Notes to Condensed Financial Statements (Unaudited)
NOTE 1 DESCRIPTION OF BUSINESS
Great Basin Scientific, Inc. (the “Company”) (d.b.a., Great Basin Corporation) is a Delaware corporation headquartered in Salt Lake City, Utah. The Company was originally incorporated as Diagnostic Micro Arrays, Inc., a Nevada corporation, on June 27, 2003. The Company changed its name to Great Basin Scientific, Inc. on April 19, 2006. On August 12, 2008, the Company took steps to change its corporate domicile from Nevada to Delaware by forming Great Basin Scientific, Inc., a Delaware corporation, and on August 29, 2008, Great Basin Scientific, Inc., a Nevada corporation, was merged with and into Great Basin Scientific, Inc., a Delaware corporation, wherein the Delaware corporation was the sole surviving entity.
The Company is a molecular diagnostic testing company focused on the development and commercialization of its patented, molecular diagnostic platform designed to test for infectious disease, especially hospital-acquired infections. The Company believes that small to medium sized hospital laboratories, those under 400 beds, are in need of simpler and more affordable molecular diagnostic testing methods. The Company markets a system that combines both affordability and ease-of-use, when compared to other commercially available molecular testing methods, which it believes will accelerate the adoption of molecular testing in small to medium sized hospitals. The system includes an analyzer, which is provided for our customers’ use without charge in the United States, and a diagnostic cartridge, which is sold to our customers. The testing platform has the capability to identify up to 64 individual targets at one time. If the test identifies one to three targets, they are referred to as low-plex tests, or tests, and if they identify four or more targets they are referred to as multi-plex panels, or panels. The Company currently has three commercially available tests, the first for clostridium difficile, or
C. diff
, which received clearance from the Food and Drug Administration, or FDA, in April 2012, the second for Group B Strep, which received clearance from the FDA in April 2015 and launched commercially in June 2015, and the third for Shiga Toxin producing
E. coli
or STEC, which received clearance from the FDA in March 2016 and launched commercially in August 2016. The Company received FDA clearance in March 2016 for Staphylococcus Identification and Resistance Panel, or Staph ID/R panel. This test is not yet available for commercial sale. Our customers consist of hospitals, clinics, laboratories and other healthcare providers in the United States, the European Union and New Zealand.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These condensed unaudited financial statements have been prepared to reflect the financial position, results of operations and cash flows of the Company as of June 30, 2016 and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. The accompanying condensed financial statements and notes are unaudited. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements for the year ended December 31, 2015 and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2016, its results of operations for the three and six months ended June 30, 2016 and 2015, and cash flows for the six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.
Net Income (Loss) per Common Share
Basic loss per share (“EPS”) is computed by dividing net loss (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net loss by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include convertible preferred stock, convertible notes, stock options and warrants. The number of potential common shares outstanding is computed using the treasury stock method.
As the Company has incurred losses for the three months ended June 30, 2016 and the six months ended June 30, 2016 and 2015, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of June 30, 2016 and 2015, there were 22,000,202 and 22,064 potentially dilutive shares, respectively
.
The Company had net income for the three months ended June 30, 2015 and therefore potentially dilutive shares must be added into the diluted net income (loss) per share calculations.
6
The components of basic and diluted net income (loss) per share for the three months ended June 30, 2015 are as follows:
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Three Months
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Ended
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|
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June 30, 2015
|
|
Basic:
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|
|
|
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Numerator:
|
|
|
|
|
Net Income
|
|
$
|
19,160,684
|
|
Denominator:
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|
|
|
|
Weighted Average Common Shares
|
|
|
3,040
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|
|
|
|
|
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Net Income Per Common Share - Basic
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|
$
|
6,303.25
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|
|
|
|
|
|
Diluted:
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|
|
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Numerator:
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|
|
|
|
Net Income
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$
|
19,160,684
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|
Denominator:
|
|
|
|
|
Weighted Average Common Shares
|
|
|
3,040
|
|
Series E Convertible Preferred Stock
|
|
|
5,102
|
|
Warrants
|
|
|
4,544
|
|
Employee Stock Options
|
|
|
104
|
|
Denominator for Diluted Calculation
|
|
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12,790
|
|
|
|
|
|
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Net Income Per Common Share - Diluted
|
|
$
|
1,498.09
|
|
Reverse Stock Split
On March 30, 2016, the Company effected a reverse stock split of the Company’s common stock whereby each thirty-five shares of common stock was replaced with one share of common stock (with no fractional shares issued). The par value and the number of authorized shares of the common stock were not adjusted. All common share and per share amounts for all periods presented in these financial statements have been adjusted retroactively to reflect the reverse stock split. The quantity of Series E Preferred Stock, Common Warrants, Class A, Class B, Series B and Series C Warrants as well as employee and other options were not included in the reverse stock split and their outstanding quantities have not been adjusted. However, the conversion and exchange ratios were adjusted for the effect of the reverse stock splits such that upon conversion each 2,100 shares of Series E Preferred Stock will now be converted into four shares of common stock and upon exercise each 2,100 warrants or options will now be converted into one share of common stock. The quantity of Series D and Subordination Warrants were not included in the reverse stock split and their outstanding quantities have not been adjusted. However, the conversion ratio has been adjusted such that upon exercise each 35 of the Series D and Subordination Warrants will now be converted into one share of common stock (see NOTE 10 WARRANTS).
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under FASB ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FASB ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, with the first two inputs considered observable and the last input considered unobservable, that may be used to measure fair value as follows:
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·
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Level one
— Quoted market prices in active markets for identical assets or liabilities;
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·
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Level two
— Inputs other than level one inputs that are either directly or indirectly observable; and
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·
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Level three
— Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
|
7
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company issued certain common stock warrants, employee s
tock options and convertible notes that are required to be recorded at fair value measured at the transaction date. In addition, certain other warrants to purchase common stock and convertible notes qualify as derivative liabilities and are therefore requi
red to be recorded at fair value measured at the transaction date and again at each reporting period end. The fair value of these warrants and conversion was determined using estimates and assumptions that are not readily available in public markets and th
e Company has designated this liability as Level 3. The assumptions used for the fair value calculation as well as the changes in the value of the derivative liability are shown in NOTE 11 DERIVATIVE LIABILITY.
Derivative Instruments
The Company accounts for derivative instruments under the provisions of ASC 815
Derivatives and Hedging
. ASC 815 requires the Company to record derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings. As a result of certain terms, conditions and features included in certain common stock warrants granted by the Company as well as the conversion features in the convertible notes, those provisions are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in earnings.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02
Leases
, which requires recognition of leased assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual periods and interim periods with those periods beginning after December 15, 2018. The Company is evaluating the impact of this standard on its financial statements.
