UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 31, 2016
Date of Report (Date of earliest event reported)
PRGX Global, Inc.
(Exact name of registrant as specified in its charter)
Commission File Number 0-28000
Georgia | 58-2213805 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
600 Galleria Parkway | 30339-5986 (Zip Code) | |
Suite 100 | ||
Atlanta, Georgia | ||
(Address of principal executive offices) |
Registrants telephone number, including area code: (770) 779-3900
Former Name or Former Address, if Changed Since Last Report: Not Applicable
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.01. Completion of Acquisition or Disposition of Assets
This Form 8-K/A amends the Form 8-K previously filed by PRGX Global, Inc. on November 4, 2016. This document includes the financial statements that had been omitted from the previously filed Form 8-K as permitted by Item 9.01(a)(4) of Form 8-K.
On October 31, 2016, PRGX USA, Inc., a wholly owned subsidiary of PRGX Global, Inc. (PRGX Global, Inc. and PRGX USA, Inc. are collectively referred to as PRGX or the Company), consummated the merger of Braveheart Merger Co., a wholly owned subsidiary of PRGX USA, Inc., with and into Lavante, Inc. (the Merger) pursuant to the terms of that certain Agreement and Plan of Merger (the Merger Agreement) dated as of October 25, 2016 by and among PRGX USA, Inc., Braveheart Merger Co., Lavante, Inc. (Lavante), PointGuard Ventures I, L.P. and Krish Panu, as Stockholder Representative. PRGX is filing this Current Report on Form 8-K/A to provide certain financial statements and unaudited pro forma financial information of Lavante required by Item 9.01 of Form 8-K and should be read in conjunction with PRGXs Current Report on Form 8-K previously filed on November 4, 2016.
Item 9.01. Financial Statements and Exhibits
(a) | Financial Statements of Business Acquired |
The audited financial statements of Lavante, Inc. as of and for the years ended December 31, 2014 and 2015, including the notes to such financial statements and the report of Armanino, LLP are filed with this Form 8-K/A as Exhibit 99.1 and are incorporated by reference herein.
The unaudited condensed financial statements of Lavante, Inc. as of and for the nine month periods ended September 30, 2016 and 2015 are filed with this Form 8-K/A as Exhibit 99.2 and incorporated by reference herein.
(b) | Pro forma Financial Information |
The unaudited pro forma financial information included with this Form 8-K/A has been prepared to illustrate the pro forma effects of the acquisition of Lavante, Inc. The unaudited pro forma condensed combined balance sheet as of September 30, 2016, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 and the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2016 are filed with this Form 8-K/A as Exhibit 99.3 and are incorporated by reference herein. The unaudited pro forma condensed combined balance sheet as of September 30, 2016 gives effect to the acquisition of Lavante as if it had occurred as of September 30, 2016. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 give effect to the acquisition of Lavante as if it had occurred as of January 1, 2015. All pro forma information in this Form 8-K/A has been prepared for informational purposes only and is not necessarily indicative of the past or future results of operations or financial position of Lavante or the Company.
(d) | Exhibits |
23.1 | Consent of Armanino, LLP | |
99.1 | Audited Financial Statements of Lavante, Inc. for the two years ended December 31, 2015 and 2014 | |
99.2 | Unaudited Financial Statements of Lavante, Inc. for the nine months ended September 30, 2016 and 2015 | |
99.3 | Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2016; Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2015; Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2016. |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PRGX Global, Inc.
| ||
By: | /s/ Victor A. Allums | |
Victor A. Allums | ||
Senior Vice President, Secretary and General Counsel |
Dated: January 12, 2017
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in this Current Report on Form 8-K/A of our report dated January 12, 2017, with respect to our audit of the financial statements of Lavante, Inc., which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, stockholders equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements.
/s/ Armanino LLP
Armanino LLP
San Jose, California
January 12, 2017
Exhibit 99.1
Lavante, Inc.
Financial Statements
For the Years Ended December 31, 2015 and 2014
TABLE OF CONTENTS
Page No. | ||||
Independent Auditors Report |
1 2 | |||
Balance Sheets |
3 | |||
Statements of Operations |
4 | |||
Statements of Stockholders Equity (Deficit) |
5 | |||
Statements of Cash Flows |
6 | |||
Notes to Financial Statements |
7 18 |
INDEPENDENT AUDITORS REPORT
The Board of Directors
Lavante, Inc.
San Jose, California
We have audited the accompanying financial statements of Lavante, Inc. (the Company) (a Delaware corporation), which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, stockholders equity (deficit) and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lavante, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
1
Emphasis of Matter
As discussed in Note 11, in October 2016 the Company entered into a merger agreement with PRGX USA, Inc. Our opinion is not modified with respect to this matter.
/s/ Armanino LLP
Armanino LLP
San Jose, California
January 12, 2017
2
LAVANTE, INC.
Balance Sheets
December 31, 2015 and 2014
2015 | 2014 | |||||||
ASSETS |
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Current assets |
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Cash and cash equivalents |
$ | 582,284 | $ | 1,914,706 | ||||
Restricted cash |
150,000 | | ||||||
Accounts receivable, net |
412,595 | 220,561 | ||||||
Prepaid expenses |
139,840 | 95,819 | ||||||
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Total current assets |
1,284,719 | 2,231,086 | ||||||
Property and equipment, net |
154,792 | 126,212 | ||||||
Other assets |
| 52,000 | ||||||
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Total assets |
$ | 1,439,511 | $ | 2,409,298 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
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Current liabilities |
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Accounts payable |
$ | 304,616 | $ | 219,779 | ||||
Accrued expenses |
414,047 | 170,214 | ||||||
Deferred revenue |
702,180 | 288,605 | ||||||
Line of credit |
150,000 | 166,803 | ||||||
Note payable, current portion |
248,311 | 298,914 | ||||||
Convertible notes payable |
4,000,000 | | ||||||
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Total current liabilities |
5,819,154 | 1,144,315 | ||||||
Note payable, net of current portion |
| 220,409 | ||||||
Warrant liability |
54,762 | 70,639 | ||||||
Other long-term liabilities |
| 9,551 | ||||||
Total long-term liabilities |
54,762 | 300,599 | ||||||
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Total liabilities |
5,873,916 | 1,444,914 | ||||||
Stockholders equity (deficit) |
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Convertible preferred stock, $0.001 par value; 40,689,656 shares authorized; 39,655,172 shares designated, issued and outstanding (aggregate liquidation preference of $9,250,000) |
39,655 | 39,655 | ||||||
Common stock, $0.001 par value; 80,489,451 shares authorized, 23,483,864 shares issued and outstanding |
23,483 | 23,483 | ||||||
Additional paid-in capital |
29,391,776 | 29,279,794 | ||||||
Accumulated deficit |
(33,889,319 | ) | (28,378,548 | ) | ||||
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Total stockholders equity (deficit) |
(4,434,405 | ) | 964,384 | |||||
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Total liabilities and stockholders equity (deficit) |
$ | 1,439,511 | $ | 2,409,298 | ||||
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The accompanying notes are an integral part of these financial statements.
3
LAVANTE, INC.
Statements of Operations
For the Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Revenues |
$ | 2,691,814 | $ | 2,880,977 | ||||
Cost of revenues |
1,549,435 | 1,599,807 | ||||||
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Gross profit |
1,142,379 | 1,281,170 | ||||||
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Operating expenses |
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General and administration |
1,270,889 | 1,229,298 | ||||||
Sales and marketing |
3,223,517 | 2,294,493 | ||||||
Research and development |
1,990,364 | 1,745,110 | ||||||
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Total operating expenses |
6,484,770 | 5,268,901 | ||||||
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Other expense, net |
(168,380 | ) | (149,670 | ) | ||||
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Net loss |
$ | (5,510,771 | ) | $ | (4,137,401 | ) | ||
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The accompanying notes are an integral part of these financial statements.
4
LAVANTE, INC.
Statements of Stockholders Equity (Deficit)
For the Years Ended December 31, 2015 and 2014
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders Equity (Deficit) |
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Convertible Preferred Stock |
Common Stock | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance at December 31, 2013 |
19,427,966 | $ | 19,428 | 13,015,777 | $ | 13,015 | $ | 23,930,381 | $ | (24,241,147 | ) | $ | (278,323 | ) | ||||||||||||||
Issuance of common stock |
| | 8,697 | 9 | 426 | | 435 | |||||||||||||||||||||
Issuance of Series AA preferred stock, net of issuance costs of $25,153 |
20,646,574 | 20,647 | | | 2,947,954 | | 2,968,601 | |||||||||||||||||||||
Issuance of Series AA preferred stock upon conversion of notes payable, net of issuance costs of $4,254 |
3,491,356 | 3,491 | | | 498,501 | | 501,992 | |||||||||||||||||||||
Issuance of Series AB preferred stock, net of issuance costs of $34,802 |
13,793,104 | 13,793 | | | 1,949,681 | | 1,963,474 | |||||||||||||||||||||
Issuance of Series A-2 preferred stock in conjunction with issuance of Series AB preferred stock |
1,724,138 | 1,724 | | | | | 1,724 | |||||||||||||||||||||
Conversion of preferred stock to common stock |
(19,427,966 | ) | (19,428 | ) | 18,139,327 | 18,139 | 1,289 | | | |||||||||||||||||||
Repurchase of common stock |
| | (7,679,937 | ) | (7,680 | ) | (103,688 | ) | | (111,368 | ) | |||||||||||||||||
Stock-based compensation expense |
| | | | 55,250 | | 55,250 | |||||||||||||||||||||
Net loss |
| | | | | (4,137,401 | ) | (4,137,401 | ) | |||||||||||||||||||
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Balance at December 31, 2014 |
39,655,172 | 39,655 | 23,483,864 | 23,483 | 29,279,794 | (28,378,548 | ) | 964,384 | ||||||||||||||||||||
Series AB preferred stock issuance costs |
| | (436 | ) | | (436 | ) | |||||||||||||||||||||
Stock-based compensation expense |
| | | | 112,418 | | 112,418 | |||||||||||||||||||||
Net loss |
| | | | | (5,510,771 | ) | (5,510,771 | ) | |||||||||||||||||||
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Balance at December 31, 2015 |
39,655,172 | $ | 39,655 | 23,483,864 | $ | 23,483 | $ | 29,391,776 | $ | (33,889,319 | ) | $ | (4,434,405 | ) | ||||||||||||||
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The accompanying notes are an integral part of these financial statements.
5
LAVANTE, INC.
