
| ● | each of our directors; | |
| ● | each of our named executive officers; | |
| ● | all of our current directors and executive officers as a group; and | |
| ● | all those known by us to be to a beneficial owner of more than 5% of the Company’s common stock. |
In general, “beneficial ownership” refers to shares that an individual or groupentity has the power to vote or dispose of, affiliated persons known by usand any rights to own beneficially
more than 5% of the outstanding shares ofacquire common stock;
- each selling stockholder;
- each director and named executive officer; and
- all directors and executive officers as a group.
The address for each listed director and officer is c/o StemCells, Inc., 525
Del Rey Avenue, Suite C, Sunnyvale, CA 94085.
We have determined beneficial ownership in the table in accordance with the
rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, we have deemed to be outstanding shares of common stock subject to
options or warrants held by that person that are currently exercisable or will become exercisable within 60 days of December 31, 2000, assumingNovember 16 , 2018. We calculated percentage ownership in accordance with the rules of the SEC. The percentage of common stock beneficially owned is based on 2,975,676 shares outstanding as of November 16 , 2018. In addition, shares issuable pursuant to options or other convertible securities that this
offering occurs in that 60-day period, but we have notmay be acquired within 60 days of November 16 , 2018 are deemed these shares to be issued and outstanding for computingand have been treated as outstanding in calculating and determining the beneficial ownership and percentage ownership of those persons possessing those securities, but not for any other person. The
shares listed below for the selling stockholders represent allpersons.
This table is based on information supplied by each prospective director, officer and principal stockholder of the sharesCompany. Except as indicated in footnotes to this table, the Company believes that each selling stockholder currently beneficially owns, the number of shares
each of them may offer and the number of shares each of them will own after the
offering assuming they sell all of the shares. To our knowledge, except as set
forthstockholders named in the footnotes below, each stockholder identified in thethis table possesseshave sole voting and investment power with respect to all shares of common stockCommon Stock shown asto be beneficially owned by that stockholder. Beneficial ownership percentage
is based on 20,953,887 shares of our common stock outstanding on December 31,
2000 and as adjusted for unexercised options and warrants as of that date as
noted below and 180,914 shares and 19,900 warrants issued to one of the Selling
Shareholders on August 30, 2000.
The selling stockholders may offer all or some of their shares. All numbers
in the following table arethem, based on information obtainedprovided by questionnaires
received bysuch stockholders. Unless otherwise indicated, the company.
| Number of Shares | Percentage of Common Stock Beneficially Owned | |||||||||||
| Beneficial Owner | Beneficially Owned | Before Offering | After Offering(1) | |||||||||
| Directors and Executive Officers | ||||||||||||
| Harel Gadot(2) | 303,384 | 9.78 | % | 3.38 | % | |||||||
| Yoav Waizer(3) | 1,016 | * | * | |||||||||
| Yoseph Bornstein(4) | 299,710 | 10.07 | % | 3.39 | % | |||||||
| Scott Burell(3) | 1,016 | * | * | |||||||||
| Martin Madden(3) | 1,016 | * | * | |||||||||
| David Ben Naim(3) | 2,000 | * | * | |||||||||
| Yehezkel (Hezi) Himelfarb(3) | 29,004 | * | * | |||||||||
| Prattipati Laxminarain(3) | 1,016 | * | * | |||||||||
| All current directors and executive officers as a group (8 persons)(5) | 638,162 | 20.33 | % | 7.09 | % | |||||||
| Five Percent Shareholders | ||||||||||||
| LSA - Life Science Accelerator Ltd.(4) | 299,710 | 10.07 | % | 3.39 | % | |||||||
| MEDX Ventures Group LLC(6) | 254,711 | 8.34 | % | 2.86 | % | |||||||
| Saber Holding GmbH(7) | 287,134 | 9.65 | % | 3.25 | % | |||||||
| Moshe Shoham(8) | 159,636 | 5.27 | % | 1.79 | % | |||||||
| * | Less than 1% |
| (1) | Assumes the sale of 5,865,102 shares of our common stock and common stock underlying pre-funded warrants offered by us in this offering and does not include any shares of our common stock underlying the underwriter’s option to cover over-allotments, or underlying the Underwriter’s Warrants. |
| (2) | Includes 77,864 shares of our common stock issuable upon the exercise of options granted to MEDX Ventures Group and 48,673 shares of our common stock issuable upon the exercise of options granted to Mr. Gadot. All of such shares and 77,864 options are held by MEDX Ventures Group LLC, which is beneficially owned by Mr. Gadot. See Note 6 below. |
| (3) | Represents options to acquire shares of our common stock. |
| (4) | Based on representations and other information made or provided to the Company by Mr. Bornstein, Mr. Bornstein is the CEO and Director of LSA and of Shizim, and Mr. Bornstein is the majority equity owner of Shizim. Shizim is the majority equity owner of LSA. Accordingly, Mr. Bornstein may be deemed to share voting and investment power over the shares beneficially owned by these entities and has an address of 16 Iris Street, Rosh-Ha’Ayin Israel 4858022. Includes 1,016 shares of our common stock issuable upon exercise of options. |
| (5) | Includes shares of our common stock issuable upon the exercise of options as set forth in footnotes (1), (2) and (3). |
| (6) | Includes 77,864 shares of our common stock issuable upon the exercise of options granted to MEDX Ventures Group. Mr. Gadot is the Chief Executive Officer, Company Group Chairman and majority equity owner of MEDX Venture Group and thus may be deemed to share voting and investment power over the shares beneficially owned by this entity. Does not include 48,673 shares of our common stock issuable upon the exercise of options granted to Mr. Gadot directly. See Note 1 above. |
| (7) | Pursuant to a Schedule 13D/A-2 filed on June 20, 2017, Mrs. Sandra Berkson owns 100% of the equity of Saber Holding GmbH. Mr. Avram Berkson and Mrs. Sandra Berkson have shared power with Saber to vote or direct the vote, and to dispose or direct the disposition, of such shares. Saber’s address is Krummbaumgasse 10/20, 1020 Wein, Austria. |
| (8) | Includes 55,743 shares of our common stock issuable upon the exercise of options. |
| 16 |
As of Stockholders. The Letter Agreement incorporates certain payments
provided for under a consulting services agreement dated July 27, 1998, and
amended as of December 19, 1998 (the "Consulting Services Agreement"). As a
result, Dr. Schwartz is entitled to a retainer of $192,000 per year plus $1,500
for each Board meeting or Committee meeting (if held at a date and time separate
from the Board meeting) physically attended and $500 for each Board meeting or
Committee meeting (if held at a date and time separate from the Board meeting)
held by conference call, payable quarterly in arrears. Dr. Schwartz is obligated
to spend no less than thirty business days per calendar quarter devoted to the
performance of his duties under the Letter Agreement. In the event Dr. Schwartz
devotes more than thirty business days in any calendar quarter to the
performance of his duties, Dr. Schwartz is entitled to receive additional
compensation at the rate of $1,500 per day. Under the Letter Agreement,
Dr. Schwartz was granted a stock option covering 40,000 shares of Common Stock
that vests in equal portions on the last day of each of the 29 months of the
term of the Letter Agreement. By virtue of provisions incorporated from the
Consulting Services Agreement, Dr. Schwartz also holds an option to purchase
76,000 shares of the Company's Common Stock at $1.281 per share, the fair market
value of the Company's Common Stock at the time the option was granted, vesting
at a rate of 3,167 shares per month for the ensuing 23 months after the date of the grant, with a final vesting of 3,159 shares in the 24th month, plus another
optionthis prospectus, we are authorized to purchase 48,000issue up to 221,000,000 shares of Common Stock at the then current fair marketcapital stock, par value of the Company's Common Stock on July 27, 1999, vesting at a rate of 2,000
shares per month. In the event Dr. Schwartz ceases to be Chairman of the Board
of Directors, either as a result of an affirmative vote of the Board of
Directors for reasons other than cause or due to his disability or his
resignation from such position, but remains a Director, his cash compensation
and remaining unvested portion of the 40,000-share time-based stock option will
be reduced to the then current rate for a Director of the Company, plus $5,000
per month pursuant to the Consulting Services Agreement. In the event
Dr. Schwartz ceases to be Chairman of the Board of Directors, either as a result
of an affirmative vote of the Board of Directors for reasons other than cause or
due to his disability or his resignation from such position, and then he resigns
as a Director or is removed as a Director pursuant to the Company's By-laws, the
Company shall have no further obligation to pay cash compensation to
Dr. Schwartz under the Letter Agreement but he would receive $5,000 per month
pursuant to the Consulting Services Agreement. Dr. Schwartz shall have one year
from such date to exercise the vested portion of the 40,000-share time-based
option and any unvested portion of that option shall lapse. In the event
Dr. Schwartz is removed from his positions as Director and Chairman of the Board
of Directors for cause, as defined in the Letter Agreement, the Company shall
have no further obligation to pay cash compensation to Dr. Schwartz under the
Letter Agreement, any unvested portion of the 40,000-share time-based option
shall lapse and the exercise of any vested portion shall be governed by the
terms of the Company's 1992 Equity Incentive Plan. The termination of the Letter
Agreement for any reason shall have no effect on the Consulting Services
Agreement, which had an initial term through July 27, 2000 and was renewed on a
month-to-month basis, and Dr. Schwartz shall serve as a consultant to the
Company rendering strategic business advice and counseling services, including
assistance in the negotiation and consummation of strategic collaboration
transactions specified by the Company as provided therein. At a meeting of the
Board on February 23, 2000, in order to conserve cash and demonstrate his
continuing confidence in the Company's future, the Board of Directors, upon the
suggestion of Dr. Schwartz, approved a resolution revising the compensation
arrangement between Dr. Schwartz and the Company, for the period commencing
January 1, 2000. Under this resolution, Dr. Schwartz waives any and all cash
payments which may accrue to him for his retainer, monthly and meeting fees, and
agrees to take, in lieu of such cash payments, compensation in the form of
options to
47
purchase shares of the Company's common stock at below-market prices ($0.25 per
share). To effectuate the intention of Dr. Schwartz and other members of the
Board to change the form but not the amount of compensation, Dr. Schwartz will
be granted options covering a number of shares of the Company's common stock
such that the difference between the aggregate exercise price of such options
and the aggregate market value of the shares underlying such options (using the
closing price of the Company's common stock for the date of the subject Board or
Committee meeting (if such Committee meeting is not held contemporaneously with
a Board meeting) or, with respect to the quarterly or monthly retainer payments
of $33,000 and $5,000 respectively, the closing price for the last business day
of the quarter or month) is equal to the compensation he is entitled to receive.
All options so issued to Dr. Schwartz vest immediately. The Consulting Services
Agreement expired under its terms on July 27, 2000 and the board of directors
renewed it on a month-to-month basis on September 19, 2000.
Dr. Weissman, a member of the Board of Directors, was retained in
September 1997 to serve as a consultant to us. Pursuant to his Consulting
Agreement, Dr. Weissman has agreed to provide consulting services to us and
serve on our Scientific Advisory Board. We agreed to pay Dr. Weissman $50,000
per year for his services and granted him an option to purchase 500,000 shares
of Common Stock for $5.25$0.01 per share, of which 31,250divided into two classes designated, respectively, “common stock” and undesignated “preferred stock.” Of such shares vested at the date
of grant. Originally, the remainder of the option would have vested upon the
occurrence of certain milestones related to the Company's stem cell research
program and in the event of certain changes of control. We agreed to amend the
option on October 27, 2000 so that theauthorized, 220,000,000 shares would become exercisable over
eight years from the original grant date (so the option is currently exercisable
for 200,000 shares) or in the event of certain changes of control. We expect to
incur a charge of approximately $800,000 during the fourth quarter of 2000are designated as a
result of this change in the vested portion of the option. The deferred
compensation expense associated with the unvested portion of the grants was
determined to be approximately $1.4 million. We plan to revalue the options
using the Black-Scholes method on a quarterly basis and recognize additional
compensation expense accordingly. The Company also agreed to nominate
Dr. Weissman for a position on the Board of Directors. The Consulting Agreement
contains confidentiality, noncompetition, and assignment of invention provisions
and is for a term of fifteen years, subject to earlier termination by us for
cause or frustration of purpose and earlier termination by Dr. Weissman for good
reason. Dr. Weissman initially received no compensation as a member of the Board
of Directors or for attending meetings of the Board or its committees or
meetings of our Scientific Advisory Board, but was reimbursed for reasonable
expenses he incurred in attending such meetings. In December 2000, we agreed
with Dr. Weissman that we would pay him the same compensation paid to other
members of the Board.
Martin McGlynn joined the company as President and Chief Executive Officer
on January 15, 2001. Under the terms of an agreement between Mr. McGlynn and us,
Mr. McGlynn is entitled to an annual base salary of $275,000 per year,
reviewable annually by the Board of Directors, and a bonus, in the Board's sole
discretion, of up to 25% of his base salary. Mr. McGlynn was granted an option
to purchase 400,000 shares of Common Stock with an exercise price equal to the
fair market value of the Common Stock on the date of his employment. One-fourth
of these options will vest on the first anniversary of his employment and the
remaining three-fourths will vest in equal monthly installments during his
second through fourth years of employment. The Board may, in its sole
discretion, grant Mr. McGlynn a bonus option to purchase up to an additional
25,000 shares. The vesting under the option is subject to acceleration in the
event of certain changes of control. We also agreed to pay Mr. McGlynn a $50,000
relocation bonus and reimburse him for relocation expenses. Our agreement with
Mr. McGlynn provides that if his employment is terminated by the Company without
cause or by Mr. McGlynn for good reason, he will be entitled to severance
payments equal to one year's base salary and he will receive healthcare benefits
under our plans for one year after termination. If Mr. McGlynn's employment is
terminated as a result of his disability, he will receive up to six months' base
salary. If we terminate Mr. McGlynn's employment for cause or if he resigns, he
will not be entitled to any severance or other benefits.
48
George W. Dunbar, Jr., Acting President and Chief Executive Officer from
February 1, 2000 to January 15, 2001, was a founding member of iCEO, LLC
("iCEO") in September 1999. Mr. Dunbar joined the company as Acting President of
StemCells California, Inc., our wholly owned subsidiary, and he held this
position until January 15, 2001. Under the terms of two agreements dated as of
November 17, 1999 and effective as of November 8, 1999, the first between us and
iCEO and the second between us and Mr. Dunbar, Mr. Dunbar agreed to serve as
Acting President of StemCells California, Inc., our wholly owned subsidiary.
Pursuant to the terms of his agreement with us, Mr. Dunbar was entitled to an
annual salary of $175,000 and was granted a stock option to purchase 48,000
shares of our common stock, that vested at the rate of 4,000 shares per month
commencing on December 6, 1999 and continuing until fully vested so long as he
served as Acting President. The vesting under the option was subject to
acceleration in the event of certain changes of control. Additionally, the
agreement provided that the Board would consider once per quarter the grant of
an option for an additional 3,000 shares if it is determined that the services
rendered by Mr. Dunbar during the preceding quarter exceeded expectations. The
agreement with Mr. Dunbar had no provisions for any severance payments or other
benefits upon Mr. Dunbar's resignation or termination. Pursuant to the terms of
the agreement between iCEO and us, iCEO was entitled to receive annual
compensation of $75,000 for so long as Mr. Dunbar continued to serve in his role
as Acting President of StemCells California, Inc. or in any other interim role
with the Company. In addition, iCEO was granted a stock option to purchase
48,000 shares of our common stock that vested at the rate of 4,000 shares per
month commencing on December 6, 1999 and continuing until fully vested so long
as Mr. Dunbar served as Acting President of StemCells California, Inc. or in any
other interim role with the company. Additionally, the iCEO agreement provided
that the Board would consider once per quarter the grant of an option to iCEO
for an additional 3,000 shares if it is determined that the services rendered by
Mr. Dunbar during the preceding quarter exceeded expectations. As a member of
iCEO, Mr. Dunbar was entitled to receive, once annually, a distribution of his
assigned allocable percentage of net taxable income and net long-term gain with
respect to the pooled income and gain from shares of stock or exercised options
received by iCEO from its clients, including that received from us. When
Mr. Dunbar was appointed Acting President and Chief Executive Officer effective
as of February 1, 2000, there was no adjustment to his or iCEO's compensation or
stock options. In the event that during the period of his service as Acting
President and Chief Executive Officer or within 120 days from the termination of
such services, Mr. Dunbar were to become a permanent employee in any capacity,
we would be obligated under the iCEO agreement to pay iCEO a fee equal to
one-third of the then targeted first year's compensation for Mr. Dunbar. Our
agreements with Mr. Dunbar and iCEO expired in November 2000 and at that time we
paid Mr. Dunbar a bonus of $50,000 and granted him an immediately exercisable
option to purchase 12,031 shares of common stock. We continued to employ
Mr. Dunbar in the same capacity until January 15, 2001 at an annual salary of
$250,000, and also granted him an option to purchase 8,000 shares of common
stock for each additional month, or pro rata portion of a month, of his
employment.
In April 2000, we sold 750 shares of our 6% cumulative convertible preferred
stock plus a warrant to purchase 37,500 shares of our common stock to each of
Dr. Weissman and Mr. Levin for $750,000, for a total of $1,500,000, on terms
more favorable to us than we were able to obtain from outside investors. The
face value of the shares is convertible at the option of the holder into common
stock at $3.77 per share. The holders of the preferred stock have liquidation
rights equal to their original investments plus accrued but unpaid dividends.
The investors would be entitled to make additional investments in our securities
on the same terms as those on which we complete offerings of our securities with
third parties within 6 months, if any such offerings are completed. If offerings
totaling at least $6 million are not completed during the 6 months, the
investors have the right to acquire up to a total of 1,126 additional shares of
convertible preferred stock the face value of which is convertible at the option
of the holder into common stock at $6.33 per share. Any unconverted preferred
stock will be converted into common stock on April 13, 2002 in the case of the
original stock issued and two years after the first acquisition of any of the
additional 1,126 shares, if any are acquired. The warrants expire on April 13,
2005.
49
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Upon completion of this offering, the total amount of our authorized capital
stock will consist of 45,000,000 shares of common stock, $.01 par value per
share, and 1,000,000 shares ofare designated as undesignated preferred stock, $.01 par value per
share, to be issued from time to time in one or more series, with such
designations, powers, preferences, rights, qualifications, limitations and
restrictions as our board of directors may determine. As of December 31, 2000,
we had outstanding 20,953,887 shares of common stock and 1,500 shares of 6%
cumulative convertible preferred stock.
As of December 31, 2000, we had 277 stockholders of record with respect to
our common stock and outstanding options to purchase 2,653,354 shares of our
common stock, of which 656,625 were currently exercisable.
The following is a summary of provisionsthe material terms of our capital stock describes all materialand certain provisions of but
does not purport to be complete and is subject to, and qualified in its entirety
by, our restated certificate of incorporation and our amended and restated by-laws, whichbylaws. Since the terms of our certificate of incorporation and bylaws, and Delaware law, are includedmore detailed than the general information provided below, you should only rely on the actual provisions of those documents and Delaware law. If you would like to read those documents, they are on file with the SEC, as exhibits todescribed under the registration statement of which
this prospectus forms a part, andheading “Where You Can Find Additional Information” below. The summary below is also qualified by the provisions of applicable law.
COMMON STOCK
On September 4, 2018, we filed a Certificate of Amendment (the “Amendment”) to our Restated Certificate of Incorporation to implement a 1-for-15 reverse split of our common stock (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each fifteen shares of our issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock. The Reverse Stock Split affected all issued and outstanding shares of the Company’s common stock are, and preferred stock, as well as common stock underlying stock options, preferred stock and warrants outstanding immediately prior to the effectiveness of the Reverse Stock Split. The Amendment did not decrease the number of authorized shares of the Company’s common stock, nor did it alter the par value of common stock, which remained at $0.01 per share, or modify any voting rights or other terms of our common stock or preferred stock. Unless otherwise indicated, all information set forth in this prospectus gives effect to the Reverse Stock Split.
As of November 16 , 2018, there were 2,975,676 shares of common stock to be issuedoutstanding that were held of record by us in connection with the offering will be, validly
issued, fully paid and nonassessable. Holdersapproximately 184 stockholders, although we believe that there is a significantly larger number of beneficial owners of our common stock are entitled
to any and all dividends as such dividends are declared by the Board of
Directors. This right is not cumulative, and no right shall accrue to holders of
common stock by reason of the fact that dividends on said shares were not
declared in any prior period. The shares of common stock are not convertible and
the holders thereof have no preemptive or subscription rights to purchase any of
our securities. Upon liquidation, dissolution or winding up of our company, the
holdersstock.
Common Stock
Holders of common stock are entitled to an amount equal to $1.00 perone vote for each share subject to the rights of the holders of the preferred stock. After payment to
the holders of the common stock of the full preferential amounts due to them,
the holders of common stock have the right to share equally in the distribution
of the entire remaining assets of the company legally available for
distribution, subject to the rights of the holders of the preferred stock. Each
outstanding share of common stock is entitled to one voteheld on all matters submitted to a vote of stockholders suchand do not have cumulative voting rights. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, out of funds that we may legally use to pay dividends, subject to any preferential dividend rights of any outstanding series of preferred stock or series of preferred stock that we may designate and issue in the future. All shares of common stock outstanding as of the date of this prospectus and, upon issuance and sale, all shares of common stock that we may offer pursuant to this prospectus, will be counted together
withfully paid and nonassessable.
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
General
We have authority to issue up to 1,000,000 shares of preferred stock, par value $0.01 per share. As of September 30, 2018, we had 550 shares of Series A Convertible Preferred Stock issued and outstanding that can convert into an aggregate of approximately 36,667 shares of our common stock. As of the date of this prospectus, no other shares of capitalour preferred stock having voting powers and not as a
separate class, except as otherwise required by law.
Our common stock is traded on the Nasdaq National Market under the symbol
"STEM."
PREFERRED STOCK
were outstanding or designated.
Our board of directors mayis authorized, without stockholder approval, from time to time, direct the issuance ofto issue shares of preferred stock in series and may, at the time of issuance, subject to Delaware law and our certificate of incorporation and by-laws, determine the rights, preferences and limitations of each series. Sharesseries, including voting rights, dividend rights and redemption and liquidation preferences. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of any one series shallfunds available for the payment of dividends on shares of our common stock. Holders of shares of preferred stock may be identical with each otherentitled to receive a preference payment in all respects except as to
the dates from which dividends shall accrue and/or cumulate. In the event of any liquidation, dissolution or winding upwinding-up of theour company before any payment is made to the holders of undesignatedshares of our common stock. In some circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of each series are entitled to receive an amount
fixedcontrol by a holder of a large block of our securities or the company's Restated Certificateremoval of Incorporation or byincumbent management. Upon the resolution(s)affirmative vote of theour board of directors, providing for the issuancewithout stockholder approval, we may issue shares of such
series.
The board of directors designated 2,626 shares, $.01 par value per share, as
6% cumulative convertible preferred stock 1,500 shares ofwith voting and conversion rights which are issued and
outstanding. The holders of these preferred shares are entitled to receive
cumulative dividends at a per share rate of 6% of the liquidation preference of
each share, per annum accruing daily and compounding quarterly, with priority
over payment of any dividend on common stock or any other class or series of
equity security
50
of the company. In the event of any liquidation, dissolution or winding up of
the company,could adversely affect the holders of the 6% cumulative convertibleshares of our common stock.
If we issue a specific series of preferred stock, are
entitled to receive in preference to holderswe will file a copy of any other class or seriesthe certificate establishing the terms of equity securities, an amount equal to $1,000 per share plus (i) dividends added
to the liquidation preference, (ii) all accrued but unpaid dividends and
(iii) all "Monthly Delay Payments" under the Registration Rights Agreement. The
6% cumulative convertible preferred stock was issued pursuant to a Securities
Purchase Agreement. Each holderwith the Secretary of State of the 6%State of Delaware and with the SEC. To the extent required, this description will include:
| ● | the title and stated value; | |
| ● | the number of shares offered, the liquidation preference per share and the purchase price; | |
| ● | the dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation for such dividends; | |
| ● | whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate; | |
| ● | the procedures for any auction and remarketing, if any; | |
| ● | the provisions for a sinking fund, if any; | |
| ● | the provisions for redemption, if applicable; | |
| ● | any listing of the preferred stock on any securities exchange or market; | |
| ● | whether the preferred stock will be convertible into our common stock, and, if applicable, the conversion price (or how it will be calculated) and conversion period; | |
| ● | whether the preferred stock will be exchangeable into debt securities, and, if applicable, the exchange price (or how it will be calculated) and exchange period; | |
| ● | voting rights, if any, of the preferred stock; | |
| ● | a discussion of any material and/or special U.S. federal income tax considerations applicable to the preferred stock; | |
| ● | the relative ranking and preferences of the preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; and | |
| ● | any material limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the Company. |
Series A Preferred Stock
In December 2016 and May 2017, we filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, or the Series A Certificate of Designation, with the Secretary of State of the State of Delaware, establishing and designating an aggregate of 12,991 shares of the Series A Preferred Stock. Each share of Series A Preferred Stock is convertible, preferred stock
has at any time at the right to convert any or all 6% cumulative convertible
preferred stock held by suchoption of the holder thereof, into fully paid, validly issued and
nonassessable1,000 shares of common stock, $.01 par value per share, at which point
the rights of the holders of converted 6% cumulative convertible preferred stock
shall be treated as having become the owners of such common stock. The
affirmative vote of a majority in interest of the outstanding 6% cumulative
convertible preferred stock is required for (i) any amendment, modification or
repeal of the Certificate of Designations, Certificate of Incorporation or
by-laws that may amend or change or adversely affect any of the rights or
preference of the 6% cumulative convertible preferred stock; provided, however,
that the holders of 6% cumulative convertible preferred stock who are affiliates
of the company shall not participate in such votes, and such shares shall be
deemed not to be outstanding for purposes of such votes. We have no current
intention to issue any more of our unissued, authorized shares of undesignated
preferred stock. However, the issuance of any shares of undesignated preferred
stock in the future could adversely affect the rights of the holders of common
stock.
WARRANTS
As of September 30, 2000, we had outstanding warrants to purchase 296,487
shares of common stock at an average exercise price of $5.3876 per share,
subject to customary antidilution adjustment. The warrants were issued at
various times during this year to eight different parties as described below.
As of April 13, 2000, we issued to each of Irving Weissmancertain adjustments and Mark Levin a
warrant in connection with a Securities Purchase Agreement dated as of
April 13, 2000. Each warrant is to purchase 37,500 shares of our common stock at
an exercise price of $6.58125 per share. Each warrant is exercisable, in whole
or in part, at any time on or after April 13, 2000 and on or prior to April 13,
2005. The exercise price is subject to adjustment for subdivisions,
combinations, stock dividends, reorganizations and various other issuances.
Under the terms of the warrants, during any time that the warrant shares are not
subject to an effective registration statement, each investor may elect to
receive a reduced number of warrant shares in lieu of tendering the exercise
price in cash. Each investor is not entitled to any rights as a shareholder
until he exercises the warrant. In the event of a transaction by us in which
more than 50% of our voting power is disposed of, each investor shall have the
right to purchase, by exercise of the warrant and payment of the exercise price,
the kind and amount of shares and other securities and property which he would
have owned or have been entitled to receive after the occurrence of the
transaction had the warrant been exercised immediately prior thereto, subject to the adjustment of the exercise priceownership limitation described below. The Series A Preferred Stock has no sinking provisions, dividend rights, liquidation preference or other preferences over common stock and has no voting rights except as describedprovided in the warrant and above. We
may, at any time duringSeries A Certificate of Designation or as otherwise required by law.
The Series A Preferred Stock contains limitations that prevent the termholder from acquiring shares upon conversion of the warrant, reduce the exercise price to
any amount for any periodshares of time deemed appropriate by our Board of Directors.
Under the terms of the warrants,series A preferred stock that would result in the number of shares beneficially owned by the holder and its affiliates exceeding 4.99% of common stock that each
investor may acquire upon exercise cannot exceed a number that, when added to the total number of shares of our common stock then issued and outstanding, which limitation may be increased to 9.99% at the investor is deemedoption of the holder. In addition, upon certain changes in control of Microbot, holders of shares of Series A Preferred Stock can elect to beneficially own, together with all sharesreceive, subject to certain limitations and assumptions, securities in a successor entity equal to the value of the holders’ Series A Preferred Stock, or if holders of common stock deemed beneficially
owned byare given a choice of cash or property, then cash or property equal to the investor's affiliates (as defined by Rule 144value of the Securities Actholder’s outstanding Series A Preferred Stock.
As of 1933), would exceed 9.99%September 30, 2018, we had 550 shares of the totalSeries A Preferred Stock issued and outstanding, sharesconvertible into an aggregate of the
common stock.