In July 2015, the FASB issued ASU 2015-11
Simplifying the Measurement of Inventory
, that simplifies the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost or net realizable value test. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating the impact this standard will have on its financial statements and related disclosures.
In April 2015, the FASB issued ASU No. 2015-03
Interest – Imputation of Interest, Simplifying the Presentation of Debt Issuance Cost.
This standard provides guidance on the balance sheet presentation for debt issuance costs and debt discounts and debt premiums. To simplify the presentation of debt issuance costs, this standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This ASU is effective for fiscal years beginning after December 15, 2015. The Company has adopted this standard and the effects are reflected in its financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern
, which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern. The update is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The impact on the Company’s financial statements of adopting ASU 2014-15 is currently being assessed by management.
In May 2014, the FASB issued ASU No. 2014-09
Revenue from Contracts with Custo
mers, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled to those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In April 2015, the FASB deferred the effective date of ASU 2014-09 to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2014-09 on its financial statements.
8
NOTE 3 GOING CONCERN
The Company’s condensed unaudited financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations and negative operating cash flows which raise substantial doubt about the Company’s ability to continue as a going concern. The Company sustained a net loss for the six months ended June 30, 2016 of $53.9 million and a net loss for the year ended December 31, 2015 of $57.9 million, and has an accumulated deficit of $175.8 million as of June 30, 2016. Whether and when the Company can attain profitability and positive cash flows from operations is uncertain.
The Company intends to continue to develop its products and expand its customer base, but does not have sufficient realized revenues or operating cash flows in order to finance these activities internally. As a result, the Company intends to seek to obtain financing in order to fund its working capital and development needs. In February 2016, the Company obtained financing by completing a follow-on offering for net proceeds of $5.0 million. In May 2016, holders of the senior secured convertible notes voluntarily agreed to remove restrictions on the Company’s use of $2.0 million previously funded to the Company and authorized the release of those funds from the restricted cash accounts of the Company. In June 2016, the Company obtained additional financing by completing another follow-on offering for net proceeds of $5.3 million.
The Company has been able to meet its short-term needs through private placements of convertible preferred securities, an initial public offering (“IPO”), additional follow-on offerings, convertible debt financing and the sale and leaseback of analyzers used to report test results. The Company will continue to seek funding through the issuance of additional equity securities, debt financing, the sale and leaseback of analyzers, or a combination of these items. Any proceeds received from these items could provide the needed funds for continued operations and development programs. The Company can provide no assurance that it will be able to obtain sufficient additional financing that it needs to alleviate doubt about its ability to continue as a going concern. If the Company is able to obtain sufficient additional financing proceeds, the Company cannot be certain that this additional financing will be available on acceptable terms, if at all. To the extent the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to obtain additional financings, the impact on the Company’s operations will be material and adverse.
NOTE 4 LEASE COMMITMENTS
Capital Leases
The Company has entered into two lease agreements for the sale-leaseback of molecular diagnostic analyzers. The first agreement was entered into in November 2013 and provided for the sale of 125 molecular diagnostic analyzers for a sales price of $2,500,000, which are being leased back for a base period of thirty-six monthly payments of $74,875. The second agreement was entered into in April 2014 for the sale of 75 molecular diagnostic analyzers for a sales price of $1,500,000, which are being leased back for a base period of twenty-four monthly payments of $64,665. At the end of each lease term, the leases shall automatically renew for twelve additional months unless certain conditions are met. As such, the Company is amortizing the capital lease over a forty-eight month period for the first agreement and a thirty-six month period for the second agreement. The lease is accounted for as a capital lease sale-leaseback transaction in accordance with ASC 840, “Leases”.
Operating Leases
The Company leases approximately 35,540 square feet of office space located in Salt Lake City, Utah for use as the executive offices and labs. Base rent payments due under the lease are expected to be approximately $3,472,875 in the aggregate over the term of the lease of 65 months beginning on December 1, 2015. The Company also leases approximately 33,000 square feet of building space at another location in Salt Lake City, Utah for use primarily as manufacturing space and labs. Base rent payments due under these leases total $21,226 per month. The leases expire on April 30, 2017. The Company also leases certain office equipment such as copiers and printers under operating lease agreements that expire at various dates.
Amounts charged to expense under operating leases were $238,319 and $69,634 for the three months ended June 30, 2016 and 2015, respectively and $403,365 and $143,902 for the six months ended June 30, 2016 and 2015, respectively.
9
NOTE 5 NOTES PAYABLE
The Company purchased certain machinery and equipment under two note payable agreements in January and February 2013. During the six months ended June 30, 2016, both notes were extinguished by making the final payments on the notes in the amount of $5,693.
NOTE 6 CONVERTIBLE NOTES PAYABLE
On December 30, 2015, the Company entered into a Securities Purchase Agreement (“SPA”) with certain investors pursuant to which it agreed to issue $22.1 million in senior secured convertible notes (“Notes”) and Series D Warrants (further described below). The Notes were originally convertible into 3,946,429 shares of Common Stock at a price equal to $5.60 per share, subject to adjustment for certain dilutive events. As of June 30, 2016, the Notes are convertible into 11,631,578 shares of common stock at a price equal to $1.90 per share, which continue to be subject to certain dilutive events. $20 million of the notes were issued for cash proceeds totaling $18.4 million with an original issue discount in the amount of $1.6 million which is equal to sixteen (16) months of simple interest at a rate of six percent (6.0%) per annum on the aggregate principal of the Notes (assuming, that the entire aggregate original principal amount remains outstanding through the maturity date). $2.1 million of the Notes were issued to extinguish 1,050,000 outstanding Series C Warrants at an extinguish value of $2.00 per warrant. The Notes are senior secured obligations of the Company and will rank senior to all outstanding and future indebtedness of the Company. They are secured by a first priority perfected security interest (subject to permitted liens as defined in the Notes) in all of the current and future assets of the Company. The Notes contain standard and customary events of default and the entire principal balance is subject to the default and redemption provisions contained in the Notes, regardless of whether or not any of the proceeds have been released from the Company’s restricted accounts.
In connection with the issuance of the Notes under the SPA, the Company issued Series D Warrants (the “Series D Warrants”), exercisable to acquire 100,090 shares of Common Stock and Subordination Warrants (the “Subordination Warrants”), exercisable to acquire 3,015 shares of Common Stock, both which are subject to a one time adjustment on December 31, 2016 under the terms of the Series D and Subordination Warrants (see NOTE 10 WARRANTS). Each Series D and Subordination Warrant is exercisable by the holder beginning six months after December 30, 2015 and continuing for a period five years thereafter. The Series D and Subordination Warrants were originally exercisable at $5.60 per share of common stock, subject to adjustments for certain dilutive events. As of June 30, 2016, the exercise price has been adjusted to $1.90 per share of common stock pursuant to the terms of the warrant agreement.
