The information in this Item 9.01 of this Amended Report is being filed to supplement Item 9.01(a) and 9.01(b) in the Original 8-K.
The information
in accordance with Item 9.01(a), Valeritass unaudited consolidated financial statements as of, and for the three-month period ended, March 31, 2016, and the accompanying notes, are included in this Amended Report beginning on Page
F-1.
In accordance with Item 9.01(b), unaudited pro forma condensed combined financial statements as of, and for
the three-month period ended, March 31, 2016, and the accompanying notes, are included in this Amended Report beginning on Page F-21.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
1. Nature of Operations and Organization
Valeritas, Inc. (Valeritas or the Company), was incorporated in the state of Delaware on December 27, 2007 when it changed its organization form and
name from Valeritas, LLC, which was formed on August 2, 2006. The Company is a commercial-stage medical technology company focused on developing innovative technologies to improve the health and quality of life of people with Type 2 diabetes.
The Company designed their first commercialized product, the V-Go Disposable Insulin Delivery Device, or V-Go, to help patients with Type 2 diabetes who require insulin to achieve and maintain their target blood glucose goals. V-Go is a small,
discreet and easy-to-use disposable insulin delivery device that a patient adheres to his or her skin every 24 hours. V-Go enables patients to closely mimic the bodys normal physiologic pattern of insulin delivery throughout the day and to
manage their diabetes with insulin without the need to plan a daily routine around multiple daily injections.
On June 19, 2014, Valeritas Merger
Sub, Inc., a Delaware corporation, and a direct, wholly owned subsidiary of Valeritas Holdings, LLC, a Delaware limited liability company, or Holdings, merged with and into the Company (the 2014 Reorganization). Prior to the 2014 Reorganization,
Holdings was the Companys direct wholly owned subsidiary. Valeritas survived the 2014 Reorganization as a direct, wholly owned subsidiary of Holdings. In connection with the 2014 Reorganization, all of the pre-merger holders of the
Companys Series A, B, C, C-1 and C-2 preferred stock, common stock, options to purchase common stock and preferred stock warrants converted their securities into preferentially equivalent units in Holdings, and the Company issued 6,923,076
shares of common stock to Holdings.
On March 7, 2016, the Company dissolved Holdings (Valeritas Holdings, LLC). Prior to the dissolution, Valeritas
Holdings, LLC distributed all its assets, including 6,923,076 shares of Valeritas, Inc. common stock, pro-ratably to Series C holders, based on the aggregate liquidation preference of the units held by each holder as set out in the Amended and
Restated Limited Liability Company Agreement. Based upon the aggregate liquidation preference of the units on March 7, 2016, the common stockholders as well as the Series A and Series B preferred stockholders did not receive common shares of
Valeritas, Inc. upon dissolution. As a result of the dissolution, the 2008 Employee Equity Compensation Plan was terminated and all options outstanding thereunder were cancelled.
On May 3, 2016, pursuant to an Agreement and Plan of Merger and Reorganization, dated May 3, 2016 (the Merger Agreement), by and among
Valeritas Holdings, Inc. (formerly Cleaner Yoga Mat, Inc.), a Delaware corporation (the Parent), Valeritas Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent (the Acquisition Subsidiary)
and Valeritas, Inc. (Valeritas or the Company), Acquisition Subsidiary was merged with and into the Company, with the Company remaining as the surviving entity and as a wholly owned subsidiary of the Parent (the
Merger). See note 19 for further details on this subsequent event.
2. Liquidity and Significant Uncertainties
The Company is subject to a number of risks similar to those of early stage commercial companies, including dependence on key individuals, the difficulties
inherent in the development of a commercial market, the potential need to obtain additional capital necessary to fund the development of its products, and competition from larger companies.
The Company has incurred losses each year since inception and has experienced negative cash flows from operations in each year since inception. As of March
31, 2016, the Company had $4,409 in cash and cash equivalents. As of December 31, 2015 and March 31, 2016, the Company had an accumulated deficit of $377,872 and $394,770, respectively. In April 2015, the Company defaulted on its Senior Secured Debt
resulting in its major lender calling the outstanding loan and accrued interest of $57,654 for immediate repayment. The Company entered into a series of forbearance agreements with the major lender which deferred the repayment of the loan and
accrued interest until May 3, 2016.
F-6
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
On May 3, 2016, the Company entered into a reverse-merger transaction. Concurrently with the closing of the
Merger, and as a condition to the Merger, the Company closed a private placement offering for net proceeds of approximately $23.7 million. The net proceeds together with the restructuring of the senior secured debt, also in connection with the
Merger, will be sufficient to satisfy the Companys operations for the next 12 months from March 31, 2016. However, the Companys restructured senior secured debt includes a liquidity covenant whereby the Company must maintain a cash
balance greater than $5 million. Based upon current projections, the Company will not meet its liquidity covenant requirement at or around March, 2017. The Company intends to maintain compliance with this liquidity covenant by raising additional
capital. There can be no assurances that financing will be available on terms acceptable to the Company, or at all.
Furthermore, the Company expects that
their actual sales performance and the resulting operating income or loss, as well as the status of each of their new product development programs, will significantly impact their cash management. In the event the Company is unable to increase
revenue and the results of operations do not improve fast enough to satisfy the Companys operating cash requirements, the Company will need to obtain additional funding in order to execute their business strategies and to continue as a going
concern. There can be no assurances that additional financing will be available on terms acceptable to the Company, or at all.
3. Basis of
Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared using generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual
financial statements and should be read in conjunction in Valeritas, Inc.s 2015 annual consolidated financial statement included within Form 8-K dated on May 9, 2016.
The preparation of the consolidated financial statements in conformity with these accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of expenses during the reported period. Ultimate results could differ
from the estimates of management.
In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all
adjustments necessary to present fairly the Companys financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the
three months ended March 31, 2016 may not be indicative of results for the full year.
Significant Accounting Policies
There have been no material changes to the significant accounting policies previously disclosed in Valeritas, Inc.s 2015 annual consolidated financial
statement included within Form 8-K dated on May 9, 2016.
Recent Accounting Pronouncements
In April, 2016, the FASB issued ASU No. 2016-10,
Revenue from Contracts with Customers: Identifying performance obligations and licensing
,
effective January 1, 2018, to reduce the cost and complexity of applying the guidance on identifying promised goods or services around identifying performance obligations and implementation guidance on determining whether an entitys
promise to grant a license provides a customer with either a right to use the entitys intellectual property (which is satisfied at a point in time) or a right to access the entitys intellectual property (which is satisfied over time).
The Company has not yet selected a transition method nor have they determined the effect of the standard on their ongoing financial reporting.
F-7
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
4. Cash and cash equivalents
The Company considers investments and interest-bearing deposits with original maturities of three months or less to be cash equivalents. At
December 31, 2015 and March 31, 2016, there was $2,309 and $3,578, respectively, on deposit at banks in excess of Federal Deposit Insurance Corporation (FDIC) insured limits. No losses have been experienced on such bank deposits, money
market fund or notes. The Company does not believe that it is subject to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Restricted Cash
The Company held restricted cash of $209
and $592 as at December 31, 2015 and March 31, 2016, respectively as part of its lease and debt agreements. The amounts are included within cash and cash equivalents balance.
5. Inventory
Inventory at December 31, 2015 and
March 31, 2016 consists of:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
March 31
|
|
|
|
2015
|
|
|
2016
|
|
Raw materials
|
|
$
|
1,587
|
|
|
$
|
1,765
|
|
Work in process
|
|
|
2,659
|
|
|
|
3,055
|
|
Finished goods
|
|
|
6,538
|
|
|
|
6,854
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,784
|
|
|
$
|
11,674
|
|
|
|
|
|
|
|
|
|
|
Cost is determined on a first in, first out, or FIFO, basis and includes material costs, labor and applicable overhead. The
Company reviews its inventory for excess or obsolescence and writes down inventory that has no alternative uses to its net realizable value. The inventory reserves at December 31, 2015 and March 31, 2016 were $2,341 and $2,353,
respectively.
6. PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at December 31, 2015 and March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
March 31
|
|
|
|
Useful lives
|
|
2015
|
|
|
2016
|
|
Machinery and equipment
|
|
5-10
|
|
$
|
10,594
|
|
|
$
|
10,874
|
|
Computers and software
|
|
3
|
|
|
1,312
|
|
|
|
1,338
|
|
Leasehold improvements
|
|
6-10
|
|
|
212
|
|
|
|
212
|
|
Office equipment
|
|
5
|
|
|
89
|
|
|
|
89
|
|
Furniture and fixtures
|
|
5
|
|
|
206
|
|
|
|
206
|
|
Construction in process
|
|
|
|
|
4,931
|
|
|
|
4,792
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
17,344
|
|
|
|
17,511
|
|
Accumulated depreciation
|
|
|
|
|
(5,253
|
)
|
|
|
(5,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
12,091
|
|
|
$
|
11,837
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the three months ended March 31, 2015 and 2016 were $424 and $421,
respectively.
F-8
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
March 31,
2016
|
|
Compensation
|
|
$
|
2,932
|
|
|
$
|
1,881
|
|
Restructuring costs (note 8)
|
|
|
|
|
|
|
1,331
|
|
Marketing services
|
|
|
863
|
|
|
|
882
|
|
Distribution agreements and managed care costs
|
|
|
867
|
|
|
|
1,205
|
|
Professional fees
|
|
|
623
|
|
|
|
332
|
|
Franchise taxes
|
|
|
263
|
|
|
|
190
|
|
Travel expenses
|
|
|
144
|
|
|
|
140
|
|
Manufacturing overhead
|
|
|
46
|
|
|
|
100
|
|
Other accruals
|
|
|
193
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities
|
|
$
|
5,931
|
|
|
$
|
6,299
|
|
|
|
|
|
|
|
|
|
|
8. Restructuring
In
February 2016, as part of the Companys restructuring plan, approximately 51 employees were made redundant. The total restructuring costs of $2,709 consists of $1,217 severance expense and $1,492 retention. As of March 31, 2016, $274 of
severance expense was paid and the remaining $943 was accrued. The retention bonuses will be paid in three installments over the next 12 months. Employees entitled to the retention must remain employed with the Company in good standing for at least
6 months after each installment payment. Otherwise, employees are obligated to repay the entire bonus received for that installment. The Company accrues the retention bonus monthly on a straight line basis through the retention period. As of March
2016, $267 of retention bonus was accrued and $308 was paid. Also included within the restructuring expenses was payroll tax of $ 155 of which $121 was accrued and $33 was paid as of March 31, 2016.
9. Debt
At December 31, 2015 and
March 31, 2016, the Company had the following debt outstanding:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
Senior secured debt, net
|
|
$
|
49,699
|
|
|
$
|
49,660
|
|
Prepayment fee
|
|
|
2,438
|
|
|
|
2,530
|
|
Payment-in-kind (PIK) interest
|
|
|
10,956
|
|
|
|
13,250
|
|
|
|
|
|
|
|
|
|
|
Total senior secured debt, net
|
|
|
63,093
|
|
|
|
65,440
|
|
|
|
|
|
|
|
|
|
|
Other note payable, net
|
|
|
4,210
|
|
|
|
4,241
|
|
Payment-in-kind (PIK) interest
|
|
|
1,804
|
|
|
|
2,010
|
|
|
|
|
|
|
|
|
|
|
Total other note payable, net
|
|
|
6,014
|
|
|
|
6,251
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
69,107
|
|
|
$
|
71,691
|
|
|
|
|
|
|
|
|
|
|
Total debt, short-term
|
|
$
|
69,107
|
|
|
$
|
16,691
|
|
Total debt, long-term
|
|
$
|
|
|
|
$
|
55,000
|
|
F-9
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
Presentation
In 2015, the Senior Secured Debt did not meet the minimum revenue covenant of $50 million which the Company did not meet, the capital financing targets and was
not able to maintain adequate operating cash and working capital all of which triggered the occurrence of a Material Adverse Change as stipulated within the Senior Secured Debt Agreement. The Company has entered into a series of forbearance
agreements as described below, which extended the repayment terms through May 3, 2016. Due to the covenant failures and an associated cross-default covenant in the Other Note Payable that refers to defaults on other debt instruments held by the
Company, both debt balances were being presented as short-term debt in the Companys consolidated balance sheet at December 31, 2015.
Concurrently with the closing of the Merger on May 3, 2016, the Company restructured its Senior Secured Debt and Other Note Payable, as described in note
19 below, that extended the payment term of respective principal balance of $50 million and $5 million to March 31, 2021 and September 8, 2021, respectively. Considering the effect of the Merger and the debt restructuring (see note 19),
the Company has classified the principal balances of debt as long-term at March 31, 2016.
Senior Secured Debt
On May 23, 2013, the Company entered into the Term Loan of $50 million with Capital Royalty Group (CRG), structured as a senior secured loan
with a six-year term. The Term Loan is secured by substantially all of their assets, including their material intellectual property. The Term Loan bears interest at 11% per annum and compounds annually. Until the third anniversary of the Term
Loan, the Company has the option to pay quarterly interest of 7.5% in cash and 3.5% paid-in-kind, or PIK, interest which is added to the aggregate principal amount of the Term Loan on the last day of each quarter. Thereafter, interest on the Term
Loan is payable only in cash. The Term Loan contains a minimum revenue covenant, which was $50.0 million for 2015.
The events of default, described
previously, has led the Company to enter into a series of forbearance agreements with CRG. The initial forbearance agreement was entered on May 18, 2015 and has subsequently been amended five times. The forbearance agreements, as amended
entered in 2015, contained a number of terms and conditions in exchange for CRGs agreement to forbear. The forbearance agreement imposed an interest rate at the default interest rate of 15% per annum and a prepayment premium of 4% on the
aggregate outstanding balance on the date of the repayment. As at December 31, 2015, the parties deferred the forbearance expiration date again to January 22, 2016. The forbearance agreements entered in 2015 were accounted as trouble debt
restructuring (TDR). There was no gain associated with the TDR, however the modified effective interest rate was applied prospectively.
On
January 22, 2016, the Company and CRG amended the forbearance agreement (Amendment No.4) to extend the forbearance period to March 31, 2016. As part of the terms within the forbearance agreement, dated January 29, 2016, the Company
issued warrants to CRG exercisable into 16,000,000 shares of Series AB Preferred Stock at $1.25 per share. The warrant has term of one year. The warrant fair value at the date of issuance was determined to be $4,000, using Black Scholes option
pricing model (see note 10 below). The warrant is accounted as debt discount and amortized through to May 3, 2016, when the Term Loan was restructured. The issuance of the warrants did not result in restructuring gain or loss. The modified
effective interest rate was applied prospectively.
On March 25, 2016, the Company and CRG amended forbearance agreement (Amendment No.5) to extend
the expiration of the forbearance period to April 30, 2016 and included a number of events that could trigger an earlier expiration of the forbearance agreement. Amendment No.5 did not result in any restructuring gain or loss and the modified
effective interest rate was applied prospectively.
Concurrently with the closing of the Merger on May 3, 2016, the Company restructured its Senior
Secured Debt. CRG converted its outstanding accrued interest and prepayment premium to the Companys common stock and Series AB preferred stock. The principal balance was restated as $50 million with interest rate charged at 11% per annum
and debt maturity date set at March 31, 2021. See note 19 for details on the terms of the restructured Term Loan.