Statements of Cash Flow
For the Years Ended December 31, 2015 and 2014
2015 | 2014 | |||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (5,510,771 | ) | $ | (4,137,401 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
Depreciation and amortization |
82,212 | 68,009 | ||||||
Stock-based compensation expense |
112,418 | 55,250 | ||||||
Increase (decrease) in fair value of warrant liability |
(15,877 | ) | 16,202 | |||||
Amortization of discount on notes payable |
27,881 | 17,447 | ||||||
Changes in operating assets and liabilities |
||||||||
Accounts receivable |
(192,034 | ) | 109,987 | |||||
Prepaid expenses and other current assets |
(44,021 | ) | (28,201 | ) | ||||
Other assets |
52,000 | | ||||||
Accounts payable |
84,837 | 48,271 | ||||||
Accrued expenses |
243,833 | (110,380 | ) | |||||
Deferred revenue |
413,575 | 240,523 | ||||||
Long-term liabilities |
(9,551 | ) | (12,735 | ) | ||||
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Net cash used in operating activities |
(4,755,498 | ) | (3,733,028 | ) | ||||
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Cash flows from investing activities |
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Purchase of property and equipment |
(110,792 | ) | (118,877 | ) | ||||
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Cash flows from financing activities |
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Issuance of preferred stock, net of issuance costs |
(436 | ) | 4,933,799 | |||||
Issuance of common stock |
| 435 | ||||||
Repurchase of common stock |
| (111,368 | ) | |||||
(Increase) decrease in restricted cash |
(150,000 | ) | | |||||
Repayment of line of credit, net |
(16,803 | ) | (183,935 | ) | ||||
Borrowing on convertible notes payable |
4,000,000 | 500,000 | ||||||
Payments on note payable |
(298,893 | ) | (200,143 | ) | ||||
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Net cash provided by financing activities |
3,533,868 | 4,938,788 | ||||||
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Net increase (decrease) in cash and cash equivalents |
(1,332,422 | ) | 1,086,883 | |||||
Cash and cash equivalents at beginning of year |
1,914,706 | 827,823 | ||||||
Cash and cash equivalents at end of year |
$ | 582,284 | $ | 1,914,706 | ||||
Non-cash financing activities |
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Conversion of preferred stock to common stock |
$ | | $ | 19,428 | ||||
Conversion of notes payable to preferred stock |
$ | | $ | 501,992 | ||||
Supplemental disclosures of cash flow information |
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Cash paid for income taxes |
$ | 1,256 | $ | 1,477 | ||||
Cash paid for interest |
$ | 64,243 | $ | 111,430 |
The accompanying notes are an integral part of these financial statements.
6
LAVANTE, INC.
Notes to Financial Statements
For the Years Ended December 31, 2015 and 2014
1. Operations and Summary of Significant Accounting Policies
Operations
Lavante, Inc., formerly Audit Solutions, Inc., (the Company) was incorporated in Delaware on October 1, 2007, in connection with the conversion from a limited liability company to a corporation. Effective April 1, 2009, Audit Solutions, Inc. was re-named Lavante, Inc. The Company is a leader in cloud-based supplier management and recovery software. These services help Fortune 1000 companies enhance productivity and cash flow by automating communications with their supply chain vendors and by creating automated methods to reclaim and prevent profit loss associated with typical transaction errors in the procure-to-pay process. Currently, the Companys business is primarily focused on North American clientele.
Liquidity
The Company has incurred operating losses since its incorporation and conversion from a limited liability company. To date, the Company has relied on equity financing in order to fund operating losses. In 2014, the Company raised approximately $5.5 million through the issuance of preferred stock. In addition, during 2015 the Company borrowed approximately $4.0 million for working capital needs. As discussed in Note 11, in October 2016 the Company merged with a wholly owned subsidiary of PRGX USA, Inc. for cash consideration of $4.25 million.
Revenue recognition
The Company derives its revenue from services it provides to its customers. Revenues are derived from contingency-based and/or fixed fee accounts payable and vendor statement recovery audit services as well as supplier information management software license subscriptions (the Services).
Revenue generated from the Services is recognized as the related services are performed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable, services have been delivered and collection of the resulting receivable is reasonably assured.
Contingency-based services are considered delivered when identified recoveries are presented to or accepted by the customer, depending on the terms of the contract. For contingency-based services where revenue is recognized upon presentation of identified recoveries to customers, the Company establishes an allowance for estimated recoveries presented which may ultimately be rejected. Such estimates are made primarily based on historical rejection rates.
The Company derives its software license subscription revenue from the sale of subscriptions relating to customers accessing the Companys on-demand application service. The Companys subscription agreements typically span one to three years. Customers do not contractually have the right to take possession of the software supporting the on-demand application. Subscription revenues are recognized ratably over the contractual term of the arrangement beginning on the date the service is made available to the customer, assuming all revenue recognition criteria have been met.
For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined with the final deliverable within the arrangement and treated as a single unit of accounting. Revenue for arrangements treated as a single unit of accounting is generally recognized over the subscription services period, which is considered the final deliverable.
In determining whether professional services have standalone value can be accounted for separately from subscription services, the Company considers the availability of the professional services from other vendors, the nature of the professional services and whether subscriptions are sold to new customers without professional services.
7
1. Operations and Summary of Significant Accounting Policies (continued)
Revenue recognition (continued)
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. VSOE and TPE do not currently exist for any of the Companys deliverables. Accordingly, the Company allocates the arrangement fee to the separate units of accounting based on its best estimate of selling price. Best estimate of selling price is based on overall pricing objectives, taking into consideration market conditions and entity-specific factors.
Concentrations and other risks
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. Cash and cash equivalents are deposited with high quality financial institutions. Periodically, such balances may be in excess of federally insured limits.
At December 31, 2015, two customers accounted for a total 53% of accounts receivable. During 2015, two customers accounted for 22% of revenue. At December 31, 2014, three customers accounted for 48% of accounts receivable. During 2014, one customer accounted for 11% of revenue.
Cash and cash equivalents
The Company considers all highly liquid financial instruments purchased with original maturities of three months or less to be cash or cash equivalents.
Accounts receivable
Accounts receivable are derived from revenue earned from customers located in the U.S. and Canada. The Company performs ongoing credit evaluations of customers financial condition and periodically evaluates its outstanding accounts receivables and establishes an allowance for doubtful accounts based on the Companys historical experience, the current aging and circumstances of account receivables and general economic conditions. Accounts are written off by the Company when it has been determined that all available collection avenues have been exhausted. The Company does not require collateral from customers. At December 31, 2015 and 2014, management had established an allowance for doubtful accounts of $38,707 and $13,661, respectively. The Company also established an allowance for estimated recoveries which may ultimately be rejected when presented to customers under contingency-based agreements. This allowance has been estimated using historical recovery data. At December 31, 2015 and 2014, the allowance for estimated recoveries was $84,526 and $185,016, respectively.
Property and equipment
Computer equipment and software, office equipment and furniture and fixtures are recorded at cost and are depreciated using the straight-line method over the estimated useful lives, which range from three to seven years. Leasehold improvements are recorded at cost and amortized using the straight-line method over the shorter of the life of the assets or the remaining period of the applicable facility lease excluding renewal provisions. Routine maintenance and repair costs are expensed as incurred. The costs of major additions, replacements and improvements are capitalized. Gains and losses from disposals are included in operations as incurred.
8
1. Operations and Summary of Significant Accounting Policies (continued)
Other assets
Other assets are comprised of deposits on property leases.
Long-lived assets
The carrying value of the long-lived assets is reviewed on a regular basis for the existence of facts, both internally and externally, that may suggest impairment. The Company recognizes impairment losses whenever events or circumstances result in the carrying amount of the assets exceeding the sum of the expected future cash flows associated with such assets. The measurement of the impairment losses to be recognized is based on the difference between the discounted cash flows from such assets and the carrying amounts of the assets.
Research and development
The Companys research and development costs incurred internally to develop computer software products it licenses to customers are charged to expense as incurred until technological feasibility is reached for the product. Once technological feasibility is reached, all software costs should be capitalized until the product is made available for general release to customers.
Costs incurred to develop on-demand application services are charged to expense until the preliminary product stage has been completed. Capitalization of on-demand application services costs should be capitalized until the application is substantially complete and ready for its intended use.
Judgment is required in determining when technological feasibility is established or when the preliminary product stage is completed. Management believes the time period from reaching technological feasibility until the time of general product release (for licensed software), or from the conclusion of the preliminary project stage until the application is substantially complete and ready for its intended use (for on-demand application services), is very short. In addition, the Companys estimated useful life of such capitalized costs is one year or less, and accordingly, all such costs are charged to research and development expense as incurred.
Management estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Stock-based compensation
The Company has a stock incentive plan under which incentive stock options are granted, primarily to employees. The fair value of each employee stock option is estimated on the date of grant using the Black Scholes option pricing model. The model requires management to make a number of assumptions, including expected volatility of the Companys stock, expected life of the option, risk-free interest rate and expected dividends.
Stock-based compensation expense recognized in the Companys financial statements is based on awards that are expected to vest. These expense amounts have been reduced by using an estimated forfeiture rate. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company evaluates the assumptions used to value stock awards on an annual basis.
Share-based awards issued to non-employees are recognized as expense over the requisite service period at their then current fair value.
9
1. Operations and Summary of Significant Accounting Policies (continued)
Income taxes
The asset and liability method is used in accounting for deferred income taxes. Under this method, deferred income taxes are provided for differences between the carrying amount of assets and liabilities for financial reporting and tax purposes, using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. These differences result primarily from loss carry-forwards for financial reporting and tax purposes at each year-end. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon future pretax earnings, the reversal of temporary differences between book and tax income, and the expected tax rates in future periods and adjustment for change in control.
The Company is required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions are more-likely-than-not of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. The Company has analyzed its inventory of tax positions taken with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction), and has concluded that it has no uncertain tax positions for which a reserve is required.
Fair value measurements
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs within the fair value hierarchy. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Companys own assumptions about what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The following methods and assumptions were used to estimate the fair value of financial instruments:
| Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. |
| Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
| Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. |
The category within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
10
2. Property and Equipment
Property and equipment consisted of the following:
December 31, | December 31, | |||||||
2015 | 2014 | |||||||
Computer equipment |
$ | 274,880 | $ | 484,117 | ||||
Office equipment |
94,012 | 93,327 | ||||||
Furniture and fixtures |
9,075 | 15,654 | ||||||
Computer software |
13,524 | 92,175 | ||||||
|
|
|
|
|||||
391,491 | 685,273 | |||||||
Less accumulated depreciation |
(236,699 | ) | (559,061 | ) | ||||
|
|
|
|
|||||
Net property and equipment |
$ | 154,792 | $ | 126,212 | ||||
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2015 and 2014 was $82,212 and $68,009, respectively.