The Company has agreed to make amortization payments with respect to the Notes in twelve (12) equal installments beginning four (4) months after the original date of issuance of December 30, 2015 (each, an “Installment Date”). On each installment date, assuming certain equity conditions are met, the installment payment shall automatically be converted into shares of Common Stock at a conversion rate defined in the agreement. As of April 29, 2016, the Company was
not able to bring a registration statement covering the resale of the shares of common stock issuable under the terms of the convertible notes effective and therefore did not satisfy the equity conditions under the convertible notes to permit settlement of installment payments through conversion into shares of common stock.
T
he holders of the convertible notes deferred the three installment payments due on April 29, 2016, May 31, 2016 and June 30, 2016, respectively to the installment payment with a due date of July 29, 2016.
Under the terms of the Notes, at closing the Company received an initial tranche of $4.6 million for immediate use for general corporate purposes. The remaining cash proceeds of $13.8 million are being held in a restricted account and will be released to the Company from the Company’s restricted accounts in subsequent equal tranches subject to certain equity conditions.
In May 2016, the holders of the senior secured convertible notes voluntarily removed restrictions on the Company’s use of an aggregate of $2.0 million previously funded to the Company and authorized the release of those funds from the restricted cash accounts of the Company. As of June 30, 2016 the remaining cash in the amount of $11.8 million is still being held in a restricted account and will be released to the Company subject to certain equity conditions.
The conversion feature in the Notes represents an embedded derivative that requires bifurcation due to the ratchet provision described above related to the conversion feature. The provisions in the Series D Warrants also require the Company to account for the warrants as derivative liabilities. The original issue discount, the fair value of the embedded conversion feature, the fair value of the Series D Warrants and the debt issuance costs are all together considered the debt discount. The Company recorded a debt discount in the amount of $20 million which is being amortized over the life of the note using the effective interest method. For the six months ended June 30, 2016, $11,888,536 of the debt discount had been amortized to interest expense.
10
The following table summarizes the convertible notes outstanding at June 30, 2016:
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|
|
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Convertible notes payable, principal
|
|
$
|
22,100,000
|
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Debt discounts
|
|
|
(8,047,747
|
)
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Net convertible note payable
|
|
|
14,052,253
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Less current portion
|
|
|
(14,052,253
|
)
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Convertible notes payable, long term
|
|
$
|
—
|
|
|
|
|
|
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NOTE 7 NOTES PAYABLE – RELATED PARTY
In July 2014, the Company entered into a note agreement for $500,000 with Spring Forth Investments, LLC a company owned by Mr. David Spafford, a director. The original maturity date for the note was July 18, 2015, which was extended by the Company to July 18, 2016 by giving notice and paying an extension fee of $10,000. The note pays interest at an annual rate of 20% and is paid monthly. The Company prepaid the last three months of interest for a total of $25,000 at the time of issuance of the note. As additional consideration for the note, the Company issued 4,000,000 Series D preferred stock units (which were separable into 4,000,000 shares of Series D preferred stock, 20,000 Class A warrants to purchase 10 shares of common stock at $5.60 per share and 20,000 Class B warrants to purchase 10 shares of common stock at $5.60 per share) at a value of $100,000 or $0.025 per unit. The 4,000,000 shares of Series D Preferred Stock were converted into 10 shares of Common Stock. The Series D preferred stock units were accounted as a debt discount which has been fully amortized.
NOTE 8 PREFERRED STOCK
The Company had 5,000,000 shares of preferred stock authorized at a par value of $0.001 per share as of June 30, 2016. As of June 30, 2016 there were 74,380 shares of Series E Preferred Stock issued and outstanding which are convertible at the option of the holders into 142 shares of common stock. During the six months ended June 30, 2016, 13,967 shares of Series E Preferred Stock were converted into 27 shares of common stock.
NOTE 9 COMMON STOCK
The Company had 200,000,000 shares of common stock authorized at a par value of $0.0001 per share as of June 30, 2016. As of June 30, 2016 there were 7,102,843 shares of common stock issued and outstanding. The Company has reserved 120,000,000 of authorized but unissued shares of common stock for issuance pursuant to the convertible notes and associated Series D Warrants.
During the six months ended June 30, 2016, the Company issued 1,520,888 shares of common stock pursuant to the cashless exercise of 5,091,815 Series C Warrants.
During the six months ended June 30, 2016, the Company issued 354,899 shares of common stock pursuant to the cash exercise of 121,540 Underwriter Unit Purchase Options at an exercise price of $11.00 for total proceeds of $1,335,950. Upon exercise of these options, 121,540 shares of Series E Convertible Preferred Stock were issued and immediately converted into 232 shares of common stock and 972,320 Series C Warrants were issued and immediately exercised pursuant to the cashless exercise provision into 354,667 shares of common stock.
During the six months ended June 30, 2016, the Company issued 27 shares of common stock pursuant to the conversion of 13,967 shares of Series E Convertible preferred stock (see NOTE 8 PREFERRED STOCK).
On February 24, 2016, the Company completed a public offering of 39.2 million Units (the “February 2016 Unit Offering”). Each 35 units consisted of one share of common stock and 52.5 Series E Warrants. The Company received approximately $5.0 million of net proceeds. Pursuant to the sale of the units, the Company issued 1,120,000 shares of common stock and 58,800,000 Series E Warrants. Each 35 Series E Warrants were exercisable into one share of common stock at $8.75 per share. The Series E Warrants expired six years from the date of grant, were not exercisable for one year and which exercise was subject to a shareholder vote and an increase in the number of authorized shares of common stock the Company can issue.
On April 7, 2016, the Company entered into certain warrant exchange agreements (the “Exchange Agreements”), each by and between the Company and a holder of its outstanding Series E Warrants, pursuant to which the Company and each such holder agreed to exchange outstanding Series E Warrants for shares of common stock of the Company. Pursuant to the Exchange Agreements, the Company issued 650,160 shares of common stock of the Company in exchange for the surrender by the holders to the Company of 58,800,000 Series E Warrants exercisable to acquire approximately 1,680,000 shares of common stock of the Company (representing
11
an exchange ratio of one share of common stock for each 2.584 shares of common stock u
nderlying the surrendered Series E Warrants). The surrendered Series E Warrants were immediately cancelled by the Company and there are not any Series E Warrants issued and outstanding.
