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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2015
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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41-1649949
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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99 Wood Avenue South, Suite 302, Iselin, NJ
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08830
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer £
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Accelerated filer £
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Non-accelerated filer £
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Smaller reporting company R
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(Do not check if a smaller reporting company)
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Item
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Page
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ii | |||||||
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1. | 1 | ||||||
1A. | 9 | ||||||
1B. | 20 | ||||||
2. | 20 | ||||||
3. | 20 | ||||||
4. | 20 | ||||||
5. | 21 | ||||||
6. | 21 | ||||||
7. | 21 | ||||||
7A. | 27 | ||||||
8. | 28 | ||||||
9. | 28 | ||||||
9A. | 28 | ||||||
9B. | 29 | ||||||
10. | 30 | ||||||
11. | 30 | ||||||
12. | 30 | ||||||
13. | 30 | ||||||
14. | 30 | ||||||
15. | 31 | ||||||
32 | |||||||
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·
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Non-invasive. There are currently no CGM products on the market that are non-invasive;
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·
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Accuracy. Particularly if comparing the day 1 accuracy of other CGM systems to that of our system; and
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·
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Wireless transmission of data up to 50 feet away. Some other products on the market are wired or have shorter ranges.
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·
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Compile a medical device CE Marking Technical File with evidence of compliance to the Medical Devices Directive;
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Name
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Position(s) with the Company
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Scott W. Hollander
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President, Chief Executive Officer and Director
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Michael M. Goldberg, M.D.
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Chairman of the Board
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Shepard M. Goldberg
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Director
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Elazer R. Edelman, M.D. Ph.D.
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Director
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Alan W. Schoenbart
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Chief Financial Officer
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·
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the costs, timing and risks of delay of obtaining regulatory approvals;
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·
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the expenses we incur in developing, selling and marketing our CGM;
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·
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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
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·
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the revenue generated by future sales of our CGM and any other future products that we may develop;
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·
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the rate of progress and cost of our clinical trials and other development activities;
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·
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the success of our research and development efforts;
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·
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the emergence of competing or complementary technological developments;
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·
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the terms and timing of any collaborative, licensing and other arrangements that we may establish;
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·
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the acquisition of businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions;
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·
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the inability to access existing financing sources, if any; and
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·
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the costs associated with potential legal proceedings.
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·
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the sale or issuance (or potential issuance) by the company of stock (or securities convertible or exercisable for stock) at a price below the greater of book or market value, which together with sales by officers, directors or substantial stockholders, is at least 20 percent of the outstanding shares or at least 20 percent of the voting power prior to the issuance; or
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·
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the sale or issuance (or potential issuance) of stock (or securities convertible or exercisable for stock) equal to 20 percent or more of the outstanding shares or voting power before the issuance for less than the greater of book or market value (see Nasdaq Rule 5635(d)).
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·
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On or before May 31, 2016, the Company shall have its Annual Shareholder Meeting for fiscal year ended 2015.
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·
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On or before July 5, 2016, the Company shall publicly announce and inform the Panel that it has stockholders’ equity above $2.5 million.
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·
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The Company shall also, by that date, provide the Panel with updated projections demonstrating its ability to maintain its stockholders’ equity above $2.5 million through June 30, 2017. These projections shall detail the underlying assumptions, including any required capital raises or conversions of debt or preferred to common stock. The Panel will consider at that time whether a Panel Monitor is appropriate.
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·
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establish and demonstrate the clinical efficacy and safety of our current product candidates and any other product candidates we may develop;
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·
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create products that are superior to alternatives currently on the market; and |
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·
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establish the potential advantage of our product candidates over alternative available products. |
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·
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greater financial and human resources for product development, sales and marketing, and patent litigation;
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·
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significantly greater name recognition;
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·
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established relationships with healthcare professionals, customers and third-party payors;
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·
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established distribution networks;
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·
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additional lines of products and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage; and
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·
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greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory approval for products and marketing approved products.
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·
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failure of our CGM to meet a regulatory entity’s requirements for safety, efficacy and quality;
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·
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limitations on the indicated uses for which our CGM may be marketed;
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·
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imposition of post-market clinical studies or other post-market requirements;
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·
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pre-approval inspections of our clinical trial data may uncover problems with the conduct of the clinical trials or the resulting data;
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preapproval inspections of our contract manufacturing facilities may require us to undertake corrective actions;
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unforeseen safety issues or side effects;
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governmental or regulatory delays and changes in regulatory requirements and guidelines; and
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post-marketing surveillance and studies.
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the FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold;
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patients do not enroll in clinical trials at the rate we expect;
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patients do not comply with trial protocols;
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patient follow-up is not at the rate we expect;
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patients experience adverse side effects;
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patients die during a clinical trial, even though their death may not be related to treatment using our product candidates;
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institutional review boards (“IRBs”) and third-party clinical investigators may delay or reject our trial protocols;
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third-party clinical investigators decline to participate in a trial or do not perform a trial on our anticipated schedule or consistent with the investigator agreements, clinical trial protocol, good clinical practices or other FDA, foreign regulatory authority or IRB requirements;
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third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent with the clinical trial protocol or investigational or statistical plans;
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regulatory inspections of our clinical trials or contract manufacturing facilities may, among other things, require us to undertake corrective action or suspend or terminate our clinical trials;
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changes in governmental regulations or administrative actions;
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the interim or final results of the clinical trial are inconclusive or unfavorable as to safety or efficacy; and
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the FDA or foreign regulatory authority concludes that our trial design, conduct or results are inadequate to demonstrate safety and efficacy.
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billing for services; |
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financial relationships with physicians and other referral sources; |
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inducements and courtesies given to physicians and other health care providers and patients;
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labeling products; |
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quality of medical equipment and services; |
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confidentiality, maintenance and security issues associated with medical records and individually identifiable health information;
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medical device reporting; |
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false claims; and |
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professional licensure. |
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·
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our ability to successfully raise capital to fund our continued operations; |
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our ability to license and/or sell our assets, including Intellectual Property; |
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potential necessity of Echo to seek out and/or receive the protection of the U.S. Bankruptcy Code; |
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our financial condition, performance and prospects; |
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changes in the regulatory status of our CGM; |
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the success or failure of the development and clinical testing of our CGM; |
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our ability to successfully raise capital to fund our continued operations; |
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our ability to enter into and maintain successful collaborative arrangements with strategic partners for research and development, clinical testing, and sales and marketing;
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additions or departures of key personnel; |
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our ability to avoid delisting of the Common Stock from the Nasdaq Capital Market; |
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the depth and liquidity of the market for our common stock; |
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sales of large blocks of our common stock by officers, directors or significant stockholders; |
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investor perception of us and the industry in which we operate;
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changes in securities analysts’ estimates of our financial performance or product development timelines;
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general financial and other market conditions and trading volumes of similar companies; and |
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·
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domestic and international economic conditions. |
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dividing our Board into three classes, only one of which is elected at each annual meeting of stockholders;
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limiting the removal of directors by the stockholders; and |
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·
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limiting the ability of stockholders to call a special meeting of stockholders. |
2015 Quarters:
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High
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Low
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||||||
First
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$ | 2.95 | $ | 1.48 | ||||
Second
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$ | 2.20 | $ | 1.23 | ||||
Third
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$ | 1.80 | $ | 1.39 | ||||
Fourth
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$ | 1.88 | $ | 1.29 |
2014 Quarters:
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High
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Low
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||||||
First
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$ | 4.02 | $ | 2.94 | ||||
Second
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$ | 3.27 | $ | 1.58 | ||||
Third
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$ | 2.28 | $ | 0.71 | ||||
Fourth
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$ | 1.56 | $ | 0.51 |
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Not applicable.
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·
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persuasive evidence of an arrangement exists;
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·
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delivery has occurred and risk of loss has passed;
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the price to the buyer is fixed or determinable; and
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collectability is reasonably assured.
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·
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Skin Preparation Device: Completed industrial design of new self-exfoliating device and tips, which will be lower cost, easier to use and compatible with our new sensor.
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·
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Sensor: Completed industrial design of new flexible sensor, which will be higher performing, lower cost, smaller and will have a re-usable Bluetooth transmitter.
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Application Programming Interface (API): Designed an API that allows software developers to easily write software applications, or apps, that use data from our sensors.
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our ability to obtain funding from third parties, including any future collaborative partners, on reasonable terms;
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our progress on research and development programs;
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the time and costs required to gain regulatory approvals;
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·
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the costs of manufacturing, marketing and distributing our products, if successfully developed and approved;
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the costs of filing, prosecuting and enforcing patents, patent applications, patent claims and trademarks;
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the status of competing products; and
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·
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the market acceptance and third-party reimbursement of our products, if successfully developed and approved.
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·
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pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
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provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
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(1)
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Consolidated Financial Statements
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Page
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Consolidated Balance Sheets as of December 31, 2015 and 2014
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F-2
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Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
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F-3
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Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015 and 2014
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F-4
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Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
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F-5
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Notes to Consolidated Financial Statements
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F-6
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Report of Independent Registered Public Accounting Firm
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F-25
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(2)
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Financial Statement Schedules
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(3)