F-10
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
Warrant
In 2014, the Company issued warrants to CRG to purchase 177,347 shares of common stock exercisable at $0.013 per share. On February 27, 2015, the
Company further issued warrants to purchase 1,802 shares of common stock with the same exercise price and terms to those issued in 2014. The Company recorded the loan net of original issuance discount calculated fair value of the issued warrants. On
January 29, 2016, the Company issued CRG additional warrants to acquire 16,000,000 Series AB shares at exercise price of $1.25. The fair value of the warrant at the date of issuance is determined to be $4,000, which the Company recorded as
additional debt discount.
The carrying value of the debt discounts associated with the warrants was $282 and $340 at December 31, 2015 and
March 31, 2016, respectively. The forbearance agreements entered into during 2015, triggered a TDR and accelerated the timing of repayment of the Term Loan to January 22, 2016. The 2016 amendment to the forbearance agreement expires on
May 3, 2016. The Company accelerated the amortization of the debt discount to coincide with the forbearance period and as such, $761 and $3,916 was amortized in the quarter ended March 31, 2015 and 2016 respectively.
Financing costs
The Company recorded the Term Loan net
of deferred financing costs paid directly to the creditor (and therefore treated as a discount to the debt) of $500 relating to the lender finance fee of 1%. The discount related to the issuance costs is being amortized over the term of the loan
using the effective interest method. The forbearance agreements entered into during 2015 accelerated the timing of repayment of the Term Loan to January 22, 2016. The Company accelerated the amortization of the debt discount to coincide with
the forbearance period. The carrying amount of the debt discount relating to deferred financing costs $70 and $0 at December 31, 2015 and March 31, 2016, respectively.
Lenders Put Option
Upon a change in control or certain
asset sales, the Capital Royalty Partners loan must be prepaid in an amount equal to the outstanding principal balance plus accrued and unpaid interest, taking into account a prepayment premium that starts at 5% of the balance and decreases to 0%
over time. The Company determined that the prepayment feature qualified as an embedded derivative requiring bifurcation from the debt. On May 23, 2014, the derivative was initially valued at $607 and recorded as a long term liability within
derivative liabilities in the Companys consolidated balance sheet with a corresponding discount on the Term Loan. Upon default of the Term Loan, the Lenders called for immediate repayment of the Term Loan including a 4% prepayment
penalty. As such, the derivative liability associated with the Term Loan prepayment provision was considered to be extinguished and the prepayment penalty in the amount of $2,438 and $2,530 were accrued at December 31, 2015 and March 31,
2016 respectively.
The original issue discount for the prepayment feature is being amortized over the term of the loan using the effective interest
method and the amortization expense for the quarter ending March 2015 and 2016 were $86 and $35, respectively. The original issue discount was fully amortized in the first quarter of 2016.
F-11
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
Other Note Payable
In 2011, concurrently with the issuance of Series C Preferred Stock, the Company issued a $5.0 million senior subordinated note, or the WCAS Note, to WCAS
Capital Partners IV, L.P., or WCAS. Amounts due under the WCAS Note originally bore interest at 10% per annum, payable semi-annually. On May 23, 2013, the WCAS Note was amended such that the note now bears interest at 12% per annum,
and all interest accrues as compounded PIK interest and is added to the aggregate principal amount of the loan semi-annually. The then outstanding principal amount of the note, including accrued PIK interest, is due in full in September 2021. The
Company may pay off the WCAS Note at any time without penalty.
Concurrently with the closing of the Merger on May 3, 2016, the Company restructured
its Other Note Payable. WCAS converted its outstanding accrued interest and prepayment premium to the Companys common stock and Series AB preferred stock. The principal balance was restated as $5 million with of ten percent (10%) per
annum payable entirely as paid-in-kind interest and debt maturity date set at September 8, 2021. See note 19 for details on the terms of the restructured Term Loan.
10. Derivative Liability
On January 29, 2016, the
Company issued CRG additional warrants to acquire 16,000,000 Series AB Preferred Stock at an exercise price of $1.25 with term of one year from the date of issuance. The warrants are accounted as derivative liability at fair value as the warrant for
Series AB embodies a conditional obligation for the Company to repurchase its shares at a deemed liquidation event.
The fair value of the warrant at the
date of issuance is $4,000 based on the Black-Scholes option pricing model. Key assumptions used to apply this model upon issuance were as follows:
|
|
|
|
|
|
|
|
|
|
|
January 29, 2016
|
|
|
March 31, 2016
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
80.0
|
%
|
|
|
80.0
|
%
|
Risk-free rate of return
|
|
|
0.47
|
%
|
|
|
0.61
|
%
|
Expected term (years)
|
|
|
1
|
|
|
|
0.83
|
|
Fair Value per share
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
In January and March, CRG exercised its warrants to acquire 5,620,600 shares of Series AB Preferred Stock for gross proceeds
of $7,026. The fair value of exercised warrants of $1,472 was reclassified from derivative liability to additional paid in capital.
The activities of the
Series AB warrants as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
Weighted
average exercise
price
|
|
|
Weighted
average
remaining life
|
|
Outstanding and exercisableDecember 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in conjunction with Series AB financing
|
|
|
16,000,000
|
|
|
|
1.25
|
|
|
|
|
|
Warrants exercised
|
|
|
(5,620,600
|
)
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisableMarch 31, 2016
|
|
|
10,379,400
|
|
|
|
1.25
|
|
|
|
0.83 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of unexercised warrants at March 31, 2016 was $3,121. Refer to note 12 below for the fair value
measurement adopted in determining the fair value of the warrants. On May 3, 2016, the remaining outstanding unexercised warrants were cancelled. Refer to note 19 for subsequent events discussion.
F-12
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
11. Offering and acquisition related costs
The Company had capitalized deferred offering costs, which primarily consisted of direct incremental legal and accounting fees relating to the Initial Public
Offering (IPO). In 2015, the offering was terminated. The previously capitalized deferred offering costs and additional costs incurred through to the termination of the IPO, aggregated to $3,978 were expensed in the first quarter of 2015.
In the first quarter of 2016, the Company has commenced its plan to the Merger and incurred approximately $91 of acquisition related costs which primarily
consisted of incremental legal and accounting fees relating to the Merger (see note 19).
12. Fair Value Measurements
The Company determines the fair values of its financial instruments based upon the fair value hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:
|
|
|
Level 1Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
|
|
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2015 or 2016. The
Companys financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, debt instruments and derivative liabilities. For accounts receivable,
accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of December 31, 2015 and March 31, 2016 were considered representative of their fair values due to their short term to maturity. Cash
equivalents are carried at cost which approximates their fair value. The carrying values of debt instruments approximate fair value and are principally measured using Level 2 inputs based on quoted market prices or pricing models using current
market rates. The carrying values of the senior secured debt and WCAS Note at December 31, 2015 and March 31, 2016 were $63,093 and $6,014, and $65,440 and $6,252, respectively. The fair value of the senior secured debt approximate its
carrying value as of December 31, 2015 and March 31, 2016. The carrying value of the WCAS note approximated its respective fair value at December 31, 2015 and March 31, 2016. The long-term debt, including the portion of long-term
debt in short-term borrowings is principally measured using Level 2 inputs based on quoted market prices or pricing models using current market rates.
F-13
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
The following tables set forth the Companys financial assets and liabilities that were measured at fair
value on a recurring basis as of March 31, 2016. No financial assets or liabilities were measured at fair value on a recurring basis at December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of March 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Derivative Liability - Warrant
|
|
$
|
3,121
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,121
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys derivative liabilities are classified within Level 3 because they are valued with an option pricing model,
where certain inputs to the model are unobservable and reflect the Companys assumptions as to what market participants would use.
