Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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☒
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ANNUAL REPORT PURSUANT TO SECTI ON 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2016
OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from ________________ to
________________
Commission file number 001-36763
MEDOVEX CORP.
(Exact name of Registrant as specified in its charter)
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Nevada
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46-3312262
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1950 Airport Road Suite A
Atlanta, Georgia 30341
(844) 633-6839
(Address, including zip code, and telephone number, including area
code, of Registrant’s principal executive
offices)
NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, par value $0.001 per share
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes
☐ No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of
the Act. Yes
☐ No ☒
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes
☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes
☒ No
☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this
Form 10-K.
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of “large
accelerated filer, “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated
filer ☐
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Accelerated filer ☐
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Non-Accelerated
filer ☐
(Do not check if a smaller reporting
company)
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Smaller Reporting Company ☒
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant, based upon the
closing price of common stock on the last business day of the most
recently completed second fiscal quarter, June 30, 2016, was
$17,105,294. The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the
registrant, based upon the closing price of common stock on March
28, 2017 was approximately
$17,816,836. Shares
of voting stock held by each executive officer, director and 10%
stockholders have been excluded from this calculation. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of March 28, 2017, 17,026,688 shares of the registrant’s
common stock were outstanding.
Documents incorporated by reference: None.
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TABLE OF
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-i-
FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, and Section
21E of the Securities Exchange Act of 1934, as amended. These
statements relate to future events or our future financial
performance. We have attempted to identify forward-looking
statements by terminology including “anticipates,”
“believes,” “expects,” “can,”
“continue,” “could,”
“estimates,” “expects,”
“intends,” “may,” “plans,”
“potential,” “predict,”
“should” or “will” or the negative of these
terms or other comparable terminology. These statements are only
predictions; uncertainties and other factors may cause our actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels or activity,
performance or achievements expressed or implied by these
forward-looking statements. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Our expectations are as of the date
this Annual Report is filed, and we do not intend to update any of
the forward-looking statements after the date this Annual Report is
filed to confirm these statements to actual results, unless
required by law.
This Annual Report also contains estimates and other statistical
data made by independent parties and by us relating to market size
and growth and other industry data. This data involves a number of
assumptions and limitations, and you are cautioned not to give
undue weight to such estimates. We have not independently verified
the statistical and other industry data generated by independent
parties and contained in this Annual Report and, accordingly, we
cannot guarantee their accuracy or completeness, though we do
generally believe the data to be reliable. In addition,
projections, assumptions and estimates of our future performance
and the future performance of the industries in which we operate
are necessarily subject to a high degree of uncertainty and risk
due to a variety of factors. Our actual results could
differ materially from those anticipated in the forward-looking
statements for many reasons, including, but not limited to, the
possibility that we may fail to preserve our expertise in search
medical device development; that existing and potential
distribution partners may opt to work with, or favor the products
of, competitors if our competitors offer more favorable products or
pricing terms; that we may be unable to maintain or grow sources of
revenue; that changes in the distribution network composition may
lead to decreases in query volumes; that we may be unable to attain
and maintain profitability; that we may be unable to attract and
retain key personnel; that we may not be able to effectively
manage, or to increase, our relationships with international
customers; that we may have unexpected increases in costs and
expenses; or that one or more of the other risks described below in
the section entitled “Risk Factors” and elsewhere in
this Annual Report may occur. These and other factors
could cause results to differ materially from those expressed in
the estimates made by the independent parties and by
us.
PART I
ITEM 1. BUSINESS
Overview
MedoveX was incorporated in Nevada on July 30, 2013 as Spinez Corp.
MedoveX is the parent company of Debride Inc.,
(“Debride”), which was incorporated under the laws of
Florida on October 1, 2012, but did not commence operations until
February 1, 2013. Spinez Corp. changed its name to
MedoveX Corp. and effected a 2-for-1 reverse split of its stock in
March, 2014.
The goal of the Company is to obtain, develop and commercialize
various intellectual property rights (patents, patent applications,
knowhow, etc.) in the medical technology area, with particular
focus on the development of medical devices. We intend to leverage
the extensive experience of our board of directors and management
team in the medical industry to seek out product candidates for
licensing, acquisition or development.
The DenerveX Device
Our first acquisition was the DenerveX device. We
believe that the DenerveX device can be developed to encompass a
number of medical applications, including pain
relief.
The Company acquired the DenerveX patent on January 31, 2013 from
Scott Haufe, M.D. (“Dr. Haufe”), a director of the
Company, in exchange for 750,108 shares of common stock in the
Company and a 1% royalty on all sales of any product sold based on
the patent. In September 2013, we entered into a Co-Development
Agreement with James Andrews, M.D. (“Dr. Andrews”), a
director of the Company, whereby Dr. Andrews committed to further
evaluate the DenerveX device and to seek to make modifications and
improvements to such technology. In exchange for such
services, the Company agreed to pay Dr. Andrews a royalty equal to
two (2%) percent of the DenerveX net sales during the five (5) year
term of the Co-Development Agreement. Upon the termination of the
term of the Co-Development Agreement, which has a minimum term of
five (5) years, then the royalty payable to Dr. Andrews shall be
reduced to one (1%) percent of DenerveX net sales after such
termination of products covered by any U.S. patent on which Dr.
Andrews is listed as a co-inventor; if any such patents are
obtained. Such one (1%) percent royalty shall continue
during the effectiveness of such patent. Pursuant to the
Co-Development Agreement, Dr. Andrews agreed to assign any
modifications or improvements to the DenerveX to the Company
subject to the royalty rights described above.
Our intention is to market the product as a disposable, single-use
kit which will include all components of the DenerveX
product. In addition to the DenerveX device itself, we are
developing a dedicated Electro Surgical Generator, the DenerveX
Pro-40 generator, to power the DenerveX device. The generator would
be provided to customers agreeing to purchase the DenerveX device,
and could not be used for any other purpose.
We accepted a proposal from Devicix, a Minneapolis, Minnesota third
party design and development firm, in November 2013, to develop a
prototype device. This proposal included a 5 phase development
plan, culminating in the production of a prototype that could be
used for validation purposes. Currently we are finalizing the build
and test phase of the device, which focuses on completion
of the product design verification testing, design
optimization as required, and the completion of manufacturing
transfer. Through December 31, 2016, we have incurred approximately
$1,547,000 for product development services provided by
Devicix.
In November 2014, we selected Nortech Systems Inc.
(“Nortech”), a Minneapolis, Minnesota based U.S.
Food and Drug Administration (“FDA”) registered
contract manufacturer, to produce 315 DenerveX devices from the
prototype supplied by Devicix for use in final development and
testing. Our agreement with Nortech includes agreed-upon per
unit prices for delivery of the devices. Through December 31, 2016,
we have paid approximately $744,000 to Nortech.
Also in November 2014, we engaged Bovie Medical Corporation
(“Bovie”), a Delaware Corporation, to develop our
Electro Surgical Generator, the DenerveX Pro-40 generator, and
provide post production support services. Per our
agreement with Bovie, we are invoiced based on deliverables
produced by Bovie, which was originally supposed to amount to
$295,000 upon completion of all the deliverables. Through December
31, 2016, we have paid approximately $389,000 to Bovie.
Additional expenses have been incurred beyond the initial
agreement as further customization has been necessary beyond
predetermined estimates.
Streamline, Inc.
Divestiture
In May
2016, the Board of Directors authorized management to seek buyers
for Streamline, Inc., (“Streamline”), the
Company’s wholly owned subsidiary acquired in March 2015. The
Company sold all Streamline related assets on December 7, 2016 (the
“Closing”). This transaction provided funds needed to
complete the development and launch of the Company’s primary
product, the DenerveX System, and the decision to sell the
Streamline assets helped raise part of the necessary funds required
for continuing operations of the Company in a non-dilutive manner
to existing shareholders.
The
transaction resulted in the immediate receipt of $500,000 in cash,
and a $150,000 receivable to the Company due on or before January
1, 2018.
The
terms of the agreement also required that for each of the calendar
years ending December 31, 2018 and December 31, 2019 (each such
calendar year, a “Contingent
Period”), a contingent
payment in cash (each, a “Contingent
Payment”) equal to five
percent (5%) of the total net sales received by the acquiring party
from the sale of “IV suspension system” products in
excess of 100 units during each Contingent Period. Each such
Contingent Payment is payable to the Company by the acquiring party
by no later than March 31st
of the
subsequent year; provided, however, that the total aggregate amount
of all Contingent Payments owed by the acquiring party to the
Company for all Contingent Periods will not exceed
$850,000.
Competition
Developing and commercializing new products is highly
competitive. The market is characterized by extensive
research and clinical efforts and rapid technological
change. We face intense competition worldwide from
medical device, biomedical technology and medical products and
combination products companies, including major medical products
companies. We may be unable to respond to technological
advances through the development and introduction of new
products. Most of our existing and potential competitors
have substantially greater financial, marketing, sales,
distribution, manufacturing and technological
resources. These competitors may also be in the process
of seeking FDA or other regulatory approvals, or patent protection,
for new products. Our competitors may commercialize new
products in advance of our products. Our products also
face competition from numerous existing products and procedures,
which currently are considered part of the standard of
care. We believe that the principal competitive factors
in our markets are:
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the quality of outcomes for medical conditions;
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acceptance by surgeons and the medical device market
generally;
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ease of use and reliability;
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technical leadership and superiority;
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effective marketing and distribution;
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speed to market; and
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product price and qualification for coverage and
reimbursement.
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We will also compete in the marketplace to recruit and retain
qualified scientific, management and sales personnel, as well as in
acquiring technologies and licenses complementary to our products
or advantageous to our business.
We are aware of several companies that compete or are developing
technologies in our current and future products
areas. With regard to the DenerveX System, we believe
that our principal competitors include device manufacturers Cosman
Medical Inc., Stryker Corporation and Spembly Medical
Systems. We may also face competition from developing,
but potentially untested technologies such as Zyga’s GLYDER
device. In order to compete effectively, our products will have to
achieve widespread market acceptance, receive adequate insurance
coverage and reimbursement, be cost effective and be simultaneously
safe and effective.
Customers
Healthcare providers, physicians and third-party payors in the
United States and elsewhere play a primary role in the
recommendation and prescription of any products for which we obtain
marketing approval.
We anticipate selling the DenerveX System in Europe prior to
commercialization in the United States. We will utilize the
experience of local distributors in the countries we pursue
marketing the DenerveX System once approval is
obtained.
Intellectual Property
A key element of our success depends on our ability to identify and
create proprietary medical device technologies. In order
to proactively protect those proprietary technologies, we intend to
continue to develop and enforce our intellectual property rights in
patents, trademarks and copyrights, as available through
registration in the United States and internationally, as well as
through the use of trade secrets, domain names and contractual
agreements such as confidentiality agreements and proprietary
information agreements.
Currently, our intellectual property rights include the
intellectual property acquired from Debride, Inc., which includes
the U.S. Patent 8,167,879 B2 (the “Patent”). The Patent
was originally filed in 2009 and was issued on May 1, 2012. We
intend to leverage the Patent to the fullest extent possible
through market development and prosecution of our rights under the
Patent.
In
addition, we have filed 33 additional US and International patents,
of which 21 are pending, 8 are pending published, and 4 have been
granted. These patents cover a total of 885 claims both in the
United States and Internationally.
The term of individual patents depends upon the legal term of the
patents in the countries in which they are obtained. In
most countries in which we file, the patent term is 20 years from
the earliest date of filing a non-provisional patent
application. In the United States, a patent’s term
may be shortened if a patent is terminally disclaimed over another
patent or as a result of delays in patent prosecution by the
patentee, and a patent’s term may be lengthened by patent
term adjustment, which compensates a patentee for administrative
delays by the U.S. Patent and Trademark Office in granting a
patent.
We intend to continually re-assess and refine our intellectual
property strategy in order to fortify our position in our market
space in the United States and internationally. To that
end, we are prepared to file additional patent applications should
our intellectual property strategy require such filings and/or
where we seek to adapt to competition or seize business
opportunities.
Many biotechnology companies and academic institutions are
competing with us in the medical device field and filing patent
applications potentially relevant to our
business. Internally, we have established business
procedures designed to maintain the confidentiality of our
proprietary information, including the use of confidentiality
agreements with employees, independent contractors, consultants and
companies with which we conduct business. Also, we
generally require employees to assign patents and other
intellectual property to us as a condition of employment with
us.
In order to contend with the inevitable possibility of third party
intellectual property conflicts, we review and assess the
third-party intellectual property landscape for competitive and
other developments that may inform or impact our intellectual
property development and commercialization strategies. We may find
it necessary or prudent to obtain licenses from third party
intellectual property holders. Where licenses are
readily available at reasonable cost, such licenses are considered
a normal cost of doing business. In other instances,
however, where a third party holds relevant property and is a
direct competitor, a license might not be available on commercially
reasonable terms or available at all. We will attempt to
manage the risk that such third party intellectual property may
pose by conducting, among other measures, freedom-to-operate
studies to guide our early-stage research away from areas where we
are likely to encounter obstacles in the form of third party
intellectual property.
Government Regulations
Government authorities in the United States, at the federal, state
and local level, and in other countries extensively regulate, among
other things, the research, development, testing, manufacture,
quality control, approval, labeling, packaging, storage,
record-keeping, promotion, advertising, distribution, post-approval
monitoring and reporting, marketing and export and import of
products such as those we are developing. Any product that we
develop must be approved by the FDA before they may be legally
marketed in the United States and by the appropriate foreign
regulatory agency before they may be legally marketed in foreign
countries.
FDA Regulation
The DenerveX System and any other product we may develop must be
approved or cleared by the FDA before it is marketed in the United
States. Before and after approval or clearance in the
United States, our products are subject to extensive regulation by
the FDA under the Federal Food, Drug, and Cosmetic Act and/or the
Public Health Service Act, as well as by other regulatory
bodies.
FDA regulations govern, among other things, the development,
testing, manufacturing, labeling, safety, storage, record-keeping,
market clearance or approval, advertising and promotion, import and
export, marketing and sales, and distribution of medical devices
and products.
In the United States, the FDA subjects medical products to rigorous
review. If we do not comply with applicable
requirements, we may be fined, the government may refuse to approve
our marketing applications or to allow us to manufacture or market
our products, and we may be criminally
prosecuted. Failure to comply with the law could result
in, among other things, warning letters, civil penalties, delays in
approving or refusal to approve a product, product recall, product
seizure, interruption of production, operating restrictions,
suspension or withdrawal of product approval, injunctions, or
criminal prosecution.
FDA Approval or Clearance of Medical Devices
In the United States, medical devices are subject to varying
degrees of regulatory control and are classified in one of three
classes depending on the extent of controls the FDA determines are
necessary to reasonably ensure their safety and
efficacy:
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Class
I: general controls, such as labeling and adherence to quality
system regulations;
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Class
II: special controls, pre-market notification (often referred to as
a 510(k) application), specific controls such as performance
standards, patient registries, post market surveillance,
additional controls such as labeling and adherence to quality
system regulations; and
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Class III: special controls and approval of a pre-market approval
(“PMA”) application.
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In general, the higher the classification, the greater the time and
cost to obtain approval to market. There are no
“standardized” requirements for approval, even within
each class. For example, the FDA could grant 510(k) status, but
require a human clinical trial, a typical requirement of a PMA.
They could also initially assign a device Class III status, but end
up approving a device as a 510(k) device if certain requirements
are met. The range of the number and expense of the
various requirements is significant. The quickest and least
expensive pathway would be 510(k) approval with a just a review of
existing data. The longest and most expensive path would be a PMA
with extensive randomized human clinical trials. We cannot predict
how the FDA will classify the DenerveX device, nor predict what
requirements will be placed upon us to obtain market approval, or
even if they will approve the DenerveX device at all. However, we
believe the pathway that will be required by the FDA will be
somewhere between the two extremes described above.
We intend to apply to the FDA for 510(k) clearance for our DenerveX
device. However, it is very possible the FDA will deny this request
and require the more expensive PMA process. The Company has
budgeted based on the assumption that the PMA process will be
required.
To request marketing authorization by means of a 510(k) clearance,
we must submit a pre-market notification demonstrating that the
proposed device is substantially equivalent to another currently
legally marketed medical device, has the same intended use, and is
as safe and effective as a currently legally marketed device and
does not raise different questions of safety and effectiveness than
does a currently legally marketed device.
510(k) submissions generally include, among other things, a
description of the device and its manufacturing, device labeling,
medical devices to which the device is substantially equivalent,
safety and biocompatibility information, and the results of
performance testing. In some cases, a 510(k) submission
must include data from human clinical studies. We
believe that other medical devices which have been approved by the
FDA have many aspects that are substantially similar to the
DenerveX device, which may make obtaining 510(k) clearance
possible. Marketing may commence only when the FDA
issues a clearance letter finding substantial
equivalence. After a device receives 510(k) clearance,
any product modification that could significantly affect the safety
or effectiveness of the product, or that would constitute a
significant change in intended use, requires a
new 510(k) clearance or, if the device would no longer
be substantially equivalent, would require PMA. In addition, any
additional claims the Company wished to make at a later date, such
as the permanent relief of pain, may require a PMA. If
the FDA determines that the product does not qualify for 510(k)
clearance, they will issue a Not Substantially Equivalent letter,
at which point the Company must submit and the FDA must approve a
PMA before marketing can begin.
During the review of a 510(k) submission, the FDA may request more
information or additional studies and may decide that the
indications for which we seek approval or clearance should be
limited. In addition, laws and regulations and the
interpretation of those laws and regulations by the FDA may change
in the future. We cannot foresee what effect, if any, such changes
may have on us.
European Union Approvals
The EU requires a CE mark certification or approval in order to
market the DenerveX System in the various countries of the
European Union or other countries outside the United
States. To obtain CE mark certification of the DenerveX
System, we are required to work with an accredited European
notified body organization to determine the appropriate documents
required to support certification in accordance with existing
medical device directive. The predictability of the length of
time and cost associated with such a CE marketing may vary, or may
include lengthy clinical trials to support such a marking. Once the
CE mark is obtained, a company may market the DenerveX System in
the countries of the EU. We have targeted the submission
of our application for CE marketing in the first half of 2017.
Management believes it will be able to obtain European CE mark
approval to market the DenerveX System before it will obtain FDA
approval. The Company has retained third party experts to assist
with the European approval. Management has also contracted several
European distributor and has retained a European sales manager to
assist the distributor and promote the product in
Europe.
Clinical Trials of Medical Devices
One or more clinical trials are becoming necessary to support an
FDA submission. Clinical studies of unapproved or un-cleared
medical devices or devices being studied for uses for which they
are not approved or cleared (investigational devices) must be
conducted in compliance with FDA requirements. If an
investigational device could pose a significant risk to patients,
the sponsor company must submit an Investigational Device
Exemption, or "IDE" application to the FDA prior to initiation of
the clinical study. An IDE application must be supported
by appropriate data, such as animal and laboratory test results,
showing that it is safe to test the device on humans and that the
testing protocol is scientifically sound. The IDE will
automatically become effective 30 days after receipt by the FDA
unless the FDA notifies the company that the investigation may not
begin. Clinical studies of investigational devices may
not begin until an institutional review board ("IRB") has approved
the study.
During any study, the sponsor must comply with the FDA’s IDE
requirements. These requirements include investigator
selection, trial monitoring, adverse event reporting, and record
keeping. The investigators must obtain patient informed
consent, rigorously follow the investigational plan and study
protocol, control the disposition of investigational devices, and
comply with reporting and record keeping requirements. We, the FDA,
or the IRB at each institution at which a clinical trial is being
conducted, may suspend a clinical trial at any time for various
reasons, including a belief that the subjects are being exposed to
an unacceptable risk. During the approval or clearance
process, the FDA typically inspects the records relating to the
conduct of one or more investigational sites participating in the
study supporting the application.
Post-Approval Regulation of Medical Devices
After a device is cleared or approved for marketing, numerous and
pervasive regulatory requirements continue to
apply. These include:
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the
FDA Quality Systems Regulation ("QSR"), which governs, among other
things, how manufacturers design, test, manufacture, exercise
quality control over, and document manufacturing of their
products;
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labeling
and claims regulations, which prohibit the promotion of products
for unapproved or “off-label” uses and impose other
restrictions on labeling; and
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the Medical Device Reporting regulation, which requires reporting
to the FDA of certain adverse experiences associated with use of
the product.
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We will continue to be subject to inspection by the FDA to
determine our compliance with regulatory requirements.
Manufacturing cGMP Requirements
Manufacturers of medical devices are required to comply with FDA
manufacturing requirements contained in the FDA’s current
Good Manufacturing Practices ("cGMP") set forth in the quality
system regulations promulgated under section 520 of the Food, Drug
and Cosmetic Act. cGMP regulations require, among other
things, quality control and quality assurance as well as the
corresponding maintenance of records and
documentation. Failure to comply with statutory and
regulatory requirements subjects a manufacturer to possible legal
or regulatory action, including the seizure or recall of products,
injunctions, consent decrees placing significant restrictions on or
suspending manufacturing operations, and civil and criminal
penalties. Adverse experiences with the product must be
reported to the FDA and could result in the imposition of marketing
restrictions through labeling changes or in product
withdrawal. Product approvals may be withdrawn if
compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur
following the approval.
International Regulation
We are subject to regulations and product registration requirements
in many foreign countries in which we may seek to sell our
products, including in the areas of product standards, packaging
requirements, labeling requirements, import and export restrictions
and tariff regulations, duties and tax requirements. The time
required to obtain clearance required by foreign countries may be
longer or shorter than that required for FDA clearance, and
requirements for licensing a product in a foreign country may
differ significantly from FDA requirements.
European Good Manufacturing Practices
In the European Union, the manufacture of medical devices is
subject to good manufacturing practice ("GMP"), as set forth in the
relevant laws and guidelines of the European Union and its member
states. Compliance with GMP is generally assessed by the competent
regulatory authorities. Typically, quality system
evaluation is performed by a Notified Body, which also recommends
to the relevant competent authority for the European Community CE
Marking of a device. The Competent Authority may conduct
inspections of relevant facilities, and review manufacturing
procedures, operating systems and personnel
qualifications. In addition to obtaining approval for
each product, in many cases each device manufacturing facility must
be audited on a periodic basis by the Notified
Body. Further inspections may occur over the life of the
product.
Our third party manufacturer has ISO certification which is
generally one of the requirements for approval under the guidelines
established in the European Union.
United States Anti-Kickback and False Claims Laws
In the United States, there are Federal and state anti-kickback
laws that prohibit the payment or receipt of kickbacks, bribes or
other remuneration intended to induce the purchase or
recommendation of healthcare products and
services. Violations of these laws can lead to civil and
criminal penalties, including exclusion from participation in
Federal healthcare programs. These laws are potentially
applicable to manufacturers of products regulated by the FDA as
medical devices, and hospitals, physicians and other potential
purchasers of such products. Other provisions of Federal
and state laws provide civil and criminal penalties for presenting,
or causing to be presented, to third-party payers for
reimbursement, claims that are false or fraudulent, or which are
for items or services that were not provided as
claimed. In addition, certain states have implemented
regulations requiring medical device and pharmaceutical companies
to report all gifts and payments of over $50 to medical
practitioners. This does not apply to instances
involving clinical trials. Although we intend to
structure our future business relationships with clinical
investigators and purchasers of our products to comply with these
and other applicable laws, it is possible that some of our business
practices in the future could be subject to scrutiny and challenge
by Federal or state enforcement officials under these
laws.
