As filed with the Securities and Exchange Commission on May 7, 2018
Registration No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
NEXEON
MEDSYSTEMS INC.
(Exact name of registrant as specified in
its charter)
Nevada
|
|
3845
|
|
81-0756622
|
(State or other jurisdiction
of
|
|
(Primary Standard Industrial
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Classification Code Number)
|
|
Identification Number)
|
1910 Pacific
Avenue
Suite 20000
Dallas, Texas
75201
Telephone: (844)
919-9990
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
William Rosellini
Chief Executive
Officer
Nexeon MedSystems
Inc.
1910 Pacific
Avenue
Suite 20000
Dallas, Texas
75201
Telephone: (844)
919-9990
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
With copies to:
Harvey Kesner, Esq.
Sichenzia Ross Ference Kesner LLP
1185 Avenue of the Americas, 37th Fl.
New York, New York 10036
(212) 930-9700
Approximate date of commencement of proposed
sale to the public:
As soon as practicable after this Registration
Statement is declared effective.
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box: ☐
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ☐
|
Accelerated filer ☐
|
Non-accelerated filer ☐ (Do not check if a smaller
reporting company)
|
Smaller reporting company ☒
|
|
Emerging growth company ☒
|
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☒
CALCULATION
OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
|
|
Proposed
Maximum
Aggregate
Offering
Price
(1)
|
|
|
Amount of
Registration
Fee
|
|
Common Stock, par value $0.001 per share (2)(3)
|
|
$
|
15,000,000
|
|
|
$
|
1,867.50
|
|
Common Stock issuable upon exercise of Warrants (3)
|
|
$
|
15,000,000
|
|
|
$
|
1,867.50
|
|
Common stock issuable upon exercise of underwriter warrants (2)(4)
|
|
$
|
900,000
|
|
|
$
|
112.05
|
|
TOTAL
|
|
$
|
30,900,000
|
|
|
$
|
3,847.05
|
|
(1)
|
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
|
(2)
|
Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of Common Stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
|
(3)
|
Includes units subject to the underwriter’s over-allotment option.
|
(4)
|
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act of 1933, as amended, based on an estimated proposed maximum aggregate offering price of $15,000,000.
|
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment
that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to Section 8(a), may determine.
The information in this
prospectus is not complete and may be changed. These securities may not be sold until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell, and is not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
|
SUBJECT TO COMPLETION
|
DATED MAY 7, 2018
|
Units Consisting of One Share of Common
Stock and
One Warrant to Purchase One Share of
Common Stock
We are
offering units (assuming an offering price of $ per
unit) (the “Units”), which is based on the closing price of our Common Stock on ), with each Unit
consisting of one share of Common Stock, $0.001 par value per share (the “Common Stock”), and one warrant to
purchase one share of Common Stock (the “Warrants”) of Nexeon MedSystems Inc. (referred to herein as
“we,” “us,” “our,” “Nexeon,” “Registrant,” or the
“Company”).
The shares of
Common Stock and Warrants comprising the Units are immediately separable. Each Warrant will have an initial exercise price of $ per share ( % of public offering price of one share of Common Stock), and will expire five years from the closing of this offering.
Our
Common Stock is presently quoted on the OTCQB tier of the OTC Markets Group, Inc. (“OTCQB”) under the symbol
“NXNN.” In connection with this offering we have applied to have our Common Stock listed on The NASDAQ Capital
Market under the
symbol
“ .”
On May 4, 2018, the last reported sale price for our Common Stock on the OTCQB was $0.94 per share. Quotes on the OTCQB may
not be indicative of the market price of our Common Stock on a national securities exchange, including The NASDAQ Capital
Market. We expect to effect a 1-for-[
·
] reverse stock split of our
outstanding common stock just prior to the date of this prospectus.
We are an “emerging
growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012, and, as such, have elected to comply
with certain reduced public company reporting requirements for future filings.
|
|
Per Unit (1)
|
|
|
Total
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions
(2)
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
(3)
|
|
$
|
|
|
|
$
|
|
|
(1)
|
Each Unit consists of one share of Common Stock and one Warrant to purchase one share of Common Stock.
|
(2)
|
Please refer to “Underwriting” beginning on page of this prospectus for additional information regarding underwriting compensation.
|
(3)
|
We estimate the total expenses of this offering payable by us, excluding the underwriting discount, will be approximately $ .
|
We have granted a -day option to the
representative of the underwriters to purchase up to an additional Units on the same terms and conditions set forth above,
solely to cover over-allotments, if any.
The underwriters expect to deliver the
Units against payment therefor on or about , 2018.
Our
business and an investment in our securities involve a high degree of risk. See “Risk Factors” beginning on
page 7
of this prospectus for a discussion of information that you should consider before investing in our
securities.
Neither the
Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
National
Securities Corporation
The date of this
prospectus is ______, 2018
TABLE OF CONTENTS
You should rely
only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be
delivered or made available to you. We have not authorized anyone to provide you with any information other than that contained
in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility
for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may
only be used where it is legal to offer and sell our securities. The information in this prospectus is accurate only as of the
date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial
condition, results of operations, and prospects may have changed since that date. We are not making an offer of these securities
in any jurisdiction where the offer is not permitted.
For investors outside the United States:
We have not and the underwriter has not taken any action that would permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the
United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to,
the offering of the securities covered hereby the distribution of this prospectus outside the United States.
This prospectus includes statistical and
other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third
parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been
obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.
We believe that the data obtained from these industry publications and third-party research, surveys, and studies are reliable.
We are ultimately responsible for all disclosure included in this prospectus.
We further note that the representations,
warranties, and covenants made by us in any agreement that is filed as an exhibit to the Registration Statement of which this prospectus
is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for allocating risk among
the parties to such agreements, and should not be deemed to be a representation, warranty, or covenant to you. Moreover, such representations,
warranties, or covenants were accurate only as of the date when made. Accordingly, such representations, warranties, and covenants
should not be relied on as accurately representing the current state of our affairs.
PROSPECTUS SUMMARY
This summary
highlights information contained elsewhere in this prospectus, and does not contain all the information that you should consider
in making your investment decision. Before investing in our Common Stock, you should carefully read this entire prospectus, including
our financial statements and the related notes and information set forth under the headings “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus.
Unless the
context otherwise requires, references to “we,” “our,” “us,” “Nexeon,” or the “Company”
in this prospectus mean Nexeon MedSystems Inc., a Nevada corporation, on a consolidated basis with its wholly owned subsidiaries,
as applicable. Unless otherwise indicated, except for our financial statements and the notes thereto, all share amounts and per
share amounts in this prospectus have been presented to reflect the 1-for-[
·
] reverse
stock split of our outstanding shares of Common Stock that occurred on
, 2018.
Business
Overview
We are a medical device company focused on the development, manufacturing, and commercialization of neurostimulation
technology for the treatment of various neurological disorders through electrical stimulation of neural tissues. Our neurostimulation
technology platform has the potential to provide treatment to patients in several established neurostimulator markets, including
deep brain stimulation (DBS), peripheral electrical nerve stimulation (PENS), sacral nerve stimulation (SNS), spinal cord stimulation
(SCS), vagus nerve stimulation (VNS), and other emerging neurostimulator markets.
Our first commercial application of our
platform will be the Viant™ Deep Brain Stimulation System (or the Viant™ System). We will pursue regulatory approval
of the Viant™ System for Parkinson’s disease, essential tremor, and dystonia in Europe in the first half of 2019, and
for Parkinson’s disease in the United States in the second half of 2019. The Viant™ DBS device is designed to deliver
best-in-class stimulation with the capability to collect local field potential (“LFP”) recordings. Using LFP surveys,
neurologists will be able to quickly and confidently determine where to stimulate to take full advantage of directional leads.
Moreover, our devices are designed to be non-invasively upgradable, enabling both physicians and patients to benefit from the latest
technology as it is developed, without the need for implantable pulse generator (“IPG”) replacement surgery to take
advantage of new features.
The Viant™ System continues to meet
critical milestones in its development program. Previous generations of the device have been CE Marked and were manufactured and
sold to GlaxoSmithKline plc, a British pharmaceutical company. We completed the ISO 13485 certification process, which is a pivotal
hurdle prior to regulatory submissions to the CE Mark authorities. Design verification, process validation, and testing requirements
are nearly complete, and management expects we will complete the technical file in 2018 (with the exception of some longer duration
biocompatibility and shelf life tests). We expect to receive a CE Mark in 2019. As related to the United States, we completed the
pre-submission meetings with the United States Food and Drug Administration (“FDA”) in early 2018 to determine scope
of requirements for approval of the Viant™ System. As a result of that meeting, we intend to submit an FDA Premarket Approval
(“PMA”) application without a clinical study. The FDA has changed their approach to referencing other manufacturers’
data, which allows us to rely on safety and efficacy data from the nearly 150,000 successful DBS implants that have been completed
by other manufacturers.
We have additional opportunities to license
the neurostimulator platform to companies focused on enhancements to a comprehensive system offering for closed-loop, chronic disease
therapeutics, including advanced computational biology, deep learning utilizing Internet of Medical Things technology, imaging
solutions, e-health programs, and big data management and optimization, among others. Once we complete the development of the platform
for our DBS application, we will be able to potentially license the platform to capitalize on hundreds of diseases of the nervous
system that might be therapeutically addressed with neurostimulation.
We
also operate our wholly owned subsidiary, Medi-Line. Medi-Line currently serves 34 medical device customers in 16 countries, including
multi-year contracts with Fortune 500 healthcare companies. The Belgian manufacturer owns state-of-the-art facilities, which feature
two validated clean rooms (one assembly cleanroom Class ISO 7 or C, and one extrusion/injection molding cleanroom Class ISO 8 or
D) and 600m
2
of production space. Their capabilities will enable us to de-risk our commercial launch and speed
the development of our neurostimulation products.
Corporate History
We were incorporated in
the State of Nevada on December 7, 2015. Our principal corporate office is located at 1910 Pacific Avenue, Suite 20000, Dallas,
Texas 75201, and our phone number is (844) 919-9990. Our Internet address is www.nexeonmed.com.
Our operations to date include research
and development activities.
Our consolidated operations include operations
of the following wholly owned subsidiaries: Nexeon MedSystems Europe, SARL (“Nexeon Europe”), Nexeon MedSystems Puerto
Rico Operating Company Corporation (“NXPROC”), NMB (which owns and operates Medi-Line), SA, and Pulsus Medical, LLC
(“Pulsus”). Nexeon Europe is the holding company for NXPROC and NMB. NXPROC is focused on advanced computational biology
and deep learning utilization associated with the Internet of Medical Things technology. Pulsus conducts research and development
related to cardiovascular disease technology.
Risks:
We are a development-stage company and
have generated minimal revenues to date. Since our inception, we have incurred substantial losses. Our business and our ability
to execute our business strategy are subject to a number of risks of which you should be aware before you decide to buy our Common
Stock. In particular, you should carefully consider the following risks, which are discussed more fully in “Risk Factors”
beginning on page 7 of this prospectus.
|
●
|
We are a development stage company and may never commercialize any of our products or services,
or earn a profit.
|
|
●
|
Our independent registered public accounting firm has expressed doubt about our ability to continue
as a going concern, which may hinder our ability to obtain future financing.
|
|
●
|
We will need to raise substantial additional capital to commercialize our technology, and our failure
to obtain funding when needed may force us to delay, reduce, or eliminate our product development programs or collaboration efforts.
|
|
●
|
Our ability to successfully commercialize our technology will depend largely upon the extent to
which third-party payers reimburse our tests.
|
|
●
|
The commercial success of our product candidates will depend upon the degree of market acceptance
of these products among physicians, patients, health care payers, and the medical community.
|
|
●
|
If our potential medical therapies are unable to compete effectively with current and future medical
therapies targeting similar markets as our potential products, our commercial opportunities will be reduced or eliminated.
|
|
●
|
We depend upon our officers, and if we are not able to retain them or recruit additional qualified
personnel, the commercialization of our product candidates that we develop could be delayed or negatively impacted.
|
|
●
|
We will need to increase the size of our organization, and we may experience difficulties in managing
growth.
|
|
●
|
If we do not receive regulatory approvals, we may not be able to develop and commercialize our
technology.
|
|
●
|
Changes in health care policy could subject us to additional regulatory requirements that may delay
the commercialization of our therapies and increase our costs.
|
|
●
|
If we are unable to protect our intellectual property effectively, we may be unable to prevent
third parties from using our technologies, which would impair our competitive advantage.
|
|
●
|
We cannot guarantee that the patents issued to us will be broad enough to provide any meaningful
protection, nor can we assure you that one of our competitors may not develop more effective technologies, designs, or methods
without infringing our intellectual property rights, or that one of our competitors might not design around our proprietary technologies.
|
|
●
|
In preparing our consolidated financial statements, our management determined that our disclosure
controls and procedures were ineffective as of December 31, 2017, which could result in material misstatements in our financial
statements.
|
|
●
|
Because we will have broad discretion and flexibility in how the net proceeds from this offering
are used, we may use the net proceeds in ways in which you disagree.
|
|
●
|
Our stockholders may experience significant dilution as a result of any additional financing using
our equity securities and/or debt securities.
|
|
●
|
Our Common Stock price may be volatile, and could fluctuate widely in price, which could result
in substantial losses for investors.
|
|
●
|
If our Common Stock remains subject to the SEC’s penny stock rules, broker-dealers may experience
difficulty in completing customer transactions, and trading activity in our securities may be adversely affected.
|
|
●
|
Because certain of our stockholders control a significant number of shares of our Common Stock,
they may have effective control over actions requiring stockholder approval.
|
|
●
|
We have not paid dividends on our Common Stock in the past, and do not expect to pay dividends
on our Common Stock for the foreseeable future. Any return on investment may be limited to the value of our Common Stock.
|
|
●
|
If securities or industry analysts do not publish research or reports about our business, or if
they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
|
|
●
|
A sale of a substantial number of shares of our Common Stock may cause the price of our Common
Stock to decline, and may impair our ability to raise capital in the future.
|
|
●
|
We intend to effect a 1-for-[●] reverse stock split
of our outstanding Common Stock immediately prior to this offering. However, the reverse stock split may not increase our stock
price sufficiently and we may not be able to list our Common Stock on The NASDAQ Capital Market.
|
|
●
|
Even if the reverse stock split achieves the requisite increase in the market price of our Common
Stock, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement of The NASDAQ Capital
Market.
|
|
●
|
Even if the reverse stock split increases the market price of our Common Stock, there can be no
assurance that we will be able to comply with other continued listing standards of The NASDAQ Capital Market.
|
|
●
|
The reverse stock split may decrease the liquidity of the shares of our common stock.
|
|
●
|
Following the reverse stock split, the resulting market price of our Common Stock may not attract
new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently,
the trading liquidity of our Common Stock may not improve.
|
Implications
of Being an Emerging Growth Company
We qualify as an “emerging growth
company” as defined in the Jumpstart Our Business Startups Act of 2012. As an emerging growth company, we may take advantage
of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions
include:
|
●
|
Being permitted to provide only two years of audited financial
statements in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
|
|
●
|
Reduced disclosure obligations regarding executive compensation
arrangements;
|
|
●
|
Not being required to hold a non-binding advisory vote
on executive compensation or golden parachute arrangements; and
|
|
●
|
Exemption from the auditor attestation requirement in the
assessment of our internal control over financial reporting.
|
We
have elected t
o use the extended transition period for complying with
new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of
new or revised accounting standards that have different effective dates for public and private companies until those standards
apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply
with public company effective dates.
We
will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary
of the date we completed our initial public offering, which was ,
(b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated
filer, which means the market value of our Common Stock that is held by non-affiliates exceeded $700.0 million as of the prior
June 30th, or (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year
period. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting
requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive
from other public companies in which you hold stock.
Notwithstanding
the above, we are also currently a “smaller reporting company,” meaning that we are not an investment company, an
asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and has a public
float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In
the event that we are still considered a smaller reporting company at such time as we cease to be an emerging growth company,
the disclosure we will be required to provide in our filings with the SEC will increase, but will still be less than it would
be if we were not considered either an emerging growth company or a smaller reporting company. Specifically, similar to emerging
growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings;
are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), requiring
that independent registered public accounting firms provide an attestation report on the effectiveness of their internal control
over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other
things, only being required to provide two years of audited financial statements in their annual reports.
THE OFFERING
The following summary contains basic
information about our securities and the offering, and is not intended to be complete. It does not contain all the information
that may be important to you. For a more complete understanding of our securities, you should read the section entitled “Description
of Capital Stock” in this prospectus.
Securities offered by us
|
|
Units, each Unit consisting of one (1) share of Common Stock and a Warrant to purchase one (1) share of
Common Stock. The shares of Common Stock and Warrants comprising the Units are immediately separable. Each Warrant will have an
initial exercise price of $ per share ( % of public offering price of one share of Common Stock), and will expire five years
from the closing of this offering.
|
|
|
|
Offering price
|
|
$ per Unit
|
|
|
|
Common Stock outstanding prior to this offering
|
|
27,715,911
|
|
|
|
Common stock to be outstanding after this offering
|
|
Shares of Common Stock (including shares of Common Stock to be issued upon exercise of the Warrants) assuming a public offering price of $ per Unit ( shares if the underwriter’s over-allotment option is exercised in full).
|
|
|
|
Overallotment option
|
|
We have granted the underwriters an option to purchase up to Units at a price of $ per Unit solely to cover over-allotments, if any. This option is exercisable, in whole or in part, for a period of 45 days from the date of this prospectus.
|
|
|
|
Use of proceeds
|
|
We intend to use the net proceeds received from this offering for a FDA pivotal study, research and development involving additional applications of our existing neurostimulation platform, working capital, and general corporate purposes, and $1,288,000 to pre-pay the outstanding senior secured convertible promissory note to Leonite Capital including $1,120,000 of principal and $168,000 in pre-payment penalties. The Leonite Capital, LLC debt is a 12% percent, 24 month term note that matures August 2019. See “Use of Proceeds.”
|
|
|
|
Risk factors
|
|
See “Risk Factors” beginning on page 7 of this prospectus and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our securities.
|
|
|
|
OTCQB trading symbol
|
|
NXNN
|
|
|
|
Proposed symbol and listing
|
|
We have applied to have our Common Stock listed on The NASDAQ Capital Market under the symbol “ .”
|
Unless we indicate otherwise, all information
in this prospectus assumes no exercise by the underwriters of the over-allotment option or of the underwriter warrants, gives pro
forma effect to the 1-for-[●] reverse stock split of our outstanding shares
of Common Stock, options and warrants that occurred on , 2018 and the corresponding adjustment of all common stock price
per share and stock option and warrants exercise price data, except for the financial statements and the notes thereto, and is
based on 27,715,911 shares of Common Stock issued and outstanding as of May 4, 2018, and:
|
●
|
2,252,142 shares of our Common Stock issuable upon exercise of outstanding vested options at a weighted average exercise price of $1.02 per share as of May 4, 2018, and 2,747,758 shares of our Common Stock issuable upon exercise of outstanding unvested options at a weighted average exercise price of $0.97 per share as of May 4, 2018; and
|
|
|
|
|
●
|
1,160,761 shares of our Common Stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.32 per share as of May 4, 2018.
|
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following table summarizes our consolidated
financial data. We have derived the summary consolidated balance sheet data as of December 31, 2017 and 2016, and consolidated
statements of operations data for the years ended December 31, 2017 and 2016 from our audited consolidated financial statements
include elsewhere in this prospectus. Our historical results are not necessarily indicative of our results in any future period.
You should read the following summary consolidated financial data together with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” as well as our consolidated financial statements and the related notes
included elsewhere in this prospectus. The summary consolidated financial data in this section are not intended to replace our
consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements
and related notes included elsewhere in this prospectus.
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
Consolidated Statement of Operations Data:
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
3,302,775
|
|
|
$
|
1,494,881
|
|
Cost of revenue
|
|
|
2,321,756
|
|
|
|
39,129
|
|
Gross profit
|
|
|
981,019
|
|
|
|
1,455,752
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,831,069
|
|
|
|
693,603
|
|
Research and development expenses – other
|
|
|
2,942,981
|
|
|
|
751,434
|
|
Research and development expenses – related party
|
|
|
—
|
|
|
|
8,068
|
|
Depreciation and amortization
|
|
|
1,297,710
|
|
|
|
636,921
|
|
|
|
|
|
|
|
|
|
|
(Loss) from operations
|
|
|
(6,090,741
|
)
|
|
|
(634,274
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income – related party
|
|
|
2,036
|
|
|
|
19,049
|
|
Gain on bargain purchase
|
|
|
4,311,554
|
|
|
|
—
|
|
Interest expense
|
|
|
(113,967
|
)
|
|
|
(13,738
|
)
|
Loss on stock exchange
|
|
|
(37,788
|
)
|
|
|
—
|
|
Write-off of related party loan
|
|
|
(174,252
|
)
|
|
|
—
|
|
Loss on impairment of asset
|
|
|
(74,483
|
)
|
|
|
(173,500
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision (benefit) for taxes
|
|
|
(2,177,641
|
)
|
|
|
(802,463
|
)
|
Provision (benefit) for taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,177,641
|
)
|
|
$
|
(802,463
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(15,719
|
)
|
|
|
(23,411
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(2,193,360
|
)
|
|
|
(825,874
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED PER-SHARE DATA:
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.04
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
24,861,237
|
|
|
|
19,044,803
|
|
|
|
December 31,2017
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
Actual
|
|
|
Pro Forma
|
|
|
Pro Forma as
Adjusted for
This
Offering
(2) (3)
|
|
|
December 31,
2016
|
|
Cash and cash equivalents
|
|
$
|
883,962
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,124,795
|
|
Working capital
|
|
|
796,323
|
|
|
|
|
|
|
|
|
|
|
|
1,543,320
|
|
Total assets
|
|
|
20,351,444
|
|
|
|
|
|
|
|
|
|
|
|
12,411,847
|
|
Total liabilities
|
|
|
8,482,455
|
|
|
|
|
|
|
|
|
|
|
|
1,089,642
|
|
Common stock
(1)
|
|
|
27,591
|
|
|
|
|
|
|
|
|
|
|
|
21,712
|
|
Additional paid-in capital
|
|
|
15,497,986
|
|
|
|
|
|
|
|
|
|
|
|
9,759,560
|
|
Accumulated deficit
|
|
|
(3,743,438
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,565,797
|
)
|
Total stockholder’s equity
|
|
|
11,868,989
|
|
|
|
|
|
|
|
|
|
|
|
11,322,205
|
|
|
(1)
|
75,000,000 shares authorized, $.001 par value; 27,591,441 and 21,711,953 issued and outstanding
at December 31, 2017 and December 31, 2016, respectively.
|
|
(2)
|
The pro forma as adjusted consolidated balance sheet data gives effect to the receipt of $ in
net proceeds as through the issuance of shares of Common Stock and Warrants to purchase shares of Common Stock in this offering
at an assumed public offering price of $ per Unit, and after deducting the estimated underwriting discount and estimated
offering expenses payable by us.
|
|
(3)
|
A $0.25 increase (decrease) in the assumed public offering price of $ per
share would increase (decrease) each of cash and cash equivalents, working capital, total assets, additional paid-in capital, and
total stockholder’s equity by approximately $ million, assuming
that the number of shares of Common Stock and Warrants to purchase shares of Common Stock offered by us, as set forth above, remains
the same, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.
|
RISK FACTORS
Investing in our securities involves
a high degree of risk. Prospective investors should carefully consider the risks described below and other information contained
in this prospectus, including our financial statements and related notes, before purchasing our securities. There are numerous
and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occurs, our business,
financial condition, or results of operations may be materially adversely affected. In that case, the trading price of our securities
could decline, and investors in our Common Stock could lose all or part of their investment.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
We have only a limited history upon
which an evaluation of our prospects and future performance can be made, and have no history of profitable operations. Since we
have a limited operating history, it may be difficult to predict our future operating results.