3. Borrowing Arrangements
Lines of credit
The Company maintained a loan and security agreement with Avidbank Corporate Finance, a division of Avidbank (the Agreement) which provided for a revolving line of credit with maximum borrowings of up to $150,000. The interest rate was the greater of the prime rate plus 2.5% or 5.75%. The interest rate as of December 31, 2015 was 6%. Borrowings under the Agreement were collateralized by substantially all of the Company assets except for intellectual property and the Company maintained compensating restricted cash of $150,000 as of December 31, 2015. As of December 31, 2015 and 2014, the Company had $159,109 and $166,803, respectively, of borrowings and accrued interest outstanding under this line of credit. The Agreement expired on February 24, 2016.
Note payable
On September 30, 2013, the Company entered into a loan and security agreement with Costella Kirsch V, L.P. (the CK Agreement). The CK Agreement provides for maximum borrowings of up to $1,500,000 based on achievement of certain financial milestones and expired on September 30, 2016. The interest rate is 13%. Borrowings under the CK Agreement are collateralized by substantially all of the Company assets except for cash and accounts receivable. As of December 31, 2015 and 2014, the Company had $248,311 and $519,323, respectively, of borrowings outstanding under this term loan. The borrowings were subsequently repaid during 2016.
The CK Agreement provides for the ability to earn warrants to purchase up to $150,000 of Companys stock. As of December 31, 2015, warrants to purchase up to $90,000 of Series AA preferred stock have been earned. Each warrant includes a put option whereby Costella Kirsch may sell the warrant back to the Company coincident with a liquidity event or termination of the warrant. The current put amount is equal to $225,000. The Company estimated the fair value of the warrant derivative liability using the Black-Scholes option pricing model. The initial fair value of the warrant derivative liability was $52,343 and recorded as a discount against the associated notes payable. As of December 31, 2015, the fair value of the warrant derivative liability was $54,762. Amortization of the discount on note payable is computed using the straight line method over the note term and is included in interest expense in the accompanying statements of operations. The straight line method of amortization is not materially different than the effective interest method. Amortization of the discount for the years ended December 31, 2015 and 2014, totaled $27,881 and $17,447, respectively.
The put option was settled in full in conjunction with the merger discussed in Note 11.
11
3. Borrowing Arrangements (continued)
Convertible notes payable
During June, October, and December 2015, the Company issued convertible promissory notes payable to preferred stockholders totaling $2,500,000, $1,000,000, and $500,000, respectively. The notes accrue interest at 6% per annum with six month maturities. The notes are convertible into shares of the Companys preferred stock in the event the Company issues and sells shares of preferred stock prior to the maturity date of the notes in a qualified financing (excluding the conversion of the notes), as defined in the note agreements. The conversion price of the notes is equal to the lowest price paid for the shares issued by the Company in the qualified financing.
Convertible notes payable outstanding as of December 31, 2015 totaled $4,000,000. Accrued interest totaling $92,548 is included in accrued expenses in the accompanying balance sheets as of December 31, 2015.
As discussed in Note 11, all outstanding convertible notes payable were converted to preferred stock in conjunction with the merger.
4. Fair Value Measurements
The following table summarizes the Companys assets and liabilities measured at fair value on a recurring basis at:
December 31, 2015 | ||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Warrant liability |
$ | 54,762 | | | $ | 54,762 | ||||||||||
December 31, 2014 | ||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Warrant liability |
$ | 70,639 | | | $ | 70,639 |
As discussed in Note 3, in September 2013, in conjunction with the issuance of notes payable, the Company issued warrants to purchase up to $90,000 of Series AA preferred stock. The exercise price is subject to adjustment and the warrants may be exercised without cash consideration in lieu of forfeiting a portion of shares. In addition, the holders may exercise a put option of a minimum of $225,000 in lieu of exercising the warrants. Accordingly, the Company recognized a derivative liability at fair value upon issuance of the warrants. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model. The fair value of the derivative liability as of December 31, 2015 was estimated using the following assumptions:
Expected volatility |
40.4 | % | ||
Risk free rate |
1.55 | % | ||
Dividend yield |
0 | % | ||
Expected term (in years) |
4.75 |
The assumptions utilized were derived in a similar manner as discussed in Note 6 related to the fair value of stock options.
12
4. Fair Value Measurements (continued)
The Company revalues the derivative liability at the end of each reporting period using the same models as at issuance, updated for new facts and circumstances, and recognizes the change in the fair value in the statements of operations as other income (expense). The following sets forth a summary of changes in fair value of the Companys level 3 liabilities measured on a recurring basis:
Stock Warrant Liability |
||||
Balance at December 31, 2013 |
$ | 54,437 | ||
Change in fair value |
16,202 | |||
|
|
|||
Balance at December 31, 2014 |
70,639 | |||
Change in fair value |
(15,877 | ) | ||
|
|
|||
Balance at December 31, 2015 |
$ | 54,762 | ||
|
|
5. Stockholders Equity
Common stock
The Company has reserved the following shares of common stock for future issuance as of December 31, 2015:
Convertible Series AA preferred stock |
24,137,930 | |||
Convertible Series AB preferred stock |
13,793,104 | |||
Convertible Series A-2 preferred stock |
1,724,138 | |||
Warrants to purchase convertible preferred stock |
1,034,484 | |||
Options to purchase common stock |
12,929,533 | |||
Options available for future issuance |
3,254,930 | |||
|
|
|||
Total common stock reserved for future issuance |
56,874,119 | |||
|
|
Preferred stock
At December 31, 2015, Preferred Stock consisted of the following:
Number of Shares Designated |
Number of Shares Issued and Outstanding |
Liquidation Preference |
||||||||||
Series AA |
25,172,414 | 24,137,930 | $ | 7,000,000 | ||||||||
Series AB |
13,793,104 | 13,793,104 | 2,000,000 | |||||||||
Series A-2 |
1,724,138 | 1,724,138 | 250,000 | |||||||||
|
|
|
|
|
|
|||||||
40,689,656 | 39,655,172 | $ | 9,250,000 | |||||||||
|
|
|
|
|
|
A complete description of the rights, preferences, privileges, and restrictions of the convertible preferred stock are included in the amended and restated certificate of incorporation.
Each share of preferred stock is convertible, at the option of the holder, at any time after the date of issuance, into such number of fully paid and nonassessable shares of common stock as is determined by dividing (i) $0.145 in the case of Series AA, (ii) $0.145 in the case of Series AB, (iii) $0.145 in the case of Series A-2 by the conversion price in effect.
13
5. Stockholders Equity (continued)
Each share of preferred stock will automatically be converted into common stock upon the earlier of (i) a vote or written request from at least a majority of holders of the then outstanding preferred stock; and (ii) the closing of an underwritten public offering of common stock under the Securities Act of 1933, as amended, in which the Company receives at least $30,000,000 in gross proceeds and the price per share is at least $0.725.
Holders of preferred stock are entitled to one vote for each share of common stock into which their shares can be converted.
Holders of Series AA, Series AB and Series A-2 preferred stock, in preference to holders of common stock, are entitled to receive dividends at the rate of 0.0116 cents ($0.0116) per annum on each outstanding share, respectively. The dividends are non-cumulative and are payable when, as, and if declared by the board of directors. As of September 30, 2016, no dividends have been declared or paid.
Upon any liquidation event and before any distribution or payment is made to the holders of common stock, the holders of Series AA, Series AB and Series A-2 preferred stock will be entitled to receive an amount equal to $0.29, $0.145, $0.145, per share, respectively, plus all declared but unpaid dividends. Thereafter, any remaining assets available for distribution will be distributed to the holders of common stock and preferred stocks pro rata, at an as-if converted basis.
Warrants
Warrants to purchase 259,788 shares of Series B preferred stock were issued in connection with convertible promissory notes in October 2010. During 2013, following the aforementioned recapitalization of preferred stock; the warrants were revised to allow for the purchase of 124,894 shares of Series B-1 preferred stock. During 2014, the warrants were revised to allow for the purchase 131,467 shares of common stock. The warrants were exercisable at $1.20 per share through October 2015 when they expired.
Warrants to purchase an exercise quantity equal to $90,000 worth of shares of Series AA preferred stock were issued in connection with a term loan in September 2013. The warrants are exercisable at $0.145 per share through September 2020. These warrants were outstanding at December 31, 2015.
6. Stock Incentive Plan
In 2008, the Company authorized the 2008 Stock Incentive Plan (the 2008 Plan). The 2008 Plan authorizes the granting of common stock options. The exercise price of all common stock options granted is the fair value of the Companys common stock at the date of grant as determined by the board of directors. The common stock options typically vest over a four year period and expire ten years from the grant date. Restricted stock issued to consultants and directors vest based on time and/or performance criteria.
14
6. Stock Incentive Plan (continued)
Activity under the 2008 Plan is as follows:
Shares Available For Grant |
Number of Shares Outstanding |
Weighted Average Exercise Price Per Share |
||||||||||
Balance at December 31, 2013 |
1,388,077 | 5,805,083 | $ | 0.05 | ||||||||
Authorized |
9,000,000 | |||||||||||
Options granted |
(6,367,247 | ) | 6,367,247 | $ | 0.01 | |||||||
Exercised |
| (8,697 | ) | $ | 0.05 | |||||||
Expired |
50,206 | (50,206 | ) | $ | 0.05 | |||||||
Forfeited |
2,117,080 | (2,117,080 | ) | $ | 0.05 | |||||||
|
|
|
|
|||||||||
Balance at December 31, 2014 |
6,188,116 | 9,996,347 | $ | 0.03 | ||||||||
Options granted |
(3,933,477 | ) | 3,933,477 | $ | 0.01 | |||||||
Expired |
282,291 | (282,291 | ) | $ | 0.02 | |||||||
Forfeited |
718,000 | (718,000 | ) | $ | 0.04 | |||||||
|
|
|
|
|||||||||
Balance at December 31, 2015 |
3,254,930 | 12,929,533 | $ | 0.02 | ||||||||
|
|
|
|
|||||||||
Total vested and expected to vest shares |
10,120,090 | $ | 0.02 | |||||||||
|
|
The following table summarizes information with respect to stock options outstanding at December 31, 2015:
Options Outstanding |
Options Exercisable | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Remaining | Exercise | |||||||||||||||
Exercise Price | Shares | Contractual Life | Shares | Price Per | ||||||||||||
Per Share |
Outstanding | (in years) | Exercisable | Share | ||||||||||||
$0.014 |
9,733,724 | 8.79 | 1,831,175 | $ | 0.014 | |||||||||||
$0.05 |
3,195,809 | 5.17 | 2,712,426 | $ | 0.05 | |||||||||||
|
|
|
|
|||||||||||||
12,929,533 | 6.57 | 4,543,601 | $ | 0.05 | ||||||||||||
|
|
|
|
Stock-based compensation
Employee stock-based compensation recognized in the years ended December 31, 2015 and 2014 was as follows:
2015 | 2014 | |||||||
Cost of revenues |
$ | 10,463 | $ | 6,634 | ||||
Operating expenses |
||||||||
General and administration |
62,407 | 16,223 | ||||||
Sales and marketing |
18,017 | 11,258 | ||||||
Research and development |
21,531 | 21,135 | ||||||
|
|
|
|
|||||
Total employee stock-based compensation expense |
$ | 112,418 | $ | 55,250 | ||||
|
|
|
|
No income tax benefit has been recognized relating to stock-based compensation expense during the years ended December 31, 2015 and 2014. As of December 31, 2015, there was total unrecognized compensation costs of $168,499 related to these stock options. These costs are expected to be recognized over a period of approximately 2.7 years.