On June 1, 2016, the Company completed a public offering of 3,160,000 units (the “June 2016 Unit Offering”). Each unit consisted of one share of common stock and one Series G Warrant. The company received approximately $5.3 million of net proceeds. Pursuant to the sale of the units, the Company issued 3,160,000 shares of common stock and 3,160,000 Series G Warrants. Each Series G Warrant is exercisable into one share of common stock at $1.90 per share, subject to adjustments and expires five years from the date of grant.
NOTE 10 WARRANTS
The following table outlines the warrants outstanding and exercisable as of June 30, 2016:
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Total
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Shares of
|
|
Aggregate
|
|
|
|
|
Outstanding
|
|
Warrant
|
|
Common Stock
|
|
Exercise Price
|
|
|
|
|
and
|
|
Exercise
|
|
Underlying
|
|
for One
|
|
|
Warrants
|
|
Exercisable
|
|
Price
|
|
the Warrant
|
|
Common Share
|
|
Expiration
|
Class A
|
|
1,532,598
|
|
$0.0009
|
|
755
|
|
$1.90
|
|
April 2021 - July 2021
|
Class B
|
|
1,310,956
|
|
$0.0009
|
|
640
|
|
$1.90
|
|
April 2021 - July 2021
|
Series B
|
|
1,074,082
|
|
$7.96
|
|
530
|
|
$16,718.72
|
|
March 2021 - July 2021
|
Series D
|
|
3,503,116
|
|
$0.0543
|
|
100,090
|
|
$1.90
|
|
June 2021
|
Series G
|
|
3,160,000
|
|
$1.90
|
|
3,160,000
|
|
$1.90
|
|
June 2021
|
Subordination
|
|
105,516
|
|
$0.0543
|
|
3,015
|
|
$1.90
|
|
June 2021
|
Common
|
|
411,622
|
|
$0.0009
- $32.00
|
|
204
|
|
$1.90 - $67,200.00
|
|
July 2016 - July 2021
|
Total Warrants
|
|
11,097,890
|
|
|
|
3,265,234
|
|
|
|
|
Class A Warrants
The Class A Warrants include a provision which provides that the exercise price of the Class A Warrants will be adjusted in connection with certain equity issuances by the Company. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $1.90 per share of common stock.
Class B Warrants
The Class B Warrants include a provision which provides that the exercise price of the Class B Warrants will be adjusted in connection with certain equity issuances by the Company. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $1.90 per share of common stock.
Series B Warrants
The Series B Warrants include a provision which provides that the exercise price of the Series B Warrants is subject to reduction in connection with certain equity issuances by the Company that are below the then current market price. In June 2016, as a result of the June 2016 Unit Offering, the price reduction provision was trigged and the exercise price was reduced to $16,718.72 per share of common stock.
Series C Warrants
During the six months ended June 30, 2016, 5,229,973 Series C Warrants were exercised pursuant to the cashless exercise provision. The Company settled 5,091,815 of the Series C Warrant exercises through the issuance of 1,520,888 shares of common stock and the Company settled 138,158 of the Series C Warrant exercises with cash in the amount of $314,879.
On January 21, 2016 all outstanding Series C Warrants were mandatorily exercised utilizing the cashless provision of the warrants and the corresponding shares of common stock issued. As of June 30, 2016 there are 47,528 Series C Warrant certificates that have yet to be delivered to the Company representing 15,182 shares of common stock.
12
Series D Warrants
The Series D Warrants include a provision which provides that the exercise price of the Series D Warrants will be adjusted in connection with certain equity issuances by the Company subject to a floor exercise price of $7.00 per share of common stock. In February 2016, as a result of the February 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to the floor of $7.00 per share of common stock. In March 2016, pursuant to the approval of the Company’s stockholders of the removal of the exercise floor price, the exercise price was adjusted to $5.60 per share of common stock. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $1.90 per share of common stock.
Series E Warrants
In connection with the February 2016 Unit Offering, the Company issued Series E Warrants to purchase 1,680,000 shares of common stock as part of the units sold in the offering (see NOTE 9 COMMON STOCK). Each 35 Series E Warrant will have an initial exercise price per share of $8.75, subject to certain adjustments. The Series E Warrants are exercisable beginning one year and one day from the date of issuance, but only if
the Company has obtained stockholder approval (i) for the issuance of shares of common stock issuable upon the exercise of the Series E Warrants pursuant to the applicable rules and
regulations of the NASDAQ Capital Market and (ii) to effect an additional reverse split of our common stock and/or increase our authorized shares
of common stock so as to permit the exercise in full of the Series E Warrants. The Series E Warrants will expire on the fifth anniversary of the date they first become exercisable. One year from the date of issuance, the number of shares of common
stock issuable upon the exercise of the Series E Warrants shall be increased to equal the difference, if positive, obtained by subtracting (x) the number of shares of common stock
issuable upon the exercise of the Series E Warrants on the date of issuance) , from (y) the lesser of (A) 7% of the sum of the number of shares of common stock actually outstanding one year from the date of issuance, plus the number of shares of
common stock deemed to be outstanding pursuant to the terms of the Series E Warrant, or (B) 200% of the shares of common stock issuable upon the exercise of the Series E Warrants on such date.
The Series E Warrants include a provision that for one year from issuance the exercise price per share will adjust if the Company has certain equity issuances for consideration per share that is less than the current exercise price of the Series E Warrants. The Series E Warrants are exercisable on a cashless basis in the event there is no effective registration statement registering the shares underlying the Series E Warrants.
On April 7, 2016, the Company entered into certain warrant exchange agreements (the “Exchange Agreements”), each by and between the Company and a holder of its outstanding Series E Warrants, pursuant to which the Company and each such holder agreed to exchange outstanding Series E Warrants for shares of common stock of the Company. Pursuant to the Exchange Agreements, the Company issued 650,160 shares of common stock of the Company in exchange for the surrender by the holders to the Company of 58,800,000 Series E Warrants exercisable to acquire approximately 1,680,000 shares of common stock of the Company (representing an exchange ratio of one share of common stock for each 2.584 shares of common stock underlying the surrendered Series E Warrants). The surrendered Series E Warrants were immediately cancelled by the Company and there are not any Series E Warrants issued and outstanding (see NOTE 9 COMMON STOCK).
Series G Warrants
In connection with the June 2016 Unit Offering, the Company issued Series G Warrants to purchase 3,160,000 shares of common stock as part of the units sold in the offering (see NOTE 9 COMMON STOCK). The Series G Warrants have an initial exercise price of $1.90. The warrants contain a provision
that
the exercise price will adjust if the Company has certain equity issuances for consideration per share that is less than the current exercise price of the Series G Warrants. The Series G Warrants expire 5 years after the date of issuance.