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Exhibits
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ECHO THERAPEUTICS, INC. | ||
By: | /s/ Scott W. Hollander | |
Scott W. Hollander | ||
President and Chief Executive Officer | ||
Principal Executive Officer |
By:
|
/s/ Scott W. Hollander | |
Scott W. Hollander
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||
President and Chief Executive Officer
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||
(Principal Executive Officer)
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||
By:
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/s/ Alan W. Schoenbart | |
Alan W. Schoenbart
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||
Chief Financial Officer
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||
(Principal Financial and Accounting Officer)
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||
By:
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/s/ Michael M. Goldberg | |
Michael M. Goldberg, M.D.
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||
Director
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||
By:
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/s/ Shepard M. Goldberg | |
Shepard M. Goldberg
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||
Director
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||
By:
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/s/ Elazer R. Edelman | |
Elazer R. Edelman, M.D., Ph.D.
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||
Director
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||
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Page
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F-2
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F-3
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F-4
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F-5
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F-6
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F-25
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December 31,
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||||||||
2015
|
2014
|
|||||||
ASSETS
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 56,210 | $ | 1,278,941 | ||||
Prepaid and other
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244,534 | 490,824 | ||||||
Total current assets
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300,744 | 1,769,765 | ||||||
Property and equipment, net
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267,671 | 1,138,593 | ||||||
Other assets:
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||||||||
Intangible assets, net
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- | 9,625,000 | ||||||
Cash restricted pursuant to letters of credit
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236,425 | 52,488 | ||||||
Other assets
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250 | 9,990 | ||||||
Total other assets
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236,675 | 9,687,478 | ||||||
Total assets
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$ | 805,090 | $ | 12,595,836 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Current liabilities:
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||||||||
Accounts payable
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$ | 2,176,083 | $ | 1,801,469 | ||||
Accrued and other
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602,345 | 968,392 | ||||||
Bridge loans payable
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330,000 | - | ||||||
Derivative warrant liability
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127,000 | 208,155 | ||||||
Total current liabilities
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3,235,428 | 2,978,016 | ||||||
Deferred revenue from licensing arrangements, net of current portion
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95,535 | 95,535 | ||||||
Total liabilities
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3,330,963 | 3,073,551 | ||||||
Commitments and contingencies
|
||||||||
Stockholders’ equity (deficit):
|
||||||||
Preferred Stock, $0.01 par value; 40,000,000 shares authorized:
|
||||||||
Convertible Series
|
||||||||
C - 10,000 shares authorized; issued and outstanding 1,000 shares
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10 | 10 | ||||||
D - 3,600,000 shares authorized; issued and outstanding 1,000,000 shares
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10,000 | 10,000 | ||||||
E - 1,748,613 shares authorized, issued and outstanding
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17,486 | 17,486 | ||||||
F - 6,000,000 shares authorized; issued and outstanding
5,276,180 and 840,336 shares, respectively
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52,762 | 8,403 | ||||||
Common stock, $0.01 par value, 150,000,000 shares authorized; issued and
outstanding 11,124,496 and 12,629,695 shares, respectively
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111,243 | 126,295 | ||||||
Additional paid-in capital
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147,412,559 | 137,292,157 | ||||||
Accumulated deficit
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(150,129,933 | ) | (127,932,066 | ) | ||||
Total stockholders’ equity (deficit)
|
(2,525,873 | ) | 9,522,285 | |||||
Total liabilities and stockholders’ equity (deficit)
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$ | 805,090 | $ | 12,595,836 |
Year Ended December 31,
|
||||||||
2015
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2014
|
|||||||
Licensing revenue
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$ | - | $ | 57,321 | ||||
Operating expenses:
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||||||||
Research and development
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2,788,938 | 4,634,287 | ||||||
Selling, general and administrative
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4,325,645 | 7,350,231 | ||||||
Impairment charge
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9,625,000 | - | ||||||
Loss on disposal of property and equipment
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278,816 | 1,114 | ||||||
Depreciation and amortization
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521,860 | 392,727 | ||||||
Total operating expenses
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17,540,259 | 12,378,359 | ||||||
Loss from operations
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(17,540,259 | ) | (12,321,038 | ) | ||||
Other income (expense):
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||||||||
Financing loss
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(4,720,000 | ) | - | |||||
Amortization of deferred financing costs
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- | (3,549,328 | ) | |||||
Interest expense
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(15,343 | ) | (1,176 | ) | ||||
Other income
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- | 1,888 | ||||||
Gain on revaluation of derivative warrant liability
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81,155 | 911,000 | ||||||
Other income (expense), net
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(4,654,188 | ) | (2,637,616 | ) | ||||
Net loss before taxes
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(22,194,447 | ) | (14,958,654 | ) | ||||
State income taxes
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3,420 | 4,000 | ||||||
Net loss
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(22,197,867 | ) | (14,962,654 | ) | ||||
Deemed dividend on beneficial conversion feature of convertible preferred stock
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- | (350,000 | ) | |||||
Net loss applicable to common shareholders
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$ | (22,197,867 | ) | $ | (15,312,654 | ) | ||
Net loss per common share, basic and diluted
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$ | (1.98 | ) | $ | (1.24 | ) | ||
Basic and diluted weighted average common shares outstanding
|
11,231,418 | 12,308,254 |
Preferred Stock
|
Common Stock
|
Additional
Paid-in
|
Accumulated | Total
Stockholders’
Equity
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
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Deficit
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(Deficit)
|
||||||||||||||||||||||
Balance at December 31, 2013
|
2,749,613 | $ | 27,496 | 11,776,578 | $ | 117,764 | $ | 132,192,648 | $ | (112,969,412 | ) | $ | 19,368,496 | |||||||||||||||
Proceeds from issuances of Common Stock and warrants, net of cash issuance costs of $50,000
|
— | — | 872,728 | 8,727 | 2,341,273 | — | 2,350,000 | |||||||||||||||||||||
Fair value of Common Stock issued for services
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— | — | 2,636 | 26 | 8,378 | — | 8,404 | |||||||||||||||||||||
Proceeds from issuance of Common Stock, Series F Preferred Stock and warrants, net of cash issuance costs of $56,604
|
840,336 | 8,403 | — | — | 934,993 | — | 943,396 | |||||||||||||||||||||
Capital contribution
|
— | — | — | — | 440,675 | — | 440,675 | |||||||||||||||||||||
Share-based compensation, net of restricted stock cancellations
|
— | — | (22,247 | ) | (222 | ) | 1,374,190 | — | 1,373,968 | |||||||||||||||||||
Net loss
|
— | — | — | — | — | (14,962,654 | ) | (14,962,654 | ) | |||||||||||||||||||
Balance at December 31, 2014
|
3,589,949 | $ | 35,899 | 12,629,695 | $ | 126,295 | $ | 137,292,157 | $ | (127,932,066 | ) | $ | 9,522,285 | |||||||||||||||
Exchange - Common Stock for Series F
|
1,500,000 | 15,000 | (1,500,000 | ) | (15,000 | ) | — | — | — | |||||||||||||||||||
Proceeds from issuance of Series F and warrants
|
2,387,667 | 23,877 | — | — | 7,353,623 | — | 7,377,500 | |||||||||||||||||||||
Capital contribution
|
— | — | — | — | 59,325 | — | 59,325 | |||||||||||||||||||||
Issuance of Series F pursuant to Reimbursement Agreement
|
548,177 | 5,482 | — | — | 1,796,518 | — | 1,802,000 | |||||||||||||||||||||
Share-based compensation, net of restricted stock cancellations
|
— | — | (5,199 | ) | (52 | ) | 910,936 | — | 910,884 | |||||||||||||||||||
Net loss
|
— | — | — | — | — | (22,197,867 | ) | (22,197,867 | ) | |||||||||||||||||||
Balance at December 31, 2015
|
8,025,793 | $ | 80,258 | 11,124,496 | $ | 111,243 | $ | 147,412,559 | $ | (150,129,933 | ) | $ | (2,525,873 | ) |
Year ended December 31,
|
||||||||
|
2015
|
2014
|
||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (22,197,867 | ) | $ | (14,962,654 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
521,860 | 392,727 | ||||||
Amortization of deferred financing costsAmortization of deferred financing costs
|
— | 3,549,328 | ||||||
Share-based compensation, net
|
910,884 | 1,373,968 | ||||||
Fair value of common stock issued for services
|
— | 8,404 | ||||||
Gain on revaluation of derivative warrant liability
|
(81,155 | ) | (911,000 | ) | ||||
Warrant repricing charged to legal expense
|
328,000 | — | ||||||
Loss on disposal of assets
|
278,816 | 1,114 | ||||||
Impairment charge
|
9,625,000
|
—
|
||||||
Financing loss
|
4,720,000 |
—
|
||||||
Changes in assets and liabilities:
|
||||||||
Prepaid expenses and other
|
(25,911 | ) | (441,603 | ) | ||||
Accounts payable
|
656,556 | 765,149 | ||||||
Deferred revenue from licensing arrangements
|
—
|
(57,321 | ) | |||||
Accrued and other
|
183,953 | (442,715 | ) | |||||
Net cash used in operating activities
|
(5,079,864 | ) | (10,724,603 | ) | ||||
Cash flows from investing activities:
|
||||||||
Purchase of property and equipment
|
(55,836 | ) | (36,627 | ) | ||||
(Increase) decrease in restricted cash
|
(183,938 | ) | 250,000 | |||||
Decrease in security deposit
|
— | 2,076 | ||||||
Proceeds on disposal of property and equipment
|
126,082 | — | ||||||
Net cash (used in) provided by investing activities
|
(113,692 | ) | 215,449 | |||||
Cash flows from financing activities:
|
||||||||
Proceeds from equity issuances
|
3,581,500 | 3,293,397 | ||||||
Proceeds from bridge loans
|
330,000 | — | ||||||
Principal payments on capitalized lease obligations
|
— | (1,362 | ) | |||||
Capital contribution
|
59,325 | 440,675 | ||||||
Net cash provided by financing activities
|
3,970,825 | 3,732,710 | ||||||
Net decrease in cash and cash equivalents
|
(1,222,731 | ) | (6,776,444 | ) | ||||
Cash and equivalents:
|
||||||||
Beginning of year
|
1,278,941 | 8,055,385 | ||||||
End of year
|
$ | 56,210 | $ | 1,278,941 | ||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the year for:
|
||||||||
Interest
|
$ | 15,522 | $ | 2,154 | ||||
Income taxes
|
$ | 4,110 | $ | — | ||||
Supplemental disclosure of non-cash financing transactions:
|
||||||||
Deemed dividend on beneficial conversion feature of convertible preferred stock
|
$ | — | $ | 350,000 | ||||
Director’s fees payable offset against prepaid insurance
|
$ | 272,200 | $ | — | ||||
Accrued legal fees settled with stock
|
$ | 550,000 | $ | — | ||||
Security deposit offset against accounts payable
|
$ | 9,740 | $ | — | ||||
Conversion of convertible preferred stock into Common Stock at par value
|
$ | 15,000 | $ | — |
Level 1:
|
Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
|
Level 2:
|
Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments.
|
Level 3:
|
Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments and long-term derivative contracts.
|
|
·
|
persuasive evidence of an arrangement exists;
|
|
·
|
delivery has occurred and risk of loss has passed;
|
|
·
|
the price to the buyer is fixed or determinable; and
|
|
·
|
collectability is reasonably assured.
|
2015
|
2014
|
Estimated
Useful Lives
|
||||||||||
Computer equipment
|
$ | 332,764 | $ | 334,865 | 3 | |||||||
Office and laboratory equipment
|
628,726 | 740,177 | 3-5 | |||||||||
Furniture and fixtures
|
228,099 | 755,444 | 7 | |||||||||
Manufacturing equipment
|
61,998 | 111,980 | 5 | |||||||||
Leasehold improvements
|
41,968 | 825,589 | 3-7 | |||||||||
Total property and equipment
|
1,293,555 | 2,768,055 | ||||||||||
Less accumulated depreciation and amortization
|
1,025,884 | 1,629,462 | ||||||||||
Property and equipment, net
|
$ | 267,671 | $ | 1,138,593 |
Amount
|
||||
Year Ending December 31,
|
||||
2016
|
$ | 208,531 | ||
2017
|
237,797 | |||
2018
|
204,515 | |||
2019
|
154,513 | |||
2020
|
143,959 | |||
Total
|
$ | 949,315 |
2015
|
2014
|
|||||||
Derivative warrant liability as of January 1
|
$ | 208,155 | $ | 1,119,155 | ||||
Gain on revaluation
|
(81,155 | ) | (911,000 | ) | ||||
Derivative warrant liability as of September 30
|
$ | 127,000 | $ | 208,155 |
Equity Compensation Plans
|
|||||||||||||
2003 Plan
|
2008 Plan
|
||||||||||||
Shares Available For Issuance
|
|||||||||||||
Total reserved for stock options and restricted stock
|
160,000 | 10,000,000 | |||||||||||
Net restricted stock issued net of cancellations
|
(5,000 | ) | (16,357 | ) | |||||||||
Stock options granted
|
(154,449 | ) | (3,070,883 | ) | |||||||||
Add back options cancelled before exercise
|
92,349 | 1,417,150 | |||||||||||
Less shares no longer available due to Plan expiration
|
(92,900 | ) | — | ||||||||||
Remaining shares available for future grants at December 31, 2015
|
— | 8,329,910 | |||||||||||
Not Pursuant to a Plan
|
|||||||||||||
Stock options granted
|
154,449 | 3,070,883 | 310,000 | ||||||||||
Less: |
Stock options cancelled
|
(92,349 | ) | (1,417,150 | ) | (243,333 | ) | ||||||
Stock options exercised
|
(35,600 | ) | (13,000 | ) | (66,667 | ) | |||||||
Net shares outstanding before restricted stock
|
26,500 | 1,640,733 | — | ||||||||||
Net restricted stock issued net of cancellations
|
5,000 | 16,357 | 6,485 | ||||||||||
Outstanding shares at December 31, 2015
|
31,500 | 1,657,090 | 6,485 |
|
2015
|
2014
|
||||||
Risk-free interest rate %
|
1.46 - 1.90 | 1.45 - 1.90 | ||||||
Expected dividend yield
|
— | — | ||||||
Expected term in years
|
5 - 5.5 | 4.5 - 6.5 | ||||||
Forfeiture rate % (excluding fully vested options)
|
7.5 - 15 | 7.5 - 15 | ||||||
Expected volatility %
|
92 - 93 | 81 - 121 |
2014
|
||||
Interest rate %
|
2 | |||
Weighted average interest rate
|
— | |||
Dividend yield
|
— | |||
Expected volatility
|
1.05 | |||
Weighted Average volatility
|
— | |||
Expected life in years
|
6.5 |
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
||||||||||||
Outstanding at January1, 2014
|
1,455,432 | $ | 4.40 | — | — | |||||||||||
Granted
|
662,950 | 1.94 | — | — | ||||||||||||
Forfeited or expired
|
(1,078,482 | ) | 4.92 | — | — | |||||||||||
Outstanding at December 31, 2014
|
1,039,900 | $ | 3.00 |
8.82 years
|
— | |||||||||||
Granted
|
895,000 | 1.47 | — | — | ||||||||||||
Forfeited or expired
|
(267,667 | ) | 4.06 | — | — | |||||||||||
Outstanding at December 31, 2015
|
1,667,233 | $ | 2.01 |
8.74 years
|
$ | — | ||||||||||
Exercisable at December 31, 2015
|
900,750 | $ | 2.22 |
8.68 years
|
$ | — |
Shares
|
Weighted-
Average
Grant-Date
Fair Value
|
|||||||
Non-vested shares at January 1, 2015
|
47,958 | $ | 9.74 | |||||
Vested
|
(17,786 | ) | $ | 5.02 | ||||
Forfeited
|
(2,330 | ) | $ | 6.05 | ||||
Non-vested shares at December 31, 2015
|
27,842 | $ | 13.06 |
|
·
|
14,185 shares of restricted stock vest upon the FDA approval of our CGM system or the sale of the Company;
|
|
·
|
13,657 shares of restricted stock vest over 4 years, at each of the anniversary dates of the grants; and
|
2015
|
2014
|
|||||||
Risk-free interest rate %
|
1.26 - 1.75 | 1.57 - 1.77 | ||||||
Expected dividend yield
|
— | — | ||||||
Expected term in years (contractual term)
|
5 | 5 | ||||||
Forfeiture rate %
|
— | — | ||||||
Expected volatility %
|
89 - 99 | 78 - 102 |
Type of Warrant/ Range of
Exercise Prices
|
Expirations
|
Number Outstanding
|
Weighted- Average Remaining Contractual
Life (years)
|
Weighted- Average
Exercise Price
|
Number Exercisable
|
||||||||||||||
Derivative :
|
|||||||||||||||||||
$ | 7.50 |
8/31/17 to 11/6/17
|
700,000 | 1.72 | $ | 7,70 | 700,000 | ||||||||||||
Equity:
|
|||||||||||||||||||
$ | 2.75 - $3.00 |
12/10/18 to 10/30/20
|
3,830,428 | 4.19 | $ | 2.98 | 3,830,428 | ||||||||||||
Total outstanding
|
4,530,428 | 4,530,428 |
Warrants
|
Shares
|
Weighted-
Average
Exercise
Price
|
||||||
Outstanding at December 31, 2013
|
1,209,211 | $ | 17.92 | |||||
Granted
|
927,610 | $ | 2.98 | |||||
Forfeited or expired
|
(289,755 | ) | $ | 20.33 | ||||
Outstanding at December 31, 2014
|
1,847,066 | $ | 10.04 | |||||
Granted
|
2,721,000 | $ | 3.00 | |||||
Forfeited or expired
|
(37,638 | ) | $ | 22.50 | ||||
Outstanding at December 31, 2015
|
4,530,428 | $ | 3.68 |
December 31,
|
||||||||
|
2015
|
2014
|
||||||
Deferred Tax Assets/(Liabilities):
|
||||||||
Net operating loss carryforwards
|
$ | 38,836,000 | $ | 34,500,000 | ||||
Research credit carryforwards
|
3,122,000 | 3,048,000 | ||||||
Acquired intangible assets, net
|
— | (3,697,000 | ) | |||||
Restricted stock and warrants
|
479,000 | 731,000 | ||||||
Other temporary differences
|
92,000 | 50,000 | ||||||
Total deferred tax assets, net
|
42,529,000 | 34,632,000 | ||||||
Valuation allowance
|
(42,529,000 | ) | (34,632,000 | ) | ||||
Net deferred tax asset
|
$ | — | $ | — |
Years Ended December 31,
|
||||||||
|
2015
|
2014
|
||||||
%
|
%
|
|||||||
Income taxes benefit (expense) at statutory rate
|
34.00 | 34.00 | ||||||
State income tax, net of federal benefit
|
(0.01 | ) | 2.76 | |||||
Permanent Differences:
|
||||||||
Financing loss
|
(7.23 | ) | — | |||||
Non-cash interest expense warrant
|
(0.50 | ) | (8.07 | ) | ||||
Gain/loss or revaluation of derivative warrant liability
|
0.12 | 2.07 | ||||||
Stock-based compensation expense
|
(2.40 | ) | (0.88 | ) | ||||
Other
|
(0.04 | ) | 0.01 | |||||
R&D credits
|
0.49 | 1.21 | ||||||
Change in valuation allowance
|
(24.45 | ) | (31.13 | ) | ||||
(0.02 | ) | (0.03 | ) |
|
·
|
On or before May 31, 2016, the Company shall have its Annual Shareholder Meeting for fiscal year ended 2015.
|
|
·
|
On or before July 5, 2016, the Company shall publicly announce and inform the Panel that it has stockholders’ equity above $2.5 million.
|
|
·
|
The Company shall also, by that date, provide the Panel with updated projections demonstrating its ability to maintain its stockholders’ equity above $2.5 million through June 30, 2017. These projections shall detail the underlying assumptions, including any required capital raises or conversions of debt or preferred to common stock. The Panel will consider at that time whether a Panel Monitor is appropriate.
|
Exhibit
Number
|
Description of Document
|
|
3.1 |
Amended and Restated Certificate of Incorporation dated June 20, 2012 is incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
3.2 |
Certificate of Amendment to the Amended and Restated Certificate of Incorporation dated June 7, 2013 is incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed June 7, 2013.
|
|
3.3 |
Bylaws of the Company as amended and restated as of July 24, 2014 are incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed July 29, 2014.