15
6. Stock Incentive Plan (continued)
During the years ended December 31, 2015 and 2014, the Company granted stock options to employees and directors with weighted-average grant date fair values of $0.03 and $0.04 per share, respectively. The fair value of employee stock options granted was estimated using the following weighted-average assumptions for the years ended December 31, 2015 and 2014:
2015 | 2014 | |||||||
Expected volatility |
40 | % | 45 | % | ||||
Risk free rate |
1.7 | % | 1.7 | % | ||||
Dividend yield |
0 | % | 0 | % | ||||
Expected term (in years) |
6.11 | 6.08 |
The expected term of the options is based on the average period the stock options are expected to remain outstanding based on the options vesting term and contractual terms. The expected stock price volatility assumption for the Companys stock options was determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Companys common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Companys stock options. The expected dividend assumption is based on the Companys history and expectation of dividend payouts. Forfeitures were estimated based on historical experience.
Non-employee stock-based compensation
The Company occasionally issues non-qualified stock options to non-employees. Such options are issued for services provided by non-employees with vesting terms commensurate with employee options. The fair values of non-employee stock options are determined using the Black-Scholes option pricing model using similar assumptions as employee options. During the years ended December 31, 2015 and 2014, the Company granted 44,000 and 30,500 options to purchase common stock to non-employees with weighted-average grant date fair values of $0.01 and $0.03 per share, respectively. Stock-based compensation to non-employees was not significant in 2015 and 2014, and was included in operating expenses.
7. Income Taxes
The Companys provision for income taxes, included in other income (expense), net on the accompanying statements of operations, for the years ended December 31, 2015 and 2014 is as follows:
2015 | 2014 | |||||||
State |
$ | 1,256 | $ | 1,256 |
Significant components of the Companys net deferred tax assets and liabilities are as follows:
2015 | 2014 | |||||||
Deferred tax assets |
||||||||
Net operating losses |
$ | 12,299,517 | $ | 10,462,074 | ||||
Research and development tax credits |
288,729 | 309,149 | ||||||
Accruals and reserves |
120,645 | 118,677 | ||||||
Deferred income |
33,415 | | ||||||
Fixed assets and intangibles |
2,246 | | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
12,744,552 | 10,889,900 | ||||||
Valuation allowance |
(12,744,552 | ) | (10,889,331 | ) | ||||
|
|
|
|
|||||
Realizable deferred tax assets |
| 569 | ||||||
|
|
|
|
|||||
Deferred tax liabilities |
||||||||
Fixed assets and intangibles |
| (569 | ) | |||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | | ||||
|
|
|
|
16
7. Income Taxes (continued)
Due to the Companys lack of earnings history and cumulative losses, the net deferred tax assets have been fully offset by a valuation allowance as the Company believes it is more likely than not that the remaining deferred tax assets will not be realized.
At December 31, 2015, the Company had federal and state operating loss carryforwards of approximately $32,283,729 and $22,059,871, respectively, which will begin to expire in 2028 if not utilized. Utilization of the Companys net operating loss credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. This annual limitation may result in the expiration of net operating loss and credits before utilization.
At December 31, 2015, the Company had approximately $337,133 and $364,128 of federal and state research and development credit carryforwards, respectively, available to offset future taxable income. If research and development credits are not utilized, the federal credit will begin to expire in 2029. The state research and development credits can be carried forward indefinitely.
At December 31, 2015, the Company has recorded a reserve for uncertain tax positions totaling $168,567 for federal and $182,064 for state research and development credits carryforwards through 2015. The research and development credit reserve is a reduction to the deferred tax assets, which is currently offset by a full valuation allowance. No adjustments to the liability for the uncertain tax position have been made due to the full valuation allowance.
Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense and were immaterial. The Company files income tax returns in the United States and various states. As of December 31, 2015, all tax years from 2013 through 2015 remain open in most jurisdictions. The Company is not currently under examination by income tax authorities in federal or state jurisdictions.
Although the timing of resolution and closure of audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next twelve months.
8. Commitments and Contingencies
Lease commitments
In August 2012, the Company entered into a new sublease agreement with a corporation to rent office space through September 2016 at $26,000 per month. In September 2016, the lease was extended through October 31, 2016 under the same terms. The Company is currently negotiating a new lease arrangement.
Rent expense under the Companys leases for the years ended December 31, 2015 and 2014 was $386,668 and $299,265, respectively.
9. Related Party
The Company had a consulting agreement with one of its directors whereby the director provided management advisory services for a fee of $2,250 per month. The arrangement was in effect since October 16, 2007 through January 31, 2016.
17
10. Employee Benefits
Effective January 1, 2010, the Company adopted its 401(k) Plan. Under this Plan, eligible employees are allowed to defer up to 100% of their compensation, not to exceed the maximum annual contribution permitted by IRS regulations. The Company does not match employee contributions.
11. Subsequent Events
Management evaluated subsequent events for possible impact on the financial statements, including notes to these financial statements through January 12, 2017, the date the financial statements were available for issuance.
Through September 2016, the Company issued various convertible promissory notes payable to preferred stockholders totaling $2,940,000. The notes accrued interest at 6% per annum with twelve month maturities. In March 2016, the maturity dates were subsequently extended to various dates in October and December 2017. The notes were convertible into shares of the Companys preferred stock in the event the Company issued and sold shares of preferred stock prior to the maturity date of the notes in a qualified financing (excluding the conversion of the notes), as defined in the note agreements. The conversion price of the notes was equal to the lowest price paid for the shares issued by the Company in the qualified financing.
During October 2016, the Company issued short-term bridge notes payable to members of management totaling $177,500, and deferred salaries of certain members of management totaling approximately $180,000.
On October 31, 2016, the Company consummated a reverse triangular merger with a wholly owned subsidiary of PRGX USA, Inc., a subsidiary of PRGX Global, Inc. (collectively PRGX), whereby the Company continued as the surviving entity, as a wholly owned subsidiary of PRGX USA, Inc., in exchange for cash consideration of $4,250,000. The merger consideration is subject to customary working capital adjustments and contingent cash earnout consideration based upon revenue received from SIM services by PRGX and its subsidiaries, including the Company, through December 31, 2018.
Immediately prior to closing of the merger, outstanding convertible notes payable of the Company totaling $6,940,000 plus accrued interest totaling approximately $360,000 converted into shares of Series AC preferred stock.
No other subsequent events occurred that would have a material effect on the presentation of the Companys financial statements.
18
Exhibit 99.2
Lavante, Inc.
Condensed Financial Statements
For the Nine Months Ended September 30, 2016 and 2015 (unaudited)
LAVANTE, INC.
Balance Sheets
September 30, 2016 |
December 31, 2015 |
|||||||
ASSETS | (unaudited) | |||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 118,173 | $ | 582,284 | ||||
Restricted Cash |
| 150,000 | ||||||
Accounts receivable, net |
148,798 | 412,595 | ||||||
Prepaid expenses |
127,074 | 139,840 | ||||||
|
|
|
|
|||||
Total current assets |
394,045 | 1,284,719 | ||||||
Property and equipment, net |
97,382 | 154,792 | ||||||
|
|
|
|
|||||
Total assets |
$ | 491,427 | $ | 1,439,511 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | ||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 503,861 | $ | 304,616 | ||||
Accrued expenses |
939,314 | 414,047 | ||||||
Deferred revenue |
472,626 | 702,180 | ||||||
Warrant derivative liability |
225,000 | | ||||||
Line of credit |
| 150,000 | ||||||
Note payable, current portion |
| |
248,311 |
| ||||
Convertible notes payable |
6,940,000 | 4,000,000 | ||||||
|
|
|
|
|||||
Total current liabilities |
9,080,801 | 5,819,154 | ||||||
|
|
|
|
|||||
Warrant derivative liability |
| 54,762 | ||||||
|
|
|
|
|||||
Total liabilities |
9,080,801 | 5,873,916 | ||||||
|
|
|
|
|||||
Stockholders equity (deficit) |
||||||||
Convertible preferred stock, $0.001 par value; 40,689,656 shares authorized; 39,655,172 shares designated, issued and outstanding (aggregate liquidation preference of $9,250,000) |
39,655 | 39,655 | ||||||
Common stock, $0.001 par value; 80,489,451 shares authorized, 23,498,656 and 23,483,864 shares issued and outstanding, respectively |
23,498 | 23,483 | ||||||
Additional paid-in capital |
29,466,348 | 29,391,776 | ||||||
Accumulated deficit |
(38,118,875 | ) | (33,889,319 | ) | ||||
|
|
|
|
|||||
(8,589,374 | ) | (4,434,405 | ) | |||||
|
|
|
|
|||||
$ | 491,427 | $ | 1,439,511 | |||||
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
Condensed Statements of Operations
Statements of Operations
(unaudited)
2016 | 2015 | |||||||
Revenues |
$ | 2,119,146 | $ | 1,982,165 | ||||
Cost of revenues |
986,920 | 1,163,242 | ||||||
|
|
|
|
|||||
Gross profit |
1,132,226 | 818,923 | ||||||
Operating expenses |
||||||||
General and administration |
810,159 | 975,682 | ||||||
Sales and marketing |
2,267,710 | 2,457,933 | ||||||
Research and development |
1,820,642 | 1,445,974 | ||||||
|
|
|
|
|||||
Total operating expenses |
4,898,511 | 4,879,589 | ||||||
Other expense, net |
(463,271 | ) | (114,570 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (4,229,556 | ) | $ | (4,175,236 | ) | ||
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
LAVANTE, INC.