The warrants were
valued using the Black Scholes option pricing model. The fair value of the Series AB Preferred Shares at the warrant issuance date was based on a 409A valuation of the Company at the issuance date. The Company estimated the fair value of Series
AB at issuance date and March 31, 2016 based on the Merger on May 3, 2016 to be $0.25 and $0.30 per share. The life of the option is equal to the weighted average remaining contractual life of the warrants which was 1 year and
0.75 year as of the issuance date and March 31, 2016 respectively. The volatility utilized is based upon the volatilities observed from publicly traded companies that are comparable to the Company. To date, the Company has not declared or
paid dividends to any of its shareholders so the assumed dividend rate is zero. The short term risk-free rate utilized is the yield on US Treasury STRIPS corresponding to the life of the option.
The following table presents the Companys liabilities measured at fair value using significant unobservable inputs (Level 3), as of March 31, 2016:
|
|
|
|
|
Balance, December 31, 2015
|
|
|
|
|
Issuance of Series AB preferred warrant
|
|
$
|
4,000
|
|
Increase for fair value adjustment of warrant liability
|
|
|
593
|
|
Decrease for fair value adjustment of exercised warrant
|
|
|
(1,472
|
)
|
|
|
|
|
|
Balance, March 31, 2016
|
|
|
3,121
|
|
|
|
|
|
|
Concurrent with the closing of the Merger on May 3, 2016, the Company restructured its Senior Secured Debt and Other Note
Payable that extended the payment term of respective principal balance of $50 million and $5 million to March 31, 2021 and September 8, 2021. All warrants for common stock, Series D and Series AB there were outstanding on May 3, 2016
were cancelled. See note 19 for more details on this subsequent event.
13. Income Taxes
The Company did not record a federal or state income tax provision or benefit for the three months ended March 31, 2016 due to the Companys
continued requirement for a full valuation allowance against its net deferred tax assets.
14. Commitments and Contingencies
Operating Leases
The Company leases buildings in
Shrewsbury, Massachusetts and Bridgewater, New Jersey and equipment under operating lease agreements, expiring through 2017. In addition to rental expense, the Company is obligated to pay costs of insurance, taxes, repairs and maintenance pursuant
to the terms of the leases. The rental payments include the minimum rentals plus common area maintenance charges. Some of the leases include renewal options. Rental expense under operating leases amounted to $334 and $331 for the three months
ended March 31, 2015 and 2016, respectively.
F-14
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
At March 31, 2016, the Company had the following minimum lease commitments:
|
|
|
|
|
Year ending December 31:
|
|
|
|
|
2016
|
|
$
|
872
|
|
2017
|
|
|
1,020
|
|
2018
|
|
|
121
|
|
|
|
|
|
|
|
|
$
|
2,013
|
|
|
|
|
|
|
Capital Leases
The
Company is the lessee of manufacturing equipment under a capital lease that began in January 2014 and expired in March 2016. The asset under this capital lease was recorded at the present value of the minimum lease payments, which amounted to $332
upon commencement and is depreciated over the term of the lease. Depreciation expense for assets under capital leases amounted to $26 for the three months ended March 31, 2015 and 2016 respectively. The carrying value of the asset at
December 31, 2015 and March 31, 2016 was $26 and $0 respectively.
Licensing Agreement
Pursuant to a formation agreement, dated as of August 22, 2006 (the Formation Agreement), BioValve and BTI Technologies Inc. (BTI), a wholly owned
subsidiary of BioValve, contributed to Valeritas, LLC all of their right, title and interest in and to all of the assets, properties and rights of BioValve and BTI to the extent related to BioValves drug delivery/medical device initiative,
consisting of patents and equipment, hereafter referred to as the Device Assets (Device Assets).
On August 22, 2008, the Formation Agreement was
amended and the Company agreed to pay BioValve an amount equal to 9% of any cash upfront license or signing fees and any cash development milestone payments received by the Company in connection with licenses or grants of third party rights to the
use in development or commercialization of the Rapid Infuser Technology. In certain circumstances the Company would owe 10% of such payments received. As of December 31, 2015 March 31, 2016, no amounts were owed under this agreement.
Although the Company believes the intellectual property rights around this technology have value, the technology licensed under this agreement is not used in the V-Go or any current products under development.
15. Other Warrants
Common Stock Warrants
There are no common stock warrant activities for the three months ended March 31 2016: As of March 31, 2016, were 179,149 common stock warrants
issued and outstanding. The warrants were cancelled immediately before the Merger on May 3, 2016.
Preferred Stock Warrants
In February 2015, the Company issued warrants to a Series D investor warrants to purchase 3,750 Series D shares. The exercise price of the warrants are $10.00
per share. All Series D warrants were exercised and converted to common as part of the conversion Series D share outlined in note 18 below.
F-15
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
16. Stock-Based Compensation
Stock Options
Total stock-based compensation expense
related to stock options was $2,140 and $561 for the three months ended March 31, 2015 and 2016, respectively.
Stock-based compensation expense is
classified in the condensed consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Research and development
|
|
$
|
482
|
|
|
$
|
174
|
|
General and administrative
|
|
|
1,658
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,140
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
On March 7, 2016, the Company dissolved Holdings (Valeritas Holdings, LLC). As a result of the dissolution, the 2008
Employee Equity Compensation Plan was terminated and all options outstanding thereunder were cancelled. The company did not grant any stock option in the three months ended March 31, 2016. Stock option activity under the 2014 Plan for the
three months ended March 31, 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price (in
dollars per
share)
|
|
|
Weighted-
Average
Contractual
Life (in
years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at December 31, 2015
|
|
|
1,115,855
|
|
|
$
|
11.23
|
|
|
|
8.59 years
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited / Cancelled
|
|
|
(123,192
|
)
|
|
|
11.24
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2016
|
|
|
992,663
|
|
|
$
|
11.22
|
|
|
|
8.33 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2014 Plan was terminated on May 3, 2016 and all outstanding options then were cancelled.
17. Related Party Transactions
On September 8,
2011, the Company issued a $5,000 note payable to WCAS Capital Partners IV, L.P., a Series D Preferred shareholder (See discussion of Other Note Payable in note 9). Certain affiliates of WCAS Capital Partners IV, L.P. are also
common stock shareholders as of March 31, 2016.
In 2015, Capital Royalty Partners (CRG), who are the lenders of Senior Secured Debt,
purchased 4,000,000 shares of Series AA Preferred Stock and 4,093,596 shares of Series AB Preferred Stock of the Company for gross proceeds of $5,000 and $5,117 respectively. As of March 31, 2016, CRG participated in additional Series AB
financing as well as exercised its Series AB warrants to acquire additional 10,276,030 shares of Series AB Preferred Stock of the Company for gross amount of $12,845. CRG also held warrants to acquire 10,379,800 shares of Series AB preferred stock
as of March 31, 2016.
F-16
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
18. Stockholders Deficit
At December 31, 2015, the Company was authorized to issue up to 91,600,000 shares of stock, consisting of 6,000,000 shares of Series D
Preferred Stock, par value $0.00001 per share; 16,000,000 shares of Series AA Preferred Stock, par value of $0.00001; 9,600,000 shares of Series AB Preferred Stock, par value of $0.00001 and 60,000,000 shares of common stock, par value $0.00001
per share. On January 29, 2016, the Company filed an Eighth Restated Certificate of Incorporation to increase the authorized number of shares of common stock to 92,000,000 and the shares of Series AB Preferred Stock to 32,000,000. On
May 3, 2016, the Company filed an Ninth Restated Certificate of Incorporation to increase the authorized number of shares to 166,451,154 shares which consists increasing common stock to 102,225,577 shares and the Series AB Preferred Stock to
42,225,577 shares.
Series D Convertible Preferred Stock
On January 29, 2016, 1,416,423 shares of Series D were converted to common stock for not participating in the full pro-rata amount stated within the
respective stock purchase agreements in the Series AB financing. As of March 31, 2016, there were 72,996 Series D shares outstanding. The warrant issued to acquire 3,750 Series D shares was exercised and converted to common as part of the
conversion outlined above.