|
|
3.4 |
Certificate of Designation, Preferences and Rights of Series C Preferred Stock dated July 19, 2012 is incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
3.5 |
Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock dated July 19, 2012 is incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
3.6 |
Certificate of Designation, Preferences and Rights of Series E Convertible Preferred Stock dated December 10, 2013 is incorporated by reference to Exhibit 4.8 of the Company’s Annual Report on Form 10-K filed March 28, 2014.
|
|
3.7 |
Certificate of Designation, Preferences and Rights of Series F Convertible Preferred Stock is incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed February 18, 2015.
|
|
3.8 |
Certificate of Increase of Shares Designated as Series F Convertible Preferred Stock of Echo Therapeutics Inc., dated September 3, 2015, is incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed September 9, 2015.
|
|
4.1 |
Specimen certificate for Common Stock is incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 filed December 2, 2013.
|
|
4.2 |
Form of Warrant to Purchase Shares of Common Stock is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed November 18, 2009.
|
|
4.3 |
Form of Warrant to Purchase Shares of Common Stock is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed December 3, 2009.
|
|
4.4 |
Form of Warrant to Purchase Shares of Common Stock is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed February10, 2010.
|
|
4.5 |
Form of Warrant to Purchase Shares of Common Stock is incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed December 6, 2011.
|
|
4.6 |
Commitment Fee Warrant issued to Platinum-Montaur Life Sciences, LLC on August 31, 2012 is incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
4.7 |
Form of Draw Warrant issued to Platinum-Montaur Life Sciences, LLC is incorporated by reference to Exhibit 4.2 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
4.8 |
Form of Warrant to Purchase Common Stock dated December 10, 2013 is incorporated by reference to Exhibit 4.8 of the Company’s Annual Report on Form 10-K filed March 28, 2014.
|
|
4.9 |
Form of Warrant to Purchase Common Stock is incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed February 18, 2015.
|
|
10.1 |
Lease Agreement between the Company and Forge Park Investors LLC dated January 24, 2003 is incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
|
|
10.2* |
Form of Restricted Stock Agreement for use under the Company’s 2003 Stock Option and Incentive Plan is incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed September 6, 2006.
|
|
10.3* |
2003 Stock Option and Incentive Plan, as amended, is incorporated herein by reference to Appendix I to the Company’s Definitive Proxy Statement on Schedule 14A filed April 17, 2007.
|
Exhibit
Number
|
Description of Document
|
|
10.4* |
Form of Nonqualified Stock Option Agreement is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 31, 2007.
|
|
10.5 |
First Amendment to Lease dated February 11, 2008 by and between the Company and CRP-2 Forge, LLC, as successor in interest to Forge Park Investors LLC, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 13, 2008.
|
|
10.6*† |
Nonqualified Stock Option Agreement by and between the Company and Vincent D. Enright dated as of March 25, 2008 is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 27, 2008.
|
|
10.7† |
Form of Restricted Stock Agreement is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed May 27, 2008.
|
|
10.8** |
License Agreement by and between the Company and Handok Pharmaceuticals Co., Ltd. dated as of June 15, 2009 is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 19, 2009.
|
|
10.9*† |
2008 Equity Incentive Plan is incorporated herein by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed April 30, 2010.
|
|
10.10 |
Lease between the Company and 8 Penn Center Owner, L.P. filed as of March 9, 2011, is incorporated herein by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed March 18, 2011.
|
|
10.11*† |
Incentive Stock Option Agreement by and between the Company and Christopher P. Schnittker dated as of May 16, 2011 is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 20, 2011.
|
|
10.12 |
Form of Indemnification Agreement by and among the Company and each of Patrick Mooney, Kimberly Burke and Christopher Schnittker, dated as of November 15, 2011, is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed November 18, 2011.
|
|
10.13 |
Common Stock and Warrant Purchase Agreement by and among the Company and the Investors named therein, dated as of December 5, 2011, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 6, 2011.
|
|
10.14* |
Fifth Amendment to Lease by and between the Company and CRP-2 Forge, LLC, dated as of April 3, 2012 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 9, 2012.
|
|
10.15* |
Amendment to Lease Agreement by and between the Company and 8 Penn Center Owner, L.P., dated as of April 2, 2012 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 11, 2012.
|
|
10.16** |
At Market Issuance Sales Agreement with MLV & Co. dated May 9, 2012 is incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed May 10, 2012.
|
|
10.17 |
Letter agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 8, 2012 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 14, 2012.
|
|
10.18** |
Amended and Restated License Agreement between the Company and Ferndale Pharma Group, Inc. dated July 3, 2012, is incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed August 9, 2012.
|
|
10.19 |
Letter agreement between the Company and Platinum-Montaur Life Sciences, LLC dated as of August 24, 2012 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 30, 2012.
|
|
10.20 |
Letter Agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 8, 2012 is incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
10.21 |
Letter Extension Agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 28, 2012 is incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
Exhibit
Number
|
Description of Document
|
|
10.22* |
Loan Agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 31, 2012 is incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
10.23 |
Promissory Note between the Company and Platinum-Montaur Life Sciences, LLC dated August 31, 2012 is incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
10.24 |
Default Security Agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 31, 2012 is incorporated by reference to Exhibit 10.7 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
10.25 |
Revenue Security Agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 31, 2012 is incorporated by reference to Exhibit 10.8 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
10.26 |
Guaranty Agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 31, 2012 is incorporated by reference to Exhibit 10.9 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
10.27 |
Registration Indemnity Agreement between the Company and Platinum-Montaur Life Sciences, LLC dated August 31, 2012 is incorporated by reference to Exhibit 10.10 of the Company’s Quarterly Report on Form 10-Q filed November 8, 2012.
|
|
10.28† |
Amendment to 2008 Equity Incentive Plan is incorporated herein by reference to Annex B to the Company’s Definitive Proxy Statement on Schedule 14A filed April 12, 2013.
|
|
10.29† |
Consulting Agreement between the Company and Robert F. Doman dated August 26, 2013 is incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 29, 2013.
|
|
10.30† |
First Amendment to the Consulting Agreement between the Company and Robert F. Doman dated October 3, 2013 is incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed November 7, 2013.
|
|
10.31** |
License Development and Commercialization Agreement by and between the Company and Medical Technologies Innovations Asia, Ltd. dated December 9, 2013 is incorporated by reference to Exhibit 4.8 of the Company’s Annual Report on Form 10-K/A filed May 1, 2014.
|
|
10.32 |
Securities Purchase Agreement by and between the Company and Medical Technologies Innovations Asia, Ltd and Beijing Sino Tau Shang Pin Tech and Development Corp. dated December 10, 2013 is incorporated by reference to Exhibit 4.8 of the Company’s Annual Report on Form 10-K filed March 28, 2014.
|
|
10.33 |
Securities and Purchase Agreement by and between the Company and Platinum Partners Value Arbitrage Fund L.P. and Platinum Partners Liquid Opportunity Master Fund L.P. dated December 10, 2013 is incorporated by reference to Exhibit 4.8 of the Company’s Annual Report on Form 10-K filed March 28, 2014.
|
|
10.34 |
Second Amendment to the Consulting Agreement by and between the Company and Robert F. Doman dated December 26, 2013 is incorporated by reference to Exhibit 4.8 of the Company’s Annual Report on Form 10-K filed March 28, 2014.
|
|
10.35 |
First Amendment to the Securities Purchase Agreement and License, Development and Commercialization Agreement by and between the Company and Medical Technologies Innovations Asia, Ltd and Beijing Sino Tau Shang Pin Tech and Development Corp., dated January 30, 2014 is incorporated by reference to Exhibit 4.8 of the Company’s Annual Report on Form 10-K filed March 28, 2014.
|
|
10.36 |
Form of Director and Officer Indemnification Agreement dated as of June 24, 2014, is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed June 27, 2014.
|
|
10.37 |
Offer Letter between the Company and Charles Bernhardt dated July 16, 2014 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2014.
|
Exhibit
Number
|
Description of Document
|
|
10.38 |
Third Amendment to the Consulting Agreement by and between the Company and Robert F. Doman dated April 3, 2014 is incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 14, 2014.
|
|
10.39 |
Letter Agreement dated December 18, 2014, by and between the Company, Platinum Partners Value Arbitrage Fund L.P., Platinum Long Term Growth VII, LLC, Platinum Partners Liquid Opportunity Master Fund L.P., Platinum-Montaur Life Sciences, LLC, Platinum Management (NY) LLC, Platinum Liquid Opportunity Management (NY) LLC, Mark Nordlicht and Uri Landesman incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-K filed April 15, 2015.
|
|
10.40 |
Securities Purchase Agreement dated December 18, 2014, by and between the Company, Platinum Partners Value Arbitrage Fund L.P., Beijing Yi Tang Bio Science & Technology Ltd., RPSMSS, LLC and Richard Stadtmauer incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K filed April 15, 2015.
|
|
10.41 |
Employment Agreement between the Company and Scott Hollander dated December 22, 2014 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 30, 2014.
|
|
10.42 |
Employment Agreement between the Company and Alan Schoenbart dated December 29, 2014 is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 30, 2014.
|
|
10.43 |
Amendment to License, Development and Commercialization Agreement between Echo Therapeutics, Inc. and Medical Technologies Innovation Asia, Ltd. Dated December 29, 2014 incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed April 15, 2015..
|
|
10.44 |
Standard Office Lease, dated January 20, 2015, between the Company and The Realty Associates Fund X, L.P., is incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q filed May 15, 2015.
|
|
10.45 |
Reimbursement Agreement, dated as of February 12, 2015, is incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed February 18, 2015.
|
|
10.46 |
Lease, dated May 5, 2015, between the Company and Ferris Development 352 Turnpike Rd, LLC, is incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10Q filed May 15, 2015.
|
|
10.47 |
Lease Termination Agreement, dated July 17, 2015, between Exeter 10 Forge Park, LLC and Echo Therapeutics, Inc., is incorporated by reference to Exhibit 10.1 on Form 8-K filed July 20, 2015.
|
|
10.48 |
Form of Subscription Agreement for Series F Preferred Stock and Warrants, dated August 27 and 28, 2015, is incorporated by reference to Exhibit 10.1 on Form 8-K filed September 2, 2015.
|
|
10.49 |
Form of Subscription Agreement for Series F Preferred Stock and Warrants, dated September 24, 2015, is incorporated by reference to Exhibit 10.1 on Form 8-K filed September 30, 2015.
|
|
10.50 |
Form of Promissory Note to Platinum Partners Value Arbitrage Fund, L.P., dated December 31, 2015, is incorporated by reference to Exhibit 10.1 on Form 8-K filed January 6, 2016.
|
|
10.51 |
Form of Promissory Note to Medical Technologies Innovation Asia, Ltd., dated January 7, 2016, is incorporated by reference to Exhibit 10.1 on Form 8-K filed January 12, 2016.
|
|
10.52 |
Form of Promissory Note to Beijing Yi Tang Bio Science & Technology, Ltd., dated January 26, 2016, is incorporated by reference to Exhibit 10.1 on Form 8-K filed February 1, 2016.
|
|
10.53 |
Securities Purchase Agreement, dated January 29, 2016, is incorporated by reference to Exhibit 10.1 on Form 8-K filed February 3, 2016.
|
|
10.54 |
Form of Note, dated January 29, 2016, is incorporated by reference to Exhibit 10.2 on Form 8-K filed February 3, 2016.
|
|
10.55 |
Form of Warrant, dated January 29, 2016, is incorporated by reference to Exhibit 10.3 on Form 8-K filed February 3, 2016.
|
|
10.56 |
Registration Rights Agreement, dated January 29, 2016, is incorporated by reference to Exhibit 10.4 on Form 8-K filed February 3, 2016.
|
|
10.57 |
Security Agreement, dated January 29, 2016, is incorporated by reference to Exhibit 10.5 on Form 8-K filed February 3, 2016.
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Exhibit
Number
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Description of Document
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10.58 |
Form of Promissory Note to Beijing Yi Tang Bio Science & Technology, Ltd., dated February 4, 2016, is incorporated by reference to Exhibit 10.1 on Form 8-K filed February 10, 2016.
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10.59 |
Form of Promissory Note to Platinum Partners Value Arbitrage Fund, L.P., dated February 11, 2015, is incorporated by reference to Exhibit 10.1 on Form 8-K filed February 12, 2016.
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16.1 |
Letter of Wolf & Company, P.C. dated December 9, 2014 to the Securities and Exchange Commission is incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed December 12, 2014.
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21.1 |
Subsidiaries of the Company.
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23.1 |
Consent of BDO USA LLP, independent registered public accounting firm.
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24.1 |
Power of Attorney (included in the signature to this Annual Report on Form 10-K).
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31.1 |
Certification of Principal Executive Officer pursuant to Rule 13a-14 (a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2 |
Certification of Principal Financial Officer pursuant to Rule 13a-14 (a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1 |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2 |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL Taxonomy Extension Label Linkbase
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase
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____________
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* |
Schedules and attachments have been omitted but will be provided to the Commission upon request.
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** |
Confidential treatment has been requested as to certain portions, which portions have been omitted and filed separately with the Commission.
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† |
Management contract or compensatory plan or arrangement.
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Name
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Jurisdiction of Incorporation
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Sontra Medical, Inc.
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Delaware
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Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 21, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information | |||
Entity Registrant Name | Echo Therapeutics, Inc. | ||
Entity Central Index Key | 0001031927 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 16,047,016 | ||
Entity Common Stock, Shares Outstanding | 11,124,496 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2015 |
ORGANIZATION AND BASIS OF PRESENTATION |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Notes to Financial Statements | |
ORGANIZATION AND BASIS OF PRESENTATION | Echo Therapeutics, Inc. (the "Company") is a medical device company with expertise in advanced skin permeation technology. The Company is developing its non-invasive, wireless continuous glucose monitoring (CGM) system with potential use in the wearable-health consumer market and the diabetes outpatient market. A significant longer-term opportunity may also exist in the hospital setting. Echo has also developed its needle-free skin preparation device as a platform technology that allows for enhanced skin permeation enabling extraction of analytes, such as glucose, enhanced delivery of topical pharmaceuticals and other applications.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Sontra Medical, Inc., a Delaware corporation (and all significant intercompany balances have been eliminated by consolidation) and have been prepared on a basis assuming that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Certain amounts in prior periods have been reclassified to conform to current presentation.