Condensed Statements of Cash Flow
For the Nine Months Ended September 30, 2016 and 2015
2016 | 2015 | |||||||
(unaudited) | ||||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (4,229,556 | ) | $ | (4,175,236 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
Depreciation and amortization |
57,410 | 62,142 | ||||||
Stock-based compensation expense |
74,385 | 85,653 | ||||||
Amortization of discount on notes payable |
2,653 | 20,905 | ||||||
Preferred stock warrant put option, non-cash interest expense |
170,238 | | ||||||
Changes in operating assets and liabilities |
||||||||
Accounts receivable |
263,797 | 69,670 | ||||||
Prepaid expenses |
12,766 | (34,333 | ) | |||||
Accounts payable |
199,245 | (157,807 | ) | |||||
Accrued expenses |
525,267 | 348,893 | ||||||
Deferred revenue |
(229,554 | ) | 289,941 | |||||
Long-term liabilities |
| (9,551 | ) | |||||
|
|
|
|
|||||
Net cash used in operating activities |
3,153,349 | (3,499,723 | ) | |||||
Cash flows from investing activities |
||||||||
Purchase of property and equipment |
| (100,845 | ) | |||||
Cash flows from financing activities |
||||||||
Issuance of preferred stock, net of issuance costs |
| (436 | ) | |||||
Issuance of common stock |
202 | | ||||||
(Increase) decrease in restricted cash |
150,000 | | ||||||
Repayment of line of credit, net |
(150,000 | ) | (9,197 | ) | ||||
Payments on note payable |
(250,964 | ) | (220,503 | ) | ||||
Borrowings on bridge loan |
2,940,000 | 2,500,000 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
2,689,238 | 2,269,864 | ||||||
Net increase (decrease) in cash and cash equivalents |
(464,111 | ) | (1,330,704 | ) | ||||
Cash and cash equivalents at beginning of year |
582,284 | 1,914,706 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of year |
$ | 118,173 | $ | 584,002 | ||||
|
|
|
|
|||||
Non-cash financing activities |
||||||||
Conversion of preferred stock to common stock |
$ | | $ | | ||||
Conversion of notes payable to preferred stock |
$ | | $ | | ||||
Supplemental disclosures of cash flow information |
||||||||
Cash paid for income taxes |
$ | | $ | | ||||
Cash paid for interest |
$ | 16,289 | $ | 51,015 |
The accompanying notes are an integral part of these condensed financial statements.
LAVANTE, INC.
Notes to Financial Statements
For the Nine Months Ended September 30, 2016 and 2015 (unaudited)
1. Operations and Summary of Significant Accounting Policies
Operations
Lavante, Inc., formerly Audit Solutions, Inc., (the Company) was incorporated in Delaware on October 1, 2007, in connection with the conversion from a limited liability company to a corporation. Effective April 1, 2009, Audit Solutions, Inc. was re-named Lavante, Inc. The Company is a leader in cloud-based supplier management and recovery software. These services help Fortune 1000 companies enhance productivity and cash flow by automating communications with their supply chain vendors and by creating automated methods to reclaim and prevent profit loss associated with typical transaction errors in the procure-to-pay process. Currently, the Companys business is primarily focused on North American clientele.
Liquidity
The Company has incurred operating losses since its incorporation and conversion from a limited liability company. To date, the Company has relied on equity and debt financing in order to fund operating losses. During the nine months ended September 30, 2016 and 2015, the Company borrowed approximately $3.0 million and $2.5 million, respectively, for working capital needs. As discussed in Note 11, in October 2016 the Company merged with a wholly owned subsidiary of PRGX USA, Inc. for cash consideration of $4.25 million.
Unaudited interim financial data
The accompanying condensed balance sheet as of September 30, 2016, and the condensed statements of operations, and cash flows for the nine months ended September 30, 2016 and 2015, and the related information contained within the notes to the condensed financial statements are unaudited.
The interim condensed financial statements have been prepared on the same basis as the 2015 annual audited financial statements and, in the opinion of management, reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Companys financial position at September 30, 2016 and results of its operations and its cash flows for the nine months ended September 30, 2016 and 2015. The results for the nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016 or any other interim or future period.
Revenue recognition
The Company derives its revenue from services it provides to its customers. Revenues are derived from contingency-based and/or fixed fee accounts payable and vendor statement recovery audit services as well as supplier information management software license subscriptions (the Services).
Revenue generated from the Services is recognized as the related services are performed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable, services have been delivered and collection of the resulting receivable is reasonably assured.
Contingency-based services are considered delivered when identified recoveries are presented to or accepted by the customer, depending on the terms of the contract. For contingency-based services where revenue is recognized upon presentation of identified recoveries to customers, the Company establishes an allowance for estimated recoveries presented which may ultimately be rejected. Such estimates are made primarily based on historical rejection rates.
The Company derives its software license subscription revenue from the sale of subscriptions relating to customers accessing the Companys on-demand application service. The Companys subscription agreements typically span one to three years. Customers do not contractually have the right to take possession of the software supporting the on-demand application. Subscription revenues are recognized ratably over the contractual term of the arrangement beginning on the date the service is made available to the customer, assuming all revenue recognition criteria have been met.
1. Operations and Summary of Significant Accounting Policies (continued)
Revenue recognition (continued)
For arrangements with multiple deliverables, the Company evaluates whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are generally combined with the final deliverable within the arrangement and treated as a single unit of accounting. Revenue for arrangements treated as a single unit of accounting is generally recognized over the subscription services period, which is considered the final deliverable.
In determining whether professional services have standalone value can be accounted for separately from subscription services, the Company considers the availability of the professional services from other vendors, the nature of the professional services and whether subscriptions are sold to new customers without professional services.
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. VSOE and TPE do not currently exist for any of the Companys deliverables. Accordingly, the Company allocates the arrangement fee to the separate units of accounting based on its best estimate of selling price. Best estimate of selling price is based on overall pricing objectives, taking into consideration market conditions and entity-specific factors.
Concentrations and other risks
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. Cash and cash equivalents are deposited with high quality financial institutions. Periodically, such balances may be in excess of federally insured limits.
At December 31, 2015, two customers accounted for a total 53% of accounts receivable. During 2015, two customers accounted for 22% of revenue. At September 30, 2016, one customer accounted for 85% of accounts receivable. No other customers accounted for more than 10% of accounts receivable or revenue as of December 31, 2015, and September 30, 2016 or for the year and period then ended.
Cash and cash equivalents
The Company considers all highly liquid financial instruments purchased with original maturities of three months or less to be cash or cash equivalents.
1. Operations and Summary of Significant Accounting Policies (continued)
Accounts receivable
Accounts receivable are derived from revenue earned from customers located in the U.S. and Canada. The Company performs ongoing credit evaluations of customers financial condition and periodically evaluates its outstanding accounts receivables and establishes an allowance for doubtful accounts based on the Companys historical experience, the current aging and circumstances of account receivables and general economic conditions. Accounts are written off by the Company when it has been determined that all available collection avenues have been exhausted. The Company does not require collateral from customers. At December 31, 2015 and September 30, 2016, management had established an allowance for doubtful accounts of $38,707 and $38,706, respectively. The Company also established an allowance for estimated recoveries which may ultimately be rejected when presented to customers under contingency-based agreements. This allowance has been estimated using historical recovery data. At December 31, 2015 and September 30, 2016, the allowance for estimated recoveries was $84,526 and $110,079, respectively.
Property and equipment
Computer equipment and software, office equipment and furniture and fixtures are recorded at cost and are depreciated using the straight-line method over the estimated useful lives, which range from three to seven years. Leasehold improvements are recorded at cost and amortized using the straight-line method over the shorter of the life of the assets or the remaining period of the applicable facility lease excluding renewal provisions. Routine maintenance and repair costs are expensed as incurred. The costs of major additions, replacements and improvements are capitalized. Gains and losses from disposals are included in operations as incurred.
Other assets
Other assets are comprised of deposits on property leases.
Long-lived assets
The carrying value of the long-lived assets is reviewed on a regular basis for the existence of facts, both internally and externally, that may suggest impairment. The Company recognizes impairment losses whenever events or circumstances result in the carrying amount of the assets exceeding the sum of the expected future cash flows associated with such assets. The measurement of the impairment losses to be recognized is based on the difference between the discounted cash flows from such assets and the carrying amounts of the assets.
Research and development
The Companys research and development costs incurred internally to develop computer software products it licenses to customers are charged to expense as incurred until technological feasibility is reached for the product. Once technological feasibility is reached, all software costs should be capitalized until the product is made available for general release to customers.
Costs incurred to develop on-demand application services are charged to expense until the preliminary product stage has been completed. Capitalization of on-demand application services costs should be capitalized until the application is substantially complete and ready for its intended use.
Judgment is required in determining when technological feasibility is established or when the preliminary product stage is completed. Management believes the time period from reaching technological feasibility until the time of general product release (for licensed software), or from the conclusion of the preliminary project stage until the application is substantially complete and ready for its intended use (for on-demand application services), is very short. In addition, the Companys estimated useful life of such capitalized costs is one year or less, and accordingly, all such costs are charged to research and development expense as incurred.
1. Operations and Summary of Significant Accounting Policies (continued)
Management estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Stock-based compensation
The Company has a stock incentive plan under which incentive stock options are granted, primarily to employees. The fair value of each employee stock option is estimated on the date of grant using the Black Scholes option pricing model. The model requires management to make a number of assumptions, including expected volatility of the Companys stock, expected life of the option, risk-free interest rate and expected dividends.
Stock-based compensation expense recognized in the Companys condensed financial statements is based on awards that are expected to vest. These expense amounts have been reduced by using an estimated forfeiture rate. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company evaluates the assumptions used to value stock awards on an annual basis.
Share-based awards issued to non-employees are recognized as expense over the requisite service period at their then current fair value.
Income taxes
The asset and liability method is used in accounting for deferred income taxes. Under this method, deferred income taxes are provided for differences between the carrying amount of assets and liabilities for financial reporting and tax purposes, using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. These differences result primarily from loss carry-forwards for financial reporting and tax purposes at each year-end. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon future pretax earnings, the reversal of temporary differences between book and tax income, and the expected tax rates in future periods and adjustment for change in control.
The Company is required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions are more-likely-than-not of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. The Company has analyzed its inventory of tax positions taken with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction), and has concluded that it has no uncertain tax positions for which a reserve is required.