Series AA Convertible Preferred Stock
On January 29, 2016, 2,041,376 shares of Series AA were converted to common stock for not participating in the full pro-rata amount stated within the
respective stock purchase agreements in the subsequent Series AB financing. As of March 31, 2016, there were 4,488,160 Series AA shares outstanding.
Series AB Convertible Preferred Stock
The Company
issued an additional 4,655,430 of Series AB Preferred Stock on January 29, 2016 for gross proceeds of $5,819. During February and March of 2016, CRG exercised warrants with respect to 5,620,600 Series AB Preferred Stock for gross proceeds of
$7,026. As of March 31, 2016, there were 17,115,891 Series AB preferred stock outstanding.
19. Subsequent Events
On April 15, 2016, CRG exercised additional warrants for 279,400 shares of Series AB Preferred Stock, providing additional funds of $350 to Valeritas,
Inc.
On May 3, 2016, the Company filed an Ninth Restated Certificate of Incorporation to increase the authorized number of shares to 166,451,154
shares which consists increasing common stock to 102,225,577 shares and the Series AB Preferred Stock to 42,225,577 shares.
Concurrent with the Merger,
as described below, the 2014 Employee Equity Compensation Plan was terminated and all options outstanding thereunder were cancelled.
F-17
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
Merger
On May 3, 2016, pursuant to an Agreement and Plan of Merger and Reorganization, dated May 3, 2016 (the Merger Agreement), by and among
Valeritas Holdings, Inc. (formerly Cleaner Yoga Mat, Inc.), a Delaware corporation (the Parent), Valeritas Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent (the Acquisition Subsidiary)
and Valeritas, Inc. (the Company), Acquisition Subsidiary was merged with and into the Company, with the Company remaining as the surviving entity and as a wholly owned subsidiary of the Parent (the Merger).
The Company entered into and executed several contemporaneous transactions related to the Merger, as described below.
Merger and Split-Off
The Parent was incorporated
in the State of Florida on May 9, 2014 as company that engages in the sale of sanitizing solutions for Yoga and Pilates studios as well of conventional gyms of all sizes. The Parent is a shell company as defined in Rule 12b-2 of the
Exchange Act. The parent ceased to be a shell company upon the consummation of the transaction.
Pursuant to the Merger Agreement, a wholly owned
subsidiary of the Parent, Acquisition Subsidiary, was merged with and into the Company, with the Company continuing after the Merger as the surviving entity and a wholly-owned subsidiary of the Parent. At the Closing Date, 27,665,645 shares of the
Companys pre-Merger Series AB Preferred Stock issued and outstanding immediately prior to the closing of the Merger was converted into 6,600,000 shares of the Parents Common Stock. All outstanding Series AA Preferred Stock, Series D
Preferred Stock and Common Stock were retired and cancelled prior to the Merger. In addition, pursuant to the Merger Agreement, all outstanding warrants and options for shares of common stock and Series AB preferred stock of the Company were
cancelled. The pre-Merger stockholders of the Parent retained an aggregate of 1,000,004 shares of common stock.
Upon the closing of the Merger, under the
terms of a split-off agreement and a general release agreement, the Parent transferred all of its pre-Merger operating assets and liabilities to its wholly-owned special purpose subsidiary (Split-Off Subsidiary), and transferred all of
the outstanding shares of capital stock of Split-Off Subsidiary to the pre-Merger majority stockholder of the Parent (the Split-Off), in consideration of and in exchange for (i) the surrender and cancellation of 40,486,000 shares of
the Parents common stock held by such stockholder (which will be cancelled and will resume the status of authorized but unissued shares of the Parents common stock) and (ii) certain representations, covenants and indemnities.
Following the Merger and Split-Off, the shareholders of the Company effectively control the combined companies, and as such, the Company is deemed to be the
accounting acquirer in the Merger. The Merger is being treated as a reverse merger and recapitalization.
F-18
Valeritas, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(in thousands,
except share and per share amounts)
Private Placement Offering
Concurrently with the closing of the Merger, and as a condition to the Merger, the Company closed a private placement offering (the Private
Placement) of approximately 5 million shares of common stock at a purchase price of $5.00 per share, for proceeds of approximately $24.2 million, net of financing costs. In addition, the Company also incurred approximately $0.5 million of
acquisition related costs. Existing investors of the Company invested $20 million of the Private Placement.
In connection with the Private Placement, the
Company incurred costs of approximately $1.0 million in fees, of which $0.3 million is in the form of warrants to purchase 83,120 shares of common stock at an exercise price of $5.00 to the placement agents. The warrants issued to the placement
agents will be accounted for as a derivative liability of the combined company as the warrant exercise price is subject to adjustment upon additional issuances of equity securities at a price per share lower than the exercise price of the warrant.
$0.6 million are fees paid in cash to the placement agents whilst the remainder $0.1 million are reimbursed expenses (including legal fees incurred by placement agent) paid to the placement agents.
Senior Secured Debt and Subsequent Forbearance Agreement with Capital Royalty Partners
Accrued interest, fees and expenses on the principal indebtedness held by CRG pursuant to the Term Loan Agreement as of May 3, 2016 was $16.6 million
(CRG Outstanding Interest). As part of the merger, the Company and CRG agreed to the following restructuring, such that the outstanding principal indebtedness of $50 million held by CRG under the Term Loan Agreement will remain
outstanding following the Merger. The Revised Term Loan shall mature on March 31, 2021 following the closing date of the Merger (the Maturity Date). Principal and all accrued paid-in-kind interest are due in full on the Maturity
Date. Interest on the Revised Term Loan will accrue at a rate of eleven percent (11%) per annum (other than when in default, in which case the Term Loan bears interest at 15% per annum) paid quarterly. The Revised Term Loan shall be
secured by a first priority security interest and right of payment in all of the Companys assets, accounts and proceeds now existing or to be acquired. To permit the Merger, all existing defaults under the Term Loan Agreement were permanently
waived. The Revised Term Loan includes only one financial liquidity operating covenant, which requires that we maintain an end-of-day cash balance greater than $5 million.
Immediately prior to the closing date of the Merger, CRG converted $5.8 million of the accumulated outstanding interest to 4,649,859 common stock of the
Company, at conversion price equal to $1.25 per share and the remaining $10.8 million of the accumulated outstanding interest were converted of the into shares of Series AB Preferred Stock, at a conversion price equal to $1.25 per share for a total
of 8,609,824 shares. Upon the closing of the Merger, the aggregate CRG shares of Series AB Preferred Stock were exchanged for 5,487,766 common stock in the Parent.
Subordinated Debt held by WCAS Capital Partners IV, L.P.
Accrued interest, fees and expenses on the principal indebtedness held by WCAS pursuant to the WCAS Note as of May 3, 2016 was $2.1 million (WCAS
Outstanding Interest). The outstanding principal indebtedness held by WCAS under the WCAS Note of $5 million will remain outstanding and the Amended WCAS Note will mature on September 8, 2021. Principal, inclusive of all accrued
paid-in-kind interest, on the Amended WCAS Note are due in full on the maturity date. The Amended WCAS Note shall accrue interest at a rate of ten percent (10%) per annum payable entirely as paid-in-kind interest. WCASs right to payment
under the Amended WCAS Note shall be subject to CRGs payment of the Revised Term Loan pursuant to a subordination agreement by and between WCAS and CRG. To permit the Merger, all existing defaults under the WCAS Note were permanently waived.
F-19
Immediately prior to the Closing Date, WCAS converted $2.1 million of the WCAS outstanding interest into
1,660,530 shares of Series AB Preferred Stock, at a conversion price equal to $1.25 per share. Upon the closing of the Merger, the shares of Series AB Preferred Stock were exchanged for 396,141 common stock in the Parent.