Subordination Warrants
The Subordination Warrants include a provision which provides that the exercise price of the Subordination Warrants will be adjusted in connection with certain equity issuances by the Company subject to a floor exercise price of $7.00 per share of common stock. In February 2016, as a result of the February 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to the floor of $7.00 per share of common stock. In March 2016, pursuant to the approval of the Company’s stockholders of the removal of the exercise floor price, the exercise price was adjusted to $5.60 per share of common stock. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $1.90 per share of common stock.
13
Common Warrants
Certain Common Warrants include a provision which provides that the exercise price of these certain Common Warrants will be adjusted in connection with certain equity issuances by the Company. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price of these certain Common Warrants was adjusted to $1.90 per share of common stock. During the six months ended June 30, 2016 there were 51,734 Common Warrants exercisable into 26 shares of common stock that expired without being exercised.
The following table summarizes the common stock warrant activity during the six months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
Remainder
|
|
|
|
Common
|
|
|
Warrant
|
|
|
Contractual
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Term in
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Years
|
|
As of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding as of January 1, 2016
|
|
|
13,219,597
|
|
|
$
|
2.71
|
|
|
|
4.7
|
|
Granted
|
|
|
61,960,000
|
|
|
$
|
0.15
|
|
|
|
5.2
|
|
Exercised
|
|
|
(5,229,973
|
)
|
|
$
|
2.55
|
|
|
|
—
|
|
Expired
|
|
|
(51,734
|
)
|
|
$
|
10.00
|
|
|
|
—
|
|
Extinguished
|
|
|
(58,800,000
|
)
|
|
$
|
0.05
|
|
|
|
—
|
|
Warrants outstanding as of June 30, 2016
|
|
|
11,097,890
|
|
|
$
|
1.52
|
|
|
|
4.7
|
|
|
Underwriters’ Unit Purchase Option
During the six months ended June 30, 2016, 121,540 Underwriters’ Unit Purchase Options were exercised for cash in the amount of $1,335,950. Pursuant to the exercise of these options, 121,540 shares of Series E Convertible Preferred Stock were issued and immediately converted into 232 shares of common stock and 972,320 Series C Warrants were issued and immediately exercised pursuant to the cashless exercise provision of the Series C Warrants into 354,667 shares of common stock. There are no outstanding Underwriters’ Unit Purchase Options as of June 30, 2016.
NOTE 11 DERIVATIVE LIABILITIES
The derivative liability for our instruments classified as derivative liabilities are recorded at fair value at inception and subsequently re-measured to fair value at each reporting date as long as such instruments are classified as derivative liabilities. Changes in the fair value of the derivative liability was included as a component of Other income (expense) and has no effect on the Company’s cash flows. The valuation methodologies used vary by instrument and include a Black-Scholes option valuation model utilizing the fair value of the underlying common stock and a binomial model with Monte Carlo simulation. The Company has determined the fair value measurements to be a level 3 measurement (see NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES).
Class A Warrants, Class B Warrants, Series B Warrants and Certain Common Warrants
The Class A Warrants, Class B Warrants and certain common warrants, have an exercise price adjustment provision that in the event the Company sells shares of any additional stock, subject to certain exceptions, at a price per share less than the current exercise price of the respective warrant, the exercise price shall be adjusted to a price equal to the price paid per share for such additional stock. The Series B Warrants have an exercise price adjustment provision that in the event the Company sells shares of any additional stock, subject to certain exceptions, at a price per share less than the then current market price, the exercise price shall be adjusted to a price based on a formula defined in the warrants agreement. Such exercise price adjustments prohibit the Company from being able to conclude that the warrants are indexed to the Company’s own stock. Accordingly, these warrants are accounted for as derivative liabilities and are recorded at fair value at each reporting date with the change in fair value being recorded in earnings for the period. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered for our Class A Warrants, Class B Warrants, Series B Warrants and certain common warrants and the exercise price per share was adjusted accordingly.
The fair value of these warrants was calculated using a Black-Scholes option valuation model utilizing the fair value of underlying common stock. Black-Scholes has inherent limitations for use in the case of a warrant with a price protection provision, since the model is designed to be used when the inputs to the model are static throughout the life of a security. Due to the significant variance between the fair market value of the stock and the exercise price, the Black-Scholes option-pricing model resulted in a fair value that approaches the current market value of the stock. As such, the fair value of the Class A, Class B, Series B and certain other common
14
warrants was estimated t
o be $1.75, $1.75, $1.38 and $1.76 per share, respectively. The Company determined the aggregate fair value of these warrants at June 30, 2016 was $3,190.
Series C Warrants and Unit Purchase Option
Our Series C Warrants contained a cashless exercise provision using a predetermined Black Scholes Value. Such provision, if exercised by the holder, would require the Company to settle these warrants, at its option, either by cash payment or the granting of a variable number of common shares. This provision results in the potential for the Company to either have to net cash settle the warrant or potentially issue an indeterminate number of common shares which prohibits the Company from being able to conclude that the warrants are indexed to the Company’s own stock. Accordingly, the warrants and the unit purchase option are accounted for as derivative liabilities and are recorded at fair value at each reporting date with the change in fair value being recorded in earnings for the period. During the six months ended June 30, 2016 all of the remaining Series C Warrants and unit purchase options were exercised.
Convertible Notes Conversion Feature
The convertible notes issued in December 2015 contain provisions that protect holders from future issuances of the Company’s common stock at prices below such convertible notes’ respective conversion price. These provisions could result in modification of the conversion price due to a future equity offering and as such the conversion feature cannot be considered indexed to the Company’s own stock. The note also provides that the Company will repay the principal amount at an initial conversion rate subject to certain adjustments. These features represent an embedded derivative that requires bifurcation and are recorded at fair value at each reporting period with the change in fair value being recorded in earnings for the period.