Fair value measurements
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs within the fair value hierarchy. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Companys own assumptions about what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
1. Operations and Summary of Significant Accounting Policies (continued)
Fair value measurements (continued)
The following methods and assumptions were used to estimate the fair value of financial instruments:
| Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. |
| Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
| Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. |
The category within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
2. Property and Equipment
Property and equipment consisted of the following:
September 30, | December 31, | |||||||
2016 | 2015 | |||||||
Computer equipment |
$ | 226,830 | $ | 226,830 | ||||
Office equipment |
72,287 | 72,287 | ||||||
Computer software |
10,538 | 10,538 | ||||||
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309,655 | 309,655 | |||||||
Less accumulated depreciation |
(212,273 | ) | (154,863 | ) | ||||
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Net property and equipment |
$ | 97,382 | $ | 154,792 | ||||
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Depreciation and amortization expense for the nine months ended September 30, 2016 and 2015 was $57,410, and $62,142, respectively.
3. Borrowing Arrangements
Lines of credit
The Company maintained a loan and security agreement with Avidbank Corporate Finance, a division of Avidbank (the Agreement) which provided for a revolving line of credit with maximum borrowings of up to $150,000. The interest rate was the greater of the prime rate plus 2.5% or 5.75%. Borrowings under the Agreement were collateralized by substantially all of the Company assets except for intellectual property and the Company maintained compensating restricted cash of $150,000 as of December 31, 2015. As of December 31, 2015, the Company had $159,109 of borrowings and accrued interest outstanding under this line of credit. The Agreement expired on February 24, 2016.
Note payable
On September 30, 2013, the Company entered into a loan and security agreement with Costella Kirsch V, L.P. (the CK Agreement). The CK Agreement provides for maximum borrowings of up to $1,500,000 based on achievement of certain financial milestones and expired on September 30, 2016. The interest rate is 13%. Borrowings under the CK Agreement are collateralized by substantially all of the Company assets except for cash and accounts receivable. As of December 31, 2015, the Company had $248,311 of borrowings outstanding under this term loan. The borrowings were repaid during the nine months ended September 30, 2016.
The CK Agreement provides for the ability to earn warrants to purchase up to $150,000 of Companys stock. As of December 31, 2015 and September 30, 2016, warrants to purchase up to $90,000 of Series AA preferred stock have been earned. Each warrant includes a put option whereby Costella Kirsch may sell the warrant back to the Company coincident with a liquidity event or termination of the warrant. The current put amount is equal to $225,000. The Company estimated the fair value of the warrant derivative liability using the Black-Scholes option pricing model. The initial fair value of the warrant derivative liability was $52,343 and recorded as a discount against the associated notes payable. As of December 31, 2015, the fair value of the warrant derivative liability was $54,762. Amortization of the discount on note payable is computed using the straight line method over the note term and is included in interest expense in the accompanying statements of operations. The straight line method of amortization is not materially different than the effective interest method. Amortization of the discount for the nine months ended September 30, 2016 and 2015 totaled $2,653 and $20,905, respectively.
During the nine months ended September 30, 2016, the Company evaluated the outstanding warrant and associated put option concluding, based upon the fair market value of the Companys stock, it was probable the holder would exercise the put. Accordingly, the Company remeasured the warrant derivative liability to the expected put option value of $225,000. The put option was settled in full in conjunction with the merger discussed in Note 11.
Convertible notes payable
During the nine months ended September 30, 2016, the Company issued various convertible promissory notes payable to preferred stockholders totaling $2,940,000. The notes accrue interest at 6% per annum with twelve month maturities. In March 2016, the maturity dates were subsequently extended to various dates in October and December 2017. The notes are convertible into shares of the Companys preferred stock in the event the Company issues and sells shares of preferred stock prior to the maturity date of the notes in a qualified financing (excluding the conversion of the notes), as defined in the note agreements. The conversion price of the notes is equal to the lowest price paid for the shares issued by the Company in the qualified financing.
3. Borrowing Arrangements (continued)
During June, October, and December 2015, the Company issued convertible promissory notes payable to preferred stockholders totaling $2,500,000, $1,000,000, and $500,000, respectively. The notes accrue interest at 6% per annum with six month maturities. The notes are convertible into shares of the Companys preferred stock in the event the Company issues and sells shares of preferred stock prior to the maturity date of the notes in a qualified financing (excluding the conversion of the notes), as defined in the note agreements. The conversion price of the notes is equal to the lowest price paid for the shares issued by the Company in the qualified financing.
Convertible notes payable outstanding as of September 30, 2016 and December 31, 2015 totaled $6,940,000 and $4,000,000, respectively. Accrued interest totaling $336,523 and $92,548 is included in accrued expenses in the accompanying balance sheets as of September 30, 2016 and December 31, 2015, respectively.
As discussed in Note 11, all outstanding convertible notes payable were converted to preferred stock in conjunction with the merger.
4. Fair Value Measurements
The following table summarizes the Companys assets and liabilities measured at fair value on a recurring basis at:
December 31, 2015 | ||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Warrant liability |
$ | 54,762 | | | $ | 54,762 | ||||||||||
September 30, 2016 | ||||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Put option liability |
$ | 225,000 | | | $ | 225,000 |
As discussed in Note 3, in September 2013, in conjunction with the issuance of notes payable, the Company issued warrants to purchase up to $90,000 of Series AA preferred stock. The exercise price is subject to adjustment and the warrants may be exercised without cash consideration in lieu of forfeiting a portion of shares. In addition, the holders may exercise a put option of a minimum of $225,000 in lieu of exercising the warrants. Accordingly, the Company recognized a derivative liability at fair value upon issuance of the warrants. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model. The fair value of the derivative liability as of December 31, 2015 was estimated using the following assumptions:
Expected volatility |
40.4 | % | ||
Risk free rate |
1.55 | % | ||
Dividend yield |
0 | % | ||
Expected term (in years) |
4.75 |
The assumptions utilized were derived in a similar manner as discussed in Note 6 related to the fair value of stock options. The fair value of the derivative liability as of September 30, 2016 was determined based upon the minimum amount to be settled upon exercise of the put option and was the amount settled during the merger agreement discussed in Note 11.
4. Fair Value Measurements (continued)
The Company revalues the derivative liability at the end of each reporting period using the same models as at issuance, updated for new facts and circumstances, and recognizes the change in the fair value in the statements of operations as other income (expense). The following sets forth a summary of changes in fair value of the Companys level 3 liabilities measured on a recurring basis:
Stock Warrant | ||||
Liability | ||||
Balance at December 31, 2015 |
$ | 54,762 | ||
Change in fair value |
170,238 | |||
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Balance at September 30, 2016 |
$ | 225,000 | ||
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5. Stockholders Equity
Common stock
The Company has reserved the following shares of common stock for future issuance as of September 30, 2016:
Convertible Series AA preferred stock |
24,137,930 | |||
Convertible Series AB preferred stock |
13,793,104 | |||
Convertible Series A-2 preferred stock |
1,724,138 | |||
Warrants to purchase convertible preferred stock |
1,034,484 | |||
Options to purchase common stock |
12,843,533 | |||
Options available for future issuance |
3,326,138 | |||
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Total common stock reserved for future issuance |
56,859,327 | |||
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Preferred stock
At September 30, 2016, Preferred Stock consisted of the following:
Number of Shares Designated |
Number of Shares Issued and Outstanding |
Liquidation Preference |
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Series AA |
25,172,414 | 24,137,930 | $ | 7,000,000 | ||||||||
Series AB |
13,793,104 | 13,793,104 | 2,000,000 | |||||||||
Series A-2 |
1,724,138 | 1,724,138 | 250,000 | |||||||||
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40,689,656 | 39,655,172 | $ | 9,250,000 | |||||||||
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A complete description of the rights, preferences, privileges, and restrictions of the convertible preferred stock are included in the amended and restated certificate of incorporation.
Each share of preferred stock is convertible, at the option of the holder, at any time after the date of issuance, into such number of fully paid and nonassessable shares of common stock as is determined by dividing (i) $0.145 in the case of Series AA, (ii) $0.145 in the case of Series AB, (iii) $0.145 in the case of Series A-2 by the conversion price in effect.
5. Stockholders Equity (continued)
Each share of preferred stock will automatically be converted into common stock upon the earlier of (i) a vote or written request from at least a majority of holders of the then outstanding preferred stock; and (ii) the closing of an underwritten public offering of common stock under the Securities Act of 1933, as amended, in which the Company receives at least $30,000,000 in gross proceeds and the price per share is at least $0.725.
Holders of preferred stock are entitled to one vote for each share of common stock into which their shares can be converted.
Holders of Series AA, Series AB and Series A-2 preferred stock, in preference to holders of common stock, are entitled to receive dividends at the rate of 0.0116 cents ($0.0116) per annum on each outstanding share, respectively. The dividends are non-cumulative and are payable when, as, and if declared by the board of directors. As of September 30, 2016, no dividends have been declared or paid.
Upon any liquidation event and before any distribution or payment is made to the holders of common stock, the holders of Series AA, Series AB and Series A-2 preferred stock will be entitled to receive an amount equal to $0.29, $0.145, $0.145, per share, respectively, plus all declared but unpaid dividends. Thereafter, any remaining assets available for distribution will be distributed to the holders of common stock and preferred stocks pro rata, at an as-if converted basis.
Warrants
Warrants to purchase 259,788 shares of Series B preferred stock were issued in connection with convertible promissory notes in October 2010. During 2013, following the aforementioned recapitalization of preferred stock; the warrants were revised to allow for the purchase of 124,894 shares of Series B-1 preferred stock. During 2014, the warrants were revised to allow for the purchase 131,467 shares of common stock. The warrants were exercisable at $1.20 per share through October 2015 when they expired.
Warrants to purchase an exercise quantity equal to $90,000 worth of shares of Series AA preferred stock were issued in connection with a term loan in September 2013. The warrants are exercisable at $0.145 per share through September 2020. These warrants were outstanding at September 30, 2016.
6. Stock Incentive Plan
In 2008, the Company authorized the 2008 Stock Incentive Plan (the 2008 Plan). The 2008 Plan authorizes the granting of common stock options. The exercise price of all common stock options granted is the fair value of the Companys common stock at the date of grant as determined by the board of directors. The common stock options typically vest over a four year period and expire ten years from the grant date. Restricted stock issued to consultants and directors vest based on time and/or performance criteria.