Research, Product Development and Technical Operations
Expense
Research and development costs and expenses consist primarily of
fees paid to external service providers, laboratory testing,
supplies, costs for facilities and equipment, and other costs for
research and development activities. Research and development
expenses are recorded in operating expenses in the period in which
they are incurred. Estimates have been used in determining the
expense liability of certain costs where services have been
performed but not yet invoiced.
We monitor levels of performance under each significant contract
for external service providers for activities through
communications with the service providers to reflect the actual
amount expended.
Employees
As of December 31, 2016, we had 11 total employees, 10 of which
were full-time employees. None of our employees is
represented by a union and we believe our employee relations
to be good.
Available Information
Our website, www.MedoveX.com,
provides access, without charge, to
our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports as
soon as reasonably practicable after such material is
electronically filed with the Securities and Exchange Commission
(“SEC”). The information provided on our website is not
part of this report, and is therefore not incorporated by reference
unless such information is otherwise specifically referenced
elsewhere in this report.
Materials filed by the Company with the SEC may be read and copied
at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website at
www.sec.gov
that contains reports, proxy and
information statements, and other information regarding our company
that we file electronically with the SEC.
ITEM 1A.
RISK FACTORS
Not applicable to smaller reporting companies.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable to smaller reporting companies.
ITEM 2. PROPERTIES
The Company pays TAG Aviation, a company owned by CEO Jarrett
Gorlin, for executive office space in Atlanta, GA at a rate of
$2,147 per month plus related utilities. The rental rate is 90% of
the amount billed to TAG Aviation by the owner of the
property.
The
Company has a commercial building lease agreement with Sugar Oak
Kimball Royal, LLC. The thirty-six month lease, having commenced on
August 1, 2015, provides for the lease by the Company of
approximately 2,358 square feet of space in Alpharetta, GA. Base
annual rent is initially set at approximately $2,750 per
month.
We believe our existing facilities are suitable for Company
operations.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
The following table sets forth the range of high and low sales
prices of the common stock on the NASDAQ Capital Market for each
period indicated:
Market and Market Prices of Common Stock (per common
share)
|
|
2016
|
|
|
By Quarter
|
High
|
Low
|
|
First
|
$1.51
|
$0.85
|
|
Second
|
2.25
|
1.01
|
|
Third
|
1.70
|
1.25
|
|
Fourth
|
1.73
|
1.33
|
On March 28, 2017, the price per share of the Company’s
common stock had a high of $1.44 per share, and a low of $1.35 per
share. The Company had approximately 185 holders of
record of common stock as of March 28, 2017.
Dividends
We have not declared or paid any cash dividends on our common stock
and presently intend to retain our future earnings, if any, to fund
the development and growth of our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable
future.
Securities Authorized for Issuance under Equity Compensation
Plans
As of December 31, 2016, we have granted an aggregate of 1,124,900
options to purchase common stock under the Plan at a weighted
average price of $2.15 per share to certain employees, consultants
and our outside directors.
Recent Sales of Unregistered Securities; Uses of Proceeds from
Registered Securities
On March 25, 2015, we acquired Streamline and committed to issue an
aggregate of 1,875,000 shares of common stock as partial
consideration for this company. The closing price of our
common stock on this date was $4.50.
On April 29, 2016, we completed an offering of privately placed
securities with accredited investors, which in the aggregate,
yielded a total of 1,211,760 shares and warrants to purchase
605,880 shares to be issued to investors.
On August 5, 2016, we completed an offering of privately places
securities with accredited investors, which in the aggregate,
yielded a total of 958,332 shares and warrants to purchase 479,168
shares to be issued to investors.
On September 16, 2016, we completed an offering of privately placed
securities in the form of a secured note with accredited investors,
which in the aggregate, yielded a total of warrants to purchase
200,000 shares to be issued to investors.
On
February 9, 2017, we completed an offering of common stock,
warrants and preferred stock, as well as a conversion of certain
debentures into common stock, preferred stock and warrants. The
offering and debt conversion resulted in the issuance of an
aggregate of 1,797,595 shares of common stock, 2,005,761 warrants
to purchase common stock and 22,139 shares of Series A Preferred
Stock.
All of the foregoing securities were issued in reliance upon the
exemption from registration pursuant to Section 4(a)(2) under the
Securities Act, as amended, and Regulation D, promulgated
thereunder.
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
On
November 9, 2015, the Company issued a convertible promissory note
to Steve Gorlin, a director and father of Jarrett Gorlin, the
Company’s CEO, for the principal amount of
$2,000,000.
The
loan principal was to be advanced in two installments of $1,000,000
each, the first installment being made upon execution of the
promissory note and the second installment to be made by March 1,
2016. The loan and interest earned could be converted into common
stock at $2 per share, subject to adjustment.
The
outstanding principal earns interest at a rate of 5.5% per annum
and is to be paid quarterly. The Company also issued a 3 year
warrant to Mr. Steve Gorlin to purchase 500,000 shares of common
stock at $2.20 per share.
On January 25, 2016, the Company entered into a modification
agreement (the “Modification Agreement”) with Mr. Steve
Gorlin. Mr. Steve Gorlin agreed to convert the first advance of
$1,000,000 into an aggregate of 571,429 shares of its Common Stock,
thus eliminating the Company’s $1,000,000 debt
obligation.
On February 16, 2016, the Company and Mr. Steve Gorlin entered into
an amendment to the Modification Agreement, reducing the number of
shares of Common Stock that Mr. Steve Gorlin received upon the
conversion of the $1,000,000 from 571,429 shares to 552,041
shares.
On
March 15, 2016 the Board of Directors approved a second amendment
to the Modification Agreement. The date for making the second
installment of $1,000,000 was moved to November 1,
2016.
Additionally,
the language in the Note was changed to clarify that the
consideration received by the Company on the first installment was
in the form of $970,000 cash and $30,000 in directors’ fees
due to Mr. Steve Gorlin.
On
November 10, 2016, the Board of Directors approved a third
amendment to the Modification Agreement. The date for making the
second installment of $1,000,000 was extended to December 1,
2016.
On
December 1, 2016, the Board of Directors approved a fourth
amendment to the Modification Agreement. Pursuant to the fourth
amendment, Mr. Gorlin assigned a portion of the obligation to
purchase the additional 571,429 shares of the Company at $1.75 per
share. The obligation to purchase 142,857 shares for $250,000 was
assigned to an outside non related party.
Additionally,
the obligation to purchase 114,286 shares for $200,000 was assigned
to a related party that provides consulting services for the
Company. Mr. Gorlin retained the obligation to purchase 314,286
shares, for a total purchase price of $550,000.
Pursuant
to the fourth Amendment, Mr. Gorlin also assigned a portion of the
warrant for the right to purchase 112,500 of the 500,000 shares of
common stock of the Company from the warrants issued to Mr. Gorlin
on November 9, 2015.
The
purchase of the additional shares of the Company by Mr. Gorlin and
the two outside parties was completed in December 2016. The Company
received an aggregate of $1,000,000 in exchange for the issuance of
an aggregate of 571,429 shares at a price of $1.75 per
share.
ITEM 6. SELECTED
FINANCIAL DATA
Not required for smaller reporting company.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
MedoveX was incorporated in Nevada on July 30, 2013 as Spinez Corp.
MedoveX is the parent company of Debride, which was incorporated
under the laws of Florida on October 1, 2012. The Company is
in the business of designing and marketing proprietary medical
devices for commercial use in the United States and Europe. The
Company is currently seeking approval from the FDA and the European
Union for a CE Mark for the DenerveX System.
In May
2016, the Board of Directors authorized management to seek buyers
for Streamline, Inc., (“Streamline”), the
Company’s wholly owned subsidiary acquired in March 2015. In
December 2016, the Company sold, under an asset purchase agreement,
all related Streamline assets.
The DenerveX Device
Our first acquisition was the DenerveX device. We
believe that the DenerveX device can be developed to encompass a
number of medical applications, including pain
relief.
The Company acquired the DenerveX patent on January 31, 2013 from
Scott Haufe, M.D. (“Dr. Haufe”), a director of the
Company, in exchange for 750,108 shares of common stock in the
Company and a 1% royalty on all sales of any product sold based on
the patent.
In September 2013, we entered into a Co-Development Agreement with
James Andrews, M.D. (“Dr. Andrews”), a director of the
Company, whereby Dr. Andrews committed to further evaluate the
DenerveX device and to seek to make modifications and improvements
to such technology. In exchange for such services, the
Company agreed to pay Dr. Andrews a royalty equal to two (2%)
percent of the DenerveX net sales during the five (5) year term of
the Co-Development Agreement. Upon the termination of the term of
the Co-Development Agreement, which has a minimum term of five (5)
years, then the royalty payable to Dr. Andrews shall be reduced to
one (1%) percent of DenerveX net sales after such termination of
products covered by any U.S. patent on which Dr. Andrews is listed
as a co-inventor; if any such patents are obtained. Such
one (1%) percent royalty shall continue during the effectiveness of
such patent. Pursuant to the Co-Development Agreement,
Dr. Andrews agreed to assign any modifications or improvements to
the DenerveX to the Company subject to the royalty rights described
above.
Our intention is to market the product as a disposable, single-use
kit which will include all components of the DenerveX device
product. In addition to the DenerveX device itself, we are
developing a dedicated Electro Surgical Generator, the DenerveX
Pro-40, to power the DenerveX device.
The generator would be provided to customers agreeing to purchase
the DenerveX device, and could not be used for any other
purpose.
We accepted a proposal from Devicix, a Minneapolis, Minnesota third
party design and development firm, in November 2013, to develop a
prototype device. This proposal included a 5 phase development
plan, culminating in the production of a prototype that could be
used for validation purposes. Currently we are in the final states
of the build and test phase of the device, which focuses on
completing the product design verification testing, design
optimization as required, and the completion of manufacturing
transfer. Through December 31, 2016, we have paid approximately
$1,547,000 to Devicix.
In November 2014, we selected Nortech Systems Inc.
(“Nortech”), a Minneapolis, Minnesota based FDA
registered contract manufacturer, to produce 315 DenerveX devices
from the prototype supplied by Devicix for use in final development
and non-clinical trials. The agreement with Nortech includes agreed
upon per unit prices for delivery of the devices. Actual work on
development of the final units began in November 2014. Through
December 31, 2016, we have paid approximately $744,000 to
Nortech.
Also in November 2014, we engaged Bovie Medical Corporation
(“Bovie”), a Delaware Corporation, to develop the
Electro Surgical Generator and provide post production support
services. Per our agreement with Bovie, we are
invoiced based on deliverables produced by Bovie, which was
originally supposed to amount to $295,000 upon completion of all
the deliverables. Through December 31, 2016, we have paid
approximately $389,000 to Bovie for production services. The
original $295,000 agreement was a base number along the pathway of
development. Additional requirements were incurred as the research
and development process progressed and as a result certain prices
increased and additional costs were incurred to further customize
the DenerveX System.
The
Company has entered into some of the final stages of the
development and verification of the DenerveX Device and the
DenerveX Pro-40 power generator as a system. Final development,
testing and verification to set standards is the main focus for
these final stages. Additionally, the company has be tested the
DenerveX System in an extensive living tissue model under very
strict Good Laboratory Practice Standards to measure, verify, and
establish its’ effectiveness for performance as a system.
Other testing will include device sterilization, shelf life
verification and shipping and performance testing to very specific
standards.
The
DenerveX System (the DenerveX Device and the DenerveX Pro-40
generator) were successfully tested as a system by SGS, a world
leader in safety performance testing, and received certification of
compliance in January 2017. SGS, a highly respected testing and
verification firm, tested the DenerveX System using an extensive
set of testing standards.
Regulatory Approval
The
Company is currently seeking approval from the FDA for
commercialization of the DenerveX System in the US, and we are also
seeking approval from the European Union for a CE Mark for
commercialization of the DenerveX System throughout the
EU.
Once
the Company obtains a CE Mark, which we anticipate will be in the
first half of 2017, we will provide a copy of the CE certificate
along with other necessary documentation to obtain regulatory
approval for commercialization of the DenerveX System throughout
certain countries including Columbia, Peru, Argentina, Mexico,
Turkey, Israel, New Zealand and Australia. The documentation
required to accompany the CE Mark to obtain regulatory approval in
the aforementioned countries include copies of the ISO 3485
certification, the SGS certificate of approval and a statement of
Good Manufacturing Practices (“GMP”).
Distribution Agreements
In July
2015, we entered into a non-exclusive distribution center agreement
with Technology Consult Berlin GmbH (“TCB”) pursuant to
which TCB shall manage and coordinate the DenerveX System products
as a distribution center in which the Company exports to the
European Union country distributors.
Also in
July 2015, we entered into an international distribution agreement
with EDGE Medical, a company organized and located in the United
Kingdom (the “UK”). EDGE Medical is expected to provide
sales, marketing and distribution services for the various country
hospitals throughout the UK for the launch of the DenerveX
System.
We
entered into three more international distribution agreements in
August 2015. The first was with German based Aureus Medical for the
distribution of its DenerveX System throughout Germany. Aureus
Medical distributes spine and pain management solutions in the
spine space.
The
second distribution agreement was with Turkey based MEDS Medikal
Ltd. for the distribution of the DenerveX System throughout Turkey.
MEDS Medikal Ltd. has been providing sales, marketing and
distribution services in the spine surgery market space in Turkey
since 1997, representing leading brands of the world.
The
third distribution agreement entered into in August 2015 was with
Sydney based Medical Innovators Pty.Ltd. for the distribution of
the DenerveX System throughout Australia and New Zealand. The
agreement will expand the market for us by leveraging the Spine
industry-leading marketing, sales, support and distribution power
of Medical Innovators Pty. Ltd.
In
April 2016, we entered into an international distribution agreement
with Innosurge, a supplier of innovative orthopedic surgery
equipment. The agreement covers the distribution of the DenerveX
System throughout Scandinavia, including Denmark, Sweden, Norway
and Finland.
In
September 2016, we entered into an international distribution
agreement with M. Fast Technologies LTD, a leading supplier of
innovative spine surgery products. The agreement covers the
distribution of the DenerveX System throughout Israel.
In
January 2017, we entered into an international distribution
agreement with AlfaMed s.r.l., a supplier of innovative spine
surgery equipment. The agreements covers the distribution of the
DenerveX System throughout Italy.
Medical Advisory Agreements
Also in
August 2015, we entered into two medical advisory board agreements
with European leading spine surgeons Dr. Martin Deeg and Dr.
Karsten Ritter-Lang. Under the terms of the agreements, both
doctors will leverage their expertise, experience and relationships
in the spine treatment space, specifically the facet joint pain
area by advising us on matters related to its technology and the
area of facet joint pain therapies. They will also provide services
to help introduce the DenerveX System to other leading physicians
and medical professionals. Through December 31, 2016, we have paid
approximately $15,500 to Dr. Martin Deeg.
In
November 2015 we entered into a medical advisory agreement another
leading European spine surgeon, Dr. Vik Kapoor of Manchester,
England. Through December 31, 2016, we have paid $10,000 to Dr.
Kapoor.
Employment Agreements
In
November 2016, the Company hired Jill Schweiger as its new Senior Vice
President of Regulatory, Clinical and Quality. Mrs. Jill Schweiger
is a highly qualified and accomplished leader with a highly
demonstrable track record of success in the areas of clinical
studies and regulatory affairs.
In
January 2017, the Company hired and named Mr. Ed Valdez to the
position of Quality Manager. Mr. Valdez is a former Integra Life
Sciences quality and regulatory manager for devices used in
neurosurgery, stereotaxy, ENT and general surgery.
Consulting Agreements
In
August 2016, the Company hired Mr. Juan Davila as Director of Sales
& Marketing for the Latin-America market region. Mr. Davila
will be developing and implementing an overall corporate sales and
marketing strategy, directly engaging and managing all future
MedoveX distributors throughout Latin America, and translating the
company's business objectives into marketing strategies that drive
future revenue. In addition, Mr. Davila will also provide services
to help introduce the Company’s DenerveX System to leading
physicians and medical professionals in Latin America. Through
December 31, 2016, we have paid approximately $10,000 to Mr.
Davila.
Sales & Marketing
In order to maintain the positive momentum and high interest level
in the DenerveX System with our signed distributors throughout
Europe and Asia Pacific, we attended several spinal workshops and
marketing related events in 2016.
We are planning similar sales and marketing related endeavors in
2017 to continue with our efforts to create and maintain a high
level of interest in the European spine community, our anticipated
product launch into the European market.
Streamline, Inc.
Divestiture
In May
2016, the Board of Directors authorized management to seek buyers
for Streamline, Inc., (“Streamline”), the
Company’s wholly owned subsidiary acquired in March 2015. The
Company sold all Streamline related assets on December 7, 2016 (the
“Closing”).
This
transaction provided funds needed to complete the development and
launch of the Company’s primary product, the DenerveX System,
and the decision to sell the Streamline assets helped raise part of
the necessary funds required for continuing operations of the
Company in a non-dilutive manner to existing
shareholders.
The
transaction resulted in the immediate receipt of $500,000 in cash,
and a $150,000 note receivable to the Company due on or before
January 1, 2018.
The
terms of the agreement also required that for each of the calendar
years ending December 31, 2018 and December 31, 2019 (each such
calendar year, a “Contingent
Period”), a contingent
payment in cash (each, a “Contingent
Payment”) equal to five
percent (5%) of the total net sales received by the acquiring party
from the sale of “IV suspension system” products in
excess of 100 units during each Contingent Period. Each such
Contingent Payment is payable to the Company by the acquiring party
by no later than March 31st
of the
subsequent year; provided, however, that the total aggregate amount
of all Contingent Payments owed by the acquiring party to the
Company for all Contingent Periods will not exceed
$850,000.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results
of operations are based on our consolidated financial statements,
which we have prepared in accordance with United States generally
accepted accounting principles. The preparation of these
consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting periods. On
an ongoing basis, we evaluate our estimates and judgments,
including those described in greater detail below.
We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
While our significant accounting policies are described in more
detail in the notes to our consolidated financial statements
included elsewhere in this report, we believe that the following
accounting policies are the most critical to aid you in fully
understanding and evaluating our financial condition and results of
operations.
Goodwill and Impairment of Long-Lived Assets
Goodwill
is the excess of the purchase price over the fair value of net
assets of acquired businesses. Goodwill is tested for impairment
annually or whenever an event occurs or circumstances change that
would indicate that the carrying amount may be impaired. The test
for impairment requires us to make several estimates about fair
value. Our estimates associated with the goodwill impairment test
are considered critical due to the amount of goodwill recorded on
our consolidated balance sheets and the judgment required in
determining fair value. Goodwill impairment has been recognized for
the year ended December 31, 2016. See Note 11.
Other
intangible assets include trademarks and purchased technology.
Intangible assets with a definite life are amortized on a
straight-line basis, as appropriate, with estimated useful lives
ranging from five to seven years, and are tested for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an intangible asset may not be
recoverable.
Definite-lived
intangible assets are tested for impairment annually or whenever
events or changes in circumstances indicate that the carrying
amount of an intangible asset may not be recoverable. Impairment
has been recognized for definite-lived intangible assets for the
year ended December 31, 2016. See Note 11.
Although
we believe that the recorded fair value of our non-financial assets
is appropriate at December 31, 2016, these fair values may not be
indicative of net realizable value or reflective of future fair
values.
Fair Value Measurements
We
measure certain non-financial assets at fair value on a
non-recurring basis. These non-recurring valuations include
evaluating assets such as long-lived assets and non-amortizing
intangible assets for impairment; allocating value to assets in an
acquired asset group; and applying accounting for business
combinations.
We use
the fair value measurement framework to value these assets and
report the fair values in the periods in which they are recorded or
written down.
The
fair value measurement framework includes a fair value hierarchy
that prioritizes observable and unobservable inputs used to measure
fair values in their broad levels. These levels from highest to
lowest priority are as follows:
|
●
|
Level
1: Quoted prices (unadjusted) in active markets that are accessible
at the measurement date for identical assets or
liabilities;
|
|
●
|
Level
2: Quoted prices in active markets for similar assets or
liabilities or observable prices that are based on inputs not
quoted on active markets, but corroborated by market data;
and
|
|
●
|
Level 3:
Unobservable inputs or valuation techniques that are used when
little or no market data is available.
|
The
determination of fair value and the assessment of a
measurement’s placement within the hierarchy requires
judgment. Level 3 valuations often involve a higher degree of
judgment and complexity. Level 3 valuations may require the use of
various cost, market, or income valuation methodologies applied to
unobservable management estimates and assumptions.
Management’s assumptions could vary depending on the asset or
liability valued and the valuation method used. Such assumptions
could include: estimates of prices, earnings, costs, actions of
market participants, market factors, or the weighting of various
valuation methods. We may also engage external advisors to assist
us in determining fair value, as appropriate.
Although
we believe that the recorded fair value of our financial
instruments is appropriate, these fair values may not be indicative
of net realizable value or reflective of future fair
values.
Income Taxes
The Company uses the liability method of accounting for income
taxes, which requires recognition of temporary differences between
financial statement and income tax bases of assets and liabilities,
measured by enacted tax rates. A valuation allowance is
recorded to reduce deferred tax assets when necessary.
We file income tax returns in the U.S. federal jurisdiction and
certain state jurisdictions. The tax years that could be subject to
audit are 2013, 2014 and 2015.
Stock-Based Compensation
A summary of significant assumptions used to estimate the fair
value of the equity awards granted in 2016 and 2015
follows:
Stock-based compensation expense for the years ended December 31,
2016 and 2015 includes both common stock and stock options granted
to certain employees, consultants, and directors and has been
recorded as general and administrative expenses. We follow the
provisions of the ASC Topic 718, Compensation- Stock
Compensation which requires the
measurement and recognition of compensation expense for all
stock-based payment awards made to employees and non-employee
directors, including employee stock options.
Stock compensation expense based on the fair value on the grant
date estimated in accordance with the provisions of ASC 718 is
generally recognized as an expense over the requisite service
period.
The stock grant prices and the option prices were set at the
estimated fair value of the common stock on the date of grant using
the market approach. Under the market approach, the fair
value of the common stock was determined to be the value
of the stock on the date of the grant.
We utilize the Black-Scholes valuation method to recognize
compensation expense over the vesting period for stock options. The
expected life represents the period that our stock option-based
compensation awards are expected to be outstanding.
We use a simplified method provided in Securities and Exchange
Commission release, Staff Accounting Bulletin No.
110, which averages an award's
weighted average vesting period and contractual term for "plain
vanilla" share options. The expected volatility was estimated by
analyzing the historic volatility of similar public biotech
companies in an early stage of development. The Company uses, and
will continue to use in the future, the historic volatility of
similar biotech companies until we have either a sufficient amount
of historical information regarding the volatility of our own share
price or other traded financial instruments are available to derive
an implied volatility to support an estimate of expected
volatility. No dividend payouts were assumed as we have not
historically paid, and do not anticipate paying, dividends in the
foreseeable future.
The risk-free rate of return reflects the weighted average interest
rate offered for US treasury rates over the expected term of the
options.