We were incorporated in the State in Nevada
on December 7, 2015, and as a result, we have only a limited history upon which an evaluation of our prospects and future performance
can be made, and have no history of profitable operations on a consolidated basis. Due to our lack of operating history, our proposed
operations are subject to all business risks associated with new enterprises. The likelihood of our success must be considered
in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the startup
of a business, and operation in a competitive and regulated industry. We may sustain losses in the future as we implement our business
plan. There can be no assurance that we will ever generate revenues to operate profitably. Investors should evaluate an investment
in us in light of the uncertainties encountered by developing companies in a competitive environment. Our business is dependent
upon the implementation of our business plan. We may not be successful in implementing such plan, and cannot guarantee that, if
implemented, we will ultimately be able to attain profitability.
We may need to obtain additional financing
to fund our operations.
We may need additional capital in the future
to continue to execute our business plan. In that case, we would be dependent upon additional capital in the form of either debt
or equity to continue our operations and commercialize our products. We may not be able to arrange enough investment within the
time the investment is required, or, if it is arranged, that it will be on favorable terms. If we cannot obtain the needed capital,
we may not be able to become profitable, and may have to curtail or cease our operations.
We have a history of losses, and we
anticipate that we will continue to incur losses in the future. Our auditors have included in their audit report an explanatory
paragraph as to substantial doubt as to our ability to continue as a going concern.
We have experienced net losses since our
inception. For the year ended December 31, 2017, our net loss was $2,177,641, compared to a net loss of $802,463 for the year ended
December 31, 2016. As of December 31, 2017, we had an accumulated deficit of $3,743,438. Our auditors have included in their audit
report a “going concern” explanatory paragraph that there is substantial doubt as to our ability to continue as a going
concern, which assumes the realization of our assets and the satisfaction of our liabilities and commitments in the normal course
of business. We anticipate continuing to incur substantial additional losses over at least the next several years due to, among
other factors, expenses related to the following: anticipated research and development activities, investor and public relations,
Securities and Exchange Commission (SEC) compliance efforts, and the general and administrative expenses associated with each of
these activities. We may never achieve profitability, and, even if we do, we may not be able to sustain being profitable.
Restrictions contained in our debt agreements
may limit our ability to incur additional indebtedness.
Our existing debt facilities contain restrictive
covenants, including restrictions on our ability to incur indebtedness. These restrictions could limit our ability to effectuate
future acquisitions, limit our ability to pay dividends, limit our ability to make capital expenditures, or restrict our financial
flexibility. Our ability to meet the financial covenants or requirements in our debt facilities may be affected by events beyond
our control, and we may not be able to satisfy such covenants and requirements. A breach of these covenants or other restrictions
contained in a debt facility could result in an event of default under one or more of our other debt facilities. Upon the occurrence
of an event of default under a debt facility, and the expiration of any grace periods, the lenders could elect to declare all amounts
outstanding under one or more of our other debt facilities, together with accrued interest, to be immediately due and payable.
If this were to occur, our assets may not be sufficient to fully repay the amounts due under our debt facilities or our other indebtedness.
Consolidation in the health care industry
could lead to demands for price concessions, or limit or eliminate our ability to sell to certain of our potential significant
market segments.
The cost of health care has risen significantly
over the past decade, and numerous initiatives and reforms initiated by legislators, regulators, and third-party payers to curb
these costs have resulted in a consolidation trend in the medical device industry, as well as among our potential customers, including
health care providers. This, in turn, has resulted in greater pricing pressures, which could limit our ability to sell to important
market segments, group purchasing organizations, independent delivery networks, and large single accounts, such as the Veterans
Administration in the United States, which continue to consolidate purchasing decisions for some of our potential health care provider
customers. We expect that market demand, government regulation, third-party reimbursement policies, and societal pressures will
continue to change the worldwide health care industry, resulting in further business consolidations and alliances that may exert
further downward pressure on our potential product prices, which would adversely impact our business and financial condition, and
the results of operations.
We are subject to stringent domestic
and foreign medical device regulation, and any adverse regulatory action may materially adversely affect our financial condition
and business operations.
We are subject to rigorous regulation by
the FDA and numerous other federal, state, and foreign governmental authorities. To varying degrees, each of these authorities
monitors and enforces our compliance with laws and regulations governing the development, testing, clinical study, manufacturing,
labeling, packaging, marketing, and distribution of our medical devices. These laws and regulations are subject to change, and
to evolving interpretations that could increase costs, prevent or delay future device clearance or approvals, or otherwise adversely
affect our ability to market currently cleared or approved devices. The process of obtaining marketing approval or clearance from
the FDA and comparable foreign bodies for new products, or for enhancements or modifications to existing products, could:
|
●
|
Take a significant amount of time;
|
|
|
|
|
●
|
Require the expenditure of substantial resources;
|
|
|
|
|
●
|
Involve rigorous pre-clinical and clinical testing, as well as increased post-market surveillance;
|
|
|
|
|
●
|
Involve modifications, repairs, or replacements of our products; and
|
|
|
|
|
●
|
Result in limitations on the indicated uses of our products.
|
We cannot be certain that new medical devices
or new uses for existing medical devices will be cleared or approved by the FDA or foreign regulatory agencies in a timely or cost-effective
manner, if at all. In addition, the FDA may require post-market testing and surveillance, and may, depending on the results, prevent
or limit further marketing of products. The failure to receive approval or clearance for significant new products or modifications
to existing products, or the receipt of an approval of limited or reduced scope could have a materially adverse effect on our financial
condition and results of operations.
Both before and after a product is commercially
released, we have ongoing responsibilities under the United States Federal Food, Drug, and Cosmetic Act (FDCA) and FDA regulations,
which govern virtually all aspects of a medical device’s design, development, testing, manufacturing, labeling, storage,
record keeping, adverse event reporting, sale, promotion, distribution, and shipping. Compliance with applicable statutory and
regulatory requirements is subject to continual review, and is monitored rigorously through periodic inspections by the FDA, which
may result in observations on Form 483, and (in some cases) warning letters that require corrective action. If the FDA were to
conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective
or pose an unreasonable health risk, the FDA could:
|
●
|
Require us to notify health professionals and others that the devices present unreasonable risk of substantial harm to public health;
|
|
|
|
|
●
|
Order us to recall, repair, replace, or refund the cost of any medical device that we manufactured or distributed;
|
|
|
|
|
●
|
Detain, seize, or ban adulterated or misbranded medical devices;
|
|
|
|
|
●
|
Refuse to provide us with documents necessary to export our products;
|
|
|
|
|
●
|
Refuse requests for 510(k) clearance or PMA of new products or new intended uses;
|
|
|
|
|
●
|
Withdraw 510(k) clearances or PMAs that are already granted;
|
|
|
|
|
●
|
Impose operating restrictions, including requiring a partial or total shutdown of production;
|
|
|
|
|
●
|
Enjoin or restrain conduct resulting in violations of applicable law pertaining to medical devices; and/or
|
|
|
|
|
●
|
Assess criminal or civil penalties against us or our officers and employees.
|
Any adverse regulatory action, depending
on its magnitude, may restrict us from effectively manufacturing, marketing, and selling our products. In addition, negative publicity
and product liability claims resulting from any adverse regulatory action could have a materially adverse effect on our financial
condition and results of operations.
In addition, the FDCA permits device manufacturers
to promote products solely for the uses and indications set forth in the approved product labeling. The U.S. Department of Justice
has initiated a number of enforcement actions against manufacturers that promote products for “off-label” uses, alleging,
among other things, that “off-label” promotion caused the submission of false and fraudulent claims for reimbursement
to federal health care programs in violation of the Federal False Claims Act. Government enforcement action can result in substantial
fines, penalties, and/or administrative remedies, including exclusion from government reimbursement programs and entry into Corporate
Integrity Agreements (CIAs) with governmental agencies, entailing significant additional obligations and costs.
Foreign governmental regulations have become
increasingly stringent and more common, and we may become subject to even more rigorous regulation by foreign governmental authorities
in the future. Changes in clearance, approvals, or standards that must be complied with prior to commercial marketing, or the enactment
of additional laws or regulations may cause delays in or prevent the marketing of a product. Penalties for a company's noncompliance
with foreign governmental regulation could be severe, including revocation or suspension of a company's business license, and criminal
sanctions. Any domestic or foreign governmental medical device law or regulation imposed in the future may have a materially adverse
effect on our financial condition and business operations.
The regulatory
approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable, and
if we are ultimately unable to obtain regulatory approval for our product candidate, our business will be substantially harmed.
The time required
to obtain approval by the FDA and comparable foreign authorities is unpredictable, but typically takes many years following the
commencement of clinical trials, and depends upon numerous factors, including the substantial discretion of the regulatory authorities.
In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during
the course of a product candidate’s clinical development, and may vary among jurisdictions.
Instability in international markets,
or foreign currency fluctuations could adversely affect our results of operations.
We generate a significant amount of our
revenue from outside the United States. As a result, we face currency and other risks associated with our international sales.
We are exposed to foreign currency exchange rate fluctuations due to transactions denominated primarily in euros, which may potentially
reduce the U.S. dollars we receive for sales denominated in any of these foreign currencies, and/or increase the U.S. dollars we
report as expenses in these currencies, thereby affecting our consolidated results of operations. Fluctuations between the currencies
in which we do business have caused and will continue to cause foreign currency transaction gains and losses. We cannot predict
the effects of currency exchange rate fluctuations upon our future operating results because of the number of currencies involved,
the variability of currency exposures, and the volatility of currency exchange rates.
In addition to foreign currency exchange
rate fluctuations, there are a number of additional risks associated with our international operations, including those related
to:
|
●
|
The imposition of or increase in import or export duties, surtaxes, tariffs, or customs duties;
|
|
|
|
|
●
|
The imposition of import or export quotas or other trade restrictions;
|
|
|
|
|
●
|
Foreign tax laws and potential increased costs associated with overlapping tax structures;
|
|
|
|
|
●
|
Compliance with various U.S. and foreign laws, including the Foreign Corrupt Practices Act, the UK Anti-Bribery Act, and import/export laws;
|
|
●
|
Longer accounts receivable cycles in certain foreign countries, whether due to cultural, economic, or other factors;
|
|
|
|
|
●
|
Changes in medical reimbursement programs and regulatory requirements in international markets in which we operate; and
|
|
●
|
Economic and political instability in international markets, including concerns over excessive
levels of sovereign debt and budget deficits in countries where we market our products that could result in an inability to pay
or timely pay outstanding payables.
|
We are subject to anti-bribery, anti-corruption,
and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act, as well as export control laws, customs laws,
sanctions laws, and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or
criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, results of operations,
and financial condition.
As we grow our international presence and
global operations, we will be increasingly exposed to trade and economic sanctions and other restrictions imposed by the United
States, the European Union, and other governments and organizations. The U.S. Departments of Justice, Commerce, State, and Treasury,
and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations
and individuals for violations of economic sanctions laws, export control laws, the U.S. Foreign Corrupt Practices Act (FCPA),
and other federal statutes and regulations, including those established by the Office of Foreign Assets Control (OFAC). Under these
laws and regulations, as well as other anti-corruption laws, anti-money laundering laws, export control laws, customs laws, sanctions
laws, and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications
to business practices (including cessation of business activities in sanctioned countries or with sanctioned persons or entities,
and modifications to compliance programs) that may increase compliance costs, and may subject us to fines, penalties, and other
sanctions. A violation of these laws or regulations would negatively affect our business, financial condition, and results of operations.
We are in the process of implementing policies
and procedures designed to ensure compliance by us and our directors, officers, employees, representatives, consultants, and agents
with the FCPA, OFAC restrictions, and other export control, anti-corruption, anti-money-laundering, and anti-terrorism laws and
regulations. We cannot assure you, however, that our policies and procedures are or will be sufficient, or that directors, officers,
employees, representatives, consultants, and agents have not engaged and will not engage in conduct for which we may be held responsible;
nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their
ability to perform their contractual obligations to us, or even result in our being held liable for such conduct. Violations of
the FCPA, OFAC restrictions, or other export control, anti-corruption, anti-money laundering, and anti-terrorism laws or regulations
may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a materially adverse
effect on our business, financial condition, and results of operations.
We may experience delays or unforeseen
issues during the requisite studies and trials required prior to regulatory approval of our medical devices.
Although there are no foreseeable risks
with respect to obtaining an Investigational Device Exemption (IDE), following biocompatibility and active animal safety testing,
even minor issues with the testing and application process can delay the IDE, which would in turn delay the clinical studies and
increase the costs to complete the testing. For our PMA application, we will hire a regulatory consultant to facilitate all interactions
with the FDA and ensure that we make the most time- and capital-efficient steps towards regulatory approval.
We may not be able to compete effectively
with larger companies in the medical device space with greater resources and market recognition.
Our primary competitor, Medtronic, a provider
of medical devices, has been involved in the manufacturing and sale of deep brain stimulation devices for several years. In addition,
Boston Scientific and Abbott (formerly St. Jude Medical) have a CE mark and PMA to market and sell their neurostimulation implant
devices in Europe and the U.S. These companies may have substantially greater financial, research and development, manufacturing,
marketing, and sales experience, and resources than us. As a result, our competitors may be more successful than us in developing
their products, obtaining regulatory approvals, and marketing their products to users. We cannot assure investors that we will
be able to compete effectively against current and future competitors.
We are dependent on a few significant
customers for our businesses, and the loss of these customers could have an adverse effect on our business, results of operations,
and financial condition.
In our original equipment manufacturer
(OEM) solutions business, we sell to over 40 customers. For the year ended December 31, 2017, sales to our two largest customers
represented 76% of our sales revenue. The loss or reduction in services to these significant customers, or other discontinuation
of their relationship with us for any reason—or, if either of these significant customers reduces or postpones purchases
that we expect to receive—could have an adverse impact on our business, results of operations, and financial condition.
Our neurostimulation device may not
be approved for reimbursement, which could adversely affect the adoption of our device.
Even if the device and treatment are successful
and approved for use, reimbursement may not be forthcoming, which could lead to slower-than-anticipated adoption of our technology.
Additionally, new drugs or devices may also affect market acceptance. These risks are mitigated by the current reimbursement standards,
which we believe our system will be reimbursed under. Additionally, our management team is experienced in device reimbursement,
in the U.S. and in Germany, as well as throughout the European Union (EU). William Rosellini, our chief executive officer, is a
published author in the area of Medicare and Medicaid reimbursement. Previously, he has utilized reimbursement consultants to map
existing reimbursement codes in order to develop proper data collection and clinical trial design strategies to shorten the path
to eventual Medicare reimbursement. Although our management team is experienced in device reimbursement, there can be no guarantee
that our neurostimulation device will be approved for reimbursement, which could adversely affect the adoption of our device.
Laws and regulations that could affect
the industry in which we operate may be enacted, which could result in a delay or cessation of our research and development activities,
or the imposition of additional costs that could hinder our ability to achieve and maintain profitable operations.
Current laws and regulations with respect
to our industry, and additional laws and regulations that may be enacted in the future could impose new and/or unexpected operational
considerations or constraints upon us. Complying with existing laws or regulations may require significant time and resource allocation
for medical device manufacturers, including us. Additionally, changing or new legislation may force us to redesign one or more
of our products. In such an event, our proprietary neurostimulation device may have to be altered or modified to ensure that it
is in compliance with all applicable laws and regulations. Such alterations or modifications would cause us to incur substantial
research and development costs. Moreover, if we cannot modify or alter our neurostimulation device’s design or functionality,
then our device could be rendered obsolete, which would substantially reduce our future profitability and harm our business. Additionally,
since we intend to operate both domestically and in the EU, we must remain cognizant of the legislative and regulatory landscape
in both regions. Compliance with these regulations, when applicable, increases the research and development and production costs,
and could make our proposed products and services less attractive to potential customers.
International operations conducted by
us subject us to a number of risks, including unfavorable political, regulatory, labor, and tax conditions.
We sell medical devices to customers located
outside the United States. International operations are subject to the legal, political, regulatory, and social requirements and
economic conditions in the jurisdictions in which they are conducted. Risks inherent to international operations and sales include,
but are not limited to, the following:
|
●
|
Exposure to violations of the Foreign Corrupt Practices Act of 1977, as amended;
|
|
●
|
Difficulty in enforcing agreements, judgments, and arbitration awards in foreign legal systems;
|
|
|
|
|
●
|
Impediments to the flow of foreign exchange capital payments and receipts due to exchange controls instituted by certain foreign governments and the fact that the local currencies of these countries are not freely convertible;
|
|
|
|
|
●
|
Inability to obtain maintain or enforce our intellectual property rights;
|
|
|
|
|
●
|
Changes in general economic and political conditions in foreign countries;
|
|
|
|
|
●
|
Changes in foreign government regulations and technical standards, including additional regulation of medical devices, which may reduce or eliminate our ability to sell or license in certain markets;
|
|
|
|
|
●
|
Requirements or preferences of foreign nations for domestic technologies, which could reduce demand for our technologies;
|
|
|
|
|
●
|
Trade barriers such as export requirements, tariffs, taxes, and other restrictions and expenses, which could increase the prices of our technologies and make us less competitive; and
|
|
|
|
|
●
|
Longer payment cycles typically associated with international sales, and potential difficulties in collecting accounts receivable, which may reduce the future profitability of foreign sales or licensing.
|
Conducting business in foreign jurisdictions
requires us to respond to rapid changes in market conditions in these countries. We believe that our overall success as a global
business depends on our ability to succeed in different legal, regulatory, economic, social, and political situations and conditions.
We may not be able to develop and implement effective policies and strategies in each foreign jurisdiction where we may do business
in the future.
We depend on our key management personnel
for our future success.
Our success depends largely on the skills
of our key management and technical personnel. The loss of one or more of our key management and technical personnel may materially
and adversely affect business and results of operations. We do not maintain key person insurance for any of our employees. We cannot
guarantee that we will be able to replace any of our key management personnel in the event that their services become unavailable.
Our chief executive officer beneficially
owns a significant percentage of our outstanding capital stock, and will have the ability to significantly influence our
affairs.
Our chief executive officer, William Rosellini,
beneficially owns approximately 56.44% of our issued and outstanding capital stock, when combing his individual holdings and those
of Rosellini Scientific, LLC (“RS”), of which he is the sole member and manager. By virtue of his holdings, he may significantly
influence, or effectively control, the election of the members of our board of directors, our management, and our affairs, and
other corporate transactions (such as mergers, consolidations, or the sale of all or substantially all of our assets) that are
submitted to shareholders for approval, and that may not be favorable from our standpoint or that of our other shareholders.
We only have a limited number of employees
to manage and operate our neurostimulation business segment.
As of April 25, 2018, our neurostimulation
business segment employed a total of 19 full-time employees and 4 consultants. We cannot assure you that we will be able to retain
adequate staffing levels to run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish
for the neurostimulation business segment.
Failure to raise the necessary capital
could restrict our growth, limit our development of new products and services, and hinder our ability to compete.
We need to raise funds in order to achieve
our business objectives. Failure to raise these funds may:
|
●
|
Restrict our growth;
|
|
|
|
|
●
|
Limit our development of new products and services; and
|
|
|
|
|
●
|
Hinder our ability to compete.
|
Any of these aforementioned consequences
would have a materially adverse effect on our business, operations, and financial position.
Anti-takeover provisions may impede
the acquisition of our Company.
Certain provisions of the Nevada Revised
Statutes have anti-takeover effects and may inhibit a non-negotiated merger or other business combination. These provisions
are intended to encourage any person interested in acquiring us to negotiate with, and to obtain the approval of, our board of
directors in connection with such a transaction. But certain of these provisions may discourage a future acquisition of us, including
an acquisition in which the stockholders might otherwise receive a premium for their shares. As a result, stockholders who might
desire to participate in such a transaction may not have the opportunity to do so, which could cause our stock price to decline.
Our products may be subject to recalls,
even after receiving FDA clearance or approval, which would harm our reputation, business, and financial results.
We will be subject to the medical device
reporting regulations, which will require us to report to the FDA if our products may have caused or contributed to a death or
serious injury, or have malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction
were to occur. We will also be subject to the correction and removal reporting regulations, which will require us to report to
the FDA any field corrections and device recalls or removals that we undertake to reduce a risk to health posed by the device,
or to remedy a violation of the Federal Food, Drug and Cosmetic Act (FDCA) caused by the device that may present a risk to health.
In addition, the FDA and similar governmental agencies in other countries have the authority to require the recall of our products
if there is a reasonable probability that the products would cause serious adverse health consequences or death. A government-mandated
or voluntary recall by us could occur as a result of manufacturing defects, labeling deficiencies, packaging defects, or other
failures to comply with applicable regulations. Any recall would divert management attention and financial resources and harm our
reputation with customers, and could have a materially adverse effect on our financial condition and results of operations.
We may be subject to product liability
claims, and may not have sufficient product liability insurance to cover any such claims, which may expose us to substantial liabilities.
We may be exposed to product liability
claims from users of our products. It is possible that any product liability insurance coverage we obtain will be insufficient
to protect us from future claims. Further, we may not be able to obtain or maintain insurance on acceptable terms, or guarantee
that such insurance would be sufficient to cover any potential product liability claim or recall. Failure to obtain or maintain
sufficient insurance coverage could have a materially adverse effect on our business, prospects, and results of operations if claims
are made that exceed our coverage.
Our revenues will depend upon adequate
reimbursement from public and private insurers and health systems.
Our success will depend on the extent to
which reimbursement for the costs of our devices will be available from third-party payers, such as public and private insurers
and health systems. Government and other third-party payers attempt to contain health care costs by limiting both coverage and
the level of reimbursement of new treatments. Therefore, significant uncertainty usually exists as to the reimbursement status
of new health care treatments. If we are not successful in obtaining adequate reimbursement for our treatment from these third-party
payers, the market’s acceptance of our treatment could be adversely affected. Inadequate reimbursement levels also likely
would create downward price pressure on our treatment. Even if we succeed in obtaining widespread reimbursement for our treatment,
future changes in reimbursement policies could have a negative impact on our business, financial condition, and results of operations.
We are subject
to numerous federal and state health care laws and regulations, and failure to comply with such laws and regulations could have
an adverse effect on our business and our ability to compete in the marketplace.
There are numerous
laws and regulations that govern the means by which companies in the health care industry may market their treatments to health
care professionals, and may compete by discounting the prices of their treatments, including, for example, the federal Anti-Kickback
Statute, the federal False Claims Act (“FCA”), the federal Health Insurance Portability and Accountability Act of 1996
(“HIPAA”), and state law equivalents to these federal laws that are meant to protect against fraud and abuse (as well
as analogous laws in foreign countries). Violations of these laws are punishable by criminal and civil sanctions, including but
not limited to (in some instances) civil and criminal penalties, damages, fines, and exclusion from participation in federal and
state health care programs, including Medicare and Medicaid. In addition, federal and state laws are also sometimes open to interpretation.
Accordingly, we could potentially face legal risks if our interpretation differs from those of enforcement authorities. Further,
from time to time we may find ourselves at a competitive disadvantage if our interpretation differs from those of our competitors.
Specifically, anti-kickback laws and regulations
prohibit any knowing and willful offer, payment, solicitation, or receipt of any form of remuneration (direct or indirect, in case
or in kind) in return for the referral, use, ordering, or recommending of the use of a product or service for which payment may
be made by Medicare, Medicaid, or other government-sponsored health care programs. We have entered into consulting agreements,
research agreements, and product development agreements with physicians, including some who may order our products or make decisions
to use them. In addition, some of these physicians own our stock, which they purchased in arm’s-length transactions on terms
identical to those offered to non-physicians, or received as stock awards from us as consideration for services performed by them.