The Company determined the fair value of the conversion feature to be $20,602,408 at June 30, 2016 using a modified binomial model to reflect different scenarios where reset may be triggered using the following assumptions:
Trading price of common stock on measurement date
|
|
$
|
1.77
|
|
Conversion price (1)
|
|
$
|
1.40
|
|
Risk free interest rate (2)
|
|
|
0.41
|
%
|
Conversion notes lives in years
|
|
|
0.83
|
|
Expected volatility (3)
|
|
|
228.1
|
%
|
Expected dividend yield (4)
|
|
|
-
|
|
(1)
|
The conversion price of the convertible notes was calculated based on the formula in the Notes agreement as of the respective measurement date
|
(2)
|
The risk-free interest rate was determined by management using the average of the 6 month and 1-year Treasury Bill as of the respective measurement date.
|
(3)
|
The volatility factor was estimated by using the historical volatilities of the Company’s trading history.
|
(4)
|
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
|
Series D Warrants and Subordination Warrants
In connection with the issuance of convertible notes in December 2015, the Company issued Series D Warrants to acquire 100,090 shares of common stock. In addition, the Company issued Subordination Warrants to acquire 3,015 shares of common stock. The Series D Warrants and Subordination Warrants contain provisions that will adjust the exercise price upon certain equity issuances. In addition, these warrants contain a provision for a one-time adjustment at December 31, 2016, to the number of warrants issued. The Company has determined that the provisions contained in the Series D Warrants and the Subordination Warrants could result in modification of the exercise price resulting in a variable number of additional common shares that could be issued. This prohibits the company from being able to conclude that the warrants are indexed to the Company’s own stock. Accordingly, the warrants represent a derivative liability that requires recording at fair value at each reporting period with the change in fair value being recorded in earnings for the period.
15
The Company determined the fair value of
the Series D Warrants and Subordination Warrants to be $37,968,054 at June 30, 2016 using a binomial model with a Monte Carlo simulation to reflect different scenarios where reset may be triggered and to project the range of the additional shares to be iss
ued on December 31, 2016 using the following assumptions:
Trading price of common stock on measurement date
|
|
$
|
1.77
|
|
Exercise price (1)
|
|
$
|
0.56
|
|
Risk free interest rate (2)
|
|
|
1.01
|
%
|
Warrant lives in years
|
|
|
5.00
|
|
Expected volatility (3)
|
|
|
228.3
|
%
|
Expected dividend yield (4)
|
|
|
-
|
|
(1)
|
The exercise price of the Series D and Subordination Warrants was calculated based on the terms in the warrant agreement.
|
(2)
|
The risk-free interest rate was determined by management using the 5-year Treasury Bill as of the respective measurement date.
|
(3)
|
The volatility factor was estimated by using the historical volatilities of the Company’s trading history.
|
(4)
|
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
|
Series E Warrants
In connection with the February 2016 Unit Offering, the Company issued Series E Warrants to purchase 1,680,000 shares of common stock as part of the units sold in the offering (see NOTE 9 COMMON STOCK). The Series E Warrants contain a provision
that for one year from issuance
the exercise price per share will adjust if the Company has certain equity issuances for consideration per share that is less than the current exercise price of the Series E Warrants.
In addition, these warrants contain a provision for a one-time adjustment one year from date of issuance, to the number of warrants issued.
The Company has determined that the provisions contained in the Series E Warrants could result in modification of the exercise price resulting in a variable number of additional common shares that could be issued. This prohibits the company from being able to conclude that the warrants are indexed to the Company’s own stock. Accordingly, the warrants represent a derivative liability that requires recording at fair value at issuance and again at each reporting period with the change in fair value being recorded in earnings for the period.
On April 7, 2016, the Company entered into certain warrant exchange agreements (the “Exchange Agreements”), each by and between the Company and a holder of its outstanding Series E Warrants, pursuant to which the Company and each such holder agreed to exchange outstanding Series E Warrants for shares of common stock of the Company. Pursuant to the Exchange Agreements, the Company issued 650,160 shares of common stock of the Company in exchange for the surrender by the holders to the Company of 58,800,000 Series E Warrants exercisable to acquire approximately 1,680,000 shares of common stock of the Company (representing an exchange ratio of one share of common stock for each 2.584 shares of common stock underlying the surrendered Series E Warrants). The surrendered Series E Warrants were immediately cancelled by the Company and there are not any Series E Warrants issued and outstanding (see NOTE 9 COMMON STOCK).
The Company determined the fair value of the Series E Warrants to be
$6,800,927 at April 7, 2016 using a binomial model with a Monte Carlo simulation model using the following assumptions:
|
|
April 7, 2016
|
|
Trading price of common stock on measurement date
|
|
$
|
4.09
|
|
Exercise price (1)
|
|
$
|
4.01
|
|
Risk free interest rate (2)
|
|
|
1.30
|
%
|
Warrant lives in years
|
|
|
5.89
|
|
Expected volatility (3)
|
|
|
228.1
|
%
|
Expected dividend yield (4)
|
|
|
-
|
|
(1)
|
The exercise price of the Series E Warrants was calculated based on the terms in the warrant agreement.
|
(2)
|
The risk-free interest rate was determined by management using an average of the 5-year and 7-year Treasury Bill as of the respective measurement date.
|
(3)
|
The volatility factor was estimated by using the historical volatilities of the Company’s trading history.
|
(4)
|
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
|
16
Since the Series E Warrants were derivative liabilities at the time of the transaction, the Company has accounted for the exchange
as an extinguishment of a liability.
Accordingly, all consideration issued to extinguish the liability was recorded at fair value on the date of the extinguishment and the liability extinguished was removed at its carrying value. Since the liabilities extinguished were derivative liabilities, their carrying value is continuously adjusted to equal their fair value.
The difference between the fair value of the liability extinguished and the fair value of the consideration provided on April 7, 2016 was recorded as a gain in the statement of operations
as follows:
|
|
|
|
Fair value of Series E Warrants exchanged
|
$ 6,800,927
|
Fair value of common stock issued
|
2,659,154
|
Gain on exchange of warrants
|
$ 4,141,773
|
Series G Warrants
In connection with the June 2016 Unit Offering, the Company issued Series G Warrants to purchase 3,160,000 shares of common stock as part of the units sold in the offering (see NOTE 9 COMMON STOCK). The Series G Warrants contain a provision
that
the exercise price per share will adjust if the Company has certain equity issuances for consideration per share that is less than the current exercise price of the Series G Warrants.
The Company has determined that the provisions contained in the Series G Warrants could result in modification of the exercise price resulting in a variable number of additional common shares that could be issued. This prohibits the Company from being able to conclude that the warrants are indexed to the Company’s own stock. Accordingly, the warrants represent a derivative liability that requires recording at fair value at issuance and again at each reporting period with the change in fair value being recorded in earnings for the period.