F-20
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On May 3, 2016, pursuant to an Agreement and Plan of Merger and Reorganization, (the Merger Agreement), by and among
Valeritas Holdings, Inc. (formerly Cleaner Yoga Mat, Inc.), a Delaware corporation (the Parent), Valeritas Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent (the Acquisition Subsidiary)
and Valeritas, Inc., a Delaware corporation (the Company), Acquisition Subsidiary was merged with and into the Company, with the Company remaining as the surviving entity and as a wholly owned subsidiary of the Parent (the
Merger).
The unaudited pro forma condensed combined balance sheet is presented as if the reverse merger had occurred as of
March 31, 2016. The unaudited pro forma condensed combined statement of operations for the quarter ended March 31, 2016 are presented as if the merger had occurred on January 1, 2015. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 2015 are presented as if the merger had occurred on January 1, 2015. As a result of the Merger, the Parent discontinued their pre-Merger business, acquired the business of the Company
and will continue the existing business operations of the Company under the name Valeritas Holdings, Inc. as a publicly-traded company. The Company is considered the acquirer for accounting purposes, and the Parents historical financial
statements before the Merger will be replaced with the historical financial statements of the Company before the Merger in future filings with the SEC. The unaudited pro forma condensed combined balance sheet and pro forma condensed combined
statement of operations give effect to the Merger as if it had been completed at the beginning of the period presented. The historical financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give
effect to pro forma events that are (1) directly attributable to the Merger, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined company.
The unaudited pro forma condensed combined financial statements presented are based on the assumptions and adjustments described in the
accompanying notes. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes and do not purport to represent what the financial position or results of operations would actually have been if the Merger
occurred as of the dates indicated or what such financial position or results would be for any future periods for the combined company. The unaudited pro forma condensed combined financial statements are based upon the respective historical
consolidated financial statements of the Company and the Parent, and should be read in conjunction with the:
|
|
|
accompanying notes to the unaudited pro forma condensed combined financial statements;
|
|
|
|
separate historical unaudited financial statements of the Parent included in their quarterly report on Form 10-Q as of and for the quarter ended March 31, 2016 filed with the SEC on May 3, 2016;
|
|
|
|
separate historical audited financial statements of the Company as of and for the years ended December 31, 2014 and 2015 included elsewhere in Form 8-K dated May 9, 2016;
|
|
|
|
separate historical unaudited financial statements of the Company as of and for the quarters ended March 31, 2016 included elsewhere in this current Form 8-K/A;
|
|
|
|
managements discussion and analysis of financial condition and results of operations and Risk Factors included elsewhere in this Form 8-K/A.
|
The accounting for certain transactions reflected in these unaudited pro forma condensed combined financial statements is dependent upon
certain significant estimates that have yet to be completed or have not progressed to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments are preliminary and are subject to further
revision as additional information becomes available and additional analyses are performed. Differences between these preliminary estimates and the final accounting may occur and these differences could have a material impact on the accompanying
unaudited pro forma condensed combined financial statements and the combined companies future financial position and results of operations. To the extent there are significant changes to the combined companys business, or as new
information becomes available, the assumptions and estimates herein could change significantly. The unaudited pro forma condensed combined financial statements do not reflect certain transactions that occurred subsequent to March 31, 2016.
F-21
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of March 31, 2016
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
Valeritas, Inc.
|
|
|
Cleaner Yoga
Mat, Inc.
|
|
|
Adjustments
|
|
|
Note
|
|
|
Combined
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,409
|
|
|
|
|
|
|
|
349
|
|
|
|
(D
|
)
|
|
|
28,953
|
|
|
|
|
|
|
|
|
|
|
|
|
24,195
|
|
|
|
(E
|
)
|
|
|
|
|
Accounts receivable, net
|
|
|
3,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,470
|
|
Other receivables
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
Inventories, net
|
|
|
11,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,674
|
|
Deferred cost of goods sold
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
754
|
|
Prepaid expense and other current assets
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
21,147
|
|
|
|
|
|
|
|
24,544
|
|
|
|
|
|
|
|
45,691
|
|
Property and equipment, net (note 6)
|
|
|
11,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,837
|
|
Other assets
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
33,137
|
|
|
|
|
|
|
|
24,544
|
|
|
|
|
|
|
|
57,681
|
|
Liabilities and stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
16,691
|
|
|
|
135
|
|
|
|
1,098
861
(12,838
(5,812
(135
|
)
)
)
|
|
|
(A
(B
(C
(C
(H
|
)
)
)
)
)
|
|
|
|
|
Accounts payable
|
|
|
5,606
|
|
|
|
13
|
|
|
|
(13
|
)
|
|
|
(H
|
)
|
|
|
5,606
|
|
Accrued expense and other current liabilities
|
|
|
6,299
|
|
|
|
|
|
|
|
542
|
|
|
|
(E
|
)
|
|
|
6,841
|
|
Derivative liabilities
|
|
|
3,121
|
|
|
|
|
|
|
|
(3,037
|
)
|
|
|
(D
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
(D
|
)
|
|
|
|
|
Deferred revenue
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,451
|
|
|
|
148
|
|
|
|
(19,418
|
)
|
|
|
|
|
|
|
14,181
|
|
Long Term Debt
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
Deferred rent liability
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
266
|
|
|
|
(E
|
)
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
88,502
|
|
|
|
148
|
|
|
|
(19,152
|
)
|
|
|
|
|
|
|
69,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series AB preferred stock, $0.00001 par value
|
|
|
21,392
|
|
|
|
|
|
|
|
12,838
(34,579
349
|
)
)
|
|
|
(C
(F
(D
|
)
)
)
|
|
|
|
|
Series AA preferred stock, $0.00001 par value
|
|
|
5,609
|
|
|
|
|
|
|
|
(5,609
|
)
|
|
|
(F
|
)
|
|
|
|
|
Series D preferred stock, $0.00001 par value
|
|
|
732
|
|
|
|
|
|
|
|
(732
|
)
|
|
|
(F
|
)
|
|
|
|
|
Common stock - Valeritas ($0.00001 par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - Yoga ($0.001 par value, 12,638,991 shares issued and outstanding upon completion of
the Merger )
|
|
|
|
|
|
|
|
|
|
|
6
8
|
|
|
|
(E
(F
|
)
)
|
|
|
14
|
|
Additional paid-in capital
|
|
|
311,672
|
|
|
|
50
|
|
|
|
23,922
3,037
84
5,812
40,914
(50
|
)
|
|
|
(E
(D
(D
(C
(F
(H
|
)
)
)
)
)
)
|
|
|
385,441
|
|
Accumulated deficit
|
|
|
(394,770
|
)
|
|
|
(198
|
)
|
|
|
(543
198
(1,098
(861
|
)
)
)
|
|
|
(E
(H
(A
(B
|
)
)
)
)
|
|
|
(397,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(55,365
|
)
|
|
|
(148
|
)
|
|
|
43,696
|
|
|
|
|
|
|
|
(11,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
33,137
|
|
|
|
|
|
|
|
24,544
|
|
|
|
|
|
|
|
57,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial
statements.
F-22
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2015
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
Valeritas,
Inc.
|
|
|
Cleaner Yoga
Mat, Inc.
|
|
|
Adjustments
|
|
|
Note
|
|
|
Combined
|
|
Revenue, net
|
|
$
|
18,097
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(G
|
)
|
|
|
18,097
|
|
Cost of goods sold
|
|
|
14,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
3,860
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
3,860
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,523
|
|
Selling, general and administrative
|
|
|
44,680
|
|
|
|
(87
|
)
|
|
|
87
|
|
|
|
(G
|
)
|
|
|
44,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
51,203
|
|
|
|
(87
|
)
|
|
|
87
|
|
|
|
|
|
|
|
51,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
$
|
(47,343
|
)
|
|
|
(85
|
)
|
|
|
85
|
|
|
|
|
|
|
|
(47,343
|
)
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
1
|
|
|
|
(18
|
)
|
|
|
18
|
|
|
|
(G
|
)
|
|
|
1
|
|
Interest expense
|
|
|
(16,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,318
|
)
|
Change in fair value of derivatives
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
443
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering costs (including 2014 capitalized IPO costs)
|
|
|
(3,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(19,852
|
)
|
|
|
(18
|
)
|
|
|
18
|
|
|
|
|
|
|
|
(19,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
67,195
|
|
|
|
(104
|
)
|
|
|
104
|
|
|
|
|
|
|
|
(67,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common shareholders basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.14
|
)
|
Weighted average shares outstanding basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,950,755
|
|
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial
statements.