While these transactions were structured with the intention of complying with all applicable laws, including state anti-referral
laws and other applicable anti-kickback laws, it is possible that regulatory or enforcement agencies or courts may in the future
view these transactions as prohibited arrangements that must be restructured, or for which we would be subject to other significant
civil or criminal penalties. There can be no assurance that regulatory or enforcement authorities will view these arrangements
as being in compliance with applicable laws, or that one or more of our employees or agents will not disregard the rules we have
established. Because our strategy relies on the involvement of physicians who consult with us on the design of our potential products,
perform clinical research on our behalf, or educate the market about the efficacy and uses of our potential products, we could
be materially impacted if regulatory or enforcement agencies or courts interpret our financial relationships with physicians who
refer or order our potential products to be in violation of applicable laws, and determine that we would be unable to achieve compliance
with such applicable laws. This could harm our reputation and the reputations of the physicians we engage to provide services on
our behalf. In addition, the cost of noncompliance with these laws could be substantial since we could be subject to monetary fines
and civil or criminal penalties. We could also be excluded from federally funded health care programs, including Medicare and Medicaid,
for noncompliance. Further, even the costs of defending investigations of noncompliance could be substantial.
Also, the FCA imposes civil liability on
any person or entity that submits, or causes the submission of, a false or fraudulent claim to the federal government. Damages
under the FCA can be significant and consist of the imposition of fines and penalties. The FCA also allows a private individual
or entity (i.e., a whistleblower) with knowledge of past or present fraud against the federal government to sue on behalf of the
government, and to be paid a portion of the government’s recovery, which can include both civil penalties and up to three
times the amount of the government’s damages (usually the amount reimbursed by federal health care programs). The U.S. Department
of Justice (“DOJ”) on behalf of the government takes the position that the marketing and promotional practices of life
sciences product manufacturers, including the off-label promotion of products, the provision of inaccurate or misleading reimbursement
guidance, or the payment of prohibited kickbacks to doctors or other referral sources may cause the submission of improper claims
to federal and state health care entitlement programs such as Medicare and Medicaid by health care providers that use the manufacturer’s
products, which results in a violation of the FCA. In certain cases, manufacturers have entered into criminal and civil settlements
with the federal government under which they entered into plea agreements, paid substantial monetary amounts, and entered into
corporate integrity agreements that require, among other things, substantial reporting and remedial actions going forward.
In addition, there has been a recent trend
of increased federal and state regulation of payments made to physicians and other health care providers. In addition to federal
laws, some states, such as California, Massachusetts, and Vermont, mandate implementation of commercial compliance programs, along
with the tracking and reporting of gifts, compensation, and other remuneration to physicians. The shifting commercial compliance
environment, and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting
requirements in multiple jurisdictions increase the possibility that a health care company may run afoul of one or more of the
requirements.
The scope and enforcement of all of these
laws is uncertain, and subject to rapid change, especially in light of the lack of applicable precedent and regulations. There
can be no assurance that federal or state regulatory or enforcement authorities will not investigate or challenge our current or
future activities under these laws. Any investigation or challenge could have a materially adverse effect on our business, financial
condition, and results of operations. Any state or federal regulatory or enforcement review of us, regardless of the outcome, would
be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are
retroactive or will have effect on a going-forward basis only.
Our use of sensitive patient information
is subject to complex regulations at multiple levels, and we would be adversely affected if we failed to adequately protect this
sensitive information.
We process, maintain, and utilize personal
health and other confidential and sensitive data. In particular, we have developed a web and mobile application through which our
customers can communicate with physicians and others, which may involve sharing patient identifiable health information. The use
and disclosure of such information is regulated at the federal, state, and international levels, and these laws, rules, and regulations
are subject to change and increased enforcement activity, such as the audit program implemented by the U.S. Department of Health
and Human Services under HIPAA. International laws, rules, and regulations governing the use and disclosure of such information
are generally more stringent than in the United States, and they vary from jurisdiction to jurisdiction. Noncompliance with any
privacy or security laws or regulations, or any security breach, cyber-attack, or cybersecurity breach, as well as any incident
involving the theft, misappropriation, loss, or other unauthorized disclosure of, or access to, sensitive or confidential information,
whether by us or by another third party, could require us to expend significant resources to remediate any damage, interrupt our
operations, and damage our brand and reputation, and could also result in investigations, regulatory enforcement actions, material
fines and penalties, loss of customers, litigation, or other actions that could have a materially adverse effect on our business,
brand, reputation, cash flows, and operating results.
Our business depends on provider and patient
willingness to entrust us with health-related and other sensitive personal information. Events that negatively affect that trust,
including inadequate disclosure of our uses of their information, failure to keep our information technology systems and sensitive
information secure from significant attack, theft, damage, loss, or unauthorized disclosure or access, whether as a result of our
action or inaction, or that of third parties, could adversely affect our brand, reputation, and revenues, and also expose us to
mandatory disclosure to the media, litigation (including class action litigation) and other enforcement proceedings, material fines,
penalties and/or remediation costs, and compensatory, special, punitive, and statutory damages, as well as consent orders and/or
injunctive relief, any of which could adversely affect our business, cash flows, operating results, or financial position. There
can be no assurance that any such failure will not occur—or, if any does occur, that we will detect it, or that it can be
sufficiently remediated.
To be commercially successful, we must
convince physicians that our devices are safe and effective alternatives to existing medical devices, and that our devices should
be used.
We believe physicians will only adopt our
devices if they determine, based on experience, clinical data, and published, peer-reviewed journal articles, that the use of our
devices is a favorable alternative to conventional devices/methods. Physicians may be slow to change their practices for the following
reasons, among others:
|
●
|
Lack of evidence supporting additional patient benefits and the advantages of our devices over conventional devices/methods;
|
|
|
|
|
●
|
Perceived liability risks generally associated with the use of new devices; and
|
|
|
|
|
●
|
Limited availability of reimbursement from third-party payers.
|
In addition, we believe that recommendations
for and support of our devices by influential physicians are essential for market acceptance and adoption. If we do not receive
this support or are unable to demonstrate favorable, long-term clinical data, physicians and hospitals may not use our devices,
which would significantly reduce our ability to achieve revenue, and would prevent us from sustaining profitability.
The training required for physicians
to use our Viant™ System could reduce the market acceptance of our products.
As with any new method or technique, physicians
must undergo a thorough training program before they are qualified to perform the surgery to implant our Viant™ System. Physicians
could experience difficulty with the technique necessary to successfully insert the device, and may not achieve the technical competency
necessary to complete the training program. Even after successfully completing the training program, physicians could still experience
difficulty implanting our Viant™ System, and, as a result, limit its use significantly in their practices, or cease utilizing
it altogether.
In addition, we may experience difficulty
growing the number of physicians who complete our training program if patient demand is low, if the length of time necessary to
train each physician is longer than expected, if the capacity of our sales representatives to train physicians is less than expected,
or if we are unable to sufficiently grow our sales organization. All of these events would lead to fewer trained physicians qualified
to implant our Viant™ System, which could negatively affect our business, financial condition, and results of operations,
and impair our ability to grow our business.
We are an “emerging growth company,”
and the reduced disclosure requirements applicable to emerging growth companies may make our Common Stock less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups (“JOBS”) Act, and may remain an emerging growth company for up to
five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain
disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions
include:
|
●
|
Being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
|
|
|
|
|
●
|
Not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
|
|
|
|
|
●
|
Not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
|
|
|
|
|
●
|
Reduced disclosure obligations regarding executive compensation; and
|
|
|
|
|
●
|
Exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
|
We cannot predict whether investors will
find our Common Stock less attractive if we rely on these exemptions. If some investors find our Common Stock less attractive as
a result, there may be a less-active trading market for our Common Stock, and our stock price may be more volatile.
If we fail to maintain proper and effective
internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could
be impaired, which could harm our operating results.
Pursuant to Section 404 of the Sarbanes-Oxley
Act, our management is required to report upon the effectiveness of our internal control over financial reporting. When and if
we become a “large accelerated filer” or an “accelerated filer” and are no longer a “smaller reporting
company,” each as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our independent
registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting.
For so long as we remain a smaller reporting company, however, we intend to take advantage of certain exemptions from various reporting
requirements that are applicable to smaller reporting companies, including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404. Once we are no longer a smaller reporting company, or if, prior to such date,
we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent
registered public accounting firm on the effectiveness of our internal controls over financial reporting. The rules governing the
standards that must be met for management to assess our internal control over financial reporting are complex and require significant
documentation, testing, and possible remediation. To comply with the requirements of being a reporting company under the Exchange
Act, we will need to upgrade our systems, including information technology; implement additional financial and management controls,
reporting systems, and procedures; and ensure we have hired sufficient accounting and finance staff.
Due to the recent acquisitions of foreign
subsidiaries and integration of those entities, management is in the process of evaluating internal controls over financial reporting.
As such, our chief executive officer and chief financial officer concluded that, as of December 31, 2017, our internal controls
over financial reporting were not effective due to the lack of implementation of internal controls over financial reporting across
all operating entities. If we fail to establish and maintain an effective system of internal control over financial reporting,
we may not be able to accurately report our financial results, file our periodic reports on a timely basis, maintain our reporting
status, or prevent fraud. At times, we have not had sufficient accounting and supervisory personnel with the appropriate level
of technical accounting experience and training necessary, or adequate formally documented accounting policies and procedures to
support effective internal controls. As we grow, we will hire additional personnel and engage in external temporary resources,
and may implement, document, and modify policies and procedures to maintain effective internal controls. We may identify deficiencies
and weaknesses, or fail to remediate previously identified deficiencies in our internal controls. If material weaknesses or deficiencies
in our internal controls exist and go undetected or un-remediated, our financial statements could contain material misstatements
that, when discovered in the future, could result in our operating results being materially impacted, and we could fail to meet
our future reporting obligations.
If we discover material weaknesses or
other deficiencies in our internal control and accounting procedures, our stock price could decline significantly, and raising
capital could be more difficult.
If we fail to comply with the rules under
the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or if we fail to remediate the material weaknesses
or other deficiencies in our internal control and accounting procedures in a timely fashion, our stock price could decline significantly,
and raising capital could be more difficult. Moreover, effective internal controls are necessary for us to produce reliable financial
reports, and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud,
our business and operating results could be harmed, investors could lose confidence in our reported financial information, and
the trading price of our Common Stock could drop significantly. In addition, we cannot be certain that material weaknesses or significant
deficiencies in our internal controls will not be discovered in the future.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
We may be unable to complete or integrate
intellectual property acquisitions effectively, which may adversely affect our growth, profitability, and results of operations.
We expect future acquisitions of intellectual
property to play a significant role in our product development growth. As of the date hereof, we have made four such acquisitions;
we cannot, however, be certain that we will be able to continue to identify attractive acquisition opportunities, obtain financing
for acquisitions on satisfactory terms if needed, or successfully acquire identified targets. Additionally, we may not be successful
in integrating acquired intellectual property into our existing operations and realizing anticipated synergies. Competition for
acquisition opportunities in the industry in which we operate may increase our costs of acquisitions or cause us to refrain from
engaging in acquisitions. These and other factors relating to our acquisition of intellectual property could negatively and adversely
impact our growth, profitability, and results of operations.
Variability in intellectual property
laws may adversely affect our intellectual property position.
Intellectual property laws—and patent
laws and regulations in particular—have been subject to significant variability, either through administrative or legislative
changes to such laws or regulations, or changes or differences in judicial interpretation. It is expected that such variability
will continue to occur. Additionally, intellectual property laws and regulations differ between countries. Variations in the patent
laws and regulations or in interpretations of patent laws and regulations in the United States and other countries may diminish
the value of our intellectual property, and may change the impact of third-party intellectual property on us. Accordingly, we cannot
predict the scope of patents that may be granted to us, the extent to which we will be able to enforce our patents against third
parties, or the extent to which third parties may be able to enforce their patents against us.
We may need to negotiate modifications
or extensions of existing intellectual property agreements.
We license intellectual property from third
parties. In the future, we may need to extend, modify, or otherwise negotiate changes to such licenses. There can be no assurance
that the third parties with whom we have (or in the future may have) agreements will agree to such modifications, or that, if they
do, they will do so on terms favorable to us.
We or the third parties whom we license
intellectual property from may become involved in legal proceedings to protect or enforce our intellectual property rights, which
could be expensive and time-consuming.
Competitors or others may infringe upon
our intellectual property rights. To counteract infringement or unauthorized use, we or third parties whom we license intellectual
property from may be required to file patent infringement claims, which can be expensive and time-consuming. In addition, in an
infringement proceeding, a court may decide that certain of our intellectual property is not valid or is unenforceable, or the
court may refuse to stop the other party from using the technology at issue on the grounds that our intellectual property rights
do not cover such technology.
An adverse determination of any litigation
or defense proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly, and could put
outstanding intellectual property applications at risk of not being granted.
Interference proceedings brought by the
United States Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our intellectual
property applications. Litigation or interference proceedings may fail, and, even if successful, may result in substantial costs,
diversion of resources, and distraction of our management. We or our licensors may not be able to prevent misappropriation of our
proprietary rights, particularly in countries where the laws may not protect such rights as comprehensively as in the United States.
Furthermore, due to the substantial amount
of discovery associated with intellectual property litigation, there is a risk that some of our (or our licensors’) confidential
information could be compromised by disclosure. In addition, during the course of this litigation, there could be public announcement
of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, then it could have a substantial adverse effect on the price of our Common Stock. We or our licensors
may not prevail in any litigation or interference proceeding in which we may be involved in the future. Even if we or our licensors
do prevail, such legal proceedings would likely be expensive and time-consuming.
If we are unable
to protect the confidentiality of our proprietary information and know-how related to any of our product candidates, our competitive
position would be impaired and our business, financial condition, and results of operations could be adversely affected.
Some of our technology,
including our knowledge regarding the processing of our product candidates, is unpatented, and is maintained by us as trade secrets.
In an effort to protect these trade secrets, the information is restricted to our employees, consultants, collaborators, and advisors
on a need-to-know basis only. In addition, we require our employees, consultants, collaborators, and advisors to execute confidentiality
agreements upon the commencement of their relationships with us. These agreements require that all confidential information developed
by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept
confidential and not disclosed to third parties. These agreements, however, do not ensure protection against improper use or disclosure
of confidential information, and these agreements may be breached. A breach of confidentiality could affect our competitive position.
In addition, in some situations, these agreements and other obligations of our employees to assign intellectual property to us
may conflict with or be subject to the rights of third parties with whom our employees, consultants, collaborators, or advisors
have had previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets.
Adequate remedies
may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets
would impair our competitive position, and could have a materially adverse effect on our business, financial condition, and results
of operations.
We may become
subject to claims of infringement of the intellectual property rights of others, which could prohibit us from developing our treatment,
require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary
damages. We have not obtained and do not intend to obtain any legal opinion with regard to our freedom to practice our technology.
Third parties
could assert that our processes, product candidates, or technology infringe upon their patents or other intellectual property rights.
Whether a process, product, or technology infringes upon a patent or other intellectual property involves complex legal and factual
issues, the determination of which is often uncertain. We cannot be certain that we will not be found to have infringed upon the
intellectual property rights of others. Because patent applications may remain unpublished for certain periods of time and may
take years to be issued as patents, there may be applications now pending of which we are unaware, and/or that do not currently
contain claims of concern but may later result in issued patents that our product candidates, procedures, or processes will infringe
upon. There may be existing patents that our product candidates, procedures, or processes infringe upon, of which infringement
we are not aware. Third parties could also assert ownership over our intellectual property. Such an ownership claim could cause
us to incur significant costs to litigate the ownership issues. If an ownership claim by a third party were upheld as valid, we
may be unable to obtain a license from the third party on acceptable terms, to continue to make, use, or sell technology free from
claims by that third party of infringement upon the third party’s intellectual property. We have not obtained and do not
intend to obtain any legal opinion with regard to our freedom to practice our technology at this time.
If we are unsuccessful
in actions we bring against the patents of other parties, and it is determined that we infringe upon the patents of third parties,
we may be subject to injunctions, or otherwise prevented from commercializing potential products and/or services in the relevant
jurisdiction; or may be required to obtain licenses to those patents, or develop or obtain alternative technologies, any of which
could harm our business. Furthermore, if such challenges to our patent rights are not resolved in our favor, we could be delayed
or prevented from entering into new collaborations, or from commercializing certain product candidates and/or services, which could
adversely affect our business and results of operations.
If we are successful in obtaining patent
protection, we may not be able to enforce those patent rights against third parties.
Successful challenge
of any future patents, such as through opposition, reexamination,
inter partes
review, interference, or derivation
proceedings could result in a loss of patent rights in the relevant jurisdiction. Furthermore, because of the substantial amount
of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive
information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation, there
could be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our Common
Stock.
We may not
be able to protect our intellectual property in countries outside of the United States.
Intellectual property
law outside the United States is uncertain, and, in many countries, is currently undergoing review and revisions. The laws of some
countries do not protect patent and other intellectual property rights to the same extent as United States laws. Third parties
may challenge our patents in foreign countries by initiating proceedings, including pre- and post-grant oppositions and invalidation
proceedings. Developments during opposition or invalidation proceedings in one country may directly or indirectly affect a corresponding
patent or patent application in another country in an adverse manner. It may be necessary or useful for us to participate in proceedings
to determine the validity of our patents or our competitors’ patents that have been issued in countries other than the United
States. This could result in substantial costs, divert our efforts and attention from other aspects of our business, and have a
materially adverse effect on our results of operations and financial condition.
RISKS RELATED TO COMMERCIALIZATION
If we are unable to obtain required
regulatory approvals, we will be unable to market and sell our product candidates.
Our product candidates are subject to extensive
governmental regulations relating to development, clinical trials, manufacturing, oversight of clinical investigators, record keeping,
and commercialization. Rigorous pre-clinical testing and clinical trials, and an extensive regulatory review and approval process
are required to be successfully completed in the United States, and in each foreign jurisdiction in which we offer our products
before a new drug or other product can be sold in such jurisdictions. Satisfaction of these and other regulatory requirements is
costly, time-consuming, uncertain, and subject to unanticipated delays. The time required to obtain approval by the FDA or the
regulatory authority in other jurisdictions is unpredictable and often exceeds five years following the commencement of clinical
trials, depending upon the complexity of the product candidate and the requirements of the applicable regulatory agency.
In connection with the clinical development
of our product candidates, we face risks that:
|
●
|
The product candidate may not prove to be safe and efficacious;
|
|
●
|
Patients may die or suffer serious adverse effects for reasons that may or may not be related to the product candidate being tested;
|
|
●
|
We may fail to maintain adequate records of observations and data from our clinical trials, to establish and maintain sufficient procedures to oversee, collect data from, and manage clinical trials, or to monitor clinical trial sites and investigators to the satisfaction of the FDA or other regulatory agencies;
|
|
●
|
The results of later-phase clinical trials may not confirm the results of earlier clinical trials; and
|
|
●
|
The results from clinical trials may not meet the level of statistical significance or clinical benefit-to-risk ratio required by the FDA or other regulatory agencies for marketing approval.
|
Only a small percentage of product candidates
for which clinical trials are initiated receive approval for commercialization. Furthermore, even if we do receive regulatory approval
to market a product candidate, any such approval may be subject to limitations such as those on the indicated uses for which we
may market a particular product candidate.
Specifically, design verification, process
validation, and testing requirements for our Viant™ System are nearly complete, and management expects we will complete the
technical file in 2018 (with the exception of some longer-duration biocompatibility and shelf life tests). We expect to receive
a CE Mark in the first half of 2019, but to date this has not been granted, and we cannot be certain that this will be granted.
Our product candidates have not completed
sufficient clinical trials to obtain regulatory approval, and may never demonstrate sufficient safety and efficacy in order to
do so.
Our product candidates are in the clinical
and pre-clinical stages of development. In order to achieve profitable operations, we alone (or in collaboration with others) must
successfully license, develop, manufacture, introduce, and market our products. The time frame necessary to achieve market success
for any individual product—whether or not we develop it—is long and uncertain. The products we are currently developing
will require significant additional research, development, and pre-clinical and clinical testing prior to application for commercial
use or sale. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in clinical
trials, even after showing promising results in early or later-stage studies or clinical trials. Additionally, we may encounter
problems in our clinical trials that may cause us to delay, suspend, or terminate those clinical trials.
If clinical trials or regulatory approval
processes for our product candidates are prolonged, delayed, or suspended, we may be unable to commercialize our product candidates
on a timely basis, which would require us to incur additional costs and delay our receipt of any revenue from potential product
sales.
If our product candidates are licensed,
we cannot predict whether we will encounter problems with any planned clinical trials that will cause us or any regulatory authority
to delay or suspend those clinical trials, or delay the analysis of data derived from them. A number of events, including any of
the following, could delay the completion of our ongoing and planned clinical trials, and negatively impact our ability to obtain
regulatory approval for, and to market and sell, a particular product candidate:
|
●
|
Conditions imposed on us by the FDA or another foreign regulatory authority regarding the scope or design of our clinical trials;
|
|
|
|
|
●
|
Delays in obtaining, or our inability to obtain, required approvals from institutional review boards or other reviewing entities at clinical sites selected for participation in our clinical trials;
|
|
|
|
|
●
|
Insufficient supply of our product candidates or other materials necessary to conduct and complete our clinical trials;
|
|
|
|
|
●
|
Slow enrollment and retention rate of subjects in our clinical trials;
|
|
|
|
|
●
|
Serious and unexpected drug-related side effects related to the product candidate being tested; and
|
|
|
|
|
●
|
Delays in meeting manufacturing and testing standards required for production of clinical trial supplies.
|
Commercialization of our product candidates
may be delayed by the imposition of additional conditions on our clinical trials by the FDA or any other applicable foreign regulatory
authority, or the requirement of additional supportive studies by the FDA or any foreign regulatory authority. In addition, clinical
trials require sufficient patient enrollment, which is a function of many factors, including the size of the patient population,
the nature of the trial protocol, the proximity of patients to clinical sites, the availability of effective treatments for the
relevant disease, the conduct of other clinical trials that compete for the same patients as our clinical trials, and the eligibility
criteria for our clinical trials. Our failure to enroll patients in our clinical trials could delay the completion of the clinical
trials beyond our expectations. In addition, the FDA could require us to conduct clinical trials with a larger number of subjects
than we may have projected for any of our product candidates. We may not be able to enroll a sufficient number of patients in a
timely or cost-effective manner. Furthermore, enrolled patients may drop out of our clinical trials, which could impair the validity
or statistical significance of the clinical trials.
We do not know whether our clinical trials
will begin as planned, will need to be restructured, or will be completed on schedule, if at all. Delays in our clinical trials
will result in increased development costs for our product candidates, and our financial resources may be insufficient to fund
any incremental costs. In addition, if our clinical trials are delayed, our competitors may be able to bring products to market
before we do, and the commercial viability of our product candidates could be limited.
Our product candidates will remain subject
to ongoing regulatory review even if they receive marketing approval, and if we lose these approvals, the sale of any of our approved
commercial products could be suspended.