We issued a warrant to Millennium Partners L.P. on August 3, 2000, which may
entitle them to receive additionalapproximately 36,667 shares of common stock on eight dates
beginning six months from that date and every three months thereafter. On
August 30, 2000 we issued a second warrant to Millennium which may entitle them
to receive additional shares of common stock on eight dates beginning six months
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from August 30, 2000 and every three months thereafter. On November 1, 2000, we
agreed with Millennium to cancel the adjustable warrant issued on August 30,
2000 and to decrease the number of shares for which the adjustable warrant
issued on August 3, 2000 may be exercisable. The number of additional shares
Millennium will be entitled to receive on each date will be based on the number
of shares of common stock Millennium continues to hold on each date and the
market price of our common stock, over a period prior to each date. We will have
the right, under certain circumstances, to limit the number of additional shares
by purchasing part of the entitlement from Millennium. The remaining warrant is
exercisable, in whole or in part, at any time on or prior to 30 days after the
last date which may entitle Millennium to receive additional shares. This
warrant is subject to adjustment for subdivisions, combinations, stock
dividends, reorganizations and various other issuances of common stock. During
any period of time that theno shares of Series A Preferred Stock are available for issuance.
Outstanding Warrants
As of September 30, 2018, we had outstanding:
| ● | warrants to purchase approximately 2,770 shares of our common stock at an exercise price of approximately $40.00 per share, which are exercisable through March 14, 2022, and which are subject to “full ratchet” price-based anti-dilution adjustments; | |
| ● | warrants to purchase approximately 683 shares of our common stock at an exercise price of approximately $1,363 per share, which are exercisable through April 30, 2020; and | |
| ● | warrants to purchase approximately 183 shares of our common stock at an exercise price of approximately $2,725 per share, which are exercisable through April 9, 2023. |
Nasdaq Capital Market
Our common stock underlying this warrant are
not subject to an effective registration statement, Millennium may elect to
exerciseis listed on The Nasdaq Capital Market under the warrant by receiving a reduced number of shares in lieu of
tendering the exercise price in cash. In the event of certain mergers, asset
salessymbol “MBOT.”
Transfer Agent and tender or exchange offers, Millennium shall have the right to
purchase, by exercise of this warrant and payment of the exercise price, the
kind and amount of shares and other securities and property it would have owned
or have been entitled to receive after the occurrence of the transaction had the
warrant been exercised immediately before the transaction, subject to the
adjustment of the exercise price as described in the warrant and above, or, if
applicable, the right to receive a substitute warrant after a merger or the
right to tender the warrant for the consideration that would have been received
if the warrant had been exercised and the shares issued upon exercise had been
tendered. Under the terms of this warrant, the number of shares of common stock
that Millennium may acquire upon exercise cannot exceed a number that, when
added to the total number of shares of common stock Millennium is deemed to
beneficially own, together with all shares of common stock deemed beneficially
owned by Millennium's affiliates (as defined by Rule 144 of the Securities Act
of 1933), would exceed 9.99% of the total issued and outstanding shares of the
common stock.
Millennium also received a warrant on August 3, 2000 to purchase up to
101,587 shares of common stock at $4.725 per share, which is callable by us at
$7.875 per underlying share. On August 30, 2000 we issued an additional warrant
to purchase up to 19,900 shares of common stock at $6.03 per share which is
callable by us at $10.05 per underlying share. Each callable warrant is
exercisable, in whole or in part, at any time on or after the issuance date and
on or prior to the fifth year anniversary of the issuance date. The exercise
price and number of shares are subject to adjustment for subdivisions,
combinations, stock dividends, reorganizations and various other issuances.
Under the terms of the callable warrants, during any time that the warrant
shares are not subject to an effective registration statement, Millennium may
elect to receive a reduced number of warrant shares in lieu of tendering the
exercise price in cash. Millennium is not entitled to any rights as a
shareholder until it exercises the warrant. In the event of certain mergers,
asset sales and tender or exchange offers, Millennium shall have the right to
purchase, by exercise of the callable warrant and payment of the exercise price,
the kind and amount of shares and other securities and property it would have
owned or have been entitled to receive after the occurrence of the transaction
had the warrant been exercised immediately prior thereto, subject to the
adjustment of the exercise price as described in the warrant and above, or, if
applicable, the right to receive a substitute warrant after a merger or the
right to tender the warrant for the consideration that would have been received
if the warrant had been exercised and the shares issued upon exercise had been
tendered. Under the terms of the callable warrants, the number of shares of
common stock that Millennium may acquire upon exercise cannot exceed a number
that, when added to the total number of shares of common stock Millennium is
deemed to beneficially own, together with all shares of common stock deemed
beneficially owned by Millennium's affiliates (as defined by Rule 144 of the
Securities Act of 1933), would exceed 9.99% of the total issued and outstanding
shares of the common stock.
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On August 3, 2000 we issued a warrant to the May Davis Group and four of its
affiliates to purchase up to 100,000 shares of common stock at $5.0375 per
share. The warrant is exercisable, in whole or in part, at any time on or after
the issuance date and on or prior to the fifth year anniversary of the issuance
date. The exercise price and number of shares are subject to adjustment for
subdivisions, combinations, stock dividends, reorganizations and various other
issuances.
PROVISIONS OF DELAWARE LAW GOVERNING BUSINESS COMBINATIONS
We are subject to the "business combination" provisions of the Delaware
General Corporation Law. In general, such provisions prohibit a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless:
- the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained such status;
- upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of a corporation's voting stock or within three
years did own 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts.
TRANSFER AGENT AND REGISTRAR
Registrar
The transfer agent and registrar for our common stock is EquiServe L.P.
53
PLANComputershare Trust Company, N.A. The transfer agent and registrar’s address is Meidinger Tower, 462 South 4th Street, Louisville, KY 40202.
DESCRIPTION OF DISTRIBUTION
SECURITIES WE ARE OFFERING
We are offering 5,865,102 shares of our common stock or pre-funded warrants to purchase shares of our common stock. The shares of common stock or pre-funded warrants will be issued separately. We are also registering the shares of common stock issuable from time to time upon exercise of the pre-funded warrants offered hereby.
Common Stock
The material terms and provisions of our common stock and each other class of our securities which qualifies or limits our common stock are described under the caption “Description of Capital Stock” in this prospectus.
Pre-Funded Warrants
The following summary of certain terms and provisions of pre-funded warrants that are being offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the pre-funded warrant, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions of the form of pre-funded warrant for a complete description of the terms and conditions of the pre-funded warrants.
Duration and Exercise Price. Each pre-funded warrant offered hereby will have an initial exercise price per share equal to $0.01. The pre-funded warrants will be immediately exercisable and may be exercised at any time until the pre-funded warrants are exercised in full. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our common stock and the exercise price.
Exercisability.The pre-funded warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of shares of our common stock purchased upon such exercise (except in the case of a cashless exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of the pre-funded warrant to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the amount of ownership of outstanding stock after exercising the holder’s pre-funded warrants up to 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the pre-funded warrants. Purchasers of pre-funded warrants in this offering may also elect prior to the issuance of the pre-funded warrants to have the initial exercise limitation set at 9.99% of our outstanding common stock. No fractional shares of common stock will be issued in connection with the exercise of a pre-funded warrant. In lieu of fractional shares, we will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole share.
Cashless Exercise. If, at the time a holder exercises its pre-funded warrants, a registration statement registering the issuance of the shares of common stock underlying the pre-funded warrants under the Securities Act is not then effective or available, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of common stock determined according to a formula set forth in the pre-funded warrants.
Transferability.Subject to applicable laws, a pre-funded warrant may be transferred at the option of the holder upon surrender of the pre-funded warrant to us together with the appropriate instruments of transfer.
Exchange Listing. There is no trading market available for the pre-funded warrants on any securities exchange or nationally recognized trading system. We do not intend to list the pre-funded warrants on any securities exchange or nationally recognized trading system.
Right as a Stockholder. Except as otherwise provided in the pre-funded warrants or by virtue of such holder’s ownership of shares of our common stock, the holders of the pre-funded warrants do not have the rights or privileges of holders of our common stock, including any voting rights, until they exercise their pre-funded warrants.
Fundamental Transaction. In the event of a fundamental transaction, as described in the pre-funded warrants and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding common stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding common stock, the holders of the pre-funded warrants will be entitled to receive upon exercise of the pre-funded warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the pre-funded warrants immediately prior to such fundamental transaction.
We have entered into an underwriting agreement dated , 2018 with H.C. Wainwright & Co., LLC, as underwriter, with respect to the securities being offered hereby. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriter and the underwriter has agreed to purchase from us, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, shares of our common stock and pre-funded warrants.
Pursuant to the terms and subject to the conditions contained in the underwriting agreement, we have agreed to sell to the underwriter named below, and the underwriter has agreed to purchase from us, the respective number of shares of common stock and pre-funded warrants set forth opposite its name below:
| Underwriter | | | Number of Shares of Common Stock | | | Number of Pre-funded Warrants | |
| H.C. Wainwright & Co., LLC | | | | ||||
The underwriting agreement provides that the obligation of the underwriter to purchase the shares of common stock and/or pre-funded warrants offered by this prospectus is subject to certain conditions. The underwriter is obligated to purchase all of the shares of common stock and/or pre-funded warrants if any of the securities are purchased, other than those shares covered by the option to purchase additional securities described below. Delivery of the shares of common stock and any pre-funded warrants to purchasers is expected on or about , 2018, subject to certain customary closing conditions.
The underwriter proposes to offer the shares of common stock and/or pre-funded warrants purchased pursuant to the underwriting agreement to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share or per pre-funded warrant. After this offering, the public offering price and concession may be changed by the underwriter. No such change shall change the amount of proceeds fromto be received by us as set forth on the cover page of this prospectus.
In connection with the sale by the selling
stockholders of the common stock offered hereby.and/or pre-funded warrants to be purchased by the underwriter, the underwriter will be deemed to have received compensation in the form of underwriting commissions and discounts. The underwriter’s commissions and discounts will be 7% of the gross proceeds of this offering, or $ per share of common stock or per pre-funded warrant.
Underwriting Discounts, Commissions and Expenses
The following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriter’s option to purchase additional shares of common stock.
| Per Share | Per Pre- funded Warrants | Total Without Option | Total With Option | |||||||||||||
| Public offering price | $ | $ | $ | $ | ||||||||||||
| Underwriting discounts and commissions | $ | $ | $ | $ | ||||||||||||
| Proceeds before expenses | $ | $ | $ | $ | ||||||||||||
We have also agreed to pay to the underwriter a management fee equal to 1% of the aggregate gross proceeds raised in this offering. We estimate the total expenses payable by us for this offering, excluding the underwriting discounts and commissions, to be approximately $ 500,000 , which includes (i) a $35,000 non-accountable expense allowance payable to the underwriter, (ii) reimbursement of the accountable expenses of the underwriter up to $125,000, including the legal fees of the underwriter, (iii) if applicable, reimbursement of documented costs of clearing agent settlement and financing up to $10,000 and (iv) other estimated expenses, which include legal, accounting, printing costs and various fees associated with the registration and listing of our securities sold in this offering in a total estimated amount of $ 340,000 .
We have also agreed to pay the underwriter a tail fee equal to the cash and warrant compensation in this offering if any investor which the underwriter contacted or introduced us to during the term of the underwriter’s engagement (other than investors who have a pre-existing relationship with us) provides us with further capital in a public or private offering or capital raising transaction and such offering or transaction is consummated during the six-month period following termination or expiration of that certain engagement letter, dated October 12, 2018, entered into between us and the underwriter.
In addition, we have agreed to issue to the underwriter warrants (the “Underwriter’s Warrants”) to purchase up to 337,243 shares of common stock, which represents 5% of the aggregate number of shares of common stock and pre-funded warrants sold in this offering (including the number of shares of common stock issuable upon exercise of the option to purchase additional securities), at an exercise price of $ per share (representing 125% of the public offering price per share of common stock to be sold in this offering). The Underwriter’s Warrants will be exercisable immediately and shall expire five years following the effective date of this offering. Pursuant to FINRA Rule 5110(g), the Underwriter’s Warrants and any shares issued upon exercise of the Underwriter’s Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering, except the transfer of any security: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period; (iii) if the aggregate amount of our securities held by the underwriter or related persons do not exceed 1% of the securities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) the exercise or conversion of any security, if all securities remain subject to the lock-up restriction set forth above for the remainder of the time period.
Option to Purchase Additional Securities
We have granted to the underwriter an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to an additional 879,765 shares of common stock at the public offering price, less the underwriting discounts and commissions, set forth on the cover page of this prospectus. If any additional shares of common stock are purchased pursuant to such option, the underwriter will offer these securities on the same terms as those on which the securities are being offered herebyhereby.
Right of First Refusal
We have also granted the underwriter a right of first refusal for a period of twelve months following the closing of this offering to act as sole book-running manager, sole underwriter or sole placement agent for each and every future public offering or private placement of equity or debt securities by us or any of our subsidiaries.
Lock-up Agreements
Our Section 16 (under the Exchange Act) officers and directors have agreed with the underwriter to be subject to a lock-up period of 90 days following the date of this prospectus. This means that, during the applicable lock-up period, such persons may not offer for sale, contract to sell, sell, distribute, grant any option, right or warrant to purchase, pledge, hypothecate or otherwise dispose of, directly or indirectly, any of our shares of common stock or any securities convertible into, or exercisable or exchangeable for, shares of common stock. Certain limited transfers are permitted during the lock-up period if the transferee agrees to these lock-up restrictions.
We have also agreed, in the underwriting agreement, to similar lock-up restrictions on the issuance and sale of our shares of common stock, or any securities convertible into, or exercisable or exchangeable for, shares of common stock, for 90 days following the closing of this offering, subject to certain exceptions.
The underwriter may, in its sole discretion and without notice, waive the terms of any of these lock-up agreements.
Stabilization, Short Positions and Penalty Bids
The underwriter may engage in syndicate covering transactions, stabilizing transactions and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock:
| ● | Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Such a naked short position would be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriter is concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in the offering. | |
| ● | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specific maximum. | |
| ● | Penalty bids permit the underwriter to reclaim a selling concession from a syndicate member when the securities originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These syndicate covering transactions, stabilizing transactions and penalty bids may have the effect of raising or maintaining the market prices of our securities or preventing or retarding a decline in the market prices of our securities. As a result, the price of our common stock may be sold from timehigher than the price that might otherwise exist in the open market. Neither we nor the underwriter make any representation or prediction as to time
by the selling stockholders, or by pledgees, donees, transferees or other
successors in interest (i) to or through underwriters or dealers, (ii) directly
to one or more other purchasers, (iii) through agentseffect that the transactions described above may have on a best-efforts basis,
or (iv) through a combinationthe price of any such methods of sale. Such salesour common stock. These transactions may be madeeffected on one or more exchanges orthe Nasdaq Capital Market, in the over-the-counter market or otherwise at
priceson any other trading market and, at terms then prevailing or at prices related to the then current
market price, or in privately negotiated transactions. The sharesif commenced, may be sold by
one or more ofdiscontinued at any time.
In connection with this offering, the following: (a) a block tradeunderwriter also may engage in which the broker or dealer so
engaged will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this prospectus; (c) an exchange distributionpassive market making transactions in our common stock in accordance with Regulation M during a period before the rulescommencement of such exchange;offers or sales of our securities in this offering and (d) ordinary brokerage transactionsextending through the completion of the distribution. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for that security. However, if all independent bids are lowered below the passive market maker’s bid that bid must then be lowered when specific purchase limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, transactions in whichif commenced, may be discontinued at any time.
Neither we nor the broker solicits purchasers; and (e) privately
negotiated transactions without a brokerunderwriter make any representation or dealer. In effecting sales, brokers
or dealers engaged by the selling stockholders may arrange for other brokers or
dealers to participate. Brokers or dealers will receive commissions or discounts
from selling stockholders in amounts to be negotiated priorprediction as to the sale.direction or magnitude of any effect that the transactions described above may have on the prices of our securities. In addition, neither we nor the underwriter make any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus.
In addition,representation that the selling stockholders mayunderwriter will engage in short sales and otherthese transactions in the common stock or derivatives thereof, and may pledge, sell,
deliver or otherwise transfer the common stock offered under this prospectus in
connection with such transactions.
If we are notified by a selling stockholder that a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution, or a
purchase by a broker-dealer as a principal, a supplemental prospectusany transactions, once commenced, will not be filed listing:
- the name of each selling stockholder and of the participating
broker-dealer(s);
- the number of shares involved;
- the price at which such shares were sold;
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable; and
- other facts material to the transaction.
discontinued without notice.
Indemnification
We have agreed to payindemnify the cost of registering the shares covered by this
prospectus and the costs of preparing this prospectus and the registration
statement under which it is filed. We will provide the estimated total of these
expenses by amendment.
We and the selling stockholders have agreed to indemnify each otherunderwriter against certain liabilities, including certain liabilities arising under the Securities Act.
54
Determination of Offering Price
The actual offering price of the securities we are offering will be negotiated between us and the underwriter based on the trading of our common stock prior to the offering, among other things, and may be at a discount to the current market price.
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format may be made available on the websites maintained by the underwriter, if any, participating in this offering and the underwriter may distribute prospectuses electronically. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus form a part, has not been approved or endorsed by us or the underwriter, and should not be relied upon by investors.
Other Relationships
The underwriter and its respective affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us or our affiliates.
Listing
Our common stock is listed on The Nasdaq Capital Market under the symbol “MBOT.” We do not plan to list the pre-funded warrants or the Underwriter’s Warrants on The Nasdaq Capital Market or any other securities exchange or trading market.
Notice To Investors
Belgium
The offering is exclusively conducted under applicable private placement exemptions and therefore it has not been and will not be notified to, and this document or any other offering material relating to the securities has not been and will not be approved by, the Belgian Banking, Finance and Insurance Commission (“Commission bancaire, financière et des assurances/Commissie voor het Bank, Financie en Assurantiewezen”). Any representation to the contrary is unlawful.
The underwriter has undertaken not to offer sell, resell, transfer or deliver directly or indirectly, any units, or to take any steps relating/ancillary thereto, and not to distribute or publish this document or any other material relating to the units or to the offering in a manner which would be construed as: (a) a public offering under the Belgian Royal Decree of 7 July 1999 on the public character of financial transactions; or (b) an offering of securities to the public under Directive 2003/71/EC which triggers an obligation to publish a prospectus in Belgium. Any action contrary to these restrictions will cause the recipient and the Company to be in violation of the Belgian securities laws.
France
Neither this prospectus nor any other offering material relating to the securities has been submitted to the clearance procedures of the Autorité des marchés financiers in France. The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the securities has been or will be: (a) released, issued, distributed or caused to be released, issued or distributed to the public in France; or (b) used in connection with any offer for subscription or sale of the securities to the public in France. Such offers, sales and distributions will be made in France only: (i) to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in and in accordance with Articles L.411-2, D.411-1, D.411-2, D.734-1,D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier; (ii) to investment services providers authorised to engage in portfolio management on behalf of third parties; or (iii) in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des marchés financiers, does not constitute a public offer (appel public à l’épargne). Such securities may be resold only in compliance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
United Kingdom/Germany/Norway/The Netherlands
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State other than the offers contemplated in this prospectus in name(s) of Member State(s) where prospectus will be approved or passported for the purposes of a non-exempt offer once this prospectus has been approved by the competent authority in such Member State and published and passported in accordance with the Prospectus Directive as implemented in name(s) of relevant Member State(s) except that an offer to the public in that Relevant Member State of any security may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
| (a) | to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; |
| (b) | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; |
| (c) | by the representative to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or |
| (d) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of units shall result in a requirement for the publication by the company or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an “offer to the public” in relation to any units in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any units to be offered so as to enable an investor to decide to purchase any units, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
The underwriter has represented, warranted and agreed that:
| (a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection with the issue or sale of any units in circumstances in which section 21(1) of the FSMA does not apply to the company; and |
| (b) | it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom. |
Israel
This prospectus does not constitute a prospectus under the Israeli Securities Law, 5728-1968, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus is being distributed only to, and is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors, in each case, purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are qualified investors. Qualified investors will be required to submit written confirmation that they fall within the scope of the Addendum.
Italy
The offering of the securities offered hereby in Italy has not been registered with the Commissione Nazionale per la Società e la Borsa (“CONSOB”) pursuant to Italian securities legislation and, accordingly, the securities offered hereby cannot be offered, sold or delivered in the Republic of Italy (“Italy”) nor may any copy of this prospectus or any other document relating to the securities offered hereby be distributed in Italy other than to professional investors (operatori qualificati) as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of 1 July, 1998 as subsequently amended. Any offer, sale or delivery of the securities offered hereby or distribution of copies of this prospectus or any other document relating to the securities offered hereby in Italy must be made:
| (a) | by an investment firm, bank or intermediary permitted to conduct such activities in Italy in accordance with Legislative Decree No. 58 of 24 February 1998 and Legislative Decree No. 385 of 1 September 1993 (the “Banking Act”); |
| (b) | in compliance with Article 129 of the Banking Act and the implementing guidelines of the Bank of Italy; and |
| (c) | in compliance with any other applicable laws and regulations and other possible requirements or limitations which may be imposed by Italian authorities. |
Sweden
This prospectus has not been nor will it be registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this prospectus may not be made available, nor may the securities offered hereunder be marketed and offered for sale in Sweden, other than under circumstances which are deemed not to require a prospectus under the Financial Instruments Trading Act (1991: 980).
Switzerland
The securities offered pursuant to this prospectus will not be offered, directly or indirectly, to the public in Switzerland and this prospectus does not constitute a public offering prospectus as that term is understood pursuant to art. 652a or art. 1156 of the Swiss Federal Code of Obligations. The company has not applied for a listing of the securities being offered pursuant to this prospectus on the SWX Swiss Exchange or on any other regulated securities market, and consequently, the information presented in this prospectus does not necessarily comply with the information standards set out in the relevant listing rules. The securities being offered pursuant to this prospectus have not been registered with the Swiss Federal Banking Commission as foreign investment funds, and the investor protection afforded to acquirers of investment fund certificates does not extend to acquirers of securities.
Investors are advised to contact their legal, financial or tax advisers to obtain an independent assessment of the financial and tax consequences of an investment in securities.
| 24 |
The validity of the shares of our common stocksecurities being offered herebyby this prospectus will be passed upon for us by Ropes & Gray,Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C., Boston, Massachusetts. EXPERTS
Ernst & YoungThe underwriter is being represented by Lowenstein Sandler, LLP, independent auditors, have audited ourNew York, New York.
The consolidated financial statements at December 31, 1999 and 1998, andof Microbot Medical Inc. appearing it its Annual Report on Form 10-K for each of the three
years in the periodyear ended December 31, 1999,2017, have been audited byBrightman Almagor Zohar & Co., a Member of Deloitte Touche Tohmatsu Limited,independent registered public accounting firm, as set forth in their report. We
havereport thereon, included ourtherein, and incorporated herein by reference. Such consolidated financial statements in the prospectus and elsewhere in the
Registration Statementare incorporated herein by reference in reliance on Ernst & Young LLP'supon such report given on theirthe authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MOREADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the common stock to be sold insecurities being offered by this offering.prospectus. This prospectus does not contain all of the information included in the registration statement and the related exhibits and schedules. You will find
additionalits exhibits. For further information aboutwith respect to us and our common stockthe securities offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. TheEach of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the registration statement, andover the related exhibits and schedules may
be inspected and copiedInternet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth100 F Street N.W.,NE, Washington, D.C. 20549,
and at the public reference facilities of the SEC's Regional Offices: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048;
and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of this material20549. You may also be obtained fromobtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth100 F Street N.W.N.E., Washington, D.C. 2054920549. Please call the SEC at prescribed rates. You can obtain1-800-SEC-0330 for further information on the operation of the public reference facilitiesfacilities. You may also request a copy of these filings, at no cost, by calling 1-800-SEC-0330. The SEC also maintains a site onwriting us at 25 Recreation Park Drive, Unit 108 Hingham, Massachusetts 02043 or telephoning us at (781) 875-3605.
We are subject to the World Wide Web (http://www.sec.gov) that containsinformation and periodic reporting requirements of the Exchange Act, and we file periodic reports, proxy and
information statements and other information regarding registrants, including
us, that file electronically with the SEC. Statements madeThese periodic reports, proxy statements and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at www.microbotmedical.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference in, and is not part of, this prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” information from other documents that we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. Information in this prospectus about legal documents may not necessarily be completesupersedes information incorporated by reference that we filed with the SEC prior to the date of this prospectus.
We incorporate by reference into this prospectus and you should read the
documents which are filed as exhibits or schedules to the registration statement of which this prospectus is a part the information or otherwisedocuments listed below that we have filed with the SEC.
55
STEMCELLS,SEC (Commission File No. 001-19871):
| ● | our annual report on Form 10-K for the year ended December 31, 2017 filed with the SEC on April 2, 2018; | |
| ● | our quarterly reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018 , filed with the SEC on May 15, 2018 , August 14, 2018, and November 14 , respectively; | |
| ● | our Definitive Proxy Statement on Schedule 14A, filed with the SEC on July 27, 2018; | |
| ● | our current reports on Form 8-K and any amendments thereto on Form 8-K/A, filed with the SEC on January 8, 2018; January 31, 2018; March 28, 2018; April 5, 2018; April 16, 2018; September 4, 2018 , October 1, 2018 and November 19, 2018 (in each case, except for information contained therein which is furnished rather than filed); and | |
| ● | the description of our common stock contained in our registration statement on Form 8-A, filed with the SEC on August 3, 1998, including all amendments and reports filed for the purpose of updating such description. |
In addition, all documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering (excluding any information furnished rather than filed) shall be deemed to be incorporated by reference into this prospectus.
We will provide to each person, including any beneficial owners, to whom a prospectus is delivered, a copy of any or all of the reports or documents that have been incorporated by reference in the prospectus contained in the registration statement but not delivered with the prospectus. We will provide these reports or documents upon written or oral request at no cost to the requester. You should direct any written requests for documents to Microbot Medical Inc. Attn: Chief Financial Officer, 25 Recreation Park Drive, Unit 108, Hingham, Massachusetts 02043. You may also telephone us at (781) 875-3605.
In accordance with Rule 412 of the Securities Act, any statement contained in a document incorporated by reference herein shall be deemed modified or superseded to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement.
MICROBOT MEDICAL INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
Stockholders andREGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors StemCells,and Stockholders of
MICROBOT MEDICAL, Inc., (formerly CytoTherapeutics, Inc.)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of StemCells,Microbot Medical, Inc. (formerly CytoTherapeutics, Inc.and its subsidiary (the “Company”) as of December 31, 19992017 and 1998,2016 and the related consolidated statements of operations, changes in
redeemable common stock and stockholders'comprehensive loss, stockholders’ equity and cash flows for each of the threetwo years in the period ended December 31, 1999. 2017, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits.
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with auditingthe standards generally
accepted inof the United States.PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. AnOur audit also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
| /s/ Brightman Almagor Zohar & Co. | |
| Certified Public Accountants | |
| Member of Deloitte Touche Tohmatsu Limited |
Tel Aviv, Israel
April 2, 2018, except Note 1D, as to which the date is November 8, 2018
We have served as the Company’s auditor since 2014.
| F-2 |
MICROBOT MEDICAL INC.
U.S. dollars in thousands
(Except share data)
| As of December 31, | ||||||||||||
| Note | 2017 | 2016 | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 10,787 | $ | 2,709 | ||||||||
| Restricted cash | 27 | - | ||||||||||
| Other current assets | 3 | 116 | 606 | |||||||||
| 10,930 | 3,315 | |||||||||||
| Fixed assets, net | 4 | 90 | 53 | |||||||||
| Total assets | $ | 11,020 | $ | 3,368 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Trade payables | $ | 78 | $ | 512 | ||||||||
| Accrued liabilities | 5 | 450 | 271 | |||||||||
| Total current liabilities | 528 | 783 | ||||||||||
| Long-term liabilities: | ||||||||||||
| Convertible notes | 6 | - | 76 | |||||||||
| Derivative warrant liability | 7 | 28 | 313 | |||||||||
| 28 | 389 | |||||||||||
| Total liabilities | 556 | 1,172 | ||||||||||
| Commitments and contingencies | 8 | |||||||||||
| Temporary equity: | 9 | |||||||||||
| Common stock of $0.01 par value; issued and outstanding: 721,107 shares as of December 31, 2017 and 2016 | 500 | 500 | ||||||||||
| Shareholders’ equity: | ||||||||||||
| Preferred stock of $0.01 par value; Authorized: 1,000,000 shares as of December 31, 2017 and 2016;issued and outstanding: 4,001 and 9,736 shares as of December 31, 2017 and 2016, respectively | 9 | (*) | (*) | |||||||||
| Common stock of $0.01 par value; Authorized: 220,000,000 as of December 31, 2017 and 2016; issued and outstanding (**): 2,013,193 and 1,067,777 shares as of December 31, 2017, and December 31, 2016, respectively | 27 | 18 | ||||||||||
| Additional paid-in capital | 30,561 | 14,713 | ||||||||||
| Accumulated deficit | (20,624 | ) | (13,035 | ) | ||||||||
| 9,964 | 1,696 | |||||||||||
| $ | 11,020 | $ | 3,368 | |||||||||
(*) Less than 1
(**) December 31 2017 and 2016 share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
MICROBOT MEDICAL INC.