The significant assumptions used to estimate the fair value of the
stock option-based equity awards granted in 2016 are;
|
Grant
date
|
January 6
|
August 17
|
November 10
|
|
Weighted
fair value of options granted as of December 31, 2016
|
$0.67
|
$0.91
|
$1.06
|
|
Expected
term (years)
|
6
|
6
|
6
|
|
Risk-free
interest rate
|
1.82%
|
1.28%
|
1.74%
|
|
Volatility
|
83%
|
75.55%
|
76.67%
|
|
Dividend
yield
|
None
|
None
|
None
|
During
2016, the Company granted options to purchase 744,900 shares of
common stock, and 180,500 shares of
common stock were granted. Total equity awards granted in 2016 was
925,400.
RESULTS OF OPERATIONS
Overview
We started operations late in 2013. We anticipate that our
quarterly and annual results of operations will be impacted for the
foreseeable future by several factors, including successful
development of a prototype product, approval of the product by
regulatory agencies in the United States and abroad, and the rate
of adoption of our product by medical professionals. On December 7,
2016, we sold Streamline after the Board authorized management to
find a buyer in May 2016. Due to these factors, we believe that
period to period comparisons of our results of operations are not a
good indication of our future performance.
The following table sets forth our results of operation for the
years ended December 31, 2016 and 2015:
|
Operating Expenses:
|
2016
|
2015
|
|
General
and administrative
|
$4,872,626
|
$4,561,470
|
|
Sales
and marketing
|
391,698
|
101,772
|
|
Research
and development
|
1,126,535
|
867,822
|
|
Depreciation
and amortization
|
11,267
|
6,498
|
|
Impairment
of goodwill
|
6,455,645
|
--
|
|
Total operating expenses
|
12,857,771
|
5,537,562
|
|
|
|
|
|
Operating
Loss
|
(12,857,771)
|
(5,537,562)
|
|
|
|
|
|
Other Expenses:
|
|
|
|
Interest
expense
|
455,304
|
46,259
|
|
Total Other Expenses
|
455,304
|
46,259
|
|
|
|
|
|
Loss from Continuing Operations
|
(13,313,075)
|
(5,583,821)
|
|
Discontinued Operations
|
|
|
|
Loss
from discontinued operations
|
477,497
|
939,256
|
|
Impairment
loss
|
1,584,048
|
--
|
|
Disposal
loss
|
852,864
|
--
|
|
Total Loss from Discontinued Operations
|
(2,914,409)
|
(939,256)
|
|
Net Loss
|
$(16,227,484)
|
$(6,523,077)
|
Revenue
We have not produced any revenue to date with the DenerveX System.
Prior to the divestiture of Streamline in December 2016, we had
only nominal sales of the Streamline ISS poles that occurred in
December 2015 which are included in the loss from discontinued
operations for the year ended December 31, 2015.
Operating Expenses
We classify our operating expenses into four categories: research
& development, sales & marketing, general &
administrative expense and depreciation and amortization
expense.
Research and Development Costs and Expenses
Research and development costs and expenses consist primarily of
fees paid to external service providers, laboratory supplies, costs
for facilities and equipment, and other costs for research and
development activities.
Research and development expenses are recorded in operating
expenses in the period in which they are incurred. Estimates have
been used in determining the liability of certain costs where
services have been performed but not yet invoiced.
We monitor levels of performance under each significant contract
for external service providers, including the extent of patient
enrollment and other activities through communications with the
service providers to reflect the actual amount
expended.
General and Administrative Expenses
During 2016, the Company incurred approximately $1,780,000 in
personnel costs, compared to approximately $1,390,000 in 2015.
Professional fees were approximately $1,453,000 in 2016 and
$2,552,000 in 2015 which consisted primarily of professional costs
related to the development of the DenerveX device and the
acquisition of Streamline in 2015. Travel expenses were
approximately $226,000 during 2016 and $295,000 in
2015.
We anticipate that our general and administrative expenses will
continue at a comparable rate in the future to support clinical
trials, commercialization of our product candidate and continued
costs of operating as a public company.
Sales & Marketing Expenses
During 2016, the Company incurred approximately $392,000 in sales
and marketing expenses compared to $102,000 in 2015. Sales and
marketing expense consists primarily of fees paid to vendors for
tradeshows and consultants in correlation with the pre-launch of
the DenerveX in Europe.
Depreciation & Amortization
Depreciation and amortization expense are recorded in the period in
which they are incurred. During 2016, the Company recognized
approximately $11,300 in depreciation expense, compared to
approximately $6,700 in 2015. During 2016, the Company recognized
approximately $190,000 in amortization expense compared to
approximately $427,000 in 2015. Amortization expense is a result of
amortizing the intangible assets acquired in the Streamline
acquisition and the significant decrease in amortization expense in
2016 compared to 2015 is a result of having ceased amortization of
the intangible assets upon Streamline being classified as held for
sale in May 2016. Amortization expense is included in the total
loss from discontinued operations at December 31, 2016 and
2015.
Liquidity and Capital Resources
Since our inception, we have incurred losses and anticipate that we
will continue to incur losses in the foreseeable
future.
While we expect our research and development costs for the DenerveX
System to dissipate, we also anticipate increased expenditures for
clinical trials to obtain FDA approval of the DenerveX System as
well as expenses related to the commercial launch of the DenerveX
system. We will need additional cash to fully fund these
activities.
Our independent registered public accounting firm has included an
explanatory paragraph with respect to our ability to continue as a
going concern in its report on our consolidated financial
statements as of and for the years ended December 31, 2016 and
2015.
The presence of the going concern explanatory paragraph suggests
that we may not have sufficient liquidity or minimum cash levels to
operate the business.
Sources of Liquidity
Debt
On
November 9, 2015, we issued a convertible promissory note to Steve
Gorlin, a related party, for $2,000,000, the principal to be
advanced in two installments. We received $970,000 in cash and the
elimination of $30,000 in directors’ fees payable on November
9, 2015. This debt was subsequently converted into equity in
January 2016, ultimately in exchange for 552,041 shares of common
stock. On March 1, 2016, the Board of Directors approved extending
the date for the second installment of $1,000,000 to November 1,
2016. After a further extension was granted, on December 1, 2016,
we received the second installment of $1,000,000 from Mr. Gorlin
and associates.
On
September 16, 2016, the Company entered into short term contractual
obligation for a secured nine month term loan for the principal
amount of $1,150,000. The principal face value of the loan was
$1,150,000 and was issued with an original issuance discount of
$150,000 which resulted in aggregate proceeds of $1,000,000. The
loan was subsequently converted to equity in February
2017.
The
Company issued warrants to purchase an aggregate of 200,000 shares
of common stock par value $.001 per share in conjunction with the
short term note. Each warrant has an initial exercise price of
$1.625 per share, and is initially exercisable six months following
the date of issuance and for a period of three (3) years from the
date of issuance.
In
addition to the convertible promissory note and the short term
loan, the debt presented on our December 31, 2016 balance sheet is
also comprised of two promissory notes issued by Streamline prior
to our acquisition of that entity in March 2015 and a finance
agreement for the Company’s annual D&O insurance premium.
The two notes, including unpaid accrued interest, total
approximately $234,000 at December 31, 2016. The finance agreement
totals approximately $65,000 at December 31, 2016 and payments are
due in equal quarterly installments.
Equity
In
January 2016, the first of two $1,000,000 installments from Steve
Gorlin’s convertible promissory note and the related accrued
interest were converted into equity.
In
April 2016, the Company entered into a unit purchase agreement with
selected accredited investors whereby the Company had the right to
sell in a private placement a minimum of $1,000,000 and up to a
maximum of $2,000,000 of units. The offering resulted in gross
proceeds of $1,398,034.
In
August, 2016, the Company entered into a Unit Purchase Agreement
with selected accredited investors whereby the Company had the
right to sell in a private placement a minimum of $250,000 and up
to a maximum of $1,300,000 of units. The offering resulted in gross
proceeds of $1,300,000.
In
December 2016, the second of the $1,000,000 installment payments
due from Steve Gorlin’s convertible promissory note was
received. The Board of Directors approved a fourth amendment to the
Modification Agreement by which Mr. Gorlin assigned a portion of
the obligation to purchase the additional 571,429 shares of the
Company at $1.75 per share. The closing price of the
Company’s stock on December 1, 2016, the day the shares were
issued, was $1.37 per share.
The
obligation to purchase 142,857 of the additional shares was
assigned to an outside non-related party for a total purchase price
of $250,000. Additionally, the obligation to purchase 114,286 of
the additional shares was assigned to a related party that provides
consulting services for the Company for a total purchase price of
$200,000. Mr. Gorlin retained the obligation to purchase 314,286 of
the additional shares, for a total purchase price of
$550,000.
In
exchange for entering into the fourth Amendment, Mr. Gorlin also
assigned a portion of the warrant for the right to purchase 112,500
of the 500,000 shares of common stock of the Company from the
warrants issued on November 9, 2015.
The
Company received an aggregate of $1,000,000 in exchange for the
issuance of an aggregate of 571,429 shares at a price of $1.75 per
share.
The
Company is exploring other fundraising options for 2017, however,
since we believe that the likelihood of obtaining traditional debt
financing at our stage of development is low, our source of funds
in the foreseeable future will likely be from the sale of capital
stock or some type of structured capital arrangement involving
either equity or a combination of debt with an equity
component.
Cash Flows
Net cash used in operating activities was approximately $5,427,000
during the year ended December 31, 2016, compared to approximately
$5,982,000 in 2015. Net cash provided by investing activities was
approximately $415,000 during the year ended December 31, 2016,
compared to approximately $1,159,000 used in 2015. Net cash
provided by financing activities was approximately $4,335,000
during the year ended December 31, 2016, compared to approximately
$2,027,000 in 2015.
The Company had approximately $893,000 and $1,570,000 of cash on
hand at December 31, 2016 and 2015, respectively.
Results of Discontinued Operations
Our
discontinued operations generated net losses of approximately
$2,914,000 and $939,000 for the years ended December 31, 2016 and
2015, respectively.
The
results of discontinued operations for the year ended December 31,
2016 include the write down of intangible assets acquired with the
purchase of Streamline Inc. in March 2015. The impairment loss
recorded included a write down of the acquired trademark of
$548,000, and approximately $1,036,000 to write-down the acquired
developed technology.
The
results of discontinued operations for the current period ended
December 31, 2016 also includes a disposal loss of approximately
$853,000 that was recorded upon consummation of the Streamline
divestiture.
Results of Continuing Operations
Year Ended December 31, 2016 Compared to the Year Ended December
31, 2015
Total
operating expenses increased approximately $7,320,000, or 132%, to
approximately $12,900,000 for the year ended December 31, 2016, as
compared to approximately $5,538,000 for the year ended December
31, 2015.
The
results of continuing operations for the current year ended
December 31, 2016 include a write down of $6,455,645 in goodwill
recorded in connection with the purchase of Streamline Inc. in
March 2015.
The
increase in expenses over the prior year is primarily the result of
the impairment charges. Impairment charges aside, we continued to
incur similar product development costs associated with the
DenerveX System as well as costs incurred related to being a public
entity.
Funding Requirements
We anticipate our cash expenditures will remain consistent as we
continue to operate as a publicly traded entity and as we move
forward from the final development stages of the DenerveX System
onto clinical trial studies. We expect future cash flow
expenditures to increase if the FDA requires a de novo regulatory
path, instead of a 510(k) approval.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in
Regulation S-K Item 303(a)(4) during the periods presented,
investments in special-purpose entities or undisclosed borrowings
or debt. Additionally, we are not a party to any derivative
contracts or synthetic leases.
Contractual Obligations and Commercial Commitments
The
Company has long term contractual obligations for the two
promissory notes issued to the Bank of North Dakota New Venture
Capital Program and North Dakota Development Fund. Both of the Bank
of North Dakota New Venture Capital Program and North Dakota
Development Fund notes were assumed in conjunction with the
consummation of the Streamline acquisition on March 25, 2015, and
require combined monthly payments of $5,661 through August
2019.
The Company rents commercial office space in Alpharetta, GA. Base
annual rent is initially set at $2,750 per month and the lease term
ends December 31, 2018.
The Company also currently reimburses its CEO, Jarrett Gorlin, for
the lease of executive office space at a cost of $2,147 per month,
which it believes is at fair market value.
The Company has a consulting agreement with Lifeline Industries
Inc., a related party, at a monthly fee of $10,000 through February
9, 2018.
The
Company has outstanding material purchase order obligations of
approximately $234,000 related to the build of the DenerveX device
at December 31, 2016.
The
Company has a consulting agreement with a sales manager in Europe
to provide sales, marketing, and distribution consulting services
at a monthly fee of €10,000 through August 1,
2017.
The Company also has employment agreements with the executive
officers that commit the Company to a six month severance and
benefits package if those employees separate under certain
conditions, including a change in control of the
Company.
Changes in Board of Directors
On
August 11, 2016 the Company received a resignation letter from Mr.
Thomas Hills from his position as a member of the Board of
Directors of the Company. There were no disagreements between Mr.
Hills and the Company.
On
August 17, 2016, the Company appointed Ron Lawson to fill Mr.
Hills’ vacancy and to serve as a member of the
Company’s Board. In connection with his appointment, Mr.
Lawson was granted 300,000 stock options under the Company’s
2013 Stock Option Incentive Plan. Each stock option has an exercise
price of $1.20 and is exercisable pursuant to the terms of the
stock option award. The closing price of the Company’s stock
on August 17, 2016, the day the shares were issued, was $1.28 per
share. 150,000 of the options vest immediately and 150,000 vest in
one year.
On
October 18, 2016, the Company received a resignation letter from
Mr. John Blank from his position as a member of the board of
directors. There were no disagreements between Mr. Blank and the
Company.
On
October 19, 2016, Jon Mogford, PH.D was appointed to fill the
vacancy created by Mr. Blank’s resignation. Dr. Mogford was
designated as a nominee for director in the proxy statement for the
2016 annual meeting, which was approved by the Company’s
stockholders at the 2016 annual meeting in November 2016. In
connection with his appointment, Dr. Mogford was granted 150,000
stock options under the Company’s 2013 Stock Option Incentive
Plan. Each stock option has an exercise price of $1.58 and is
exercisable pursuant to the terms of the stock option award. The
closing price of the Company’s stock on November 10, 2016,
the day the shares were issued, was $1.58 per share. 75,000 of the
options vest immediately and 75,000 vest in one year.
Notice of Delisting
On
August 30, 2016, we received a letter from the listing
qualifications department of the NASDAQ stock market notifying us
that the Company’s stockholders’ equity of $1,311,796
as reported in our quarterly report on form 10-Q for the quarter
ended June 30, 2016 was below the minimum stockholders’
equity of $2,500,000 required for continued listing on the NASDAQ
capital market (the “Capital Market”). The decline in
the Company’s stockholders’ equity was largely a result
of the recognition of an impairment loss recorded in our form 10-Q
for the quarter ended June 30, 2016 related to the intangible
assets of Streamline Inc., the Company’s wholly owned
subsidiary acquired in March 2015.
On February 24, 2017, the Company filed a Form 8K with the
Securities and Exchange Commission summarizing the actions taken to
regain and affirmatively state its current compliance with NASDAQ's
stockholder equity requirement.
On March 1, 2017, NASDAQ issued a determination letter stating that
the company had successfully evidenced compliance with the minimum
$2,500,000 stockholders' equity requirement for continued listing
on the Capital Market.
NASDAQ will continue to monitor the Company’s ongoing
compliance with the stockholders’ equity requirement and, if
at the time of its next periodic report the Company does not
evidence compliance, that it may be subject to
delisting.
Indemnification
We have agreements whereby we indemnify our officers and directors
for certain events or occurrences while the officer or director is
or was serving, at our request, in such capacity, to the maximum
extent permitted under the laws of the State of
Nevada.
The maximum potential amount of future payments we could be
required to make under these indemnification agreements is
unlimited. However, we maintain directors and officers insurance
coverage that may contribute, up to certain limits, a portion of
any future amounts paid for indemnification of directors and
officers. We believe the estimated fair value of these
indemnification agreements in excess of applicable insurance
coverage is minimal. Historically, we have not incurred any losses
or recorded any liabilities related to performance under these
types of indemnities.
Additionally, in the normal course of business, we have made
certain guarantees, indemnities and commitments under which we may
be required to make payments in relation to certain transactions.
These indemnities include intellectual property and other
indemnities to our customers and distribution network partners in
connection with the sales of our products, and indemnities to
various lessors in connection with facility leases for certain
claims arising from such facility or lease.
It is not possible to determine the maximum potential loss under
these guarantees, indemnities and commitment due to our limited
history of prior indemnification claims and the unique facts and
circumstances involved in each particular provision.
Recently Adopted Accounting Standards
As
further described in the notes to the consolidated financial
statements, the Company elected to early adopt the provisions of
ASU 2014-10, Development Stage
Entities, which eliminated certain financial reporting
requirements for development stage entities included in ASC 915
Development Stage
Entities.
In
August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern, or
ASU 2014-15. ASU 2014-15 explicitly requires a company’s
management to assess an entity’s ability to continue as a
going concern, and to provide related footnote disclosures in
certain circumstances. The new standard will be effective in the
first annual period ending after December 15, 2016, although early
application is permitted. We adopted this standard on January 1,
2017. We do not expect the adoption of this standard to have a
material impact on our consolidated statements of financial
position, results of operations or cash flows.
Jumpstart Our Business Startups Act of 2012
The JOBS Act permits an “emerging growth company” such
as us to take advantage of an extended transition period to comply
with new or revised accounting standards applicable to public
companies.
We are choosing to "opt out" of this provision and, as a result, we
will comply with new or revised accounting standards as required
when they are adopted. This decision to opt out of the extended
transition period under the JOBS Act is irrevocable.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not Applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO THE FINANCIAL STATEMENTS
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
MedoveX Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of
MedoveX Corporation and Subsidiary (the “Company”) as
of December 31, 2016 and 2015, and the related consolidated
statements of operations, changes in stockholders’ equity and
cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, 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.
An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of MedoveX Corporation and Subsidiary, as of December 31,
2016 and 2015, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 15 to the consolidated financial
statements, the Company’s products are being developed and
have not generated revenues to date. As a result, the Company has
suffered losses since its inception. This raises substantial doubt
about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also
described in Note 15. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
Frazier & Deeter, LLC
Frazier & Deeter,
LLC
Atlanta,
Georgia
March
31, 2017
|
MEDOVEX CORP. AND SUBSIDIARY
|
||
|
CONSOLIDATED BALANCE SHEETS
|
||
|
|
|
|
|
|
December 31, 2016
|
December 31, 2015
|
|
Assets
|
|
|
|
Current Assets
|
|
|
|
Cash
|
$892,814
|
$1,570,167
|
|
Prepaid
expenses
|
364,822
|
169,253
|
|
Current
assets held for sale
|
--
|
35,509
|
|
Total Current Assets
|
1,257,636
|
1,774,929
|
|
Long Term Receivable
|
150,000
|
--
|
|
Property and Equipment, net of accumulated
depreciation
|
97,590
|
23,724
|
|
Deposits
|
2,751
|
2,751
|
|
Goodwill
|
--
|
6,455,645
|
|
Noncurrent assets held for sale
|
--
|
3,274,685
|
|
Total Assets
|
$1,507,977
|
$11,531,734
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current Liabilities
|
|
|
|
Interest
payable
|
$69,222
|
$76,712
|
|
Accounts
payable
|
225,725
|
278,309
|
|
Accrued
liabilities
|
459,800
|
100,317
|
|
Notes
payable, current portion
|
126,086
|
134,540
|
|
Short-term
note payable, net of debt discount
|
970,240
|
--
|
|
Total Current Liabilities
|
1,851,073
|
589,878
|
|
Long-Term Liabilities
|
|
|
|
Convertible
debt
|
--
|
753,914
|
|
Notes
payable, net of current portion
|
103,742
|
164,726
|
|
Deferred
rent
|
1,179
|
491
|
|
Total Long-Term Liabilities
|
104,921
|
919,131
|
|
Total Liabilities
|
1,955,994
|
1,509,009
|
|
Stockholders' (Deficit) Equity
|
|
|
|
Preferred
stock - $.001 par value: 500,000 shares
|
|
|
|
authorized,
no shares outstanding
|
--
|
--
|
|
Common
stock - $.001 par value: 49,500,000 shares authorized,
|
|
|
|
14,855,181
and 11,256,175 shares issued at December 31, 2016
and
December 31, 2015, respectively, 14,855,181 and
11,048,203
shares
outstanding at December 31, 2016 and December 31, 2015,
respectively
|
14,855
|
11,256
|
|
Additional
paid-in capital
|
25,898,054
|
20,164,911
|
|
Due
from stockholder
|
--
|
(20,000)
|
|
Accumulated
deficit
|
(26,360,926)
|
(10,133,442)
|
|
Total Stockholders' (Deficit) Equity
|
(448,017)
|
10,022,725
|
|
Total Liabilities and Stockholders' (Deficit) Equity
|
$1,507,977
|
$11,531,734
|
See
notes to consolidated financial statements
MEDOVEX CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the year ended
December 31,
|
|
|
|
2016
|
2015
|
|
|
|
|
|
Operating Expenses
|
|
|
|
General
and administrative
|
$4,872,626
|
$4,561,470
|
|
Sales
& Marketing
|
391,698
|
101,772
|
|
Research
and development
|
1,126,535
|
867,822
|
|
Depreciation
and amortization
|
11,267
|
6,498
|
|
Impairment
of goodwill
|
6,455,645
|
--
|
|
Total Operating Expenses
|
12,857,771
|
5,537,562
|
|
|
|
|
|
Operating Loss
|
(12,857,771)
|
(5,537,562)
|
|
|
|
|
|
Other Expenses
|
|
|
|
Interest
expense
|
455,304
|
46,259
|
|
Total Other Expenses
|
455,304
|
46,259
|
|
|
|
|
|
Loss from Continuing Operations
|
(13,313,075)
|
(5,583,821)
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
Loss
from discontinued operations
|
477,497
|
939,256
|
|
Impairment
loss
|
1,584,048
|
--
|
|
Disposal
loss
|
852,864
|
--
|
|
Total Loss from Discontinued Operations
|
(2,914,409)
|
(939,256)
|
|
Net Loss
|
$(16,227,484)
|
$(6,523,077)
|
|
|
|
|
|
Basic
and diluted net loss per common share from continuing
operations
|
$(1.00)
|
$(0.51)
|
|
|
|
|
|
Basic
and diluted net loss per common share from discontinued
operations
|
(0.22)
|
(0.09)
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
$(1.22)
|
$(0.60)
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
13,250,789
|
10,943,675
|
See notes to consolidated financial statements
MEDOVEX CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the year ended December 31, 2016 and 2015
|
|
Common
Stock
|
Additional
|
Due From
|
Accumulated
|
Total
Stockholders' |
|
|
|
Shares
|
Amount
|
Paid-in
Capital
|
Stockholder
|
Deficit
|
Equity
|
|
Balance – December 31, 2014
|
9,172,480
|
$9,173
|
$10,106,841
|
$--
|
$(3,610,365)
|
$6,505,649
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to underwriters in January 2015
|
208,695
|
208
|
1,083,928
|
--
|
--
|
1,084,136
|
|
Value
of common stock to acquire Streamline on date of closing at $4.50
per share
|
1,875,000
|
1,875
|
8,435,625
|
--
|
--
|
8,437,500
|
|
Stock
based compensation
|
--
|
--
|
253,659
|
--
|
--
|
253,659
|
|
Issuance
of warrant to Steve
|
|
|
|
|
|
|
|
Gorlin
on November 9 2015
|
--
|
--
|
284,858
|
--
|
--
|
284,858
|
|
Receivable
portion of Note
|
|
|
|
|
|
|
|
of
convertible debt
|
--
|
--
|
--
|
(20,000)
|
--
|
(20,000)
|
|
Net
loss
|
--
|
--
|
--
|
--
|
(6,523,077)
|
(6,523,077)
|
|
Balance – December 31, 2015
|
11,256,175
|
$11,256
|
$20,164,911
|
$(20,000)
|
$(10,133,442)
|
$10,022,725
|
|
Conversion
of promissory note on January 25, 2016
|
552,041
|
552
|
1,071,961
|
--
|
--
|
1,072,513
|
|
Warrant
price modification on January 25, 2016
|
--
|
--
|
18,050
|
--
|
--
|
18,050
|
|
Warrant
price modification on February 16, 2016
|
--
|
--
|
7,670
|
--
|
--
|
7,670
|
|
Issuance
of common stock pursuant to private placement completed in April
2016
|
1,211,703
|
1,212
|
800,435
|
--
|
--
|
801,647
|
|
Issuance
of warrants pursuant to private placement completed in April
2016
|
--
|
--
|
374,623
|
--
|
--
|
374,623
|
|
Issuance
of common stock in exchange for consulting services in May
2016
|
37,500
|
38
|
47,962
|
--
|
--
|
48,000
|
|
Issuance
of common stock pursuant to private placement completed in August
2016
|
1,083,333
|
1,083
|
975,526
|
--
|
--
|
976,609
|
|
Issuance
of warrants pursuant to private placement completed in August
2016
|
--
|
--
|
323,391
|
--
|
--
|
323,391
|
|
Issuance
of common stock in exchange for consulting services in August
2016
|
60,000
|
60
|
76,740
|
--
|
--
|
76,800
|
|
Issuance
of warrants pursuant to loan completed in September
2016
|
--
|
--
|
135,971
|
--
|
--
|
135,971
|
|
Issuance
of common stock in exchange for consulting services in September
2016
|
83,000
|
83
|
124,417
|
--
|
--
|
124,500
|
|
Issuance
of common stock in December 2016 pursuant to conversion of
promissory note in January 2016
|
571,429
|
571
|
999,429
|
--
|
--
|
1,000,000
|
|
Repayment
of stockholder receivable
|
--
|
--
|
--
|
20,000
|
--
|
20,000
|
|
Stock
based compensation
|
--
|
--
|
776,968
|
--
|
--
|
776,968
|
|
Net
loss
|
--
|
--
|
--
|
--
|
(16,227,484)
|
(16,227,484)
|
|
Balance –
December 31, 2016
|
14,855,181
|
$14,855
|
$25,898,054
|
$--
|
$(26,360,926)
|
$(448,017)
|
See
notes to consolidated financial statements
MEDOVEX CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2016
|
2015
|
|
Cash Flows from Operating Activities
|
|
|
|
Net
loss
|
$(16,227,484)
|
$(6,523,077)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation
|
11,396
|
6,669
|
|
Amortization
of intangible assets
|
189,522
|
426,429
|
|
Amortization
of debt discount
|
357,297
|
38,770
|
|
Debt
conversion expense
|
68,694
|
--
|
|
Intangible
asset impairment loss
|
1,584,048
|
--
|
|
Goodwill
impairment loss
|
6,455,645
|
--
|
|
Disposal
loss
|
852,864
|
|
|
Stock
based compensation
|
776,968
|
253,659
|
|
Straight-line
rent adjustment
|
688
|
491
|
|
Common
stock issued for consulting services
|
249,300
|
--
|
|
Non-cash
directors fees
|
20,000
|
--
|
|
Adjustment
of fair value of warrant modification
|
25,720
|
--
|
|
Changes
in operating assets and liabilities, net of effects of acquisition
and disposition:
|
|
|
|
Deposits
|
--
|
(2,751)
|
|
Accounts
receivable
|
33,045
|
(33,045)
|
|
Prepaid
expenses
|
(128,400)
|
63,474
|
|
Accounts
payable
|
(52,584)
|
(164,144)
|
|
Interest
payable
|
(3,670)
|
76,712
|
|
Accrued
liabilities
|
359,483
|
(125,130)
|
|
Net Cash Used in Operating Activities
|
5,427,468
|
(5,981,943)
|
|
Cash Flows from Investing Activities
|
|
|
|
Acquisition
of Streamline, Inc., net of cash received
|
--
|
(1,152,291)
|
|
Disposition
of Streamline Inc.