Even if we receive regulatory approval
to market a particular product candidate, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising,
promotion, and record keeping related to the product will remain subject to extensive regulatory requirements. If we fail to comply
with the regulatory requirements of the FDA and other applicable domestic and foreign regulatory authorities, or discover any previously
unknown problems with any approved product, manufacturer, or manufacturing process, we could be subject to administrative or judicially
imposed sanctions, including:
|
●
|
Restrictions on the products, manufacturers, or manufacturing processes;
|
|
|
|
|
●
|
Warning letters;
|
|
|
|
|
●
|
Civil or criminal penalties;
|
|
|
|
|
●
|
Fines;
|
|
|
|
|
●
|
Injunctions;
|
|
|
|
|
●
|
Product seizures or detentions;
|
|
|
|
|
●
|
Pressure to initiate voluntary product recalls;
|
|
|
|
|
●
|
Suspension or withdrawal of regulatory approvals; and
|
|
|
|
|
●
|
Refusal to approve pending applications for marketing approval of new products, or supplements to approved applications.
|
Our industry is highly competitive,
and our product candidates may become obsolete.
We are engaged in a rapidly evolving field.
Competition from other pharmaceutical companies, biotechnology companies, and research and academic institutions is intense and
likely to increase. Many of those companies and institutions have substantially greater financial, technical, and human resources
than we do. Those companies and institutions also have substantially greater experience in developing products, conducting clinical
trials, obtaining regulatory approval, and manufacturing and marketing pharmaceutical products. Many of our competitors have already
succeeded in obtaining regulatory approval for their products, and may continue to do so more rapidly than we do. Competitors have
developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products.
Our competitors may succeed in developing products that are more effective and/or cost competitive than those we are developing,
or that would render our product candidates less competitive or even obsolete. In addition, one or more of our competitors may
achieve product commercialization or patent protection earlier than we do, which could materially adversely affect our business.
If physicians and patients do not accept
our future products, or if the market for indications for which any product candidate is approved is smaller than expected, we
may be unable to generate significant revenue, if any.
Even if any of our product candidates obtain
regulatory approval, they may not gain market acceptance among physicians, patients, and third-party payers. Physicians may decide
not to recommend our products for a variety of reasons, including:
|
●
|
Timing of market introduction of competitive products;
|
|
|
|
|
●
|
Demonstration of clinical safety and efficacy compared to other products;
|
|
●
|
Cost-effectiveness;
|
|
|
|
|
●
|
Limited or no coverage by third-party payers;
|
|
|
|
|
●
|
Convenience and ease of administration; and
|
|
|
|
|
●
|
Ineffective marketing and distribution support of its products.
|
If any of our product candidates are approved
but fail to achieve market acceptance, or such market is smaller than anticipated, we may not be able to generate significant revenue,
and our business would suffer.
Our ability to generate product and/or
licensing revenues will be diminished if our therapies sell for inadequate prices or patients are unable to obtain adequate levels
of reimbursement.
Our ability to commercialize our therapies,
alone or with collaborators, will depend in part upon the extent to which reimbursement will be available from private health maintenance
organizations, health insurers, and other health care payers. Significant uncertainty exists as to the reimbursement status of
newly approved health care products. Health care payers are challenging the prices charged for medical products and services. Cost-control
initiatives could decrease the price that we would receive for any products in the future, which would limit our revenue and profitability.
Government and other health care payers increasingly attempt to contain health care costs by limiting both coverage and the level
of reimbursement for drugs and therapeutics. We might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness
of any future products to such payers’ satisfaction. Such studies might require us to commit a significant amount of management
time and financial and other resources. Our future products might not ultimately be considered cost-effective. Even if one of our
product candidates is approved by the FDA, insurance coverage may not be available, and reimbursement levels may be inadequate
to cover such therapies. If government and other health care payers do not provide adequate coverage and reimbursement levels for
one of our products, once approved, market acceptance of such product could be reduced.
Our internal computer systems, or those
of our third-party service providers, licensees, licensors, collaborators, or other contractors or consultants, may fail or suffer
security breaches, which could result in a material disruption in our business and operations.
Despite the implementation of security
measures, our internal computer systems and those of our current and future service providers, licensees, licensors, collaborators,
and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism,
war, and telecommunication and electrical failures. While we are not aware of any such material system failure, accident, or security
breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption
of our development programs and business operations. For example, the loss of clinical trial data from completed, on-going, or
future clinical trials could result in delays in our regulatory approval efforts and significant costs to recover or reproduce
the data. Likewise, we rely on third parties to manufacture our drug candidates and conduct clinical trials, and similar events
relating to their computer systems could also have a materially adverse effect on our business. To the extent that any disruption
or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential
or proprietary information, we could incur liabilities, and the further development and commercialization of our product candidates
could be delayed.
Due in part to our limited financial
resources, we may fail to select or capitalize on the most scientifically, clinically, or commercially promising or profitable
indications or therapeutic areas for our product candidates, or those that are in-licensed, and/or we may be unable to pursue the
clinical trials that we would like to pursue.
We have limited technical, managerial,
and financial resources to determine the indications on which we should focus the development efforts related to our product candidates.
Due to our limited available financial resources, we may have curtailed clinical development programs and activities that might
otherwise have led to more rapid progress of our product candidates through the regulatory and development processes.
We may make incorrect determinations with
regard to the indications and clinical trials on which to focus the available resources that we do have. Furthermore, we cannot
assure you that we will be able to retain adequate staffing levels to run our operations, and/or to accomplish all of the objectives
that we otherwise would seek to accomplish. Our decisions to allocate our research, management, and financial resources toward
particular indications or therapeutic areas for our product candidates may not lead to the development of viable commercial products,
and may divert resources from better opportunities. Similarly, our decisions to delay or terminate drug development programs may
also cause us to miss valuable opportunities.
If the third parties on which we rely
for the conduct of our clinical trials and results do not perform our clinical trial activities in accordance with good clinical
practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize our product
candidates.
We use independent clinical investigators
and other third-party service providers to conduct and/or oversee the clinical trials of our product candidates, and expect to
continue to do so for the foreseeable future. We rely heavily on these parties for successful execution of our clinical trials.
Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with the FDA’s
requirements and our general investigational plan and protocol.
The FDA requires us and our clinical investigators
to comply with regulations and standards, commonly referred to as good clinical practices, for conducting clinical trials and recording
and reporting their results to assure that data and reported results are credible and accurate, and that the trial participants
are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and
requirements. Third parties may not complete activities on schedule, or may not conduct our clinical trials in accordance with
regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out their obligations
could delay or prevent the development, approval, and commercialization of our product candidates, or result in enforcement action
against us.
We have limited manufacturing capacity,
and have relied on—and expect to continue to rely on—third-party manufacturers to produce our product candidates.
We do not own or operate manufacturing
facilities for the production of clinical or commercial quantities of our neurostimulation product candidates, and we lack the
resources and the capabilities to do so. As a result, we currently rely on (and expect to do so for the foreseeable future) third-party
manufacturers to supply our product candidates. Reliance on third-party manufacturers entails risks to which we would not be subject
if we manufactured our product candidates or products ourselves, including:
|
●
|
Reliance on third-parties for manufacturing process development, regulatory compliance, and quality assurance;
|
|
|
|
|
●
|
Limitations on supply availability resulting from capacity and scheduling constraints of third-parties;
|
|
|
|
|
●
|
The possible breach of manufacturing agreements by third-parties because of factors beyond our control; and
|
|
|
|
|
●
|
The possible termination or non-renewal of the manufacturing agreements by the third party, at a time that is costly or inconvenient to us.
|
If we do not maintain our key manufacturing
relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities, which could delay or
impair our ability to obtain regulatory approval for our products, and substantially increase our costs or deplete profit margins,
if any. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions
favorable to us, and there could be a substantial delay before new facilities could be qualified and registered with the FDA and
other foreign regulatory authorities.
The FDA and other foreign regulatory authorities
require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities
to confirm compliance with current standards. Contract manufacturers may face manufacturing or quality control problems causing
drug substance production and shipment delays, or a situation where the contractor may not be able to maintain compliance with
the applicable GMP requirements. Any failure to comply with such requirements, or other FDA and comparable foreign regulatory requirements,
could adversely affect our clinical research activities, and our ability to develop our product candidates and market our products
following approval.
Our current and anticipated future dependence
upon others for the manufacture of our product candidates may adversely affect our future profit margins, and our ability to develop
our product candidates and commercialize any products that receive regulatory approval on a timely basis.
If product liability lawsuits are successfully
brought against us, we may incur substantial liabilities, and may be required to limit commercialization of our product candidates
and any products that we may develop.
The testing and marketing of medical products
entail an inherent risk of product liability. Although we are not aware of any historical or anticipated product liability claims
or specific causes for concern, if we cannot successfully defend ourselves against product liability claims, we may incur substantial
liabilities, or be required to limit commercialization of our product candidates and any products that we may develop. In addition,
product liability claims may also result in withdrawal of clinical trial volunteers, injury to our reputation, and decreased demand
for any products that we may commercialize. If we are unable to obtain sufficient product liability insurance at an acceptable
cost, potential product liability claims could prevent or inhibit the commercialization of any products that we may develop, alone
or with corporate partners.
The medical device industry is highly
competitive and subject to rapid technological change.
If our competitors are better able to develop
and market products that are safer, more effective, less costly, or otherwise more attractive than any products that we may develop,
our commercial opportunity will be reduced or eliminated.
Our success depends, in part, upon our
ability to maintain a competitive position in the development of technologies and products for use in the treatment of cardiovascular
disease.
We face competition from established pharmaceutical
and biotechnology companies, as well as from academic institutions, government agencies, and private and public research institutions
in the United States and abroad. Most of the companies developing or marketing competing products are publicly traded, or divisions
of publicly traded companies, and these companies enjoy several competitive advantages, including:
|
●
|
Greater financial and human resources for product development, sales and marketing, and patent litigation;
|
|
|
|
|
●
|
Significantly greater name recognition;
|
|
|
|
|
●
|
Established relationships with health care professionals, customers, and third-party payers;
|
|
|
|
|
●
|
Additional lines of products, and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage;
|
|
|
|
|
●
|
Established distribution networks; and
|
|
|
|
|
●
|
Greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory approval for products, and marketing approved products.
|
For example, Boston Scientific, Abbott
Laboratories, and Medtronic—three companies with far greater financial and marketing resources than we possess—have
each developed and are actively marketing neurostimulation devices that have been approved by the FDA. We may be unable to
demonstrate that our systems offer any advantages over theirs. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with, mergers with, or acquisitions by large and established companies,
or through the development of novel products and technologies.
The industry in which we operate has undergone,
and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technical
advances are made. Our competitors may develop and patent processes or products earlier than us, obtain regulatory approvals for
competing products more rapidly than us, and develop more-effective or less-expensive products or technologies that render our
technology or products obsolete or non-competitive. We also compete with our competitors in recruiting and retaining qualified
scientific and management personnel, establishing clinical trial sites, and patient registration for clinical trials, as well as
in acquiring technologies and technology licenses complementary to our programs or advantageous to our business. If our competitors
are more successful than us in these matters, our business may be harmed.
If we are unable to establish sales
and marketing capabilities, or enter and maintain arrangements with third parties to sell and market our products, our business
may be harmed.
We do not have a sales organization, and
have no experience as a company in the sales, marketing, and distribution of medical devices. To be successful in commercializing
our products, we must either develop a sales and marketing infrastructure or enter into distribution arrangements with others to
market and sell our products. We have not yet hired any European sales people or entered into any third-party distribution agreements.
We currently plan to establish our own
direct U.S. sales force. If we develop our own marketing and sales capabilities, our sales force will be competing with the experienced
and well-funded marketing and sales operations of our more established competitors. Developing a sales force is expensive and time
consuming, and could delay or limit the success of any product launch. We may not be able to develop this capacity on a timely
basis, or at all. If we are unable to establish sales and marketing capabilities, we will need to contract with third parties to
market and sell our products in the United States. To the extent that we enter arrangements with third parties to perform sales,
marketing, and distribution services in the United States or internationally, our product revenue could be lower than if we directly
marketed and sold our products or related devices that we may develop.
Furthermore, to the extent that we enter
co-promotion or other marketing and sales arrangements with other companies, any revenue received will depend on the skills and
efforts of others, and we do not know whether these efforts will be successful. Some of our future distributors may market their
own products or other companies’ products that compete with ours, and they may have an incentive not to devote sufficient
efforts to marketing our products. If we are unable to establish and maintain adequate sales, marketing, and distribution capabilities,
independently or with others, we may not be able to generate product revenue, and may not become profitable.
The manufacturing facilities of our special
process suppliers (e.g., neurostimulation device manufacture, extension manufacture, lead manufacture, sterilization, and calibration)
must also comply with strictly enforced regulatory requirements. If we fail to achieve regulatory approval for our own manufacturing
facilities or those of our suppliers, our business and our results of operations would be harmed.
Completion of our clinical trials and commercialization
of our products require access to, or the development of, manufacturing facilities that comply with the FDA’s Quality Systems
Regulation and Good Manufacturing Practice requirements. The FDA must approve facilities that manufacture our products for domestic
commercial purposes, as well as the manufacturing processes and specifications for the product.
We depend on single-source suppliers
for some of the components in our neurostimulation system. The loss of these suppliers could delay our clinical trials, or prevent
or delay commercialization of our products.
Although we have identified several vendors
for the components of our products, some of our components are currently provided by only one vendor, or a single-source supplier.
In addition, we do not have long-term contracts with our third-party suppliers of some of the equipment and components that are
used in our manufacturing process, and we do not carry a significant inventory of most components used in our products. Establishing
additional or replacement suppliers for these components, and obtaining any additional regulatory approvals that may result from
adding or replacing suppliers will take a substantial amount of time. We may also have difficulty obtaining similar components
from other suppliers that are acceptable to the FDA or foreign regulatory authorities. Furthermore, since some of these suppliers
are located outside of the United States, we are subject to foreign export laws and U.S. import and customs regulations, which
complicate and could delay shipments to us.
If we must switch to replacement suppliers,
we will face additional regulatory delays, and the manufacture and delivery of our products would be interrupted for an extended
period, which would delay completion of our clinical trials or commercialization of our products. In addition, we will be required
to obtain prior regulatory approval from the FDA or foreign regulatory authorities to use different suppliers or components that
may not be as safe or as effective. As a result, regulatory approval of our products may not be received on a timely basis, or
at all.
If we do not achieve our projected development
goals in the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, the value
of our stock may decline.
From time to time, we may estimate and
publicly announce the anticipated timing of the accomplishment of various clinical, regulatory, and other product development goals,
which we sometimes refer to as milestones. These milestones could include obtaining CE Mark approval in the European Union, the
submission of PMA documentation to the FDA, initiation of our pivotal U.S. clinical trials, the enrollment of patients in our clinical
trials, the release of data from our clinical trials, and other clinical and regulatory events. The actual timing of these milestones
could vary dramatically compared to our estimates, in some cases for reasons beyond our control. We cannot assure you that we will
meet our projected milestones. If we do not meet these milestones as publicly announced, the commercialization of our products
may be delayed and, as a result, the value of our stock may decline.
We depend on our officers, and if we
are not able to retain them or recruit additional qualified personnel, our business will suffer.
Due to the specialized knowledge each of
our officers possesses with respect to interventional medicine and our operations, the loss of service of any of our officers could
delay or prevent the successful completion of our neurostimulation device development and the commercialization of our products.
Each of our officers may terminate their employment without notice and without cause or good reason.
Upon receiving regulatory approval for
our products, we expect to expand our operations and grow our research and development, product development, and administrative
operations. Our growth will require hiring a significant number of qualified clinical, scientific, manufacturing, commercial, and
administrative personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There
is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our
activities. If we fail to identify, attract, retain, and motivate these highly skilled personnel, we may be unable to continue
our development and commercialization activities.
If we are unable to manage our expected
growth, we may not be able to commercialize our products, including our neurostimulation system.
If we obtain CE Mark and FDA approvals
for our products, we intend to continue to expand our operations, grow our research and development, product development, and administrative
operations, and invest substantially in our manufacturing facilities. This expansion has and is expected to continue to place a
significant strain on our management and operational and financial resources. To manage any expected growth, and to commercialize
our products, we will be required to improve existing and implement new operational and financial systems, procedures, and controls,
and expand, train, and manage our growing employee base. Our current and planned personnel, systems, procedures, and controls may
not be adequate to support our anticipated growth. If we are unable to manage our growth effectively, our business could be harmed.
RISKS RELATED TO OUR COMMON STOCK
Our shares may be thinly traded with
wide share price fluctuations, low share process, and minimal liquidity.
Our shares of Common Stock began trading
on the OTCQB exchange on September 27, 2017, and have experienced limited trading activity. The share price may be volatile, with
wide fluctuations in response to several factors, including:
|
●
|
Potential investors’ anticipated feelings regarding our results of operations;
|
|
●
|
Increased competition;
|
|
|
|
|
●
|
Our ability or inability to generate future revenues; and
|
|
|
|
|
●
|
Market perception of the future of development of the products and services we offer.
|
In addition, if our shares are quoted on
another trading platform or exchange for which we qualify, our share price may be affected by factors that are unrelated or disproportionate
to our operating performance. Our share price might be affected by general economic, political, and market conditions such as recessions,
interest rates, or international currency fluctuations. In addition, stocks traded over the OTC Markets quotation system are usually
thinly traded, highly volatile, and not followed by analysts. These factors, which are not under our control, may have a material
effect on our share price, and cause the share price to drop below the price you pay in this offering.
Because we can issue additional shares
of Common Stock, purchasers of our Common Stock may suffer immediate dilution, and may experience further dilution in the future
.
We
are authorized to issue up to 75,000,000 shares of Common Stock. As of May 4, 2018, 27,715,911 shares of Common Stock are
issued and outstanding. Our board of directors has the authority to mandate the issuance of additional shares of Common Stock
without the consent of any of our shareholders. Consequently, our shareholders may experience further dilution of their
ownership in the Company in the future, which could have an adverse effect on the trading market for our Common Stock.
We have not paid cash dividends in the
past, and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our Common Stock.
We have never paid cash dividends on our
Common Stock, and do not anticipate doing so in the foreseeable future. The payment of dividends on our Common Stock will depend
on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may
consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only
occur if our stock price appreciates.
If we are not successful in listing
our Common Stock on The NASDAQ Capital Market or other national securities exchanges, our Common Stock is deemed a “penny
stock,” which would make it more difficult for our investors to sell their shares.
Our Common Stock is subject to the “penny
stock” rules adopted under Section 15(g) of the Securities Exchange Act. The penny stock rules generally apply to companies
whose Common Stock is not listed on The NASDAQ Capital Market or other national securities exchanges, and trades at less than $4.00
per share (other than companies that have had average revenue of at least $6,000,000 for the last three years, or that have tangible
net worth of at least $5,000,000 [$2,000,000 if the company has been operating for three or more years]). These rules require,
among other things, that brokers who trade penny stocks to persons other than “established customers” complete certain
documentation, make suitability inquiries of investors, and provide investors with certain information concerning trading in the
security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not
to trade penny stocks because of the requirements of the penny stock rules, and, as a result, the number of broker-dealers willing
to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period,
it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules,
investors will find it more difficult to dispose of our securities. We have applied to have our Common Stock listed on The NASDAQ
Capital Market under the symbol “ .” Although we believe we will satisfy The NASDAQ Capital Market listing requirements,
no assurance can be given that such listing will be achieved in a timely manner, or at all.
Our stock price may be volatile; you
may not be able to resell your shares at or above your purchase price.
The market prices for our securities and
the securities of companies similar to ours have been highly volatile, with price and volume fluctuations, and may continue to
be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have
a significant impact on the market price of our Common Stock, some of which are beyond our control:
|
●
|
Announcements of technological innovations or new commercial products by our competitors or us;
|
|
|
|
|
●
|
Our issuance of equity or debt securities, or disclosure or announcements relating thereto;
|
|
|
|
|
●
|
Developments concerning proprietary rights, including patents;
|
|
|
|
|
●
|
Regulatory developments in the United States and foreign countries;
|
|
|
|
|
●
|
Litigation;
|
|
|
|
|
●
|
Economic and other external factors, or other disasters or crises; or
|
|
|
|
|
●
|
Period-to-period fluctuations in our financial results.
|
Risks Related To
Our Reverse Stock Split
We intend to effect a 1-for-
[●]
reverse
stock split of our outstanding Common Stock immediately prior to this offering. However, the reverse stock split may not increase
our stock price sufficiently and we may not be able to list our Common Stock on The NASDAQ Capital Market.
We expect that the 1-for-[●]
reverse stock split of our outstanding Common Stock will increase the market price of our common stock so that we will be able
to meet the minimum bid price requirement of the Listing Rules of The NASDAQ Capital Market. However, the effect of a reverse
stock split upon the market price of our Common Stock cannot be predicted with certainty, and the results of reverse stock splits
by companies in similar circumstances have been varied. It is possible that the market price of our Common Stock following the
reverse stock split will not increase sufficiently for us to be in compliance with the minimum bid price requirement. If we are
unable meet the minimum bid price requirement, we may be unable to list our shares on The NASDAQ Capital Market.
Even if the reverse stock split achieves
the requisite increase in the market price of our Common Stock, we cannot assure you that we will be able to continue to comply
with the minimum bid price requirement of The NASDAQ Capital Market.
Even if the reverse stock split achieves
the requisite increase in the market price of our Common Stock to be in compliance with the minimum bid price of The NASDAQ Capital
Market, we cannot assure you that the market price of our Common Stock following the reverse stock split will remain at the level
required for continuing compliance with that requirement. It is not uncommon for the market price of a company's Common Stock to
decline in the period following a reverse stock split. If the market price of our Common Stock declines following the effectuation
of a reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any
event, other factors unrelated to the number of shares of our Common Stock outstanding, such as negative financial or operational
results, could adversely affect the market price of our Common Stock and jeopardize our ability to meet or maintain The NASDAQ
Capital Market's minimum bid price requirement. In addition to specific listing and maintenance standards, The NASDAQ Capital Market
has broad discretionary authority over the initial and continued listing of securities, which it could exercise with respect to
the listing of our Common Stock.
Even if the reverse stock split increases
the market price of our Common Stock, there can be no assurance that we will be able to comply with other continued listing standards
of The NASDAQ Capital Market.
Even if the market price of our Common
Stock increases sufficiently so that we comply with the minimum bid price requirement, we cannot assure you that we will be able
to comply with the other standards that we are required to meet in order to maintain a listing of our Common Stock on The NASDAQ
Capital Market. Our failure to meet these requirements may result in our Common Stock being delisted from The NASDAQ Capital Market,
irrespective of our compliance with the minimum bid price requirement.
The reverse stock split may decrease
the liquidity of the shares of our Common Stock.
The liquidity of the shares of our Common
Stock may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following
the reverse stock split, especially if the market price of our Common Stock does not increase as a result of the reverse stock
split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of
our Common Stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and
greater difficulty effecting such sales.
Following the reverse stock split, the
resulting market price of our Common Stock may not attract new investors, including institutional investors, and may not satisfy
the investing requirements of those investors. Consequently, the trading liquidity of our Common Stock may not improve.
Although we believe that a higher market
price of our Common Stock may help generate greater or broader investor interest, we cannot assure you that the reverse stock split
will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance
that the market price of our Common Stock will satisfy the investing requirements of those investors. As a result, the trading
liquidity of our Common Stock may not necessarily improve.
RISKS RELATED TO THIS OFFERING
Investors in this offering will suffer
immediate and substantial dilution.
Because the price per share of our Common
Stock being offered is substantially higher than the net tangible book value per share of our Common Stock, you will suffer substantial
dilution in the net tangible book value of the Common Stock you purchase in this offering. If you purchase shares of Common Stock
and Warrants to purchase shares of Common Stock in this offering, you will suffer immediate and substantial dilution of $
per share in the net tangible book value of the Common Stock. See the section entitled “Dilution” below for a more
detailed discussion of the dilution you will incur if you purchase Common Stock in this offering.