On June 7, 2013, the Company effected a 1-for-10 reverse stock split of its common stock. All share and per share information was retroactively restated to reflect this reverse stock split.
|
LIQUIDITY AND MANAGEMENTS' PLANS |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
LIQUIDITY AND MANAGEMENTS' PLANS | As of December 31, 2015, the Company had cash of $56,210, working capital deficit of $2,934,684, and an accumulated deficit of $150,129,933. The Company continues to incur recurring losses from operations. Our losses have resulted principally from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations. We also expect to have negative cash flows for the foreseeable future as we fund our operating losses and capital expenditures. This will result in decreases in our working capital, total assets and stockholders equity, which may not be offset by future funding. The Company will need to obtain proceeds under its current financing arrangement and secure additional capital to fund its product development, research, manufacturing and clinical programs in accordance with its current planned operations. The Company has funded its operations in the past primarily through debt and equity issuances. Management intends to utilize its current financing arrangement once approved by stockholders on April 14, 2016, and will continue to pursue additional financing to fund its operations. Management believes that it will be successful in obtaining proceeds from their current financing arrangement and raising additional capital. No assurances can be given that additional capital will be available on terms acceptable to the Company. The accompanying financial statements do not include any adjustments that might result from the outcome of the uncertainty.
Subsequent to December 31, 2015, the Company initially received cash proceeds of $832,000 from a $5,145,000 Secured Convertible Note financing it entered on January 29, 2016. See Note 8. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended | ||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||
Summary Of Significant Accounting Policies | |||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | The accompanying consolidated financial statements have been prepared in accordance with the Financial Accounting Standards Board (FASB) FASB Accounting Standard Codification(TM) (the Codification) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management's estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable under the circumstances. Significant estimates include accounting for the valuation of intangible assets, derivatives, share based compensation and valuation allowances related to deferred income taxes. The Company periodically reviews these matters and reflects changes in estimates as appropriate. Actual results could materially differ from those estimates.
The Company considers all highly liquid investments with maturities of ninety days or less to be cash equivalents. Cash equivalents consisted of money market funds at a major banking institution as of December 31, 2015 and 2014. The Company maintains its cash in bank deposit accounts which, at times, may exceed the federally insured limits. The Company has never experienced any previous losses related to these uninsured balances. Restricted cash consists of letters of credit in favor of its two landlords as of December 31, 2015.
Intangible Assets and Other Long-Lived Assets
The Company records acquired intangible assets at the acquisition date fair value. Intangible assets related to technology are expected to be amortized over the period of expected benefit and will commence upon revenue generation.
The Company reviews intangible assets at least annually and whenever events or circumstances change that indicated impairment may have occurred to determine if any adverse conditions exist that would indicate impairment or a change in the remaining useful life of any intangible asset. Conditions that would indicate impairment and trigger an impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator. While the Company uses available information to prepare estimates and to perform impairment evaluations, actual results could differ significantly from these estimates or related projections, resulting in impairment related to recorded balances. If the estimate of an intangible assets remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. The Company performs a regular review of the underlying assumptions, circumstances, time projections and revenue and expense estimates to decide if there is a possible impairment. As a result, the Company reviewed its intangibles for impairment and recorded a $9.625 million impairment charge, or the full value of its intangibles, on the consolidated statement of operations in the second quarter of 2015.
For other long-lived assets, the Company evaluates quarterly whether events or circumstances have occurred that indicate that the carrying value of these assets may be impaired. If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. The Company expenses normal maintenance and repair costs as incurred. Gain and loss on disposal of property and equipment is recognized in the period incurred. Leasehold improvements are amortized over the life of the lease or the related asset, whichever is shorter.
Share-Based Payments
The Company recognizes compensation costs, net of estimated forfeitures, resulting from the issuance of stock-based awards to employees and directors as an expense in the statement of operations over the service period based on a measurement of fair value for each stock award. The Companys policy is to grant employee and director stock options with an exercise price equal to or greater than the fair value of the Common Stock at the date of grant.
Forfeitures are initially estimated based on historical information and subsequently updated over the life of the awards to ultimately reflect actual forfeitures. As a result, changes in forfeiture activity can influence the amount of stock compensation cost recognized from period to period.
The Company recognizes compensation costs resulting from the issuance of stock-based awards to non-employees as an expense in the statement of operations over the service period based on a measurement of fair value for each stock award.
The fair value of options is calculated primarily using the Black-Scholes option pricing model. This option valuation model requires input of assumptions including, among others, the volatility of our stock price, the expected life of the option and the risk-free interest rate. We estimate the volatility of our stock price using historical prices. We estimate the expected life of our option using the average of the vesting period and the contractual term of the option. The estimated forfeiture rate is based on historical forfeiture information as well as subsequent events occurring prior to the issuance of the financial statements. Because our stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, the existing model may not necessarily provide a reliable single measure of fair value of our stock options.
In calculating the compensation expense for certain more complex stock options granted, we utilize a binomial lattice-based valuation model. Lattice-based option valuation models incorporate ranges of assumptions for inputs and those ranges are disclosed in the preceding table. Expected volatilities are based on a combination of historical volatility of our stock and implied volatilities of call options on our stock. We use historical data to estimate option exercise and employee termination patterns within the valuation model. The expected life of options granted is derived from the output of the option valuation model and represents the average period of time that options granted are expected to be outstanding. The interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.
Fair Values of Assets and Liabilities
The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
The Company's financial liabilities measured at fair value on December 31, 2015 and 2014 consists solely of a derivative warrant liability which is classified as Level 3 in fair value hierarchy (see Note 7). The Company uses a valuation method, the Black-Scholes option pricing model, and the requisite assumptions in estimating the fair value for the warrants considered to be derivative instruments. These assumptions include the fair value of the underlying stock, risk-free interest rates, volatility, expected life and dividend rates. The Company has no financial assets measured at fair value.
The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis. The Company wrote off its intangible asset in 2015; however this is the only such adjustment in the years ended December 31, 2015 and 2014.
Derivative Instruments
The Company generally does not use derivative instruments to hedge exposures to cash-flow or market risks; however, certain warrants to purchase Common Stock that do not meet the requirements for classification as equity are classified as liabilities. In such instances, net-cash settlement is assumed for financial reporting purposes, even when the terms of the underlying contracts do not provide for a net-cash settlement. Such financial instruments are initially recorded at fair value with subsequent changes in fair value charged (credited) to operations in each reporting period. If these instruments subsequently meet the requirements for classification as equity, the Company reclassifies the fair value to equity.
Concentration of Credit Risk
The Company has no significant off-balance-sheet risk. Financial instruments, which subject the Company to credit risk, principally consist of cash and cash equivalents. The Company mitigates its risk by maintaining the majority of its cash and equivalents with high-quality financial institutions.
The estimated fair value of the Companys financial instruments, which include cash and cash equivalents, restricted cash, accounts payable and capital lease obligation, approximates their carrying value due to the short-term nature of these instruments and their market terms.
Net Loss per Common Share
Basic and diluted net loss per share of Common Stock has been computed by dividing the net loss applicable to common stockholders in each period by the weighted average number of shares of Common Stock outstanding during such period. For the periods presented, options, warrants and convertible securities were anti-dilutive and therefore excluded from diluted loss per share calculations.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is the development of transdermal skin permeation and diagnostic medical devices. As of December 31, 2015 and 2014, all of the Companys assets were located in the United States.
Research and Development Expenses
The Company charges research and development expenses to operations as incurred. Research and development expenses primarily consist of salaries and related expenses for personnel and outside contractor and consulting services. Other research and development expenses include the costs of materials and supplies used in research and development, prototype manufacturing, clinical studies, related information technology and an allocation of facilities costs.
Income Taxes
The Company is primarily subject to U.S. federal, Massachusetts and New Jersey state income tax. Tax years subsequent to 2011 remain open to examination by U.S. federal and state tax authorities.
For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, since the Company cannot be assured of realizing the deferred tax asset, a full valuation allowance has been provided.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. There were no uncertain tax position liabilities recorded at December 31, 2015 and 2014.
The Companys policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2015 and 2014, the Company had no accruals for interest or penalties related to income tax matters.
Licensing and Other Revenue Recognition
To date, the Company has generated revenue primarily from licensing agreements, including upfront, nonrefundable license fees, with collaborators and licensees. The Company recognizes revenue when the following criteria have been met:
From time to time, the Company receives upfront, nonrefundable payments for the licensing of its intellectual property upon the signing of a license agreement. The Company believes that these payments generally are not separable from the payments it receives for providing research and development services because the license does not have stand-alone value from the research and development services it provides under its agreements. Accordingly, the Company accounts for these elements as one unit of accounting and recognizes upfront, nonrefundable payments as revenue on a straight-line basis over its contractual or estimated performance period. Revenue from the reimbursement of research and development efforts is recognized as the services are performed based on proportional performance adjusted from time to time for any delays or acceleration in the development of the product and is included in Other Revenue. The Company determines the basis of the estimated performance period based on the contractual requirements of its collaboration agreements. At each reporting period, the Company evaluates whether events warrant a change in the estimated performance period.
Distinguishment of Liabilities from Equity
The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify convertible instruments, such as the Companys preferred stock. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares. Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (temporary equity). The Company will determine temporary equity classification if the redemption of the preferred stock or other financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Initial Measurement
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received. For warrants that are recorded as equity, the Company uses a Black Scholes model.
Subsequent Measurement
The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income. The Company uses the Black Scholes pricing method, which is not materially different from a binomial lattice valuation methodology utilizing Level 3 inputs, to determine the fair value of derivative liabilities resulting from warrants that are recognized as liabilities.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
In July 2015, the Financial Accounting Standards Board (the "FASB") finalized a one year delay in the effective date of this standard, which will now be effective for us on January 1, 2018, however early adoption is permitted any time after the original effective date, which for us is January 1, 2017. We have not yet selected a transition method and are currently evaluating the impact of ASU 2014-09 on our condensed consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, which revises the guidance in ASC 740, Income Taxes, to simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as non-current in the statement of financial position. The guidance is to be applied either prospectively or retrospectively, and is effective for reporting periods (interim and annual) beginning after December 15, 2016 for public companies. Early adoption is permitted. The implementation of this ASU is not expected to have a material impact on our consolidated financial position or results of operations.
In January 2016, the FASB issued ASU 2016-01, which revises the guidance in ASC 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities, and provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance is effective for reporting periods (interim and annual) beginning after December 15, 2017, for public companies. We are currently assessing the potential impact of this ASU on our consolidated financial position and results of operations.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. |
PROPERTY AND EQUIPMENT |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT | The principal categories and estimated useful lives of property and equipment at December 31 were:
The Company recorded a loss on disposal of $278,816, primarily in connection with its corporate office and research facility relocations to Iselin, New Jersey and to Littleton, Massachusetts, respectively. In connection with its relocation from its Franklin, Massachusetts to Littleton, Massachusetts research facility, the Company sold excess furniture to the incoming tenant. Additionally, each move required the Company to write-off its leasehold improvements. See Note 6. |
IMPAIRMENT OF INTANGIBLES |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Notes to Financial Statements | |
IMPAIRMENT OF INTANGIBLES | In connection with the preparation of the financial statements in the second quarter of fiscal 2015, the Company concluded it had a triggering event requiring assessment of impairment for its intangibles in conjunction with an expected out-licensing strategy that new management had hoped to pursue. Extremely limited financial resources coupled with the remaining short patent lives, discussions with previous consultants regarding their progress with bringing value to the intangibles, a review of competitive formulations and discussions with new consultants to explore out-licensing strategies, led newly-hired corporate management to conclude it was best to abandon its initial hope to garner value from its intangibles. Accordingly, due to this change in strategy, no monies are now expected to be obtained relating to the Azone Drug Master File, the Durhalieve and MAZ Investigational New Drug applications and the MAZ Orphan Drug application (collectively, the AzoneTS-based technology acquired in 2007) intangibles. As a result, the Company reviewed the intangibles for impairment and recorded a $9.625 million impairment charge, or the full value of the intangibles, in the consolidated statement of operations in the second quarter of 2015. |
OPERATING LEASE COMMITMENTS |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||
OPERATING LEASE COMMITMENTS | The Company leased approximately 7,900 square feet of corporate office space in a multi-story building located in Philadelphia, Pennsylvania under a lease expiring May 31, 2017. The company terminated this lease early and moved to Iselin, New Jersey on January 15, 2015 where the Company has leased 2,800 square feet of office space for 38 months at a monthly effective base rental of approximately $7,300. The Company posted a $77,000 Letter of Credit to secure the lease which is reduced to $38,500 after nineteen months of occupancy, assuming no defaults, as defined.
The Company leased approximately 37,000 square feet of manufacturing, laboratory and office space in a single-story building located in Franklin, Massachusetts under a lease expiring October 31, 2017. On July 17, 2015, the Company entered into a Lease Termination Agreement (the Termination Agreement), whereby the Company paid a fee of $150,000 to terminate this lease. The lease termination was effective as of May 31, 2015.
On May 5, 2015, the Company signed a lease for approximately 10,000 square feet for a research and development facility in Littleton, Massachusetts. The lease is for 65 months. Effective base monthly rent over the lease term will be $11,470. The Company moved to the new facility from its Franklin, Massachusetts location on July 3, 2015. The Company agreed to post a $50,000 Letter of Credit until July 1, 2015 while the Littleton facility was being improved. Such amount was increased to $150,000 on July 1, 2015. The Letter of Credit is expected to be reduced to $50,000 after 24 months of timely lease payments.
The Company leased a corporate apartment in Franklin, Massachusetts through September 2014 and a corporate apartment in Philadelphia, Pennsylvania on a month-to-month basis, also in 2014.
Future minimum lease payments for each of the next five years under these operating leases at December 31, 2015 are approximately as follows:
The Companys facilities lease expense was approximately $293,000 and $514,000 for the years ended December 31, 2015 and 2014, respectively. |
DERIVATIVE WARRANT LIABILITY |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||
DERIVATIVE WARRANT LIABILITY | In August 2012, the Company and Platinum-Montaur Life Sciences, LLC (PM) entered into a Loan Agreement whereby PM agreed to provide a credit facility (CF) to the Company of up to $20,000,000 dependent on the achievement of certain clinical and regulatory milestones set forth in the Loan Agreement, with an initial available principal amount of $5,000,000 (the Maximum Draw Amount). The draws under the agreement bore interest at 10% per annum. In connection with the CF, the Company issued PM a warrant to purchase 400,000 shares of its Common Stock, with a term of five years and an exercise price of $20.00 per share (the Commitment Warrant or CW). The CW was valued at $4,840,000 and recorded as a deferred financing asset and a derivative warrant liability. The Loan Agreement called for each $1,000,000 of funds borrowed pursuant to the Credit Facility, the Company will would issue PM a warrant to purchase 100,000 shares of Common Stock, with a term of five years and an exercise price equal to 150% of the market price of the Common Stock at the time of the draw, but in no event less than $20.00 or more than $40.00 per share (together with the Commitment Warrant, the Warrants). All of the Warrants were immediately exercisable and had a term of five years from the issue date. Obligations under the CF were guaranteed by the Companys subsidiary, Sontra Medical, Inc. The deferred financing cost was then amortized over the life of the CF. Over a three month period beginning in September 2012, three separate draws totaling $3,000,000 were taken under the CF and five year warrants to purchase 300,000 shares of Common Stock were issued at prices ranging from $21.10 to $22.70. The warrants were valued at $3,455,000, and accreted to interest expense over the life of the draws. The CF was terminated on October 30, 2014. $3,549,325 was charged to interest expense in 2014.