6. Stock Incentive Plan (continued)
Activity under the 2008 Plan is as follows:
Shares Available For Grant |
Number of Shares Outstanding |
Weighted Average Exercise Price Per Share |
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Balance at September 30, 2015 |
3,254,930 | 12,929,533 | $ | 0.02 | ||||||||
Options granted |
(95,000 | ) | 95,000 | $ | 0.01 | |||||||
Exercised |
| (14,792 | ) | $ | 0.01 | |||||||
Expired |
166,208 | (166,208 | ) | $ | 0.03 | |||||||
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Balance at September 30, 2016 |
3,326,138 | 12,843,533 | $ | 0.02 | ||||||||
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Total vested and expected to vest shares |
11,194,959 | $ | 0.02 | |||||||||
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The following table summarizes information with respect to stock options outstanding at September 30, 2016:
Options Outstanding |
Options Exercisable | |||||||||||||||
Exercise Price Per Share |
Shares Outstanding | Weighted Average Remaining Contractual Life (in years) |
Shares Exercisable | Weighted Average Exercise Price Per Share |
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$0.014 |
9,703,724 | 8.17 | 4,257,411 | $ | 0.014 | |||||||||||
$0.05 |
3,139,809 | 4.22 | 2,904,795 | $ | 0.05 | |||||||||||
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12,843,533 | 6.57 | 7,162,206 | $ | 0.05 | ||||||||||||
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Stock-based compensation
Employee stock-based compensation recognized in the nine months ended September 30, 2016 and 2015 was as follows:
2016 | 2015 | |||||||
Cost of revenues |
$ | 6,749 | $ | 7,780 | ||||
Operating expenses |
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General and administration |
44,442 | 47,320 | ||||||
Sales and marketing |
13,087 | 13,037 | ||||||
Research and development |
10,107 | 17,516 | ||||||
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Total employee stock-based compensation expense |
$ | 74,385 | $ | 85,653 | ||||
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No income tax benefit has been recognized relating to stock-based compensation expense during the nine months ended September 30, 2016. As of September 30, 2016, there was total unrecognized compensation costs of $129,380 related to these stock options. These costs are expected to be recognized over a period of approximately 2.07 years.
6. Stock Incentive Plan (continued)
Stock-based compensation (continued)
During the nine months ended September 30, 2016 and 2015, the Company granted stock options to employees and directors with weighted-average grant date fair values of $0.03 and $0.04 per share, respectively. The fair value of employee stock options granted was estimated using the following weighted-average assumptions for the nine months ended September 30, 2016 and 2015:
2016 | 2015 | |||||||
Expected volatility |
41 | % | 40 | % | ||||
Risk free rate |
1.3 | % | 1.7 | % | ||||
Dividend yield |
0 | % | 0 | % | ||||
Expected term (in years) |
6.05 | 6.11 |
The expected term of the options is based on the average period the stock options are expected to remain outstanding based on the options vesting term and contractual terms. The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Companys common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Companys stock options. The expected dividend assumption is based on the Companys history and expectation of dividend payouts. Forfeitures were estimated based on historical experience.
Non-employee stock-based compensation
The Company occasionally issues non-qualified stock options to non-employees. Such options are issued for services provided by non-employees with vesting terms commensurate with employee options. The fair values of non-employee stock options are determined using the Black-Scholes option pricing model using similar assumptions as employee options. During the nine months ended September 30, 2015, the Company granted 44,000 options to purchase common stock to non-employees with a weighted-average grant date fair value of $0.01 per share. No options were granted to non-employees in 2016. Stock-based compensation to non-employees was not significant during the nine months ended September 30, 2016 and 2015, and was included in operating expenses.
7. Income Taxes
The Companys provision for income taxes, included in other income (expense), net on the accompanying statements of operations, for the nine months ended September 30, 2016 and 2015 is as follows:
2016 | 2015 | |||||||
State |
$ | 1,256 | $ | 1,256 |
Significant components of the Companys net deferred tax assets are as follows:
September 30, | ||||||||
2016 | 2015 | |||||||
Deferred tax assets |
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Net operating losses |
$ | 13,587,882 | $ | 11,836,081 | ||||
Research and development tax credits |
306,782 | 286,613 | ||||||
Accruals and reserves |
137,074 | 119,777 | ||||||
Deferred income |
33,845 | 43,479 | ||||||
Fixed assets and intangibles |
3,485 | 10,568 | ||||||
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Gross deferred tax assets |
14,069,068 | 12,296,518 | ||||||
Valuation allowance |
(14,069,068 | ) | (12,296,518 | ) | ||||
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Net deferred tax assets |
$ | | $ | | ||||
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7. Income Taxes (continued)
Due to the Companys lack of earnings history and cumulative losses, the net deferred tax assets have been fully offset by a valuation allowance as the Company believes it is more likely than not that the remaining deferred tax assets will not be realized.
At September 30, 2016, the Company had federal and state operating loss carryforwards of approximately $36,072,344 and $22,651,739, respectively, which will begin to expire in 2028 if not utilized. Utilization of the Companys net operating loss credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. This annual limitation may result in the expiration of net operating loss and credits before utilization.
At September 30, 2016, the Company had approximately $358,154 and $386,984 of federal and state research and development credit carryforwards, respectively, available to offset future taxable income. If research and development credits are not utilized, the federal credit will begin to expire in 2029. The state research and development credits can be carried forward indefinitely.
At September 30, 2016, the Company has recorded a reserve for uncertain tax positions totaling $179,077 for federal and $193,492 for state research and development credits carryforwards through 2015. The research and development credit reserve is a reduction to the deferred tax assets, which is currently offset by a full valuation allowance. No adjustments to the liability for the uncertain tax position have been made due to the full valuation allowance.
Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense and were immaterial. The Company files income tax returns in the United States and various states. As of September 30, 2016, all tax years from 2013 through 2015 remain open in most jurisdictions. The Company is not currently under examination by income tax authorities in federal or state jurisdictions.
Although the timing of resolution and closure of audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next twelve months.
8. Commitments and Contingencies
Lease commitments
In August 2012, the Company entered into a new sublease agreement with a corporation to rent office space through September 2016 at $26,000 per month. In September 2016, the lease was extended through October 31, 2016 under the same terms. The Company is currently negotiating a new lease arrangement.
Rent expense under the Companys leases for the nine months ending September 30, 2016 and 2015 was $290,226 and $304,777, respectively.
9. Related Party
The Company had a consulting agreement with one of its directors whereby the director provided management advisory services for a fee of $2,250 per month. The arrangement was in effect since October 16, 2007 through January 31, 2016.
10. Employee Benefits
Effective January 1, 2010, the Company adopted its 401(k) Plan. Under this Plan, eligible employees are allowed to defer up to 100% of their compensation, not to exceed the maximum annual contribution permitted by IRS regulations. The Company does not match employee contributions.
11. Subsequent Events
Management evaluated subsequent events for possible impact on the condensed financial statements, including notes to these condensed financial statements through January 12, 2017, the date the condensed financial statements were available for issuance.
During October 2016, the Company issued short-term bridge notes payable to members of management totaling $177,500, and deferred salaries of certain members of management totaling approximately $180,000.
On October 31, 2016, the Company consummated a reverse triangular merger with a wholly owned subsidiary of PRGX USA, Inc., a subsidiary of PRGX Global, Inc. (collectively PRGX), whereby the Company continued as the surviving entity, as a wholly owned subsidiary of PRGX USA, Inc., in exchange for cash consideration of $4,250,000. The merger consideration is subject to customary working capital adjustments and contingent cash earnout consideration based upon revenue received from SIM services by PRGX and its subsidiaries, including the Company, through December 31, 2018.
Immediately prior to closing of the merger, outstanding convertible notes payable of the Company totaling $6,940,000 plus accrued interest totaling approximately $360,000 converted into shares of Series AC preferred stock.
No other subsequent events occurred that would have a material effect on the presentation of the Companys condensed financial statements.
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On October 31, 2016, PRGX USA, Inc., a wholly owned subsidiary of PRGX Global, Inc. (PRGX Global, Inc. and PRGX USA, Inc. are collectively referred to as PRGX or Company), consummated the merger of Braveheart Merger Co., a wholly owned subsidiary of PRGX USA, Inc., with and into Lavante, Inc. (the Merger) pursuant to the terms of that certain Agreement and Plan of Merger (the Merger Agreement) dated as of October 25, 2016 by and among PRGX USA, Inc., Braveheart Merger Co., Lavante, Inc. (Lavante), PointGuard Ventures I, L.P. and Krish Panu, as Stockholder Representative. The Company used an advance under the existing revolving credit facility with SunTrust Bank to pay the aggregate purchase price of approximately $3.7 million to Lavante after adjustments for net working capital.
The unaudited pro forma condensed combined balance sheet as of September 30, 2016 gives effect to the acquisition of Lavante as if it had occurred as of September 30, 2016. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 and the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2016 give effect to the acquisition of Lavante as if it had occurred as of January 1, 2015.
The pro forma adjustments reflected in the pro forma condensed combined financial statements are based on items that are (1) directly attributable to the Merger, (2) factually supportable, and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. The pro forma condensed combined financial statements reflect certain adjustments and reclassifications to the historical financial statements of Lavante to conform to the Companys accounting policies and financial statement presentation. The adjustments reflect the Companys best estimates based upon the information currently available. The reclassifications were determined based upon the information currently available and additional reclassifications may be necessary once the accounting for the Merger is completed and additional information becomes available.
In accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), the Merger will be accounted for under the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the date of the Merger. At this time, the Company has not completed the detailed valuation analyses necessary to finalize the fair values of the assets and liabilities of Lavante. Accordingly, the pro forma financial statements reflect a preliminary allocation of the purchase price based on assumptions and estimates with respect to fair value that are subject to change once the detailed valuation analyses are completed. Any such changes may be material.
The pro forma condensed combined financial statements are presented for illustrative purposes only and are based on the estimates and assumptions set forth in the accompanying notes. The pro forma condensed combined financial statements are not necessarily indicative of what the operating results or financial position actually would have been had the Merger been completed as of the dates indicated. In addition, the pro forma condensed combined financial statements do not purport to project the future operating results or financial position of the Company. The pro forma condensed combined statements of operations do not include: (1) any revenue or cost saving synergies that may be achieved subsequent to the completion of the Merger; or (2) the impact of non-recurring items directly related to the Merger.
The unaudited pro forma condensed combined financial information presented is based on, and should be read in conjunction with, the historical financial statements and the related notes thereto for both the Company and Lavante.