Management will have broad discretion
as to the use of the net proceeds from this offering, and we may not use these proceeds effectively.
We have not designated any portion of the
net proceeds from this offering to be used for any particular purposes. Our management will have broad discretion in the application
of the net proceeds from this offering, and could spend the proceeds in ways that do not improve our results of operations or enhance
the value of our Common Stock. Accordingly, you will be relying on the judgment of our management with regard to the use of these
net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being
used appropriately. Our failure to apply these funds effectively could have a materially adverse effect on our business, delay
the development of our product candidates, and cause the price of our Common Stock to decline.
Future sales or issuances of our Common
Stock may cause the market price of our Common Stock to decline.
The sale of substantial amounts of our
Common Stock, whether directly by us or in the secondary market by existing security holders (including holders of our outstanding
warrants and convertible debt), as well as the perception that such sales could occur, or the availability for future sale of shares
of our Common Stock or securities convertible into (or exchangeable or exercisable for) our Common Stock could materially and adversely
affect the market price of our Common Stock, and our ability to raise capital through future offerings of equity or equity-related
securities. Any such sales may result in significant dilution to our existing shareholders, including you. We cannot assure you
that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater
than the price per share paid by investors in this offering. In addition, investors purchasing shares or other securities in the
future could have rights superior to existing stockholders, which will result in additional dilution to you.
There is no guarantee that we will be
accepted for listing on The NASDAQ Capital Market. If we are accepted, but are not at any point able to comply with the applicable
continued listing requirements or standards of The NASDAQ Capital Market, The NASDAQ Capital Market could delist our Common Stock.
We have applied to have our Common Stock
listed on The NASDAQ Capital Market under the symbol “ .” Although we believe we will satisfy The NASDAQ Capital
Market listing requirements, no assurance can be given that such listing will be achieved in a timely manner, or at all. In the
event we successfully list our Common Stock on The NASDAQ Capital Market, in order to maintain that listing, we must satisfy minimum
financial and other continued listing requirements and standards, including those regarding director independence and independent
committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.
There can be no assurances that we will be able to comply with the applicable listing standards.
In the event that our Common Stock is delisted
from The NASDAQ Capital Market and is not eligible to be listed on another national securities exchanges, trading of our Common
Stock could be conducted in the over-the-counter market, or on an electronic bulletin board established for unlisted securities
such as the OTC Pink or OTCQB. In such event, it could become more difficult to dispose of or obtain accurate price quotations
for our Common Stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which
could cause the price of our Common Stock to decline further. Also, it may be difficult for us to raise additional capital if we
are not listed on a major exchange.
If our Common Stock is not listed on
a national securities exchange, compliance with applicable state securities laws may be required for subsequent offers, transfers.
and sales of the shares of Common Stock offered hereby.
The securities offered hereby are being
offered pursuant to one or more exemptions from registration and qualification under applicable state securities laws. We have
applied to have our Common Stock listed on The NASDAQ Capital Market under the symbol “ .” Although we believe we
will satisfy The NASDAQ Capital Market listing requirements, no assurance can be given that such listing will be achieved in a
timely manner, or at all. No assurance can be given that our application will be approved, and as such we are not required to register
or qualify in any state the subsequent offer, transfer, or sale of the Common Stock, until such time as is necessary. If our Common
Stock is delisted from The NASDAQ Capital Market and is not eligible to be listed on another national securities exchange, subsequent
transfers of the shares of our Common Stock offered hereby by U.S. holders may not be exempt from state securities laws. In such
event, it will be the responsibility of the holder of shares to register or qualify the shares for any subsequent offer, transfer,
or sale in the United States, or to determine that any such offer, transfer, or sale is exempt under applicable state securities
laws.
The Warrants are speculative in nature.
The Warrants to be issued to investors
in this offering do not confer any rights of Common Stock ownership on their holders, such as voting rights or the right to receive
dividends, but rather merely represent the right to purchase shares of Common Stock at a fixed price for a limited period of time.
There can be no assurance that the market price of the Common Stock will ever equal or exceed the exercise price of the Warrants,
and, consequently, whether it will ever be profitable for holders of the Warrants to exercise the Warrants.
If you purchase Units in this offering,
as a holder of Warrants, you will have no rights as a Common stockholder with respect to the shares of Common Stock underlying
the Warrants until you acquire our Common Stock.
If you purchase Units in this offering,
until you acquire our Common Stock upon exercise of your Warrants, you will have no rights with respect to the Common Stock underlying
the Warrants. Upon exercise of your Warrants, you will be entitled to exercise the rights of a common stockholder only as to matters
for which the record date for actions to be taken by our common stockholders occurs after the date you exercise your Warrants.
There is no public market for the Warrants
to purchase shares of our Common Stock being offered by us in this offering, and an active trading market for such Warrants is
not expected to develop.
There is no established public trading market for the Warrants being offered in this offering, and,
we
do not expect that a market will develop. Without an active market, the liquidity of the Warrants will be limited.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus
contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency,
goals, targets, future development, and/or otherwise that are not statements of historical fact. These forward-looking statements
are based on our current expectations and projections about future events, and are subject to risks and uncertainties known and
unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases,
you can identify forward-looking statements by terminology, such as “expects,” “anticipates,” “intends,”
“estimates,” “plans,” “potential,” “possible,” “probable,” “believes,”
“seeks,” “may,” “should,” “could,” or the negative of such terms or other similar
expressions. Accordingly, these statements involve estimates, assumptions, and uncertainties that could cause actual results
to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference
to the factors discussed throughout this prospectus.
You should read
this prospectus and the documents that we reference herein and therein and have filed as exhibits to the registration statement
(of which this prospectus is part) completely and with the understanding that our actual future results may be materially different
from what we expect. You should assume that the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Because the risk factors referred to above could cause actual results or outcomes to differ
materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance
on any forward-looking statements. These risks and uncertainties, along with others, are described above under the heading
“Risk Factors” beginning on page 7 of this prospectus. Further, any forward-looking statement speaks only as
of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which the statement is made, or to reflect the occurrence of unanticipated events. New factors emerge from time
to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor
on our business, or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. We qualify all of the information presented in this prospectus, and particularly
our forward-looking statements, by these cautionary statements.
USE OF PROCEEDS
We estimate that the net proceeds of this
offering from the issuance and sale of shares of Common Stock and Warrants to purchase shares of Common Stock in this offering
will be approximately $ , or approximately $
if the underwriters exercise the over-allotment option in full, after deducting the estimated underwriting discount and estimated
offering expenses payable by us. We cannot predict when the Warrants will be exercised. If all of the Warrants issued in this offering
are exercised for cash, then we will receive an additional $ of proceeds. It is possible that the Warrants may be exercised
on a cashless basis, or expire prior to being exercised, in which case we will not receive any additional proceeds.
A $0.25 increase (decrease) in the assumed
public offering price of $ per Unit would increase (decrease)
the expected net proceeds of this offering by approximately $ million,
assuming the number of Units offered by us remains the same, and after deducting the estimated underwriting discount and estimated
offering expenses payable by us. A 100,000 increase (decrease) in the assumed number of Units sold in this offering would increase
(decrease) the expected net proceeds of this offering by approximately $ million,
assuming the assumed public offering price per Unit remains the same.
We intend to use the net proceeds received
from this offering for a FDA pivotal study, research and development involving additional applications of our existing neurostimulation
platform, working capital, general corporate purposes, and $1,288,000 to pre-pay the outstanding senior secured convertible promissory
note to Leonite Capital including $1,120,000 of principal and $168,000 in pre-payment penalties. The Leonite Capital, LLC debt
is a 12% percent, 24 month term note that matures August 2019.
We believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon,
will be sufficient to fund our operations for at least the next 24 months.
We have not yet determined the amount of
net proceeds to be used specifically for any of the foregoing purposes. Accordingly, we will retain broad discretion over the use
of these proceeds.
PRICE RANGE OF COMMON STOCK
AND RELATED MATTERS
There is a limited public market for our
common shares. Our Common Stock has traded on the OTCQB under the ticker symbol “NXNN” since September 27, 2017.
Prior to September 27, 2017 there was no public market for our common stock.
Trading in stocks quoted on the OTCQB platform
is often thin, and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s
operations or business prospects. We cannot assure you that there will be a market for our Common Stock in the future.
In connection with the offering made hereby,
we have applied for listing of our Common Stock on The NASDAQ Capital Market under the symbol “ .”
The following table sets forth the high
and low sales prices for our Common Stock for each quarterly period since September 27, 2017. These prices do not reflect the expected
1-for-[
·
] reverse stock split that we intend to effect in connection with this
offering.
|
|
High
|
|
|
Low
|
|
Fiscal Year 2017
|
|
|
|
|
|
|
Third quarter (since September 27, 2017)
|
|
$
|
2.00
|
|
|
$
|
2.00
|
|
Fourth quarter
|
|
$
|
2.50
|
|
|
$
|
0.44
|
|
Fiscal Year 2018
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
1.80
|
|
|
$
|
0.55
|
|
Second quarter (through May 4, 2018)
|
|
$
|
0.95
|
|
|
$
|
0.41
|
|
The last reported sales price of our Common
Stock on the OTCQB on May 4, 2018 was $0.94. According to the records of our transfer agent, as of May 4, 2018, there were 253
holders of record of our Common Stock. Quotes on the OTCQB may not be indicative of the market price of our Common Stock on a national
securities exchange, including The NASDAQ Capital Market.
DIVIDEND POLICY
We have never declared or paid cash dividends
on our capital stock. We currently intend to retain any future earnings for use in the operation of our business, and do not intend
to declare or pay any cash dividends in the near future. Any further determination to pay dividends on our capital stock will be
at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of
operations, capital requirements, general business conditions, and other factors that our board of directors consider relevant.
DILUTION
If you purchase Units in this offering,
you will experience dilution to the extent of the difference between the price per Unit you pay in this offering and the net tangible
book value per share of our Common Stock immediately after this offering. The net tangible book value of our Common Stock on December
31, 2017, was approximately $1,129,497, or approximately $0.04 per share. Net tangible book value per share is equal to the amount
of our total tangible assets, less total liabilities, divided by the aggregate number of shares of our Common Stock outstanding.
After giving effect to the assumed sale
by us of shares
of Common Stock and Warrants to purchase shares of Common Stock in this offering at an assumed public offering price of $ per
Unit, and after deducting the estimated underwriting discount and estimated offering expenses payable by us, our as adjusted net
tangible book value as of December 31, 2017, would have been approximately $ million,
or approximately $ per share. This represents
an immediate increase in net tangible book value of approximately $ per
share to existing stockholders, and an immediate dilution of approximately $ per
share to new investors purchasing shares of our Common Stock and Warrants to purchase shares of Common Stock in this offering.
The following table illustrates this per share dilution:
Assumed public offering price per common share
|
|
$
|
|
|
|
|
|
|
|
Pro forma net tangible book value per common share as of December 31, 2017
|
|
|
0.04
|
|
Increase in pro forma net tangible book per common share attributable to this offering
|
|
|
|
|
Adjusted pro forma net tangible book value per common share after this offering
|
|
|
|
|
|
|
|
|
|
Dilution in pro forma net tangible book value per common share to new investors
|
|
$
|
|
|
A $0.25 increase in the assumed public
offering price of $ per Unit would
increase our as adjusted net tangible book value after this offering by approximately $ million,
or approximately $ per share, and increase the dilution to new investors by approximately
$ per share, assuming
that the number of Units offered by us, as set forth above, remains the same, and after deducting the estimated underwriting discount
and estimated offering expenses payable by us. A $0.25 decrease in the assumed public offering price of $ per
Unit would decrease our as adjusted net tangible book value after this offering by $ million,
or approximately $ per share, and decrease the dilution per share
to new investors by approximately $ per share, assuming that the number
of Units offered by us, as set forth above, remains the same, and after deducting the estimated underwriting discount and estimated
offering expenses payable by us. We may also increase or decrease the number of Units we are offering from the assumed number
of shares set forth above. An increase (decrease) of 100,000 in the assumed number of Units sold in this offering would increase
(decrease) our as adjusted net tangible book value after this offering by approximately $ million,
or approximately $ per share,
and increase (decrease) the dilution per share to new investors by approximately $ per
share, assuming that the public offering price of $ per
share remains the same. The information discussed above is illustrative only, and will adjust based on the actual public offering
price, the actual number of Units that we offer in this offering, and other terms of this offering determined at pricing.
If the underwriters exercise in full their
option to purchase additional
Units in full at the assumed public offering price of $ per
Unit, the as adjusted net tangible book value of our Common Stock after this offering would be $ per
share, representing an immediate increase in net tangible book value of approximately $ per
share to existing stockholders, and an immediate dilution of $ per
share to the investors in this offering, after deducting the underwriting discount and estimated offering expenses payable by us.
This table does not take into account further
dilution to new investors that could occur upon the exercise of outstanding options and warrants having a per share exercise price
less than the public offering price per share in this offering. In addition, we may choose to raise additional capital due
to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating
plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance
of these securities could result in further dilution to our stockholders.
The table and discussion above are based
on 27,591,441 shares outstanding as of December 31, 2017, and exclude as of that date:
|
●
|
2,252,142 shares of our Common Stock issuable upon exercise of outstanding vested options at a weighted average exercise price of $1.02 per share, and 2,747,759 shares of our Common Stock issuable upon exercise of outstanding unvested options at a weighted average exercise price of $0.97 per share; and
|
|
|
|
|
●
|
1,160,761 shares of our Common Stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.32 per share.
|
CAPITALIZATION
The following table sets forth our capitalization as of December
31, 2017:
|
●
|
On an actual basis;
|
|
|
|
|
●
|
On a pro forma as adjusted basis to give effect to the receipt of $ in net proceeds as previously discussed through the issuance of Units in this offering at an assumed public offering price of $ per Unit, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.
|
You should consider this table in conjunction
with “Use of Proceeds,” “Description of Securities,” and our financial statements (and the notes to those
financial statements) included elsewhere in this prospectus.
|
|
As of December 31, 2017
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
|
|
for This
|
|
|
|
Reported
|
|
|
Offering
|
|
|
|
|
|
|
|
|
Long-term debt, net of debt discount, and deferred financing costs of $
|
|
$
|
3,348,730
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001
|
|
|
27,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
15,497,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity instruments to be issued
|
|
|
65,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(3,743,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
21,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
11,868,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
15,217,719
|
|
|
$
|
|
|
A $0.25 increase
(decrease) in the assumed public offering price of $ per
Unit would increase (decrease) each of additional paid-in capital, total stockholder’s equity, and total capitalization by
approximately $ million, assuming that the number of Units offered by
us, as set forth above, remains the same, and after deducting the estimated underwriting discount and estimated offering expenses
payable by us.
The table above and the number of shares of Common Stock that
will be outstanding after the offering is based on 27,591,441 shares of Common Stock outstanding as of December 31, 2017, and excludes:
|
●
|
2,269,142 shares of our Common Stock issuable upon exercise of outstanding vested options at a weighted average exercise price of $1.02 per share, and 2,730,758 shares of our Common Stock issuable upon exercise of outstanding unvested options at a weighted average exercise price of $0.97 per share; and
|
|
●
|
1,160,761 shares of our Common Stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.32 per share.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of financial condition and results of operations should be read together with our financial
statements and accompanying notes appearing elsewhere in this Prospectus. This Management’s Discussion and Analysis
contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements”
set forth in the beginning of this Prospectus, and see “Risk Factors” beginning on page 7 for a discussion of
certain risk factors applicable to our business, financial condition, and results of operations. Operating results are not
necessarily indicative of results that may occur in future periods.
Overview
We are a neuromodulation medical device
manufacturing company focused on the development and commercialization of our neurostimulation technology platform for the treatment
of various disorders via electrical stimulation of tissues associated with the nervous system. Our consolidated operations include
operations of the following wholly owned subsidiaries: Nexeon Europe, NXPROC, NMB, which owns and operates Medi-Line, SA, and Pulsus.
Nexeon Europe is the holding company for NXPROC and NMB. NXPROC is focused on advanced computational biology and deep learning
utilization associated with the Internet of Medical Things technology. Pulsus conducts research and development related to cardiovascular
disease technology.
Our operations to date include research
and development activities, our acquisition of NXDE (which included acquisition of certain intellectual property), the acquisition
of NMB (with its neurostimulation technology platform and its wholly owned subsidiaries INGEST and Medi-Line, and the operations
of Medi-Line from September 31, 2017 to December 31, 2017), and the closing of two private placement offerings.
As of December 31, 2017, we had an accumulated
deficit of $3,743,438. For the years ended December 31, 2017 and 2016, our net loss was $2,177,641 and $802,463, respectively.
We expect that we will continue to incur
significant expenses and increasing operating losses relating to our ongoing activities, particularly as we continue to invest
in research and development and initiate clinical trials required to receive regulatory approval for our medical devices in both
the United States and European Union. Additionally, when we initiate a launch of one or more of our products, we expect to incur
substantial commercialization expenses related to the manufacture and distribution, as well as sales and marketing, of these products.
In addition, we are subject to additional costs associated with operating as a public company. Accordingly, we may need to obtain
additional funding to continue operations. Such financing may not be available to us on acceptable terms, or at all. In the event
we require additional capital and are unable to secure such funding, we could be forced to delay, reduce, or eliminate our research
and development activities, as well as any future commercialization of our products.
Prior to the acquisition of Medi-Line and
NMB, we had not generated any revenues, and we financed our operations primarily with net proceeds from the private placements
of our Common Stock and non-dilutive research and development grant awards. Our ability to generate revenues in addition to the
Medi-Line manufacturing revenues will depend heavily on the successful completion of the requisite clinical trials and studies
necessary to achieve approval to begin marketing our contemplated neurostimulation devices from the relevant regulatory authorities
in the United States and the European Union.
Business Segments
We operate in two distinct business segments
within the medical device industry: manufacturing and neurostimulation. The manufacturing segment includes the manufacturing operations
of our wholly owned subsidiary Medi-Line located in Angleur (Liege) Belgium. Medi-Line manufactures single-use medical devices
for the medical and pharmaceutical sectors, including radiopharmacy technology, urology products, and sterilization cases and trays.
It also designs, develops, and offers worldwide production and supply-chain capabilities for these products to its customers.
The neurostimulation segment includes development,
manufacturing, and commercialization of neurostimulation technology for the treatment of various neurological disorders through
electrical stimulation of neural tissues. Our first commercial application of its platform will be the Viant™ Deep Brain
Stimulation System. Operations for the neurostimulation segment are conducted in the United States, Puerto Rico, Belgium, and Germany.
Other items of revenue not directly related to manufacturing or neurostimulation revenues are categorized as other operating income.
Other operating income and expenses not directly related to a specific segment are identified as income (expense) not allocated
to segments.
Results of Operations
Consolidated Sales Revenue
In 2017, consolidated revenues increased
121% to $3,302,775. The change in consolidated revenues consisted of the following segmented revenue activity:
Revenues by Segment
|
|
2017
|
|
|
2016
|
|
|
% Change
|
|
Manufacturing
|
|
$
|
2,932,664
|
|
|
$
|
—
|
|
|
|
—
|
%
|
Neurostimulation
|
|
|
291,750
|
|
|
|
1,456,038
|
|
|
|
(80.0
|
)
|
Other
|
|
|
78,361
|
|
|
|
38,843
|
|
|
|
101.7
|
|
Revenue
|
|
$
|
3,302,775
|
|
|
$
|
1,494,881
|
|
|
|
120.9
|
%
|
Manufacturing segment: For the year ended
December 31, 2017, manufacturing sales were $2,932,664 for the period from September 1, 2017 to December 31, 2017, subsequent to
acquisition of Medi-Line on August 30, 2017.
Neurostimulation segment: For the year
ended December 31, 2017, neurostimulation sales decreased 80% as compared to the year ended December 31, 2016. The reduction in
neurostimulation sales year over year primarily relates to a one-time option payment in the amount of $1,005,513 for the manufacture
and supply of pre-clinical implantable neurostimulator devices in 2016.
Other: For the years ended December
31, 2017 and 2016, our other operating revenues were $78,361 and $38,843, respectively. Other operating income consists primarily
of Belgian government credits for employing staff in the research and development sector.
Consolidated Earnings (Loss) Before
Provision for Taxes on Income
Consolidated loss before provision for
taxes for the year ended December 31, 2017 was $2,177,641, as compared to a loss of $802,463 for the year ended December 31, 2016.
Income Before Tax by Segment
|
|
2017
|
|
|
2016
|
|
|
% Change
|
|
Manufacturing
|
|
$
|
(31,698
|
)
|
|
$
|
—
|
|
|
|
—
|
%
|
Neurostimulation
|
|
|
(6,117,404
|
)
|
|
|
(673,117
|
)
|
|
|
808.8
|
|
Other
(1)
|
|
|
3,971,461
|
|
|
|
(129,346
|
)
|
|
|
(3,170.4
|
)
|
Income (loss) before taxes
|
|
$
|
(2,177,641
|
)
|
|
$
|
(802,463
|
)
|
|
|
171.4
|
%
|
(1)
Amounts not allocated
to segments include interest income (expense) and other income (expense) and amortization of acquisition intangible assets.
Manufacturing segment: In 2017, the manufacturing
segment income before tax as a percent of manufacturing revenues was (1.08%), reflecting activity for the period of ownership by
us from September 1, 2017 to December 31, 2017, and therefore no comparison to 2016 is provided. During the period, Medi-Line incurred
a charge in the amount of $168,933 related to a severance payment for a long-term employee that was terminated. In Belgium, severance
payment requirements and accruals are administered by and mandated by the Belgian government, and accrue based on time in service.
Neurostimulation segment: In 2017, the
neurostimulation segment loss before tax as a percent of revenues was (2,097%). The decrease in income before tax as a percent
of neurostimulation revenue reflects increased research and development activities, increase in staff and corporate infrastructure,
and a decrease in neurostimulation revenue year over year from 2016, which included a one-time option payment in the amount of
$1,005,513.
Cost of Product Sold, Research and
Development Expense, and Selling, General, and Administrative Expense
Cost of product sold, research and development
expense, and selling, general, and administrative expense as a percentage of revenue were as follows:
|
|
2017
|
|
|
% Rev
|
|
|
2016
|
|
|
% Rev
|
|
Cost of product sold
|
|
$
|
2,321,756
|
|
|
|
70.3
|
%
|
|
$
|
39,129
|
|
|
|
2.6
|
%
|
Research and development expenses
|
|
|
2,942,981
|
|
|
|
89.1
|
|
|
|
759,502
|
|
|
|
50.8
|
|
Selling, general, and administrative expenses
|
|
|
2,831,069
|
|
|
|
85.7
|
%
|
|
|
693,603
|
|
|
|
46.4
|
%
|
Cost of product sold: Consolidated costs
of products sold for the year ended December 31, 2017 increased to 70.3% of revenue from 2.6% for the year ended December 31, 2016.
The increase was driven by the addition of Medi-Line’s manufacturing activity in 2017, and the option payment of $1,005,513
for the manufacture and supply of pre-clinical implantable neurostimulator devices in 2016.
Research and development expenses: Consolidated
research and development expenses for the year ended December 31, 2017 increased to 89.1% of revenue from 50.8% for the year ended
December 31, 2016. The increase reflects the increased research and development activities for our neurostimulation platform, and
for manufacturing setup and non-recurring engineering for the Viant™ Deep Brain Stimulation System.