On February 12, 2015, the Company agreed to re-price the warrants to $7.50 per share in connection with the Reimbursement Agreement (see Note 8). The Company recorded a non-cash charge to legal expense for $328,000 representing the cost of re-pricing the Derivative Warrants. As a result of having warrants to purchase 700,000 shares of our Common Stock at $7.50 outstanding, issued in connection with a 2012 Credit Facility (which was terminated in October 2014), we are required to record the changes in the value of these derivative warrants through their expirations in November 2017. The table below presents the changes in the derivative warrant liability, which is measured at fair value on a recurring basis and classified as Level 3 in fair value hierarchy:
None of the derivative warrants were exercised in 2015 or 2014 pursuant to cashless exercise provisions. |
FINANCINGS |
12 Months Ended |
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Dec. 31, 2015 | |
Debt Disclosure [Abstract] | |
FINANCINGS | In December 2013, in connection with a licensing transaction, the Company entered into (i) a Securities Purchase Agreement with Platinum Partners Value Arbitrage Fund L.P. (PPVA) and Platinum Partners Liquid Opportunity Master Fund L.P. (PPLO, and together with PPVA, the Platinum Partners) (the Platinum Securities Purchase Agreement) and (ii) a Securities Purchase Agreement with Medical Technologies Innovation Asia, LTD. (MTIA) and Beijing Sino Tau Shang Pin Tech and Development Corp. (MTIA Affiliate, and together with MTIA, the China Purchasers) (the MTIA Securities Purchase Agreement, and together with the Platinum Securities Purchase Agreement, the Securities Purchase Agreements or SPA). Pursuant to the Platinum SPA and subject to certain conditions, the Company agreed to nominate and use its reasonable best efforts to cause to be elected and cause to remain as a director on the Companys board of directors (the Board) until the Companys 2014 annual meeting of stockholders, one individual designated by the Platinum Partners (Platinum Partners Designee). Additionally, subject to certain conditions, the Company agreed to nominate, and solicit for election by the stockholders, the Platinum Partners Designee at the Companys 2014 annual meeting of stockholders. Under the terms of the MTIA Securities Purchase Agreement, as amended, upon the Companys receipt of all of the proceeds from the China Purchasers, the Company will allow one individual designated by the China Purchasers to attend meetings of the Board as an observer until the date of the 2015 annual meeting of stockholders.
So long as the Platinum Partners hold at least ten percent (10%) of the outstanding Common Stock, they have a right, subject to certain conditions, to purchase debt or equity securities of any kind that the Company may determine to issue in the future. The China Purchasers have the same right. This subscription right terminates upon a consolidation, merger, restructuring, reorganization, recapitalization or other form of acquisition of or by the Company that result in a change of control.
The Platinum Partners and the China Purchasers are also entitled to certain piggy-back registration rights.
Pursuant to the MTIA Securities Purchase Agreement in December 2013, the Company had intended to sell 1,818,182 shares of its Common Stock and issue Warrants to purchase 181,818 shares of its Common Stock to MTIA for an aggregate purchase price of $5,000,000.
As of June 30, 2014, the Company had not received the full proceeds of the sale of the securities from MTIA with the parties having previously extended the due date for the receipt of all such proceeds to March 27, 2014, from the original closing date of December 12, 2013. MTIA failed to provide funds in a timely manner, resulting in its material breach of the MTIA Stock Purchase Agreement.
Instead, the Company issued 872,728 shares of Common Stock and Warrants to purchase 87,274 shares of Common Stock in exchange for $2,400,000 in gross proceeds which were received between February and April 2014, of which the last installment was paid to the Company on April 15, 2014. The Company incurred issuance costs of $50,000. The relative fair value of Warrants issued to MTIA to purchase 87,274 shares of Common Stock was determined to be approximately $174,396 and was recorded as a debit and a credit to Additional Paid in Capital.
On December 18, 2014, Platinum Partners Value Arbitrage Fund L.P. (PPVA) agreed to purchase together with two other entities, and one individual, 840,336 shares of Series F Convertible Preferred Stock (Series F) for an aggregate purchase price of $1,000,000, net of $56,604 of deferred financing costs. Five year Series F warrants to purchase the same number of shares of our common stock with an exercise price of $3.00 per share were issued to the investors. Pursuant to a Letter of Agreement, settling certain board related matters under dispute, the investors further agreed to fund an additional $3,000,000 in 2015. The investors determined that the purchase price of the Series F shall be equal to the dollar amount of each investment divided by the lesser of (i) the closing bid price of the Common Stock immediately preceding each Installment, as the case may be, or (ii) $1.50, provided that the Series F and the Series F Warrants will not be convertible to the extent the conversion would result in the holder beneficially owning more than 19.9% of the then outstanding shares of the Issuer, unless stockholder approval has been obtained for the issuance of the shares of Common Stock issuable upon conversion of the Series F Preferred Stock or Warrants in accordance with Nasdaq rules. The Series F also contains customary provisions as well as an additional restriction on conversion such that the Series F or Series F Warrants will not be convertible if the conversion would result in the holder beneficially owning more than 9.9% of the then outstanding shares of the Issuer.
In connection with the issuance of this Series F, the conversion feature of Series F was considered beneficial, or in the money, at issuance due to a conversion rate that allows the investor to obtain the Common Stock at below market price. The Company recorded a deemed dividend on the beneficial conversion feature of $350,000 at December 31, 2014.
Capital Contribution
Late in the third quarter of 2014 the research and development operations of the Company were suspended and key personnel were laid off. In October 2014, two of our directors received a non-recourse loan for $500,000 from PPVA. The purpose of the loan was to provide the directors monies to advance their plan for the Company and attempt to maintain its viability during the suspension of operations. $440,675 was expended in the fourth quarter of 2014 by these directors primarily for salaries of key employees and targeted technology efforts focused on the wearable technology sector. The Company considered this expenditure by two of its directors a capital contribution since the funds were spent on matters specifically related to the operations of the Company. In February 2015, the $440,675 capital contribution together with the balance monies received in 2015, equivalent to the original $500,000 the two directors had received, was repaid by the Company to PPVA through the issuance of Series F and five-year Series F Warrants to purchase 333,333 shares of Common Stock at $3 per share. In connection with this repayment, we recorded a $924,000 non-cash charge representing the excess market value of the preferred stock and warrants above the $500,000 capital contribution. Such amount is included in the financing loss reflected on the consolidated statement of operations.
Stock Issued in Exchange for Services
During the year ended December 31, 2014, the Company issued 2,636 shares of Common Stock, with a fair value $8,404, to vendors in exchange for their services. The Company recorded expense related to these issuances, which represents the fair value of the related stock.
Exchange of Common Stock for Series F Preferred Stock
On January 9, 2015 and again on March 31, 2015, Platinum Partners Value Arbitrage Fund, L.P. (PPVA) and Platinum Partners Liquid Opportunity Fund, L.P. exchanged 843,526 and 208,884 and 356,474 and 91,116, respectively of their common shares held for Series F Preferred Stock. Based on the terms of the Series F (e.g. conversion ratio of 1:1 and no liquidation preference) the Company determined that the value of the Series F is equivalent to the common shares.
Settlement of Amounts Owed for Series F Preferred Stock and Warrants
On September 23, 2014, the Company announced that, as it believed that its current liquidity was insufficient to fund its needs beyond September 30, 2014, it was suspending its product development, research, manufacturing and clinical programs and operations to conserve its liquidity and capital resources. The workforce reduction due to the suspension of operations comprised approximately 70% of Echos workforce, leaving only administrative personnel. Affected employees were notified on September 23, 2014. The employees whose employment was terminated as part of the workforce reduction were not offered severance pay. The Company indicated that they could possibly incur additional costs not currently contemplated due to events that may occur as a result of, or that were associated with, the workforce reduction.
At the time of the workforce reduction announcement, Platinum Management (NY) LLC (Platinum), together with its affiliates, a significant stockholder of the Company, was in the process of engaging in a proxy contest with the Company pursuant to which it sought to ultimately remove three of the then-current directors of the Company. In conjunction therewith, Platinum provided $500,000 on a non-recourse basis to two of the Companys directors whose removal Platinum was not seeking, namely Michael Goldberg and Shepard Goldberg, which was recorded as a capital contribution (Contribution) in 2014. Proceeds of the Contribution were utilized for retaining certain key employees and for research and technology initiatives, all for the benefit of the Company. A small portion of the monies was not disbursed, which was transferred to the Company. At the time of the Contribution, Shepard Goldberg and Michael Goldberg agreed that, should the Contribution ultimately benefit the Company, they would use their best efforts to cause the Company to issue equity to Platinum as consideration for making the Contribution.
In December 2014, as part of a negotiated settlement agreement, the three directors, whom Platinum sought to remove, resigned as directors and Platinum agreed to make a direct investment in the Company. In connection with the proxy contest, Platinum expended $550,000 on legal representation and related expenses. In its proxy statement, Platinum advised stockholders that it would pay all the costs associated with the solicitation of proxies, but would seek reimbursement from the Company, and not submit such reimbursement to a vote of stockholders.
On February 12, 2015, the Company agreed to reimburse Platinum for its Contribution and the Expenses it incurred in the proxy fight. In this regard, the Board of Directors of the Company determined that both the Contribution and Expenses together resulted in the Company being able to continue operations and put into place a strong management team. Pursuant to a Reimbursement Agreement, dated February 12, 2015 (the Reimbursement Agreement), Platinum received 548,177 shares of Series F Convertible Preferred Stock (consisting of 333,333 shares of Series F for the $500,000 capital contribution and 214,844 shares of Series F for the $550,000 of legal expenses they incurred, for a Series F share total of 548,177) and Warrants to purchase 333,333 shares of common stock of the Company. These Warrants expire in five years and have a $3.00 per share exercise price. Additionally, the Company agreed to re-price 700,000 warrants, originally disbursed to Platinum in connection with its August 31, 2012 Loan Agreement, and referred to as the Derivative Warrants, then priced in the $20.00 to $22.70 range per share, to $7.50 per share. The Company recorded a non-cash charge to legal expense for $328,000 representing the cost of re-pricing the Derivative Warrants. Additionally, the Company recorded a charge to financing expense of $924,000 representing the additional value given to the investors as a result of the closing market price of $2.56 being above the deal price of $1.50 used for the reimbursement of the $500,000 capital contribution. The shares issued for the legal expenses were done at the market close of the Companys Common Stock on the date of the Reimbursement Agreement.
During 2015, the Company received $3,581,500 , from its $4,000,000 December 2014 financing and follow-on subscriptions on similar terms of $581,500 in the aggregate, and issued 2,387,667 shares of Series F Preferred Stock and warrants to purchase the same number of shares of Common Stock at an exercise price of $3.00. The Company recorded financing expense of $3,796,000 with a corresponding credit to additional paid in capital since the average market price on the dates the financing was received was above the deal price of $1.50, representing excess value provided to the investors. In connection with the aforementioned follow-on subscription agreements, the Company provided the subscriber with the right for the period of one year, at the subscribers option, to convert all or any part of the shares of Series F Preferred Stock and warrants purchased into the securities issued in a future financing that yields gross proceeds to the Company of at least $2,000,000. This right will pertain to both the securities issued in those follow-on offerings aggregating $581,500 or for those obtained in the previous December 18, 2014, $4,000,000 aggregate offering, in which they participated. Additionally, for a period of two years, the subscriber will have the right to participate in all financings of the Company such that they maintain their current ownership percentage in the Company.
During December 2015, we received bridge loans aggregating $330,000; $180,000 from Beijing Yi Tang Bio Science & Technology, Ltd. and $150,000 from Platinum Partners Value Arbitrage Fund L.P., which were later rolled with interest into our Secured Convertible Note Financing in January 2016. See Note 18. The notes earned interest at the prime rate. |
CONVERTIBLE PREFERRED STOCK |
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Notes to Financial Statements | |
CONVERTIBLE PREFERRED STOCK | Series C
Each share of Series C is convertible into 100 shares of Common Stock, subject to adjustment for stock splits, combinations or similar events. Series C holders are entitled to dividends equivalent to those of common shareholders should a dividend be declared by the Board of Directors. Each holder who receives Series C may convert its Series C at any time following its issuance. The conversion of Preferred Stock into shares of Common Stock, however, is subject to a restriction, which prohibits the conversion of shares of Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, in excess of 9.99% beneficial ownership of all of the Companys Common Stock outstanding at such time. In the event of any Liquidation Event (as defined in the Series C Certificate), the holders of Series C will be entitled to receive (subject to the rights of any securities designated as senior to the Series C) a per share liquidation preference equal to an amount calculated by taking the total amount available for distribution to holders of all the Companys outstanding Common Stock before deduction of any preference payments for the Series C, divided by the total of (x) all of the then outstanding shares of Common Stock, plus (y) all of the shares of Common Stock into which all of the outstanding shares of the Series C can be converted, in each case prior to any distribution to the holders of Common Stock or any other securities designated as junior to the Series C.
On December 23, 2013, an investor converted 8,974.185 shares of Series C into 897,419 shares of Common Stock.
Series D
Each share of Series D is convertible into 0.10 share of Common Stock subject to adjustments for stock splits, combinations, or similar events. The Series D does not pay a dividend and is not redeemable. Each holder who receives Series D may convert it at any time following its issuance. The conversion of Preferred Stock into shares of Common Stock, however, is subject to a restriction, which prohibits the conversion of shares of Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, would cause such holder to beneficially own in excess of 4.99% of all of the Companys Common Stock outstanding at such time. The preference in liquidation is $1 per share, or $1,000,000 at December 31, 2014.
On December 19, 2013, an investor converted 2,006,000 shares of Series D into 200,600 shares of Common Stock.
Series E
Each share of Series E is initially convertible into one share of Common Stock, subject to adjustment for stock splits, combinations or similar events. The Series E does not pay a dividend and is not redeemable. Each holder who receives Series E may convert its Series E at any time following its issuance. The conversion of Preferred Stock into shares of Common Stock, however, is subject to a restriction, which prohibits the conversion of shares of Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, would cause such holder to beneficially own in excess of 19.99% of all of the Companys Common Stock outstanding at such time. There is no liquidation preference with respect to Series E shares.
Series F
On September 3, 2015, Echo Therapeutics, Inc. (the Company) filed a Certificate of Increase of Shares Designated as Series F Convertible Preferred Stock (Certificate of Increase) with the Secretary of State of the State of Delaware to increase the number of shares designated as its Series F Preferred Stock from 5,000,000 to 6,000,000 shares.