Consolidated Statements of Comprehensive Loss
U.S. dollars in thousands
(Except share data)
| Years ended | ||||||||||||
| December 31, | ||||||||||||
| Note | 2017 | 2016 | ||||||||||
| Research and development expenses, net | 11 | $ | 1,100 | $ | 901 | |||||||
| General and administrative expenses | 12 | 4,167 | 8,734 | |||||||||
| Operating loss | (5,267 | ) | (9,635 | ) | ||||||||
| Financing expenses, net | 13 | 2,322 | 28 | |||||||||
| Net loss | $ | (7,589 | ) | $ | (9,663 | ) | ||||||
| Net loss per share, basic and diluted(*) | 10 | $ | (2.67 | ) | $ | (5.94 | ) | |||||
| Weighted-average number of common shares outstanding, basic and diluted (*) | 2,201,992 | 963,047 | ||||||||||
(*) December 31 2017 and 2016 share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
MICROBOT MEDICAL INC.
Consolidated Statements of Shareholder’s Equity
U.S. dollars in thousands
(Except share data)
Preferred A Shares – Microbot Medical Ltd. (Pre - merger) * | Preferred A Shares – Microbot Medical Inc. (Post - merger) * | Common Stock (***) | Additional paid-in | Accumulated | Total shareholders’ | Temporary | ||||||||||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Number | Amount | capital | deficit | equity | equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2015 | 8,708,132 | $ | 87 | - | - | 888,188 | $ | 9 | $ | 3,212 | $ | (3,372 | ) | $ | (64 | ) | $ | - | ||||||||||||||||||||||
| Conversion of convertible notes and exercise of warrants issued upon conversion | 4,746,237 | 48 | - | - | - | - | 1,803 | - | 1,851 | - | ||||||||||||||||||||||||||||||
| Effect of reverse recapitalization | (13,454,369 | ) | (135 | ) | - | - | 1,030,957 | 10 | 597 | - | 472 | - | ||||||||||||||||||||||||||||
| Common Stock classified as temporary equity | - | - | - | - | - | - | (500 | ) | - | (500 | ) | 500 | ||||||||||||||||||||||||||||
| Beneficial Conversion Feature recorded on convertible debt acquired in reverse recapitalization | - | - | - | - | - | - | 2,029 | - | 2,029 | - | ||||||||||||||||||||||||||||||
| Transaction costs incurred in reverse recapitalization | - | - | - | - | 525,706 | 5 | 6,890 | - | 6,895 | - | ||||||||||||||||||||||||||||||
| Cancellation of ordinary shares and issuance of preferred shares | - | - | 9,736 | (*) | (655,967 | ) | (6 | ) | 6 | - | - | |||||||||||||||||||||||||||||
| Share based compensation | - | - | - | - | - | - | 676 | - | 676 | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (9,663 | ) | (9,663 | ) | - | ||||||||||||||||||||||||||||
| Balances, December 31, 2016 | - | - | 9,736 |
(*) | (**)1,788,884 | 18 | 14,713 | (13,035 | ) | 1,696 | 500 | |||||||||||||||||||||||||||||
| Issuance of common stock | - | - | - | - | 299,815 | 3 | 12,699 | - | 12,702 | - | ||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | 8,085 | (*) | 479 | - | 479 | - | ||||||||||||||||||||||||||||||
| Exercise of options | - | - | - | - | 31,787 | (*) | (*) | - | - | - | ||||||||||||||||||||||||||||||
| Cashless exercise of warrants | - | - | - | - | 24 | (*) | - | - | (*) | - | ||||||||||||||||||||||||||||||
| Extinguishment of convertible notes and issuance of preferred A shares | - | - | 3,255 | (*) | - | - | 2,676 | - | 2,676 | - | ||||||||||||||||||||||||||||||
| Conversion of preferred A shares to common stock | - | - | (8,990 | ) | (*) | 605,705 | 6 | (6 | ) | - | - | - | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (7,589 | ) | (7,589 | ) | - | ||||||||||||||||||||||||||||
| Balances, December 31, 2017 | - | - | 4,001 | $ | (*) | **2,734,300 | $ | 27 | $ | 30,561 | $ | (20,624 | ) | $ | 9,964 | $ | 500 | |||||||||||||||||||||||
(*) Less than 1
* Share data for periods prior to the reverse recapitalization represents the legal equity structure of Microbot Ltd. with the number of shares adjusted to retroactively reflect the one-to-nine Reverse Stock Split effected on November 28, 2016 as well as the reverse recapitalization consummated on November 28, 2016.
** Includes 721,107 common stock classified as temporary equity.
(***) December 31 2017, 2016 and 2015 share data represent the number of shares adjusted to retroactively reflect the 1:15 reverse Stock Split effected on September 4, 2018, as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
MICROBOT MEDICAL INC.
Consolidated Statements of Cash Flows
U.S. dollars in thousands
(Except share data)
| Years ended | ||||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (7,589 | ) | $ | (9,663 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 21 | 10 | ||||||
| Interest and amortization of discount on convertible notes | 237 | 333 | ||||||
| Share-based transaction costs incurred in reverse recapitalization | - | 7,258 | ||||||
| Financing loss on debt extinguishment | 2,364 | - | ||||||
| Changes in fair value of derivative warrant liability | (285 | ) | (262 | ) | ||||
| Share-based compensation expense | 479 | 676 | ||||||
| Changes in assets and liabilities: | ||||||||
| Other receivables | (14 | ) | 538 | |||||
| Other payables and accrued liabilities | (69 | ) | 324 | |||||
| Net cash used in operating activities | (4,856 | ) | (786 | ) | ||||
| INVESTMENT ACTIVITIES | ||||||||
| Increase in restricted cash | (27 | ) | - | |||||
| Purchase of property and equipment | (58 | ) | (25 | ) | ||||
| Net cash used in investing activities | (85 | ) | (25 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Acquisition of a subsidiary in connection with reverse recapitalization | - | 269 | ||||||
| Transaction costs incurred in reverse recapitalization | - | (347 | ) | |||||
| Inflows in connection with current assets and liabilities acquired in reverse recapitalization, net | 317 | 2,002 | ||||||
| Exercise of warrants issued upon conversion of notes | - | 409 | ||||||
| Issuance of common stock, net of issuance costs | 12,702 | - | ||||||
| Issuance of convertible notes | - | 750 | ||||||
| Net cash provided by financing activities | 13,019 | 3,083 | ||||||
| Increase in cash and cash equivalents | 8,078 | 2,272 | ||||||
| Cash and cash equivalents at the beginning of the year | 2,709 | 437 | ||||||
| Cash and cash equivalents at the end of the year | $ | 10,787 | $ | 2,709 | ||||
Supplemental disclosure of cash flow information: | ||||||||
| Non-cash financing transactions: | ||||||||
| Cashless exercise of warrants | $ | (*) | $ | - | ||||
| Conversion of preferred A shares into common shares | $ | 90 | $ | - | ||||
| Extinguishment of convertible notes in exchange for preferred A shares | $ | 2,083 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
MICROBOT MEDICAL INC.
Consolidated Statements of Cash Flows
U.S. dollars in thousands
(Except share data)
| Assets acquired (liabilities assumed): | As of | |||
| November 28, | ||||
| 2016 | ||||
| (in thousands) | ||||
| Current assets excluding cash and cash equivalents | $ | (3,618 | ) | |
| Current liabilities | 811 | |||
| Derivative warrant liability | 575 | |||
| Convertible note | 2,029 | |||
| Reverse recapitalization effect on equity | 472 | |||
| Cash acquired in connection with reverse recapitalization | $ | 269 | ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
| A. | Description of business: |
Microbot Medical Inc. (the “Company”) is a pre-clinical medical device company specializing in the research, design and development of next generation micro-robotics assisted medical technologies targeting the minimally invasive surgery space. The Company is primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes for patients.
It was incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate of Incorporation was restated on February 14, 1992 to change the name of the Company to Cyto Therapeutics, Inc. On May 24, 2000, the Certificate of Incorporation as restated was further amended to change the name of the Company to StemCells, Inc.
On November 28, 2016, the Company consummated a transaction pursuant to an Agreement and Plan of Merger, dated August 15, 2016, with Microbot Medical Ltd., a private medical device company organized under the laws of the State of Israel (“Microbot Israel”), and C&RD Israel Ltd. (“Merger Sub”), an Israeli corporation and wholly-owned subsidiary of the Company, whereby Merger Sub merged with and into Microbot Israel and Microbot Israel surviving as a wholly-owned subsidiary of the Company (the “Merger”). Pursuant to the terms of the Merger, at the effective time of the Merger, each outstanding ordinary share of Microbot Israel capital stock was converted into the right to receive approximately 0.2 shares (2.9 shares before the Reverse Split described below) of the Company’s common stock, par value $0.01 per share, after giving effect to a one for nine reverse stock splits of the date of the merger, for an aggregate of 1,788,884 shares (26,550,974 shares before the Reverse Split) of Company’s common Stock issued to the former Microbot Israel shareholders. In our opinion,addition, all outstanding options to purchase the ordinary shares of Microbot Israel were assumed by the Company and converted into options to purchase an aggregate of 176,181 shares (2,614,916 shares before the Reverse Split) of the Company’s common stock. Additionally, the Company issued an aggregate of 525,706 restricted shares (7,802,639 restricted shares before the Reverse Split) of its common stock or rights to receive the Company’s common stock, to certain advisers. On the same day and in connection with the Merger, the Company changed its name from StemCells, Inc. to Microbot Medical Inc. On November 29, 2016, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol “MBOT”.
As a result of the Merger, Microbot Israel became a wholly owned subsidiary of the Company. The transaction between the Company and Microbot Israel was accounted for as a reverse recapitalization. As the shareholders of Microbot Israel received the largest ownership interest in the Company, Microbot Israel was determined to be the “accounting acquirer” in the reverse recapitalization. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Microbot Israel. Unless indicated otherwise, pre-acquisition share, options and warrants data included in these financial statements is retroactively adjusted to reflect the Reverse Stock Split and the Merger.
Prior to the Merger, the Company was a biopharmaceutical company that conducts research, development, and commercialization of stem cell therapeutics and related technologies. Substantially the sale of all material assets relating to the stem cell business were completed on November 29, 2016.
The Company and its subsidiaries are collectively referred to as the “Company”. “StemCells” or “StemCells, Inc.” refers to the Company prior to the Merger.
| F-8 |
| B. | Risk Factors: |
To date, the Company has not generated revenues from its operations. As of the date of issuance of these financial statements, the Company has cash and cash equivalent balance of $9.5 million, which management believes is sufficient to fund its operations for more than 12 months from the date of issuance of these financial statements and sufficient to fund its operations necessary to continue development activities of its current proposed products. Due to continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future. The Company plans to continue to fund its current operations as well as other development activities relating to additional product candidates, through future issuances of either debt and/or equity securities and possibly additional grants from the Israeli Innovation Authority. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.
| C. | Use of estimates: |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions pertaining to transactions and matters whose ultimate effect on the financial statements referredcannot precisely be determined at the time of financial statements preparation. Although these estimates are based on management’s best judgment, actual results may differ from these estimates.
| D. | Reverse Stock Split |
On September 4, 2018, the Company filed a Certificate of Amendment to above present fairly,
in all material respects,its Restated Certificate of Incorporation with the consolidated financial positionSecretary of StemCells, Inc. (formerly CytoTherapeutics, Inc.) at December 31, 1999 and 1998,
and the consolidated results of its operations and its cash flows for eachState of the three yearsState of Delaware to affect a one-for-15 reverse stock split of the Company’s common stock (the “Reverse Split”). As a result of the Reverse Split, every 15 shares of the Company’s old common stock will be converted into one share of the Company’s new common stock. Fractional shares resulting from the Reverse Split will be rounded up to the nearest whole number. The Reverse Split automatically and proportionately adjusted, based on the one-for-fifteen split ratio, all issued and outstanding shares of the Company’s common stock, as well as common stock underlying convertible preferred stock, stock options, warrants and other derivative securities outstanding at the time of the effectiveness of the reverse stock split. The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s equity-based plans was also proportionately reduced. Share and per share data (except par value) for the periods presented reflect the effects of this Reverse Split. References to numbers of shares of common stock and per share data in the period ended December 31, 1999,accompanying financial statements and notes thereto have been adjusted to reflect the Reverse Split on a retroactive basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of the financial statements are as follows:
| A. | Basis of presentation: |
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Providence, Rhode Island
April 14, 2000
F-2
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.States of America (“US GAAP”).
| B. | Financial statement in U.S. dollars: |
The functional currency of the Company is the U.S. dollar (“dollar”) CONSOLIDATED BALANCE SHEETS
since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future.
Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in foreign currencies have been re-measured to dollars in accordance with the provisions of ASC 830-10, “Foreign Currency Translation”.
All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate.
| C. | Cash and cash |
Cash and cash equivalents consist of cash and demand deposits in banks, and other short-term liquid investments (primarily interest-bearing time deposits) with original maturities of less than three months.
| D. | Fair value of financial instruments: |
The carrying values of cash and cash equivalents, other receivable and other accounts payable and accrued liabilities approximate their fair value due to the short-term maturity of these instruments.
The Company measures the fair value of certain of its financial instruments (such as the derivative warrant liabilities) on a recurring basis. The method of determining the fair value of derivative warrant liabilities is discussed in Note 8.
A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1- Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
| E. | Fixed assets: |
Fixed assets are presented at costs less accumulated depreciation. Depreciation is calculated based on the straight-line method over the estimated useful lives of the assets, as the following annual rates:
| % | ||||
| Research equipment and software | 25-33 | |||
| Furniture and office equipment | 7 | |||
| F. | Liabilities due to termination of |
Under Israeli employment laws, employees of Microbot Israel are included under Article 14 of the Severance Compensation Act, 1963 (“Article 14”). According to consolidated financial statements.
F-3
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Article 14, these employees are entitled to monthly deposits made by Microbot Israel on their behalf with insurance companies.
Payments in accordance with Article 14 release Microbot Israel from any future severance payments (under the Israeli Severance Compensation Act, 1963) with respect of those employees. The aforementioned deposits are not recorded as an asset in the Company’s balance sheet,
| G. | Basic and diluted net loss per |
Basic net loss per share is computed by dividing net loss, as adjusted to include s by the weighted average number of common shares outstanding during the year. Common shares and preferred shares contingently issuable for little or no cash are included in computing basic net loss per share on an as issued basis.
Diluted net loss per share is computed by dividing net loss, as adjusted to include preferred shares dividend participation rights of preferred shares outstanding during the year as well as of preferred shares that would have been outstanding if all potentially dilutive preferred shares had been issued, by the weighted average number of common shares outstanding during the year, plus the number of common shares that would have been outstanding if all potentially dilutive common shares had been issued, using the treasury stock method, in accordance with ASC 260-10 “Earnings per Share”.
All outstanding stock options and warrants have been excluded from the calculation of the diluted loss per share for the years ended December 31, 2017 and December 31, 2016, since all such securities have an anti-dilutive effect.
The weighted average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result of the reverse recapitalization as if these shares had been outstanding as of the beginning of the earliest period presented.
| H. | Research and |
Research and development expenses are charged to the statement of operations as incurred. Grants for funding of approved research and development projects are recognized at the time the Company is entitled to such grants, on the basis of the costs incurred and applied as a deduction from the research and development expenses.
| I. | Convertible Notes: |
Proceeds from the sale of debt securities with a conversion feature are allocated to equity based on the intrinsic value of such conversion feature in accordance with ASC 470-20 “Debt with Conversion and Other Options”, with a corresponding discount on the debt instrument recorded in liabilities which is amortized in finance expense over the term of the notes.
Convertible notes with characteristics of both liabilities and equity are classified as either debt or equity based on the characteristics of its monetary value, with convertible notes classified as debt being measured at fair value, in accordance with ASC 480-10, “Accounting for Certain Financial instruments with Characteristics of both Liabilities and Equity”.
| J. | Share-based compensation: |
The Company applies ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors including stock options under the Company’s stock plans based on estimated fair values.
ASC 718-10 requires companies to estimate the fair value of stock options using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statement of operations.
The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505-50, “Equity-Based Payments to Non-Employees” (“FASB ASC 505-50”). Under FASB ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The Company estimates the fair value of stock options granted as share-based payment awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). Expected volatility is estimated based on volatility of similar companies in the technology sector for equity awards granted prior to the Merger and on the Company’s trading share price for equity awards granted subsequent to the Merger. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected stock option term is calculated for stock options granted to employees and directors using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the stock options granted and the results of operations of the Company.
| F-11 |
| K. | Reclassification: |
Certain prior year amounts have been reclassified to conform to the current year presentation.
| L. | Transaction Costs |
Transaction costs incurred in the Merger were charged directly to equity to the extent of cash and net other current assets acquired. Transaction costs in excess of cash acquired were charged to general and administrative expenses.
| M. | Income Taxes |
The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2017, and 2016, the Company had a full valuation allowance against deferred tax assets.
| N. | Recent Accounting Standards: |
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” to provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The ASU supersedes most current revenue recognition guidance, including industry-specific guidance. The FASB subsequently issued ASU 2015-14, ASU 2016-08 and ASU 2016-12, which clarified the guidance, provided scope improvements and amended the effective date of ASU 2014-09. As a result, ASU 2014-09 becomes effective for the Company in the first quarter of 2018, with early adoption permitted. The Company has not yet generated revenues to date, and does not yet know the impact the standard may have on its consolidated financial statements.
F-4
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE COMMON STOCK AND STOCKHOLDERS'
EQUITY
REDEEMABLE
COMMON STOCK COMMON STOCK ADDITIONAL
---------------------- --------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- ----------- ---------- -------- ------------
Balances, December 31, 1996................................. 815,065 $ 8,158,798 15,614,333 $156,144 $107,649,659
Issuance of common stock.................................... -- -- 307,548 3,074 1,552,432
Issuance of common stock under the stock purchase plan...... -- -- 31,822 319 180,103
Deferred compensation recorded in connection with the
granting of stock options................................. -- -- -- -- 1,750,000
Common stock issued pursuant to employee benefit plan....... -- -- 25,588 256 169,196
Issuance of common stock--StemCells......................... -- -- 1,219,381 12,194 7,381,206
Redeemable common stock lapses.............................. (257,311) (2,575,688) 257,311 2,573 2,573,115
Exercise of stock options................................... -- -- 75,237 752 244,427
Deferred compensation--amortization and cancellations -- -- (5,000) (50) (27,294)
Change in unrealized losses on marketable securities........ -- -- -- -- --
Change in cumulative translation adjustment................. -- -- -- -- --
Net loss.................................................... -- -- -- -- --
Comprehensive loss
-------- ----------- ---------- -------- ------------
Balances, December 31, 1997................................. 557,754 $ 5,583,110 17,526,220 $175,262 $121,472,844
Issuance of common stock.................................... -- -- -- -- --
Issuance of common stock under the stock purchase plan...... -- -- 43,542 436 83,622
Deferred compensation recorded in connection with the
granting of stock options................................. -- -- -- -- --
Common stock issued pursuant to employee benefit plan....... -- -- 84,812 848 143,025
Issuance of common stock--StemCells......................... -- -- 101,320 1,013 505,587
Redeemable common stock lapses.............................. (33,417) (334,500) 33,417 334 334,166
Exercise of stock options................................... -- -- 11,012 110 1,254
Deferred compensation--amortization and cancellations....... -- -- -- -- 321,108
Change in unrealized losses on marketable securities........ -- -- -- -- --
Net loss.................................................... -- -- -- -- --
Comprehensive loss..........................................
-------- ----------- ---------- -------- ------------
Balances, December 31, 1998................................. 524,337 $ 5,248,610 17,800,323 $178,003 $122,861,606
Issuance of common stock.................................... -- -- 196,213 1,962 318,221
Issuance of common stock under the stock purchase plan...... -- -- 57,398 574 41,619
Deferred compensation recorded in connection with the
granting of stock options................................. -- -- -- -- --
Common stock issued pursuant to employee benefit plan....... -- -- 90,798 908 102,502
Issuance of common stock--StemCells......................... -- -- -- -- --
Redeemable common stock lapses.............................. -- -- -- --
Exercise of stock options................................... -- -- 490,833 4,908 513,534
Deferred compensation--amortization and cancellations....... -- -- -- -- 80,276
Change in unrealized losses on marketable securities........ -- -- -- -- --
Net loss.................................................... -- -- -- -- --
Comprehensive loss..........................................
-------- ----------- ---------- -------- ------------
Balances, December 31, 1999................................. 524,337 $ 5,248,610 18,635,565 $186,355 $123,917,758
======== =========== ========== ======== ============
OTHER COMPREHENSIVE
INCOME
---------------------------
UNREALIZED
GAINS
(LOSSES) CUMULATIVE
ACCUMULATED ON MARKETABLE TRANSLATION DEFERRED
DEFICIT SECURITIES ADJUSTMENTS COMPENSATION
------------- ------------- ----------- -------------
Balances, December 31, 1996................................. $ (72,922,674) $ 14,760 $(60,416) $ (90,118)
Issuance of common stock.................................... -- -- -- --
Issuance of common stock under the stock purchase plan...... -- -- -- --
Deferred compensation recorded in connection with the
granting of stock options................................. -- -- -- (1,750,000)
Common stock issued pursuant to employee benefit plan....... -- -- -- --
Issuance of common stock--StemCells......................... -- -- -- --
Redeemable common stock lapses.............................. -- -- -- --
Exercise of stock options................................... -- -- -- --
Deferred compensation--amortization and cancellations -- -- -- 137,298
Change in unrealized losses on marketable securities........ -- (23,637) -- --
Change in cumulative translation adjustment................. -- -- 60,416 --
Net loss.................................................... (18,113,580) -- -- --
Comprehensive loss
------------- -------- -------- -----------
Balances, December 31, 1997................................. $ (91,036,254) $ (8,877) $ -- $(1,702,820)
Issuance of common stock.................................... -- -- -- --
Issuance of common stock under the stock purchase plan...... --
Deferred compensation recorded in connection with the
granting of stock options................................. -- -- -- --
Common stock issued pursuant to employee benefit plan....... -- -- -- --
Issuance of common stock--StemCells......................... -- -- -- --
Redeemable common stock lapses.............................. -- -- -- --
Exercise of stock options................................... -- -- -- --
Deferred compensation--amortization and cancellations....... -- -- -- 229,901
Change in unrealized losses on marketable securities........ -- 3,679 -- --
Net loss.................................................... (12,627,830) -- -- --
Comprehensive loss..........................................
------------- -------- -------- -----------
Balances, December 31, 1998................................. $(103,664,084) $ (5,198) $ -- $(1,472,919)
Issuance of common stock.................................... -- -- -- --
Issuance of common stock under the stock purchase plan...... -- 42,193
Deferred compensation recorded in connection with the
granting of stock options................................. -- -- -- --
Common stock issued pursuant to employee benefit plan....... -- -- -- --
Issuance of common stock--StemCells......................... -- -- -- --
Redeemable common stock lapses.............................. --
Exercise of stock options................................... -- -- -- --
Deferred compensation--amortization and cancellations....... -- -- -- 247,919
Change in unrealized losses on marketable securities........ -- 5,198 -- --
Net loss.................................................... (15,708,626) -- -- --
Comprehensive loss.......................................... --
------------- -------- -------- -----------
Balances, December 31, 1999................................. $(119,372,710) $ -- $ -- $(1,225,000)
============= ======== ======== ===========
TOTAL
STOCKHOLDERS'
EQUITY
------------
Balances, December 31, 1996................................. $ 34,747,355
Issuance of common stock.................................... 1,555,506
Issuance of common stock under the stock purchase plan...... 180,422
Deferred compensation recorded in connection with the
granting of stock options................................. --
Common stock issued pursuant to employee benefit plan....... 169,452
Issuance of common stock--StemCells......................... 7,393,400
Redeemable common stock lapses.............................. 2,575,688
Exercise of stock options................................... 245,179
Deferred compensation--amortization and cancellations 109,954
Change in unrealized losses on marketable securities........ (23,637)
Change in cumulative translation adjustment................. 60,416
Net loss.................................................... (18,113,580)
------------
Comprehensive loss (18,076,081)
------------
Balances, December 31, 1997................................. $ 28,900,155
Issuance of common stock.................................... --
Issuance of common stock under the stock purchase plan...... 84,058
Deferred compensation recorded in connection with the
granting of stock options................................. --
Common stock issued pursuant to employee benefit plan....... 143,873
Issuance of common stock--StemCells......................... 506,600
Redeemable common stock lapses.............................. 334,500
Exercise of stock options................................... 1,364
Deferred compensation--amortization and cancellations....... 551,009
Change in unrealized losses on marketable securities........ 3,679
Net loss.................................................... (12,627,830)
------------
Comprehensive loss.......................................... (12,624,151)
------------
Balances, December 31, 1998................................. $ 17,897,408
Issuance of common stock.................................... 320,183
Issuance of common stock under the stock purchase plan......
Deferred compensation recorded in connection with the
granting of stock options................................. --
Common stock issued pursuant to employee benefit plan....... 103,410
Issuance of common stock--StemCells......................... --
Redeemable common stock lapses..............................
Exercise of stock options................................... 518,442
Deferred compensation--amortization and cancellations....... 328,195
Change in unrealized losses on marketable securities........ 5,198
Net loss.................................................... (15,708,626)
------------
Comprehensive loss.......................................... (15,703,428)
------------
Balances, December 31, 1999................................. $ 3,506,403
============
See accompanying notes
In February 2016, the FASB issued ASU 2016-02 “Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For operating leases, the ASU requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The ASU retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee. This ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company continues to evaluate the effect of the adoption of this ASU and expects the adoption will result in an increase in the assets and liabilities on the consolidated balance sheets for operating leases (refer to Note 9) and will likely have an insignificant impact on the consolidated statements of comprehensive loss.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This ASU is effective for the Company in the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the effect the adoption of this ASU will have on its consolidated financial statements.
F-5
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.
In November 2016, the FASB issued ASU 2016-18 “Restricted Cash” to provide guidance on the presentation of restricted cash in the statement of cash flows. Currently, the statement of cash flows explained the change in cash and cash equivalents for the period. The ASU requires that the statement of cash flows explain the change in cash, cash equivalents and restricted cash for the period. The ASU is effective for the Company in the first quarter of 2018, with early adoption permitted. The Company does not expect the adoption to have a material effect on the statements of cash flows as the Company’s restricted cash is not expected to be material.
In May 2017, the Financial Accounting Standards Board (“FASB”) CONSOLIDATED STATEMENTS OF CASH FLOWS
issued Accounting Standards Update (“ASU”) No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies when a change to terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the vesting condition, fair value or the award classification is not the same both before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018 and early adoption is permitted. The Company does not expect to change terms or conditions of share-based payment awards, and therefore, does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. The ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company has derivative warranty liabilities as discussed in Note 8 which upon adoption of the new standard are expected to be classified as equity.
NOTE 3 - OTHER CURRENT ASSETS
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Deposit in escrow account (*) | $ | - | $ | 400 | ||||
| Government institutions | 35 | 15 | ||||||
| Prepaid expenses and others | 81 | 191 | ||||||
| $ | 116 | $ | 606 | |||||
(*) Purchase Agreement with BOCO
On November 11, 2016, the Company, together with two of its wholly-owned subsidiaries, Stem Cell Sciences Holdings Limited and StemCells California, Inc. (collectively, with the Company, the “Sellers”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with BOCO Silicon Valley, Inc., a California corporation and wholly-owned subsidiary of Bright Oceans Corporation (“BOCO US”).
Pursuant to the terms and subject to the conditions set forth in the Asset Purchase Agreement, the Sellers sold to BOCO US certain stem and progenitor cell lines that have been researched, studied or manufactured by the Company since 2007 (the “Cell Lines”) and certain other tangible and intangible assets, including intellectual property and books and records, related to the foregoing (together with the Cell Lines, the “Assets”) in exchange for $4 million in cash (the “Asset Consideration”).
| F-13 |
Of the Asset Consideration, $300 was provided to the Company prior to November 11, 2016 in exchange for the Sellers’ agreement not to solicit or reach any agreement with any third party pertaining to the sale of the Assets, and $400 will remain in a twelve-month escrow for the benefit of BOCO US to satisfy certain indemnification obligations of the Sellers which may arise and which, subject to any valid indemnification claims of BOCO US, will be released to the Company at the end of such 12-month period. In addition, sixteen former employees of the Company received, in the aggregate, $495 in accordance with their June 2016 agreements with the Company under which each accepted a more than 50% reduction in his or her severance award otherwise payable.
The Asset Purchase Agreement contains certain covenants prohibiting the Sellers from, during the four-year period immediately following the completion of the Asset Sale, (a) engaging in or having certain financial interests in a business that is engaged in the research, development or commercialization of the Cell Lines, or (b) soliciting for employment employees of BOCO US.
On November 29, 2016, the Sellers completed the sale of the Assets.
As of December 31, 2017, the Company received $320 from the escrow account and paid $80 to certain consultant relating to BOCO transaction.
The opening balance sheet as of the Merger date included a receivable balance with respect to sale of the Assets of $3.5 which fully collected as of December 31 2017.