F-23
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the three months ending March 31, 2016
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma
|
|
|
|
Valeritas,
Inc.
|
|
|
Cleaner Yoga
Mat, Inc.
|
|
|
Adjustments
|
|
|
Note
|
|
|
Combined
|
|
Revenue, net
|
|
$
|
5,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,009
|
|
Cost of goods sold
|
|
|
3,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
1,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,712
|
|
Operating Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,261
|
|
Selling, general and administrative
|
|
|
8,318
|
|
|
|
29
|
|
|
|
(29
|
)
|
|
|
(G
|
)
|
|
|
8,318
|
|
Restructuring
|
|
|
1,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
11,341
|
|
|
|
29
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
11,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
$
|
(9,629
|
)
|
|
|
(29
|
)
|
|
|
29
|
|
|
|
|
|
|
|
(9,629
|
)
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(6,585
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(G
|
)
|
|
|
(6,585
|
)
|
Change in fair value of derivative
|
|
|
(593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(593
|
)
|
Merger costs
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(7,269
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(7,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(16,898
|
)
|
|
|
(30
|
)
|
|
|
30
|
|
|
|
|
|
|
|
(16,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common shareholders basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.48
|
)
|
Weighted average shares outstanding basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,409,850
|
|
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial
statements.
F-24
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1.
|
Description of the Merger and Related Transactions and Basis of Pro Forma Presentation
|
The unaudited pro forma condensed combined financial statements were prepared in accordance with accounting principles generally accepted in
the United States of America and pursuant to the rules and regulations of Regulation S-X, and present the pro forma financial position and results of operations of the combined companies based upon the historical data of the Company and the Parent,
after giving effect to the Merger and related transactions.
In April and May 2016, the Company entered into and executed several
contemporaneous transactions related to the Merger, as described below.
Merger and Split-Off
The Parent was incorporated in the State of Florida on May 9, 2014 as company that engages in the sale of sanitizing solutions for Yoga
and Pilates studios as well of conventional gyms of all sizes. The Parent is a shell company as defined in Rule 12b-2 of the Exchange Act. The parent ceased to be a shell company upon the consummation of the transaction.
The Company was incorporated in the state of Delaware on December 27, 2007 when it changed its organization form and name from Valeritas,
LLC, which was formed on August 2, 2006. The Company is engaged in developing innovative technologies to improve the health and quality of life of people with Type 2 diabetes.
Pursuant to the Merger Agreement, a wholly owned subsidiary of the Parent, Acquisition Subsidiary, was merged with and into the Company, with
the Company continuing after the Merger as the surviving entity and a wholly-owned subsidiary of the Parent. At the Closing Date, 27,665,645 shares of the Companys pre-Merger Series AB Preferred Stock issued and outstanding immediately prior
to the closing of the Merger was converted into approximately 6,600,000 shares of the Parents Common Stock. All outstanding Series AA Preferred Stock, Series D Preferred Stock and Common Stock were retired and cancelled prior to the Merger. In
addition, pursuant to the Merger Agreement, all outstanding warrants and options for shares of common stock and Series AB preferred stock of the Company were cancelled. The pre-Merger stockholders of the Parent retained an aggregate of 1,000,004
shares of common stock. On a pro forma basis, based upon the number of shares of the Company common stock issued in the Merger, immediately following the Merger, (i) pre-existing stockholders of the Parent and their designees have 8% ownership
of the combined company and pre-existing stockholders of the Company and their designees owned approximately 84% (but open until final raise) of the combined company.
Upon the closing of the Merger, under the terms of a split-off agreement and a general release agreement, the Parent transferred all of its
pre-Merger operating assets and liabilities to its wholly-owned special purpose subsidiary (Split-Off Subsidiary), and transferred all of the outstanding shares of capital stock of Split-Off Subsidiary to the pre-Merger majority
stockholder of the Parent (the Split-Off), in consideration of and in exchange for (i) the surrender and cancellation of an aggregate of 40,486,000 shares of the Parents common stock held by such stockholder (which were
cancelled and will resume the status of authorized but unissued shares of the Parents common stock) and (ii) certain representations, covenants and indemnities.
Following the Merger and Split-Off, the shareholders of the Company effectively control the combined companies, and as such, the Company is
deemed to be the accounting acquirer in the Merger. The Merger is being treated as a reverse merger and recapitalization. The Parents historical financial statements before the Merger will be replaced with the historical financial statements
of the Company before the Merger in future filings with the SEC. The assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Merger will be those of the Company, and will be recorded at
the historical cost basis of the Company. The consolidated financial statements after completion of the Merger will include the assets and liabilities of the Company, historical operations of the Company, and operations of the Company and its
subsidiaries from the closing date of the Merger.
F-25
Private Placement Offering
Concurrently with the closing of the Merger, and as a condition to the Merger, the Company closed a private placement offering (the
Private Placement) of approximately 5 million shares of common stock at a purchase price of $5.00 per share, for gross proceeds of approximately $25 million. Existing investors of the Company invested $20 million of the Private
Placement for a total of 4,000,000 additional shares.
In connection with the Private Placement, the Company incurred costs of
approximately $1.0 million in fees, of which $0.3 million is in the form of warrants to purchase 83,120 shares of common stock at an exercise price of $5.00 to the placement agents. The warrants issued to the placement agents are accounted as a
derivative liability on the pro-forma balance sheet of the combined company as the warrant exercise price is subject to adjustment upon additional issuances of equity securities at a price per share lower than the exercise price of the warrant. $0.6
million are fees paid in cash to the placement agents whilst the remainder $0.2 million are reimbursed expenses (including legal fees incurred by placement agent) paid to the placement agents.
Term Loan and Subsequent Forbearance Agreement with Capital Royalty Partners
The Company currently has outstanding a principal amount of $50 million of senior indebtedness held by Capital Royalty Group and certain of its
affiliates (collectively, CRG) pursuant to an Amended and Restated Term Loan Agreement by and between the Company and CRG dated as of August 5, 2014 by (as amended, the Term Loan Agreement). Accrued interest, fees and
expenses on the principal indebtedness held by CRG pursuant to the Term Loan Agreement as of May 3, 2016 was $16.6 million (CRG Outstanding Interest). The outstanding principal indebtedness of $50 million will remain outstanding
following the Merger. The Revised Term Loan shall mature on March 31, 2021 following the closing date of the Merger (the Maturity Date). Principal, inclusive of all accrued paid-in-kind interest, on the Revised Term Loan are due in
full on the Maturity Date. Interest on the Revised Term Loan will accrue at a rate of eleven percent (11%) per annum (other than when in default, in which case the Term Loan bears interest at 15% per annum) paid quarterly. The Revised Term
Loan shall be secured by a first priority security interest and right of payment in all of the Companys assets, accounts and proceeds now existing or to be acquired. To permit the Merger, all existing defaults under the Term Loan Agreement
were permanently waived.