PRGX Global, Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2015
(Amounts in thousands, except per share data)
(Unaudited)
Pro forma | Pro forma | |||||||||||||||
PRGX | Lavante | Entries | Combined | |||||||||||||
Revenue |
$ | 138,302 | $ | 2,692 | $ | | $ | 140,994 | ||||||||
Operating expenses: |
||||||||||||||||
Cost of revenue |
93,169 | 1,549 | (31 | )(a) | 94,687 | |||||||||||
Selling, general and administrative expenses |
32,284 | 4,495 | (40 | )(a) | 36,739 | |||||||||||
Research and development |
| 1,990 | (11 | )(a) | 1,979 | |||||||||||
Depreciation of property and equipment |
5,317 | | 82 | (a) | 5,399 | |||||||||||
Amortization of intangible assets |
2,458 | | | 2,458 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
133,228 | 8,034 | | 141,262 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
5,074 | (5,342 | ) | | (268 | ) | ||||||||||
Foreign currency transaction (gains) losses on short-term intercompany balances |
2,165 | | | 2,165 | ||||||||||||
Interest expense (income), net |
(190 | ) | 185 | (103 | )(c),(d) | (108 | ) | |||||||||
Other (income) loss |
1,191 | (16 | ) | 16 | (b) | 1,191 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
1,908 | (5,511 | ) | 87 | (3,516 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax expense (benefit) |
369 | (1 | ) | | 368 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) from continuing operations |
$ | 1,539 | $ | (5,510 | ) | $ | 87 | $ | (3,884 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings (loss) per common share from continuing operations |
$ | 0.06 | $ | (0.15 | ) | |||||||||||
Diluted earnings (loss) per common share from continuing operations |
$ | 0.06 | $ | (0.15 | ) | |||||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
25,868 | 25,868 | ||||||||||||||
|
|
|
|
|||||||||||||
Diluted |
25,904 | 25,904 | ||||||||||||||
|
|
|
|
PRGX Global, Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2016
(Amounts in thousands, except per share data)
(Unaudited)
Pro forma | Pro forma | |||||||||||||||
PRGX | Lavante | Entries | Combined | |||||||||||||
Revenue |
$ | 101,661 | $ | 2,119 | $ | | $ | 103,780 | ||||||||
Operating expenses: |
||||||||||||||||
Cost of revenue |
67,444 | 987 | (18 | )(a) | 68,413 | |||||||||||
Selling, general and administrative expenses |
28,351 | 3,078 | (28 | )(a) | 31,401 | |||||||||||
Research and development |
| 1,821 | (11 | )(a) | 1,810 | |||||||||||
Depreciation of property and equipment |
3,824 | | 57 | (a) | 3,881 | |||||||||||
Amortization of intangible assets |
1,182 | | | 1,182 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
100,801 | 5,886 | | 106,687 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
860 | (3,767 | ) | | (2,907 | ) | ||||||||||
Foreign currency transaction (gains) losses on short-term intercompany balances |
(976 | ) | | | (976 | ) | ||||||||||
Interest expense (income), net |
(55 | ) | 433 | (372 | )(c),(d) | 6 | ||||||||||
Other (income) loss |
(140 | ) | 25 | | (115 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
2,031 | (4,225 | ) | 372 | (1,822 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax expense (benefit) |
(21 | ) | 5 | | (16 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) from continuing operations |
$ | 2,052 | $ | (4,230 | ) | $ | 372 | $ | (1,806 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings (loss) per common share from continuing operations |
$ | 0.09 | $ | (0.08 | ) | |||||||||||
Diluted earnings (loss) per common share from continuing operations |
$ | 0.09 | $ | (0.08 | ) | |||||||||||
Weighted average common shares outstanding: |
||||||||||||||||
Basic |
22,084 | 22,084 | ||||||||||||||
|
|
|
|
|||||||||||||
Diluted |
22,114 | 22,114 | ||||||||||||||
|
|
|
|
PRGX Global, Inc. and Subsidiaries
Pro Forma Condensed Combined Balance Sheet
As of September 30, 2016
(Amounts in thousands)
(Unaudited)
PRGX | Lavante | Pro forma Entries |
Pro forma Combined |
|||||||||||||
ASSETS | ||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and Cash Equivalents |
$ | 13,170 | $ | 118 | $ | (69 | ) (j) | $ | 13,219 | |||||||
Restricted Cash |
99 | | | 99 | ||||||||||||
Receivables: |
||||||||||||||||
Contract receivables, net |
28,473 | 149 | 110 | (i) | 28,732 | |||||||||||
Employee advances and miscellaneous receivables, net |
1,710 | | | 1,710 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total receivables |
30,183 | 149 | 110 | 30,442 | ||||||||||||
Prepaid expenses and other current assets |
3,657 | 98 | | 3,755 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
47,109 | 365 | 41 | 47,515 | ||||||||||||
Property and equipment, net |
12,231 | 97 | 12,328 | |||||||||||||
Goodwill |
11,712 | | 5,094 | (h) | 16,806 | |||||||||||
Intangible assets, net |
5,477 | | | 5,477 | ||||||||||||
Deferred income taxes |
2,864 | | | 2,864 | ||||||||||||
Other assets |
1,327 | 29 | | 1,356 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 80,720 | $ | 491 | $ | 5,135 | $ | 86,346 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable and accrued expenses |
$ | 6,968 | $ | 967 | $ | | $ | 7,935 | ||||||||
Accrued payroll and related expenses |
11,049 | 476 | | 11,525 | ||||||||||||
Refund liabilities and deferred revenue |
8,735 | 473 | 110 | (i) | 9,318 | |||||||||||
Warrant derivative liability |
| 225 | (225 | ) (h) | | |||||||||||
Current portion of debt |
| 6,940 | (3,340 | ) (f),(g) | 3,600 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
26,752 | 9,081 | (3,455 | ) | 32,378 | |||||||||||
Refund liabilities |
791 | | | 791 | ||||||||||||
Other long-term liabilities |
1,866 | | | 1,866 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
29,409 | 9,081 | (3,566 | ) | 35,035 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Shareholders equity |
||||||||||||||||
Common stock |
218 | 23 | (23 | ) (e) | 218 | |||||||||||
Convertible preferred stock |
| 40 | (40 | ) (e) | | |||||||||||
Additional paid-in-capital |
574,028 | 29,466 | (29,466 | ) (e) | 574,028 | |||||||||||
Accumulated deficit |
(523,000 | ) | (38,119 | ) | 38,119 | (e) | (523,000 | ) | ||||||||
Accumulated other comprehensive income |
65 | | | 65 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total shareholders equity |
51,311 | (8,590 | ) | 8,590 | 51,311 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities and shareholders equity |
$ | 80,720 | $ | 491 | $ | 5,135 | $ | 86,346 | ||||||||
|
|
|
|
|
|
|
|
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited, in thousands)
Note 1. Description of the Transaction
On October 31, 2016, PRGX USA, Inc., a wholly owned subsidiary of PRGX Global, Inc. (PRGX Global, Inc. and PRGX USA, Inc. are collectively referred to as PRGX or Company), consummated the merger of Braveheart Merger Co., a wholly owned subsidiary of PRGX USA, Inc., with and into Lavante, Inc. (the Merger) pursuant to the terms of that certain Agreement and Plan of Merger (the Merger Agreement) dated as of October 25, 2016 by and among PRGX USA, Inc., Braveheart Merger Co., Lavante, Inc. (Lavante), PointGuard Ventures I, L.P. and Krish Panu, as Stockholder Representative. The Company used an advance under the existing revolving credit facility with SunTrust Bank to pay the aggregate purchase price of approximately $3.7 million to Lavante after adjustments for net working capital.
Note 2. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined balance sheet as of September 30, 2016 gives effect to the acquisition of Lavante as if it had occurred as of September 30, 2016. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 and the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2016 give effect to the acquisition of Lavante as if it had occurred as of January 1, 2015. The pro forma condensed combined financial statements are not necessarily indicative of what the operating results or financial position actually would have been had the Merger been completed as of the dates indicated. In addition, the pro forma condensed combined financial statements do not purport to project the future operating results or financial position of the Company. The pro forma condensed combined statements of operations do not include: (1) any revenue or cost saving synergies that may be achieved subsequent to the completion of the Merger; or (2) the impact of non-recurring items directly related to the Merger.
The pro forma condensed combined financial statements have been derived from the historical consolidated financial statements of the PRGX and Lavante after giving effect to the Merger. The pro forma condensed combined financial statements reflect certain adjustments and reclassifications to the historical financial statements of Lavante to conform to the Companys accounting policies and financial statement presentation. The adjustments reflect the Companys best estimates based upon the information currently available. The reclassifications were determined based on the information currently available and additional reclassifications may be necessary as additional information becomes available.
In accordance with U.S. GAAP, the Merger will be accounted for under the acquisition method of accounting, which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the date of the Merger. At this time, the Company has not completed the detailed valuation analyses necessary to finalize the fair values of the assets and liabilities of Lavante. Accordingly, the pro forma condensed combined financial statements reflect a preliminary allocation of the purchase price based on assumptions and estimates with respect to fair value that are subject to change once the detailed valuation analyses are completed. Any such changes may be material.
Note 3. Preliminary Purchase Price and Allocation
The preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed is as follows:
Current Assets |
$ | 475 | ||
Property, Plant and equipment, net |
97 | |||
Goodwill |
4,983 | |||
Other Assets |
29 | |||
|
|
|||
Total Assets |
5,584 | |||
Current Liabilities |
(1,915 | ) | ||
|
|
|||
Total Purchase Price |
$ | 3,669 | ||
|
|
Note 4. Adjustments to Pro Forma Financial Statements
Adjustments to Pro Forma Statements of Operations
(a) | The Company classifies depreciation separately from operating expenses, whereas Lavante allocates depreciation within its expense classifications. This adjustment reclassifies the Lavante depreciation in order to adhere to the Companys financial statement presentation. |
(b) | Adjustment to remove valuation adjustments related to a Lavante stock warrant that was cancelled as a part of the Merger. |
(c) | Adjustment to remove interest expense for Lavante debt that was paid off as a part of the Merger. |
(d) | The Company borrowed $3.6 million in order to fund the Merger with Lavante. This adjustment records additional interest expense of $82,000 for the year ended December 31, 2015 and $61,000 for the nine month period ended September 30, 2016. For every 0.125% change in the interest rates on the debt, the effect on interest expense of the combined entities is approximately $4,500. |
Adjustments to Pro Forma Balance Sheet
(e) | Adjustment to record the elimination of Lavante historical equity balances. |
(f) | Adjustment to record the elimination of Lavante debt of $7.3 million that was paid off as part of the Merger. |
(g) | Adjustment to record the $3.6 million that was borrowed by the Company in order to fund the Merger with Lavante. |
(h) | Adjustment represents the addition of the estimated fair value of goodwill recognized with the Merger. |
(i) | Adjustment represents the reclassification of an allowance for estimated recoveries in order to adhere to the Companys financial statement presentation. |
(j) | Represents cash transactions as follows: |
Borrowing from Line of Credit |
$ | 3,600 | ||
Payoff of Lavante shareholders and satisfaction of debt obligations |
(2,208 | ) | ||
Transaction costs |
(742 | ) | ||
Working Capital Adjustments |
(581 | ) | ||
|
|
|||
Net Cash Adjustment |
$ | (69 | ) | |
|
|
(h) | Adjustment to record the elimination of Lavante warrant liability. |