NOTE 4 - FIXED ASSETS, NET
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Cost: | ||||||||
| Research equipment and software | $ | 76 | $ | 54 | ||||
| Furniture and office equipment | 92 | 56 | ||||||
| 168 | 110 | |||||||
| Accumulated Depreciation: | ||||||||
| Research equipment and software | 42 | 29 | ||||||
| Furniture and office equipment | 36 | 28 | ||||||
| 78 | 57 | |||||||
| $ | 90 | $ | 53 | |||||
NOTE 5 - ACCRUED LIABILITIES
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Employees | $ | 64 | $ | 102 | ||||
| Government institution | 56 | 24 | ||||||
| Other current liabilities | 330 | 145 | ||||||
| $ | 450 | $ | 271 | |||||
| F-14 |
NOTE 6 - CONVERTIBLE LOAN FROM SHAREHOLDERS
On October 8, 2015, Microbot Israel entered into a convertible loan agreement with several investors who were also existing shareholders. According to the loan agreement, Microbot Israel received an amount of $419. The loan bore interest of 10% and was converted to both equity shares and preferred shares warrants of Microbot Israel on the nine-month anniversary of the loan. The Company concluded the conversion feature is not a Beneficial Conversion Feature pursuant to the provisions of ASC 470-20, “Debt with Conversion and Other Options”. Accordingly, the proceeds were recorded in liabilities in their entirety at the date of issuance.
On July 7, 2016, the outstanding principal and accrued interest were converted into 1,315,023 Series A preferred shares, of Microbot Israel (the “Series A Preferred Shares”) and 1,188,275 warrants to purchase the Series A Preferred Shares, at an exercise price of $1.00 per share. The preferred shares warrants were exercised in full in September 2016 for total gross proceeds to Microbot Israel of $410.
On May 11, 2016, Microbot Israel entered into a convertible loan agreement with several investors who were also existing shareholders. The loan bore interest at a fixed rate of 10% per annum beginning on the issuance date.
At maturity, all of the outstanding principal and accrued interest was converted into Microbot Israel’s ordinary shares subject to the conversion or default events specified in the loan agreement, based on a conversion price that represents a 20% discount on Microbot Israel’s valuation upon such default events.
On November 28, 2016, upon the consummation of the Merger, the loan was converted into an aggregate of 151,119 shares (2,242,939 shares before the Reverse Split) of Company’s common stock.
The Company concluded the value of the loan is predominantly based on a fixed monetary amount known at the date of issuance as represented by the 20% discount on the Company’s valuation. Accordingly, the loan was classified as debt and was measured at its fair value, pursuant to the provisions of ASC 480-10, “Accounting for Certain Financial instruments with Characteristics of both Liabilities and Equity”.
The fair value of the loan was measured based on observable inputs as the fixed monetary value of the variable number of shares to be issued upon conversion (level 2 measurement).
Secured note to Alpha Capital Anstalt:
On August 15, 2016, concurrent with the execution of the Agreement and Plan of Merger (see Note 1A), StemCells Inc. issued a 6.0% secured note (the “Note”) to Alpha Capital Anstalt (“Alpha Capital”), in the principal amount of $2,000, for value received, payable upon the earlier of (i) 30 days following the consummation of the Merger and (ii) December 31, 2016. Proceeds from the Note were used for the payment of costs and expenses in connection with the Merger and operational expenses leading to such Closing.
The Note bears interest at 6% per annum, payable monthly in arrears on the first of the month, beginning on January 1, 2017 until the principal amount is paid in full. In addition, the Note is secured by a first priority security interest in all of the Company’s intellectual property and certain other general assets pursuant to a Security Agreement
Securities Exchange Agreement with Alpha Capital:
As of the effective time of the Merger, the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Alpha Capital, providing for the issuance to Alpha Capital of a convertible promissory note by the Company (the “Convertible Note”) in a principal amount of $2,029, which is equal to the principal and accrued interest under the Note, in exchange for (a) the full satisfaction, termination and cancellation of the Note and (b) the release and termination of the Security Agreement and the first priority security interest granted thereunder.
The Convertible Note was convertible into the Company’s Common Stock any time after November 28, 2017 and until the maturity date of November 28, 2019, based on a conversion price of $9.60 ($0.64 before the Reverse Split), subject to adjustments as provided in the Exchange Agreement.
Pursuant to the terms of the Convertible Note, the Company was obligated to pay interest on the outstanding principal amount owed under the Convertible Note at a fixed rate per annum of 6.0%, payable at maturity or earlier upon conversion. The Exchange Agreement contains customary representations and warranties and usual and customary affirmative and negative covenants. The Convertible Note also contained certain customary events of default.
As the Exchange Agreement represented the consummation of the original intent of the Company and Alpha Capital, as of the date of execution of the Merger Agreement (August 2016), to enter into a $2 million convertible note sale transaction, upon the consummation of the Merger, the Company accounted for the convertible note in accordance with such economic substance, as if it had been issued for a cash consideration equal to the principal and accrued interest on the Note, as of the effective date of the Merger, in the amount of $2,029 (the “Assumed Consideration”), which is equal to the principal amount of the Convertible Note as determined in the Exchange Agreement.
The Company concluded the conversion feature of the Convertible Note, based on the commitment date of November 28 2016 (the Exchange Agreement date), is a Beneficial Conversion Feature pursuant to the provisions of ASC 470-20, “Debt with Conversion and Other Options”. Accordingly, $2,029 of the Assumed Consideration was recorded in equity with a corresponding discount on the Convertible Note, to be amortized over its term through maturity.
See also Note 10 – Securities Exchange Agreements with Alpha Capital.
The carrying value of the Convertible Note as of the periods below was calculated as follow:
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Convertible note | $ | - | $ | 2,029 | ||||
| Unamortized discount | - | (1,963 | ) | |||||
| Accrued interest | - | 10 | ||||||
| $ | - | $ | 76 | |||||
NOTE 7 - DERIVATIVE WARRANT LIABILITIES
As part of StemCell’s obligations under the Merger Agreement, in August 2016, StemCells negotiated with certain institutional holders of its 2016 Series A and Series B Warrants, issued by prior to the Merger, to have such holders surrender their 2016 Series B Warrants in exchange for a reduced exercise price of $4.45 ($0.30 before the Reverse Split) per share on their existing 2016 Series A Warrants and the elimination of the anti-dilution price protection in the 2016 Series A Warrants. As a result, the exercise price for all outstanding 2011 Series A Warrants and 2016 Series A and Series B Warrants was reset to of $4.45 ($0.30 before the Reverse Split) per share. Subsequent to the reset of the exercise price, an aggregate of 35,831 (531,814 before the Reverse Split) (from an outstanding aggregate of 38,948 (578,081 before the Reverse Split)) 2011 Series A Warrants were exercised. For the exercise of these warrants, the Company issued 35,831 shares (531,814 shares before the Reverse Split) of its common stock prior to the Merger.
The remaining outstanding warrants and terms as of December 31, 2017 and 2016 is as follows:
Issuance date | Outstanding as of December 31, 2016(*) | Outstanding as of December 31, 2017(*) | Exercise Price (*) | Exercisable as of December 31, 2017(*) | Exercisable Through | |||||||||||||
| Series A (2011) | 4,327 | - | $ | 2,244 | - | December 2016 | ||||||||||||
| Series A (2013) | 3,895 | 3,895 | $ | 2,885 | 3,895 | October 2018 | ||||||||||||
| Series A (2013) | 183 | 183 | $ | 2,725 | 183 | April 2023 | ||||||||||||
| Series A (2015) | 683 | 683 | $ | 1,363 | 683 | April 2020 | ||||||||||||
| Series A (2016)(a) | 677 | 625 | $ | 40 | 625 | March 2018 | ||||||||||||
| Series B (2016)(a) | 2,770 | 2,770 | $ | 40 | 2,770 | March 2022 | ||||||||||||
| (*) | December 31 2017 and 2016 warrants data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. | |
| a) | These warrants contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of |
As quoted prices in active markets for identical or similar warrants are not available, the Company uses directly observable inputs in the valuation of its derivative warrant liabilities (level 2 measurement).
The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the yield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.
| b) | In March 2017, an institutional holder executed a cashless exercise of |
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of December 31, 2017 and December 31, 2016 (in thousands)(**):
Series |
Series A (2013) |
Series A (2013) |
Series A (2015) | Series A (2016) | Series B (2016) | Total | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| Balances at December 31, 2016 | $ | - | $ | 12 | $ | 9 | $ | 22 | $ | 43 | $ | 227 | $ | 313 | ||||||||||||||
| Exercised | - | - | - | - | - | - | - | |||||||||||||||||||||
| Cancelled | - | - | - | - | - | - | - | |||||||||||||||||||||
| Changes in fair value | - | (12 | ) | (9 | ) | (22 | ) | (43 | ) | (199 | ) | (285 | ) | |||||||||||||||
| Balances at December 31, 2017 | $ | - | $ | - | $ | - | $ | - | $ (*) | $ | 28 | $ | 28 | |||||||||||||||
| (*) | Less than 1 | |
| (**) | Share data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of December 31, 2017 and December 31, 2016:
As of December 31, 2017(*) | As of December 31, 2016(*) | |||||||||||||||
| Series A (2016) | Series B (2016) | Series A (2016) | Series B (2016) | |||||||||||||
| Share price | $ | 15.1 | $ | 15.1 | $ | 90.5 | $ | 90.5 | ||||||||
| Exercise price | $ | 40 | $ | 40 | $ | 40 | $ | 40 | ||||||||
| Expected volatility | 60 | % | 119 | % | 380 | % | 380 | % | ||||||||
| Risk-free interest | 1.24 | % | 1.89 | % | 0.85 | % | 1.93 | % | ||||||||
| Dividend yield | — | — | — | — | ||||||||||||
| Expected life of up to (years) | 0.25 | 4.25 | 1.2 | 5.2 | ||||||||||||
| (*) | December 31 2017 and 2016 options |
Activity in such liabilities measured on a recurring basis is as follows:
| Derivative warrant liabilities | ||||
| (in thousands) | ||||
| As of December 31, 2016 | $ | 313 | ||
| Revaluation of warrants | (285 | ) | ||
| Exercise warrants | (* | ) | ||
| As of December 31, 2017 | $ | 28 | ||
(*) Less than 1
| Derivative warrant liabilities | ||||
| (in thousands) | ||||
| As of November 30, 2016 | $ | 575 | ||
| Revaluation of warrants | (262 | ) | ||
| Exercise warrants | (* | ) | ||
| As of December 31, 2016 | $ | 313 | ||
(*) Less than 1
In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 3 financial instruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary overtime, namely, the volatility and the risk-free rate. A 5.0% decrease in volatility would decrease the value of the warrants to $27; a 5.0% increase in volatility would increase the value of the warrants to $29. A 5.0% decrease or increase in the risk-free rate would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.
NOTE 8 - COMMITMENTS AND CONTIGENCIES
Microbot Israel obtained from the Israeli Innovation Authority (“IIA”) grants for participation in research and development for the years 2013 through December 31, 2017 in the total amount of approximately $1,183 and, in return, Microbot Israel is obligated to pay royalties amounting to 3% of its future sales up to the amount of the grant. The grant is linked to the exchange rate of the dollar to the New Israeli Shekel and bears interest of Libor per annum.
The repayment of the grants is contingent upon the successful completion of the Company’s research and development programs and generating sales. The Company has no obligation to repay these grants, if the project fails, is unsuccessful or aborted or if no sales are generated. The financial risk is assumed completely by the Government of Israel. The grants are received from the Government on a project-by-project basis.
Microbot Israel signed an agreement with the Technion Research and Development Foundation (“TRDF”) in June 2012 by which TRDF transferred to Microbot Israel a global, exclusive, royalty-bearing license. As partial consideration for the license, Microbot Israel shall pay TRDF royalties on net sales (between 1.5%-3%) and on sublicense income as detailed in the agreement.
Lease Agreements:
In June 2016, the Company entered into an office lease agreement, with a term ending on February 28, 2018. According to the lease agreement, the monthly office lease payment is approximately $3.
In December 1999,2016, the Company sold intellectual propertyentered into a cars lease agreement, which will end on December 31, 2019. According to the lease agreement, the monthly car lease payment is approximately $2.5.
In May 2017, the Company entered into an office lease agreement effective from February 1, 2018, with a term ending on December 31, 2020. According to the lease agreement, the monthly office lease payment is approximately $14
Compensation liability
The Company incurred compensation commitments of approximately $400 to a former executive that management estimates as remote that this amount will ever be paid out and therefore is not reflected in these consolidated financial statements.
Contract Research Agreement
On January 27, 2017, the Company entered into a Contract Research Agreement (the “Research Agreement”) with The Washington University (“Washington U.”), pursuant to which the parties will collaborate to determine the effectiveness of the Company’s self-cleaning shunt.
The study in WU includes several phases. The first phase (initial research) was completed. The parties are in the final stage of planning the next phase, including the related various costs.Pursuant to the Research Agreement, all rights, title and interest in the data, information and results obtained or arrived at by Washington U. in the performance of its services under the Research Agreement, as well as any patentable inventions obtained or arrived at in the performance of such services, will be jointly owned by the Company and Washington U., and each will have full right to practice and grant licenses in joint inventions. Additionally, Washington U. granted to the Company: (a) a non-exclusive, worldwide, royalty-free, fully paid-up, perpetual and irrevocable license to use and practice patentable inventions (other than joint inventions and improvements to Washington U.’s animal models) obtained or arrived at by Washington U. in the provision of its services under the Research Agreement (“University Inventions”) with respect to the self-cleaning shunt; and (b) an exclusive option to obtain an exclusive worldwide license in University Inventions, on terms to be negotiated between the parties.
Litigation
The Company is named as the defendant in a lawsuit, captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, pending in the Supreme Court of the State of New York, County of New York. The complaint alleges, among other things, that the Company breached multiple representations and warranties contained in the Securities Purchase Agreement (the “SPA”) related to the June 8, 2017 equity financing of the Company (the “Financing”), of which the Plaintiffs participated. The complaint seeks rescission of the SPA and return of the Plaintiffs’ $3,375 purchase price with respect to the Financing, and damages in an amount to be determined at trial, but alleged to exceed $1 million. The parties presently are engaged in discovery.
Managementis unable to assess the likelihood of the claim and the amount of potential damages, if any, to be awarded. Management believes that the claims made against it are without merit and intends to vigorously defend itself against these claims.
See Note 16 – Subsequent Events, below.
| F-19 |
NOTE 9 - SHARE CAPITAL
Each share of the Series A Convertible Preferred Stock, par value $0.01 per share, issued by the Company in December 2016 and in May 2017 (the “Series A Convertible Preferred Stock”), is convertible, at the option of the holder, into 67 shares ( 1,000 shares before the Reverse Split) of Common Stock, and confer upon the holder dividend rights on an as converted basis.
Exercise of Warrants
On March 2017, an institutional holder exercised, in a cashless transaction, of 52 warrants ( 768 before the Reverse Split) and 24 shares ( 359 shares before the Reverse Split) of Common Stock were issued in connection therewith.
Share capital developments:
The authorized capital stock consists of 221,000,000 shares of capital stock, which consists of 220,000,000 shares of Common Stock and 1,000,000 shares of undesignated preferred stock, par value $0.01 (the “Preferred Stock”). As of December 31, 2017, the Company had 2,734,300 shares (40,583,127 shares before the Reverse Split) of Common Stock issued and outstanding, and 4,001 shares of Series A Convertible Preferred Stock issued and outstanding.
On November 28, 2016, the Company filed a Certificate of Amendment to its encapsulated cell technology. In associationRestated Certificate of Incorporation, as amended, with the transaction,Secretary of State of the State of Delaware to (i) effect the Reverse Stock Split, (ii) change its name from “StemCells, Inc.” to “Microbot Medical Inc.” and (iii) increase the number of authorized shares of the Common Stock from 200,000,000 to 220,000,000 shares (the “Certificate of Amendment”).
As a result of the Reverse Stock Split, the number of issued and outstanding shares of the Common Stock immediately prior to the Reverse Stock Split were reduced into a smaller number of shares, such that every nine shares of the Common Stock held by a stockholder immediately prior to the Reverse Stock Split were combined and reclassified into one share of the Common Stock.
Immediately following the Reverse Stock Split and the Merger, there were 2,442,646 shares (36,254,240 shares before the Reverse Split) of the Common Stock issued and outstanding, which included certain rights to receive shares of Common Stock or equivalent securities but excludes shares underlying outstanding stock options and warrants and the Convertible Note.
On December 27, 2016, the Company exchanged 655,962 shares (9,735,925 shares before the Reverse Split) or rights to acquire shares of its Common Stock, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock. See “- Securities Exchange Agreement with Alpha Capital” below. See also Note 6 – Securities Exchange Agreement with Alpha Capital, above.
On January 5, 2017, the Company entered into a definitive securities purchase agreement with an institutional investor (the “Purchaser”) for the purchase and sale of an aggregate of 47,163 shares (700,000 shares before the Reverse Split) of Common Stock in a registered direct offering for $74 ($5.00 per share before the Reverse Split) or gross proceeds of $3,500. The Company paid the placement agent a fee of $210 plus reimbursement of out-of-pocket expenses, as well as other offering-related expenses.
On June 5, 2017, the Company entered into a Securities Purchase Agreement with certain institutional investors (the “Investors”) providing for the issuance and sale by the Company to the Investors of an aggregate of 252,658 shares (3,750,000 shares before the Reverse Split) of Common Stock, at a purchase price per share of $40 ($2.70 per share before the Reverse Split). The gross proceeds to the Company was $10,125,000 before deducting placement agent fees and offering expenses of $922.
| F-20 |
Employee stock option grant:
In September 2014, Microbot Israel’s board of directors approved a grant of 26,906 (403,592 stock options before the Reverse Split) (77,846 stock options as retroactively adjusted to reflect the Merger and the Reverse Split) to its CEO, through MEDX Venture Group LLC. Each option was exercisable into an ordinary share, at an exercise price of $12 ($0.8 before the Reverse Split) ($4.2 as retroactively adjusted to reflect the Merger and the Reverse Split). The stock options were fully vested at the date of grant.
On May 2, 2016, Microbot Israel’s board of directors approved a grant of 33,333 stock options (500,000 stock options before the Reverse Split) (96,482 as retroactively adjusted to reflect the Merger and the Reverse Split) to certain of its employees and directors. Each stock option was exercisable into an ordinary share, NIS 0.001 par value, of Microbot Israel, at an exercise price equal to the ordinary share’s par value. The stock options were fully vested at the date of grant. As a result, the Company recognized compensation expenses in the amount of $675 included in general and administrative expenses. As the exercise price of the stock options is nominal, Microbot Ltd estimated the fair value of the options as equal to the Company’s share price of $20.25 ($1.35 before the Reverse Split) ($7.05 as retroactively adjusted to reflect the Merger and the Reverse Split) at the date of grant.
On September 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”), which Plan authorizes, among other things, the grant of options to purchase shares of Common Stock to directors, officers and employees of the Company and to other individuals.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 120,847 shares (1,812,712 shares before the Reverse Split) of Common Stock to Mr. Harel Gadot, the Company’s Chairman of the Board, President and CEO, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3-5 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $156 included in general and administrative expenses for the period ended December 31, 2017.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 72,508 shares (1,087,627 shares before the Reverse Split) of Common Stock to Mr. Hezi Himelfarb, the company’s General Manager, COO and a member of the Board, at an exercise price per share of $19.35 ($1.29 before the Reverse Split). The grant was subject to the Israeli Tax Authority’s approval of the plan which occurred on October 14, 2017. In accordance with the option agreement, the options vest for period of 3 years starting from the grand date. As a result, the Company recognized compensation expenses in the amount of $92 included in general and administrative expenses for the period ended December 31, 2017.
On December 6, 2017, the board of directors approved a grant of 12,698 stock options (190,475 stock options before the Reverse Split) to purchase an aggregate of up to 12,698 shares (190,475 shares before the Reverse Split) of Common Stock to certain of its directors, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $4 included in general and administrative expenses for the period ended December 31, 2017.
On December 28, 2017, the board of directors approved a grant of 66,036 stock options (990,543 stock options before the Reverse Split) to purchase an aggregate of up to 66,036 shares (990,543 shares before the Reverse Split) of Common Stock to certain of its employees, at an exercise price per share of $15.3 ($1.02 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $95 included in general and administrative expenses for the period ended December 31, 2017.
On November, 2017, certain employees and consultant exercised 31,453 options (471,794 options before the Reverse Split) to 31,453 ordinary shares (471,794 ordinary shares before the Reverse Split) at exercise price of 0.001 NIS.
A summary of the Company’s option activity related to options to employees and directors, and related information is as follows:
For the year ended December 31, 2017(**) | ||||||||||||
| Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 174,328 | $ | 1.95 | $ | 3,739 | |||||||
| Granted | 272,090 | 16.5 | - | |||||||||
| Exercised | (31,453 | ) | - | - | ||||||||
| Cancelled | - | - | - | |||||||||
| 414,965 | $ | 11.7 | $ | 1,859 | ||||||||
| Outstanding at end of period | 142,875 | $ | 1.95 | $ | 1,375 | |||||||
| Vested and expected-to-vest at end of period | 174,328 | $ | 1.95 | $ | 3,739 | |||||||
For the year ended December 31, 2016(**) | ||||||||||||
| Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 77,846 | $ | 4.2 | - | ||||||||
| Granted | 96,482 | (*) | - | |||||||||
| Exercised | - | - | - | |||||||||
| Cancelled | - | - | - | |||||||||
| Outstanding at end of period | 174,328 | $ | 1.95 | $ | 15,624 | |||||||
| Vested and expected-to-vest at end of period | 174,328 | $ | 1.95 | $ | 15,624 | |||||||
(*) Less than 1
(**) December 31 2017 and 2016 options data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018.
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Common Stock and the exercise price, multiplied by the number of in-the-money stock options on those dates that would have been received by the stock option holders had all stock option holders exercised their stock options on those dates.) as of December 31, 2017 and December 31, 2016 respectively,
| F-22 |
The stock options outstanding as of December 31, 2017 and December 31, 2016, separated by exercise prices, are as follows:
| Exercise price | Stock options outstanding as of December 31, (**) | Weighted average remaining contractual life – years as of December 31, (**) | Stock options exercisable as of December 31, (**) | |||||||||||||||||||||||
| $ | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
| 4.2 | 77,846 | 77,846 | 8.0 | 8.0 | 77,846 | 77,846 | ||||||||||||||||||||
| 15.75 | 133,546 | - | 9.75 | - | - | - | ||||||||||||||||||||
| 19.35 | 72,508 | - | 9.75 | - | - | - | ||||||||||||||||||||
| 15.3 | 66,036 | - | 10 | - | - | - | ||||||||||||||||||||
| (* | ) | 65,029 | 96,482 | 8.75 | 9.5 | 65,029 | 96,482 | |||||||||||||||||||
| 414,965 | 174,328 | - | - | 142,875 | 174,328 | |||||||||||||||||||||
(*) Less than 1
(**) December 31 2017 and 2016 options data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018.
Compensation expense recorded by the Company in respect of its stock-based employee compensation awards in accordance with ASC 718-10 for the year ended December 31, 2017 and 2016 was $ 254 and $ 675, respectively.
The fair value of the stock options is estimated at the date of grant using Black-Scholes options pricing model with the following weighted-average assumptions:
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Expected volatility | 122.5 | % | 77.3 | % | ||||
| Risk-free interest | 1.64 | % | 0.6 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected life of up to (years) | 6.25 | 5.0 | ||||||
Shares issued to service provider
In connection with the Merger, the Company issued an aggregate of 525,706 restricted shares (7,802,639 restricted shares before the Reverse Split) of its Common Stock to certain advisors. The fair value of the award of approximately $10,000 was estimated based on the share price of the Common Stock of $19.2 ($1.28 before the Reverse Split) as of the date of grant. The portion of the expense in excess of the cash and other current assets acquired in the Merger, in the amount of $7,300 was included in general and administrative expenses in the Statements of Comprehensive Loss.
During 2017 the Company issued an aggregate of 8, 085 nonrefundable shares (120,000 nonrefundable shares before the Reverse Split) of Common Stock to a consultant as part of investor relations services. The Company recorded expenses of approximately $225 with respect to the issuance of these shares included in general and administrative expenses.
Securities Exchange Agreement with Alpha Capital
On December 16, 2016, the Company entered into a Securities Exchange Agreement with Alpha Capital, pursuant to which Alpha Capital exchanged 655,967 shares (9,736,000 shares before the Reverse Split) of common stock or rights to acquire shares of the common stock held by it, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”). The common stock and common stock underlying the rights to acquire common stock include all of the shares of common stock issued or issuable to Alpha Capital pursuant to the Merger. The 655,967 shares (9,735,925 shares before the Reverse Split) of common stock and the rights to acquire common stock were cancelled and the Company’s issued and outstanding shares of Common Stock were reduced to 1,786,684 (26,518,315 before the Reverse Split).
| F-23 |
On May 9, 2017, the Company entered into a Securities Exchange Agreement with Alpha Capital pursuant to which the Company agreed to issue 3,254 shares of the Series A Convertible Preferred Stock, in exchange for the full satisfaction, termination and cancellation of the outstanding 6% convertible promissory note of the Company in the principal amount of approximately $2,029 issued on November 28, 2016 and held by Alpha Capital. The Series A Convertible Preferred Stock is the same series of securities as the Company’s existing Series A Convertible Preferred Stock issued in December 2016. As a result of the extinguishment of the convertible note and issuance of the preferred shares, the Company recorded a receivablefinancial loss in the amount of $3,000,000$2,360.
During the year 2017, the holder of the Series A Convertible Preferred Stock converted 8,990 shares of the Series A Convertible Preferred Stock for 605,705 shares (8,990,000 shares before the Reverse Split) of Common Stock, pursuant to the terms of conversion of the Series A Convertible Preferred Stock.
Repurchase of Shares
The Company intends to enter into a definitive agreement with up to three Israeli shareholders, some of whom are directors of the Company, that were former shareholders of Microbot Israel, pursuant to which the Company would repurchase, at a discount on the fair value of the share at the date of repurchase, up to $500 of Common Stock held by them, in the aggregate, if and to the extent such shareholders are unable to sell enough of their shares to cover certain of their Israeli tax liabilities resulting from the Merger. Such repurchase(s), if any, would occur only after the two-year anniversary of the Merger. The transaction is subject to negotiating final terms and entering into definitive agreements with such shareholders.
The Company evaluated whether an embedded derivative that requires bifurcation exists within such shares that may be subject to repurchase. The Company concluded the fair value of such derivative instrument would be nominal and, in any case, would represent an asset to the Company as (a) the settlement requires acquiring the shares at a discount on the fair market value of the share at the time of re purchase and in no circumstances the acquisition price will be higher than approximately one dollar per share (representing 25% discount on the fair market value of the share at the merger closing date) and (b) it is assumed that the selling shareholders would use such right as last resort as such repurchase at a discount on the fair market value of such shares results in a loss to be incurred by the selling shareholders.
In accordance with ASC 480-10-S99-3A (formerly EITF D-98), the Company classified the maximum amount it may be required to pay in the event the repurchase right is exercised ($500) as temporary equity.
NOTE10-BASIC AND DILUTED NET LOSS PER SHARE
The basic and diluted net loss per share and weighted average number of common shares used in the calculation of basic and diluted net loss per share are as follows (in thousands, except share and per share data):
Year Ended December 31, | ||||||||
| 2017(*) | 2016(*) | |||||||
| Net loss attributable to shareholders of the Company | $ | 7,589 | $ | 9,663 | ||||
| Net loss attributable to shareholders of preferred shares | 1,582 | 3,954 | ||||||
| Net loss used in the calculation of basic net loss per share | $ | 6,007 | $ | 5,709 | ||||
| Net loss per share | $ | (2.67 | ) | $ | (5.94 | ) | ||
| Weighted average number of common shares | 2,201,992 | 963,047 | ||||||
(*) December 31 2017 and 2016 shares data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018.
As the inclusion of common share equivalents in the calculation would be anti-dilutive for all periods presented, diluted net loss per share is the same as basic net loss per share.
The weighted average number of common shares outstanding has been retroactively restated for the equivalent number of common shares received by the accounting acquirer as a result of the reverse recapitalization and reverse stock split as if these common shares had been outstanding as of the beginning of the earliest period presented.