|
500,000
|
--
|
|
Expenditures
for property and equipment
|
(85,133)
|
(7,059)
|
|
Net Cash Provided by (Used in) Investing Activities
|
414,867
|
(1,159,350)
|
|
Cash Flows from Financing Activities
|
|
|
|
Principal
payments under note payable obligation
|
(136,022)
|
(37,251)
|
|
Proceeds
from issuance of convertible debt
|
--
|
695,142
|
|
Proceeds
from issuance of common stock, net of offering costs
|
2,778,256
|
--
|
|
Proceeds
from issuance of warrants, net of offering costs
|
833,985
|
284,858
|
|
Proceeds
from issuance of short term debt
|
859,029
|
--
|
|
Proceeds
from issuance of common stock from underwriter’s
overallotment
|
--
|
1,084,136
|
|
Net Cash Provided by Financing Activities
|
4,335,248
|
2,026,885
|
|
Net
Decrease in Cash
|
677,353
|
(5,114,409)
|
|
Cash
- Beginning of period
|
1,570,167
|
6,684,576
|
|
|
|
|
|
Cash - End of period
|
$892,814
|
$1,570,167
|
|
Supplementary
Cash Flow Information
|
|
|
|
Cash
paid for interest
|
$11,469
|
$8,040
|
|
Non-cash investing and financing activities
|
|
|
|
Issuance
of common stock for acquisition of Streamline
|
$--
|
$8,437,500
|
|
Finance
agreement for insurance policy
|
66,582
|
76,581
|
|
Due
from shareholder for issuance of convertible debt
|
--
|
20,000
|
|
Repayment
of due from stockholder through forgone director fees
|
20,000
|
--
|
|
Issuance
of common stock for consulting services
|
249,300
|
--
|
|
Conversion
of note and accrued interest to common stock
|
1,072,513
|
--
|
|
Note
receivable from disposition of Streamline
|
150,000
|
--
|
See
notes to consolidated financial statements
Note 1 - Organization
Description of Business
MedoveX
Corp. (the “Company” or “MedoveX”), was
incorporated in Nevada on July 30, 2013 as SpineZ Corp.
(“SpineZ”) and changed its name to MedoveX Corp. on
March 20, 2014. MedoveX is the parent company of Debride Inc.
(“Debride”), which was incorporated under the laws of
the State of Florida on October 1, 2012. The Company is in the
business of designing and marketing proprietary medical devices for
commercial use in the United States and Europe. The Company is
currently seeking approval from the FDA and CE for DenerveX
device.
In
March 2015, the Board of Directors of MedoveX and Streamline, Inc.,
a Minnesota corporation (“Streamline”), approved an
Agreement and Plan of Merger (the “Merger Agreement”).
Under the Merger Agreement, STML Merger Sub, Inc. a wholly-owned
subsidiary of MedoveX, merged into Streamline, after which
Streamline became a wholly-owned subsidiary of
Medovex.
In May
2016, the Board of Directors authorized management to seek buyers
for Streamline, Inc., the Company’s wholly owned subsidiary
acquired in March 2015. In December 2016, the Company entered into
a definitive asset purchase agreement pursuant to which the Company
agreed to sell all Streamline assets upon consummation of the
divestiture (the “Closing”). The Closing occurred
immediately following the execution of the asset purchase agreement
on December 7, 2016. (See Note 10)
Note 2 - Summary of Significant Accounting Policies
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The
accompanying financial statements include the accounts of Medovex
Corp. and its wholly-owned subsidiary, Streamline. All intercompany
accounts and transactions have been eliminated in
consolidation.
Use of Estimates
In
preparing the financial statements, generally accepted accounting
principles in the United States (“U.S. GAAP”) requires
disclosure regarding estimates and assumptions used by management
that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from those
estimates.
Concentration of Credit Risk
Financial
instruments, which potentially subject the Company to
concentrations of credit risk, consist solely of cash. At times
throughout the year, the Company may maintain certain bank account
balances in excess of FDIC insured limits. At December 31, 2016 and
2015, the Company had cash deposits that exceeded federally insured
deposit limits. The Company believes that its funds are deposited
in high credit quality financial institutions. The Company has not
experienced any losses in such accounts to date and believes it is
not exposed to any significant credit risk associated with its cash
deposits.
Cash
The
Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The
Company’s cash balances at December 31, 2016 and 2015
consists of funds deposited in checking accounts with commercial
banks.
Long term Receivable
The
long term receivable at December 31, 2016 represents the long-term,
non-contingent portion of the receivables due from the sale of
Streamline which is not due until January 1, 2018. See Note 10.
Recording the present value of the receivable at December 31, 2016
and recognizing the subsequent accretion expense over the one year
period led to an immaterial amount.
Goodwill And Purchased Intangible Assets
Goodwill
is reviewed for impairment annually on December 31 or more
frequently if changes in circumstances or the occurrence of events
suggest impairment exists using a two-step process. In step 1, the
fair value of each reporting unit is compared to its carrying
value, including goodwill. If the fair value exceeds the carrying
value, no further work is required and no impairment loss is
recognized. If the carrying value exceeds the fair value, the
goodwill of the reporting unit is potentially impaired and the
Company would then complete step 2 in order to measure the
impairment loss. In step 2, the Company would calculate the implied
fair value of goodwill by deducting the fair value of all tangible
and intangible net assets (including unrecognized intangible
assets) of the reporting unit from the fair value of the reporting
unit. If the implied fair value of goodwill is less than the
carrying value of goodwill, the Company would recognize an
impairment loss, in the period identified, equal to the difference.
See Note 11.
Other
intangible assets consist of developed technology and a trademark.
The Company reviews intangible assets for impairment as changes in
circumstances or the occurrence of events suggest the remaining
value may not be recoverable. See Note 11.
Amortization
on the intangibles was provided on a straight-line basis over the
estimated useful lives of the assets as follows:
|
Trademark
|
5
years
|
|
Developed
technology
|
7
years
|
Although
we believe that the recorded fair value of our non-financial assets
is appropriate at December 31, 2016, these fair values may not be
indicative of net realizable value or reflective of future fair
values.
Fair Value Measurements
We
measure certain non-financial assets at fair value on a
non-recurring basis. These non-recurring valuations include
evaluating assets such as long-lived assets and non-amortizing
intangible assets for impairment; allocating value to assets in an
acquired asset group; and applying accounting for business
combinations.
We use
the fair value measurement framework to value these assets and
report the fair values in the periods in which they are recorded or
written down.
The
fair value measurement framework includes a fair value hierarchy
that prioritizes observable and unobservable inputs used to measure
fair values in their broad levels. These levels from highest to
lowest priority are as follows:
|
●
|
Level
1: Quoted prices (unadjusted) in active markets that are accessible
at the measurement date for identical assets or
liabilities;
|
|
●
|
Level
2: Quoted prices in active markets for similar assets or
liabilities or observable prices that are based on inputs not
quoted on active markets, but corroborated by market data;
and
|
|
●
|
Level 3:
Unobservable inputs or valuation techniques that are used when
little or no market data is available.
|
The
determination of fair value and the assessment of a
measurement’s placement within the hierarchy requires
judgment. Level 3 valuations often involve a higher degree of
judgment and complexity. Level 3 valuations may require the use of
various cost, market, or income valuation methodologies applied to
unobservable management estimates and assumptions.
Management’s assumptions could vary depending on the asset or
liability valued and the valuation method used. Such assumptions
could include: estimates of prices, earnings, costs, actions of
market participants, market factors, or the weighting of various
valuation methods. We may also engage external advisors to assist
us in determining fair value, as appropriate.
Although
we believe that the recorded fair value of our financial
instruments is appropriate, these fair values may not be indicative
of net realizable value or reflective of future fair
values.
Property and Equipment
Property
and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the related
assets, generally three to five years. Repairs and maintenance are
expensed as incurred. Improvements and betterments, which extend
the lives of the assets, are capitalized.
Leases
The
Company recognizes rent expense on a straight-line basis over the
term of the lease. The lease term commences on the date the Company
takes possession of or controls the physical use of the property.
Deferred rent is included in non-current liabilities on the balance
sheet.
Research and Development
Research
and development costs are expensed as incurred.
Advertising
The
Company expenses all advertising costs as incurred. For the years
ended December 31, 2016 and 2015, advertising costs were
approximately $392,000 and $102,000, respectively.
Income Taxes
The Company uses the liability method of accounting for income
taxes, which requires recognition of temporary differences between
financial statement and income tax bases of assets and liabilities,
measured by enacted tax rates. A valuation allowance is
recorded to reduce deferred tax assets when necessary.
Stock-Based Compensation
The
Company maintains a stock option incentive plan and accounts for
stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. The
Company recognizes share-based compensation expense, net of an
estimated forfeiture rate, over the requisite service period of the
award to employees and directors. As required by fair value
provisions of share-based compensation, employee and non-employee
share-based compensation expense recognized is calculated over the
requisite service period of the awards and reduced for estimated
forfeitures.
Loss per Share
Basic
loss per share is computed on the basis of the weighted average
number of shares outstanding for the reporting period. Diluted loss
per share is computed on the basis of the weighted average number
of common shares plus dilutive potential common shares outstanding
using the treasury stock method. Any potentially dilutive
securities are anti- dilutive
due to the Company’s net losses. For the years presented,
there is no difference between the basic and diluted net loss per
share: 3,504,847 warrants and 1,124,900 common stock options
outstanding were considered anti-dilutive and excluded for the
years presented.
Business combinations
The
Company completed an acquisition on March 25, 2015. This
transaction was recorded using guidelines provided by ASC 805,
Business Combinations.
Following these guidelines, the consideration paid by MedoveX for
Streamline was measured on the date of acquisition. An independent
valuation of Streamline was performed using the discounted cash
flow method. Based on the estimated value of Streamline, the
consideration paid by MedoveX and the tangible assets of
Streamline, management determined the intangible portion of the
purchase price should be assigned between developed technology,
trademark, and goodwill.
Discontinued Operations
As more
fully described in Note 10, in May 2016, management was authorized
to locate a buyer for Streamline Inc., the Company’s wholly
owned subsidiary acquired in March 2015, by the Board of Directors.
Streamline’s results of operations have been classified as
discontinued operations for all periods presented.
reclassification
Some
items in the prior period financial statements were reclassified to
conform to the current period presentation. Reclassifications had
no effect on prior period net income or shareholders’
equity.
Recently Issued Accounting Pronouncements
In August 2014, FASB issued ASU 2014-15, Disclosure
of Uncertainties about an Entity’s Ability to Continue as a
Going Concern, or ASU 2014-15.
ASU 2014-15 explicitly requires a company’s management to
assess an entity’s ability to continue as a going concern,
and to provide related footnote disclosures in certain
circumstances. The new standard will be effective in the first
annual period ending after December 15, 2016, although early
application is permitted. We do not expect the
adoption of this standard to have a material impact on our
consolidated statements of financial position, results of
operations or cash flows.
In
April 2015, FASB issued ASU No. 2015-03, Interest –
Imputation of Interest (Subtopic 835-30): Simplifying the
presentation of Debt Issuance Costs, to reduce the complexity of
having different balance sheet presentation requirements for debt
issuance costs and debt discounts and premiums. The guidance
requires debt issuance costs related to a recognized debt liability
be reported on the balance sheet as a direct deduction from the
carrying amount of that debt liability. ASU 2015-03 is effective
for public companies for annual reporting periods beginning after
December 15, 2015, and interim periods within those fiscal years.
The Company has adopted the amendments of ASU 2015-03 effective
January 1, 2016.
In
November 2015, FASB issued ASU No. 2015-17, Balance Sheet
Classification of Deferred Taxes. ASU 2015-17 simplifies the
presentation of deferred taxes by requiring deferred tax assets and
liabilities be classified as noncurrent on the balance sheet. ASU
2015-17 is effective for public companies for annual reporting
periods beginning after December 15, 2016, and interim periods
within those fiscal years. The guidance may be adopted
prospectively or retrospectively and early adoption is permitted.
We believe the adoption of this standard will have no material
impact on our consolidated statements of financial position,
results of operations or cash flows.
In
February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The
core principle of Topic 842 is that a lessee should recognize the
assets and liabilities that arise from leases. ASU 2016-02 is
effective for public companies for annual reporting periods
beginning after December 15, 2018, and interim periods within those
fiscal years. The guidance may be adopted prospectively or
retrospectively and early adoption is permitted. The Company is
currently assessing the impact the adoption of ASU 2016-02 will
have on its consolidated financial statements.
Note 3 - Property and Equipment
Property
and equipment consists of the following:
|
|
Useful
Life
|
December
31,
2016
|
December
31,
2015
|
|
Furniture and
fixtures
|
5
years
|
$65,987
|
$17,100
|
|
Computers and
software
|
3
years
|
19,928
|
16,275
|
|
Leasehold
improvements
|
5
years
|
32,593
|
--
|
|
|
118,508
|
33,375
|
|
|
Less accumulated
depreciation and amortization
|
|
(20,918)
|
(9,651)
|
|
|
|
|
|
|
Total
|
|
$97,590
|
$23,724
|
Depreciation
and amortization expense, excluding depreciation and amortization
from Streamline, Inc., amounted to $11,267 for the year ended
December 31, 2016 and $6,498 for the year ended December 31,
2015.
Note 4 – Patent Assignment and Contribution and
Agreements
On
February 1, 2013, the Company issued 750,108 shares of common stock
to Scott Haufe, M.D. (“Dr. Haufe”) pursuant to the
terms of a Contribution and Royalty Agreement dated January 31,
2013 between the Company and Dr. Haufe. This agreement provides for
the Company to pay Dr. Haufe royalties equal to 1% of revenues
earned from sales of any and all products derived from the use of
the DenerveX technology. Royalties are payable to Dr. Haufe within
30 days after the close of each calendar quarter based on actual
cash collected from sales of applicable products. The royalty
period expires on September 6, 2030. No royalties have been paid as
of December 31, 2016.
The
Company executed a co-development agreement for the DenerveX
technology with royalty provisions with James R. Andrews, M.D., as
more fully described in Note 7.
Note 5 – Acquisitions
On
March 25, 2015, the Company acquired Streamline Inc. pursuant to an
Agreement and Plan of Merger dated March 9, 2015. As a result of
this transaction, Streamline, Inc. became a wholly owned subsidiary
of the Company. Under the terms of the Agreement and Plan of
Merger, the Company paid $1,397,466 cash and authorized the
issuance of 1,875,000 shares of common stock, of which 200,000
shares were held in escrow until September 25, 2016 to satisfy
indemnification obligations under the agreement. The Company
incurred approximately $344,000 in acquisition related legal
fees.
On
September 25, 2016, the escrow was released for the full 200,000
shares. As of December 31, 2016, the Company had received
transmittal letters for all of the 1,875,000 shares of MedoveX
common stock. The terms of the Merger Agreement also required a
commitment by MedoveX to supply a minimum of $750,000 in working
capital to the Streamline subsidiary, to fund the operations and
product development of Streamline as needed. The $750,000 working
capital funding commitment was fully satisfied upon consummation of
the divestiture. See Note 10.
The
closing price of the common stock on March 25, 2015 was $4.50 per
share. Based on this price and cash consideration, the acquisition
of Streamline was valued at $9,834,966.
The
following is a summary of the allocation of the fair value of
Streamline.
|
Assets
acquired
|
|
|
Cash
|
$245,174
|
|
Inventory
|
1,878
|
|
Other
assets
|
165
|
|
Developed
technology
|
3,000,000
|
|
Trademark
|
700,000
|
|
Goodwill
|
6,455,645
|
|
|
|
|
Total assets
acquired
|
10,402,862
|
|
|
|
|
Liabilities
assumed
|
|
|
Accounts
payable
|
301,940
|
|
Accrued
liabilities
|
6,018
|
|
Notes
payable
|
259,938
|
|
|
|
|
Total
|
567,896
|
|
|
|
|
Net assets
acquired
|
$9,834,966
|
Note 6 - Equity Transactions
Private Placements
In
April 2016, the Company entered into a unit purchase agreement with
selected accredited investors whereby the Company had the right to
sell in a private placement a minimum of $1,000,000 and up to a
maximum of $2,000,000 of units. Each unit had a purchase price of
$100,000 and consisted of (i) 86,957 shares of the Company’s
common stock, par value $0.001 per share at a purchase price of
$1.15 per share, and (ii) a warrant to purchase 43,478 shares of
common stock. Each warrant has an exercise price of $1.30 per share
and is exercisable six months following the date of issuance for a
period of five (5) years from the date of issuance.
The
offering resulted in gross proceeds of $1,398,034 and resulted in
the issuance of an aggregate of 1,211,703 shares of common stock
and warrants to purchase 605,829 shares. The Placement Agent
collected an aggregate of approximately $222,000 in total fees
related to the offering and was also issued warrants on the same
terms to purchase an aggregate of 181,992 shares.
On
August 5, 2016, the Company entered into a Unit Purchase Agreement
with selected accredited investors whereby the Company had the
right to sell in a private placement a minimum of $250,000 and up
to a maximum of $1,300,000 of units. Each Unit had a purchase price
of $250,000 and consisted of (i) 208,333 shares of the
Company’s common stock, par value $0.001 per share at a
purchase price of $1.20 per share, and (ii) a warrant to purchase
104,167 shares of Common Stock. Each Warrant has an initial
exercise price of $1.52 per share, and is initially exercisable six
months following the date of issuance for a period of five (5)
years from the date of issuance.
The
offering resulted in gross proceeds of $1,300,000 and resulted in
the issuance of an aggregate of 1,083,333 shares of common stock
and warrants to purchase 541,669 shares.
Stock-Based Compensation
During
2016, we issued 180,500 shares of common stock under consulting
agreements for investor relation services. These shares were valued
based upon the closing price of our stock at the respective dates,
ranging from $1.28 to $1.50 per share and valued at $249,300.
Additionally, in conjunction with the share based payments, we also
paid $535,000 under the consulting agreements for the investor
relations services.
On
November 10, 2016, the Board authorized the issuance of shares of
common stock, priced at the average closing price of the
Company’s stock during 2016, to all Board members, both
current and former, in an amount equivalent to $240,000,
representing their accrued but unpaid directors’ fees as of
December 31, 2016. In January 2017, the Company issued 173,911
shares at $1.38 per share to fulfill this obligation.
Stock-Based Compensation Plan
2013 Stock Option Incentive Plan
On
October 14, 2013, shareholders approved the MedoveX Corp. 2013
Stock Incentive Plan (the “Plan”). Under the Plan, the
Company may grant incentive stock options to employees and
non-statutory stock options to employees, consultants, and
directors for up to 1,150,000 shares of common stock. On November
10, 2016, shareholders approved a 500,000 share increase in the
number of shares available for issuance under the Plan, from
1,150,000 to 1,650,000 shares.