Under the Forbearance Agreement with CRG that preceded the Merger, the Company issued warrants to CRG for the
purchase of $16 million of series AB preferred stock with a strike price of $1.25 per share. In January and March 2016, CRG exercised its warrants to acquire 5,620,200 shares of Series AB Preferred Stock for gross proceeds approximately $7.0
million. In April 2016, CRG further exercised warrants for 279,400 shares of Series AB Preferred Stock, providing additional funds approximately $0.4 million to Valeritas, Inc. Immediately prior to the Closing Date, CRG converted $5.8 million of the
accumulated CRG Outstanding Interest to 4,649,859 common stock of the Company, at conversion price equal to $1.25 per share and the remaining $10.8 million of the accumulated outstanding interest were converted of the into shares of Series AB
Preferred Stock, at a conversion price equal to $1.25 per share for a total of 8,609,824 shares. Upon the closing of the Merger, the cumulative ownership of CRG Series AB Preferred Stock were exchanged for 5,487,766 common stock in the Parent. The
exchange ratio was 4.19.
Subordinated Debt held by WCAS Capital Partners IV, L.P.
The Company currently has a principal amount of $5 million of subordinated indebtedness held by WCAS Capital Partners IV, L.P.
(WCAS), an affiliate of Welsh, Carson, Anderson & Stowe, pursuant to a Note issued by The Company to WCAS, dated September 8, 2011 (as amended, the WCAS Note). Accrued interest, fees and expenses on the
principal indebtedness held by WCAS pursuant to the WCAS Note as of May 3, 2016 was $2.1 million (WCAS Outstanding Interest). The outstanding principal indebtedness held by WCAS under the WCAS Note will remain outstanding and the
Amended WCAS Note will mature on September 8, 2021. Principal, inclusive of all accrued paid-in-kind interest, on the Amended WCAS Note are due in full on the maturity date. The Amended WCAS Note shall accrue interest at a rate of ten percent
(10%) per annum payable entirely as paid-in-kind interest. WCASs right to payment under the Amended WCAS Note shall be subject to CRGs payment of the Revised Term Loan pursuant to a subordination agreement by and between WCAS and
CRG. To permit the Merger, all existing defaults under the WCAS Note were permanently waived.
F-26
Immediately prior to the Closing Date, WCAS converted their portion of the WCAS Outstanding
Interest into shares of Series AB Preferred Stock, at a conversion price equal to $1.25 per share for a total of 1,660,530 shares. Upon the closing of the Merger, the shares of Series AB Preferred Stock were exchanged for 396,141 common stock in the
Parent. The exchange ratio was 4.19.
2.
|
Accounting Policies and Merger Pro Forma Adjustments
|
Based on the Companys review
of the Parents summary of significant accounting policies disclosed in the Parents financial statements, the nature and amount of any adjustments to the historical financial statements of the Parent to conform its accounting policies to
those of the Company are not expected to be significant. Further review of the Parents accounting policies and financial statements may result in required revisions to the Parents policies and classifications to conform to the
Companys accounting policies.
The following pro forma adjustments are based on preliminary estimates, which may change
significantly as additional information is obtained:
|
(A)
|
To record accelerated amortization of debt discount as part of restructuring the debt with CRG and WCAS.
|
|
(B)
|
To record the interest expense of Senior Secured Debt and Amended Senior Subordinated Note Payable from April 1, 2016 through to May 3, 2016.
|
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(C)
|
To record the conversion of $5.8 million accumulated CRG Outstanding Interest to 4,649,859 common stock of the Company at a conversion price equal to $1.25 per share and the remaining $12.8 million accrued interest and
prepayment fees on both CRG term loan and WCAS subordinated debt as of May 3, 2016 into 10,270,354 shares of Series AB Preferred Stock at a conversion price equal to $1.25 per share, as part of the terms loan restructuring described in item 1
above.
|
|
(D)
|
To record the exercise of warrants by CRG in April 2016. The exercise resulted in the issuance of additional 279,400 shares of Series AB Preferred Stock for gross proceeds of $0.3 million. $0.1 million of the warrant
derivative liability relating to the exercised warrants were charged to additional paid in capital. The remaining warrants that were not exercised were cancelled as part of the Merger. Given these warrants are held by a related party and had a
derivative fair value of $3.0 million which was reversed to additional paid in capital upon cancellation.
|
|
(E)
|
To record the sale of approximately 5 million shares of the Companys common stock for $5.00 per share, resulting in gross proceeds of $25.2 million (the Private Placement), net of issuance costs
of $1.0 million, including $0.6 million of placement agents fees, $0.2 million expenses reimbursed to placement agents and $0.3 million in warrant derivative liability for warrants issued to placement agents. Also included in the adjustment is an
estimate of other costs related to Merger of $0.5 million and to record the conversion of 1,000,004 shares of the Parents pre-merger common stock to the common stock of the combined company upon the Merger.
|
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(F)
|
To record the retirement and cancellation pre-Merger of the Companys Series D, AA, Common Stock and warrants outstanding prior to the merger and the issuance of approximately 6,600,000 shares of common stock of
the Companys common stock upon conversion of the Companys pre-merger Series AB shares.
|
|
(G)
|
To reflect the elimination of the Parents revenue and expenses as if the Merger and Split-Off occurred on January 1, 2016.
|
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(H)
|
To record the effect of the Split-Off of the Parents pre-Merger assets and liabilities for consideration in the form of the surrender by the Split-Off purchaser of 40,486,000 shares of the Parents common
stock, and to record the elimination of the Companys pre-Merger accumulated deficit. 1,000,004 shares of the Parents pre-merger common stock remained outstanding and converts to the common share of the combined company at conversion
ratio of 1:1.
|
|
(I)
|
The pro forma combined basic and diluted earnings per share have been adjusted to reflect the pro forma combined net loss for the year ended December 31, 2015 and the three months ended March 31, 2016. In
addition, the numbers of shares used in calculating the pro forma combined basic and diluted net loss per share for each period have been adjusted to reflect the estimated total number of shares of
|
F-27
common stock of the combined company that would be outstanding as of the closing of the Merger. The estimated total numbers of shares of common stock of the combined company that would be
outstanding as of the closing of the Merger is calculated as the estimated adjusted total shares of common stock of the combined company of 12,638,991. The following table sets forth the calculation of the pro forma weighted average number of common
shares outstanding basic and diluted as of December 31, 2015 and March 31, 2016 presented as if the merger had occurred on January 1, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma WA shares
|
|
|
|
All Shares
Issued/Issuable
upon Merger
|
|
|
Year Ended
December 31, 2015
|
|
|
Three Months ending
March 31, 2016
|
|
Valeritas shares: issued and outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preconversion basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
22,988,374
|
|
|
|
|
|
|
|
|
|
Preferred D
|
|
|
83,088
|
|
|
|
|
|
|
|
|
|
Preferred AA
|
|
|
4,488,160
|
|
|
|
|
|
|
|
|
|
Preferred AB
|
|
|
27,665,645
|
|
|
|
21,836,229
|
|
|
|
22,513,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,225,267
|
|
|
|
21,836,229
|
|
|
|
22,513,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post conversion basis at the Exchange Ratio of
[4.1918]
|
|
|
6,599,991
|
|
|
|
5,209,317
|
|
|
|
5,370,846
|
|
Portion of private placement subscribed by new investors
|
|
|
1,039,000
|
|
|
|
1,039,000
|
|
|
|
1,039,000
|
|
Portion of private placement subscribed by Valeritas shareholders
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal of former Valeritas (carryover) equity interests at the date of the Merger
|
|
|
11,638,991
|
|
|
|
10,248,317
|
|
|
|
10,409,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parents Shares outstanding at the time of the Merger
|
|
|
40,486,000
|
|
|
|
40,837,219
|
|
|
|
40,486,000
|
|
Shares issued in Parent prior to the Merger
|
|
|
1,000,000
|
|
|
|
351,219
|
|
|
|
1,000,004
|
|
Shares surrendered in connection with the Split-Off
|
|
|
(40,486,000
|
)
|
|
|
(40,486,000
|
)
|
|
|
(40,486,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
702,438
|
|
|
|
1,000,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,638,991
|
|
|
|
10,950,755
|
|
|
|
11,409,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28