Research and development (“R&D”)
expenses consist of the costs associated with our research and discovery efforts related to the design and development of our proposed
medical devices. Primarily, R&D expenses are expected to include, but may not be limited to:
|
●
|
Facilities, laboratory supplies, equipment, and related expenses;
|
|
|
|
|
●
|
Employee-related expenses, which among other things include salaries, benefits, travel, and stock-based compensation;
|
|
|
|
|
●
|
External R&D activities incurred under arrangements with third-parties, such as contract research organizations, manufacturing organizations, consultants, and possibly a scientific advisory board; and
|
|
|
|
|
●
|
License fees and other costs associated with securing and protecting IP.
|
We have been awarded multiple grants and
subsidies for its research and development activities, and receives these funds as advance payments and reimbursements for applicable
project expenses. We recognize the amounts received in accordance with the contracts as a reduction of research and development
expenses over the periods necessary to match the contract on a systematic basis to the costs that it is intended to compensate.
We record, on the balance sheet, grants receivable upon meeting the criteria discussed above until cash is received. For the years
ended December 31, 2017 and 2016, we have recorded a credit to research and development expense of $1,648,407 and $445,083 respectively
related to these grants and subsidies.
It is expected that our R&D activities
and related expenses will increase significantly in the future as we increase the scope and rate of such efforts, and begin more
expensive development activities, including clinical trials and similar studies as required by the relevant regulatory authorities
in our targeted jurisdictions (i.e., the United States and European Union).
Selling, general and administrative expenses:
General and administrative expenses generally consist of salaries and similar costs associated with employees, including stock-based
compensation expenses. This category of expenses may also include facility costs and professional fees related to (i) legal and
accounting services; (ii) capital formation; (iii) investor and public relations services; and (iv) general corporate consulting
services.
For the year ended December 31, 2017, our
selling, general, and administrative expenses increased to 85.7% of revenue from 46.4% for the year ended December 31, 2016. The
change was driven by the addition of the Medi-Line activity, the addition of executive and sales staff salaries and wages, stock
option expenses, increased public reporting and trading expenses, increased capital formation costs, and IR/PR costs.
It is expected that our selling, general,
and administrative expenses will increase in the future as we expand our R&D activities in pursuit of regulatory approval for
our contemplated medical devices, and as we increase our sales and marketing expenses related to the sales of our neurostimulation
devices. Such a rise in expenses could result from:
|
●
|
Increased number of employees;
|
|
|
|
|
●
|
Expanded infrastructure;
|
|
|
|
|
●
|
Higher legal and compliance costs;
|
|
|
|
|
●
|
Increased complexity of our financial statements that could precipitate a rise in our bookkeeping and accounting costs;
|
|
|
|
|
●
|
Higher insurance premiums; or
|
|
|
|
|
●
|
Increased need for investor and public relation services.
|
Depreciation and Amortization
Depreciation and amortization expenses
consist of amortization of acquired intangibles and depreciation of buildings, capital improvements, capitalized building lease,
office equipment, and furniture and fixtures. Property and equipment is depreciated using the straight-line method over the estimated
useful lives of the assets.
During the year ended December 31, 2016,
we acquired $6,120,000 in patents pertaining to the cardiovascular disease technology acquired in the merger with NXDE, and acquired
$3,190,000 in patent licenses for the underlying patents referred to as the Siemens Patents. NMB holds patents and licenses totaling
$1,053,097 related to our neurostimulation technology and devices. The amortization period for each of the individual patents depends
on the legal terms for patents in the countries in which they are granted. In most countries, including the United States, the
patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable
country. The patents and patent licenses are amortized using the straight-line method over the remaining time until expiration.
The majority of these patents and patents underlying the license will expire between 2019 and 2036.
For the years ended December 31, 2017 and
2016, our depreciation expenses were $127,677 and $38,962, respectively. For the years ended December 31, 2017 and 2016, our amortization
expenses were $1,170,033 and $597,959 respectively.
Interest Income (Expense)
For the year ended December 31, 2017, our
interest expense, net of interest income, was $111,931, and for the year ended December 31, 2016, interest income, net of interest
expense, was $5,311. For the year ended December 31, 2017, the net interest income (expense) includes interests on bank loans and
credit facilities, interest on leasing, interest on mezzanine debt, interest on shareholder notes, and amortizing interest for
the original discount of mezzanine debt in the amount of $45,711 in 2017. For the year ended December 31, 2016, net interest income
(expense) includes interest income on related party loans, interest on leasing, interest on credit facilities, and interest on
shareholder notes.
Other Income (Expense), net of Interest
Income (Expense)
For the years ended December 31, 2017 and
2016, we recorded other income, net of other expenses, in the amount of $4,025,031, and recorded an expense in the amount of $173,500,
respectively. For the year ended December 31, 2017, and based on the purchase price allocation and third-party valuations for Medi-Line’s
real estate, land, and intangibles, management recorded a gain on bargain purchase for the acquisition of INGEST and Medi-Line
in the amount of $4,311,554. We also recorded another expense in the amount of $37,788 for the loss on the exchange of stock (
See
Note 13 Related Party Transactions
-
January 6, 2017 Stock Exchange Agreement, to the Consolidated Financial Statements
included herein)
, and an expense in the amount of $174,252 to record the bad debt on the write-off of a note receivable (
See
Note 13 Related Party Transactions
-
Nuviant Medical, GmbH Waiver of Debt Agreement, to the Consolidated Financial
Statements included herein);
and recorded an expense in the amount of $74,483 for the impairment of patents assets.
Provision for Income Taxes
For the years ended December 31, 2017 and
2016, we recorded no tax provision.
Liquidity and Capital Resources
Sources of Liquidity
2016 Private Placement
Prior to the acquisition of NMB and its
subsidiary Medi-Line, we had not generated any revenues. We have financed our operations to date through private placements, National
Institutes of Health awards for research and development projects, and loans from our largest shareholder, RS. On December 2, 2016,
we closed a private placement (the “2016 Private Placement”). We received $2,864,946 in net cash proceeds from the
issuance of 2,864,946 units in the 2016 Private Placement at $1.00 per unit. Each unit consisted of one share of restricted Common
Stock and one warrant to purchase one additional share of restricted Common Stock. The warrants have an exercise price of $2.00
per share, and expire 36 months from the closing date of the 2016 Private Placement.
2017 Private Placement
On July 20, 2017, we closed on a private
placement pursuant to which it received $1,165,000 from the sale and issuance of 932,000 shares of restricted Common Stock (the
“2017 Private Placement”). The shares of Common Stock were offered at $1.25 per share in addition to $150,000 in cash
Common Stock sales.
Research and Development Grants
Our wholly owned subsidiary Pulsus was
awarded $751,000 of federal research grants applicable to Pulsus’ products, and these funds became available to us beginning
in the quarter ended September 30, 2017. We have been awarded a grant by the Cancer Prevention and Research Institute of Texas,
which was approved in the amount of $395,156, and received $324,841 in December 2017.
NMB has been awarded subsidies from
the Public Service of Wallonia - Department of Technology Development and the Research Programs Department. NMB currently has approximately
$1,045,929 in remaining awarded funds, and is awaiting final approval on one pending grant application from Public Service of Wallonia
in the amount of approximately $1,419,000.
Medi-Line has been awarded subsidies from
the Public Service of Wallonia - Department of Technology Development and the Research Programs Department. Medi-Line currently
has approximately $1,033,680 in remaining awarded funds, and is awaiting final approval on one pending grant application from Public
Service of Wallonia in the amount of approximately $1,052,542.
2017 Tax Grant
On December 27, 2017, NXPROC, a wholly
owned subsidiary of the Company, was granted a tax exemption pursuant to Act number 73-2008 (“ACT 73”) by the Government
of Puerto Rico, Department of Economic Development and Commerce. The exemption allows NXPROC to obtain tax credits in the amount
of 50% of approved applicable research and development expenses of NXPROC. These tax credits can be used to offset current year
income taxes, or, if no income tax is due, can be sold to companies operating in Puerto Rico to offset their income tax. In the
case of a sale of the tax credits, the tax credits are typically sold at a discount to the dollar value of the credits.
2017 Issuances for Services
During the year ended December 31, 2017,
we issued an aggregate of 715,667 shares of Common Stock for certain research and development consulting services, software development,
legal, and corporate structuring rendered by third-party consultants. The foregoing shares were valued at $610,893
As of December 31, 2017, we had cash on
hand of $883,962, and a working capital surplus of $796,323. Based upon our budgeted burn rate, and along with grant funding,
we currently have operating capital for approximately two months. We have historically relied on equity or debt financings and
federal research and development subsidies to finance its ongoing operations. Upon completion of this offering, and assuming the
full amount offered is raised, we expect to have operating capital for 24 months.
During the next 12 months, we may
elect to issue additional debt or equity either by private placement or a registered offering. There can be no assurance that we
will be successful in completing any new debt and/or equity financing, or receive assignments of grants. If we are unable to secure
needed financing, or is unable to secure such financing on terms we find favorable, we may be forced to delay, limit, or terminate
product development and/or future product commercialization.
Future Financing; Continued Operations
Until such time (if ever) as we can generate
substantial revenues to cover the development and commercialization of our neurostimulation technology platform, we expect
to finance our cash needs through a combination of future debt and equity financing, as well as expected non-dilutive research
grant awards. Besides certain grant awards, as described above, we do not have any committed external source of funds. To the extent
that we secure additional capital through the sale of convertible debt or equity securities, the ownership interest of our stockholders
may be diluted, and the terms of any such securities we issue may include liquidation or other preferences that adversely affect
the rights of common stockholders. In cases where we secure certain debt financing, if any such is available, we may become subject
to certain covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital
expenditures, or declaring dividends. In the event we are unable to secure needed financing or are unable to secure such financing
on terms we find favorable, we may be forced to delay, limit, or terminate product development and/or future commercialization
of the same.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements,
including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support, or other
benefits.
Critical Accounting Policies
We intend to utilize the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) as allowed by
Section 107(b)(1) of the JOBS Act for the adoption of new or revised accounting standards as applicable to emerging growth companies.
Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective
dates for public and private companies until such time as those standards apply to private companies. We have elected to use the
extended transition period for complying with these new or revised accounting standards. Since we will not be required to comply
with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public
companies, our financial statements may not be comparable to the financial statements of companies that comply with public company
effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant
to Section 107 of the JOBS Act.
Our management’s discussion and analysis
of the Company’s financial condition and results of operations is based on our consolidated financial statements, which were
prepared in conformity with generally accepted accounting principles. The preparation of our consolidated financial statements
requires us to establish accounting policies and make estimates and assumptions that affect our reported amounts of assets and
liabilities at the date of the consolidated financial statements. These consolidated financial statements include some estimates
and assumptions that are based on informed judgments and estimates of management. We evaluate our policies and estimates on an
on-going basis, and discuss the development, selection, and disclosure of critical accounting policies with the board of directors.
Predicting future events is inherently an imprecise activity, and as such requires the use of judgment. Our consolidated financial
statements may differ based upon different estimates and assumptions.
The Company’s significant accounting
policies are described in more detail in the notes to our consolidated financial statements, above, (
See Note 2, Summary
of Significant Accounting Policies to the Consolidated Financial Statements included herein)
, which we believe set forth
the most critical accounting policies to aid you in fully understanding and evaluating our financial condition and results of operations.
New Accounting Pronouncements
Management does not believe that any recently
issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated
financial statements.
BUSINESS
We are a medical device company focused on the development, manufacturing, and commercialization of neurostimulation technology
for the treatment of various neurological disorders through electrical stimulation of neural tissues. Our neurostimulation technology
platform has the potential to provide treatment to patients in several established neurostimulator markets, including deep brain
stimulation (DBS), peripheral electrical nerve stimulation (PENS), sacral nerve stimulation (SNS), spinal cord stimulation (SCS),
vagus nerve stimulation (VNS), and other emerging neurostimulator markets.
Our first commercial application of our
platform will be the Viant™ Deep Brain Stimulation System (or the Viant™ System). We will pursue regulatory approval
of the Viant™ System for Parkinson’s disease, essential tremor, and dystonia in Europe in the first half of 2019, and
for Parkinson’s disease in the United States in the second half of 2019. The Viant™ DBS device is designed to deliver
best-in-class stimulation with the capability to collect local field potential (LFP) recordings. Using LFP surveys, neurologists
will be able to quickly and confidently determine where to stimulate to take full advantage of directional leads. Moreover, our
devices are designed to be non-invasively upgradable, enabling both physicians and patients to benefit from the latest technology
as it is developed, without the need for IPG replacement surgery to take advantage of new features.
The Viant™ System continues to meet
critical milestones in its development program. Previous generations of the device have been CE Marked and were manufactured and
sold to GlaxoSmithKline plc, a British pharmaceutical company.. We completed the ISO 13485 certification process, which is a pivotal
hurdle prior to regulatory submissions to the CE Mark authorities. Design verification, process validation, and testing requirements
are nearly complete, and management expects we will complete the technical file in 2018 (with the exception of some longer duration
biocompatibility and shelf life tests). We expect to receive a CE Mark in 2019. As related to the United States, we completed the
pre-submission meetings with the FDA in early 2018 to determine scope of requirements for approval of the Viant™ System.
As a result of that meeting, we intend to submit an PMA application without a clinical study. The FDA has changed their approach
to referencing other manufacturers’ data, which allows us to rely on safety and efficacy data from the nearly 150,000 successful
DBS implants that have been completed by other manufacturers.
We have additional opportunities to license
the neurostimulator platform to companies focused on enhancements to a comprehensive system offering for closed-loop, chronic disease
therapeutics, including advanced computational biology, deep learning utilizing Internet of Medical Things technology, imaging
solutions, e-health programs, and big data management and optimization, among others. Once we complete the development of the platform
for our DBS application, we will be able to potentially license the platform to capitalize on hundreds of diseases of the nervous
system that might be therapeutically addressed with neurostimulation.
We
also operate our wholly owned subsidiary, Medi-Line. Medi-Line currently serves 34 medical device customers in 16 countries, including
multi-year contracts with Fortune 500 healthcare companies. The Belgian manufacturer owns state-of-the-art facilities, which feature
two validated clean rooms (one assembly cleanroom Class ISO 7 or C, and one extrusion/injection molding cleanroom Class ISO 8 or
D) and 600m
2
of production space. Their capabilities will enable us to de-risk our commercial launch and speed
the development of our neurostimulation products.
We were incorporated in
the State of Nevada on December 7, 2015. Our principal corporate office is located at 1910 Pacific Avenue, Suite 20000,
Dallas, Texas 75201, and our phone number is (844) 919-9990. Our website is
www.nexeonmed.com
.
Market Overview
The neurostimulation market is comprised
of four large markets (SCS, SNS, DBS, and VNS), along with several smaller emerging markets, each focused on the treatment of a
particular disease state through delivery of electrical stimulation to particular targeted sites in the body. We plan to compete
in the DBS market with our Viant™ System, and we are evaluating our strategic options for competing in the PENS, SCS, SNS,
and VNS markets. According to the Grandview Market Research report, the combined SCS, DBS, and SNS market sizes were approximately
$3 billion for 2016.
Market
We will initially compete in the DBS market
with the Viant™ DBS System for treatment of Parkinson’s disease, essential tremor, and dystonia. According to the Medtronic
Registry, DBS therapy has been used worldwide in over 150,000 patients to treat chronic neurological diseases for over 20 years.
We believe the demand for DBS devices is driven by the significant pool of patients with movement disorders such as Parkinson’s
disease and essential tremor who do not respond to pharmacologic therapy and require alternative therapies to relieve debilitating
symptoms.
According to market research and our internal estimates, the worldwide DBS market in 2015 was estimated
at $590 million, and is expected to grow to $790 million by 2018, a 10% compound annual growth rate. DBS therapy is estimated to
have penetrated less than 10% of the United States market
(96). We believe shortcomings of current
DBS devices have limited adoption of DBS therapy in the United States.
We believe DBS market growth
is tied to two advances in DBS technology: directional leads and LFP recording. We believe Boston Scientific and Abbott/St. Jude
are rapidly gaining market share from Medtronic primarily due to their directional lead, which Medtronic does not offer. LFP research
has increased exponentially in the past 50 years due to increased interest in identifying LFP-based biomarkers for Parkinson’s
disease (
Figure 1
). We believe Nexeon will be able to gain market share due to the Viant™ System’ offering of
directional leads and LFP recording capabilities.
|
|
|
|
|
Figure
1:
Deep Brain Stimulation field shows growing interest in LFPs as shown by increase in PubMed publications over the past 50
years
|
Customers
According to the Deep Brain Stimulation
Market Report, there are up to 4,000 patients annually who obtain a DBS system for Parkinson’s disease (PD) or essential
tremor in up to 250 U.S. Centers. In the top 10 countries for DBS research, there are approximately 430 centers and 7,500 DBS interventions
each year. We believe that these numbers are likely to increase, as DBS therapy is expanding and technology is advancing. Neurologists
and neurosurgeons at these DBS centers are potential customers of the Viant™ System and proposed programming tools. PD patients
are also potential customers who will be attracted to the potentially improved outcomes of the Viant™ System due to more
effective programming of our directional leads, and reduced programming time. We believe a new, effective, more efficient DBS therapy
may help a substantial number of these PD patients to seek the Viant™ DBS therapy. We will initially target those neurologists
and neurosurgeons who are interested in conducting DBS research, customizing therapy, and shortening programming time, and who
are consequently attracted to our LFP recording capabilities.
The Need:
We believe many patients receive inadequate
symptom control due to poorly placed DBS leads, current spread to unwanted structures, or non-optimized stimulation parameters.
Neurologists report directional lead programming is time consuming (up to two hours/lead), sometimes over multiple visits. This
is time-consuming for the neurologist and patient, and therapeutic efficacy is not always optimized. Although directional leads
offer unprecedented therapeutic control, the time needed to explore all possible parameters is overwhelming.
Tools are needed to narrow the neurologists’
focus and facilitate the identification of correct programming settings on directional leads in a more efficient and efficacious
manner. Neural sensing can assist neurologists with programming of directional leads by locating the pathological ROI. DBS current
can then be steered in the direction of the ROI for optimized therapeutic outcome. With the addition of LFPs collected from a directional
lead, there is a significant amount of new information that needs to be leveraged towards better therapeutic outcomes for patients.
We belive there is a need to put this information into the context of patient anatomy, lead placement, and other patient information
to allow neurologists to make efficient and effective programming decisions about directional leads.
Competing Technologies Fall Short:
There are no DBS programming tools on the
market that use LFPs to guide programming of directional leads. This is due to the lack of available DBS devices that offer both
directional leads for current steering and neural sensing capabilities. Currently, the only FDA-approved DBS systems are stimulation-only
devices. Neither system can sense or record neural signals such as LFPs. Recently, Medtronic developed a prototype DBS stimulation
and recording platform called the Activa PC+S. Although not FDA-approved, the Medtronic prototype is used globally in investigational,
proof-of-principle studies, in more than 20 centers. It is the only available implantable pulse generator for DBS that can record
LFP, but it does not utilize a directional lead. The directional lead and the sensing capabilities are required in a single system
to enable new, more effective and efficient methods of delivering DBS therapy.
Our Product – The Viant™ DBS System
We have developed the Viant™ DBS
platform, which is designed to have the capability to perform current steering and LFP sensing with a directional DBS lead. The
Viant™ DBS device is designed to deliver consistent, effective therapeutic results. It is designed to deliver best-in-class
stimulation, with the capability to collect LFP recordings. Using LFP surveys, neurologists will be able to quickly and confidently
determine where to stimulate to take full advantage of directional leads. Moreover, our devices are designed to be upgradable non-invasively,
enabling both physicians and patients to benefit from the latest technology as it is developed, without the need for IPG replacement
surgery to take advantage of new features. All components are summarized here.
The Viant™ System is designed to
deliver DBS therapy for the treatment of Parkinson’s disease. It is comprised of implantable and external components (Fig.
2) that work synergistically to deliver well-controlled electrical pulses with specified parameters to target brain structures.
Remote controls for the physician and for the patient enable communication with the implant. Each control offers different options.
The energy source of the system is recharged through the skin after device implantation by use of the patient remote control in
combination with the battery charger. The device previously received a CE Mark for Parkinson’s disease in 2012, but we have
since developed our directional lead, wireless peripherals, and iOs external controllers.
|
|
Figure
2
: Components of the Synapse
TM
device. (Note: External Research System on PC Laptop, not pictured)
|
Viant™ Implantable Components
Implantable pulse generator:
The
IPG contains a rechargeable battery and electronics that deliver low-level electrical pulses to the leads. The IPG has 16 independent
current sources, and is connected to one or two leads via lead extension(s). It is a programmable device that delivers customized
programs for each patient. The IPG is surgically implanted under the skin in the chest.
Directional leads:
The leads are
thin, insulated wires that conduct electrical pulses to brain structures (i.e., the subthalamic nucleus or globus pallidus internus)
from the IPG. The directional lead has segmented electrode contacts arranged in a 1-3-3-1 pattern to facilitate current steering
during DBS therapy (Fig. 3).
Viant™ External Components
Patient remote control (RC):
The
patient RC allows patients to adjust their stimulation within prescribed limits, and monitor their IPG battery charge levels. The
RC design has a simple and intuitive interface developed from usability studies in people of all ages with movement disorders.
The RC enables the patient to record LFPs at home, if desired, and acts as a relay to send signals from the IPG to the External
Research System.
Battery charger (BC):
The BC is
connected to the RC and is used to charge the implanted IPG. To charge the IPG, the BC is placed over the implanted IPG in the
chest. The RC continuously monitors charging voltage, current, and temperature in the IPG, and optimizes the inductive power generated
by the BC for efficient charging.
Clinician programmer (CP)
: The CP
allows the clinician to communicate with the IPG, and optimize stimulation parameters and current steering for each individual
patient after optimal electrode contacts are chosen.
|
|
Figure 3:
Synapse
directional DBS lead with 1-3-3-1 configuration
|
Competition
The medical device industry is intensely competitive,
subject to rapid change, and highly sensitive to the introduction of new products and other market activities of industry participants.
We intend to compete in the DBS market for movement disorders. In the U.S. and European DBS market, the competitors include
Abbott Laboratories, formerly known as St. Jude Medical (“Abbott”), Boston Scientific, and Medtronic. Abbott,
Boston Scientific, and Medtronic are publicly traded companies or divisions of publicly traded companies, all of which have significantly
greater resources than we have. In addition, these competitors also have established operations, long commercial histories,
more extensive relationships with physicians, and wider product offerings within neuromodulation and other medical device product
categories than we have. This may provide these competitors with greater negotiating power with customers and suppliers,
and with more opportunities to interact with the stakeholders involved in purchasing decisions. Furthermore, although we
have no current plans to enter the Chinese market, PINS Medical and SceneRay Corporation are established Chinese DBS companies
that could begin to distribute their products in Europe and/or the United States. In addition, Aleva Neurotherapeutics has announced
its intention to enter the European DBS market in late 2018, and other companies may likewise attempt to bring new products or
therapies to this market. All of these companies will continue to develop new products that directly compete with our
products, and their greater resources may allow them to respond more quickly to new technologies, new treatment indications, or
changes in customer requirements. For all of these reasons, it may be more difficult to compete successfully against
these or future competitors.
We believe the primary competitive factors
in the neurostimulation market are:
|
●
|
Technological innovation, product enhancements, and speed of innovation;
|
|
●
|
Pricing and reimbursement
rates;
|
|
●
|
Sales force experience and
access;
|
|
●
|
Clinical studies and research;
|
|
●
|
Sales force experience and access; and
|
|
●
|
Integration into clinical flow.
|
Competitive Advantage of the Viant™
System
The Viant™ DBS platform
is designed to provide the most innovative capabilities currently available on the market, and to provide physicians and patients
with improved solutions and tailored treatment options. It offers a combination of competitive DBS device features in a single
platform (Figure 3).