The
stock options are exercisable at a price equal to the market value
on the date of the grant. The Plan gives full authority for
granting options, determining the type of options granted, and
determining the fair market value of the options to the Plan
Administrator.
The
Company has the right, but not obligation, to repurchase any shares
obtained through exercise of an option from terminated Plan
participants. The Company has 90 days from the date of termination
to exercise it’s repurchase right. The Company must pay the
Fair Market Value (“FMV”) of the shares if the
termination was for any reason other than for cause, or the option
price (if less than FMV of the shares) if the termination is for
cause. The FMV is determined by the Plan Administrator on the date
of termination.
During
2016, the Company granted options to purchase 294,900 shares of
common stock to certain employees and consultants. 274,900 of the
options vest as follows: 25% on the date of grant and 25% on each
of the next three anniversaries. The options granted were at the
market value of the common stock on the date of the grant. The
remaining 20,000 options vest as follows: 50% on the date of grant
and 50% one year after the grant date and are exercisable at $1.20.
The market value of these remaining common stock on the date of
grant was $1.28.
During
2016, the Company granted options to purchase 450,000 shares of
common stock to certain directors that vest as follows: 50% on the
date of grant and 50% one year after the grant date. 300,000 of the
options are exercisable at $1.20. The market value of these common
stock on the date of grant was $1.28. The remaining 150,000 options
are exercisable at $1.58 which was the fair value of the common
stock on the grant date.
We utilize the Black-Scholes valuation method to recognize
compensation expense over the vesting period. The expected life
represents the period that our stock-based compensation awards are
expected to be outstanding.
We use a simplified method provided in Securities and Exchange
Commission release, Staff Accounting Bulletin No.
110, which averages an award's
weighted average vesting period and contractual term for "plain
vanilla" share options. The expected volatility was estimated by
analyzing the historic volatility of similar public biotech
companies in an early stage of development.
No dividend payouts were assumed as we have not historically paid,
and do not anticipate paying, dividends in the foreseeable future.
The risk-free rate of return reflects the weighted average interest
rate offered for US treasury rates over the expected term of the
options.
|
Grant
date
|
January
6
|
August
17
|
November
10
|
|
Fair
value of options granted during 2016
|
$0.67
|
$0.91
|
$1.06
|
|
Exercise
price
|
$0.95
|
$1.20
|
$1.58
|
|
Number
of options
|
214,900
|
320,000
|
210,000
|
|
Expected
term (years)
|
6
|
6
|
6
|
|
Risk-free
interest rate
|
1.82%
|
1.28%
|
1.74%
|
|
Volatility
|
83%
|
75.55%
|
76.67%
|
|
Dividend
yield
|
None
|
None
|
None
|
For the
years ended December 31, 2016 and 2015, the Company recognized
approximately $777,000 and $254,000, respectively, as compensation
expense with respect to stock options.
A
summary of the Company’s share-based compensation activity
and related information is as follows:
|
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Term
(Years)
|
|
Outstanding at
12/31/2014
|
60,000
|
$2.50
|
8.8
|
|
|
|
|
|
|
Granted
|
320,000
|
$4.22
|
9.3
|
|
Exercised
|
--
|
--
|
--
|
|
Cancelled
|
--
|
--
|
--
|
|
Outstanding at
12/31/2015
|
380,000
|
$3.95
|
9.1
|
|
|
|
|
|
|
Granted
|
744,900
|
$1.24
|
9.52
|
|
Exercised
|
--
|
--
|
--
|
|
Cancelled
|
--
|
--
|
--
|
|
Outstanding at
12/31/2016
|
1,124,900
|
$2.15
|
9.0
|
|
Exercisable at
12/31/2016
|
523,725
|
$2.31
|
9.0
|
|
|
|
|
|
As of
December 31, 2016, there were 601,175 shares of time-based,
non-vested stock. Unrecognized compensation cost amounts to
approximately $596,000 as of December 31, 2016 and will be
recognized as an expense on a straight-line basis over a remaining
weighted average service period of 1.7 years. The fair value of
vested share-based compensation at December 31, 2016 and 2015 was
approximately $697,000 and $138,000, respectively.
Note 7 – Commitments
Operating Leases
Office Space
The
Company pays TAG Aviation, a company owned by its Chief Executive
Officer, Jarrett Gorlin (“Mr. Gorlin”) for office space
that is currently being used as the Company’s principal
business location plus utilities (see “Related Party
Transactions”) on a monthly basis. Payments under this
arrangement are $2,147 per month. Rent expense and utilities cost
paid to TAG Aviation amounted to approximately $30,400 and $28,400
for the years ended December 31, 2016 and 2015,
respectively.
On July
8, 2015, the Company entered into a 3 year lease agreement for a
commercial building which commenced on August 1, 2015.
Total
lease expense for the year ended December 31, 2016 and 2015 was
approximately $34,000 and $14,000, respectively, related to this
lease. Future minimum lease payments under this rental agreement
are approximately as follows:
For the year ended:
|
December 31,
2017
|
35,000
|
|
December 31,
2018
|
21,000
|
|
|
$56,000
|
Equipment
The
Company entered into a non-cancelable 36 month operating lease
agreement for equipment on April 22, 2015. The agreement is
renewable at the end of the term and requires the Company to
maintain comprehensive liability insurance.
Total
lease expense for the year ended December 31, 2016 was
approximately $2,600. Future minimum lease payments under this
operating lease agreement are approximately as
follows:
For the year ended:
|
December 31,
2017
|
2,600
|
|
December 31,
2018
|
800
|
|
|
$3,400
|
Purchase Orders
For the
years ended December 31, 2016 and 2015, the Company had
approximately $234,000 and $484,000, respectively, in outstanding
purchase order obligations related to the research and development
build of the DenerveX device to Nortech and Bovie Medical
Corporation (“Bovie”).
Consulting Agreements
The
Company has a consulting agreement with one its’ founding
stockholders to provide business development consulting services
through January 2017 at a fee of $5,000 per month. The agreement
was subsequently extended and increased to $10,000 per month
through January 18, 2018. See Note 16.
The
Company has a consulting agreement with a sales consultant to
provide sales, marketing and distribution consulting services over
a one-year period for €10,000 per month through August 1,
2017.
As
described in Note 6, on September 15, 2016, the Company entered
into a six month business advisory and investor relations
consulting agreement at a fee of $400,000 for the purpose of
creating market awareness of the Company.
Employment Agreements
The
Company entered into Employment Agreements with each of its five
executive officers for aggregate compensation amounting to
approximately $984,000 per annum, plus customary benefits. These
employment agreements, having commenced at separate dates, are for
terms of three years which began in October 2013 and ends in
January 2018.
The
agreements provide for the Company to pay six months of severance
in the event of (i) the Company’s termination of an
executive’s employment without cause, (ii) the resignation by
an executive for good reason, (iii) a change in control of the
Company, (iv) a material reduction in an executive’s duties,
or (v) a requirement that an executive move their primary work
location more than 50 miles.
Co-Development Agreement
In
September 2013, the Company executed a Co-Development Agreement
with James R. Andrews, M.D. (“Dr. Andrews”) to further
evaluate, test and advise on the development of products
incorporating the use of the patented technology. In exchange for
these services the Company is obligated to pay Dr. Andrews a
royalty of 2% of revenues earned from applicable product sales over
a period of 5 years. If Dr. Andrews is listed as inventor of any
Improvement Patent on the DenerveX device during the 5 year term,
he would continue to receive a 1% royalty after the 2% royalty
expires for the duration of the effectiveness of the Improvement
Patent. No royalties have been paid to Dr. Andrews as of December
31, 2016.
Generator development agreement
The
Company is obligated to reimburse Bovie up to $295,000 for the
development of the Pro-40 electrocautery generator. For the year
ended December 31, 2016 and 2015, the Company paid approximately
$102,400 and $181,200, respectively, under this
agreement.
Note 8 – Short Term Liabilities
Finance Agreement
The
Company entered into a commercial insurance premium finance and
security agreement in December 2016. The agreement finances the
Company’s annual D&O insurance premium. Payments are due
in quarterly installments of approximately $23,000 and carry an
annual percentage interest rate of 4.9%.
The
Company had an outstanding premium balance of approximately $65,000
at December 31, 2016 related to the agreement.
Promissory Notes
In
conjunction with the consummation of the Streamline acquisition on
March 25, 2015, the Company assumed two promissory notes for
approximately $135,000 and $125,000 payable to the Bank of North
Dakota New Venture Capital Program and North Dakota Development
Fund, both outside non-related parties. Assumption of the
liabilities was not included as part of the asset purchase
agreement that was executed in December 2016. Thus, the Company
retained the promissory notes upon consummation of the
divestiture.
Payments
on both of the notes are due in aggregate monthly installments of
approximately $5,700 and carry an interest rate of 5%. Both of the
notes have a maturity date of August 1, 2019. The
promissory notes had outstanding balances of approximately $165,000
and $223,000 at December 31, 2016 and December 31, 2015,
respectively.
Expected
future payments related to the promissory notes as of December 31,
2016, are approximately as follows:
For the year
ended:
|
2017
|
61,000
|
|
2018
|
64,000
|
|
2019
|
45,000
|
|
|
$170,000
|
The
Company paid interest expense related to the promissory notes for
the year ended December 31, 2016 and 2015 in the amount of
approximately $10,000 and $8,000, respectively. The Company had
unpaid accrued interest in the amount of approximately $69,000 at
December 31, 2016 and 2015 related to the promissory
notes.
Convertible Debt
On
November 9, 2015, the Company issued a convertible promissory note,
(the “Convertible Note”) to Steve Gorlin, a director
and the father of Jarrett Gorlin, the Company’s CEO, for the
principal amount of up to $2,000,000. The loan principal was to be
advanced in two installments of $1,000,000 each, the first
installment being made upon execution of the promissory note and
the second installment to be made by March 1, 2016.
The
Convertible Note provided that the principal and accrued but unpaid
interest could be converted into common stock at $2 per share. The
outstanding principal was to earn interest at a rate of 5.5% per
annum and was to be paid quarterly. The Company also issued a 3
year warrant to Mr. Steve Gorlin to purchase 500,000 shares of
common stock at $2.20 per share (see Note 9).
On January 25, 2016, the Company entered into a modification
agreement (the “Modification Agreement”) with Mr. Steve
Gorlin. Mr. Gorlin agreed to immediately convert
the promissory note into an aggregate of 571,429 shares of its
Common Stock, eliminating the Company’s $1,000,000 debt
obligation and any accrued interest in exchange for amending the
conversion price of the promissory note from $2.00 per share to
$1.75 per share.
Additionally,
Mr. Gorlin also agreed to acquire 571,429 additional shares of
Common Stock at a price of $1.75 per share for a total purchase
price of $1,000,000 within two months from the date of the
agreement. The January 25, 2016 modification agreement also amended
the exercise price of the warrant issued to Mr. Gorlin on November
9, 2015 from $2.20 per share to $2.00 per share (see note
9).
On
February 16, 2016, the Company and Steve Gorlin entered into an
Amendment to the Modification Agreement in order to reduce the
amount of shares of Common Stock that Mr. Gorlin was to receive
upon the conversion of the $1,000,000 promissory note from 571,429
($1.75 per share) shares to 552,041 ($1.81 per share) shares. In
consideration for reducing the amount of shares of common stock
that he was to receive, the Company agreed to reduce the exercise
price of Steven Gorlin’s 500,000 share warrant from $2.00 per
share to $1.825 per share (see Note 9).
On
March 15, 2016, the Board of Directors approved a second amendment
to the Modification Agreement. The date for making the second
installment of $1,000,000 was extended to November 1,
2016.
Additionally,
the language in the Note was changed to clarify that the
consideration received by the Company on the first installment was
in the form of $970,000 cash and $30,000 in directors’ fees
due to Mr. Steve Gorlin. The $30,000 in directors’ fees was
recorded as a reduction in equity and is expensed as earned.
$10,000 of directors fees were earned in 2015 after issuance of the
note. For the year ended December 31, 2016, the remaining $20,000
of directors’ fees were earned by Mr. Gorlin so there was no
outstanding balance at December 31, 2016.
On
November 10, 2016, the Board of Directors approved a third
amendment to the Modification Agreement. The date for making the
second installment of $1,000,000 was extended to December 1,
2016.
On
December 1, 2016, the Board of Directors approved a fourth
amendment to the Modification Agreement. Pursuant to the fourth
amendment, Mr. Gorlin assigned a portion of the obligation to
purchase the additional 571,429 shares of the Company at $1.75 per
share.
The
obligation to purchase 142,857 of the additional shares was
assigned to an outside non-related party for a total purchase price
of $250,000.
Additionally,
the obligation to purchase 114,286 of the additional shares was
assigned to a related party that provides consulting services for
the Company for a total purchase price of $200,000. Mr. Gorlin
retained the obligation to purchase 314,286 of the additional
shares, for a total purchase price of $550,000.
In
exchange for entering into the fourth Amendment, Mr. Gorlin also
assigned a portion of the warrant for the right to purchase 112,500
of the 500,000 shares of common stock of the Company from the
warrants issued on November 9, 2015.
The
purchase of the additional shares of the Company by Mr. Gorlin and
the two outside parties was completed in December 2016. The Company
received an aggregate of $1,000,000 in exchange for the issuance of
an aggregate of 571,429 shares at a price of $1.75 per
share.
The
Company originally recorded both the convertible debt and the
accompanying warrant on a relative fair value basis of
approximately $715,000 and $285,000, respectively. The closing
price of the Company’s stock on the day prior to issuing the
convertible debt was $1.75 per share. See Note 9 for the inputs
used to value the warrant as of the respective issue date. Steve
Gorlin was also granted piggyback registration rights with respect
to the shares of common stock issuable upon conversion of the Note
and upon exercise of the warrants.
Short Term Note Payable
On
September 13, 2016, the Board of Directors approved a resolution
authorizing the Company to obtain a secured nine-month term loan
for the principal amount of $1,150,000. In connection therewith, on
September 16, 2016, the Company entered into a Unit Purchase
Agreement with selected accredited investors whereby the Company
had the right to sell units in a private placement to secure the
loan.
Original Issuance Discount
The
principal face value of the loan is $1,150,000 and was issued with
an original issuance discount of $150,000 which resulted in
aggregate proceeds of $1,000,000. The loan has a default interest
rate of 15% per year and a maturity date of June 16,
2017.
The
Company is required to repay the principal amount of the loan
following the Company’s receipt of any financing in aggregate
of
$1,650,000
in the next six months. Additionally, investors have the option to
convert the $150,000 original issuance discount, which will accrete
over the life of the loan, and principal into future financing or
be paid back in cash. The note is also presented net of the
issuance costs of $5,000 which will accrete over the life of the
note, based on the effective interest method. Accretion expense for
the year ended December 31, 2016 was approximately
$111,000.
Warrants
Warrants
to purchase an aggregate of 200,000 shares of common stock were
issued as part of the short term note agreement with a strike price
of $1.625 and with an exercise date six months from the closing.
The warrants must be exercised within three years from the date of
issuance. The Company recorded the proceeds from the loan and the
accompanying warrants on a relative fair value basis of
approximately $864,000 and $136,000, respectively. The carrying
amount has also been reduced by $5,000 related to debt issuance
costs. The closing price of the Company’s stock on the day
prior to entering into the agreement was $1.50 per share. See Note
9 for the inputs used to value the warrant as of the respective
issue date.
The
balance of the loan at December 31, 2016 was approximately
$970,000, net of discount, and is being accreted to its $1,150,000
face amount over the 9 month period the loan will be
outstanding.
Note 9 – Common Stock Warrants
Fair value measurement valuation techniques, to the extent
possible, should maximize the use of observable inputs and minimize
the use of unobservable inputs. The Company’s fair value
measurements of all warrants are designated as Level 1 since all of
the significant inputs are observable and quoted prices were
available for the four comparative companies in an active
market.
A
summary of the Company’s warrant issuance activity and
related information as of December 31, 2016 and 2015 is as
follows:
|
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining Contractual
Life
|
|
Outstanding at
12/31/2014
|
1,474,783
|
$3.00
|
4.9
|
|
|
|
|
|
|
Issued
|
500,000
|
$1.825
|
5.0
|
|
Exercised
|
--
|
--
|
--
|
|
Expired
|
--
|
--
|
--
|
|
Outstanding at
12/31/2015
|
1,974,783
|
$2.86
|
4.0
|
|
|
|
|
|
|
Issued
|
1,530,064
|
$1.34
|
4.2
|
|
Exercised
|
--
|
--
|
--
|
|
Expired
|
--
|
--
|
--
|
|
Outstanding at
12/31/2016
|
3,504,847
|
$1.85
|
3.9
|
|
Exercisable at
12/31/2016
|
3,504,847
|
$1.85
|
3.9
|
The
fair value of all warrants issued are determined by using the
Black-Scholes-Merton valuation technique and were assigned based on
the relative fair value of both the common stock and the warrants
issued.
The inputs used in the Black-Scholes-Merton valuation technique to
value each of the warrants issued in 2016 and 2015 as of their
respective issue dates are as follows:
|
Event
Description
|
Date
|
MDVX
Stock Price
|
Exercise Price of Warrant
|
Grant Date Fair Value
|
Life
of Warrant
|
Risk Free Rate of Return (%)
|
Annualized Volatility Rate (%)
|
|
Convertible
Note
|
11/9/15
|
$1.71
|
$2.20
|
$2.12
|
3
years
|
1.27
|
81.00
|
|
Modification
Agreement
|
1/25/16
|
$1.32
|
$2.00
|
$1.93
|
3
years
|
1.11
|
99.66
|
|
Modification
Agreement
|
2/16/16
|
$1.43
|
$1.825
|
$1.82
|
3
years
|
0.93
|
100.34
|
|
Private
Placement
|
4/19/16
|
$1.13
|
$1.30
|
$1.43
|
5
years
|
1.26
|
75.54
|
|
Private
Placement
|
4/29/16
|
$1.28
|
$1.30
|
$1.43
|
5
years
|
1.28
|
75.34
|
|
Private
Placement
|
8/5/16
|
$1.35
|
$1.52
|
$1.44
|
5
years
|
1.13
|
75.56
|
|
Private
Placement
|
8/16/16
|
$1.34
|
$1.52
|
$1.43
|
5
years
|
1.16
|
75.56
|
|
Short-Term
Loan
|
9/16/16
|
$1.58
|
$1.625
|
$1.58
|
3
years
|
0.91
|
75.75
|
The methods described above may produce a fair value calculation
that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, the Company believes its valuation
methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting
date.
Note 10 – Discontinued operations
In May
2016, the Board of Directors authorized management to seek buyers
for Streamline, the Company’s wholly owned subsidiary
acquired in March 2015. In December 2016, the Company entered into
a definitive asset purchase agreement pursuant to which the Company
agreed to sell all Streamline related assets. The Closing occurred
immediately following the execution of the asset purchase agreement
on December 7, 2016.
The
Company sought additional funds to complete the development and
launch of the Company’s primary product, the DenerveX device,
and the decision to sell the business unit helped raise necessary
funds to fund continuing operations of the Company in a
non-dilutive manner to existing shareholders.
The
transaction resulted in the immediate receipt of $500,000 in cash,
and a $150,000 note receivable due to the Company on or before
January 1, 2018.
The
terms of the agreement also required that for each of the calendar
years ending December 31, 2018 and December 31, 2019, a Contingent
Payment in cash equal to five percent (5%) of the total net sales
received by the acquiring party from the sale of “IV
suspension system” products in excess of 100 units during
each Contingent Period. Each such Contingent Payment, of which no
value was recorded at December 31, 2016, is payable to the Company
by the acquiring party by no later than March 31st
of the
subsequent year; provided, however, that the total aggregate amount
of all Contingent Payments owed by the acquiring party to the
Company for all Contingent Periods will not exceed
$850,000.
The
results of discontinued operations for the current year ended
December 31, 2016 includes a disposal loss of approximately
$853,000 that was recorded upon consummation of the Streamline
divestiture.
The
carrying amounts of the major classes of assets of the discontinued
operations as of December 31, 2015 were as follows:
|
|
December 31,
2015
|
|
Current Assets
|
|
|
Inventory
|
$1,878
|
|
Accounts
receivable
|
33,045
|
|
Prepaid
expenses
|
586
|
|
Total Current Assets Held for Sale
|
35,509
|
|
Property and Equipment, Net
|
1,114
|
|
Trademark, net
|
595,000
|
|
Developed Technology, net
|
2,678,571
|
|
Total Assets Held for Sale
|
$3,310,194
|
The
results of the discontinued operations, which represents
Streamline’s IV Suspension
System (“ISS”), are as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
2015
|
|
Revenues
|
$--
|
$33,045
|
|
Cost of Goods Sold
|
--
|
25,383
|
|
Gross Profit
|
--
|
7,662
|
|
|
|
|
|
Operating Expenses
|
|
|
|
General
and administrative
|
218,444
|
439,257
|
|
Sales
& Marketing
|
--
|
664
|
|
Research
and development
|
59,418
|
72,357
|
|
Depreciation
and amortization
|
189,652
|
426,600
|
|
Disposal
Loss
|
852,864
|
--
|
|
Impairment
loss
|
1,584,048
|
--
|
|
Total Operating Expenses
|
2,904,426
|
938,878
|
|
Operating Loss
|
(2,904,426)
|
(931,216)
|
|
Other Expenses
|
|
|
|
Interest
expense
|
9,983
|
8,040
|
|
Total Other Expenses
|
9,983
|
8,040
|
|
Net Loss
|
$(2,914,409)
|
$(939,256)
|
Cash
flows from discontinued operations are as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
2015
|
|
Cash Flows used in Operating Activities
|
$(452,592)
|
$(1,272,992)
|
|
Cash Flows used in Investing Activities
|
1,286
|
(1,286)
|
|
Cash Flows used in Financing Activities
|
--
|
(70,109)
|
|
Net Cash Used in Discontinued Operations
|
$(451,306)
|
$(1,344,387)
|
Amortization
expense related to the discontinued intangible assets for the year
ended December 31, 2016 and 2015 was approximately $190,000 and
$426,000, respectively. The recognition of amortization expense
related to the discontinued assets ceased in May 2016 when the
Board of Directors authorized Management to seek buyers for
Streamline.
Depreciation
expense amounted to $129 and $171, respectively, for the year ended
December 31, 2016 and 2015.
Note 11 – Impairment of intangible assets And
Goodwill
As discussed in Note 2, the Company reviews long-lived assets for
impairment whenever events or changes in circumstances
or occurrence of events
suggest impairment exists in
accordance with FASB ASC 360.
The Board of Directors decision to seek buyers for Streamline, as
discussed in Note 10, was made after management evaluated
and determined potential impairment indicators existed relating to
poor operating performance as sales are less than previously
anticipated. The impact of the operating losses incurred from the
Streamline portion of the business contributes significantly to the
Company’s operations and financial results. As such, the
Company separated the asset groups accordingly between the
amortizable intangible assets in developed technology and
trademark, and the non-amortizable intangible asset in goodwill,
and completed an impairment analysis using a two-step process as
described in Note 2.