The Company determined the fair value of the Series G Warrants to be $6,034,734 at issuance on June 1, 2016 and $5,538,370 at June 30, 2016 using a Black Scholes valuation model using the following assumptions:
|
|
June 1, 2016
|
|
|
June 30, 2016
|
|
Trading price of common stock on measurement date
|
|
$
|
1.93
|
|
|
$
|
1.77
|
|
Exercise price (1)
|
|
$
|
1.90
|
|
|
$
|
1.34
|
|
Risk free interest rate (2)
|
|
|
1.39
|
%
|
|
|
1.01
|
%
|
Warrant lives in years
|
|
|
5.00
|
|
|
|
4.93
|
|
Expected volatility (3)
|
|
|
227.5
|
%
|
|
|
227.5
|
%
|
Expected dividend yield (4)
|
|
|
-
|
|
|
|
-
|
|
(1)
|
The exercise price of the Series G Warrants as defined in the warrant agreement at June 1, 2016. The reset provision at July 1, 2016 that was known at June 30, 2016.
|
(2)
|
The risk-free interest rate was determined by management using the 5-year Treasury Bill as of the respective measurement date.
|
(3)
|
The volatility factor was estimated by using the historical volatilities of the Company’s trading history.
|
(4)
|
Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future.
|
Since the fair value of the Series G Warrants at issuance on June 1, 2016 is in excess of the net proceeds received, the derivative liability is required to be recorded at fair value with the excess of the fair value over the net proceeds received recognized as a loss in earnings. The gross proceeds from the June 2016 Unit Offering of 3,160,000 units at $1.90 was $6,004,000. After deducting offering costs of $735,970 the net proceeds to the Company was $5,268,030. The fair value of the Series G Warrants at issuance was $6,034,734. The amount to be recognized as a loss in earnings is calculated as follows:
|
|
|
|
Net proceeds from June 2016 Unit Offering
|
|
$
|
5,268,030
|
Par value of common stock issued
|
|
|
(316)
|
Fair value of Series G Warrants
|
|
|
(6,034,734)
|
Loss on issuance of warrants
|
|
$
|
(767,020)
|
17
The following summarizes the total change in the value of the derivative liabilities during the six months ended June 30, 2016:
As of June 30, 2016:
|
|
|
|
|
Balance at January 1, 2016
|
|
$
|
43,181,472
|
|
Issuance of warrants and option
|
|
|
11,126,411
|
|
Exercise of warrants
|
|
|
(19,185,779
|
)
|
Change in fair value of warrant and option liability
|
|
|
28,839,314
|
|
Balance at June 30, 2016
|
|
$
|
63,961,418
|
|
NOTE 12 EMPLOYEE STOCK OPTIONS
The Company has three stock based employee compensation plans pursuant to which stock option grants have been made. Under the Great Basin Scientific, Inc. 2014 Omnibus Plan, the 2014 Stock Option Plan and the 2006 Stock Option Plan certain employees and non-employee directors have been granted options to purchase common stock. The Company has 763,034 employee stock options exercisable into 404 shares of common stock outstanding as of June 30, 2016. All options vest in installments over a three to four year period and expire ten years from the date of grant.
Any future employee stock option grants will be made pursuant to the 2014 Omnibus Plan. As of June 30, 2016, employee stock options exercisable into 111 shares of common stock have been granted pursuant to the 2014 Omnibus Plan and options exercisable into 14,175 shares of common stock remain available for issuance under that plan.
The following table summarizes the Company’s total option activity for the six months ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Aggregate
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
Shares of
|
|
|
Exercise
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
Common
|
|
|
Price
|
|
|
Remaining
|
|
|
|
|
|
|
|
Option
|
|
|
Stock
|
|
|
for One
|
|
|
Contractual
|
|
|
|
|
|
|
|
Exercise
|
|
|
Underlying
|
|
|
Common
|
|
|
Term in
|
|
|
|
Options
|
|
|
Price
|
|
|
the Option
|
|
|
Share
|
|
|
Years
|
|
As of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of January 1, 2016
|
|
|
792,534
|
|
|
$
|
2.84
|
|
|
|
420
|
|
|
$
|
5,964.00
|
|
|
|
8.0
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(29,500
|
)
|
|
$
|
2.52
|
|
|
|
(16
|
)
|
|
$
|
5,292.00
|
|
|
|
—
|
|
Options outstanding as of June 30, 2016
|
|
|
763,034
|
|
|
$
|
2.85
|
|
|
|
404
|
|
|
$
|
5,985.00
|
|
|
|
7.5
|
|
Outstanding and exercisable stock options as of June 30, 2016 are as follows:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Options
|
|
|
Life
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
June 30, 2016
|
|
|
763,034
|
|
|
|
7.5
|
|
|
$
|
2.85
|
|
|
|
413,165
|
|
|
$
|
3.03
|
|
The estimated fair value of the Company’s stock options, less expected forfeitures, is amortized over the options vesting period on the straight-line basis. The Company recognized $37,045 in equity-based compensation expenses during the six months ended June 30, 2016. There was $334,817 of total unrecognized compensation cost with a remaining vesting period of 2.21 years and $0 in intrinsic value of outstanding and vested stock options as of June 30, 2016.
NOTE 13 LEGAL PROCEEDINGS
On April 5, 2016 and May 31, 2016, Great Basin Scientific, Inc., received notices from the Utah Labor Commission, Occupational Safety and Health Division (ULC) and/or the Occupational Safety and Health Administration (OSHA) that former employee Christina Steele filed a claim alleging retaliation in violation of the Utah Occupational Safety and Health Act as well as the Corporate and Criminal Fraud Accountability Act of 2002, the Sarbanes-Oxley Act and the Occupational Safety and Health Act, among other claims relating to her employment. Ms. Steele alleges that Great Basin retaliated against her by terminating her employment after she
18
allegedly acted as
a whistleblower by allegedly raising concerns with management. Ms. Steele seeks lost wages, future wages, consequential losses, emotional distress damages, interest, fees and costs.
On June 15, 2016, Ms. Steele also filed a complaint against Great Basin Scientific, Inc. in the United States District Court for the District of Utah alleging retaliation in violation of the False Claims Act based on similar alleged facts. Ms. Steele seeks back pay, special damages, consequential damages, compensatory damages, interest, fees and costs.
The Company asserts that the claims are without merit and that the employee resigned and was not terminated.
We are not currently a party to any other material pending legal proceeding or regulatory or government investigations. We may become involved in litigation from time to time relating to claims arising in the ordinary course of our business. We do not believe that the ultimate resolution of the investigation by the ULC or OSHA, the claim filed in the United States District Court or other claims in the ordinary course of business would have a material effect on our business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material effect on our business, results of operations, financial condition and cash flows.
NOTE 14 SUBSEQUENT EVENTS
On July 1, 2016, the Company closed on the Securities Purchase Agreement dated June 29, 2016 (the “SPA”) with certain investors (Buyers”) pursuant to which the Company issued $75 million in principal face amount of senior secured convertible notes of the Company (the “Notes”) and related Series H common stock purchase warrants (the “Warrants”). The Buyers purchased Notes and related Series H Warrants through payment of cash at a discount for the Notes and related Warrants. The Notes will not bear any ordinary interest. The Company received total gross proceeds of $68 million.