NOTE11 -RESEARCH AND DEVELOPMENT EXPENSES, NET
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Payroll and related expenses | $ | 634 | $ | 491 | ||||
| Share-based compensation | 1 | - | ||||||
| Materials | 266 | 155 | ||||||
| Patents | 66 | 75 | ||||||
| Office and maintenance expenses | 27 | 21 | ||||||
| Rent | 34 | 36 | ||||||
| Professional services | 174 | 253 | ||||||
| Depreciation | 12 | 7 | ||||||
| Other | 65 | 76 | ||||||
| Less: Grants received from IIA | (179 | ) | (213 | ) | ||||
| $ | 1,100 | $ | 901 | |||||
NOTE12 -GENERAL AND ADMINISTRATIVE EXPENSES
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Payroll and related expenses | $ | 1,213 | $ | 45 | ||||
| Share-based compensation | 253 | 676 | ||||||
| Professional services | 1,217 | 528 | ||||||
| Common shares issued for services | - | 7,258 | ||||||
| Travel | 284 | 180 | ||||||
| Marketing expenses | 26 | - | ||||||
| Office and maintenance expenses | 121 | - | ||||||
| Depreciation | 9 | - | ||||||
| Public and Investor Relations | 515 | - | ||||||
| Insurance | 226 | - | ||||||
| Governmental Fees | 251 | |||||||
| Other | 52 | 47 | ||||||
| $ | 4,167 | $ | 8,734 | |||||
NOTE 13 - FINANCE EXPENSES, NET
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Bank fees and interest | $ | 1 | $ | 1 | ||||
| Change in fair value of derivative warrant liability | (285 | ) | (262 | ) | ||||
| Financing loss on debt extinguishment | 2,364 | - | ||||||
| Exchange rate differences | 5 | (44 | ) | |||||
| Revaluation and interest on convertible loans | 237 | 333 | ||||||
| $ | 2,322 | $ | 28 | |||||
NOTE 14 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
| A. | Transactions: |
| Year ended | ||||||||
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Payroll and related expenses | $ | 851 | $ | - | ||||
| Directors fees and insurance | 463 | 58 | ||||||
| Subcontracted work and consulting | 67 | 253 | ||||||
| $ | 1,381 | $ | 311 | |||||
| B. | Balances: |
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| Other accounts payable | $ | 46 | - | |||||
| $ | 46 | - | ||||||
NOTE 15 - TAXES ON INCOME
The Company is subject to income taxes under the Israeli and U.S. tax laws:
Corporate tax rates
The Company is subject to Israeli corporate tax rate of 25% in the year 2016, 24% in 2017 and 23% from 2018. The Company is subject to a blended U.S. tax rate (Federal as well as state corporate tax) of 35%.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the United States. The Tax Act, among other provisions, introduces changes in the U.S corporate tax rate, business related exclusions and deductions and credits, and has internationally tax consequences for companies that operate international. Most of the changes introduced in the Tax Act are effective beginning on January 1, 2018. The Tax Act introduces a reduced intangible assets.
See accompanying notesfederal tax rate of 21% from January 1, 2018 and onward.
| A. | As of December 31, 2017, the Company generated net operating losses in Israel of approximately $5,267 which may be carried forward and offset against taxable income in the future for an indefinite period. |
As of December 31, 2017, the Company generated net operating losses in the U.S. of approximately $2,987. Net operating losses in the United States are available through 2035. Utilization of U.S. net operating losses may be subject to consolidated financial statements.
F-6
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. NATURE OF BUSINESS
StemCells, Inc. (formerly CytoTherapeutics, Inc.) (the "Company")substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
| B. | The Company is still in its development stage and has not yet generated revenues, therefore, it is more likely than not that sufficient taxable income will not be available for the tax losses to be utilized in the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts. |
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| Net operating loss carry-forward | $ | 488,603 | $ | 481,052 | ||||
| Total deferred tax assets | 117,265 | 120,263 | ||||||
| Valuation allowance | (117,265 | ) | (120,263 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
Reconciliation of Income Taxes:
The following is a biopharmaceutical company engagedreconciliation of the taxes on income assuming that all income is taxed at the ordinary statutory corporate tax rate in Israel and the effective income tax rate:
| As of December 31, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
| Net loss as reported in the statements of operations | $ | 7,589 | $ | 9,663 | ||||
| Statutory tax rate | 24 | % | 25 | % | ||||
| Income Tax under statutory tax rate | 1,821 | 2,416 | ||||||
| Change in valuation allowance | (1,821 | ) | (2,416 | ) | ||||
| Actual income tax | $ | - | $ | - | ||||
NOTE 16 - SUBSEQUENT EVENTS
On January 4, 2018, Microbot Medical Ltd. entered into an agreement with CardioSert Ltd. to acquire certain patent-protected technology owned by CardioSert. With the closing of the acquisition expected in April 2018, CardioSert’s issued U.S. patent and three patent applications pending worldwide will be added to Microbot’s patent portfolio which will then have a patent portfolio of 25 issued/allowed patents and 15 patent applications pending worldwide.
Pursuant to the Agreement, Microbot Medical Ltd made an initial payment of $50 to CardioSert and has 90-days to complete the acquisition. At the end of the 90-day period, at Microbot’s sole option, CardioSert shall assign and transfer the Technology to Microbot Medical Ltd and Microbot Medical Ltd shall pay to CardioSert additional amounts and options as determined in the agreements.
The Agreement may be terminated by Microbot at any time during the 90-day pre-closing period, and otherwise for convenience upon 90-days’ notice. The Agreement may be terminated by CardioSert in case the first commercial sale does not occur by the third anniversary of the date of signing of the Agreement except in the event that Microbot has invested more than $2,000 in certain development stages, or the first commercial sale does not occur within 50 months. In each of the above termination events, or in case of breach by Microbot, CardioSert shall have the right to buy back the Technology from Microbot for $1.00, upon 60 days prior written notice, but only 1 year after such termination. Additionally, the Agreement may be terminated by either party upon breach of the other (subject to cure).
CardioSert agreed to assist Microbot in the development of novel stem cell
therapies designedthe Technology for a minimum of one year, for a monthly consultation fee of NIS40,000 covering up to treat human diseases60 consulting hours per month.
Share Capital Developments
In 2018, through March 30, 2018, the Company issued an aggregate of 101,063 shares (1,500,000 shares before the Reverse Split) of its Common Stock upon the conversion of an aggregate of 1,500 shares of its Series A Convertible Preferred Stock.
Tolling Agreement
On April 2, 2018, the Company entered into a Tolling and disorders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Standstill Agreement (the “Tolling Agreement”) with Empery Asset Master, Ltd., Empery Tax Efficient LP, Empery Tax Efficient II LP, and Hudson Bay Master Fund, Ltd., the other investors in the Financing (the “Other Investors”). Pursuant to the Tolling Agreement, among other things, (a) the Other Investors agree not to bring any claims against the Company arising out of the Matter, (b) the parties agree that if the Company reaches an agreement to settle the claims asserted by the Sabby Funds in the above suit, the Company will provide the same settlement terms on a pro rata basis to the Other Investors, and the Other Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of each party as of the effective date of the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.
MICROBOT MEDICAL INC.
Interim Consolidated Balance Sheets
U.S. dollars in thousands
(Except share data)
| Note | As of September 30, 2018 | As of December 31, 2017 | |||||||||
| (Unaudited) | (Audited) | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 6,673 | $ | 10,787 | |||||||
| Restricted cash | 27 | 27 | |||||||||
| Other current assets | 148 | 116 | |||||||||
| 6,848 | 10,930 | ||||||||||
| Fixed assets, net | 280 | 90 | |||||||||
| Total assets | $ | 7,128 | $ | 11,020 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Trade payables | $ | 194 | $ | 78 | |||||||
| Accrued liabilities | 363 | 450 | |||||||||
| Total current liabilities | 557 | 528 | |||||||||
| Derivative warrant liability | 3 | 5 | 28 | ||||||||
| Total liabilities | 562 | 556 | |||||||||
| Commitments and contingencies | 4 | ||||||||||
| Temporary equity: | 5 | ||||||||||
| Common stock of $0.01 par value; issued and outstanding: 721,107 shares as of September 30, 2018 and December 31, 2017 | 500 | 500 | |||||||||
| Shareholders’ equity: | |||||||||||
| Preferred stock of $0.01 par value; Authorized: 1,000,000 shares as of September 30, 2018 and December 31, 2017; issued and outstanding: 550 and 4,001 shares as of September 30, 2018 and December 31, 2017, respectively | 5 | (* | ) | (* | ) | ||||||
| Common stock of $0.01 par value; Authorized: 220,000,000 as of September 30, 2018 and December 31, 2017; issued and outstanding (**): 2,254,569 and 2,013,193 shares as of September 30, 2018, and December 31, 2017, respectively | 30 | 27 | |||||||||
| Additional paid-in capital | 31,771 | 30,561 | |||||||||
| Accumulated deficit | (25,735 | ) | (20,624 | ) | |||||||
| 6,066 | 9,964 | ||||||||||
| $ | 7,128 | $ | 11,020 | ||||||||
| (*) | Less than 1 | |
| (**) | December 31, 2017 share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse stock split effected on September 4, 2018. |
The accompanying notes are an integral part of these interim consolidated financial statements include accountsstatements.
| F-29 |
MICROBOT MEDICAL INC.
Interim Consolidated Statements of Comprehensive Loss
U.S. dollars in thousands
(Except share data)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||
| Note | 2018 | 2017 | 2018 | 2017 | |||||||||||||||
| Research and development expenses, net | $ | 623 | $ | 339 | $ | 1,753 | $ | 900 | |||||||||||
| General and administrative expenses | 1,130 | 896 | 3,407 | 2,830 | |||||||||||||||
| Operating loss | (1,753 | ) | (1,235 | ) | (5,160 | ) | (3,730 | ) | |||||||||||
| Financing income (expenses), net | 4 | 48 | 49 | (2,272 | ) | ||||||||||||||
| Net loss | $ | (1,749 | ) | $ | (1,187 | ) | $ | (5,111 | ) | $ | (6,002 | ) | |||||||
| Net loss per share, basic and diluted(*) | 6 | $ | (0.58 | ) | $ | (0.45 | ) | $ | (1.69 | ) | $ | (2.25 | ) | ||||||
| Weighted-average number of common shares outstanding, basic and diluted (*) | 2,947,633 | 2,383,327 | 2,876,020 | 2,061,331 | |||||||||||||||
| (*) | September 30, 2017 share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse stock split effected on September 4, 2018. |
The accompanying notes are an integral part of these interim consolidated financial statements.
MICROBOT MEDICAL INC.
Interim Consolidated Statements of Shareholder’s Equity
U.S. dollars in thousands
(Except share data)
| Preferred A Shares | Common Stock(***) | Additional Paid-In | Accumulated | Total Shareholders’ | Temporary | |||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Capital | Deficit | Equity | Equity | |||||||||||||||||||||||||
| Balance, December 31, 2016 | 9,736 | $ | (* | ) | **1,788,884 | $ | 18 | $ | 14,713 | $ | (13,035 | ) | $ | 1,696 | $ | 500 | ||||||||||||||||
| Issuance of Common Stock | - | - | 299,815 | 3 | 12,699 | - | 12,702 | - | ||||||||||||||||||||||||
| Share-based compensation | - | - | 8,085 | (* | ) | 479 | - | 479 | - | |||||||||||||||||||||||
| Exercise of options | - | - | 31,787 | (* | ) | (* | ) | - | (* | ) | - | |||||||||||||||||||||
| Cashless exercise of warrants | - | - | 24 | (* | ) | - | - | (* | ) | - | ||||||||||||||||||||||
| Extinguishment of convertible notes and issuance of preferred A shares | 3,255 | (* | ) | - | - | 2,676 | - | 2,676 | - | |||||||||||||||||||||||
| Conversion of preferred A shares to common stock | (8,990 | ) | (* | ) | 605,705 | 6 | (6 | ) | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (7,589 | ) | (7,589 | ) | - | ||||||||||||||||||||||
| Balances, December 31, 2017 | 4,001 | $ | (* | ) | **2,734,300 | $ | 27 | $ | 30,561 | $ | (20,624 | ) | $ | 9,964 | $ | 500 | ||||||||||||||||
| Share-based compensation | - | - | - | 1,139 | - | 1,139 | - | |||||||||||||||||||||||||
| Shares issued as consideration-vendor | 6,738 | 1 | 73 | - | 74 | - | ||||||||||||||||||||||||||
| Exercise of options | - | - | 2,487 | (* | ) | - | - | - | - | |||||||||||||||||||||||
| Conversion of preferred A shares to common stock | (3,451 | ) | (*) | 232,151 | 2 | (2 | ) | - | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | (5,111 | ) | (5,111 | ) | - | ||||||||||||||||||||||
| Balances, September 30, 2018 | 550 | $ | (* | ) | **2,975,676 | $ | 30 | $ | 31,771 | $ | (25,735 | ) | $ | 6,066 | $ | 500 | ||||||||||||||||
| (*) | Less than 1 |
| (**) | Includes 721,107 common stock classified as temporary equity. |
| (***) | December 31, 2017 and 2016 share data represents the number of shares adjusted to retroactively reflect the 1:15 reverse stock split effected on September 4, 2018. |
The accompanying notes are an integral part of these interim consolidated financial statements.
MICROBOT MEDICAL INC.
Interim Consolidated Statements of Cash Flows
U.S. dollars in thousands
(Except share data)
| Nine months ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (5,111 | ) | $ | (6,002 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 49 | 15 | ||||||
| Interest and revaluation of convertible notes, net | - | 237 | ||||||
| Financing loss on debt extinguishment | - | 2,364 | ||||||
| Changes in fair value of derivative warrant liability | (23 | ) | (274 | ) | ||||
| Shares issued as consideration-vendor | 74 | - | ||||||
| Share-based compensation expense | 1,139 | 176 | ||||||
| Changes in assets and liabilities: | ||||||||
| Other receivables | (32 | ) | 29 | |||||
| Other payables and accrued liabilities | 29 | (92 | ) | |||||
| Net cash used in operating activities | (3,875 | ) | (3,547 | ) | ||||
| INVESTMENT ACTIVITIES | ||||||||
| Increase in restricted cash | - | - | ||||||
| Purchase of property and equipment | (239 | ) | (28 | ) | ||||
| Net cash used in investing activities | (239 | ) | (28 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Outflow (inflow) in connection with current assets and liabilities acquired in reverse recapitalization, net | - | (82 | ) | |||||
| Issuance of common stock, net of issuance costs | - | 12,704 | ||||||
| Net cash provided by financing activities | - | 12,622 | ||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | (4,114 | ) | 9,047 | |||||
| Cash and cash equivalents and restricted cash at the beginning of the period | 10,814 | 2,709 | ||||||
| Cash and cash equivalents and restricted cash at the end of the period | $ | 6,700 | $ | 11,756 | ||||
Supplemental disclosure of cash flow information: | ||||||||
| Non-cash financing transactions: | ||||||||
| Cashless exercise of warrants | $ | - | $ | (* | ) | |||
| Conversion of preferred A shares into common shares | $ | (* | ) | $ | (* | ) | ||
| Extinguishment of convertible notes in exchange for preferred A shares | $ | - | $ | 2,083 | ||||
| (*) | Less than 1 |
The accompanying notes are an integral part of these interim consolidated financial statements.
| F-32 |
| A. | Description of Business |
Microbot Medical Inc. (the “Company”) is a pre-clinical medical device company specializing in the research, design and development of next generation micro-robotics assisted medical technologies targeting the minimally invasive surgery space. The Company is primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes for patients.
It was incorporated on August 2, 1988 in the State of Delaware under the name Cellular Transplants, Inc. The original Certificate of Incorporation was restated on February 14, 1992 to change the name of the Company to Cyto Therapeutics, Inc. On May 24, 2000, the Certificate of Incorporation as restated was further amended to change the name of the Company to StemCells, Inc.
On November 28, 2016, the Company consummated a transaction pursuant to an Agreement and StemCells California, Inc.Plan of Merger, dated August 15, 2016, with Microbot Medical Ltd., a wholly owned subsidiary. Significant intercompany
accounts have been eliminatedprivate medical device company organized under the laws of the State of Israel (“Microbot Israel”). On the same day and in consolidation.
USE OF ESTIMATES
connection with the Merger, the Company changed its name from StemCells, Inc. to Microbot Medical Inc. On November 29, 2016, the Company’s common stock began trading on the Nasdaq Capital Market under the symbol “MBOT”.
Prior to the Merger, the Company was a biopharmaceutical company that conducted research, development, and commercialization of stem cell therapeutics and related technologies. The sale of substantially all material assets relating to the stem cell business were completed on November 29, 2016.
The Company and its subsidiaries are collectively referred to as the “Company”. “StemCells” or “StemCells, Inc.” refers to the Company prior to the Merger.
| B. | Risk Factors |
To date, the Company has not generated revenues from its operations. As of September 30, 2018, the Company had cash and cash equivalent balance of approximately $6,673, which management believes is sufficient to fund its operations for more than 12 months from the date of issuance of these financial statements and sufficient to fund its operations necessary to continue development activities of its current proposed products. Due to continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future. The Company plans to continue to fund its current operations as well as other development activities relating to additional product candidates, through future issuances of either debt and/or equity securities and possibly additional grants from the Israeli Innovation Authority and others. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company.
| C. | Use of Estimates |
The preparation of the consolidated financial statements in conformity with generally accepted accounting principlesU.S. GAAP requires management to make estimates and assumptions that affectpertaining to transactions and matters whose ultimate effect on the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents include funds held in investments with original maturities
of three months or less when purchased. The Company's policy regarding selection
of investments, pending their use, is to ensure safety, liquidity, and capital
reservation while obtaining a reasonable rate of return. Marketable securities
consist of investments in agencies of the U.S. government, investment grade
corporate notes and money market funds. The fair values for marketable
securities are based on quoted market prices.
The Company determines the appropriate classification of cash equivalents
and marketable securitiescannot precisely be determined at the time of purchase and reevaluates such
designation asfinancial statements preparation. Although these estimates are based on management’s best judgment, actual results may differ from these estimates.
| D. | ReverseStock Split |
On September 4, 2018, the Company filed a Certificate of each balance sheet date. The Company classifies such holdings
as available-for-sale securities, which are carried at fair value,Amendment to its Restated Certificate of Incorporation with unrealized gains and losses reported asthe Secretary of State of the State of Delaware to affect a separate componentone-for-15 reverse stock split of stockholders'
equity.
PROPERTY HELD FOR SALEthe Company’s common stock (the “Reverse Split”). As a result of the Company's decisionReverse Split, every 15 shares of the Company’s old common stock was converted into one share of the Company’s new common stock. Fractional shares resulting from the Reverse Split were rounded up to exit the encapsulated cell
technologynearest whole number. The Reverse Split automatically and relocate its corporate headquartersproportionately adjusted, based on the one-for-fifteen split ratio, all issued and outstanding shares of the Company’s common stock, as well as common stock underlying convertible preferred stock, stock options, warrants and other derivative securities outstanding at the time of the effectiveness of the Reverse Split. The exercise price on outstanding equity based-grants was proportionately increased, while the number of shares available under the Company’s equity-based plans was also proportionately reduced. Share and per share data (except par value) for the periods presented reflect the effects of the Reverse Split. References to Sunnyvale, CA, certain
property considered by managementnumbers of shares of common stock and per share data in the accompanying financial statements and notes thereto for periods ended prior to no longer be necessary hasSeptember 4, 2018 have been made
available for sale or lease. The aggregate carrying value of such property has
been reviewed by management, subjectadjusted to appraisal and adjusted downward to
estimated market value.
F-7
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2.reflect the Reverse Split on a retroactive basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including that held under capitalized lease
obligations, is stated at cost and depreciated using
The significant accounting policies applied in the straight-line method
over the estimated lifepreparation of the respective asset, as follows:
Unaudited Interim Financial Accounting
Standards Board Statement 121, which requires that long-lived assets be reviewed
for impairment whenever events or circumstances indicate that the carrying value
of the asset may not be recoverable. There were no such assets at December 31,
1998.
5. STEMCELLS CALIFORNIA, INC.
In September 1997, a merger of a wholly owned subsidiary of the company and
StemCells California, Inc. was completed in the form of a purchase. Through the
merger, the Company acquired StemCells California, Inc. for a purchase price
totaling approximately $9,475,000, consisting of 1,320,691 shares of the
Company's common stock, valued at $6,600,000 and options and warrants for the
purchase of 259,296 common shares at nominal consideration, valued at
$1,300,000, the assumption of certain liabilities of $934,000 and transaction
costs of $641,000. Options and warrants were valued utilizing the intrinsic
method; the resultant value approximated the value determined using the Black-
Scholes method. The purchase price was allocated, based upon an asset valuation
study using income approach methods, to license agreements valued at $1,131,000
to be amortized over three years and acquired research and development of
$8,344,000, which was expensed. The acquired research and development had not
reached scientific feasibility and had no alternative future uses. As part of
the acquisition of StemCells, Richard M. Rose, M.D., became President, Chief
Executive Officer and director of the Company and Dr. Irving Weissman became a
director of the Company.
Upon consummation of the merger, the Company entered into consulting
arrangements with the principal scientific founders of StemCells: Dr. Irving
Weissman, Dr. Fred H. Gage and Dr. David Anderson. Additionally, in connection
with the merger, the Company was granted an option by the former shareholders of
StemCells to repurchase 500,000 of the Company's shares of Common Stock
exchanged for StemCells shares, upon the occurrence of certain events.
To attract and retain Drs. Rose, Weissman, Gage and Anderson, and to
expedite the progress of the Company's stem cell program, the Company awarded
these individuals options to acquire a total of approximately 1.6 million shares
of the Company's common stock, at an exercise price of $5.25 per share, the
quoted market price at the grant date. Under the original grants, approximately
100,000 of these options were exercisable immediately on the date of grant,
1,031,000 of these options would vest and become exercisable only upon the
achievement of specified milestones related to the Company's stem cell
development program and the remaining 469,000 options would vest over eight
years. The
F-12
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. STEMCELLS CALIFORNIA, INC. (CONTINUED)
expense associated with the grants that vested immediately was considered
non-employee compensation and was based on the fair value of the options
granted. The expense was considered immaterial. In connection with the 469,000
options issued to a non-employee, Dr. Anderson, the Company recorded deferred
compensation of $1,750,000, the fair value of such options at the date of grant,
which will be amortized over an eight-year period. The fair value was determined
using the Black-Scholes method with the following inputs: volatility .594,
expected life 8 years, dividend yield 0.0%, risk free rate 5.98%. If the
milestones specified relating to the 1,031,000 option granted to non-employees
Drs. Weissman and Gage are achieved, at that time the company will record
compensation expense for the fair market value of such options determined using
the Black-Scholes method. The company has also designated a pool of 400,000
options to be granted to persons in a position to make a significant
contribution to the success of the stem cell program.
Stem cell research is conducted pursuant to the provisions of an agreement
between the company and Drs. Weissman and Gage providing for a two-year research
plan. If the goals of the research plan are accomplished, the Company has agreed
to fund continuing stem cell research. Increases in stem cells research funding
of not more than 25% a year will be funded by the Company as long as the goals
of the research plan are being met. However, the Company will retain the option
of (i) ceasing or reducing brain stem cell research even if all research plan
goals are met, but will be required to accelerate the vesting of all
still-achievable performance based stock options, and (ii) ceasing or reducing
non-brain stem cell research even if all plan goals are being met by affording
the scientific research founders the opportunity to continue development of the
non-brain stem cell research by licensing the technology related to such
research to the founders in exchange for a payment to the Company equal to all
prior Company funding for such research, plus royalty payments.
6. MODEX
In October 1997, the Company completed a series of transactions, which
resulted in the establishment of its previously 50%-owned Swiss subsidiary,
Modex Therapeutics, Ltd., (Modex) as an independent company. In the
transactions, the Company reduced its ownership interest from 50% to
approximately 25% in exchange for $4 million cash and elimination of its prior
contingent obligation to contribute an additional Sfr 2.4 million (approximately
$1.7 million) to Modex in July 1998. In the transactions, all of the put and
call arrangements between the Company and other stockholders of Modex were
eliminated and the Company forgave $463,000 due from Modex to the Company. The
Company recorded a gain on the transactions of $3,387,000.
In April 1998, Modex completed an additional equity offering, in which the
Company did not participate. This resulted in a reduction in the Company's
ownership to less than 20% ownership; therefore, the Company accounted for this
investment under the cost method at December 31, 1999.
The pre-existing royalty-bearing Cross License Agreement between the Company
and Modex was assigned by the Company to Neurotech S.A., a privately held French
company, as part of the sale of the intellectual property assets related to the
Company's encapsulated cell therapy technology to Neurotech. Under the terms of
the sale to Neurotech, the Company will receive a portion of revenues Neurotech
receives from Modex under the Cross License Agreement.
F-13
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. MARKETABLE SECURITIES
During 1999, the Company sold all of its remaining marketable equitable
securities. At December 31, 1999, all of the Company's available funds were held
in cash and cash equivalents. The following is a summary of available-for-sale
securities held at December 31, 1998:
DECEMBER 31, 1998
---------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- -----------
U.S. government securities..................... $ 1,500,994 $1,720 $ (504) $ 1,502,210
U.S. corporate securities...................... 9,225,095 3,244 (9,658) 9,218,681
----------- ------ -------- -----------
Total debt securities.......................... $10,726,089 $4,964 $(10,162) 10,720,891
=========== ====== ========
Debt securities included in cash and cash
equivalents.................................. (1,199,952)
-----------
Debt securities included in marketable
securities................................... $ 9,520,939
===========
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31,
------------------------
1999 1998
---------- -----------
Building and improvements........................... $ 665,890 $ 5,665,077
Machinery and equipment............................. 1,691,096 9,887,251
Furniture and fixtures.............................. 219,260 869,831
---------- -----------
2,576,286 16,422,159
Less accumulated depreciation and amortization...... 828,401 8,066,150
---------- -----------
$1,747,885 $ 8,356,009
========== ===========
Depreciation and amortization expense was $1,436,000, $1,720,000, and
$1,778,000 for the years ending December 31, 1999, 1998 and 1997, respectively.
As part of the Company's restructuring of its operations, sale of its
encapsulated cell technology ("ECT"), and relocation of its corporate
headquarters to Sunnyvale, California, the Company identified machinery and
equipment and furniture and fixtures associated with the ECT or otherwise no
longer needed. In December of 1999, the Company disposed of these excess fixed
assets, realizing proceeds of approximately $746,000. At the time of the sale,
these assets had a net book value of approximately $1,063,000 after a third
quarter 1999 write-down of $800,000, which was based on management's estimate of
expected sale proceeds. The third quarter write-down and actual fourth quarter
loss were included in wind-down expenses.
Certain property, plant and equipment have been acquired under capitalized
lease obligations. These assets totaled $5,827,000 and $6,587,000, at
December 31, 1999 and 1998, respectively, with related accumulated amortization
of $2,747,000 and $2,860,000 at December 31, 1999 and 1998,
F-14
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
respectively. As a result of the Company's decision to exit ECT and relocate to
Sunnyvale, CA, this property has been classified as held for sale at
December 31, 1999.
9. OTHER ASSETS
Other assets are as follows:
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
Patents, net......................................... $ 708,823 $3,938,755
License agreements, net.............................. 282,750 659,750
Security deposit--building lease..................... 750,000 750,000
Restricted cash...................................... -- 603,467
Deferred financing costs, net........................ 117,195 123,701
---------- ----------
$1,858,768 $6,075,663
========== ==========
The decrease in patents from 1999 to 1998 was primarily due to management's
decision to exit encapsulated cell technology and dispose of the related
intellectual property. Management reached this decision during the third quarter
of 1999, and established a reserve that included $260,000 directly related to
the write-down of encapsulated cell technology patents. During the fourth
quarter, management established an additional reserve that included a $180,000
loss associated with the sale of encapsulated cell technology patents worth
$3,180,000.
At December 31, 1999 and 1998, accumulated amortization was $857,000 and
$818,000, respectively, for patents and license agreements.
10. ACCRUED EXPENSES
Accrued expenses are as follows:
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
Wind-down expenses................................... $1,634,522 $ --
External services.................................... 97,439 412,253
Employee compensation................................ 306,342 262,679
Collaborative research............................... 222,140 196,505
Other................................................ 344,625 148,682
---------- ----------
$2,605,068 $1,020,119
========== ==========
The reserve for wind-down expenses included approximately $1,172,000
relating to the RIPSAT settlement (Notes 4 and 11) and approximately $463,000
for the estimated six months of lease payments and operating costs for the Rhode
Island facilities through an expected disposal date of June 30, 2000.
F-15
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. LEASES
The Company has undertaken direct financing transactions with the State of
Rhode Island and received proceeds from the issuance of industrial revenue bonds
totaling $5,000,000 to finance the construction of its pilot manufacturing
facility. The related leases are structured such that lease payments will fully
fund all semiannual interest payments and annual principal payments through
maturity in August 2014. Fixed interest rates vary with the respective bonds'
maturities, ranging from 5.1% to 9.5%. The bonds contain certain restrictive
covenants which limit, among other things, the payment of cash dividends and the
sale of the related assets. In addition, the Company was required to maintain a
debt service reserve until December 1999. On March 3, 2000 the Company entered
into a settlement agreement with RIPSAT, the Rhode Island Industrial
Recreational Building Authority ("IRBA") and the Rhode Island Industrial
Facilities Corporation ("RIIFC"). The Company agreed to pay RIPSAT $1,172,000 in
full satisfaction of all obligations of the Company to RIPSAT under the Funding
Agreement dated as of June 22, 1989. On execution and delivery of this
Agreement, IRBA agreed to return to the Company the full amount of the Company's
debt service reserve ("Reserve Funds"), approximately $610,000 of principal and
interest, relating to the bonds the Company has with IRBA and RIIFC. Such amount
has been classified as debt service funds in current assets of the consolidated
balance sheet. In order to avoid the loss of interest on the Reserve Funds due
to early termination of certain investments, the parties agreed that the Company
would render a net payment to RIPSAT in the amount of approximately $562,000.