As a
result of the impairment analysis, the Company determined the
carrying value of the developed technology exceeded the calculated
fair value. Consequently, the Company recognized a write-down of
approximately $1,035,714 related to the developed technology in the
quarter ended June 30, 2016.
As a
result of the impairment analysis, the Company also determined the
carrying value of the trademark and goodwill exceeded the
calculated fair value. Consequently, impairment losses of
$6,455,645 and $548,334, respectively, were recognized in the
quarter ended June 30, 2016 related to goodwill and the
trademark.
Note 12 - Income Taxes
The
Company’s policy is to record interest and penalties on
uncertain tax positions as a component of income tax expense. As of
December 31, 2016, the Company has not incurred any interest or
penalties relating to uncertain tax positions.
The
Company’s evaluation was performed for the tax years ending
December 31, 2015, 2014 and 2013, which remain subject to
examination by major tax jurisdictions as of December 31,
2016. The Company does not have any tax years that are no
longer subject to U.S. federal, state, and local, or non-US income
tax examinations.
For the
years ended December 31, 2016 and 2015, the Company has incurred
net losses and, therefore, has no current income tax liability and
recognized no income tax expense. The net deferred tax
asset generated by these losses, which principally consist of
start-up costs deferred for income tax purposes, is fully reserved
as of December 31, 2016, since it is currently more likely than not
that the benefit will not be realized in future
periods.
A
reconciliation of the statutory federal income tax expense
(benefit) to the effective tax is as follows:
|
|
2016
|
2015
|
|
Statutory rate -
federal
|
34.0%
|
34.0%
|
|
State taxes, net of
federal benefit
|
4.0
|
4.0
|
|
|
|
|
|
Income tax
benefit
|
38.0%
|
38.0%
|
|
Less valuation
allowance
|
(38.0)
|
(38.0)
|
|
|
|
|
|
Total
|
0.0%
|
0.0%
|
Our
financial statements contain certain deferred tax assets which have
arisen primarily as a result of tax benefits associated with the
loss before income taxes incurred, as well as net deferred income
tax assets resulting from other temporary differences related to
certain reserves and differences between book and tax depreciation
and amortization. We record a valuation allowance against our net
deferred tax assets when we determine that based on the weight of
available evidence, it is more likely than not that our net
deferred tax assets will not be realized.
In our
evaluation of the weight of available evidence, we considered
recent reported losses as negative evidence which carried
substantial weight. Therefore, we considered evidence related to
the four sources of taxable income, to determine whether such
positive evidence outweighed the negative evidence associated with
the losses incurred. The positive evidence considered
included:
|
●
|
taxable
income in prior carryback years, if carryback is permitted under
the tax law;
|
|
●
|
future
reversals of existing taxable temporary differences;
|
|
●
|
tax
planning strategies; and
|
|
●
|
future
taxable income exclusive of reversing temporary differences and
carryforwards.
|
During
fiscal 2016 and 2015, we weighed all available positive and
negative evidence and concluded the weight of the negative evidence
of a cumulative loss continued to outweigh the positive
evidence. Based on the conclusions reached, we
maintained a full valuation allowance during 2016 and
2015.
Deferred
tax assets and liabilities consist of the following at December
31:
|
|
2016
|
2015
|
|
Deferred
Tax Assets:
|
|
|
|
Start-up
costs
|
$5,738,469
|
$3,528,944
|
|
Share-based
compensation
|
203,761
|
57,673
|
|
Total
Deferred Tax Assets
|
5,942,230
|
3,586,617
|
|
Valuation
Allowance
|
(5,942,230)
|
(3,586,617)
|
|
Net
Deferred Tax Asset
|
$--
|
$--
|
The
Company is required to file federal income tax returns and state
income tax returns in the states of Florida, Georgia and Minnesota.
There are no uncertain tax positions at December 31, 2016. The
Company has not undergone any tax examinations since inception and
is therefore not subject to examination by any applicable tax
authorities.
Note 13 - Related-Party Transactions
Royalty Agreement
As
further described in Note 4, the Company has a Contribution and
Royalty Agreement with Dr. Haufe. No royalties have been paid as of
December 31, 2016.
Co-Development Agreement
As
further described in Note 7, the Company has a Co-Development
Agreement with Dr. Andrews. No royalties have been paid as of
December 31, 2016.
Aviation Expense
Periodically
the Company may charter general aviation aircraft from TAG Aviation
LLC (“TAG”), a company owned by Mr. Jarrett Gorlin.
The Company believes that such
aircraft charter is on terms no less favorable then it would
receive from a third party. General aviation expenses paid
to TAG was approximately $26,000 for the years ended December 31,
2016 and 2015.
Operating Lease
As
described in Note 7, the Company pays TAG Aviation LLC,
(“TAG”), a company owned by Mr. Gorlin, for month to
month rental of office space at Dekalb-Peachtree Airport in Atlanta
Georgia plus cost of utilities. Rent payments under this
arrangement were $1,800 per month through August 31, 2016.
Effective September 1, 2016, rent payments under this arrangement
increased to $2,000 per month.
Rent
expense and utilities cost paid to TAG Aviation amounted to
approximately $30,400 and $28,400, respectively, for the years
ended December 31, 2016 and 2015.
Consulting Expense
As
described in Note 7, the Company paid $55,000 and $420,000,
respectively, for the year ended December 31, 2016 and 2015 to a
founding stockholder for business advisory services.
Convertible Debt
As more
fully described in Note 8, on November 9, 2015, the Company issued
a convertible promissory note to Steve Gorlin, a related party, for
the principal amount of up to $2,000,000.
Note 14 - Research and Development
Devicix Prototype Manufacturing Agreement
In
November 2013, the Company accepted a proposal from Devicix, a
Minneapolis Minnesota based FDA registered contract medical device
designer and developer, to develop a commercially viable prototype
of its product that could be used to receive regulatory approval
from the FDA and other international agencies for use on humans to
relieve pain associated with Facet Joint Syndrome. Through December 31, 2016, we have paid
approximately $1,547,000 to Devicix.
The
development work commenced in December 2013. The total estimated
cost of this work was initially established at $960,000; however,
the terms of the proposal allow either the Company or the
manufacturer to cancel the development work with 10 days’
notice.
During
2016, the Company incurred approximately $481,000 of expense under
this agreement, with approximately $63,000 of the amount in
payables at December 31, 2016. During 2015, the Company incurred
approximately $399,000 in expenses under the agreement, of which
approximately $22,000 was included in accounts payable at December
31, 2015.
DenerveX Generator Manufacturing Agreement
The
DenerveX device requires a custom electrocautery generator for
power. As described in Note 8, in November 2014, the Company
contracted with Bovie to customize one of their existing
electrocautery generators for use with DenerveX Device, and then
manufacture that unit on a commercial basis once regulatory
approval for the DenerveX was obtained.
The
Bovie agreement requires a base $295,000 development fee to
customize the unit, plus additional amounts if further
customization is necessary beyond predetermined estimates.
Through December 31, 2016, we have
paid approximately $389,000 to Bovie.
Nortech Manufacturing Agreement
In
November 2014, we selected Nortech Systems Inc.
(“Nortech”), a Minneapolis, Minnesota based FDA
registered contract manufacturer, to produce 315 DenerveX devices
from the prototype supplied by Devicix for use in final development
and clinical trials. The agreement with Nortech includes agreed
upon per unit prices for delivery of the devices.
Actual
work on development of the final units began in November 2014.
During 2016, the Company incurred approximately $455,000 of expense
under this agreement, with approximately $61,000 of the amount in
payables at December 31, 2016. From inception through December 31, 2016, we have paid
approximately $744,000 to Nortech.
For
2015, the Company incurred approximately $273,000 in expenses under
the agreement, of which approximately $52,000 was included in
accounts payable at December 31, 2015.
Note 15 – Liquidity, Going Concern and Management’s
Plans
The
Company incurred net losses of approximately $16,227,000 and
$6,523,000 for the years ended December 31, 2016 and 2015,
respectively. The Company will continue to incur losses until such
time as it can bring a sufficient number of approved products to
market and sell them with margins sufficient to offset expenses.
To
date, the Company’s sole source of funds has been from the
issuance of debt and equity.
As
discussed in Note 8, the Company issued a promissory note for
$2,000,000 of convertible debt on November 9, 2015 to Steve Gorlin,
a director and father of Jarrett Gorlin, the Company’s CEO.
The Company received $970,000 in cash and the elimination of
$30,000 of directors’ fees upon execution of the agreement.
The second installment of $1,000,000 was received in December
2016.
In
February 2017, the Company obtained $2,618,060, net of fees, in a
private equity financing. The Company will require additional cash
in 2017 and is exploring other fundraising options for 2017.
However, if the Company is unable to raise sufficient financing in
2017, it could be required to undertake initiatives to conserve its
capital resources, including delaying or suspending the development
of its technology. These matters raise substantial doubt about the
Company’s ability to continue as a going
concern.
We may fail to comply with certain listing requirements of the
NASDAQ stock market exchange. In August 2016, the Company
was notified by NASDAQ of non-compliance with listing rule 5550(b),
which requires a minimum $2,500,000 stockholders’ equity for
continued listing on the NASDAQ capital market. The Company
reported stockholders’ equity of $1,311,796 in our quarterly
report on form 10-Q for the quarter ended June 30, 2016. The
decline in the Company’s stockholders’ equity was
largely a result of the recognition of an impairment loss recorded
in our form 10-Q for the quarter ended June 30, 2016 related to the
intangible assets of Streamline Inc., the Company’s wholly
owned subsidiary acquired in March 2015. The Company requested, and
was subsequently granted, an extension until February 27, 2017 to
evidence compliance with the stockholders’ equity
requirement. Subsequent to the period ended December 31, 2016, the
Company completed a capital raise and converted an outstanding note
payable into equity. The combination of these transactions enabled
the Company to regain compliance and evidence such by the extension
deadline. On March 1, 2017, NASDAQ
issued a determination that the Company had evidenced compliance
with the minimum stockholders’ equity requirement for
continued listing on the NASDAQ Capital Market.
NASDAQ will continue to monitor the Company’s ongoing
compliance with the stockholders’ equity requirement and, if
at the time of our next periodic report the Company does not
evidence compliance, we may be subject to delisting.
The
financial statements do not include any adjustments to the carrying
amounts of its assets or liabilities that might be necessary should
the Company be unable to continue as a going concern.
Note 16 - Subsequent Events
As
described in Note 6, In November 2016, the Board authorized the
issuance of shares of common stock to all Board members, both
current and former, in an amount equivalent to $240,000,
representing their accrued but unpaid directors’ fees as of
December 31, 2016. In January 2017, the Company issued an aggregate
of 173,911 shares at $1.38 per share, which was the average closing
price of the Company’s stock during 2016, to fulfill this
obligation.
On February 9, 2017, the Company entered into a Unit Purchase
Agreement with selected accredited investors whereby the Company
had the right to sell in a private placement a minimum of
$3,000,000 and up to a maximum of $5,000,000 of units. Each
Unit had a purchase price of $100,000 and consisted of (i) 96,154
shares of the Company’s common stock, par value $0.001 per
share at a purchase price of $1.04 per share, and (ii) a warrant to
purchase 48,077 shares of common stock. Each warrant has an initial
exercise price of $1.50 per share and is exercisable for a period
of five (5) years from the date of issuance.
The
offering resulted in gross proceeds of $3,022,000 and resulted in
the issuance of an aggregate of 1,631,730 shares of common stock,
12,740 shares of Series A convertible preferred stock and warrants
to purchase 2,005,761 shares of common stock. The placement agent
collected an aggregate of approximately $350,000 in total fees
related to the offering and warrants to purchase an aggregate of
405,577 shares of common stock at a price of $1.50 per
share.
Additionally, on February 9, 2017, the Company’s $1,150,000
short term note payable, as discussed in Note 8, was converted into
an aggregate of 165,865 shares of common stock and 9,399 shares of
series A convertible preferred stock, eliminating the
Company’s debt obligation. The debt was converted into shares
at $1.04 per share, which was the closing price of the
Company’s stock on February 9, 2017. The series A convertible
preferred stock is convertible into shares of common stock at $1.04
per share.
As consideration for converting the debt, the noteholders’
agreed to receive common stock in lieu of the 200,000 warrants to
purchase common stock that were issued in conjunction with the
short term loan, see Note 8.
As a result, the 200,000 warrants were cancelled, and the Company
issued to the noteholders’ an aggregate of 200,000 shares of
common stock. The closing price of the Company’s stock
on February 9, 2017, the day the shares were issued, was $1.04 per
share. The fair value of the common stock issued was approximately
$208,000. The Company is currently assessing the overall impact the
note conversion to stock will have on its consolidated financial
statements.
On
February 13, 2017, the consulting agreement with the related party
providing business consulting services, as discussed in Note 7, was
modified to increase the monthly compensation to $10,000 through
February 2018.
F-22
None.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide
reasonable assurance that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), is recorded, processed, summarized and
reported within the specified time periods and accumulated and
communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow
timely decisions regarding disclosure.
Our Chief Executive Officer (our “CEO”) and our
Principal Financial Officer (our "CFO"), evaluated the
effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange
Act) as of December 31, 2016, the end of our fiscal year. In
designing and evaluating disclosure controls and procedures, we
recognize that any disclosure controls and procedures, no matter
how well designed and operated, can only provide reasonable
assurance of achieving the desired control objective. As of
December 31, 2016, based on the evaluation of these disclosure
controls and procedures, and in light of the material weaknesses
found in our internal controls, our CEO and our CFO concluded that
our disclosure controls and procedures were not
effective.
In light of the conclusion that our internal controls over
financial reporting were ineffective as of December 31, 2016, we
have applied procedures and processes as necessary to ensure the
reliability of our financial reporting in regards to this annual
report. Accordingly, the Company believes, based on its knowledge,
that: (i) this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
they were made, not misleading with respect to the period covered
by this report; and (ii) the financial statements, and other
financial information included in this annual report, fairly
present in all material respects our financial condition, results
of operations and cash flows as of and for the periods presented in
this annual report.
Management's Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
effective internal control over financial reporting as defined in
Rule 13a-15(f) under the Exchange Act.
Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance
that a misstatement of our financial statements would be prevented
or detected. Under the supervision of our CEO and CFO, the Company
conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2016 using the
criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") (2013 Framework).
A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented
or detected on a timely basis. In our assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2016, we determined that control deficiencies existed
that constituted material weaknesses. Specifically, our
CFO currently performs most of the accounting related
functions.
In order to obtain proper segregation of accounting related duties,
additional personnel will need to be hired and duties allocated so
this material weakness can be corrected.
Subject to our ability to obtain additional financing and hire
additional employees, the Company expects to be able to design and
implement effective internal controls in the future that address
these material weaknesses.
Accordingly, we concluded that these material weaknesses resulted
in a reasonable possibility that a material misstatement of the
annual or interim financial statements will not be prevented or
detected on a timely basis by the Company's internal
controls.
As a result of the material weaknesses described above, our CEO and
CFO concluded that the Company did not maintain effective internal
control over financial reporting as of December 31, 2016 based on
criteria established in Internal Control— Integrated Framework
issued by COSO (2013
Framework).
This annual report does not include an attestation report of the
Company’s independent registered public accounting firm
regarding internal controls over financial reporting because this
is not required of the Company pursuant to Regulation S-K Item
308(b).
Changes in internal control over financial reporting
There have been no changes in the Company’s internal control
over financial reporting identified in connection with the
evaluation required by Rule 13a-15(f) or Rule 15d-15(e) promulgated
under the Exchange Act that occurred during the quarter ended
December 31, 2016, that have materially affected, or are reasonably
likely to materially affect, its internal control over financial
reporting.
None.
PART III
Our board of directors consists of ten (10)
members: Larry Papasan, Scott M. W. Haufe, M.D., James
R. Andrews, M.D., Jarrett Gorlin, Randal R. Betz, M.D., Major
General C.A. “Lou” Hennies (retired), Ron Lawson, Steve
Gorlin, John C. Thomas, Jr. and Jon Mogford. Steve Gorlin is the
father of Jarrett Gorlin, the Company’s Chief Executive
Officer.
Our current executive officers are Jarrett Gorlin, Chief Executive
Officer; Patrick Kullmann, President and Chief Operating Officer;
Jeffery Wright, Chief Financial Officer and Treasurer; Dennis Moon,
Executive Vice President; and Manfred Sablowski, Senior Vice
President of Sales & Marketing.
Directors and Executive Officers
The following table provides information as of March
31, 2017 as to each person who is, as of the filing
hereof, a director and/or executive officer of the
Company:
|
Name
|
Position(s)
|
Age
|
|
Steve Gorlin
|
Director, Co-Chairman of the Board
|
79
|
|
Major General C.A. “Lou” Hennies
|
Director (2) (3)
|
79
|
|
James R. Andrews, M.D.
|
Director
|
75
|
|
Scott M. W. Haufe, M.D.
|
Director (2)
|
51
|
|
Ron Lawson
|
Director (1) (3)
|
72
|
|
Randal R. Betz, M.D.
|
Director
|
65
|
|
John C. Thomas, Jr.
|
Director (1)
|
63
|
|
Jon Mogford
|
Director
|
59
|
|
Larry Papasan
|
Co-Chairman of the Board (1) (2) (3)
|
76
|
|
Jarrett Gorlin
|
Chief Executive Officer and Director
|
41
|
|
Patrick Kullmann
|
President and Chief Operating Officer
|
61
|
|
Charles Farrahar
|
Secretary
|
56
|
|
Jeffery Wright
|
Chief Financial Officer
|
34
|
|
Dennis Moon
|
Executive Vice President
|
41
|
|
Manfred Sablowski
|
Senior Vice President of Sales & Marketing
|
55
|
|
(1)
|
Member of audit committee
|
|
|
|
(2)
|
Member
of compensation committee
|
|
|
|
(3)
|
Member
of nominating and corporate governance committee
|
|
|
No Family Relationships
There is no family relationship between any director and executive
officer or among any directors or executive officers, except that
Steve Gorlin is Jarrett Gorlin’s father.
Business Experience and Background of Directors and Executive
Officers
BOARD OF DIRECTORS
Steve Gorlin
Over the past 40 years, Mr. Gorlin has founded several
biotechnology and pharmaceutical companies, including Hycor
Biomedical, Inc. (acquired by Agilent), Theragenics Corporation
(NYSE: TGX) , CytRx Corporation (NASDAQ: CYTR), Medicis
Pharmaceutical Corporation (sold to Valeant for approximately $2.6
billion), EntreMed, Inc. (NASDAQ: ENMD), MRI Interventions (MRIC),
DARA BioSciences, Inc. (NASDAQ: DARA), MiMedx (NASDAQ: MDXG), and
Medivation, Inc. (NASDAQ: MDVN). Mr. Gorlin served
for many years on the Business Advisory Council to the Johns
Hopkins School of Medicine and on The Johns Hopkins BioMedical
Engineering Advisory Board and as well as on the Board of the
Andrews Institute. He is presently a member of the Research
Institute Advisory Committee (RIAC) of Massachusetts General
Hospital. Mr. Gorlin founded a number of non-medical related
companies, including Perma-Fix, Inc., Pretty Good Privacy, Inc.
(sold to Network Associates), Judicial Correction Services, Inc.
(sold to Correctional Healthcare), and NTC China. He started The
Touch Foundation, a nonprofit organization for the blind and was a
principal financial contributor to the founding of Camp Kudzu for
diabetic children. He presently serves as Vice Chairman of
NantKwest, Inc. (NASDAQ: NK), CEO of NantibodyFc, Executive
Chairman of ViCapsys and Aperisys and serves on the Boards of
Catasys, Inc. (CATS) and NTC China, Inc.
Major General C.A. “Lou” Hennies
Mr. Hennies became a director of the Company in September
2013. Lou Hennies is a career soldier having served his
country in uniform for 41 years where he rose through the ranks
from enlisted status to that of a commissioned officer retiring in
2001 as a Major General.
He served a total of 37 months in combat in Republic of Vietnam as
a Company/Troop commander of four units and as a battalion/squadron
staff officer in the 4th Battalion, 23rd Infantry
Regiment, 25th Infantry Division, Cu Chi, and the
7th Squadron, 17th Air Cavalry in II Corps. Stateside he
commanded another Air Cavalry Troop followed by command of the
1st Squadron, 17th Air Cavalry in the 82nd Airborne
Division.
Selected for Brigadier General in 1986, he subsequently served as
the Army’s Deputy Chief of Public Affairs and Director of
Army Safety and Commanding General of the U.S Army Safety Center.
Initially retiring in 1991, he returned to service in 1995 as The
Adjutant General (TAG) of the Alabama Army and Air National Guard
and as a Cabinet Officer in the Administration of Governor Fob
James Jr.
He is a graduate of the Army’s Command and General Staff
College, The Army War College, and The Center for Creative
Leadership. A graduate of the University of Nebraska-Omaha with a
Bachelor Degree in Political Science, he also holds a Master of
Arts Degree in Journalism from the University of Nebraska-Lincoln
and a Master of Science in Public Administration from Shippensburg
University, Pennsylvania.
His awards and decorations include the Army Distinguished Medal
with Oak Leaf Cluster, the Silver Star, the Legion of Merit with
Oak Leaf Cluster, the Distinguished Flying Cross, the Soldiers
Medal, the Bronze Star with “V” device and 5 Oak Leaf
Clusters, the Purple Heart, the Air Medal with “V” (2)
and numeral 29, and the Alabama Distinguished Medal with Oak Leaf
Cluster. He is also a recipient of numerous foreign decorations
from the Republic of Vietnam and the Republic of
Korea.
He has been awarded the Army Aviation Order of Saint Michael
(Gold), the Infantry’s Order of Saint Maurice (Primicerius)
and the Army Aviation Hall of Fame Medallion and has been inducted
into the Infantry Officer Candidate Hall of Fame, the Army Aviation
Hall of Fame, and the Air Force Gathering of Eagles Class of
2000.
James R. Andrews, M.D.
James R. Andrews, M.D., has served as a Director of the Company
since September 2013. Dr. Andrews is recognized
throughout the world for his scientific and clinical research
contributions in knee, shoulder and elbow injuries, and his skill
as an orthopedic surgeon. Dr. Andrews is a founder and current
Medical Director for the American Sports Medicine Institute, a
non-profit organization dedicated to the prevention, education and
research in orthopaedic and sports medicine, as well as the Andrews
Research and Education Institute.
He is Clinical Professor of Orthopaedic Surgery at the University
of Alabama Birmingham Medical School, the University of Virginia
School of Medicine and the University of South Carolina Medical
School. He is Adjunct Professor in the Department of Orthopaedic
Surgery at the University of South Alabama and Clinical Professor
of Orthopaedics at Tulane University School of
Medicine.
He serves as Medical Director for Auburn University Intercollegiate
Athletics and Team Orthopaedic Surgeon; Senior Orthopaedic
Consultant at the University of Alabama; Orthopaedic Consultant for
the college athletic teams at Troy University, University of West
Alabama, Tuskegee University and Samford University. He serves on
the Tulane School of Medicine Board of Governors.
Dr. Andrews serves on the Medical and Safety Advisory Committee of
USA Baseball and on the Board of Little League Baseball,
Inc.
He has been a member of the Sports Medicine Committee of the
United States Olympic Committee and served on the NCAA Competitive
Safeguards in Medical Aspects of Sports Committee.