Each share of Series F is initially convertible into one share of Common Stock, subject to adjustment for stock splits, combinations or similar events. The Series F does not pay a dividend and is not redeemable. Each holder who receives Series F may convert its Series F at any time following its issuance. The conversion of Preferred Stock into shares of Common Stock, however, is subject to a restriction, which prohibits the conversion of shares of Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, would cause such holder to beneficially own in excess of 9.99% of all of the Companys Common Stock outstanding at such time. There is no liquidation preference with respect to Series F shares. |
EQUITY COMPENSATION PLANS |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY COMPENSATION PLAN | In March 2003, the Companys shareholders approved its 2003 Stock Option and Incentive Plan (the 2003 Plan). Pursuant to the 2003 Plan, the Companys Board of Directors (or its committees and/or executive officers delegated by the Board of Directors) may grant incentive and nonqualified stock options, restricted stock, and other stock-based awards to the Companys employees, officers, directors, consultants and advisors. As of December 31, 2015, there were 5,000 restricted shares of Common Stock issued and options to purchase an aggregate of 26,500 shares of Common Stock outstanding under the 2003 Plan and no shares are available for future grants due to the 2003 Plans expiration.
In May 2008, the Companys shareholders approved the 2008 Equity Compensation Plan (the 2008 Plan). The 2008 Plan provides for grants of incentive stock options to employees and nonqualified stock options and restricted stock to employees, consultants and non-employee directors of the Company. In May 2013, the Companys shareholders approved an amendment to the 2008 Plan to fix the maximum number of shares available under the 2008 Plan at 10,000,000 shares. As of December 31, 2015, there were 16,357 restricted shares of Common Stock issued and options to purchase an aggregate of 1,640,733 shares of Common Stock outstanding under the 2008 Plan and 8,329,910 shares available for future grants.
The tables below show the remaining shares available for future grants for each plan and the outstanding shares.
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STOCK OPTIONS |
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STOCK OPTIONS | For options issued and outstanding during the years ended December 31, 2015 and 2014, the Company recorded additional paid-in capital and non-cash compensation expense of $853,429 and $1,046,454, respectively, each net of estimated forfeitures.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The Company uses historical data, as well as subsequent events occurring prior to the issuance of the consolidated financial statements, to estimate option exercise and employee termination within the valuation model. The expected term of options granted under the Companys stock plans, all of which qualify as plain vanilla, is based on the average of the contractual term (generally 10 years) and the vesting period (generally 24 to 42 months) as permitted under SEC Staff Accounting Bulletin Nos. 107 and 110. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option. Restricted stock grants are valued based on the closing market price for the Companys Common Stock on the grant date.
The assumptions used principally for options granted to employees in the years ended December 31, 2015 and 2014 were as follows:
In December 2014, the Company issued stock options to purchase 475,000 shares of our Common Stock to its new CEO and CFO that contain certain stock price level attainment conditions that must be achieved before the stock options are permitted to vest. In calculating the compensation expense for these stock option grants, we utilize a binomial lattice-based valuation model. Assumptions utilized in the model, which are evaluated and revised, as necessary, to reflect market conditions and experience, were as follows:
A summary of option activity under the Companys stock plans and options granted to officers of the Company outside any plan as of December 31, 2015 and changes during the year then ended is presented below:
The weighted-average grant-date fair value of options granted during the years ended December 31, 2015 and 2014 was $1.03 and 1.42 per share, respectively. As of December 31, 2015, there was approximately $681,000 of total unrecognized compensation expense related to non-vested share-based option arrangements. During 2015, 300,000 of the options granted to two members of our board of directors contain certain stock price level attainment conditions that must be achieved before the stock options are permitted to vest. With the exception of the unrecognized share-based compensation related to certain restricted stock grants to officers and employees that contain performance conditions related to United States Food and Drug Administration (FDA) approval for our CGM system or the sale of the Company, unrecognized compensation is expected to be recognized over the next four years. |
RESTRICTED STOCK |
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RESTRICTED STOCK | Share-Based Compensation Restricted Stock
For restricted stock issued and outstanding during the years ended December 31, 2015 and 2014, the Company incurred non-cash compensation expense of $57,455 and $335,918, respectively, each net of estimated forfeitures. As of December 31, 2015, the Company had outstanding restricted stock grants of 27,842 shares with a weighted-average grant-date value of $13.06. A summary of the status of the Companys non-vested restricted stock grants as of December 31, 2015, and changes during the year ended December 31, 2015 is presented below:
Of the 27,842 shares of non-vested restricted stock, the vesting criteria are as follows:
As of December 31, 2015, there was approximately $334,234 of total unrecognized compensation expense related to non-vested share-based restricted stock arrangements granted under the Companys equity compensation plans that vest over time in the foreseeable future. As of December 31, 2015, the Company cannot estimate the timing of completion of the performance vesting requirements required by certain of these restricted stock grant arrangements. Compensation expense related to these restricted share grants will be recognized when the Company concludes that achievement of the performance vesting conditions is probable. |
WARRANTS |
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WARRANTS | The Company uses valuation methods and assumptions that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. The following assumptions were utilized by the Company:
Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the warrant. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the warrant.
In the year ended December 31, 2015 and 2014, the Company issued warrants with a relative fair value of $3,386,895 and $350,000, respectively in connection with private placements of the Companys Preferred Stock, as well as in connection with the Reimbursement Agreement more fully described in Note 8.
The following table summarizes data about outstanding warrants at December 31, 2015:
A summary of warrant activity in the year ended December 31, 2015 is as follows:
The derivative warrants to purchase 700,000 shares of our Common Stock, at exercise prices ranging from $20 to $22.70 and expiring in 2017, are included in the outstanding warrants at December 31, 2015 and 2014. On February 12, 2015, these warrants were re-priced to $7.50 to compensate PPVA in connection with the Reimbursement Agreement reached between the Company and PPVA. See Note 8.
During 2015 and 2014, there were no warrants exercised. |
INCOME TAXES |
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INCOME TAXES | No provision or benefit for federal or state income taxes has been recorded because the Company has incurred a net loss for all periods presented and has provided a valuation allowance against its deferred tax assets. A provision for minimum state income taxes of $3,420 has been recorded for the year ended December 31, 2015.
At December 31, 2015 and 2014, the Company had gross federal net operating loss carryforwards of approximately $105,024,000 and $98,462,000, respectively, which begin expiring in 2018. The Company had gross state net operating loss carryforwards of approximately $59,243,000 and $52,684,000, respectively which began to expire in 2015. The Company also had federal and state research and development tax credit carryforwards of approximately $3,122,000 which will begin to expire in 2018. The United States Tax Reform Act of 1986 contains provisions that may limit the Companys net operating loss carryforwards available to be used in any given year in the event of significant changes in the ownership interests of significant stockholders, as defined in Internal Revenue Section 382. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Companys capital during a specified period prior to the change, and the federal published interest rate. The Company has not completed an evaluation of whether Section 382 would impact the gross NOLs.
Significant components of the Companys net deferred tax asset are as follows:
The Company has maintained a full valuation allowance against its deferred tax items in both 2015 and 2014. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation allowance has been provided. In the years ended December 31, 2015 and 2014, the valuation allowance increased by $7,897,000 and $2,773,000, respectively.
The Company has no uncertain tax positions as of December 31, 2015 and 2014 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense.
Income taxes computed using the federal statutory income tax rate differs from the Companys effective tax rate primarily due to the following:
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LITIGATION |
12 Months Ended |
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Dec. 31, 2015 | |
Commitments and Contingencies Disclosure [Abstract] | |
LITIGATION | In February 2014, Patrick T. Mooney, M.D., our former President and Chief Executive Officer, and his wife, Elizabeth Mooney, filed a complaint against the Company and certain of its directors and officers in the Court of Common Pleas in Philadelphia County. The complaint, which alleges (i) that Dr. Mooneys termination was without cause so that he is entitled to certain severance benefits under his employment agreement and associated statutory remedies; (ii) that certain legally required disclosures by us and our General Counsel defamed Dr. Mooney; and (iii) that Dr. Mooneys wife is entitled to damages under a theory of loss of consortium, seeks in excess of $20 million in damages. The Company has denied the allegations of the complaint and asserted counterclaims against Dr. Mooney based upon the same conduct which provided the cause for his termination. Thereafter, the Company restructured the counterclaims and affirmative defenses.
In July 2014, Dr. and Mrs. Mooney filed another complaint in the Court of Common Pleas in Philadelphia County against the Company, certain of its directors and Officers and a former Director and officer alleging (i) wrongful use of civil proceedings and (ii) abuse of process in the original filing of the counterclaims withdrawn in the earlier action. Mrs. Mooney also asserted another claim for loss of consortium. This complaint sought in excess of $30 million in damages.
In August 2014, Dr. Mooney filed a complaint in Delaware Chancery Court against the Company for advancement of defense costs related to his February 2014 complaint, many of which the Company had paid to date and the remainder of which were subject to a good faith dispute that counsel for the Company and Dr. Mooney had been attempting to amicably resolve. Dr. Mooney also demanded that the Company pay for his attorneys fees related to his July 2014 complaint against the Company, amongst other matters.
On July 4, 2015, the Company resolved its legal disputes with Patrick Mooney, its former Chairman, President and Chief Executive Officer, on mutually-agreeable terms and all related litigation was dismissed with prejudice. On July 27, 2015, the Company made a settlement payment of $150,000 to Dr. Mooney and additional payments were made to Dr. Mooney from the Companys insurers. Such amount was recorded to legal expense in the second quarter of 2015.
From time to time, in addition to that which is identified above, we are subject to legal proceedings, claims, investigations, and proceedings in the ordinary course of business. In accordance with generally accepted accounting principles, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. At December 31, 2015, no litigation loss is deemed probable or reasonably estimated. |
LICENSING AND OTHER REVENUE |
12 Months Ended |
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Dec. 31, 2015 | |
Notes to Financial Statements | |
LICENSING AND OTHER REVENUE | Ferndale License of Skin preparation device In May 2009, the Company entered into a License Agreement with Ferndale Pharma Group, Inc. (Ferndale) pursuant to which the Company granted Ferndale a license in North America and the United Kingdom to develop, assemble, use, market, sell and export its skin preparation device prior to the application of a topical analgesic or anesthetic cream for local dermal anesthesia or analgesia prior to a needle insertion or IV procedure (the Ferndale License). The Ferndale License has a minimum term of 10 years from the date of the first commercial sale of the skin preparation product components in North America or the United Kingdom.
The Company received a non-refundable licensing fee of $750,000 upon execution of the Ferndale License which was recognized as revenue through December 31, 2011. In addition, the Company will receive a payment of $750,000 within ninety (90) days after receipt of the FDAs medical device clearance of its skin preparation device. Ferndale will pay the Company an escalating royalty on net sales of skin preparation product components. The Company is entitled to receive milestone payments based on Ferndales achievement of certain net sales targets of the product components, as well as guaranteed minimum annual royalties.
Handok License of CGM In June 2009, the Company entered into a License Agreement with Handok Pharmaceuticals Co., Ltd. (Handok) pursuant to which the Company granted Handok a license to develop, use, market, sell and import our CGM for continuous glucose monitoring for use by medical facilities and/or individual consumers in South Korea (the Handok License). The Handok License has a minimum term of 10 years from the date of the first commercial sale of our CGM in South Korea.
The Company received a non-refundable licensing fee of approximately $500,000 upon execution of the Handok License. In addition, the Company will receive milestone payments upon receipt of the FDAs clearance of our CGM and upon the first commercial sale of our CGM in South Korea. Handok will also pay the Company a royalty on net sales of CGM. The Company is entitled to receive milestone payments based on Handoks achievement of certain other targets.
$0 and $57,321 of the non-refundable license revenue was recognized in the years ended December 31, 2015 and 2014, respectively, and $95,535 is currently included in deferred revenue.
MTIA License, Development and Commercialization Agreement In December 2013, in connection with a capital raising transaction, the Company entered into a license, development and commercialization agreement with Medical Technologies Innovation Asia, Ltd. (MTIA). In this agreement the Company granted MTIA rights, under certain intellectual property and know-how that relate to our CGM, to (i) exclusively research, develop, manufacture, and use our CGM in connection with the development activities needed for regulatory approval in the Peoples Republic of China, Hong Kong, Macau and Taiwan (the Territory), and (ii) exclusively make, have made, use, sell, have sold, offer for sale and import our CGM in the Territory once regulatory approval has been received. Additionally, subject to the terms and conditions set forth in the agreement, MTIA received the right to grant certain distribution rights to its affiliates or third parties. MTIA is responsible for conducting all required clinical trials and all development costs relating to regulatory approval of our CGM in the Territory, as well as manufacturing and marketing costs relating to commercialization of our CGM in the Territory. MTIA is also responsible for obtaining and maintaining all regulatory approvals from applicable authorities in the Territory.
Upon the earlier of regulatory approval of our CGM by the China Food and Drug Administration or Echos termination of the agreement, Echo is required, subject to certain terms and conditions, to reimburse MTIA up to $1,500,000 for development costs incurred by MTIA. The reimbursement will be in the form of Common Stock, valued at $2.71 per share, which was the NASDAQ closing price on December 9, 2013, the date prior to the date the parties entered into the agreement. Additionally, the Company and MTIA will share future net sales of our CGM generated within the Territory. The Company has the option, at its sole discretion, to enter into negotiations with MTIA for supply of our CGM in territories that are not licensed to MTIA under the agreement. The agreement has a term of ten years, subject to earlier termination rights including, but not limited to, for breach of the agreement, change of control events, and certain performance obligations.
On December 29, 2014 the MTIA agreement was amended to include an affiliate, Beijing Yi Tang Bio Technology, Ltd as a party to the Agreement. The Amendment also provides that MTIA may, without Echos consent: (i) sublicense any of the licenses and rights granted to MTIA under the Agreement to any of its Affiliates, and (ii) subcontract any of its obligations under the Agreement to any of its Affiliates. |
SUBSEQUENT EVENTS |
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Dec. 31, 2015 | ||||||||||
Subsequent Events | ||||||||||
SUBSEQUENT EVENTS |
NASDAQ Compliance
On January 6, 2016, the Company received a letter from The Nasdaq Stock Market (Nasdaq) that, as a result of the Companys failure to hold an annual meeting of stockholders no later than one year after the end of its fiscal year as required by Nasdaq Listing Rule 5620(a), and the Companys failure to meet the minimum $2.5 million stockholders equity requirement set forth in Nasdaq Listing Rule 5550(b)(1), Nasdaq had determined to initiate procedures to delist the Companys securities from The Nasdaq Stock Market. The Company was advised that, unless the Company requested an appeal of this determination, trading in the Companys common stock would be suspended at the opening of business on January 15, 2016 and a Form 25-NSE would be filed with the Securities and Exchange Commission to remove the Companys securities from listing and registration on Nasdaq. The Company appealed Nasdaqs determination. The suspension of trading was stayed during the pendency of such appeal.