In 1997, the Company completed construction of a new headquarters and
laboratory facility. In November 1997, the Company entered into sale and
leaseback agreements with a real estate investment trust. Under the terms of
these agreements, the Company sold its new facility for $8,000,000, incurring a
$342,000 loss on the sale. The Company simultaneously entered into a
fifteen-year lease for the facility. The lease agreement calls for minimum rent
of $750,000 for the first five years, $937,500 for years six to ten, $1,171,900
for years eleven to fourteen and $1,465,000 in year fifteen, with a $750,000
security deposit held for the term of the lease. The Company is recognizing rent
expense on a straight line basis. At December 31, 1999, the Company had incurred
$426,790 in deferred rent expense.
F-16
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. LEASES (CONTINUED)
Future minimum capitalized lease obligations with non-cancelable terms in
excess of one year at December 31, 1999, are as follows:
2000........................................................ $ 606,268
2001........................................................ 589,217
2002........................................................ 519,719
2003........................................................ 436,909
2004........................................................ 425,713
Thereafter.................................................. 2,577,826
----------
Total minimum lease payments................................ 5,302,407
Less amounts representing interest.......................... 2,041,157
----------
Present value of minimum lease payments..................... 3,261,250
Less current maturities..................................... 324,167
----------
Capitalized lease obligations, less current maturities...... $2,937,083
==========
Rent expense for the years ended December 31, 1999, 1998 and 1997, was
$947,000, $1,052,000 and $499,000, respectively.
12. LONG-TERM DEBT
Long-term debt is as follows:
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
Term note payable, interest at the prime rate plus 1/2%
(8.75% at December 31, 1998), principal payments commence
in August 1998, due ratably through May 2000; secured by
certain equipment (prepaid during 1999)................... $ -- $1,500,000
Current maturities of long-term debt........................ -- 1,000,000
---------- ----------
Long-term debt, less current maturities..................... $ -- $ 500,000
========== ==========
13. REDEEMABLE COMMON STOCK
In November 1996, the Company signed certain collaborative development and
licensing agreements with Genentech, Inc, including one under which Genentech
purchased 829,171 shares of redeemable common stock for $8.3 million to fund
development of products to treat Parkinson's disease. The Agreement also
provided that Genentech had the right, at its discretion, to terminate the
Parkinson's program at specified milestones in the program, and that if the
program were terminated, Genentech had the right to require the Company to
repurchase from Genentech the shares of the Company's common stock having a
value equal to the amount by which the $8.3 million exceeded the expenses
incurred by the Company in connection with such program by more than
$1 million, based upon the share price paid by Genentech. Accordingly, the
common stock is classified as redeemable common stock until such time as the
related funds are expended. At December 31, 1998, $3,051,000 had been spent on
the collaboration with Genentech and, accordingly, the Company has reclassified
F-17
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
13. REDEEMABLE COMMON STOCK (CONTINUED)
those common shares and related value to stockholders' equity. On May 21, 1998,
Genentech exercised its right to terminate the collaboration and negotiations
ensued with respect to the amount of redeemable common stock to be redeemed in
accordance with the agreement and the method of such redemption. In March 2000,
the Company reached a settlement of this matter with Genentech. Under the
settlement agreement, Genentech released the Company from any obligation to
redeem any shares of the Company's Common Stock held by Genentech. Accordingly,
the Company reclassified the amount recorded at December 31, 1999 as Redeemable
Common Stock ($5,248,000) to Stockholders' Equity in March 2000. The Company and
Genentech also agreed that all of the agreements between them were terminated
and that neither had any claim to the intellectual property of the other.
14. COMMON STOCK TO BE ISSUED
In 1998, the Company entered into an agreement with a Company advisor, under
which the advisor prepared a strategic and business overview and provided
related implementation support for the Company. The advisor agreed to accept
cash and the Company's common stock as partial payment for its services. In
1999, the Company issued the $187,500 of common stock due to the advisor.
15. STOCKHOLDERS' EQUITY
STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company has adopted several stock plans that provide for the issuance of
incentive and nonqualified stock options, performance awards and stock
appreciation rights, at prices to be determined by the Board of Directors, as
well as the purchase of Common Stock under an employee stock purchase plan at a
discount to the market price. In the case of incentive stock options, such price
will not be less than the fair market value on the date of grant. Options
generally vest ratably over four years and are exercisable for ten years from
the date of grant or within three months of termination. At December 31, 1999,
the Company had reserved 2,603,736 shares of common stock for the exercise of
stock options.
The following table presents the combined activity of the Company's stock
option plans (exclusive of the plans noted below) for the years ended
December 31:
1999 1998 1997
-------------------------- --------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- ---------- -------------- --------- --------------
Outstanding at January 1...... 1,654,126 $3.62 2,446,573 $7.48 2,423,025 $8.34
Granted....................... 536,078 1.08 1,174,118 1.70 679,074 5.33
Exercised..................... (604,362) 1.50 (11,012) .12 (82,737) 2.96
Canceled...................... (646,507) 5.31 (1,955,553) 7.08 (572,789) 9.21
--------- ----- ---------- ----- --------- -----
Outstanding at December 31.... 939,335 $2.65 1,654,126 $3.62 2,446,573 $7.48
========= ===== ========== ===== ========= =====
Options exercisable at
December 31................. 594,216 $3.44 1,108,936 $4.33 1,338,163 $7.79
========= ===== ========== ===== ========= =====
F-18
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
15. STOCKHOLDERS' EQUITY (CONTINUED)
On July 10, 1998, the Company re-priced 751,018 outstanding stock options.
No compensation expense was recorded since the re-priced options carried an
exercise price equal to the market price of the Company's common stock on the
date of the re-pricing.
In addition to the options noted above, in conjunction with the StemCells
California merger, StemCells California options originally issued under a prior
StemCells California options plan were exchanged for options to purchase 250,344
shares of the Company's common stock at $.01 per share; 75,384 of these options
are exercisable at December 31, 1997, 96,750 of these options vest and become
exercisable only upon achievement of specified milestones, and the remaining
78,210 options vest over three years from the date of grant. The value of such
options utilizing the intrinsic method, which approximated the value determined
using the Black-Scholes method, was accounted for as part of the StemCells
California acquisition price. Additionally, the Company adopted the 1997
CytoTherapeutics, Inc. StemCells California Research Stock Option Plan (the
StemCells California Research Plan) whereby an additional 2,000,000 shares of
Common Stock have been reserved. During 1997, the Company awarded options under
the StemCells Research Plan to purchase 1.6 million shares of the Company's
common stock to the Chief Executive Officer and scientific founders of StemCells
at an exercise price of $5.25 per share. Under the original grants,
approximately 100,000 of these options were exercisable immediately on the date
of grant, 1,031,000 of these options would vest and become exercisable only upon
achievement of specified milestones and the remaining 469,000 options would vest
over eight years. Options granted to Dr. Rose, in his capacity as Chief
Executive Officer, were valued using the intrinsic value method, in accordance
with the provisions of APB 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Options
granted to non-employees Drs. Weissman, Gage and Anderson were accounted for
using the fair value method in accordance with the provisions of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
FAS 123 DISCLOSURES
The Company has adopted the disclosure provisions only of Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("FAS 123") and accounts for its stock option plans in accordance with the
provisions of APB 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
- ------------------------------------------ ----------- ----------- -------- ----------- --------
Less than $5.00........................... 755,398 8.50 $ 1.12 411,945 $ 1.02
$5.01-$10.00.............................. 90,687 4.56 6.55 89,021 6.55
Greater than $10.00....................... 93,250 2.54 11.18 93,250 11.18
------- -------
939,335 594,216
======= =======
F-19
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
15. STOCKHOLDERS' EQUITY (CONTINUED)
Pursuant to the requirements of FAS 123, the following are the pro forma net
loss and net loss per share amounts for 1999, 1998, and 1997, as if the
compensation cost for the option plans and the stock purchase plan had been
determined based on the fair value at the grant date for grants in 1999, 1998,
and 1997, consistent with the provisions of FAS 123:
1999 1998 1997
--------------------------- --------------------------- ---------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------ ------------ ------------ ------------ ------------ ------------
Net loss............. $(15,708,626) $(15,764,569) $(12,627,830) $(14,919,389) $(18,113,580) $(19,924,437)
Net loss per share... $(.84) $(.84) $(.69) $(.82) $(1.08) $(1.19)
The weighted average fair value per share of options granted during 1999,
1998 and 1997 was $.88, $.82 and $3.40, respectively. The fair value of options
and shares issued pursuant to the stock purchase plan at the date of grant were
estimated using the Black-Scholes model with the following weighted average
assumptions:
OPTIONS STOCK PURCHASE PLAN
------------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
Expected life (years)................................. 5 5 5 5 .5 .5
Interest rate......................................... 5.5% 5.2% 6.2% 5.0% 4.64% 5.5%
Volatility............................................ 96.7% 63.5% 59.0% 96.7% 63.5% 59.0%
The Company has never declared nor paid dividends on any of its capital
stock and does not expect to do so in the foreseeable future.
The effects on 1999, 1998 and 1997 pro forma net loss and net loss per share
of expensing the estimated fair value of stock options and shares issued
pursuant to the stock purchase plan are not necessarily representative of the
effects on reporting the results of operations for future years as the period
presented includes only four, three or two years, respectively, of option grants
under the Company's plans. As required by FAS 123, the Company has used the
Black-Scholes model for option valuation, which method may not accurately value
the options described.
STOCK WARRANTS
In conjunction with the StemCells California merger, the Company exchanged
StemCells California warrants for warrants to purchase 8,952 shares of Company
common stock at $4.71 per share; such warrants were valued using the intrinsic
value method which approximated the value determined using the Black-Scholes
method and were accounted for as part of the purchase price. In conjunction with
various equipment leasing agreements, the Company had outstanding warrants to
purchase 31,545 shares of common stock at prices ranging from $4.00 to $9.00 per
share. The warrants expired in October 2000.
In connection with a public offering of common stock in April 1995, the
Company issued warrants to purchase 434,500 shares of common stock at $8 per
share. The warrants are nontransferable and expired in April 2000, subject to
certain required exercise provisions. In addition to the foregoing rights, the
holder of such warrants has the right, in the event the Company issues
additional shares of common stock or other securities convertible into common
stock, to purchase at the then market price
F-20
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
15. STOCKHOLDERS' EQUITY (CONTINUED)
of such common stock, sufficient additional shares of common stock to maintain
the warrant holder's percentage ownership of the Company's common stock at 15%.
This right, subject to certain conditions and limitations, expired in
April 2000.
COMMON STOCK RESERVED
The Company has reserved 6,461,846 shares of common stock for the exercise
of options, warrants and other contingent issuances of common stock.
16. RESEARCH AGREEMENTS
In November 1997, StemCells California, Inc., a wholly owned subsidiary of
the Company, signed a Research Funding and Option Agreement with The Scripps
Research Institute ("Scripps") relating to certain stem cell research. Under the
terms of the Agreement, StemCells agreed to fund research in the total amount of
approximately $931,000 at Scripps over a period of three years. StemCells paid
Scripps approximately $77,000 in 1997, $307,000 in 1998, and $309,000 in 1999.
In addition, the Company agreed to issue to Scripps 4,837 shares of the
Company's common stock and a stock option to purchase 9,674 shares of the
Company's Common Stock with an exercise price of $.01 per share upon the
achievement of specified milestones. Under the Agreement, StemCells has an
option for an exclusive license to the inventions resulting from the sponsored
research, subject to the payment of royalties and certain other amounts, and is
obligated to make payments totaling $425,000 for achievement of certain
milestones.
In April 1997, the Company entered into an agreement with
Neurospheres, Ltd., which superseded all previous licensing agreements and
settled a dispute with Neurospheres. Under the terms of the settlement, the
Company has an exclusive royalty bearing license for growth-factor responsive
stem cells for transplantation. Neurospheres had an option to acquire
co-exclusive rights but did not exercise by the April 1998 deadline. The Company
retains exclusive rights for transplantation. The parties have no further
research obligations to each other, and the Company is under no obligation to
provide additional funding.
In February 1997, the Company and Cognetix, Inc. entered into a
Collaboration and Development Agreement related to the Company's former
encapsulated cell technology. As part of the agreement with Cognetix, the
Company purchased $250,000 of Cognetix preferred stock and, subject to certain
milestones, was obligated to purchase as much as $1,500,000 of additional
Cognetix stock over the next year. In July 1997, the Company loaned $250,000 to
Cognetix which was repaid with interest in October 1997. In October 1998, the
Company sold the $250,000 of preferred stock back to Cognetix for $298,914. The
Company is under no obligation to provide funding under this agreement.
In 1996, the Company signed certain collaborative development and licensing
agreements with Genentech, Inc. Under the terms of one of those agreements,
Genentech purchased 829,171 shares of redeemable common stock for $8.3 million
to fund development of products to treat Parkinson's disease. Genentech had the
right, at its discretion, to terminate the Parkinson's program at specified
milestones in the program. The Agreement also provided that if the Parkinson's
program were terminated and the funds the Company received from the sale of
stock to Genentech pursuant to the Parkinson's agreement exceeded the expenses
incurred by the Company in connection with such program by more than
$1 million, Genentech had the right to require the Company to repurchase from
F-21
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
16. RESEARCH AGREEMENTS (CONTINUED)
Genentech shares of the Company's common stock having a value equal to the over
funding, based upon the share price paid by Genentech. As such, the common stock
purchased by Genentech has been classified as redeemable common stock until the
funds are expended on the program. On May 21, 1998, Genentech exercised its
right to terminate the collaboration and negotiations ensued with respect to the
amount of redeemable common stock to be redeemed in accordance with the
agreement and the method of such redemption. In March 2000 the Company announced
the settlement of this matter with Genentech and at that time the redeemable
common stock was reclassified to common stock. The Company is under no
obligation to provide additional funding to Genentech, Inc.
In March 1995, the Company signed a collaborative research and development
agreement with AstraZeneca for the development and marketing of certain
encapsulated-cell products to treat pain. AstraZeneca made an initial,
nonrefundable payment of $5,000,000, included in revenue from collaborative
agreements in 1995, a milestone payment of $3,000,000 in 1997 and was to remit
up to an additional $13,000,000 subject to achievement of certain development
milestones. Under the agreement, the Company was obligated to conduct certain
research and development pursuant to a four-year research plan agreed upon by
the parties. Over the term of the research plan, the Company originally expected
to receive annual payments of $5 million to $7 million from AstraZeneca, which
was to approximate the research and development costs incurred by the Company
under the plan. Subject to the successful development of such products and
obtaining necessary regulatory approvals, AstraZeneca was obligated to conduct
all clinical trials of products arising from the collaboration and to seek
approval for their sale and use. AstraZeneca had the exclusive worldwide right
to market products covered by the agreement. Until the later of either the
expiration of all patents included in the licensed technology or a specified
fixed term, the Company was entitled to a royalty on the worldwide net sales of
such products in return for the marketing license granted to AstraZeneca and the
Company's obligation to manufacture and supply products. AstraZeneca had the
right to terminate the original agreement beginning April 1, 1998. On June 24,
1999, AstraZeneca informed the Company of the results of AstraZeneca's analysis
of the double-blind, placebo-controlled trial of the Company's encapsulated
bovine cell implant for the treatment of severe, chronic pain in cancer
patients. AstraZeneca determined that, based on criteria it established, the
results from the 85-patient trial did not meet the minimum statistical
significance for efficacy established as a basis for continuing worldwide trials
for the therapy. AstraZeneca therefore indicated that it did not intend to
continue the trials of the bovine cell-containing implant therapy and executed
its right to terminate the agreement. The Company has no additional funding
obligations with AstraZeneca.
The Company has entered into other collaborative research agreements whereby
the Company funds specific research programs. Pursuant to such agreements, the
Company is typically granted rights to the related intellectual property or an
option to obtain such rights on terms to be agreed, in exchange for research
funding and specified royalties on any resulting product revenue. The Company's
principal academic collaborations had been with Brown University and
Dr. Aebischer and Centre Hospitalier Universitaire Vaudois in Switzerland.
However, with the termination of the Company's encapsulated cell technology
program and its new focus on the stem cell field, its principal academic
collaborations are now with Scripps Institute and the Oregon Health Science
University. Research and development expenses incurred under these
collaborations amounted to approximately $868,000, $1,259,000, and $1,326,000
for the years ended December 31, 1999, 1998 and 1997, respectively. The Company
has no other significant collaborative research funding obligations.
F-22
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
17. INCOME TAXES
Due to net losses incurred by the Company in each year since inception, no
provision for income taxes has been recorded. At December 31, 1999, the Company
had tax net operating loss carry forwards of $96,195,000 and research and
development tax credit carry forwards of $4,035,000 which expire at various
times through 2019. Due to the "change in ownership" provisions of the Tax
Reform Act of 1986, the Company's utilization of its net operating loss carry
forwards and tax credits may be subject to annual limitation in future periods.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
Deferred tax assets:
Capitalized research and development costs................ $ 4,331,000 $ 28,124,000
Net operating losses...................................... 38,478,000 10,786,000
Research and development credits.......................... 4,035,000 3,646,000
Other..................................................... 928,000 235,000
------------ ------------
47,772,000 42,791,000
Deferred tax liabilities:
Patents................................................... (246,000) (1,537,000)
------------ ------------
47,526,000 41,254,000
Valuation allowance....................................... (47,526,000) (41,254,000)
------------ ------------
Net deferred tax assets..................................... $ -- $ --
============ ============
Since there is uncertainty relating to the ultimate use of the loss carry
forwards and tax credits, a valuation allowance has been recognized at
December 31, 1999 and 1998, to fully offset the Company's deferred tax assets.
The valuation allowance increased $6,272,000 in 1999, due primarily to the
increases in net operating loss carry forwards and tax credits offset by
reduction in capitalized research and development costs.
18. EMPLOYEE RETIREMENT PLAN
The Company has a qualified defined contribution plan covering substantially
all employees. Participants are allowed to contribute a fixed percentage of
their annual compensation to the plan and the Company may match a percentage of
that contribution. The Company matches 50% of employee contributions, up to 6%
of employee compensation, with the Company's common stock. The related expense
was $103,000, $146,000, and $169,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
19. CONTINGENCIES
The Company is routinely involved in arbitration, litigation and other
matters as part of the ordinary course of its business. While the resolution of
any matter may have an impact on the Company's financial results for a
particular reporting period, management believes the ultimate
F-23
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
19. CONTINGENCIES (CONTINUED)
disposition of these matters will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
20. SUBSEQUENT EVENTS
On April 13, 2000, the Company completed arrangements to sell 1,500 shares
of 6% cumulative convertible preferred stock plus a warrant for 75,000 shares of
the Company's common stock to two members of its Board of Directors for
$1,500,000, on terms more favorable than it was then able to obtain from outside
investors. (SEE NOTE 3--"SALE OF 6% CUMULATIVE CONVERTIBLE PREFERRED STOCK.")
F-24
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 DECEMBER 31, 1999
(UNAUDITED) (NOTE 1)
------------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,247,077 $ 4,760,064
Technology sale receivable................................ 200,000 3,000,000
Other current assets...................................... 768,521 1,210,791
------------- -------------
Total current assets.................................... 8,215,598 8,970,855
Restricted Investments.................................... 27,204,333 --
Property held for sale.................................... 3,203,491 3,203,491
Property, plant and equipment, net........................ 1,517,564 1,747,885
Intangible assets, net.................................... 740,543 1,108,768
Other assets.............................................. 750,000 750,000
------------- -------------
Total assets................................................ $ 41,631,529 $ 15,780,999
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 234,444 $ 631,315
Accrued expenses.......................................... 574,267 2,605,068
Current maturities of capitalized lease obligations....... 327,083 324,167
------------- -------------
Total current liabilities................................... 1,135,794 3,560,550
Capitalized lease obligations, less current maturities...... 2,692,500 2,937,083
Deposits.................................................... 26,000 26,000
Deferred rent............................................... 650,984 502,353
Redeemable stock............................................ -- 5,248,610
Stockholders' equity
Convertible Preferred Stock............................... 1,500,000 --
Common stock.............................................. 208,818 186,355
Additional paid in capital................................ 134,698,668 123,917,758
Stock Subscription Receivable............................. (1,250,004) --
Accumulated deficit....................................... (124,237,900) (119,372,710)
Accumulated other comprehensive income.................... 27,204,333 --
Deferred compensation..................................... (997,664) (1,225,000)
------------- -------------
Total stockholders' equity.............................. 37,126,251 3,506,403
------------- -------------
Total liabilities and stockholders' equity.............. $ 41,631,529 $ 15,780,999
============= =============
See accompanying notes to condensed consolidated financial statements.
F-25
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------
2000 1999
-------------- ---------------
Revenue from collaborative arrangements..................... $ -- $ 5,021,707
Operating expenses:
Research and development.................................. 3,350,101 8,432,262
General and administrative................................ 2,172,137 3,195,672
Encapsulated Cell Therapy wind down and corporate
relocation.............................................. 768,733 4,078,034
------------ -------------
6,290,971 15,705,968
Loss from operations........................................ (6,290,971) (10,684,261)
Other income (expense):
Investment income......................................... 218,480 504,114
Interest expense.......................................... (209,287) (236,836)
Gain on sale of Modex shares.............................. 1,427,686 --
Loss on disposal of fixed assets.......................... (11,098) (66,777)
------------ -------------
1,425,781 200,501
------------ -------------
Net loss.................................................... $ (4,865,190) $ (10,483,760)
Deemed dividend (Note 2).................................. (265,000) --
------------ -------------
Net loss applicable to common shareholders.................. $ (5,130,190) $ (10,483,760)
============ =============
Basic and diluted net loss per common share................. $ (0.26) $ (0.56)
============ =============
Shares used in computing basic and diluted net loss per
common share.............................................. 19,682,590 18,560,675
============ =============
See accompanying notes to condensed consolidated financial statements.
F-26
STEMCELLS, INC. (FORMERLY CYTOTHERAPEUTICS, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2000 1999
----------- ------------
Cash flows from operating activities:
Net loss.................................................. $(4,865,190) $(10,483,760)
Gain on sale of Modex shares.............................. (1,427,686) --
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization........................... 617,447 1,603,691
Write down of fixed assets.............................. -- 800,000
Deferred stock compensation............................. 464,363 244,337
Loss on sale of fixed assets............................ -- 66,777
Net changes in operating assets and liabilities......... (3,086,775) (1,978,807)
----------- ------------
Net cash used in operating activities..................... (8,297,841) (9,747,762)
----------- ------------
Cash flows from investing activities:
Proceeds from marketable securities....................... -- 11,317,482
Purchases of marketable securities........................ -- (4,397,676)
Proceeds from sale of encapsulated cell technology........ 2,800,000 --
Purchase of property, plant and equipment, net............ (18,901) (47,210)
Proceeds from sale of Modex shares........................ 1,427,686 --
Acquisition of other assets............................... -- (138,090)
----------- ------------
Net cash provided by investing activities................. 4,208,785 6,734,505
----------- ------------
Cash flows from financing activities:
Proceeds from the exercise of stock options............... 553,586 548,225
Proceeds from issuance of common stock.................... 4,764,150 --
Proceeds from issuance of preferred stock................. 1,500,000 --
Principal payments under capitalized lease obligations and
mortgage payable........................................ (241,667) (1,710,833)
----------- ------------
Net cash provided by (used by) financing activities....... 6,576,069 (1,162,608)
----------- ------------
Net increase (decrease) in cash and cash equivalents........ 2,487,013 (4,175,865)
Cash and cash equivalents, beginning of period.............. 4,760,064 7,864,788
----------- ------------
Cash and cash equivalents, end of period.................... $ 7,247,077 $ 3,688,923
=========== ============
Non-cash item:
Stock subscription receivable............................. $ 1,250,004 --
See accompanying notes to condensed financial statements.
F-27
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
NOTE 1. BASIS OF PRESENTATION
On May 23, 2000, the company's name was changed to Stem Cells, Inc. from
CytoTherapeutics, Inc. by vote of the shareholders at the Annual Meeting. Statements
The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting
principlesU.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.U.S. Securities and Exchange Commission (“SEC”) regulations. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting
principlesGAAP for complete financial statements. In the opinion of management, the
accompanying financial statements include all adjustments consisting of normal
recurring accruals, considered necessary for a fair presentation have been included (consisting only of the
financial position,normal recurring adjustments except as otherwise discussed).
Operating results of operations and cash flows for the periods
presented. Results of operations for the nine monthsnine-month period ended September 30, 20002018, are not necessarily indicative of the results that may be expected for the entire fiscal year endingended December 31, 2000.
2018.
Significant Accounting Policies
The significant accounting policies followed in the preparation of these unaudited interim condensed consolidated financial statements are identical to those applied in the preparation of the latest annual audited financial statements.
Recent Accounting Standards
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” to provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The ASU supersedes most current revenue recognition guidance, including industry-specific guidance. The FASB subsequently issued ASU 2015-14, ASU 2016-08 and ASU 2016-12, which clarified the guidance, provided scope improvements and amended the effective date of ASU 2014-09. As a result, ASU 2014-09 becomes effective for the Company in the first quarter of 2018, with early adoption permitted. The adoption of this standard did not have a material impact on our interim consolidated statements of comprehensive loss since the Company has not yet generated revenues to date.
In June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The guidance is effective for the Company during the first quarter of 2019. The Company is assessing ASU 2018-07 and does not expect it to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For operating leases, the ASU requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The ASU retains the current accounting for lessors and does not make significant changes to the recognition, measurement, and presentation of expenses and cash flows by a lessee.
In July 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements - Leases (Topic 842).” This update provides an optional transition method that allows entities to elect to apply the standard prospectively at its effective date, versus recasting the prior periods presented. If elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company continues to evaluate the effect of the adoption of this ASU and expects the adoption will result in an increase in the assets and liabilities on the consolidated balance sheets for operating leases (refer to Note 4) and will likely have an insignificant impact on the consolidated statements of comprehensive loss.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” to improve information on credit losses for financial assets and net investment in leases that are not accounted for at fair value through net income. The ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. This ASU is effective for the Company in the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the effect the adoption of this ASU will have on its consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. The ASU is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company has derivative warranty liabilities as discussed in Note 4 which upon adoption of the new standard are expected to be classified as equity.
NOTE 3 - DERIVATIVE WARRANT LIABILITIES
The remaining outstanding warrants and terms as of September 30, 2018 and December 31, 1999 has been2017 after the split is as follows: (*)
| Issuance date | Outstanding as of December 31, 2017 | Outstanding as of September 30, 2018 | Exercise Price | Exercisable as of September 30, 2018 | Exercisable Through | |||||||||||||
| Series A (2013) | 3,895 | 3,895 | $ | 2,885 | 3,895 | October 2018 | ||||||||||||
| Series A (2013) | 183 | 183 | $ | 2,725 | 183 | April 2023 | ||||||||||||
| Series A (2015) | 683 | 683 | $ | 1,363 | 683 | April 2020 | ||||||||||||
| Series A (2016) (a) | 625 | - | $ | - | - | March 2018 | ||||||||||||
| Series B (2016) (a) | 2,770 | 2,770 | $ | 40 | 2,770 | March 2022 | ||||||||||||
| (*) | December 31, 2017 warrants data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018 | |
| a) | These warrants contain a full ratchet anti-dilution price protection so that, in most situations upon the issuance of any common stock or securities convertible into common stock at a price below the then-existing exercise price of the outstanding warrants, the warrant exercise price will be reset to the lower common stock sales price. As such anti-dilution price protection does not meet the specific conditions for equity classification, the Company is required to classify the fair value of these warrants as a liability, with changes in fair value to be recorded as income (loss) due to change in fair value of warrant liability. The estimated fair value of our warrant liability at September 30, 2018 and December 31, 2017, was approximately $5 and $28, respectively. |
As quoted prices in active markets for identical or similar warrants are not available, the Company uses directly observable inputs in the valuation of its derivative warrant liabilities (level 3 measurement).
The Company uses the Black-Scholes valuation model to estimate fair value of these warrants. In using this model, the Company makes certain assumptions about risk-free interest rates, dividend yields, volatility, expected term of the warrants and other assumptions. Risk-free interest rates are derived from the auditedyield on U.S. Treasury debt securities. Dividend yields are based on our historical dividend payments, which have been zero to date. Volatility is estimated from the historical volatility of our common stock as traded on NASDAQ. The expected term of the warrants is based on the time to expiration of the warrants from the date of measurement.
In March 2017, an institutional holder executed a cashless exercise of 51 warrants and 24 shares of Common Stock were issued in connection therewith.