We believe the key value propositions
of the Viant™ System include:
Innovative core technology.
The engine of our Viant™ System, the IPG, is based on more than 30 years of development. The custom-made chip was developed
using our advanced engineering and design capabilities to have a broad spectrum of electrical outputs.
Directional lead for
current steering.
Our lead portfolio includes a directional lead for targeted DBS therapy, a methodology proven to increase
efficacy and decrease side-effects of DBS therapy. With our directional lead, our Viant™ System is designed to deliver tailored
therapy to a wide spectrum of PD patients.
Image-guided programming
tools
. Our software will enable the visualization of LFPs on directional leads to allow physicians to program DBS leads
with greater efficacy and efficiency. Instead of time-intensive iterative and empirical programming approaches that require clinical
observation, clinically relevant LFP bands can be used to identify the pathological region of interest within the patient’s
brain. This will inform ideal contacts for programming to optimize DBS therapy.
Multiple independent current
sources.
Our Viant™
System is designed to deliver electrical energy through 16 independent current sources. This capability optimizes current delivery
and improves field control, allowing for current steering and precision therapy.
Rechargeability
.
A majority of the neurostimulators on the market are not rechargeable, and require risky replacement surgeries when batteries die.
Our Viant™ System is easily rechargeable to reduce the need for replacement surgeries and enable long-term recording with
minimal impact of battery drain.
Upgradable technology
enables next generation offerings.
Viant™’s proprietary chipset and hardware is capable of being configured
for use in next generation treatment offerings due to its flexible stimulation and recording capabilities. It can deliver higher
frequencies and a broader array of stimulation patterns than devices currently on the market. Upgrades can be provided to already
implanted patients via a noninvasive software or firmware upgrade. We believe these capabilities provide a solid foundation for
new treatment options in DBS and other neuromodulation therapies.
|
|
Figure
1:
Nexeon offers features of competitors in a single platform
|
Reimbursement
The DBS market for Parkinson’s disease
is well-established. Most public and private health insurance companies, including Medicare, cover approved uses of DBS, including
Parkinson's treatment. According to the Centers for Medicare and Medicaid Services, DBS for Parkinson’s has established procedure
codes and billing guidelines. Given clear reimbursement pathways for DBS, there are fewer regulatory and reimbursement hurdles
relative to other emerging neurostimulation markets. Additionally, there is an established network of providers who currently use
DBS therapy who are predicted to integrate our device into their practice.
Our Strategy
To successfully achieve our objectives,
we are pursuing the following strategy:
|
●
|
Complete Viant™ development and transfer to manufacturing.
We will continue to invest in completing the development and building the manufacturing capacity necessary to support the approval and commercial launch of the Viant™ DBS System. We will continue to pursue partnerships with contract manufacturers to utilize their manufacturing capabilities and achieve operating efficiencies.
|
|
●
|
Submit Viant System for FDA approval and CE mark.
Upon completion of the product dossier, we will submit to the FDA for a pre-market approval, and to the notified body, DEKRA, for CE Mark.
|
|
●
|
Build our manufacturing, sales, and marketing organization
. In the second quarter of 2018, we plan on building our international sales organization through a combination of distributors, independent sales agents, and a limited number of direct employees in anticipation of a 2019 launch in major European markets. Our representatives will target movement disorder specialists located primarily at large academic centers, as well as their referring networks of neurologists in countries with existing reimbursement coverage for these therapies.
|
|
●
|
Invest in platform extensions to further drive product innovation and licensing opportunities.
We are investing in pre-clinical and clinical research to demonstrate and further the innovation of our Viant™ DBS device. We anticipate this investment may result in further product innovations, expanded labeling, and new indications for the Viant™ DBS System. These innovations are expected to include next-generation IPG capabilities, additional lead offerings, and advancements in algorithmic programming. We also plan to license our platform to other companies developing therapies for nearly 600 diseases of the nervous system.
|
Regulatory
In the European Economic Area (EEA), we
are subject to the requirements of the EU Active Implantable Medical Devices Directive 90/385/EEC (AIMDD), which mandates that
our product receive a CE Mark prior to being placed on the market in the EEA. To obtain a CE Mark, we must prepare a technical
file for our product, and undergo a
conformity assessment
by a
notified body
, which is an organization
authorized under the AIMDD to conduct conformity assessments. Following successful completion of a conformity assessment, the notified
body will grant a CE Mark.
We expect to complete the Viant™
DBS System technical file in the first half of 2019, and submit it for a conformity assessment with our notified body, DEKRA Certification
B.V., shortly thereafter. While there have been some recent increases in the stringency of the relevant EU regulatory requirements,
and there can be no assurances, absent unanticipated additional requirements or delays, we currently anticipate receiving the CE
Mark for the Viant™ DBS System in the first half of 2019.
The Viant™ DBS System is classified
as a Class III medical device under the Food and Drug Act. The Food and Drug Act requires submission and FDA approval of a PMA
application before marketing of a Class III device can begin. The PMA application process is considerably more demanding than
the Class I and Class II 510(k) pre-market notification process. We have used the FDA’s pre-submission process to engage
the FDA to clarify the path to ultimate product approval. At this time, we intend to submit to the FDA in 2019 for a PMA for the
treatment of Parkinson’s disease without a clinical study.
The Viant™ System continues to meet
critical milestones in its development program. We have recently completed a manufacturing project for a joint venture between
GSK and Google, so we can manufacture the product under GMP. We completed the ISO 13485 certification process, which is a pivotal
hurdle prior to regulatory submissions to the CE Mark authorities. The device has previously received a CE Mark, but we have upgraded
the software and peripherals, and designed a 3D lead. Design verification, process validation, and testing requirements are nearly
complete, and management expects we will complete the technical file in 2018 (with the exception of some longer-duration biocompatibility
and shelf life tests). We expect to receive a CE Mark in 2019. As related to the United States, in early 2018, we completed the
pre-submission meetings with the FDA to determine scope of requirements for approval of the Viant™ System. As a result of
that meeting, Nexeon intends to submit an FDA PMA application without a clinical study. The FDA has changed their approach to referencing
other manufacturers’ data, which allows Nexeon to rely on safety and efficacy data from the nearly 150,000 successful DBS
implants that have been completed by other manufacturers.
Sales and Marketing
We are planning to launch our Viant™
device in the U.S. and Europe after regulatory approvals are achieved. We will initially launch in Germany, the largest European
DBS market, after we achieve CE marking in 2019. Our strategy for European and U.S. sales and distribution will vary depending
on region. We expect to hire a small, experienced sales force, all with prior experience of training 50 or more clinicians on active
implantable devices. Each member of the sales force will be expected to have previous sales of at least $1M annually, and a wealth
of contacts in their regional areas.
Through market research, we have validated
that our initial target will be key opinion leader neurosurgeons and neurologists in the U.S. and Europe who have the personnel,
facilities, and desire to do DBS research, and who treat significant numbers of patients with DBS devices. We will prioritize selling
to sites where both DBS research and clinical care are performed. We believe additional clinical data and testimonials from our
early adopters will drive market growth.
Territories in the U.S. not targeted by
our sales force will be covered using a distributor to reduce upfront costs and training. This approach will likely be altered
if we form a strategic partnership with an existing medical device company prior to initial sales.
We currently have no sales force, as we
are engaged in completing the product and preparing to make regulatory submissions. In 2017, we hired a vice president of sales
and marketing to develop and execute our detailed commercial plan. We intend to build a US-based marketing team to promote awareness
of our products by training and educating physicians, exhibiting at tradeshows, and conducting focused promotions.
We expect to begin to build our international
sales organization in late 2018. To achieve operating efficiencies, we expect to use a combination of distributors, independent
sales agents, and a limited number of direct employees. Our representatives will target movement disorder specialists located primarily
at large academic centers, as well as their referring networks of neurologists in countries with existing reimbursement coverage
for these therapies.
We have carefully selected our management
team to ensure it is comprised of individuals with very specific and extensive experience in the neurostimulation and medical device
industry. Our team has many years of experience (i) developing medical devices, (ii) eliciting early-stage funding to complete
development, (iii) navigating the regulatory approval process in both the U.S. and the E.U., (iv) securing insurance reimbursement
approval in both the U.S. and E.U., (v) fostering early-stage growth and development of startup companies, and (vi) designing and
implementing a viable exit strategy or liquidity event for initial shareholders.
Product Development Pipeline
Nexeon MedSystems
has developed a non-invasive auricular vagus nerve stimulator (aVNS) for the treatment of disease related to neurologic, inflammatory,
and metabolic syndrome. Our initial clinical and commercial efforts are in atrial fibrillation (non-valvular paroxysmal). The goal
of this clinical effort is to demonstrate that aVNS will significantly reduce atrial fibrillation burden and decrease systemic
inflammation. Our aVNS device is a non-invasive, battery-powered, self-administered device designed to transcutaneously stimulate
the auricular branch of the vagus nerve (ABVN). The system is composed of three components: an earpiece, a handheld control unit,
and a connector cable. The handheld control unit produces precise, current-controlled stimulation output. Electrical current is
delivered through an earpiece with disposable hydrogel electrode contacts to maximize therapeutic potential and minimize the risk
of patient discomfort. One electrode is designed to be placed into the cymba (which is innervated by the ABVN), and another electrode
is placed in an area surrounding the outer ear (e.g., behind the ear). The handheld control unit and the earpiece are connected
via a cable.
Clinical/regulatory:
We have begun
a single-site, 20-patient clinical trial at the Université Catholique de Louvain in Belgium, and are scheduled to complete
this study in late 2018. Upon completion, we and/or a potential partner will file a de novo application with the FDA for the aVNS
device, with an initial indication of atrial fibrillation.
Markets:
According to the Grandview
Research Report, the addressable market for our initial indication of atrial fibrillation is $6 billion in unmet need. Additional
addressable markets include severe inflammation ($30 billion), post-operative cognitive decline ($7 billion), and metabolic syndrome
(~$35 billion).
Commercial:
U.S. market launch for
atrial fibrillation will occur after the FDA grants de novo clearance, which we expect to occur in mid-2019.
Research and Development
For the years ending December 31, 2017
and December 31, 2016, our research and development expenses were $2,942,981 and $759,502, respectively, primarily reflecting the
costs associated with our research and discovery efforts related to the design and development of our proposed medical devices.
It is expected that our research and development activities and related expenses will increase significantly in the future as we
increase the scope and rate of such efforts, and begin more-expensive development activities, including clinical trials and similar
studies as required by the relevant regulatory authorities in our targeted jurisdictions (i.e., the United States and European
Union).
Original Equipment Manufacturer,
Medi-Line S.A.
On September 1, 2017, we acquired NMB,
which owns and operates Medi-Line. The Medi-Line medical device and is an OEM. Medi-Line provides high quality and efficiency in
the development, engineering, and manufacturing of medical devices for the med-tech and pharmaceutical industries.
Product Line
Medi-Line currently manufactures radiopharmacy
and urology products, and provides worldwide production and supply chain capabilities for these products to its customers. Medi-Line
offers a wide range of services, including product and process development, validation and verification, technical and regulatory
file writing, packaging, biocompatibility, and sterilization support services. Customers of Medi-Line are active in fields as diverse
as urologic implants, neurosurgery, interventional gastroenterology, implantable neurostimulation, radiopharmacy, PET scan imagery,
special high-added-value catheters, and microthin cuff catheters.
Sales and Marketing
Medi-Line sales and marketing efforts have
been limited to date, with most new business coming in the form of referrals. We intend to grow our business by emphasizing our
design and engineering expertise, internally developed products, manufacturing capabilities, international distribution network,
and ability to provide customers with a comprehensive product offering. We present our products to customers in a concept, which
offers the customer a collaborator for developing complete implant, instrument, and case solutions while working to create and
respond to opportunities for any one of our product offerings. We believe there is an opportunity to leverage our existing relationships
among our customer base to achieve greater penetration of our customized products.
Our Competitive Strengths
|
●
|
Comprehensive offerings. We believe we can support our customers’ new product offerings from product concept through market introduction, and thereafter by providing seamless design, engineering, prototyping, and manufacturing offerings.
|
|
●
|
Single source for complete systems. We believe we can assist our customers in developing new implants, and we design and produce neurostimulator systems for specific neurological diseases.
|
|
●
|
Precision manufacturing expertise. Our extensive expertise and know-how enables us to produce large volumes of specialized products to our customers’ precise standards, which we believe makes us a supplier of choice to the largest orthopedic companies, as well as addressing the broader needs of smaller customers. Our core production competencies include net-shaped forging, precision casting, thermo forming, precision sheet metal working, and machining/finishing.
|
|
●
|
Over the past several years, we have developed high-precision machining capabilities believed to better serve the spine implant market.
|
|
●
|
Quality and regulatory compliance. Our quality systems are based upon, and are in compliance with, International Organization for Standardization (ISO) requirements and, where applicable, FDA regulations. We continue to invest in this area to strengthen our leadership position.
|
|
●
|
Customers. Our OEM Solutions business supplies products primarily to manufacturers in the medical device market.
|
Quality Assurance
We maintain a comprehensive quality assurance
and quality control program, which includes the control and documentation of all material specifications, operating procedures,
equipment maintenance, and quality control methods. Our quality systems are based on FDA requirements and the ISO standards for
medical device manufacturers. We believe that all our facilities are currently in substantial compliance with regulations applicable
to them.
All aspects of the supply chain are integrated
into our overall quality system. Our suppliers are evaluated and audited to assure compliance with all international trade compliance
quality standards. Relative to our manufacturing processes, we maintain and adhere to specific standard operating procedures within
our quality systems to ensure compliance with our customers’ requirements for their products. Our deep brain neurostimulator
business likewise operates under a comprehensive quality system to ensure compliance with all product quality and customer obligations.
The suppliers we utilize in the distribution process are evaluated and audited to assure compliance with all international trade
compliance quality standards.
We are not aware of any significant quality
issues or concerns, although if we experience a breakdown in our quality systems that result in the sale or manufacture of noncompliance
products, we could incur costs and loss of business, recalls, lawsuits, or other adverse results.
Customers
Medi-Line sells to over 40 customers. Sales
to our two largest customers represented 76% of sales revenue in 2017. Our largest customer has been a customer for nearly 15 years,
and has a long-term contract lasting an additional 5 years. All sales are shipped directly to our customers.
Intellectual Property
We possess a strong patent portfolio ensuring
freedom to operate, which is critical to successful commercialization of the Viant™ DBS System and all associated components.
Intellectual property associated with the Viant™ System includes patents related to the Internet of Medical Things. Maintaining
a focus in the Internet of Medical things allows us to utilize issued and pending patents for maximum commercial benefit and growth.
Since its inception, We have actively pursued patent coverage of the proprietary systems and methods of delivering therapy. The
patents have been deliberately written to provide broad and specific protection.
Our strategy is to protect proprietary
positions by continuing to acquire and file U.S. and foreign patent applications related to this technology, inventions, and improvements
to enhance the business and competitive advantages. Continuing to rigorously analyze competitive IP applications and their prosecution
history will ensure that this freedom to operate position remains viable. As development of new products and prosecution of pending
patent applications progresses, we will continue to strategically file additional applications, including continuations, continuations-in-part,
and divisional applications, to protect the new developments and those already being prosecuted.
Temporal barrier to others
:
Even without patents, development of an approved class III system with a custom chip requires five to seven years to develop. We
will have a large data set from the recording technology, which will enable therapy insights that will allow further improvements.
In addition, we have thoroughly analyzed the patents, products, and therapies that may be considered competitive to the proposed
system. We are committed to protecting its proprietary positions by continuing to file patent applications related to technology,
inventions, and improvements to enhance their business and competitive advantages. As development of new products and prosecution
of pending patent applications progresses, Nexeon MedSystems will continue to strategically file additional applications to protect
these new developments.
In addition to seeking patent protection,
we have utilized other available intellectual property rights to protect our developments. We utilize copyrighted software, manuals,
and reports. We also maintain a number of trade secrets that are essential to our business. We have implemented procedures to maintain
the appropriate secrecy required of such trade secrets. Finally, we have filed for and obtained several trademark registrations
related to the branding of our products. This multifaceted approach provides us with the maximum protection available for our developments.
The following patents and applications
relate to our technology for communicating between an implantable medical device and a remote computer system or health care provider.
|
US 6385593
|
Apparatus and method for automated invoicing of medical device systems
|
|
US 6804558
|
System and method of communicating between an implantable medical device
|
|
US 7076303
|
Apparatus and method for automated invoicing of medical device systems
|
|
DE 60321826.1
|
Seamless communication between an implantable medical device and a remote system
|
|
EP 15853585 B1
|
Seamless communication between an implantable medical device and a remote system
|
The following patents and applications
relate to our micro-perforated balloon catheter system for use in the treatment of restenosis associated with hemodialysis.
|
NANOTUBE-REINFORCED BALLOONS FOR DELIVERING PATENTS
|
|
US 8187221
|
Therapeutic agents within or beyond the wall of blood vessels, and methods of making and using same
|
|
JP 5481479
|
Therapeutic agents within or beyond the wall of blood vessels, and methods of making and using same
|
|
EP 9771434.9
|
Therapeutic agents within or beyond the wall of blood vessels, and methods of making and using same
|
|
IRIS FILTER-SHEATH CATHETER SYSTEM FOR EMBOLISM PROTECTION PATENTS
|
|
US 8257384
|
Interventional catheter for retrograde use having embolic protection capability and methods of use
|
|
US 7837702
|
Interventional catheter for retrograde use having embolic protection capability and methods of use
|
|
EP 6847981.5
|
Interventional catheter for retrograde use having embolic protection capability and methods of use
|
|
APPARATUS AND METHODS FOR RENAL STENTING PATENTS
|
|
US 8702744
|
Apparatus and methods for renal stenting
|
|
EP 6770151.6
|
Apparatus and methods for renal stenting
|
|
AU 2006244070
|
Apparatus and methods for renal stenting
|
|
JP 4990887
|
Apparatus and methods for renal stenting
|
|
METHODS AND APPARATUS FOR TREATING AN INJURED NERVE PATHWAY PATENTS
|
|
US 7842304
|
Methods and apparatus for treating an injured nerve pathway
|
|
US 8603512
|
Methods and apparatus for treating an injured nerve pathway
|
|
SYSTEMS AND METHODS FOR ATRAUMATIC IMPLANTATION OF BIO-ACTIVE AGENTS PATENTS
|
|
US 7632262
|
Systems and methods for atraumatic implantation of bio-active agents
|
|
US 8377032
|
Systems and methods for atraumatic implantation of bio-active agents
|
|
EP 9736537.3
|
Systems and methods for atraumatic implantation of bio-active agents
|
|
EP 5773060.8
|
Systems and methods for atraumatic implantation of bio-active agents
|
|
EP 11150671.3
|
Systems and methods for atraumatic implantation of bio-active agents
|
|
AU 2005274775
|
Systems and methods for atraumatic implantation of bio-active agents
|
|
JP 4774403
|
Systems and methods for atraumatic implantation of bio-active agents
|
|
APPARATUS AND METHODS FOR TREATING TISSUE USING PASSIVE INJECTION SYSTEMS PATENTS
|
|
US 7338471
|
Apparatus and methods for treating tissue using passive injection systems
|
|
US 7862551
|
Apparatus and methods for treating tissue using passive injection systems
|
|
AU 2005274774
|
Apparatus and methods for treating tissue using passive injection systems
|
|
JP 4934029
|
Apparatus and methods for treating tissue using passive injection systems
|
|
GB & FR 1773440
|
Apparatus and methods for treating tissue using passive injection systems
|
|
DE 602005030269.7
|
Apparatus and methods for treating tissue using passive injection systems
|
|
IMPLANTABLE DEVICE FOR TREATING DISEASE STATES AND METHODS OF USING SAME PATENTS
|
|
US 7651696
|
Implantable device for treating disease states and methods of using same
|
|
METHODS AND APPARATUS FOR TREATING INFARCTED REGIONS OF TISSUE FOLLOWING PATENTS
|
|
US 7819856
|
Acute myocardial infarction
|
|
US 8062283
|
Acute myocardial infarction
|
|
APPARATUS FOR THE DELIVERY OF DRUGS OR GENE THERAPY PATENTS
|
|
US 7648495
|
Into a patient's vasculature and methods of use
|
The following is a list of the Siemens
originated patents underlying the license for the intellectual property which relates to IOT technology as described by a system
of interrelated computing devices, mechanical and digital machines, objects, animals, and/or people that have unique identifiers
and a subsequent ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. This
technology can be utilized in a wide variety of medical device applications, most notably in hospitals, nursing facilities, or
patients’ homes.