On March 9, 2016, the Company was informed that the Nasdaq Listing Panel (the Panel) determined to grant our request to remain listed on the Nasdaq Stock Market, subject to the following conditions:
The Company was advised that July 5, 2016 represents the full extent of the Panels discretion to grant continued listing while it is non-compliant. Should the Company fail to demonstrate compliance with that rule by that date, the Panel will issue a final delist determination and the Company will be suspended from trading on the Nasdaq Stock Market. In order to fully comply with the terms of this exception, the Company must be able to demonstrate compliance with all requirements for continued listing on The Nasdaq Stock Market. In the event the Company is unable to do so, its securities may be delisted from The Nasdaq Stock Market. It is a requirement during the exception period that the Company provide prompt notification of any significant events that occur during this time. This includes, but is not limited to, any event that may call into question the Companys historical financial information or that may impact the Companys ability to maintain compliance with any Nasdaq listing requirement or exception deadline. The Panel reserves the right to reconsider the terms of this exception based on any event, condition or circumstance that exists or develops that would, in the opinion of the Panel, make continued listing of the Companys securities on The Nasdaq Stock Market inadvisable or unwarranted. In addition, any compliance document will be subject to review by the Panel, which may, in its discretion, request additional information before determining that the Company has complied with the terms of the exception.
There can be no assurances whether the Company will be able to regain or maintain compliance with the Nasdaq listing rules. In the event of delisting, the Company expects that its stock would trade on the OTC Markets.
On January 29, 2016, the Company entered into a securities purchase agreement (the Purchase Agreement) with certain institutional and other accredited investors (the Investors) pursuant to which the Company agreed to issue up to $5,145,000 principal amount of 10% senior secured convertible notes of the Company (the Notes) and related common stock purchase warrants (the Warrants) in two tranches. The Notes are secured by substantially all of the assets of the Company pursuant to a Security Agreement, dated January 29, 2016 (the Security Agreement). The initial closing of $1,787,000 occurred on January 29, 2016. Bridge notes in the principal amount of $680,000 were surrendered to the Company as payment by certain Investors. Fees aggregating approximately $275,000 were paid out of the proceeds of the initial closing to the placement agent and others. Additional fees will be paid, primarily to the placement agent, for the second closing when funded. The second closing of $3,358,000 is subject to the Company obtaining shareholder approval at a Special Shareholders Meeting to be held on April 14, 2016. The Notes are initially convertible into 1,191,333 shares of common stock, par value $.01 per share, of the Company (the Common Stock), at $1.50 per share. The Company has the right to redeem the Notes under certain circumstances. Interest is payable quarterly or, subject to receipt of stockholder approval, at the Companys option, in shares of Common Stock. In connection with the initial closing, the Company issued five-year Warrants to purchase 1,191,333 shares of Common Stock at an exercise price of $1.50 per share, which are not exercisable for six months. Upon receipt of shareholder approval to be obtained at special meeting of our shareholders to be held on April 14, 2016, the Company expects to issue Notes in an aggregate principal amount of $3,358,000 initially convertible into 2,238,667 shares of Common Stock at $1.50 per share and 1-1/2 year warrants to purchase 2,238,667 shares of Common Stock at $1.50 per share. The Notes and Warrants are subject to customary antidilution provisions. If stockholder approval is obtained, the conversion price for the Notes is subject to a reset to eighty percent (80%) of the average of the ten lowest closing prices of the Common Stock less than $1.50 (subject to equitable adjustment), if any, as reported by Bloomberg LP for the principal market on which the Common Stock then trades during the ninety (90) days following the first effective date of a registration statement filed pursuant to the Registration Rights Agreement, but in no event less than $.80, subject to equitable adjustment.
The Purchase Agreement contains customary representations, warranties and affirmative and negative covenants. The Purchase Agreement also requires management and certain shareholders to lock-up certain of their shares for the earlier of six months after the effective date of a registration statement, the first anniversary of the initial closing (January 29, 2017), or the date, if applicable, such holder of securities is no longer an officer or directors of the Company, subject to certain exceptions. In addition, for up to one year following the effective date of a registration statement, the Investors have the right to participate, on a pro rata basis, in certain subsequent financings by the Company, subject to certain limitations. In connection with the transaction, the Company entered into a registration rights agreement (the Registration Rights Agreement) that requires the Company to file one or more registration statements in respect of the shares of Common Stock underlying the Notes and Warrants. If the Company fails to make its filing deadlines or fails to maintain the registration statement for required periods of time, the Company will be subject to certain liquidated damages provisions. Newbridge Securities Corporation/Life Tech Capital (the Placement Agent) acted as the sole placement agent for the financing. The Placement Agent will receive five-year warrants to purchase approximately 120,000 shares of Common Stock at $1.50 per share upon the completion of the full offering.
Bridge Note Financings
On February 4, 2016, the Company issued a promissory note to Beijing Yi Tang Bio Science & Technology, Ltd. (BYT) in the aggregate principal amount of $300,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at the prime rate, may, at BYTs option, be exchanged for securities issued in a subsequent financing by the Company, including the second tranche financing described above.
On February 11, 2016, the Company issued a promissory note to Platinum Partners Value Arbitrage Fund L.P. (PPVA) in the aggregate principal amount of $100,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at the prime rate, may, at PPVAs option, be exchanged for securities issued in a subsequent financing by the Company, including the second tranche financing described above.
On March 21, 2016, the Company issued a promissory note to Platinum Partners Value Arbitrage Fund L.P. (PPVA) in the aggregate principal amount of $150,000 in respect of a bridge loan made by such party. The promissory note, which bears interest at the prime rate, may, at PPVAs option, be exchanged for securities issued in a subsequent financing by the Company, including the second tranche financing described above.
Issuance of Restricted Stock and Stock Options under the 2008 Incentive Stock Plan
On February 16, 2016, management issued an annual grant of stock options pursuant to the 2008 Plan to employees aggregating 320,500 shares at an exercise price of $0.90. Such options will vest over a three year period. In addition they received a special grant of stock options on the same date and exercise price aggregating 56,834, for allowing the Company additional time to pay them. Such options vest over a period of one year.
On March 3, 2016, the Compensation Committee of the Board of Directors approved an aggregate issuance of 280,000 shares of common stock: 150,000, 100,000, and 30,000 to each of our CEO, CFO, and VP of Operations and Product Development (VPOPD), respectively. Such shares shall vest over an eighteen month period. The grant was for deferring their pay over the last approximate six month period whilst the Company sought financing. The CEO and CFO are still owed a total of approximately $160,000. The CEO, CFO and VPOPD additionally received an annual grant of stock options to purchase common shares as follows: 175,000, 150,000, and 125,000 are exercisable at $1.12 to each of the CEO, CFO and VPOPD, respectively. Such options will vest over a two year period.
On March 1 2016, the Compensation Committee of the Board of Directors issued to non-employee board members pursuant to the 2008 Plan an annual grant of stock options to purchase an aggregate 450,000 shares of common stock, or 150,000 to each of the three directors at an exercise price of $1.12 for the Companys new director, and $2.00 for the remaining directors. 150,000 of such options will vest over a one year period for the Companys new director and over a two year period for the remaining directors. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Dec. 31, 2015 | |||||||||||||
Summary Of Significant Accounting Policies Policies | |||||||||||||
Use of Estimates | The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management's estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable under the circumstances. Significant estimates include accounting for the valuation of intangible assets, derivatives, share based compensation and valuation allowances related to deferred income taxes. The Company periodically reviews these matters and reflects changes in estimates as appropriate. Actual results could materially differ from those estimates. |
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Cash and Cash Equivalents | The Company considers all highly liquid investments with maturities of ninety days or less to be cash equivalents. Cash equivalents consisted of money market funds at a major banking institution as of December 31, 2015 and 2014. The Company maintains its cash in bank deposit accounts which, at times, may exceed the federally insured limits. The Company has never experienced any previous losses related to these uninsured balances. Restricted cash consists of letters of credit in favor of its two landlords as of December 31, 2015. |
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Intangible Assets and Other Long-Lived Assets | The Company records acquired intangible assets at the acquisition date fair value. Intangible assets related to technology are expected to be amortized over the period of expected benefit and will commence upon revenue generation.
The Company reviews intangible assets at least annually and whenever events or circumstances change that indicated impairment may have occurred to determine if any adverse conditions exist that would indicate impairment or a change in the remaining useful life of any intangible asset. Conditions that would indicate impairment and trigger an impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, or an adverse action or assessment by a regulator. While the Company uses available information to prepare estimates and to perform impairment evaluations, actual results could differ significantly from these estimates or related projections, resulting in impairment related to recorded balances. If the estimate of an intangible assets remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. The Company performs a regular review of the underlying assumptions, circumstances, time projections and revenue and expense estimates to decide if there is a possible impairment. As a result, the Company reviewed its intangibles for impairment and recorded a $9.625 million impairment charge, or the full value of its intangibles, on the consolidated statement of operations in the second quarter of 2015.
For other long-lived assets, the Company evaluates quarterly whether events or circumstances have occurred that indicate that the carrying value of these assets may be impaired. If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified. |
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Property and equipment | Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. The Company expenses normal maintenance and repair costs as incurred. Gain and loss on disposal of property and equipment is recognized in the period incurred. Leasehold improvements are amortized over the life of the lease or the related asset, whichever is shorter. |
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Share-Based Payments | The Company recognizes compensation costs, net of estimated forfeitures, resulting from the issuance of stock-based awards to employees and directors as an expense in the statement of operations over the service period based on a measurement of fair value for each stock award. The Companys policy is to grant employee and director stock options with an exercise price equal to or greater than the fair value of the Common Stock at the date of grant.
Forfeitures are initially estimated based on historical information and subsequently updated over the life of the awards to ultimately reflect actual forfeitures. As a result, changes in forfeiture activity can influence the amount of stock compensation cost recognized from period to period.
The Company recognizes compensation costs resulting from the issuance of stock-based awards to non-employees as an expense in the statement of operations over the service period based on a measurement of fair value for each stock award.
The fair value of options is calculated primarily using the Black-Scholes option pricing model. This option valuation model requires input of assumptions including, among others, the volatility of our stock price, the expected life of the option and the risk-free interest rate. We estimate the volatility of our stock price using historical prices. We estimate the expected life of our option using the average of the vesting period and the contractual term of the option. The estimated forfeiture rate is based on historical forfeiture information as well as subsequent events occurring prior to the issuance of the financial statements. Because our stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, the existing model may not necessarily provide a reliable single measure of fair value of our stock options.
In calculating the compensation expense for certain more complex stock options granted, we utilize a binomial lattice-based valuation model. Lattice-based option valuation models incorporate ranges of assumptions for inputs and those ranges are disclosed in the preceding table. Expected volatilities are based on a combination of historical volatility of our stock and implied volatilities of call options on our stock. We use historical data to estimate option exercise and employee termination patterns within the valuation model. The expected life of options granted is derived from the output of the option valuation model and represents the average period of time that options granted are expected to be outstanding. The interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. |
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Fair Values of Assets and Liabilities | The Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
The Company's financial liabilities measured at fair value on December 31, 2015 and 2014 consists solely of a derivative warrant liability which is classified as Level 3 in fair value hierarchy (see Note 7). The Company uses a valuation method, the Black-Scholes option pricing model, and the requisite assumptions in estimating the fair value for the warrants considered to be derivative instruments. These assumptions include the fair value of the underlying stock, risk-free interest rates, volatility, expected life and dividend rates. The Company has no financial assets measured at fair value.
The Company may also be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis. The Company wrote off its intangible asset in 2015; however this is the only such adjustment in the years ended December 31, 2015 and 2014. |
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Derivative Instruments | The Company generally does not use derivative instruments to hedge exposures to cash-flow or market risks; however, certain warrants to purchase Common Stock that do not meet the requirements for classification as equity are classified as liabilities. In such instances, net-cash settlement is assumed for financial reporting purposes, even when the terms of the underlying contracts do not provide for a net-cash settlement. Such financial instruments are initially recorded at fair value with subsequent changes in fair value charged (credited) to operations in each reporting period. If these instruments subsequently meet the requirements for classification as equity, the Company reclassifies the fair value to equity. |
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Concentration of Credit Risk | The Company has no significant off-balance-sheet risk. Financial instruments, which subject the Company to credit risk, principally consist of cash and cash equivalents. The Company mitigates its risk by maintaining the majority of its cash and equivalents with high-quality financial institutions. |
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Financial Instruments | The estimated fair value of the Companys financial instruments, which include cash and cash equivalents, restricted cash, accounts payable and capital lease obligation, approximates their carrying value due to the short-term nature of these instruments and their market terms. |
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Net Loss per Common Share | Basic and diluted net loss per share of Common Stock has been computed by dividing the net loss applicable to common stockholders in each period by the weighted average number of shares of Common Stock outstanding during such period. For the periods presented, options, warrants and convertible securities were anti-dilutive and therefore excluded from diluted loss per share calculations. |
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Segment Information | Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as principally one operating segment, which is the development of transdermal skin permeation and diagnostic medical devices. As of December 31, 2015 and 2014, all of the Companys assets were located in the United States. |
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Research and Development Expenses | The Company charges research and development expenses to operations as incurred. Research and development expenses primarily consist of salaries and related expenses for personnel and outside contractor and consulting services. Other research and development expenses include the costs of materials and supplies used in research and development, prototype manufacturing, clinical studies, related information technology and an allocation of facilities costs. |
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Income Taxes | The Company is primarily subject to U.S. federal, Massachusetts and New Jersey state income tax. Tax years subsequent to 2011 remain open to examination by U.S. federal and state tax authorities.
For federal and state income taxes, deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred income taxes are based upon prescribed rates and enacted laws applicable to periods in which differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, since the Company cannot be assured of realizing the deferred tax asset, a full valuation allowance has been provided.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. There were no uncertain tax position liabilities recorded at December 31, 2015 and 2014.