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of September 30, 2018 and December 31, 2017:
| Series A (2011) | Series A (2013) | Series A (2013) | Series A (2015) | Series A (2016) | Series B (2016) | Total | ||||||||||||||||||||||
| Balances at December 31, 2017 | $ | - | $ | - | $ | - | $ | - | $ | (* | ) | $ | 28 | $ | 28 | |||||||||||||
| Exercised | - | - | - | - | - | - | - | |||||||||||||||||||||
| expiration | - | - | - | - | (* | ) | - | (* | ) | |||||||||||||||||||
| Changes in fair value | - | - | - | - | - | (23 | ) | (23 | ) | |||||||||||||||||||
| Balances at September 30, 2018 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5 | $ | 5 | ||||||||||||||
| (*) | Less than 1 |
The following table summarizes the observable inputs used in the valuation of the derivative warrant liabilities as of September 30, 2018 and December 31, 2017:
| As of September 30, 2018 | As of December 31, 2017 | |||||||||||||||
| Series A (2016) | Series B (2016) | Series A (2016) | Series B (2016) | |||||||||||||
| Share price | — | $ | 7.52 | $ | 15.1 | $ | 15.1 | |||||||||
| Exercise price | — | $ | 40.07 | $ | 40.07 | $ | 40.07 | |||||||||
| Expected volatility | — | 84.9% | 60% | 119% | ||||||||||||
| Risk-free interest | — | 2.39% | 1.24% | 1.89% | ||||||||||||
| Dividend yield | — | — | — | — | ||||||||||||
| Expected life of up to (years) | — | 3.50 | 0.25 | 4.25 | ||||||||||||
Activity in such liabilities measured on a recurring basis is as follows:
| Derivative Warrant Liabilities | ||||
| As of December 31, 2017 | $ | 28 | ||
| Revaluation of warrants | (23) | |||
| As of September 30, 2018 | $ | 5 | ||
| Derivative Warrant Liabilities | ||||
| As of December 31, 2016 | $ | 313 | ||
| Revaluation of warrants | (285) | |||
| Exercise warrants | (*) | |||
| As of December 31, 2017 | $ | 28 | ||
| (*) | Less than 1 |
In accordance with ASC-820-10-50-2(g), the Company has performed a sensitivity analysis of the derivative warrant liabilities of the Company which are classified as level 3 financial statementsinstruments. The Company recalculated the value of warrants by applying a +/- 5% changes to the input variables in the Black-Scholes model that vary overtime, namely, the volatility and the risk-free rate. A 5.0% decrease or ‘increase in volatility would not have materially changed the value of the warrants. A 5.0% decrease or increase in the risk-free rate would not have materially changed the value of the warrants; the value of the warrants is not strongly correlated with small changes in interest rates.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Microbot Israel obtained from the Israeli Innovation Authority (“IIA”) grants for participation in research and development for the years 2013 through September 30, 2018 in the total amount of approximately $1,310 and, in return, Microbot Israel is obligated to pay royalties amounting to 3% of its future sales up to the amount of the grant. The grant is linked to the exchange rate of the dollar to the New Israeli Shekel and bears interest of Libor per annum.
The repayment of the grants is contingent upon the successful completion of the Company’s research and development programs and generating sales. The Company has no obligation to repay these grants, if the project fails, is unsuccessful or aborted or if no sales are generated. The financial risk is assumed completely by the Government of Israel. The grants are received from the Government on a project-by-project basis.
Microbot Israel signed an agreement with the Technion Research and Development Foundation (“TRDF”) in June 2012 by which TRDF transferred to Microbot Israel a global, exclusive, royalty-bearing license. As partial consideration for the license, Microbot Israel shall pay TRDF royalties on net sales (between 1.5%-3%) and on sublicense income as detailed in the agreement.
Lease Agreements
In December 2016, the Company entered into car lease agreements, which will end on December 31, 2019. According to the lease agreement, the monthly car lease payment is approximately $2.5.
In January 2018, the Company entered into an office lease agreement in the U.S., with a term ending on December 31, 2021. According to the lease agreement, the monthly office lease payment is approximately $4.
In May 2017, the Company entered into an office lease agreement IN Israel effective from February 1, 2018, with a term ending on December 31, 2020. According to the lease agreement, the monthly office lease payment is approximately $14.
Compensation Liability
The Company incurred compensation commitments of approximately $400 to a former executive that management estimates as remote that this amount will ever be paid out and therefore is not reflected in these consolidated financial statements.
| F-37 |
Contract Research Agreement
On January 27, 2017, the Company entered into a Contract Research Agreement (the “Research Agreement”) with The Washington University (“Washington U.”), pursuant to which the parties are collaborating to determine the effectiveness of the Company’s self-cleaning shunt.
The study in Washington U. includes several phases. The first phase (initial research) was completed. The parties are in the final stage of planning the next phase, including the related various costs.Pursuant to the Research Agreement, all rights, title and interest in the data, information and results obtained or arrived at by Washington U. in the performance of its services under the Research Agreement, as well as any patentable inventions obtained or arrived at in the performance of such services, will be jointly owned by the Company and Washington U., and each will have full right to practice and grant licenses in joint inventions. Additionally, Washington U. granted to the Company: (a) a non-exclusive, worldwide, royalty-free, fully paid-up, perpetual and irrevocable license to use and practice patentable inventions (other than joint inventions and improvements to Washington U.’s animal models) obtained or arrived at by Washington U. in the provision of its services under the Research Agreement (“University Inventions”) with respect to the self-cleaning shunt; and (b) an exclusive option to obtain an exclusive worldwide license in University Inventions, on terms to be negotiated between the parties.
Litigation
The Company is named as the defendant in a lawsuit, captioned Sabby Healthcare Master Fund Ltd. and Sabby Volatility Warrant Master Fund Ltd., Plaintiffs, against Microbot Medical Inc., Defendant, pending in the Supreme Court of the State of New York, County of New York. The complaint alleges, among other things, that the Company breached multiple representations and warranties contained in the Securities Purchase Agreement (the “SPA”) related to the June 8, 2017 equity financing of the Company (the “Financing”), of which the Plaintiffs participated. The complaint seeks rescission of the SPA and return of the Plaintiffs’ $3,375 purchase price with respect to the Financing, and damages in an amount to be determined at trial, but alleged to exceed $1 million. On August 3, 2018, both Plaintiffs and the Company filed motions for summary judgment. On September 27, 2018, the Court heard oral argument on the parties’ respective summary judgment motions. After oral argument, the Court denied Plaintiffs’ motion in its entirety from the bench. On September 28, 2018, the Court issued a decision granting the Company’s motion for summary judgment regarding Plaintiffs’ claim for monetary damages and denying the Company’s motion for summary judgment on Plaintiffs’ claim for rescission, finding that there were material questions of fact that would need to be resolved at trial. A trial date buthas not been set.
Management is unable to assess the likelihood of the claim and the amount of potential damages, if any, to be awarded. Management believes that the claims made against it are without merit and intends to vigorously defend itself against these claims.
Tolling and Standstill Agreement
On April 4, 2018, the Company entered into a Tolling and Standstill Agreement (the “Tolling Agreement”) with Empery Asset Master, Ltd., Empery Tax Efficient LP, Empery Tax Efficient II LP, and Hudson Bay Master Fund, Ltd., the other investors in the Financing (the “Other Investors”). Pursuant to the Tolling Agreement, among other things, (a) the Other Investors agree not to bring any claims against the Company arising out of the Matter, (b) the parties agree that if the Company reaches an agreement to settle the claims asserted by the Sabby Funds in the above suit, the Company will provide the same settlement terms on a pro rata basis to the Other Investors, and the Other Investors will either accept same or waive all of their claims and (c) the parties froze in time the rights and privileges of each party as of the effective date of the Tolling Agreement, until (i) an agreement to settle the suit is executed; (ii) a judgment in the suit is obtained; or (iii) the suit is otherwise dismissed with prejudice.
| F-38 |
Agreement with CardioSert Ltd.
On January 4, 2018, Microbot Israel entered into an agreement with CardioSert Ltd. (“CardioSert”) to acquire certain patent-protected technology owned by CardioSert (the “Technology”).
Pursuant to the Agreement, Microbot Israel made an initial payment of $50 to CardioSert and has 90-days to elect to complete the acquisition. At the end of the 90-day period, at Microbot Israel’s sole option, CardioSert shall assign and transfer the Technology to Microbot Israel and Microbot Israel shall pay to CardioSert additional amounts and securities as determined in the agreement.
On April 10, 2018, Microbot delivered an Exercise Notice to CardioSert Ltd., notifying it that Microbot elected to exercise the option to acquire the Technology owned by CardioSert and therefore made an additional cash payment of $250 and 6,738 (100,000 common shares before the Reverse Split) common shares estimated of $74. (see note 5).
The agreement may be terminated by Microbot Israel at any time for convenience upon 90-days’ notice. The agreement may be terminated by CardioSert in case the first commercial sale does not include alloccur by the third anniversary of the information
and footnotes requireddate of signing of the agreement except if Microbot Israel has invested more than $2,000 in certain development stages, or the first commercial sale does not occur within 50 months. In each of the above termination events, or in case of breach by Microbot Israel, CardioSert shall have the right to buy back the Technology from Microbot Israel for complete financial statements in accordance with
generally accepted accounting principles$1.00, upon 60 days prior written notice, but only 1 year after such termination. Additionally, the agreement may be terminated by either party upon breach of the other (subject to cure).
CardioSert agreed to assist Microbot Israel in the United States. Fordevelopment of the complete
financial statements, referTechnology for a minimum of one year, for a monthly consultation fee of NIS 40,000 covering up to 60 consulting hours per month.
Agreement with Simon Sharon
Effective as of April 1, 2018, the Company hired Simon Sharon to replace its former Vice President of R&D. Pursuant to the audited financial statementsterms thereof, among other things, Mr. Sharon is entitled to options to purchase 10,000 shares (150,000 shares before the Reverse Split) of the Company’s common stock, subject and footnotes
thereto aspursuant to the Company’s 2017 Equity Incentive Plan.
NOTE 5 - SHARE CAPITAL
Each share of the Series A Convertible Preferred Stock, par value $0.01 per share, issued by the Company in December 31, 1999.
NOTE 2. NET LOSS PER SHARE
Net loss-per-share2016 and in May 2017 (the “Series A Convertible Preferred Stock”), is computed usingconvertible, at the weighted-average numberoption of the holder, into 67 shares of commonCommon Stock (1,000 shares of Common Stock before the Reverse Split), and confer upon the holder dividend rights on an as converted basis.
Exercise of Warrants
On March 2017, an institutional holder exercised, in a cashless transaction, 52 warrants (768 warrants before the Reverse Split) and 24 shares (359 shares before the Reverse Split) of Common Stock were issued in connection therewith.
Share Capital Developments
The authorized capital stock outstanding. The value associated with the beneficial conversion
featureconsists of certain221,000,000 shares of capital stock, which consists of 220,000,000 shares of Common Stock and 1,000,000 shares of undesignated preferred stock, has been treatedpar value $0.01 (the “Preferred Stock”). As of March 31, 2018, the Company had 2,837,863 shares (42,120,127 shares before the Reverse Split) of Common Stock issued and outstanding, and 2,464 shares of Series A Convertible Preferred Stock issued and outstanding.
On December 27, 2016, the Company exchanged 655,962 shares (9,735,925 shares before the Reverse Split) or rights to acquire shares of its Common Stock, for 9,736 shares of a newly designated class of Series A Convertible Preferred Stock.
On January 5, 2017, the Company entered into a definitive securities purchase agreement with an institutional investor (the “Purchaser”) for the purchase and sale of an aggregate of 47,163 shares (700,000 shares before the Reverse Split) of Common Stock in a registered direct offering for $74 per share ($5.00 per share before the Reverse Split) or gross proceeds of $3,500. The Company paid the placement agent a fee of $210 plus reimbursement of out-of-pocket expenses, as well as other offering-related expenses.
On June 5, 2017, the Company entered into a deemed dividendSecurities Purchase Agreement with certain institutional investors (the “Investors”) providing for the issuance and sale by the Company to the Investors of an aggregate of 252,658 shares (3,750,000 shares before the Reverse Split) of Common Stock, at a purchase price per share of $40 ($2.70 before the Reverse Split). The gross proceeds to the Company was $10,125 before deducting placement agent fees and offering expenses of $922.
Employee Stock Option Grant
In September 2014, Microbot Israel’s board of directors approved a grant of 26,906 stock options (403,592 stock options before the Reverse Split) (77,846 stock options as retroactively adjusted to reflect the Merger) to its CEO, through MEDX Venture Group LLC. Each option was exercisable into an ordinary share, at an exercise price of $12 ($0.8 before the Reverse Split) ($4.2 as retroactively adjusted to reflect the Merger). The stock options were fully vested at the date of grant.
On May 2, 2016, Microbot Israel’s board of directors approved a grant of 33,333 stock options (500,000 stock options before the Reverse Split) (96,482 as retroactively adjusted to reflect the Merger) to certain of its employees and directors. Each stock option was exercisable into an ordinary share, NIS 0.001 par value, of Microbot Israel, at an exercise price equal to the ordinary share’s par value. The stock options were fully vested at the date of grant. As a result, the Company recognized compensation expenses in the computationamount of earnings$675 included in general and administrative expenses. As the exercise price of the stock options is nominal, Microbot Israel estimated the fair value of the options as equal to the Company’s share price of $20.25 ($1.35 before the Reverse Split) ($7.05 as retroactively adjusted to reflect the Merger) at the date of grant.
On September 12, 2017, the Company adopted the 2017 Equity Incentive Plan (the “Plan”), which Plan authorizes, among other things, the grant of options to purchase shares of Common Stock to directors, officers and employees of the Company and to other individuals.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 120,848 shares (1,812,712 shares before the Reverse Split) of Common Stock to Mr. Harel Gadot, the Company’s Chairman of the Board, President and CEO, at an exercise price per share (see Note 6 "Beneficial Conversion Value of 6%
Cumulative Convertible Preferred Stock.) Common equivalent shares from$15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3-5 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $460 and warrants are excluded, as their effect is antidilutive.
NOTE 3. COMPREHENSIVE INCOME
For the nine months ended September 30, 2000$0 included in general and 1999, total comprehensive
income/(loss) was $22,339,143 and ($10,483,760) respectively. The reported net
lossadministrative expenses for the nine months ended September 30, 20002018 and 19992017 respectively.
On September 14, 2017, the board of directors approved a grant of stock options to purchase an aggregate of up to 72,508 shares (1,087,627 shares before the Reverse Split) of Common Stock to Mr. Hezi Himelfarb, the company’s General Manager, COO and a member of the Board, at an exercise price per share of $19.35 ($1.29 before the Reverse Split). The grant was $4,865,190 and
$10,483,760.
NOTE 4. INVESTMENTS
At September 30, 2000,subject to the Israeli Tax Authority’s approval of the plan which occurred on October 14, 2017. In accordance with the option agreement, the options vest for period of 3 years starting from the grand date As a result, the Company owned 126,193 sharesrecognized compensation expenses in the amount of Modex
Therapeutics Ltd. ("Modex"). This Swiss biotechnology company made an initial
public offering of shares on the Swiss Exchange on June 23, 2000. Accordingly,
with an established market value, the investment is recorded as
available-for-sale at an estimated fair market value The market price of Modex
shares was 372 Swiss Francs per share on September 30, 2000, which converts to
$215.58 per share$329 and results in an estimated fair value of $27,204,333 for the
Company's holdings on that date. The unrealized gain was reported in other
comprehensive income. On January 2, 2001 the market price of Modex shares was
210.00 Swiss Francs per share, which converts to $130.39 per share and results
in an estimated fair value of $16,453,825 for the Company's holdings. On
January 19, 2001, the Company sold 22,616
F-28
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
NOTE 4. INVESTMENTS (CONTINUED)
Modex shares for a net price of 182.00 Swiss Francs per share, which converts to
$112.76 per share, for total proceeds of $2,550,230.27.
COST GROSS UNREALIZED GAIN FAIR VALUE SEPTEMBER 30, 2000
- --------------------- --------------------- ------------------------------
$ 0 $27,204,333 $27,204,333
NOTE 5. WIND-DOWN OF ENCAPSULATED CELL TECHNOLOGY RESEARCH AND DEVELOPMENT
PROGRAM
As previously reported, in 1999 the Company restructured its operations to
abandon all further encapsulated cell technology research and concentrate its
resources on the research and development of its proprietary platform of stem
cell technologies. The Company relocated its remaining research and development
activities and its corporate headquarters to California, and has been seeking to
dispose of its former science and administrative and pilot manufacturing
facilities in Rhode Island.
During the first six months of 2000 we incurred $288,646 of costs in excess
of the amounts reserved as of December 31, 1999 for the carrying costs of the
Rhode Island facilities. During the third quarter we incurred an additional
$480,087 in carrying costs, including lease payments, property taxes and
utilities, for the Rhode Island facilities, as we were unable to dispose of them
by June 30, 2000, as expected. These amounts were previously$0 included in general and administrative expense,expenses for the nine months ended September 30, 2018 and 2017 respectively.
On December 6, 2017, the board of directors approved a grant of 12,698 stock options (190,475 stock options before the Reverse Split) to purchase an aggregate of up to 12,698 shares of Common Stock to certain of its directors, at an exercise price per share of $15.75 ($1.05 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $55 and $0 included in general and administrative expenses for the nine months ended September 30, 2018 and 2017 respectively.
On December 28, 2017, the board of directors approved a grant of 66,036 stock options (990,543 stock options before the Reverse Split) to purchase an aggregate of up to 66,036 shares of Common Stock to certain of its employees, at an exercise price per share of $15.3 ($1.02 before the Reverse Split). The stock options vest over a period of 3 years as outlined in the option agreements. As a result, the Company recognized compensation expenses in the amount of $273 and $0 included in general and administrative expenses and research and development expenses for the nine months ended September 30, 2018 and 2017 respectively.
On November 2017, certain employees and consultant exercised 31,453 options (471,794 options before the Reverse Split) to 31,453 ordinary shares at exercise price of 0.001 NIS.
In February 2018, an employee exercised options to purchase 2,487 shares (37,300 shares of common stock before the Reverse Split) at an exercise price of $0.001 per share
On August 13, 2018, the board of directors approved a grant of stock options to purchase an aggregate of up to 10,000 shares (150,000 shares before the Reverse Split) of Common Stock to Mr. Simon Sharon, the company’s CTO, at an exercise price per share of $9 ($0.6 before the Reverse Split). The grant was subject to the Israeli Tax Authority’s approval of the plan which occurred on October 14, 2017. In accordance with the option agreement, the options vest for period of 3 years starting from the grand date As a result, the Company recognized compensation expenses in the amount of $22 and $0 included in general and administrative expenses for the nine months ended September 30, 2018 and 2017 respectively.
A summary of the Company’s option activity related to options to employees and directors, and related information is as follows:
| For the nine months ended September 30, 2018 | ||||||||||||
Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 414,965 | $ | 11.70 | $ | 1,859 | |||||||
| Granted | 10,000 | 9 | - | |||||||||
| Exercised | (2,487) | - | - | |||||||||
| Cancelled | - | - | - | |||||||||
| Outstanding at end of period | 422,478 | $ | 11.70 | $ | 729 | |||||||
| Vested and expected-to-vest at end of period | 228,758 | $ | 7.80 | $ | 729 | |||||||
| For the year ended December 31, 2017(*) | ||||||||||||
| Number of stock options | Weighted average exercise price | Aggregate intrinsic value | ||||||||||
| Outstanding at beginning of period | 174,328 | $ | 1.95 | $ | 3,739 | |||||||
| Granted | 272,090 | 16.50 | - | |||||||||
| Exercised | (31,453) | - | - | |||||||||
| Cancelled | - | - | - | |||||||||
| Outstanding at end of period | 414,965 | $ | 11.70 | $ | 1,859 | |||||||
| Vested and expected-to-vest at end of period | 142,875 | $ | 1.95 | $ | 1,375 | |||||||
| (*) | December 31, 2017 options data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Common Stock and the exercise price, multiplied by the number of in-the-money stock options on those dates that would have been reclassifiedreceived by the stock option holders had all stock option holders exercised their stock options on those dates.) as of September 30, 2018 and December 31, 2017 respectively.
The stock options outstanding as of September 30, 2018 and December 31, 2017, separated by exercise prices, are as follows:
Exercise price $ | Stock options outstanding as of September 30, 2018 | Stock options outstanding as of December 31, 2017(**) | Weighted average remaining contractual life – years as of September 30, 2018 | Weighted average remaining contractual life – years as of December 31, 2017(**) | Stock options exercisable as of September 30, 2018 | Stock options exercisable as of December 31, 2017(**) | ||||||||||||||||||||
| 4.20 | 77,846 | 77,846 | 7.25 | 8.00 | 77,846 | 77,846 | ||||||||||||||||||||
| 15.75 | 133,546 | 133,546 | 9.00 | 9.75 | 46,117 | - | ||||||||||||||||||||
| 9.00 | 10,000 | - | 10.00 | - | - | - | ||||||||||||||||||||
| 19.35 | 72,508 | 72,508 | 9.00 | 9.75 | 23,565 | - | ||||||||||||||||||||
| 15.30 | 66,036 | 66,036 | 9.25 | 10.00 | 18,688 | - | ||||||||||||||||||||
| (*) | 62,542 | 65,029 | 8.00 | 8.75 | 62,542 | 65,029 | ||||||||||||||||||||
| 422,478 | 414,965 | 8.55 | 9.3 | 228,758 | 142,875 | |||||||||||||||||||||
| (*) | Less than $0.01. | |
| (**) | December 31, 2017 options data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
Compensation expense recorded by the Company in respect of its stock-based employee compensation awards in accordance with ASC 718-10 for the nine-month ended September 30, 2018 and 2017 was $ 1,139 and $196, respectively.
The fair value of the stock options is estimated at the date of grant using Black-Scholes options pricing model with the following weighted-average assumptions:
| Nine months ended September 30, 2018 | Year ended December 31, 2017 | |||||||
| Expected volatility | 99.4% | 122.5% | ||||||
| Risk-free interest | 2.39% | 1.64% | ||||||
| Dividend yield | 0% | 0% | ||||||
| Expected life of up to (years) | 5.24 | 6.25 | ||||||
Shares issued to be separately
disclosedservice provider
In connection with the Merger, the Company issued an aggregate of 525,706 restricted shares (7,802,639 restricted shares before the Reverse Split) of its Common Stock to certain advisors. The fair value of the award of approximately $10,000 was estimated based on the share price of the Common Stock of $19.2 ($1.28 before the Reverse Split) as encapsulated cell therapy wind downof the date of grant. The portion of the expense in excess of the cash and corporate relocation
expense because they were directly relatedother current assets acquired in the Merger, in the amount of $7,300 was included in general and administrative expenses in the Statements of Comprehensive Loss.
During 2017, the Company issued an aggregate of 8,085 nonrefundable shares (120,000 nonrefundable shares before the Reverse Split) of Common Stock to a consultant as part of investor relations services. The Company recorded expenses of approximately $225 with respect to the wind down and relocation. We
anticipate that we will incur a similar amount in the fourth quarter of 2000 and
in every quarter thereafter until we disposeissuance of these facilities. We do not
currently have a projected date for such disposalshares included in general and there can be no assurance
that we will be ableadministrative expenses
On May 24, 2018 the Company issued an aggregate of 6,738 nonrefundable shares (100,000 nonrefundable shares before the Reverse Split) of Common Stock to disposeCardioSert as part of certain patent acquisition. The Company recorded expenses of approximately $74 with respect to the issuance of these facilities in a reasonable time, if at
all.
Some additional items that were more properlyshares included in research and development were also reclassified out of general and administrative expense,
and facilities costs were more accurately spread between research and
development and general and administrative expense.
NOTE 6. BENEFICIAL CONVERSION VALUE OF 6% CUMULATIVE CONVERTIBLE PREFERRED
STOCK
As previously reported,expenses.
| F-42 |
Securities Exchange Agreement with Alpha Capital
On December 16, 2016, the Company sold 1,500entered into a Securities Exchange Agreement with Alpha Capital, pursuant to which Alpha Capital exchanged 655,967 shares (9,736,000 shares before the Reverse Split) of its 6% cumulative
convertible preferredcommon stock plus a warrant for 75,000or rights to acquire shares of the Company's
common stock to two membersheld by it, for 9,736 shares of its Boarda newly designated class of Directors for $1,500,000 on terms
more favorable to the Company than it was then able to obtain from outside
investors. The faceSeries A Convertible Preferred Stock, par value of the shares are convertible at the option of the
holders into common stock at $3.77 per share. The Company has valued the
beneficial conversion feature reflecting the April 13, 2000 commitment date and
the most beneficial$0.01 per share discount available to the preferred shareholders.
Such value was $265,000 and is treated as a deemed dividend as of the commitment
date.
NOTE 7. SALE OF SECURITIES
On August 3, 2000, the Company completed a $4 million common stock financing
transaction with Millennium Partners, LP (the "Fund"“Preferred Stock”). StemCells received
$3 million of the purchase price at the
F-29
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
NOTE 7. SALE OF SECURITIES (CONTINUED)
closing and received the remaining $1 million upon effectiveness of a
registration statement covering the shares owned by the Fund. The Fund purchased
the Company's common stock and warrants at $4.33 per share. As set forth in an
adjustable warrant issuedcommon stock underlying the rights to acquire common stock include all of the Fund on the closing date, the Fund may be
entitled to receive additional shares of common stock on eight dates beginning
six months from the closing and every three months thereafter. The adjustable
warrant may be exercised at any time priorissued or issuable to Alpha Capital pursuant to the thirtieth day afterMerger. The 655,967 shares (9,735,925 shares before the lastReverse Split) of such dates. The number of additional shares the Fund may be entitled to on
each date will be based on the number of shares of common stock the Fund
continues to hold on each date and the market price of the Company's common
stock over a period prior to each date. The exercise price per share under the
adjustable warrant is $0.01. Such warrants provide the Fund with the opportunity
to acquire additional common shares at a nominal value if the value of the
common stock that the Fund holds decreases. The Company will have the right,
under certain circumstances, to cap the number of additional shares by
purchasing part of the entitlement from the Fund at a purchase price based on
the market price of such shares. No portion of the sale proceeds was assigned to
the adjustable warrants, as the ultimate number of shares issuable upon exercise
of the warrants was not determinable and the net impact on the Company's equity
from any such allocation of proceeds would have been zero. The Fund also
received a five-year warrant to purchase up to 101,587 shares of common stock at
$4.725 per share. This warrant is callable at any time by StemCells at $7.875
per underlying share. The calculated value of this callable warrant using the
Black-Scholes method is $376,888, which was treated as a credit to paid in
capital stockholders' equity. The Company accounts for the sale of the stock and
warrants or the exercise of warrants by adding that portion of the proceeds
equal to the par value of the new shares to common stock and the balance,
including the value of the warrants,rights to paid in capital. In addition, any
repurchase of the shares or warrants by the Company would also be accounted for
through paid in capital.
In the Purchase Agreement governing the August 3, 2000 sale to the Fund, the
Company granted the Fund an option to purchase up to an additional $3 million of
itsacquire common stock and a callable warrant and an adjustable warrant. The Fund can
exercise this option in whole or in part at any time prior to August 3, 2001.
The price per share of common stock to be issued upon exercise of the option
will be based on the average market price of the common stock for a five-day
period prior to the date on which the option is exercised. On August 23, 2000,
the Fund exercised $1,000,000 of its option to purchase additional common stock.
The Fund paid $750,000 of the purchase price in connection with the closing on
August 30, 2000,were cancelled and the Fund paid the remaining $250,000 upon effectiveness of
a registration statement covering the shares owned by the Fund. The Fund
purchased the Company's common stock at $5.53 per share, which amount was based
upon the average market price of the common stock for the five-day period prior
to August 23, 2000. An adjustable warrant similar to the oneCompany’s issued on
August 3, 2000 was issued to the Fund on August 30, 2000, but was cancelled on
November 1, 2000 by agreement of the Company and the Fund. The Fund also
received a five -year warrant to purchase up to 19,900 shares of common stock at
$6.03 per share. This warrant is callable by the Company at any time at $10.05
per underlying share. The calculated value of this callable warrant using the
Black-Scholes method is $139,897, which the Company accounted for as a credit to
paid in capital.
The adjustable warrant contains provisions regarding the adjustment or
replacement of the warrants in the event of stock splits, mergers, tender offers
and other similar events. The adjustable
F-30
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
NOTE 7. SALE OF SECURITIES (CONTINUED)
warrant also limits the number of shares that can be beneficially owned by the
Fund to 9.99% of the total number of outstanding shares of Common Stock.
NOTE 8. SUBSEQUENT EVENTS
As previously reported, in conjunction withStock were reduced to 1,786,684 (26,518,315 before the StemCells California merger,Reverse Split).
On May 9, 2017, the Company adoptedentered into a Securities Exchange Agreement with Alpha Capital pursuant to which the 1997 CytoTherapeutics, Inc. StemCells California
ResearchCompany agreed to issue 3,254 shares of the Series A Convertible Preferred Stock, Option Plan whereby an additional 2,000,000in exchange for the full satisfaction, termination and cancellation of the outstanding 6% convertible promissory note of the Company in the principal amount of approximately $2,029 issued on November 28, 2016 and held by Alpha Capital. The Series A Convertible Preferred Stock is the same series of securities as the Company’s existing Series A Convertible Preferred Stock issued in December 2016. As a result of the extinguishment of the convertible note and issuance of the preferred shares, the Company recorded a financial loss in the amount of $2,360.