In the professional sports arena, Dr. Andrews is Senior Consultant
for the Washington Redskins Football team; Medical Director for the
Tampa Bay Rays Baseball team and Medical Director of the Ladies
Professional Golf Association.
Dr. Andrews serves as the National Medical Director for
Physiotherapy Associates, a national outpatient rehabilitation
provider. He serves on the board of directors of Fast
Health Corporation and Robins Morton Construction
Company. He has a Doctor of Laws Degree from Livingston
University and Doctor of Science Degrees from Troy and Louisiana
State Universities. He has recently written a
book, Any Given
Monday, about sports injuries
and how to prevent them for athletes, parents and
coaches.
Scott M. W. Haufe, M.D.
Scott M. W. Haufe, M.D., is a co-founder of Debride and has been a
Director of the Company since September 2013. Dr. Haufe
is a board certified physician in the fields of Anesthesiology,
Pain Medicine and Hospice /Palliative Medicine. He began his career
in the field of Anesthesiology where he served as Chief of
Anesthesiology and Pain Management with St. Lucie Anesthesia
Associates until 1998 while continuing his passion for
research.
Beginning in 1993, Dr. Haufe was first published and has since
authored numerous peer reviewed journal articles. Specifically, in
2005, he was recognized for his publication on the endoscopic
treatment for sacroilitis.
During 2006, he again authored the first paper on intradiscal stem
cell therapy in an attempt to rejuvenate the human disc and in 2010
he developed a minimally invasive procedure for resolving spinal
arthritis and subsequently published his findings in the Internal
Journal of Med Sci. Additionally, he is named on multiple patents
for treating pain related issues. Dr. Haufe earned his MD from the
University of South Florida College of Medicine in 1992 with honors
and completed his residency in Anesthesiology in 1996.
He currently practices in Destin, FL with Anesthesia, Inc., and is
affiliated with Sacred Heart Hospital, Destin Surgery Center, and
Healthmark Medical Center. He is a member of the American Society
of Anesthesiologists and the Florida Society of
Anesthesiologists.
Larry Papasan
Larry Papasan has served as Chairman of the board of directors
of the Company since September 2013. From July 1991
until his retirement in May 2002, Mr. Papasan served as President
of Smith & Nephew Orthopedics. He has been a Director and
Chairman of the board of directors of BioMimetic Therapeutics, Inc.
[NasdaqGM:BMTI] since August 2005. BioMimetic Therapeutics is
developing and commercializing bio-active recombinant
protein-device combination products for the healing of
musculoskeletal injuries and disease, including orthopedic,
periodontal, spine and sports injury applications.
Mr. Papasan has also served as a member of the board of directors
of Reaves Utility Income Fund [NasdaqCM:UTG], a closed-end
management investment company, since February 2003 and of Triumph
Bancshares, Inc. (a bank holding company) since April 2005. Mr.
Papasan also serves as a Director of SSR Engineering, Inc., AxioMed
Spine Corporation, and MiMedx Group, Inc.
John C. Thomas, Jr.
John Thomas has been a director of the Company since September
2013 and currently serves as the CFO/corporate secretary for
CorMatrix Cardiovascular, Inc., a privately held medical device
company which he joined in 2001. Over the past 24 years, Mr. Thomas
has served as the CFO of numerous startup companies and managed
their financing activities from the initial financing up to their
initial public offering. Some of these companies are still private
and some have become public entities. The companies in the health
care industry that have gone public while Mr. Thomas was the CFO
include CytRx Corporation (1986 – 1990), CytRx Biopool (1988
– 1991), Medicis Pharmaceutical Corporation (1988
–1991), EntreMed, Inc. (1991 – 1997), DARA BioSciences,
Inc. (1998 – 2009) and, MiMedx, Inc. (2006 – 2009). He
has also been the CFO of Surgi-Vision, Inc., a private research
company involved in MRI technology (1998 – 2010) that
subsequently changed its name to MRI Interventions and went
public. Mr. Thomas has also been the CFO of Motion
Reality, Inc., a privately-held company with proprietary software
that captures and analyzes motion data since 1991.
Presently, he serves as a member of the board of directors of
Novelion, formerly QLT, Inc., (NL), a publicly traded medical
company and NantKwest, Inc. a publicly traded company
(NK). Mr. Thomas is a certified public
accountant.
Ron Lawson
Mr. Lawson became a member of the board of directors on August 11,
2016 as a replacement for Thomas Hills. Mr. Lawson has over 35
years of experience in the orthopedic industry. In 1996,
he served as the Senior Vice President of Worldwide Sales and
Customer Service for Pfizer’s Orthopedic Division,
Howmedica. In 1998, upon Stryker Corporation’s
acquisition of Howmedica, Mr. Lawson was appointed to serve as
Senior Vice President of Sales, Marketing and Product
Development. In 2000, he was asked to lead the
revitalization of Stryker’s European business as its
President, EMEA and in 2001, was promoted to Group President,
International. From 2005 to 2007, Mr. Lawson
served as Stryker’s Group President for International and
Global Orthopedics where he was focused on strengthening the
Stryker Orthopedic business worldwide. Since 2009, Mr.
Lawson has been a member of the Lawson Group where he provides
strategic consulting services specializing in orthopedic medical
technology.
Mr. Lawson previously served as Chairman of the Board of IMDS,
Corporation and also served as a member of the Health Care Advisory
Board of Arsenal Capital Partners. He presently serves as a
Director of Plasmology 4, Corporation as well as a Director of DJO
Global, a Blackstone company.
Randal R. Betz, M.D.
Dr. Randal Betz has been a director of the Company since September
2013. Dr. Betz is an orthopedic spine surgeon with a private
practice in Princeton, New Jersey. Dr. Betz has held hospital
positions as Chief of Staff at Shriners Hospitals for Children and
Medical Director of Shriners’ Spinal Cord Injury Unit. Dr.
Betz is also a Professor of Orthopedic Surgery at Temple University
School of Medicine.
Dr. Betz earned a Medical Degree from Temple University School of
Medicine and was awarded the Alpha Omega Alpha honor. His
Internship in general surgery and Residency in Orthopedic Surgery
were at Temple University Hospital. Dr. Betz’s Fellowship in
Pediatric Orthopedics was at the Alfred I DuPont Institute. Since
his graduate work, Dr. Betz has had postdoctoral fellowship
experiences with ABC Traveling Fellowship, North American Traveling
Fellowship, SRS Traveling fellowship and the Berg-Sloat Traveling
Fellowship. Many national and international professional
societies count Dr. Betz as a member including: the Academic
Orthopedic Society, American Academy for Cerebral Palsy and
Developmental Medicine, American Academy of Orthopedic Surgeons,
American Orthopedic Association, American Paraplegia Society,
American Spinal Injury Association, British Scoliosis Society,
International Functional Electrical Stimulation Society, North
American Spine Society, Pediatric Orthopedic Society of North
America, Scoliosis Research Society, and Spinal Deformity Education
Group. For many of these organizations, Dr. Betz has fulfilled the
roles of board of director member, committee
member and President of the Scoliosis Research Society in
2005.
In addition to an active hospital practice in pediatric spinal
surgery, research is an important area of Dr. Betz’s career.
He is a recipient of many research grants and he has ten patents,
including several involving research in spinal deformities:
fusionless treatment of spinal deformities. Dr. Betz is author of
several medical texts. He has contributed 45 chapters to medical
books and written 280 peer-reviewed or invited articles. Worldwide,
Dr. Betz has delivered hundreds of paper presentations and invited
lectures. Dr. Betz is on the Editorial Board of the
Journal of
Pediatric Orthopedics and
a Reviewer for the Journal of Bone and Joint
Surgery, Journal of Pediatric
Orthopedics, and
Spine.
Jarrett Gorlin
Jarrett Gorlin has served as the Chief Executive Officer,
President, and a Director of the Company since November,
2013. Prior to joining the Company, Mr. Gorlin served as
the President of Judicial Correction Services, Inc.
(“JCS”), the largest provider of private probation
services in the country, which he co-founded in
2001.
In 2011, he successfully negotiated the sale of JCS to Correctional
Healthcare Companies (“CHC”), after which he has
continued to serve as the President of JCS. Under Mr.
Gorlin’s leadership, JCS made INC. Magazine’s list of
the Fastest Growing Companies in America in 2010, 2011, and
2012. Mr. Gorlin began his career by becoming the
youngest rated commercial helicopter pilot at the age of 16, and
becoming the chief pilot for the Fulton County Sheriff’s
Office in Atlanta, Georgia.
Mr. Gorlin has served as Captain and Commander at the Fulton County
Sheriff’s Office where he has worked from 1996 to
present. He continues to serve his community through law
enforcement as the commander of a reserve unit overseeing 90 deputy
sheriffs, who work in the courts, jail and warrant
divisions. Mr. Gorlin also serves as a political advisor and
consultant to many elected officials in the Atlanta area, including
the current sitting Sheriff of Fulton and Clayton County,
Georgia. He has also served on the campaign finance committee
for the former Governor of Georgia Roy Barnes.
Jon Mogford, PH.D.
Dr. Mogford became a member of the board of directors on November
10, 2016 as a replacement for John Blank, M.D. Dr. Mogford
serves as the Vice Chancellor for Research for The Texas A&M
University System and provides research and development leadership
to the System’s eleven universities and seven state agencies
encompassing 30,000 faculty and staff, >135,000 students, a
budget of more than $4 billion and research expenditures of more
than $945 million annually. Prior to joining the Texas A&M
University System in 2011, Dr. Mogford served as a program manager
and then Deputy Director of the Defense Sciences Office (DSO) of
the Defense Advanced Research Projects Agency (DARPA) in the U.S.
Department of Defense. As DSO Deputy Director, he provided
strategic planning and implementation of ≈$400M/year in
R&D in the physical, biomedical and material
sciences.
He
provided leadership to 20 Program Managers in the development and
management of office investments ranging from the fundamental
sciences to commercial transition efforts for both defense and
non-defense applications. Dr. Mogford led expansion of formal
working relationship between DARPA and the FDA to improve the
ability of each organization to meet mission goals, which was
highlighted as a DARPA-FDA-NIH partnership by the White House. He
is the recipient of the Secretary of Defense Medal for Outstanding
Public Service. His DARPA programs included scar-free regeneration
of wounds, metabolic control strategies for survival of severe
blood loss, biomarker-responsive biomaterials for drug delivery,
stem cell-based bioreactor production of universal donor red blood
cells, computational design of novel proteins, and active
hemostatic biomaterials for treatment of internal and external
wounds. He has authored or co-authored 29 peer-reviewed
publications.
Dr.
Mogford obtained his bachelor’s degree in Zoology from Texas
A&M University and doctorate in Medical Physiology from the
Texas A&M University Health Science Center, College Station,
Texas. His research in vascular physiology continued at the
University of Chicago as a Postdoctoral fellow from 1997-98. Dr.
Mogford transitioned his research focus to the field of wound
healing at Northwestern University, both as a Research Associate
and also as a Research Assistant Professor from 1998-2003. He then
served as a Life Sciences Consultant to DARPA on the
Revolutionizing Prosthetics program from 2003-2005.
NON-DIRECTOR EXECUTIVE OFFICERS
President and Chief Operating Officer – Patrick
Kullmann
Patrick Kullmann has been our President and Chief Operating Officer
since September, 2013. Mr. Kullmann has served in a
contract capacity as the Chief Executive Officer of Streamline,
Inc., a medical technology company since 2012. He is also the
Founder of CG3 Consulting, LLC, a global medical technology
advisory firm in Minneapolis, Boston and San Diego which he founded
in 2008. CG3 Consulting provides consulting services to clients in
the healthcare, scientific and technology industries. Prior to
establishing CG3 Consulting, Mr. Kullmann was a senior director at
Medtronic in their $2.3 billion Cardiovascular Division. He started
his career working as a surgical sales representative in the Texas
Medical Center in Houston. Mr. Kullmann has served in senior
marketing, market development and sales leadership positions at
Boston Scientific, Baxter, Johnson & Johnson, and four start-up
medical device companies – two of which had successful
liquidity events for a combined value of $220m. He is a
graduate of Northern Michigan University, and has an MBA from
California Coastal University. The board believes
that Mr. Kullmann has the experience, qualifications, attributes
and skills necessary to serve as President and Chief Operating
Officer because of his years of experience in the medical
technology field.
Chief Financial Officer and Treasurer – Jeffery
Wright
Mr. Wright is a Certified Public Accountant and has served as our
Chief Financial Officer and Treasurer since January 2015. Prior to
joining the Company in December, 2014, Mr. Wright was an audit
senior at Ernst & Young within the Assurance Services division,
where he had an opportunity to help manage audits of large ($2
billion to $10 billion annual revenue) publicly-traded
companies. He also has experience auditing medium size
($2 million - $200 million annual revenue) privately-held companies
in multiple industries with other accounting firms. Prior to his
career in public accounting, Mr. Wright worked as a trading analyst
in the retirement trust services department at Reliance Trust
Company, managing the institutional trading desk to settle mutual
fund transactions with the National Securities Clearing
Corporation. Mr. Wright holds Master of Professional Accountancy
and Bachelor of Business Administration degrees from the Georgia
State University Robinson College of Business and is a member of
the Georgia Society of Certified Public Accountants.
Executive Vice President – Dennis Moon
Dennis Moon has served as our Senior Vice President since November,
2013. Prior to joining the Company, he was the Chief
Operations Officer for Judicial Correction Services (2006 –
2013) supervising the day to day operations of the JCS community
supervision division, which supervised over 50,000 active
probationers throughout the southeast United States. He
was responsible for supervision of over 400 employees and over 1.8
million financial transactions per year. Dennis is a
graduate of the University of Central Florida and has a degree in
Psychology with an emphasis on Drug and Alcohol
addiction.
After graduating high school, he joined the United States Army
where he served for eight years as an Intelligence Analyst and
received numerous awards and medals for various
services. The board believes that Mr. Moon has the
experience, qualifications, attributes and skills necessary to
serve as Senior Vice President because of his years of experience
in the military and in management of employees.
Senior Vice President of Sales & Marketing – Manfred
Sablowski
Mr. Sablowski is a business professional with over 20 years of
senior management experience in the medical technology industry,
where he has been instrumental in managing and growing several
highly successful companies. He has held several executive level
positions such as General Manager at Valleylab/Pfizer, Europe; VP
Sales and Marketing Dornier Medizin Technik, Europe; VP Sales and
Marketing Bovie Medical-Worldwide.
He also served as Board Member and Vice President/COO for Trod
Medical, a successful venture backed start-up, in which he was
involved from its inception. He is the principal of FMS MedTech
Consulting, a consulting firm focusing on strategic planning for
the international businesses in the medical industry (Europe and
U.S.). Mr. Sablowski holds a bachelor of science, a diploma as
chemical engineer and earned an MBA in Germany.
Director Independence
The Company has determined that Major General C.A.
“Lou” Hennies, Scott M. W. Haufe, M.D., Ron Lawson, Jon
Mogford, John C. Thomas, Jr. and Larry Papasan are "independent" as
defined by, and determined under, the applicable director
independence standards of The NASDAQ Stock Market LLC.
Liability and Indemnification of Directors and
Officers
Our Articles of Incorporation provide that to the fullest extent
permitted under Nevada law, our directors will not be personally
liable to the Company or its stockholders for monetary damages for
breach of the duty of care, breach of fiduciary duty or breach of
any other duties as directors. Our Articles of
Incorporation also provide for indemnification of our directors and
officers by the Company to the fullest extent permitted by
law.
Role of Board in Risk Oversight Process
Our board of directors has responsibility for the oversight of the
Company’s risk management processes and, either as a whole or
through its committees, regularly discusses with management our
major risk exposures, their potential impact on our business and
the steps we take to manage them. The risk oversight process
includes receiving regular reports from board committees and
members of senior management to enable our board to understand the
company’s risk identification, risk management and risk
mitigation strategies with respect to areas of potential material
risk, including operations, finance, legal, regulatory, strategic
and reputational risk.
The audit committee reviews information regarding liquidity and
operations, and oversees our management of financial risks.
Periodically, the audit committee reviews our policies with respect
to risk assessment, risk management, loss prevention and regulatory
compliance. Oversight by the audit committee includes direct
communication with our external auditors, and discussions with
management regarding significant risk exposures and the actions
management has taken to limit, monitor or control such exposures.
The compensation committee is responsible for assessing whether any
of our compensation policies or programs has the potential to
encourage excessive risk-taking. The nominating/corporate
governance committee manages risks associated with the independence
of the board, corporate disclosure practices, and potential
conflicts of interest. While each committee is responsible for
evaluating certain risks and overseeing the management of such
risks, the entire board is regularly informed through committee
reports about such risks. Matters of significant strategic risk are
considered by our board as a whole.
Board Committees and Independence
Our board of directors has established an audit committee, a
nominating and corporate governance committee and a compensation
committee, each of which operates under a charter that has been
approved by our board.
Each of the Company's current independent directors, Major General
C.A. "Lou" Hennies, Scott M. W. Haufe, M.D., Ron Lawson, Jon
Mogford, John C. Thomas Jr., and Larry Papasan, are independent
under the rules of the NASDAQ Capital Market. Accordingly, our
board has determined that all of the members of each of the
board’s three standing committees are independent as defined
under the rules of the NASDAQ Capital Market.
In addition, all members of the audit committee meet the
independence requirements contemplated by Rule 10A-3 under the
Securities Exchange Act of 1934, or the Exchange Act.
Audit Committee
The members of our audit committee are John C. Thomas, Jr.,
Ron Lawson and Larry Papasan. Mr. Thomas chairs the audit
committee. The audit committee’s main function is to oversee
our accounting and financial reporting processes, internal systems
of control, independent registered public accounting firm
relationships and the audits of our financial
statements.
This committee’s responsibilities include, among other
things:
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appointing, approving the compensation of and assessing the
independence of our registered public accounting firm;
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overseeing the work of our independent registered public accounting
firm, including through the receipt and consideration of reports
from such firm;
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reviewing and discussing with management and the independent
registered public accounting firm our annual and quarterly
financial statements and related disclosures;
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monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business conduct and
ethics;
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overseeing our internal audit function;
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overseeing our risk assessment and risk management
policies;
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establishing policies regarding hiring employees from the
independent registered public accounting firm and procedures for
the receipt and retention of accounting related complaints and
concerns;
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meeting independently with our internal auditing staff, independent
registered public accounting firm and management;
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reviewing and approving or ratifying any related person
transactions; and
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preparing the audit committee report required by the Securities and
Exchange Commission, or SEC, rules.
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All audit and non-audit services, other
than de minimis non-audit services, to be provided to us by
our independent registered public accounting firm must be approved
in advance by our audit committee.
Our board of directors has determined that John C. Thomas,
Jr. is an “audit committee financial expert” as
defined in applicable SEC rules.
Nominating and Corporate Governance Committee
The members of our nominating and corporate governance committee
are Major General C.A. “Lou” Hennies, Ron Lawson
and Larry Papasan. Mr. Hennies chairs the nominating and
corporate governance committee. This committee’s
responsibilities include, among other things:
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identifying individuals qualified to become members of our board of
directors;
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recommending to our board of directors the persons to be nominated
for election as directors and to each of our board’s
committees;
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developing, recommending to the board, and assessing corporate
governance principles, codes of conduct and compliance mechanisms;
and
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overseeing the evaluation of our board of directors.
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Compensation Committee
The members of our compensation committee are Larry Papasan,
Major General C.A. “Lou” Hennies and Scott M. W. Haufe,
M.D. Mr. Papasan chairs the compensation committee. This
committee’s responsibilities include, among other
things:
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reviewing and recommending corporate goals and objectives relevant
to the compensation of our chief executive officer and other
executive officers;
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making recommendations to our board of directors with respect to,
the compensation level of our executive officers;
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reviewing and recommending to our board of directors employment
agreements and significant arrangements or transactions with
executive officers;
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reviewing and recommending to our board of directors with respect
to director compensation; and
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overseeing and administering our equity-based incentive
plans;
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Compensation Committee Interlocks and Insider
Participation
None of our executive officers serves as a member of the
compensation committee, or other committee serving an equivalent
function, of any other entity that has one or more of its executive
officers serving as a member of our board of directors or our
compensation committee. Mr. Gorlin, CEO and Director, will abstain
on any board vote involving executive compensation by the board as
a whole.
Board Diversity
Our nominating and corporate governance committee will be
responsible for reviewing with the board of directors, on an annual
basis, the appropriate characteristics, skills and experience
required for the board of directors as a whole and its individual
members. In evaluating the suitability of individual candidates
(both new candidates and current members), the nominating and
corporate governance committee, in recommending candidates for
election, and the board of directors, in approving (and, in the
case of vacancies, appointing) such candidates, will take into
account many factors, including the following:
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personal and professional integrity, ethics and
values;
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experience in corporate management, such as serving as an officer
or former officer of a publicly-held company;
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development or commercialization experience in large medical
products companies;
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experience as a board member or executive officer of another
publicly-held company;
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strong finance experience;
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diversity of expertise and experience in substantive matters
pertaining to our business relative to other board
members;
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diversity of background and perspective, including with respect to
age, gender, race, place of residence and specialized
experience;
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conflicts of interest; and
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practical and mature business judgment.
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Currently, our board of directors evaluates each individual in the
context of the board of directors as a whole, with the objective of
assembling a group that can best maximize the success of the
business and represent stockholder interests through the exercise
of sound judgment using its diversity of experience in these
various areas.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that
applies to our directors, officers and employees, including our
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions. A current copy of the code will be posted on the
Corporate Governance section of our website, www.MedoveX.com.
In addition, we intend to post on our website all disclosures that
are required by law or the listing standards of The NASDAQ Capital
Market concerning any amendments to, or waivers from, any provision
of the code. The reference to our website address does not
constitute incorporation by reference of the information contained
at or available through our website, and you should not consider it
to be a part of this Annual Report.
Procedures for Security Holders to Recommend Nominees for Election
as Directors
There have been no material changes to the procedures by which
security holders may recommend nominees to the board of directors
since the Company last described such procedures or any material
changes thereto.
Company Policy as to Director Attendance at Annual Meetings of
Stockholders
The Company's policy encourages board members to attend annual
meetings of stockholders.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Exchange Act requires each person who is a
director or officer or beneficial owner of more than 10% of the
common stock of the Company to file reports in connection with
certain transactions. To the knowledge of the Company, based solely
upon a review of forms or representations furnished to the Company
during or with respect to the most recent completed fiscal year,
there were a few isolated instances where the director purchased or
received shares and was late filing under section 16(a). All of the
required filings have now been made.
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Name & Position
|
|
Fiscal Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock Awards
($)
|
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|
All Other Compensation ($)
|
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|
Total
($)
|
|
|||||
|
Jarrett Gorlin, CEO
|
|
2015
|
|
|
272,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
272,000
|
|
|
|
|
2016
|
|
|
272,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
272,000
|
|
|
Patrick Kullmann, COO
|
|
2015
|
|
|
231,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
231,000
|
|
|
|
|
2016
|
|
|
231,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
231,000
|
|
|
Dennis Moon, EVP
|
|
2015
|
|
|
201,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
201,000
|
|
|
|
|
2016
|
|
|
201,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
201,000
|
|
|
Jeffery Wright, CFO
|
|
2015
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,000
|
|
|
|
|
2016
|
|
|
130,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,000
|
|
|
Manfred Sablowski, SVP
|
|
2015
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
2016
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
Employment Agreements
From their first date of employment, the Company entered into
Employment and Confidential Information and Inventions Assignment
(“Confidentiality”) Agreements with each of its four
officers. These agreements are identical with the exception of the
salary amount in the Employment Agreement.