The Companys policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2015 and 2014, the Company had no accruals for interest or penalties related to income tax matters. |
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Licensing and Other Revenue Recognition | To date, the Company has generated revenue primarily from licensing agreements, including upfront, nonrefundable license fees, with collaborators and licensees. The Company recognizes revenue when the following criteria have been met:
From time to time, the Company receives upfront, nonrefundable payments for the licensing of its intellectual property upon the signing of a license agreement. The Company believes that these payments generally are not separable from the payments it receives for providing research and development services because the license does not have stand-alone value from the research and development services it provides under its agreements. Accordingly, the Company accounts for these elements as one unit of accounting and recognizes upfront, nonrefundable payments as revenue on a straight-line basis over its contractual or estimated performance period. Revenue from the reimbursement of research and development efforts is recognized as the services are performed based on proportional performance adjusted from time to time for any delays or acceleration in the development of the product and is included in Other Revenue. The Company determines the basis of the estimated performance period based on the contractual requirements of its collaboration agreements. At each reporting period, the Company evaluates whether events warrant a change in the estimated performance period. |
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Distinguishment of Liabilities from Equity | The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify convertible instruments, such as the Companys preferred stock. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares. Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (temporary equity). The Company will determine temporary equity classification if the redemption of the preferred stock or other financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Initial Measurement
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received. For warrants that are recorded as equity, the Company uses a Black Scholes model.
Subsequent Measurement
The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income. The Company uses the Black Scholes pricing method, which is not materially different from a binomial lattice valuation methodology utilizing Level 3 inputs, to determine the fair value of derivative liabilities resulting from warrants that are recognized as liabilities. |
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Recently Issued Accounting Pronouncements | In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
In July 2015, the Financial Accounting Standards Board (the "FASB") finalized a one year delay in the effective date of this standard, which will now be effective for us on January 1, 2018, however early adoption is permitted any time after the original effective date, which for us is January 1, 2017. We have not yet selected a transition method and are currently evaluating the impact of ASU 2014-09 on our condensed consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, which revises the guidance in ASC 740, Income Taxes, to simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as non-current in the statement of financial position. The guidance is to be applied either prospectively or retrospectively, and is effective for reporting periods (interim and annual) beginning after December 15, 2016 for public companies. Early adoption is permitted. The implementation of this ASU is not expected to have a material impact on our consolidated financial position or results of operations.
In January 2016, the FASB issued ASU 2016-01, which revises the guidance in ASC 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities, and provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance is effective for reporting periods (interim and annual) beginning after December 15, 2017, for public companies. We are currently assessing the potential impact of this ASU on our consolidated financial position and results of operations.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
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PROPERTY AND EQUIPMENT (Tables) |
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Property and equipment |
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OPERATING LEASE COMMITMENTS (Tables) |
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Future minimum lease payments |
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DERIVATIVE WARRANT LIABILITY (Tables) |
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Derivative warrant liability |
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EQUITY COMPENSATION PLANS (Tables) |
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Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share based compensation options |
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STOCK OPTIONS (Tables) |
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Stock Options Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assumption used for stock option granted | The assumptions used principally for options granted to employees in the years ended December 31, 2015 and 2014 were as follows:
In December 2014, the Company issued stock options to purchase 475,000 shares of our Common Stock to its new CEO and CFO that contain certain stock price level attainment conditions that must be achieved before the stock options are permitted to vest. In calculating the compensation expense for these stock option grants, we utilize a binomial lattice-based valuation model. Assumptions utilized in the model, which are evaluated and revised, as necessary, to reflect market conditions and experience, were as follows:
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Stock option activity |
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RESTRICTED STOCK (Tables) |
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Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||
Nonvested restricted stock activity |
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WARRANTS (Tables) |
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Warrants assumptions utilized by the Company |
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Outstanding Warrants |
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Warrant Activity |
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INCOME TAXES (Tables) |
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Income Taxes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company's net deferred tax asset |
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Income taxes computed using the federal statutory income tax rate |
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ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative) |
5 Months Ended |
---|---|
Jun. 07, 2013 | |
Organization And Basis Of Presentation | |
Reverse stock split ratio | 1-for-10 |
LIQUIDITY AND MANAGEMENTS' PLANS (Details Narrative) - USD ($) |
1 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jan. 29, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
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Liquidity and Management's Plans | ||||
Cash | $ 56,210 | $ 1,278,941 | $ 8,055,385 | |
Working capital deficit | (2,934,684) | (2,934,684) | ||
Accumulated deficit | (150,129,933) | $ (127,932,066) | ||
Net cash proceeds from Secured Convertible Note | $ 832,000 | $ 1,000,000 | ||
Total Secured Convertible Note investment | $ 5,145,000 |
OPERATING LEASE COMMITMENTS (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
OPERATING LEASE COMMITMENTS | ||
Year ended December, 2016 | $ 208,531 | $ 635,000 |
Year ended December, 2017 | 237,797 | 651,000 |
Year ended December, 2018 | 204,515 | $ 464,000 |
Year ended December, 2019 | 154,513 | |
Year ended December, 2020 | 143,959 | |
Total | $ 949,315 |
OPERATING LEASE COMMITMENTS (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Operating Leased Assets [Line Items] | ||
Facilities lease expense | $ 293,000 | $ 514,000 |
IselinNJ [Member] | ||
Operating Leased Assets [Line Items] | ||
Facilities lease expense | 7,300 | |
Letter of credit issued | 77,000 | |
IselinNJ [Member] | Minimum [Member] | ||
Operating Leased Assets [Line Items] | ||
Letter of credit issued | $ 38,500 |
DERIVATIVE WARRANT LIABILITY (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
DERIVATIVE WARRANT LIABILITY | ||
Derivative warrant liability | $ 208,155 | $ 1,119,155 |
Gain on Revaluation | (81,155) | (911,000) |
Derivative warrant liability | $ 127,000 | $ 208,155 |
CONVERTIBLE PREFERRED STOCK (Details Narrative) - $ / shares |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Class of Stock [Line Items] | ||
Authorized Preferred Stock | 40,000,000 | 40,000,000 |
Par value | $ 0.01 | $ 0.01 |
SeriesCPreferredStock [Member] | ||
Class of Stock [Line Items] | ||
Authorized Preferred Stock | 10,000 | 10,000 |
Issued and outstanding | 1,000 | 9,974.185 |
SeriesDPreferredStock [Member] | ||
Class of Stock [Line Items] | ||
Authorized Preferred Stock | 3,600,000 | 3,600,000 |
Issued and outstanding | 1,000,000 | 3,006,000 |
Series E Preferred Stock [Member] | ||
Class of Stock [Line Items] | ||
Authorized Preferred Stock | 1,748,613 |
EQUITY COMPENSATION PLANS (Details Narrative) |
Dec. 31, 2015
shares
|
---|---|
EqPlan 2003 [Member] | |
Stock Options And Restricted Stock | |
Restricted shares of Common Stock issued | 5,000 |
Options to purchase an aggregate of shares | 26,500 |
EqPlan 2008 [Member] | |
Stock Options And Restricted Stock | |
Restricted shares of Common Stock issued | 16,357 |
Options to purchase an aggregate of shares | 1,640,733 |
Shares Future grants | 8,329,910 |
STOCK OPTIONS (Details 1) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Employee | ||
Risk-free interest rate, minimum | 1.46% | 1.45% |
Risk-free interest rate, maximum | 1.90% | 1.90% |
Dividend yield | 0.00% | 0.00% |
Volatility, minimum | 92.00% | 81.00% |
Volatility, maximum | 93.00% | 121.00% |
Forfeiture rate, minimum | 7.50% | 7.50% |
Forfeiture rate, maximum | 15.00% | 15.00% |
Expected life in years, minimum | 5 years | 4 years 6 months |
Expected life in years, maximum | 5 years 6 months | 6 years 6 months |
CEO/CFO | ||
Risk-free interest rate | 2.00% | |
Dividend yield | 0.00% | |
Volatility | 1.05% | |
Expected life in years, minimum | 6 years 6 months |
STOCK OPTIONS (Details 2) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Shares | ||
Beginning Balance | 1,039,900 | 1,455,432 |
Granted | 895,000 | 662,950 |
Forfeited or expired | (267,667) | (1,078,482) |
Ending Balance | 1,667,233 | 1,039,900 |
Exercisable | 900,750 | |
Weighted-Average Exercise Price | ||
Beginning Balance | $ 3.00 | $ 4.40 |
Granted | 1.47 | 1.94 |
Forfeited or expired | 4.06 | 4.92 |
Ending Balance | 2.01 | $ 3.00 |
Exercisable | $ 2.22 | |
Weighted-Average Remaining Contractual Term | ||
Weighted-Average Remaining Contractual Term Outstanding | 8 years 8 months 27 days | 8 years 9 months 25 days |
Weighted-Average Remaining Contractual Term Exercisable | 8 years 8 months 5 days |
STOCK OPTIONS (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Stock Options And Restricted Stock | ||
Additional paid-in capital and non-cash compensation expense | $ 853,429 | $ 1,046,454 |
Weighted-average grant-date fair value of stock options granted | $ 1.03 | $ 1.42 |
Total unrecognized compensation expense | $ 681,000 |
RESTRICTED STOCK (Details) |
12 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
shares
| |
Shares | |
Nonvested at beginning of period | shares | 27,842 |
Vested | shares | (17,786) |
Forfeited | shares | (2,330) |
Nonvested at end of period | shares | 27,842 |
Weighted- Average Grant-DateFair Value | |
Nonvested at beginning of period | $ / shares | $ 13.06 |
Vested | $ / shares | 5.02 |
Forfeited | $ / shares | 6.05 |
Nonvested at end of period | $ / shares | $ 13.06 |
RESTRICTED STOCK (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Stock Options And Restricted Stock | ||
Non-cash compensation expense | $ 57,455 | $ 335,918 |
Outstanding restricted stock grants | 27,842 | |
Weighted average grant date value | $ 13.06 | |
Nonvested at end of period | 27,842 | 27,842 |
Total unrecognized compensation expense | $ 334,234 | |
FDA Approval [Member] | ||
Stock Options And Restricted Stock | ||
Restricted stock to vest upon FDA approval | 14,185 | |
Four Years [Member] | ||
Stock Options And Restricted Stock | ||
Restricted stock to vest upon FDA approval | 13,657 |
WARRANTS (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Warrants Details | ||
Risk-free interest rate | 1.26% | 1.57% |
Risk-free interest rate, maximum | 1.75% | 1.77% |
Expected dividend yield | 0.00% | 0.00% |
Expected term (contractual term) | 5 years | 5 years |
Forfeiture rate | 0.00% | 0.00% |
Expected volatility | 89.00% | 78.00% |
Expected volatility, maximum | 99.00% | 102.00% |
WARRANTS (Details 1) |
12 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
| |
Class of Warrant or Right [Line Items] | |
Warrants outstanding | 4,530,428 |
Number exercisable | 4,530,428 |
Derivative [Member] | |
Class of Warrant or Right [Line Items] | |
Date of Expiration | 8/31/17 to 11/6/17 |
Warrants outstanding | 700,000 |
Weighted-Average remaining contractual life | 1 year 8 months 19 days |
Weighted average exercise price | $ 7.70 |
Number exercisable | 700,000 |
Derivative [Member] | Derivative [Member] | |
Class of Warrant or Right [Line Items] | |
Exercise Price | $ 7.50 |
Equity [Member] | |
Class of Warrant or Right [Line Items] | |
Date of Expiration | 12/10/18 to 10/30/20 |
Warrants outstanding | 3,830,428 |
Weighted-Average remaining contractual life | 4 years 2 months 8 days |
Weighted average exercise price | $ 2.98 |
Number exercisable | 3,830,428 |
Equity [Member] | Derivative [Member] | |
Class of Warrant or Right [Line Items] | |
Exercise Price | $ 2.75 |
Equity [Member] | Maximum [Member] | |
Class of Warrant or Right [Line Items] | |
Exercise Price | $ 3.00 |
WARRANTS (Details 2) - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Shares | ||
Beginning Balance | 1,847,066 | 1,209,211 |
Granted | 2,721,000 | 927,610 |
Forfeited or expired | (37,638) | (289,755) |
Ending Balance | 4,530,428 | 1,847,066 |
Weighted-Average Exercise Price | ||
Beginning Balance | $ 10.04 | $ 17.92 |
Granted | 3.00 | 2.98 |
Forfeited or expired | 22.50 | 20.33 |
Ending Balance | $ 3.68 | $ 10.04 |
WARRANTS (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Warrants Details Narrative | ||
Fair value warrants issued | $ 3,386,895 | $ 350,000 |
INCOME TAXES (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Income Taxes Details | ||
Net operating loss carryforwards | $ 38,836,000 | $ 38,836,000 |
Research credit carryforward | 3,122,000 | 3,048,000 |
Acquired intangible assets, net | $ 0 | $ (3,697,000) |
Restricted stock and warrants | 479,000 | 479,000 |
Other temporary differences | $ 9,200 | $ 9,200 |
Total deferred tax assets, net | 42,529,000 | 42,529,000 |
Valuation allowance | (42,529,000) | (42,529,000) |
Net deferred tax asset | $ 0 | $ 0 |
INCOME TAXES (Details 1) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Taxes Details 1 | ||
Income taxes benefit (expense) at statutory rate | 34.00% | 34.00% |
State income tax, net of federal benefit | (0.01%) | 2.76% |
Permanent Differences | ||
Financing loss | (7.23%) | 0.00% |
Non-cash interest expense warrant | (0.50%) | (8.07%) |
Gain/loss or revaluation of derivative warrant liability | 0.12% | 2.07% |
Stock-based compensation expense | 2.40% | (0.88%) |
Other | (0.04%) | 0.01% |
R&D credits | 0.49% | 1.21% |
Change in valuation allowance | (24.45%) | (31.13%) |
Income taxes rate differences | (0.02%) | (0.03%) |
INCOME TAXES (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Taxes Details Narrative | ||
Income tax provision, state, minimum | $ 3,420 | $ 4,000 |
Gross federal net operating loss carryforwards | 105,024,000 | |
Gross state net operating loss carryforwards | 59,243,000 | |
Federal research and development tax credit carryforwards | 3,122,000 | |
Increase in valuation allowance | $ 7,897,000 | $ 2,773,000 |
LITIGATION (Details Narrative) - USD ($) |
2 Months Ended | 6 Months Ended | 7 Months Ended |
---|---|---|---|
Feb. 28, 2014 |
Jul. 04, 2015 |
Jul. 31, 2014 |
|
Litigation Details Narrative | |||
Mooney damages seeked in Court | $ 20,000,000 | $ 150,000 | $ 30,000,000 |
LICENSING AND OTHER REVENUE (Details Narrative) - USD ($) |
1 Months Ended | 12 Months Ended | |
---|---|---|---|
Jan. 29, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Licensing and Other Revenue | |||
Net cash proceeds from MTIA Common Stock financing | $ 832,000 | $ 1,000,000 | |
Total MTIA investment | $ 5,145,000 | ||
Handok [Member] | |||
Licensing and Other Revenue | |||
Minimum licensing term | 10 years | ||
Initial licensing fee | $ 750,000 | ||
Nonrefundable license revenue, recognizable | 0 | $ 57,321 | |
License revenue recognized | 750,000 | ||
Licensing fee relating to Handok | 500,000 | ||
Deferred revenue recognized over next twelve months | $ 95,535 |
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