The Notes provide that the Company will repay the principal amount of Notes in 15 equal installments (each an “Installment Date”) beginning on the First Amortization Date, and thereafter the last business day of each calendar month through to the maturity date. The price at which the Company will convert the installment amounts is equal to the lowest of (i) the then prevailing conversion price, (ii) 80% of the arithmetic average of the lower of (i) the three lowest daily weighted average prices of the common stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the Installment Date and (iii) the weighted average price of the common stock on the trading day immediately preceding the Installment Date, subject in all cases to a floor price of $1.00. Any holder of a Note may by notice to the Company accelerate up to four future installment payments to any applicable Installment Date, in which case the Company will deliver shares of Common Stock for the conversion of such accelerated payments. The holder of a Note may also by notice to the Company defer any installment payment to a later Installment Date. At any time after issuance the Notes will be convertible at the election of the holder into shares of common stock of the Company at an initial conversion price equal to $2.00.
At closing approximately $6 million of its applicable aggregate cash purchase price was be immediately available to Company and approximately $62 million of its applicable aggregate cash purchase price was transferred to an account of the Company established for each Buyer to be held and in accordance with and pursuant to the terms and conditions of an account control agreement between the Buyer and the bank (the “Restricted Cash”). $1.5 million was pre-funded by one Buyer on June 30, 2016. Subject to obtaining the Stockholder Approval and certain other equity conditions, the Restricted Cash will become unrestricted and released to the Company as follows: (i) $6 million on the fifth trading day after January 30, 2017 (such date, the “First Amortization Date”)), (ii) $8 million after the fifth trading day after the last business day of the calendar month following the First Amortization Date and (iii) $3,692,308 on the 75th trading day after the initial date the shares of common stock underlying the Notes are eligible to be resold pursuant to Rule 144 of the Securities Act of 1933, as amended (the “144 Date”) and each 30th calendar day thereafter until all Restricted Cash has become unrestricted and released.
Under the SPA, the Company has agreed to call a meeting of its stockholders within 65 days of closing, solicit proxies at such meeting and use its reasonable best efforts to obtain the approval of its stockholders for purposes of complying with NASDAQ Listing Rule 5635(d) for the issuance of shares of common stock underlying the Notes without giving effect to the exchange cap in the Notes in an amount that may be equal to or exceed 20% of our common stock outstanding before the issuance of the Notes and the issuance of shares of common stock under the Warrants without giving effect to the exercise floor price set forth in the Warrants (the “Stockholder Approval”). On August 10, 2016, the Company filed a preliminary proxy statement to obtain the approval of the stockholders.
In connection with the issuance of the Notes under the SPA, the Company also issued 56,250,000 Series H Warrants exercisable for shares of common stock. Each Series H Warrant will be exercisable by the holder beginning six months after the date of issuance and continuing for a period five years thereafter. Each Series H Warrant will be exercisable initially at a price equal to $2.08, subject to
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adjustments
for certain dilutive events and subject to an exercise price floor equal to $1.70. The Series H Warrants are exercisable on a cashless basis in the event that there is no effective registration statement under the Securities Act covering the resale of the
shares of Common Stock issuable upon exercise of the Series H Warrants.
In consideration of the Utah Autism Foundation and Spring Forth Investments LLC entering into subordination agreements with the Collateral Agent, the Company has agreed to issue to t
he entities warrants exercisable for 1,687,500 shares of common stock (the “Subordination Warrants”). The Subordination Warrants have the same material terms and conditions as the Series H Warrants.
In July 2016, certain holders of the Company’s senior secured convertible notes issued on December 30, 2015 (the “2015 Notes”) submitted notices to accelerate previously deferred amortization payments under the 2015 Notes and convert the accelerated payments on the 2015 Notes into shares of the Company’s common stock pursuant to Section 3(a)(9) of the United States Securities Act of 1933, as amended (the “Conversions”). In connection with the Conversions, the Company issued 7,937,302 shares of common stock upon the conversion of $3,694,814 principal amount of 2015 Notes at a conversion price of $0.47 per share.
In connection with the 2016 Convertible Note Offering on July 1, 2016, the exercise prices or conversion prices of certain of our issued and outstanding securities were automatically adjusted to take into account the Offering and the Conversions. The exercise prices or conversion prices of the following securities were adjusted as follows: The Class A and Class B Warrant exercise prices were adjusted from $1.90 per share of common stock to $1.34 per share of common stock. The Series B Warrants exercise price was adjusted from $16,718.72 per share of common stock to $4,069.98 per share of common stock. Certain common stock warrant exercise prices were adjusted from $1.90 per share of common stock to $1.34 per share of common stock. The Series D Warrants and Subordination Warrants exercise price was adjusted from $1.90 per share of common stock to $1.58 per share of common stock. The Series G Warrants exercise price was adjusted from $1.90 per share of common stock to $1.34 per share of common stock. In addition, the consummation of the Offering is an issuance that triggers an adjustment to the conversion price of the 2015 Notes applicable to optional conversions by the holders of the Notes (conversion pursuant to amortization payments under the Notes are not adjusted pursuant to subsequent equity offerings as they are based on a discount to current market prices for the common stock). Therefore, the conversion price of the Notes was adjusted from $1.90 per share of common to $1.58 per share of common stock.
In July 2016, 85,000 shares of common stock were issued pursuant to the exercise of 85,000 Series G Warrants for cash in the amount of $113,900 or $1.34 per share.
In July 2016, the Company entered into an Amendment to the Spring Forth Promissory Note with Spring Forth Investments, LLC (“Spring Forth”) to extend the maturity date of a $500,000 promissory note issued by the Company to Spring Forth in connection with a loan provided by Spring Forth to the Company. The effective date of the Amendment is July 18, 2016 and extends the maturity date one year to July 18, 2017.
In August 2016, certain holders of the Company’s senior secured convertible notes issued on December 30, 2015 (the “2015 Notes”) submitted notices to accelerate previously deferred amortization payments under the 2015 Notes and convert the accelerated payments on the 2015 Notes into shares of the Company’s common stock pursuant to Section 3(a)(9) of the United States Securities Act of 1933, as amended (the “Conversions”). In connection with the Conversions, the Company issued 25,999,156 shares of common stock upon the conversion of $10,150,070 principal amount of 2015 Notes at a conversion price of $0.39 per share. In addition, $3.7 million was released from the restricted cash accounts for use by the Company.
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