The Confidentiality Agreement, among other things, obligates each
officer not to disclose Confidential Information (as defined in the
Agreement) for a period of 5 years after their last date of
employment. It commits the employee to assign any work product
developed at MedoveX to the Company and assist with obtaining
patents for that work as necessary. It contains a provision
prohibiting employees from soliciting clients or hiring Company
personnel for a period of 2 years after their
separation.
The Employment Agreements are for a term of three years and define
the compensation and benefits each employee will receive when they
start employment. They also define the circumstances for and the
effect on compensation and benefits under the following
scenarios:
|
a.
|
Termination without cause
|
|
b.
|
Termination upon death or disability
|
|
c.
|
Termination by the Company for cause
|
|
d.
|
Termination by the employee for good reason, including material
diminishment of position, demands to move or change in control of
the Company
|
|
e.
|
Termination by the Company without cause, upon disability or by
employee with good reason
|
|
f.
|
Termination for other reasons
|
If the Company terminates without cause or the employee terminates
with good reason, the employee continues to collect his salary and
benefits for 6 months after termination. The Employment Agreement
also contains a non-compete clause prohibiting the employee from
competing with the Company for 1 year after their
separation.
The current annualized salaries of our executive officers are as
follows:
|
Name & Position
|
Annual Salary
|
|
Jarrett
Gorlin, CEO
|
$272,000
|
|
Patrick
Kullmann, President & COO
|
$231,000
|
|
Jeffery
Wright, CFO
|
$130,000
|
|
Dennis
Moon, EVP
|
$201,000
|
|
Manfred
Sablowski, SVP
|
$150,000
|
Director Compensation
The board established a policy of paying outside (non-employee)
directors $5,000 per quarter for each full quarter of
service.
In
2015, outside directors (totaling 8
persons) were paid $120,000 in director’s fees. On November
10th,
2016, the board voted that all non-employee members of the
Board of Directors will receive 3rd and 4th quarter 2015 and
fiscal year 2016 director’s fees as stock grants. We issued
an aggregate of 173,911 stock grants at $1.38 per share in January
2017 as a result.
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
The information is presented for each person we know to be a
beneficial owner of 5% or more of our securities, each of our
directors and executive officers, and our officers and directors as
a group.
The percentage of common equity beneficially owned is based upon
14,855,181 shares of Common Stock issued and outstanding as of
December 31, 2016.
The number of shares beneficially owned by each stockholder is
determined under the rules issued by the Securities and Exchange
Commission and includes voting or investment power with respect to
such securities.
Under these rules, beneficial ownership includes any shares as to
which the individual or entity has sale or shared voting power or
investment power. Unless otherwise indicated, the
address of all listed stockholders is c/o MEDOVEX, 1950 Airport
Road Suite A, Atlanta, Georgia 30341. Unless otherwise
indicated each of the stockholders listed has sole voting and
investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
|
|
Number of Shares Beneficially Owned(1)
|
Percentage of
common equity
beneficially owned
|
|
Scott
M.W. Haufe, M.D., Director
|
776,610(2)(4)
|
5.1%
|
|
Sablowski,
Manfred, Officer
|
60,225(11)
|
0.4%
|
|
Jarrett
Gorlin, Director and Officer
|
560,065(3)(10)
|
3.7%
|
|
Larry
W. Papasan, Co-chair of the Board of Directors
|
203,576(4)
|
1.3%
|
|
John
C. Thomas, Jr., Director
|
85,400(4)
|
0.6%
|
|
Patrick
Kullmann, Officer
|
234,989(5)(8)
|
1.5%
|
|
Jeffery
Wright, Officer
|
29,875(7)
|
0.2%
|
|
Major
General C.A. “Lou” Hennies, Director
|
106,788(4)
|
0.7%
|
|
James
R. Andrews, M.D., Director
|
106,788(4)
|
0.7%
|
|
Ron
Lawson, Director
|
150,000(12)
|
1.0%
|
|
Steve
Gorlin, Co-chair of the Board of Directors
|
1,195,789(6)
|
7.8%
|
|
Randal
R. Betz, M.D., Director
|
106,788(4)
|
0.7%
|
|
Mogford
Jon, Director
|
75,000(13)
|
0.5%
|
|
Dennis
Moon, Officer
|
208,614(9)
|
1.4%
|
|
Officers and Directors as a Group (14 persons)
|
3,900,507
|
25.6%
|
|
(1)
|
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and includes voting or
investment power with respect to shares beneficially owned and
options exercisable within 60 days. Beneficial ownership is based
on information furnished by the individuals or
entities.
|
|
(2)
|
Includes 532,335 shares held by Morgan Stanley Smith Barney
custodian for Nicole Haufe Roth IRA, 25,000 shares held by Haufe
Family Limited Partnership and 209,275 shares held by Nicole Haufe.
Mr. Haufe disclaims beneficial ownership of the
shares.
|
|
(3)
|
Includes 506,837 shares held by The Jarrett S. & Rebecca L.
Gorlin Family Limited Partnership. Mr. Gorlin disclaims beneficial
ownership of the shares.
|
|
(4)
|
Includes 10,000 shares pursuant to options exercisable within 60
days.
|
|
(5)
|
Includes 96,788 shares held by Pamela M.C. Kullmann. Mr. Kullmann
disclaims beneficial ownership of Pamela M.C. Kullmann’s
shares.
|
|
(6)
|
Includes 125,000 shares held by Mr. Gorlin's spouse, Deborah
Gorlin. Mr. Gorlin disclaims beneficial ownership of Deborah
Gorlin’s shares.
|
|
(7)
|
Includes 29,875 shares pursuant to options exercisable within 60
days.
|
|
(8)
|
Includes 26,163 shares pursuant to options exercisable within 60
days.
|
|
(9)
|
Includes 15,038 shares pursuant to options exercisable within 60
days.
|
|
(10)
|
Includes 10,200 shares pursuant to options exercisable within 60
days.
|
|
(11)
|
Includes 55,625 shares pursuant to options exercisable within 60
days.
|
|
(12)
|
Includes 150,000 shares pursuant to options exercisable within 60
days.
|
|
(13)
|
Includes 75,000 shares pursuant to options exercisable within 60
days.
|
Equity Compensation Plan Information
In October 2013, the Company adopted the 2013 Stock Incentive Plan
(the “Plan”).
The Plan is intended to secure for us and our stockholders the
benefits arising from ownership of our Common Stock by individuals
we employ or retain who will be responsible for the future growth
of the enterprise. The Plan is also designed to help
attract and retain superior personnel for positions of substantial
responsibility, including advisory relationships where appropriate,
and to provide individuals with an additional incentive to
contribute to our success.
The “Administrator” of the Plan is the Compensation
Committee of the Board; however, the Administrator may also
delegate to one or more officers of the Company the authority to
make most determinations otherwise reserved for decision by the
Administrator. Under the Plan, the Administrator has the
flexibility to determine eligible participants and the type and
amount of awards to grant to eligible participants.
The Administrator may make the following types of grants under the
Plan, each of which will be an “Award”:
|
●
|
qualified incentive stock options
(“QISOs”);
|
|
●
|
nonqualified stock options; and
|
|
●
|
awards of restricted stock and/or restricted stock
units.
|
Our officers, key employees, directors, consultants and other
independent contractors or agents who are responsible for or
contribute to our management, growth or profitability will be
eligible for selection by the Administrator to participate in the
Plan, provided, however, that QISOs may be granted only to our
employees.
We authorized and reserved for issuance under the Plan an aggregate
of 1,650,000 shares of our Common Stock. As of December
31, 2016, we have granted an aggregate of 1,124,900 options to
purchase common stock at a weighted average price of $2.15 per
share to certain employees, consultants and to outside
directors. As of December 31, 2016, we have granted an
aggregate of 143,000 common stock shares from the Plan to certain
outside consultants at the market price on the day of
grant. If any of the awards granted under the Plan
expire, terminate or are forfeited for any reason before they have
been exercised, vested or issued in full, the unused shares
allocable to or subject to those expired, terminated or forfeited
awards will become available for further grants under the
Plan.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
On January 25, 2016, the Company entered into a modification
agreement (the “Modification Agreement”) between the
Company and Steve Gorlin, a Director of the Company pursuant to
which the Company and Mr. Gorlin agreed to immediately convert the
promissory note into an aggregate of 571,429 shares of its Common
Stock eliminating the Company’s $1,000,000 debt obligation to
Mr. Gorlin. On February 16, 2016, the Company and Steve Gorlin
entered into an amendment to the Modification Agreement in order to
reduce the number of shares of Common Stock that Mr. Gorlin is to
receive upon the conversion of the $1,000,000 promissory note from
571,429 shares to 552,041 shares. In consideration for reducing the
amount of shares of Common Stock that he was to receive, the
Company agreed to reduce the exercise price of Mr. Gorlin's 500,000
warrants (the "Warrants") from $2.00 per share to $1.825 per share.
In addition, certain anti-dilution provisions in the Warrants that
may have allowed for the issuance of additional warrants were
eliminated and an absolute floor of $1.70 per share was added. The
amendment to the Modification Agreement was made to address certain
concerns of the NASDAQ Stock Market. 225,000 of Mr. Gorlin’s 500,000 warrants
were subsequently assigned to two separate parties pursuant to a
fourth modification agreement entered into on December 1, 2016. The
fourth modification agreement assigned 45% of Mr. Gorlin’s
obligation to purchase an additional 571,429 shares of the
Company’s commons stock at $1.75 per share to different
parties.
The Company pays TAG Aviation (“TAG”), a company owned
by CEO Jarrett Gorlin, for executive office space in Atlanta
Georgia at a rate of $2,147 per month plus related
utilities.
The rental rate is 90% of the amount billed to TAG Aviation by the
owner of the property. The Company has also chartered aircraft from
TAG Aviation. The total amount spent for chartered service with TAG
Aviation was approximately $26,000 in 2016 and 2015. The Company
believes that such aircraft charter is on terms no less favorable
then it would receive from a third party.
Policies and Procedures for Related Person
Transactions
Our board of directors has adopted written policies and procedures
for the review of any transaction, arrangement or relationship in
which we are a participant, the amount involved exceeds $120,000
and one of our executive officers, directors, director nominees or
5% stockholders, or their immediate family members, each of whom we
refer to as a “related person,” has a direct or
indirect material interest.
If a related person proposes to enter into such a transaction,
arrangement or relationship, which we refer to as a “related
person transaction,” the related person must report the
proposed related person transaction to our Chief Executive Officer.
The policy calls for the proposed related person transaction to be
reviewed and, if deemed appropriate, approved by our audit
committee. Whenever practicable, the reporting, review and approval
will occur prior to entry into the transaction.
If advance review and approval is not practicable, the committee
will review, and, in its discretion, may ratify the related person
transaction. The policy also permits the chairman of the committee
to review and, if deemed appropriate, approve proposed related
person transactions that arise between committee meetings, subject
to ratification by the committee at its next meeting. Any related
person transactions that are ongoing in nature will be reviewed
annually.
A related person transaction reviewed under the policy will be
considered approved or ratified if it is authorized by the
committee after full disclosure of the related person’s
interest in the transaction. As appropriate for the circumstances,
the committee will review and consider:
|
●
|
the related person’s interest in the related person
transaction;
|
|
●
|
the approximate dollar value of the amount involved in the related
person transaction;
|
|
●
|
the
approximate dollar value of the amount of the related
person’s interest in the transaction
without regard to the amount of any profit or
loss;
|
|
●
|
whether the transaction was undertaken in the ordinary course of
our business;
|
|
●
|
whether the terms of the transaction are no less favorable to us
than terms that could have been reached with an unrelated
third party; and
|
|
●
|
the purpose of, and the potential benefits to us of, the
transaction.
|
The committee may approve or ratify the transaction only if the
committee determines that, under all of the circumstances, the
transaction is in our best interests. The committee may impose any
conditions on the related person transaction that it deems
appropriate.
In addition to the transactions that are excluded by the
instructions to the SEC’s related person transaction
disclosure rule, our board of directors has determined that the
following transactions do not create a material direct or indirect
interest on behalf of related persons and, therefore, are not
related person transactions for purposes of this
policy:
|
●
|
interests arising solely from the related person’s position
as an executive officer of another entity (whether or not the
person is also a director of such entity) that is a participant in
the transaction, where (i) the related person and all other
related persons own in the aggregate less than a 10% equity
interest in such entity, (ii) the related person and his or her
immediate family members are not involved in the negotiation of the
terms of the transaction and do not receive any special benefits as
a result of the transaction and (iii) the amount involved in the
transaction is less than the greater of $200,000 or 5% of the
annual gross revenues of the company receiving payment under the
transaction; and
|
||
|
●
|
a transaction that is specifically contemplated by provisions of
our charter or bylaws.
|
||
The policy provides that transactions involving compensation of
executive officers shall be reviewed and approved by the
compensation committee in the manner specified in its
charter.
We did not have a written policy regarding the review and approval
of related person transactions. Nevertheless, with respect to such
transactions, it was our policy for our board of directors to
consider the nature of and business reason for such transactions,
how the terms of such transactions compared to those which might be
obtained from unaffiliated third parties and whether such
transactions were otherwise fair to and in the best interests of,
or not contrary to, our best interests.
In addition, all related person transactions required prior
approval, or later ratification, by our board of
directors.
Indemnification Agreements
Our certificate of incorporation provides that we will indemnify
our directors and officers to the fullest extent permitted by
Nevada law. In addition, we have entered into indemnification
agreements with our directors.
Stock Option Grants to Executive Officers and
Directors
We authorized and reserved for issuance under the Plan an aggregate
of 1,650,000 shares of our Common Stock. In 2016 and
2015, we granted an aggregate of 597,600 and 200,000, respectively,
of options to purchase common stock to executive officers and
directors. If any of the Awards granted under the Plan expire,
terminate or are forfeited for any reason before they have been
exercised, vested or issued in full, the unused shares allocable to
or subject to those expired, terminated or forfeited awards will
become available for further grants under the Plan.
Policies and Procedures for Approving Related Person
Transactions
Our policy and procedure with respect to any related person
transaction between the Company and any related person requiring
disclosure under Item 404(a) of regulation S-K under the Exchange
Act, is that the Company's audit committee reviews all such
transactions.
This review covers any material transaction, arrangement or
relationship, or any series of similar transactions, arrangements
or relationships, in which the Company was and is to be a
participant, and a related party had or will have a direct or
indirect material interest, including, purchases of goods or
services by or from the related party or entities in which the
related party has a material interest, indebtedness, guarantees of
indebtedness and employment by the Company of a related party. The
board of directors has adopted a written policy reflecting the
policy and procedure identified above.
The following is a summary of the fees billed to the Company by
Frazier & Deeter, LLC for professional accounting services
rendered for the fiscal years ended December 31, 2016 and
2015.
|
|
Fiscal Year
2016
|
Fiscal Year
2015
|
|
Audit
fees
|
$108,500
|
125,155
|
|
Tax
fees – Frazier & Deeter
|
16,000
|
$12,500
|
|
Total
|
$124,500
|
$137,655
|
Audit fees consist of fees billed for services rendered for the
audit of our financial statements and review of our financial
statements included in our quarterly reports on Form
10–Q.
Tax fees consist of fees billed for professional services related
to the preparation of our U.S. federal and state income tax
returns.
Policy on Pre-Approval by Audit Committee of Services Performed by
Independent Registered Public Accounting Firms
The policy of the audit committee is to pre-approve all audit and
permissible non-audit services to be performed by the independent
public accounting firm during the fiscal year. The audit committee
pre-approves services by authorizing specific projects within the
categories outlined above. The audit committee's charter delegates
to its Chair the authority to address any requests for pre-approval
of services between audit committee meetings, and the Chair must
report any pre-approval decisions to the audit committee at its
next scheduled meeting. All of the services related to the fees
described above were approved by the audit committee pursuant to
the pre-approval provisions set forth in the applicable SEC rules
and the audit committee's charter.
PART IV
(a)(1) Financial
Statements. The following
are filed as part of Item 15 of this Annual Report on Form
10-K:
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
(a)(3) Exhibits required by Item 601
of Regulation S-K. The
information required by this Section (a)(3) of Item 15 of this
Annual Report on Form 10-K is set forth on the exhibit index that
follows the Signatures page hereof.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
MEDOVEX CORP.
|
|
Date: March 31,
2017
|
By:
|
/s/ Jarrett Gorlin
Jarrett Gorlin,
Chief Executive Officer
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Jarrett Gorlin
|
|
Chief Executive Officer, President and Director
|
|
|
|
Jarrett Gorlin
|
|
(Principal Executive Officer)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ Jeffery Wright
|
|
Chief Financial Officer
|
|
|
|
Jeffery Wright
|
|
(Principal Financial and Accounting Officer)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ Larry Papasan
|
|
|
|
|
|
Larry Papasan
|
|
Chairman of the Board of Directors
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ Clyde A. Hennies
|
|
|
|
|
|
Clyde A. Hennies
|
|
Director
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ Scott M.W. Haufe
|
|
|
|
|
|
Scott M.W. Haufe
|
|
Director
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ James R. Andrews
|
|
|
|
|
|
James R. Andrews
|
|
Director
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ Ron Lawson
|
|
|
|
|
|
Ron Lawson
|
|
Director
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ Randal R. Betz
|
|
|
|
|
|
Randal R. Betz
|
|
Director
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ Steve Gorlin
|
|
|
|
|
|
Steve Gorlin
|
|
Director
|
|
March 31, 2017
|
|
|
|
|
|
|
|
/s/ John Thomas
|
|
|
|
|
|
John Thomas
|
|
Director
|
|
March 31, 2017
|
|
/s/ Jon Mogford
|
|
|
|
|
|
Jon Mogford
|
|
Director
|
|
March 31, 2017
|
EXHIBIT INDEX
Exhibits
|
Exhibit Number
|
|
Description
|
|
2.1
|
|
Agreement and Plan of Merger, dated September 16, among MedoveX
Corp. f/k/a SpineZ Corp. and Debride Inc. (1)
|
|
2.2
|
|
Agreement and Plan of Merger, dated March 9, 2015 among MedoveX
Corp. and Streamline, Inc. (2)
|
|
2.3
|
|
Asset Purchase Agreement dated December 7, 2016 among MedoveX
Corp., Streamline, Inc., Skytron, LLC and certain other parties
thereto (3)
|
|
3.1
|
|
Articles of Incorporation of Spinez Corp. (1)
|
|
3.2
|
|
Certificate of Amendment to the Articles of Incorporation of Spinez
Corp. (changing the name of the company to MedoveX Corp. and
Effecting the Reverse Split of the Outstanding Shares of MedoveX
Corp.’s Common Stock).
|
|
3.3
|
|
Bylaws of MedoveX Corp. (1)
|
|
3.4
|
|
Certificate of Designation for Series A Preferred Stock
(4)
|
|
4.1
|
|
Modification
Agreement by and between the Company and Steve Gorlin dated January
25, 2016. (5)
|
|
4.2
|
|
Amendment
to the Modification Agreement by and between the Company and Steve
Gorlin dated February 16, 2016. (6)
|
|
4.3
|
|
Second
Amendment to the Modification Agreement by and between the Company
and Steve Gorlin dated March 25, 2016. (7)
|
|
4.4
|
|
Third
Amendment to the Modification Agreement by and between the Company
and Steve Gorlin dated November 1, 2016. (7)
|
|
4.5
|
|
Fourth
Amendment to the Modification Agreement by and between the Company
and Steve Gorlin dated November 30, 2016. (8)
|
|
10.1
|
|
2013 Stock Incentive Plan. (1)
|
|
10.2
|
|
Employment Agreement between MedoveX Corp. and Jarrett Gorlin dated
October 14, 2013. (1)
|
|
10.3
|
|
Employment Agreement between MedoveX Corp. and Patrick Kullmann
dated October 14, 2013. (1)
|
|
10.4
|
|
Employment Agreement between MedoveX Corp. and Charlie Farrahar
dated October 14, 2013. (1)
|
|
10.5
|
|
Employment Agreement between MedoveX Corp. and Dennis Moon dated
November 11, 2013. (1)
|
|
10.6
|
|
Contribution and Royalty Agreement between MedoveX and Scott W.
Haufe dated January 31, 2013. (1)
|
|
10.7
|
|
Co-Development Agreement between MedoveX Corp. and Dr. James
Andrews dated September 30, 2013. (1)
|
|
10.8
|
|
Consulting Agreement between MedoveX Corp. and Robb Knie dated
December 2, 2013. (1)
|
|
10.9
|
|
Engineering Services Agreement between MedoveX Corp. and Devicix,
LLC dated November 25, 2013. (1)
|
|
10.10
|
|
Form of Indemnification Agreement. (1)
|
|
10.11
|
|
Promissory
note issued on November 9, 2015 in favor of Steve
Gorlin
|
|
10.12
|
|
Warrant
issued on November 9, 2015 to Steve Gorlin
|
|
10.13
|
|
Form of
Common Stock Purchase Warrant (9)
|
|
10.14
|
|
Form of Unit Purchase Agreement between MedoveX Corp. and Investors
(10)
|
|
10.15
|
|
Form of Registration Rights Agreement between MedoveX Corp. and
Investors (10)
|
|
10.16
|
|
Private Placement Memorandum Supplement dated April 18, 2016
(10)
|
|
10.17
|
|
Form of Warrant (11)
|
|
10.18
|
|
Form of Unit Purchase Agreement (11)
|
|
10.19
|
|
Form of Registration Rights Agreement (11)
|
|
10.20
|
|
Form of Note (12)
|
|
10.21
|
|
Form of Warrant (12)
|
|
10.22
|
|
Form of Security Agreement (12)
|
|
10.23
|
|
Form of Warrant (4)
|
|
10.24
|
|
Form of Unit Purchase Agreement (4)
|
|
10.25
|
|
Form of Registration Rights Agreement (4)
|
|
14
|
|
Business and Code of Ethics of MedoveX Corp. (1)
|
|
21.1
|
|
Subsidiaries of MedoveX Corp. *
|
|
24.1
|
|
Power of Attorney (included on signature page).*
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
|
|
31.2
|
|
Certification of Principal Financial and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
|
|
32.2
|
|
Certification of Principal Financial and Accounting Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
(1)
|
Incorporated by reference herein from the Registration Statement on
Form S-1/A filed on December 9, 2014.
|
|
(2)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on March 11, 2015.
|
|
(3)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on December 12, 2016
|
|
(4)
|
Incorporated by reference herein from the Current Report on From
8-K filed on February 14, 2017
|
|
(5)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on January 25, 2016.
|
|
(6)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on February 17, 2016.
|
|
(7)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on November 4, 2016
|
|
(8)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on December 6, 2016
|
|
(9)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on April 25, 2016.
|
|
(10)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on May 5, 2016.
|
|
(11)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on August 8, 2016
|
|
(12)
|
Incorporated by reference herein from the Current Report on Form
8-K filed on September 19, 2016
|
|
(*)
|
Filed herewith
|
-34-