During the year 2017, the holder of the Series A Convertible Preferred Stock converted 8,990 shares of the Series A Convertible Preferred Stock for 605,705 shares (8,990,000 shares before the Reverse Split) of Common Stock, have been reserved. During 1997, the Company awarded options under this
plan to purchase 1.6 million shares of the Company's common stock to the Chief
Executive Officer and scientific founders of StemCells California, Inc. at an
exercise price of $5.25 per share. Under the original grants, approximately
100,000 of these options were exercisable immediately on the date of the grant,
1,031,000 of these options would vest and become exercisable only upon
achievement of specified milestones and the remaining 469,000 options would vest
over eight years. The Company agreed on October 27, 2000 with Irving Weissman,
M.D. and Fred H. Gage, Ph.D., two of the grant recipients, to amend their
options. In exchange for the revision of the options, Dr. Weissman and Dr. Gage
agreed to rescind their Conduct of Research Agreement with the Company, in all
respects, including their right under the Agreement to reacquire certain
technology under certain circumstances. Instead of vesting based on performance
milestones, Dr. Weissman's and Dr. Gage's options will vest over eight years
from the date of the original grant, on the same schedule as the option granted
to the third founder, Dr. David Anderson. 168,750 shares vested upon the
revision and the remaining 300,000 shares will vest at 50,000 shares on each
September 25 until September 25, 2005, when the final 100,000 shares will vest.
The exercise price for the revised options remains $5.25 per share. We expect to
incur a charge of approximately $1,600,000 during the fourth quarter of 2000
relating to the vested portion of the options. The deferred compensation expense
associated with the unvested portion of the grants was determined to be
approximately $2.8 million. The Company plans to revalue the options using the
Black-Scholes method on a quarterly basis and recognize additional compensation
expense, accordingly.
Under a 1997 License Agreement with NeuroSpheres, Ltd., the Company obtained
an exclusive patent license in the field of transplantation. The Company entered
into an additional license agreement with NeuroSpheres as of October 31, 2000,
under which the Company obtained an exclusive license in the field of
non-transplant uses, such as drug discovery and drug testing, so that together
the licenses are exclusive for all uses of the technology. The Company made
up-front payments to NeuroSpheres of 65,000 shares of its common stock and
$50,000, and will make additional cash payments when milestones are achieved in
the non-transplant field, or in any products employing NeuroSpheres patents for
generating cells of the blood and immune system from neural stem cells.
Milestone payments would total $500,000 for each product that is approved for
market.
On December 20, 2000, the Company announced that Donald Kennedy, Ph.D., had
resigned from its board of directors. The Company reported that Dr. Kennedy
resigned in connection with his becoming Editor-in-Chief of Science magazine. On
that date the Company also announced that Roger M. Perlmutter had become a
member of the Board.
F-31
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
NOTE 9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133"), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on
results of operations or financial condition when adopted as we hold no
derivative financial and instruments and do not currently engage in hedging
activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB101"). SAB 101 summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition. The
adoption of SAB 101 had no significant impact on our revenue recognition policy
or results of operations.
In March 2000, the FASB issued interpretation No. 44, ("FIN44"), "Accounting
for Certain Transactions Involving Stock Compensation - an Interpretation of APB
25. "This interpretation clarifies (a) the definition of employee for purposes
of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modificationspursuant to the terms of conversion of the Series A Convertible Preferred Stock.
For the nine-month ended September 30, 2018, the holder of the Series A Convertible Preferred Stock converted 3,451 shares of the Series A Convertible Preferred Stock for 232,151 shares (3,445,266 shares before the Reverse Split) of Common Stock, pursuant to the terms of conversion of the Series A Convertible Preferred Stock.
Repurchase of Shares
The Company intends to enter into a previously fixed stock option or awarddefinitive agreement with up to three Israeli shareholders, one of which is a director of the Company, that were former shareholders of Microbot Israel, pursuant to which the Company would repurchase, at a discount on the fair value of the share at the date of repurchase, up to $500 of Common Stock held by them, in the aggregate, if and (d) the accounting for an exchange of stock compensation awards in a business
combination. This interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. Toto the extent that this Interpretation
covers events occurring during the period after December 15, 1998, or
January 12, 2000, but before the effective datesuch shareholders are unable to sell enough of July 1, 2000, the effectstheir shares to cover certain of applying this interpretation are recognized on a prospective basis from July 1,
2000. The adoption of FIN 44 does not have a material impact on our financial
statements.
F-32
PRO FORMA FINANCIAL INFORMATION
During the third quarter of 1999, management reached a decision to exit the
Company's Encapsulated Cell Therapy (ECT) activities, dispose of the related
intellectual property, facilities and equipment and relocate the Lincoln, RI
corporate headquarters to Sunnyvale, CA. The Company terminated legal,
professional and consulting contractual arrangements in support of ECT research.
The Company had used these legal, professional and consulting contractual
arrangements to meet regulatory requirements in support of its research work, to
support contractual arrangements with clinical sites, to provide assistance at
clinical sites in administrating therapy and documenting activities, and to
assist in compliance with FDA and other regulations regarding its clinical
trials. ECT related patent law work was also terminated. The Company also
engaged professional consultants in connection with the determination to exit
its ECT activities and restructure its operations, which concluded with the exit
from ECT activities and relocation of its corporate headquarters to California.
The Company reduced its workforce by approximately 58 employees who had been
focused on ECT programs and 10 administrative employees. At the same time, the
Company accrued various estimated expenses associated with the exit and
wind-down of the ECT activities, disposal of the related property and relocation
of the corporate headquarters. Additional accruals were provided in December
1999 for expenses relating to settlement of a 1989 funding arrangement with the
Rhode Island Partnership for Science and Technologytheir Israeli tax liabilities resulting from the Company's
move outMerger. Such repurchase(s), if any, would occur only after the two-year anniversary of Rhode Island, further adjustmentthe Merger. The transaction is subject to negotiating final terms and entering into definitive agreements with such shareholders.
The Company evaluated whether an embedded derivative that requires bifurcation exists within such shares that may be subject to repurchase. The Company concluded the fair value of such derivative instrument would be nominal and, in any case, would represent an asset carrying values and
estimated carrying costs associated with the Rhode Island facilities through the
expected disposition date. In addition, during December 1999,to the Company liquidated certain ECT equipment and sold its ECT intellectual property to
Neurotech, S.A. for $3,000,000. The tabular unaudited pro forma consolidated
statement of operations presentsas (a) the effectssettlement requires acquiring the shares at a discount on the fair market value of the sale, wind-downshare at the time of repurchase and relocation, as if they had occurred at January 1, 1999. The pro forma effects
and adjustments were determined basedin no circumstances the acquisition price will be higher than approximately one dollar per share (representing 25% discount on available information and certain
allocations that management believes are reasonable. The pro forma financial
information does not purport to represent what the Company's operating results
would have been had the sale occurred at January 1, 1999 and may not be
indicativefair market value of the Company's financial position or operatingshare at the merger closing date) and (b) it is assumed that the selling shareholders would use such right as last resort as such repurchase at a discount on the fair market value of such shares results for any
future date or period.
F-33
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
HISTORICAL PRO FORMA
CONSOLIDATED CONSOLIDATED
12/31/1999 ADJUSTMENTS(A) 12/31/1999
------------ -------------- ------------
Revenue from collaborative agreements............. $ 5,021,707 $ (5,021,707)(1) $ --
Operating expenses:
Research and development........................ 9,984,027 (5,332,331)(2) 4,571,696
(80,000)(5)
General and administrative...................... 4,927,303 (2,309,315)(3) 2,697,988
80,000 (5)
Encapsulated Cell Therapy wind down and 6,047,806 (6,047,806)(4) --
corporate relocation..........................
------------ ------------ -----------
20,959,136 (13,689,452) 7,269,684
------------ ------------ -----------
Loss from operations.............................. (15,937,429) 8,667,745 (7,269,684)
Other income (expense):
Interest income................................. 564,006 -- 564,006
Interest expense................................ (335,203) -- (335,203)
------------ ------------ -----------
228,803 -- 228,803
============ ============ ===========
Net loss.......................................... $(15,708,626) $ 8,667,745 $(7,040,881)
============ ============ ===========
Basic and diluted netin a loss per share.............. $ (0.84) $ (0.46) $ (0.38)
============ ============ ===========
Shares used in computing basic and diluted net 18,705,838 18,705,838 18,705,838
loss
per share.......................................
============ ============ ===========
F-34
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NOTE A--PRO FORMA ADJUSTMENTS
(1) To eliminate Encapsulated Cell Therapy collaborative revenue arrangements.
(2) To eliminate research and development expenses, including employee
compensation ($1,566,479), external professional services ($875,818)
facilities and other supplies ($2,890,035) and various other expenses
directly relating to encapsulated cell therapy activities. These expenses
were determined based on an individual account analysis and internal
employee tracking records.
(3) To eliminate general and administrative expenses, including employee
compensation ($761,000), legal, professional and consulting fees ($963,000),
facilities costs ($306,000), amortization ($158,000) and various other
expenses ($121,000), directly relating to encapsulated cell therapy. The
expenses were determined based on an individual account analysis.
(4) To eliminate Encapsulated Cell Therapy wind-down and corporate relocation
expenses, including Rhode Island facility carrying costs, employee severance
arrangements andbe incurred by the related settlement of a 1989 funding arrangementselling shareholders.
In accordance with the Rhode Island Partnership for Science and Technology. These expenses
related to the Company's decision to eliminate 68 employees, relocate all
remaining research and development and the Company's headquarters to
Sunnyvale, California as a result of a decision to exit Encapsulated Cell
Technology, and were included in wind-down expenses. The wind-down expenses
include employee severance costs of approximately $1,554,000, losses and
reserves for the write-down of related patents and fixed assets of
approximately $1,858,000, an accrual of approximately $1,172,000 of costs
relating to settlement of a 1989 funding agreement with the Rhode Island
Partnership for Science and Technology ("RIPSAT") associated with the
Company's pilot manufacturing facility, approximately $1,264,000 relating to
carrying costs, including lease payments, interest, utilities, taxes and
other related expenses associated with resolving the disposition of the
Rhode Island facilities and $200,000 of employee outplacement fees. The
RIPSAT claim related directly to fundingASC 480-10-S99-3A (formerly EITF D-98), the Company had received from
RIPSAT. Whenclassified the Company reached the decisionmaximum amount it may be required to exit its Encapsulated Cell
Technology and relocate all remaining research and the Company's corporate
headquarter's from Rhode Island to Sunnyvale, California. RIPSAT claimed the
Company had violated terms of the funding arrangement. The Company did not
agree with this claim, however, management determined it waspay in the Company's best interest to settleevent the issue. As a result, the costs
associated with the settlement were includedrepurchase right is exercised ($500) as temporary equity.
NOTE 6 - BASIC AND DILUTED NET LOSS PER SHARE
The basic and diluted net loss per share and weighted average number of common shares used in the wind-down amount.
(5) To allocate facilities costcalculation of basic and diluted net loss per share are as follows (in thousands, except share and per share data):
| Nine months ended September 30, | ||||||||
| 2018 | 2017(*) | |||||||
| Net loss attributable to shareholders of the Company | $ | (5,111) | $ | (6,002) | ||||
| Net loss attributable to shareholders of preferred shares | (226) | (1,442) | ||||||
| Net loss used in the calculation of basic net loss per share | $ | (4,885) | $ | (4,560) | ||||
| Net loss per share | $ | (1.69) | $ | (2.25) | ||||
| Weighted average number of common shares | 2,876,020 | 2,061,331 | ||||||
| (*) | September 30, 2017 shares data represents the number of shares adjusted to retroactively reflect the 1:15 Reverse Split effected on September 4, 2018. |
As the inclusion of common share equivalents in the calculation would be anti-dilutive for all periods presented, diluted net loss per share is the same as basic net loss per share.
5,865,102Shares of Common Stock
5,865,102Pre-Funded Warrants to general and administrative expense from
conversionPurchase Shares of the former research and development facility in Sunnyvale, CA
to the Company's Corporate headquarters.
F-35
PROSPECTUS
Sole Book-Running Manager
H.C. Wainwright & Co.
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other Expenses of Issuance and Distribution.
The following table sets forth theall costs and expenses, other than underwriting discounts and commissions, paid or payable by Microbot Medical Inc. (the “Company” or the Registrant“Registrant”) in connection with the sale of the securities being registered.registered under this registration statement. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee and the NASDAQ
listingFINRA filing fee.
| | Amount | |||
| SEC registration fee | $ | 2,961.83 | ||
| FINRA filing fee | $ | 4,166.00 | ||
| Legal fees and expenses | 375,000 | |||
| Accounting fees and expenses | 25,000 | |||
| Transfer agent and registrar fees and expenses | 5,000 | |||
| Miscellaneous expenses | 87,872.17 | |||
| Total | $ | 500,000 | ||
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law provides that(“DGCL”) permits, in general, a Delaware corporation, mayto indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative, other(other than an action by, or in the right of, the corporation,corporation) by reason of the fact that the
personor she is or was a director, officer, employee or agentofficer, of the corporation, or is
or was servingserved another business enterprise in any capacity at the corporation's request as a director, officer, employee or
agent of anotherthe corporation, partnership, joint venture, trust or other
enterprise, against liability incurred in connection with such proceeding, including the expenses including attorneys' fees,(including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the personhim in connection with the action, suit orsuch proceeding if thesuch person acted in good faith and in a manner the personhe or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to anyin criminal actionactions or proceeding,proceedings, additionally had no reasonable cause to believe the person'sthat his or her conduct was unlawful. TheA Delaware corporation’s power to indemnify applies to actions brought by or in the right of the corporation, as well, but only to the extent of expenses including
attorneys' fees but excluding judgments, fines and amounts paid in settlement,(including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit, and with the further limitationprovided that in these
actions no indemnification shall be madeprovided in such actions in the event of any adjudication of negligence or misconduct in the performance of hissuch person’s duties to the corporation, unless a court believes that in light of all the circumstances indemnification should apply. Section Ten of our Restated Certificate of Incorporation provides that we
shall, to the maximum extent legally permitted, indemnify and upon request
advance expenses to each person who is or was a party or is threatened to be
made a party to any threatened, pending or completed action, suit proceeding, or
claim (civil, criminal, administrative or investigative) by reason145 of the fact
that he is or was, or has agreed to become,DGCL also permits, in general, a director or officer of the
Company, or is or was serving, or has agreed to serve, at the request of the
Company, as a director, officer, partner, employee, agent or trustee of, or in a
similar capacity with, anotherDelaware corporation partnership, joint venture, trust or
other enterprises, provided, however, that the Company is not required to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. The
indemnification provided for in Section Ten is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement or vote of directors
II-1
or stockholders or otherwise, and shall inure to the benefit of the heirs and
legal representatives of such persons.
Section 145(g) of the Delaware General Corporation Law provides that the
Company shall have the power to purchase and maintain insurance on behalf of its
officers, directors, employees and agents,any person who is or was a director or officer of the corporation, or served another entity in any capacity at the request of the corporation, against any liability asserted
against and incurred by such personsperson in any such capacity.
Wecapacity, whether or not the corporation would have obtained insurance covering our directors and officersthe power to indemnify such person against certain liabilities.
such liability.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides thatDGCL permits a corporation may eliminateto include in its certificate of incorporation a provision eliminating or limitlimiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provisionsprovision shall not eliminate or limit the liability of a director (i) for any breach of the director'sdirector’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or whichthat involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware,DGCL or (iv) for any transaction from which the director derived an improper personal benefit. No such provision
The Company’s restated certificate of incorporation provides that the Company’s directors shall eliminate or limit
the liability of a director for any act or omission occurring priornot be liable to the date
when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Section Nine of the
Company's Restated Certificate of Incorporation eliminates a director's personal
liabilityCompany or its stockholders for monetary damages for breach of fiduciary duty as a director except to the extent that exculpation from liabilities is not permitted under the DGCL as in circumstances involvingeffect at the time such liability is determined. The Company’s restated certificate of incorporation further provides that the Company shall indemnify its directors and officers to the fullest extent permitted by the DGCL.
We maintain a breachdirectors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe that these indemnification provisions and insurance are necessary to attract and retain qualified directors and officers.
| II-1 |
Indemnification Agreements
The Company has entered into indemnification agreements with each of its directors and executive officers. These indemnification agreements may require the Company, among other things, to indemnify its directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of the director's duty of loyalty to
StemCells, Inc.Company’s directors or its shareholders, actsofficers, or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing or the
unlawful payment of dividends or repurchase of stock.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The shares of capital stock and other securities issued in the following
transactions were offered and sold in reliance upon the following exemptions:
(i) in the case of the transactions described in (a) below, Section 4(2) of a
the Securities Act or Regulation D promulgated thereunder relative to sales by
an issuer not involving a public offering; and (ii) in the case of the
transactions (b) below, Section 3(b) of the Securities Act and Rule 701
promulgated thereunder relative to sales pursuant to certain compensatory
benefits plans.
(a) On April 13, 2000, the Registrant sold 1,500 shares of 6% cumulative
convertible preferred stock plus warrants for a total of 75,000 shares of the
Registrant's common stock to two membersany of its Board of Directors for
$1,500,000, on terms more favorable than it was then ablesubsidiaries or any other company or enterprise to obtain from outside
investors. The sale was made in reliance on Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended. The shares of preferred stock are
convertible at the option of the holders into common stock at $3.77 per share
(based on the face value of the shares). The holders of the preferred stock have
liquidation rights equal to their original investments plus accrued but unpaid
dividends. The investors would be entitled to make additional investments in the
Company on the same terms as those on which the Registrant completes offerings
of its securities with third parties within 6 months, ifperson provides services at our request.
In any such offerings are
completed. They have waived that right with respect to the common stock
transactions described in Note 8, Subsequent Events. If offerings totaling at
least $6 million are not completed during the 6 months, the investors have the
right to acquire up to a total of 1,126 additional shares of convertible
preferred stock, the face value of which is convertible to common stock at $6.33
per share. Any unconverted preferred stock is converted, at the applicable
conversion price, on April 13, 2002 in the case of the original stock and two
years after the first acquisition of any of the additional 1,126 shares, if any
are acquired. The warrants, which are exercisable at $6.58 per share, expire on
April 13, 2005.
II-2
On August 3, 2000, the Registrant completed a $4 million common stock
financing transaction with Millennium Partners, LP, or the Fund. The sale was
made in reliance on Rule 506 of Regulation D promulgated under the Securities
Act of 1933, as amended. The Registrant received $3 million of the purchase
price at the closing and received the remaining $1 million upon effectiveness of
a registration statement covering the shares owned by the Fund. The Fund
purchased the Registrant's common stock at $4.33 per share. The Fund may be
entitled, pursuant to an adjustable warrant issuedunderwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriter will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding securities issued and options granted by the Company within the past three years that were not registered under the Securities Act of 1933, as amended, and the rules promulgated thereunder (the “Securities Act”). Also included is the consideration, if any, received by the Registrant, for such securities and options and information relating to the Fund,Securities Act, or rule of the SEC, under which exemption from registration was claimed. Except with respect to receiveissuances subsequent to September 4, 2018, the below issuances do not reflect the Company’s September 4, 2018 1-for-15 reverse stock split.
On September 24, 2018, the holder of the Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”), of the Company, converted 450 shares of the Preferred Stock for 30,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 67 shares of the common stock of the Company. The issuances of the 30,000 shares of common stock on
eight dates beginning six monthswere exempt from registration under Section 4(a)(2) under the closingSecurities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and every three months
thereafter.no commission or other remuneration was paid.
On May 31, 2018, the holder of the Preferred Stock converted 700 shares of the Preferred Stock for 700,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Company. The numberissuances of additional shares the Fund may be entitled to on each
date will be based on the number of700,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Fund continuesSecurities Act as transactions not involving a public offering to hold on each date anda single existing stockholder who is an accredited investor, and/or 3(a)(9) under the market price ofSecurities Act as the Registrant'sPreferred Stock was exchanged for common stock over a
period prior to each date. The Registrant will haveby an existing security holder and no commission or other remuneration was paid.
On May 24, 2018, the right, under certain
circumstances, to cap the number of additional shares by purchasing part of the
entitlement from the Fund. The Fund also received a warrant to purchase up to
101,587Company issued 100,000 shares of common stock at $4.725 per share. This warrant is callable byto CardioSert Ltd. as partial consideration for the Registrant at $7.875 per underlying share.acquisition of certain intellectual property assets from CardioSert. The Fund also hasissuance was exempt from registration under Section 4(a)(2) under the option for twelve monthsSecurities Act as a transaction not involving a public offering to purchase up to $3 milliona single stockholder as part of additional common stock. a negotiated transaction.
On August 23, 2000,March 7, 2018, the Fund exercised $1,000,000 of
that option to purchase Registrant's common stock at $5.53 per share. The
Registrant received $750,000holder of the purchase price in connection with the
closing on August 30, 2000 and received the remaining $250,000 upon
effectivenessPreferred Stock converted an aggregate of a registration statement covering the shares owned by the Fund.
At the closing on August 30, 2000, the Fund also received an adjustable warrant
similar to the one issued on August 3, 2000. This adjustable warrant was
canceled by agreement of the Registrant and the Fund on November 1, 2000. The
Fund also received a five year warrant to purchase up to 19,900500 shares of the Registrant'sPreferred Stock for an aggregate of 500,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock at $6.03 per share. This warrantof the Registrant. The issuances of the 500,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is callablean accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
On May 11, 2018, the holder of the Preferred Stock converted 800 shares of the Preferred Stock for 800,000 shares of the Company’s common stock, pursuant to the terms of conversion of the Preferred Stock. The issuance of the 800,000 shares of common stock was exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
From November 22, 2017 through January 25, 2018, the holder of the Preferred Stock converted an aggregate of 2,436 shares of the Preferred Stock for an aggregate of 2,436,000 shares of the Registrant’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Registrant. The issuances of the 2,436,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
On December 11, 2017, the Registrant at any time at $10.05 per underlying share.
Weissued an aggregate of 70,000 shares of the Registrant’s common stock to a consultant as consideration for services. The issuance of the shares was exempt from registration under Section 4(a)(2) under the Securities Act as a transaction not involving a public offering, as the issuance thereof was made to a limited number of persons or entities as compensation for services rendered.
| II-2 |
From October 4, 2017 through October 25, 2017, the holder of the Preferred Stock converted an aggregate of 1,600 shares of the Preferred Stock for an aggregate of 1,600,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Registrant. The issuances of the 1,600,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
From August 7, 2017 through September 19, 2017, the holder of the Preferred Stock converted an aggregate of 2,200 shares of the Preferred Stock for an aggregate of 2,200,000 shares of the Registrant’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Registrant. The issuances of the 2,200,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
Between June 19, 2017 and August 7, 2017, the holder of the Preferred Stock converted an aggregate of 2,029 shares of the Preferred Stock for an aggregate of 2,029,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Company. The issuances of the 2,029,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
Between May 18, 2017 and June 12, 2017, the holder of the Preferred Stock converted an aggregate of 1,525 shares of the Preferred Stock for an aggregate of 1,525,000 shares of the Company’s common stock. Pursuant to the terms of conversion of the Preferred Stock, each such share is convertible, upon request and for no additional consideration, into 1,000 shares of the common stock of the Company. The issuances of the 1,525,000 shares of common stock were exempt from registration under Section 4(a)(2) under the Securities Act as transactions not involving a public offering to a single existing stockholder who is an accredited investor, and/or 3(a)(9) under the Securities Act as the Preferred Stock was exchanged for common stock by an existing security holder and no commission or other remuneration was paid.
On May 26, 2017, the Company issued an aggregate of 50,000 shares of common stock to a consultant. The issuance of the shares was exempt from registration under Section 4(a)(2) under the Securities Act as a transaction not involving a public offering, as the issuance thereof was made to a limited number of persons or entities as compensation for services rendered.
On May 10, 2017, the Company entered into a license agreementSecurities Exchange Agreement (the “Exchange Agreement”) with NeuroSpheres, Ltd.Alpha Capital Anstalt (“Alpha Capital”), pursuant to which the Company agreed to issue 3,255 shares of Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”), in exchange for the full satisfaction, termination and cancellation of that outstanding 6% convertible promissory note of the Company in the principal amount of $2,028,767, issued on October 30,
2000 expanding ourNovember 28, 2016 and held by Alpha Capital (the “Convertible Note”). Effective as of May 10, 2017, the Company issued 3,255 shares of Preferred Stock to Alpha Capital pursuant to the Exchange Agreement. The issuance of the 3,255 shares of Preferred Stock was exempt from registration under Section 4(a)(2) and/or 3(a)(9) under the Securities Act.
In March 2017, an institutional holder exercised, in a cashless transaction, 768 warrants and 359 shares of common stock were issued in connection therewith. The issuance of the 359 share of common stock was exempt from registration under Section 4(a)(2) and/or 3(a)(9) under the Securities Act.
Effective as of December 27, 2016, the Company closed on the exchange (the “Exchange”) of approximately 9,735,925 shares or rights to the intellectual property covered by the license
agreement. See "Business--License Agreements and Sponsored Research
Agreements--Neurospheres, Ltd." Under that license agreement, on October 30,
2000, we issued 65,000acquire shares of ourits common stock to NeuroSpheres and we agreed
to file a registration statement covering the resale of those sharesheld by NeuroSpheres.
(b) On May 25, 2000 we issued 2,800Alpha Capital Anstalt, for 9,736 shares of unregistered Rule 144Preferred Stock. The issuance of the 9,736 shares of Preferred Stock was exempt from registration under Section 4(a)(2) and/or 3(a)(9) under the Securities Act.
The Company issued 26,644,979 shares of common stock to the California Instituteexisting shareholders of Technology.
ITEMMicrobot Israel Ltd. (“Microbot Israel”) and assumed options to purchase an aggregate of 2,614,916 shares of common stock of the existing optionholders of Microbot Israel. Additionally, the Company issued an aggregate of 7,802,639 restricted shares of its common stock or rights to receive common stock to certain advisors. Such sales were exempt from registration under Section 4(a)(2) and Regulation D under the Securities Act.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits and financial statement schedules.
(a) EXHIBITS. The following exhibits are filed as part ofExhibits.
See the Exhibit Index immediately preceding the signature page to this registration statement, [NEED TO UPDATE]:
| II-3 |
(b) Financial statement schedules.
No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Registrant's Quarterly Report on Form 10-Q forunderwriter at the quarter ended March 31, 1996.
!! Previously filed withclosing specified in the CommissionUnderwriting Agreement certificates in such denominations and registered in such names as an Exhibitrequired by the underwriter to and incorporated by
referencepermit prompt delivery to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
!!! Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and filed on March 31, 1997.
!!!! Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
*** Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997 and filed on November 14, 1997.
**** Previously filed with the Commission as Exhibits to, and incorporated
herein by reference to, the Registrant's Registration Statement on
Form S-8, File No. 333-37313.
### Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's annual report on Form 10-K for
the fiscal year ended December 31, 1997 and filed on March 30, 1998.
[*] Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's current report on Form 8-K filed
on August 3, 1998.
Section Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's annual report on
Form 10-K for the fiscal year ended December 31, 1998 and filed on
March 31, 1999.
SectionSection Previously filed with the Commission as an Exhibit to, and
incorporated herein by reference to, the Registrant's current report on
Form 8-K on January 14, 2000.
II-6
X Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference to, the Registrant's Registration Statement on Form
S-1, File No. 333-45496.
ITEM 17. UNDERTAKINGS.
each investor.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange CommissionSEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by section 10(a)(3) of the
Securities Act.
II-7
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act; | |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; | |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| (2) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | |
| (4) | That, for the purpose of determining liability under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| (i) | Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter); | |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; | |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and | |
| (iv) | Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
| (5) | The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (6) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
| (7) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| II-4 |
| II-5 |
| † | To be filed by amendment | |
| ^ | Previously filed. |
| II-6 |
Pursuant to the requirements of the Securities Act of 1933, the Registrantregistrant has duly caused this Amendment No. 1No.1 to the Registration Statementregistration statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Sunnyvale, StateHingham, Commonwealth of California,Massachusetts, on the 31st day of January, 2001.
November 19 , 2018.
| MICROBOT MEDICAL INC. | |
| /s/ Harel Gadot | |
| Harel Gadot | |
| President, Chief Executive Officer and Chairman |
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in the capacities indicatedand on January 31, 2001.
the dates indicated.
| Name | Title | Date | ||
| /s/ Harel Gadot | ||||
| Harel Gadot | Chairman, President and Chief Executive Officer (Principal Executive Officer) | November 19 , 2018 | ||
| /s/ David Ben Naim | ||||
| David Ben Naim | Chief Financial Officer (Principal Financial | November 19 , 2018 | ||
| /s/ Yehezkel (Hezi) Himelfarb | ||||
| Yehezkel (Hezi) Himelfarb | Chief Operating Officer, General Manager and Director | November 19 , | ||
| * | ||||
| Yoav Waizer | Director |
| November | ||||
| * | ||||
| Yoseph Bornstein | Director | November 19 , | ||
| * | ||||
| Pratipatti Laxminarain | Director | November 19 | ||
| * | ||||
| Scott Burell | Director | November 19 | ||
| * | ||||
| Martin Madden | Director | November |
| * | /s/ Yehezkel (Hezi) Himelfarb | |
| Yehezkel (Hezi) Himelfarb | ||
| Attorney-in-fact |