Country
|
|
Patent #
|
|
Apln. #
|
|
Pub. #
|
AUSTRIA
|
|
AT521160
|
|
5109169.2
|
|
EP1646185
|
AUSTRIA
|
|
AT530961
|
|
3735054.3
|
|
EP1470457
|
AUSTRIA
|
|
AT615998
|
|
5108954.8
|
|
EP1643324
|
AUSTRIA
|
|
AT334459
|
|
4100499.5
|
|
EP1494191
|
BELGIUM
|
|
BE1494191
|
|
4100499.5
|
|
EP1494191
|
BRASIL
|
|
PI0710612
|
|
BR0710612
|
|
|
BRASIL
|
|
|
|
PI0821881-1
|
|
|
CANADA
|
|
2647652
|
|
2647652.0
|
|
2647652
|
CANADA
|
|
2662014
|
|
2662014.0
|
|
2662014
|
CANADA
|
|
2711225
|
|
2711225.0
|
|
2711225
|
CANADA
|
|
2836941
|
|
2836941.0
|
|
2836941
|
CHINA
|
|
|
|
200780032280.2
|
|
CN101512976
|
CHINA
|
|
CN101422019
|
|
200780012887.4
|
|
101422019
|
CHINA
|
|
CN101971568
|
|
200880123790.5
|
|
101971568
|
CHINA
|
|
|
|
201410392441.0
|
|
CN104243248
|
EPO
|
|
EP1470456
|
|
3707570.2
|
|
EP1470456
|
EPO
|
|
EP1470457
|
|
3735054.3
|
|
EP1470457
|
EPO
|
|
EP1494191
|
|
4100499.5
|
|
EP1494191
|
EPO
|
|
EP1626532
|
|
5012617.6
|
|
EP1626532
|
EPO
|
|
EP1643324
|
|
5108954.8
|
|
EP1643324
|
EPO
|
|
EP1646185
|
|
5109169.2
|
|
EP1646185
|
EPO
|
|
EP2225854
|
|
8869509.3
|
|
EP2225854
|
EPO
|
|
|
|
7101252.0
|
|
EP1783959
|
EPO
|
|
|
|
7774303.7
|
|
EP2005713
|
EPO
|
|
|
|
13172203.5
|
|
EP2642696A3
|
EPO
|
|
|
|
13172204.3
|
|
EP2642697A3
|
FINLAND
|
|
FI1470456
|
|
3707570.2
|
|
EP1470456
|
FRANCE
|
|
FR1470456
|
|
3707570.2
|
|
EP1470456
|
FRANCE
|
|
FR1470457
|
|
3735054.3
|
|
EP1470457
|
FRANCE
|
|
FR1626532
|
|
5012617.6
|
|
EP1626532
|
FRANCE
|
|
FR1643324
|
|
5108954.8
|
|
EP1643324
|
FRANCE
|
|
FR1646185
|
|
5109169.2
|
|
EP1646185
|
FRANCE
|
|
FR2225854
|
|
8869509.3
|
|
EP2225854
|
FRANCE
|
|
FR1494191
|
|
4100499.5
|
|
EP1494191
|
GERMANY
|
|
|
|
10317962.3
|
|
|
GERMANY
|
|
DE602005029532.1
|
|
5109169.2
|
|
EP1646185
|
GERMANY
|
|
DE602005039869.4
|
|
5108954.8
|
|
EP1643324
|
GERMANY
|
|
DE602005042990.5
|
|
5012617.6
|
|
EP1626532
|
GERMANY
|
|
DE602008030307.1
|
|
8869509.3
|
|
EP2225854
|
GERMANY
|
|
DE60330750.7
|
|
3707570.2
|
|
EP1470456
|
GERMANY
|
|
DE60338908.2
|
|
3735054.3
|
|
EP1470457
|
GERMANY
|
|
DE502004001017.2
|
|
4100499.5
|
|
EP1494191
|
GERMANY
|
|
|
|
112007001804.0
|
|
|
GREECE
|
|
GR1494191
|
|
4100499.5
|
|
EP1494191
|
IRELAND
|
|
IE1494191
|
|
4100499.5
|
|
EP1494191
|
IRELAND
|
|
1470456
|
|
3707570.2
|
|
1470456
|
ITALY
|
|
IT1470457
|
|
3735054.3
|
|
EP1470457
|
ITALY
|
|
IT1626532
|
|
5012617.6
|
|
EP1626532
|
ITALY
|
|
IT1643324
|
|
5108954.8
|
|
EP1643324
|
ITALY
|
|
IT1646185
|
|
5109169.2
|
|
EP1646185
|
ITALY
|
|
IT2225854
|
|
8869509.3
|
|
EP2225854
|
ITALY
|
|
IT1494191
|
|
4100499.5
|
|
EP1494191
|
MEXICO
|
|
MX313282
|
|
MX/a/2010/007211
|
|
|
MEXICO
|
|
MX322526
|
|
MX/a/2013/010239
|
|
|
Country
|
|
Patent #
|
|
Apln. #
|
|
Pub. #
|
NETHERLANDS
|
|
NL1470456
|
|
3707570.2
|
|
EP1470456
|
NETHERLANDS
|
|
NL1470457
|
|
3735054.3
|
|
EP1470457
|
NETHERLANDS
|
|
NL1626532
|
|
5012617.6
|
|
EP1626532
|
NETHERLANDS
|
|
NL1643324
|
|
5108954.8
|
|
EP1643324
|
NETHERLANDS
|
|
NL1646185
|
|
5109169.2
|
|
EP1646185
|
NETHERLANDS
|
|
NL1494191
|
|
4100499.5
|
|
EP1494191
|
SOUTH KOREA
|
|
100989017
|
|
1020087024880.0
|
|
|
SOUTH KOREA
|
|
101272384
|
|
1020107014107.0
|
|
|
SOUTH KOREA
|
|
KR101202914B1
|
|
1020107014718.0
|
|
|
SPAIN
|
|
ES2270271
|
|
4100499.5
|
|
EP1494191
|
SWEDEN
|
|
SE1470456
|
|
3707570.2
|
|
EP1470456
|
SWEDEN
|
|
SE1470457
|
|
3735054.3
|
|
EP1470457
|
SWEDEN
|
|
SE1626532
|
|
5012617.6
|
|
EP1626532
|
SWEDEN
|
|
SE1643324
|
|
5108954.8
|
|
EP1643324
|
SWEDEN
|
|
SE1646185
|
|
5109169.2
|
|
EP1646185
|
SWEDEN
|
|
SE2225854
|
|
8869509.3
|
|
EP2225854
|
SWEDEN
|
|
SE1494191
|
|
4100499.5
|
|
EP1494191
|
SWITZERLAND
|
|
CH1470456
|
|
3707570.2
|
|
EP1470456
|
SWITZERLAND
|
|
CH1470457
|
|
3735054.3
|
|
EP1470457
|
SWITZERLAND
|
|
CH1626532
|
|
5012617.6
|
|
EP1626532
|
SWITZERLAND
|
|
CH1643324
|
|
5108954.8
|
|
EP1643324
|
SWITZERLAND
|
|
CH1646185
|
|
5109169.2
|
|
EP1646185
|
SWITZERLAND
|
|
CH2225854
|
|
8869509.3
|
|
EP2225854
|
SWITZERLAND
|
|
CH1494191
|
|
4100499.5
|
|
EP1494191
|
UNITED KINGDOM
|
|
GB1470456
|
|
3707570.2
|
|
EP1470456
|
UNITED KINGDOM
|
|
GB1470457
|
|
3735054.3
|
|
EP1470457
|
UNITED KINGDOM
|
|
GB1626532
|
|
5012617.6
|
|
EP1626532
|
UNITED KINGDOM
|
|
GB1643324
|
|
5108954.8
|
|
EP1643324
|
UNITED KINGDOM
|
|
GB1646185
|
|
5109169.2
|
|
EP1646185
|
UNITED KINGDOM
|
|
GB2225854
|
|
8869509.3
|
|
EP2225854
|
UNITED KINGDOM
|
|
GB1494191
|
|
4100499.5
|
|
EP1494191
|
US
|
|
|
|
60/352,452
|
|
|
US
|
|
8131399
|
|
10/353,142
|
|
|
US
|
|
8538589
|
|
13/366,095
|
|
|
US
|
|
|
|
10/353,110
|
|
|
US
|
|
|
|
10/672,527
|
|
|
US
|
|
7860495
|
|
10/915,034
|
|
|
US
|
|
|
|
12/629,548
|
|
|
US
|
|
8200273
|
|
12/953,244
|
|
|
US
|
|
7139239
|
|
10/958,770
|
|
|
US
|
|
7437596
|
|
11/538,654
|
|
|
US
|
|
7664573
|
|
10/952,705
|
|
|
US
|
|
7746887
|
|
11/402,743
|
|
|
US
|
|
|
|
60/823,788
|
|
|
US
|
|
9030315
|
|
11/846,218
|
|
|
US
|
|
|
|
60/823,909
|
|
|
US
|
|
|
|
60/823,912
|
|
|
US
|
|
8264371
|
|
11/969,111
|
|
|
US
|
|
|
|
12/124,452
|
|
|
US
|
|
|
|
61/037,739
|
|
|
US
|
|
8224282
|
|
12/406,799
|
|
|
US
|
|
8350691
|
|
12/269,136
|
|
|
US
|
|
7363036
|
|
10/824,800
|
|
|
WO/PCT
|
|
|
|
PCT/US2003/002556
|
|
WO/2003/064933
|
WO/PCT
|
|
|
|
PCT/US2003/002559
|
|
WO/2003/065136
|
WO/PCT
|
|
|
|
PCT/US2007/007984
|
|
WO/2007/123738
|
WO/PCT
|
|
|
|
PCT/US2007/077107
|
|
WO/2008/027964
|
WO/PCT
|
|
|
|
PCT/US2008/013746
|
|
WO/2009/088429
|
Employees
As of the
date hereof, we have 62 full-time employees and 3 consultants at Medi-Line, and 19 employees and 4 consultants working
in the neurostimulation business. None of our employees or consultants are represented by a labor union or covered by a collective
bargaining agreement. We have employment agreements with all full-time employees. We consider our relationships with our employees
to be very good.
Properties
Our U.S. corporate headquarters is approximately
800 square feet of office space in Dallas, Texas, which we rent for $3,200 per year and renew on a monthly basis.
We have manufacturing facilities in Belgium.
We continue to make investments to modernize our production facilities, improve our production processes, and develop superior
technical skills that complement our manufacturing capabilities. These investments have allowed us to continue to improve the quality
of our products, increase our manufacturing capacity, and improve our efficiency. We currently manufacture our neurostimulator
system in our class 10,000 clean room in Niel, Belgium, renewed on a monthly basis .
We do not own any real estate, with the
exception of a portion of the excess unused land at the Medi-Line manufacturing facility. We lease the following properties:
The Medi-Line manufacturing plant and offices
located in Angleur (Liege), Belgium, with an approximate area of 29,886 sq. ft. are financed under a capital lease for EUR €156,044
annually (approximately $186,919). The lease ends on 10/25/2021.
NXPROC leases approximately 221 sq. ft.
of office space in Rio Piedres, Puerto Rico, for $5,640 per year, renewed on a monthly basis.
NMB leases approximately 2,519 sq. ft.
of office and clean room space in Niel, Belgium, for €51,660 per year (approximately $61,881), and leases approximately 150
sq. ft. of office space in Heverlee, Belgium for €12,865 per year (approximately $15,410), renewed on a monthly basis .
Legal Proceedings
There are no significant legal proceedings pending, and we are
not aware of any material proceeding contemplated by a governmental authority, to which we are a party or any of our property is
subject.
MANAGEMENT
Executive Officers
and Directors
The following table sets forth the names,
ages, and positions of our current executive officers and directors.
Name
|
|
Age
|
|
Position(s)
|
|
|
|
|
|
William Rosellini
|
|
38
|
|
Chairman and Chief Executive Officer
|
Brian Blischak
|
|
52
|
|
President and Chief Commercial Officer
|
Christopher R. Miller
|
|
49
|
|
Chief Financial Officer
|
Daniel Powell
|
|
42
|
|
Vice President Sales and Marketing
|
Kent J. George (1)(2)(3)
|
|
57
|
|
Director
|
Michael Neitzel (1)(2)(3)
|
|
38
|
|
Director
|
R. Wesley Dittmer II (1)(2)(3)
|
|
54
|
|
Director
|
|
(1)
|
Member of Audit Committee
|
|
(2)
|
Member of Compensation Committee
|
|
(3)
|
Member of Nominating &
Governance Committee
|
William Rosellini, JD, MBA
William Rosellini has served as chief executive
officer and as a director of the Company since its inception. Since 2005, Mr. Rosellini has served as chairman of RS, which develops
medical rehabilitation devices to support patients post-procedure. We believe that Mr. Rosellini is qualified to serve on our board
of directors due to his role in founding the Company, and in the development of its business strategy, as well as his experience
developing medical devices. Rosellini, a former Minor League pitcher, holds five master's degrees in addition to a law degree.
He previously founded and led Lexington Technology Group, LLC, a database company commercializing a database solution that was
sold to Document Security Systems, Inc. (NYSE: DSS); and Sarif Biomedical LLC, a stereotactic microsurgery company that was sold
to Marathon Patent Group, Inc. (NASDAQ: MARA). Mr. Rosellini became a board member of Marathon Patent Group, Inc. in 2013, and
resigned in 2016. He started Emeritus Medical, Inc., a clinical engineering services company, in 2013, and sold it in 2016. Rosellini
also founded Microtransponder in 2006. He left his position as CEO at Microtransponder in 2012. For a discussion of the conflicts
of interest involved in Mr. Rosellini’s and other members of management’s other business endeavors, see
“Conflicts
of Interest”
below. Mr. Rosellini holds an MBA from the University of Texas System; an MS in accounting from The
University of Texas System; an MS in computational biology from Rutgers, The State University of New Jersey; an MS in neuroscience
from The University of Texas; an MS of regulatory science from the University of Southern California; and a BA in economics from
the University of Dallas.
Brian Blischak, MS, MBA
Brian Blischak has served as the Company’s
president and chief commercial officer since December 1, 2016. Mr. Blischak has over 20 years of experience in the medical device
field, and 16 years of experience in neuromodulation, serving in senior commercial operations and executive roles for ImThera Medical
and St. Jude Medical. Prior to his appointment as president and chief commercial officer, Mr. Blischak served for four years
as senior vice president of sales and marketing at ImThera Medical, Inc., a developer of an implantable neurostimulation system
for sleep apnea. Prior to that, Mr. Blischak spent 12 years in the St. Jude Medical Neuromodulation Division, where he led
the commercialization and launch of two major deep brain stimulation product families consisting of over 20 products in more
than 15 countries, including the patient recruitment efforts for two pivotal investigational device exemption (“IDE”) studies
for Parkinson's disease and essential tremor, and two IDE feasibility studies for major depressive disorder. Mr. Blischak
holds an MS in engineering and an MBA from The University of Texas at Austin, and a BS in engineering physics from the University
of Saskatchewan.
Christopher R. Miller
Mr. Miller served as interim chief financial
officer of the Company commencing January 1, 2016, and was appointed as the chief financial officer on December 1, 2016. Since
2002, Mr. Miller has been providing financial and business development consulting and interim CFO services, with a focus on early-stage
companies. From 2006 to 2008, Mr. Miller provided public company valuation, financial modeling, and due diligence services to Doherty
& Company, LLC, a Los Angeles-based broker-dealer specializing in venture capital, private equity funding, mergers and acquisitions
advisory, and valuations for early-stage companies. From June 2009 to June 2010, Mr. Miller served as a member of the board of
directors of WindGen Energy, Inc. (WGEI.PK). Other than the foregoing, Mr. Miller does not currently, and has not for the last
five years, served as a member of the board of directors for any public companies. Mr. Miller holds a BS in finance from Arizona
State University.
Daniel Powell
Mr. Powell has served as vice president
sales and marketing since June 26, 2017. Mr. Powell has over 20 years of experience working with advanced technology products,
including 12 years in neuromodulation in various leadership roles for LivaNova (formerly Cyberonics, Inc.) and Abbott (formerly
St. Jude Medical, Inc.). Prior to working with medical devices, Mr. Powell held professional consulting roles at EDS and KPMG LLP.
Mr. Powell has deep expertise in medical device development and market development for neurological disorders including Parkinson’s
disease, essential tremor, dystonia, major depressive disorder, OCD, and epilepsy. From 2014 to 2016, Mr. Powell led global marketing
for LivaNova’s flagship $315M VNS epilepsy therapy business. During Mr. Powell’s 2005 to 2014 tenure at St. Jude, he
played key roles in the launch of DBS products in Europe, Australia, Latin America, and the Middle East, and led upstream marketing
for all neurological implantable electronics. Mr. Powell earned a BA in accounting from Texas A&M University.
Kent J. George, JD
Mr. George
has
served as a director of the Company since January 1, 2017.
Mr. George has been associated with Robinson & McElwee
PLLC, a mid-Atlantic corporate law firm, since 1987. Mr. George served as the managing member from 1999 through 2014, and
has served as the chief executive officer since 2014. With over three decades of experience in commercial transactions representing
public and private companies, Mr. George has been recognized for his work in real estate by Chambers USA since 2014, and is AV
peer-rated by Martindale-Hubbell. Mr. George’s practice focuses on business transactions, including mergers and acquisitions,
business litigation, arbitration and dispute resolutions, and real estate transactions (retail, industrial, resort, lodging, and
other commercial development projects). Mr. George holds a BA from Swarthmore College, a JD from the University of Chicago, and
a BA and MA (law) from Oxford University.
Michael Neitzel, MBA
Mr. Neitzel has served as a director of
the Company since January 1, 2017. Mr. Neitzel has been with Cambridge Homes (“Cambridge”) since April 1, 2017, and
currently serves as director of acquisition, where he leverages his 15 years of experience in real estate acquisition and development
to support the company’s growth initiatives. Cambridge is a privately held homebuilder headquartered in Plano, Texas. Prior
to working at Cambridge, Mr. Neitzel served as a managing partner for DartPoints Holdings, LLC (“DartPoints”) from
January 2014 to March 2017, a data center construction and management firm. Mr. Neitzel currently sits on the board of managers
for DartPoints. Prior to DartPoints, Mr. Neitzel was with Gehan Homes from 2009 until 2014, a privately held homebuilder headquartered
in Dallas, Texas. He has held management positions for both public and private, large-scale building companies, where his responsibilities
included deal flow sourcing, acquisition, and development and delivery of subdivisions throughout Texas. Mr. Neitzel holds a BA
in business administration from the University of Kansas and an MBA in finance from Southern Methodist University.
R. Wesley Dittmer II, CPA
Mr. Dittmer has served as a director of
the Company since April 24, 2018. Mr. Dittmer is an experienced financial executive with more than 20 years of finance and accounting
experience with publicly traded companies, and an extensive background in capital formation, mergers and acquisitions (M&A),
and operations. He is currently an independent consultant focused on M&A, capital raises, and supply chain optimization. He
previously served as the CFO for the North American division of Parnell Inc. (NASDAQ: PARN) (2015-2017), AgJunction Inc. (TSE:
AJX) (2013-2015), and National Rural Telecommunications Cooperative (2010-2012), and was vice president of corporate development
of Embarq Corp. (NYSE: EQ) from (1999-2009). Mr. Dittmer also served as a board member of Digital Bridge Communications (2011-2012)
and GeoNav Group International (2010-2012). He is a certified public accountant, and received his BS in accounting from the University
of Missouri, and an MBA in finance from Rockhurst College.
Legal
Proceedings
During the past 10 years, none of our directors,
executive officers, promoters, control persons, or nominees has been:
|
●
|
The subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
●
|
Convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
●
|
Subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, or any federal or state authority, permanently or temporarily enjoining, barring, suspending, or otherwise limiting his involvement in any type of business, securities, or banking activities;
|
|
|
|
|
●
|
Found by a court of competent jurisdiction (in a civil action) or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
|
|
●
|
The subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding not subsequently reversed, suspended, or vacated, relating to an alleged violation of (a) any federal or state securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty, temporary or permanent cease and desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud, or fraud in connection with any business entity; or
|
,
|
●
|
The subject of, or a party to, any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity, or organization that has disciplinary authority over its members or persons associated with a member.
|
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct
and Ethics that applies to our principal executive, financial, and accounting officers (or persons performing similar functions),
a copy of which is filed as Exhibit 14.1 to the Company’s Form 10 Registration Statement filed with the SEC on July 6, 2016.
Board Composition and Election of
Directors
Our board of directors is currently comprised
of four members. Pursuant to our articles of incorporation and bylaws, directors shall hold office until the next annual meeting
of the stockholders, and until his or her successor shall be elected and qualified. Directors may be removed, with or without cause
and from time to time, as provided by Chapter 78 of the Nevada Revised Statues, then in effect. Our nominating & governance
committee reviews director candidates and proposes director nominees.
Indemnification of Directors and
Officers
Our officers and directors are indemnified
as provided by the Nevada Revised Statutes (“NRS”) and our bylaws. Under the NRS, unless modified by a corporation’s
articles of incorporation, a director is not liable to a corporation, its stockholders, or creditors for damages unless the director’s
action or failure constituted a breach of fiduciary duty and such breach involved intentional misconduct, fraud, or a knowing violation
of law. Our bylaws provide that we will indemnify our directors and officers to the fullest extent permissible under Nevada law
if such person acted in good faith and in a manner that such person reasonably believed to be in, or not opposed to, the best interests
of the Company, and, with respect to any criminal action, had no reasonable cause to believe such conduct was unlawful. We have
entered into indemnification agreements with each of its directors, a copy of which is filed as Exhibit 10.07 of the Company’s
Form 10 Registration Statement filed with the SEC on July 6, 2016.
We have purchased and maintains directors’
and officers’ liability insurance, and may make other financial arrangements on behalf of any individual entitled to indemnity.
Our bylaws also provide that we will advance all expenses incurred to any person entitled to indemnity upon receipt of an undertaking
by, or on behalf of, such person to repay said amounts should it be ultimately determined that the person was not entitled to indemnification.
Audit Committee, Compensation Committee,
and Nominating & Governance Committee
We have audit, compensation, and nominating
& governance committees. Each member of our committees is “independent” as such term is defined under and required
by the federal securities laws and the rules of The NASDAQ Capital Market. The charters of each of the committees have been approved
by our board, and are available on our website at
www.nexeonmed.com
.
Audit Committee
The director independence rules of The
NASDAQ Capital Market require listed companies to have audit committees of at least three members, each of whom (in addition to
satisfying other conditions) is an independent director. The audit committee currently consists of three independent directors:
R. Wesley Dittmer (who serves as the committee chairperson), Kent J. George, and Michael Neitzel. Mr. Dittmer serves as “audit
committee financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K. As of December 31, 2017, our audit committee
consisted of two independent directors: Michael Neitzel and Kent J. George. Effective October 31, 2017 and November 6, 2017, Ron
Conquest and Mark Bates, respectively, formally resigned from their positions as vice president of finance and chief innovation
officer, respectively, and as members of the board of directors and the audit committee. Effective April 23, 2018, William Rosellini
resigned from the audit committee, but remains as chief executive officer and chairman of the board. Our audit committee met one
time during 2017. All then-current members were present.
The audit committee’s duties include
recommending to our board the engagement of independent auditors to audit our financial statements and to review our accounting
and auditing principles. The audit committee reviews the scope, timing, and fees for the annual audit, and the results of audit
examinations performed by independent public accountants, including their recommendations to improve our system of accounting and
our internal control over financial reporting. The audit committee oversees the independent auditors, including their independence
and objectivity. But the committee members are not acting as professional accountants or auditors, and their functions are not
intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee is empowered
to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist the audit committee in fulfilling
its responsibilities, and to approve the fees and other retention terms of the advisors. Each of our audit committee members possesses
an understanding of financial statements and generally accepted accounting principles.
Compensation Committee
The compensation committee consists of
three independent directors: Michael Neitzel (who serves as the committee chairperson), Kent J. George, and R. Wesley Dittmer.
As of December 31, 2017, our compensation committee consisted of two independent directors: Michael Neitzel and Kent J. George.
Effective October 31, 2017 and November 6, 2017, Ron Conquest and Mark Bates, respectively, formally resigned from their positions
as vice president of finance and chief innovation officer, respectively, and as members of the board of directors and compensation
committee. Our compensation committee met one time during 2017. All then-current members were present.
The compensation committee has certain
duties and powers as described in its charter, including but not limited to periodically reviewing and approving our salary and
benefits policies, compensation of executive officers, administering our stock option plans, and recommending and approving grants
of stock options under such plans.
Nominating & Governance Committee
The nominating & governance committee
consists of three independent directors: Kent J. George (who serves as the committee chairperson), Michael Neitzel and R. Wesley
Dittmer. As of December 31, 2017, our nominating & governance committee consisted of two independent directors: Michael Neitzel
and Kent J. George. The nominating & governance committee selects or recommends nominees for directors. The director independence
rules of The NASDAQ Capital Market require listed companies’ independent directors to select or recommend nominees for directors.
Independent directors serving on our nominating & governance committee provide recommendations for directors. Therefore, the
Company meets this NASDAQ Capital Market requirement. Our nominating & governance committee met three times during 2017. The
nominating & governance committee considers and makes recommendations on matters related to the practices, policies, and procedures
of the board, and takes a leadership role in shaping our corporate governance. As part of its duties, the nominating & governance
committee assesses the size, structure, and composition of the board and its committees, and coordinates the evaluation of board
performance. The nominating & governance committee also acts as a screening and nominating committee for candidates considered
for election to the board.
Director Independence
As of the date hereof, our board of directors
is composed of four members, three of whom (Kent J. George, Michael Neitzel and R. Wesley Dittmer) qualify as independent directors
in accordance with the published listing requirements of The NASDAQ Capital Market. The NASDAQ Capital Market independence definition
includes a series of objective tests, such as that the directors are not, and have not been for at least three years, one of our
employees, and that neither the directors nor any of their family members have engaged in various types of business dealings with
us.
Shareholder Communications With the
Board of Directors
The board of directors has adopted a process
by which shareholders may communicate with the board of directors or any of its individual directors. Shareholders who wish to
communicate with the board of directors may do so by sending a written communication addressed as follows: Nexeon MedSystems Inc.,
1910 Pacific Avenue, Suite 20000, Dallas, Texas 75201. Our secretary or other officer will review each communication, and forward
the communication to the board of directors, to any individual director to whom the communication is addressed, and/or to any other
officer of the Company considered to be necessary or appropriate.
Conflicts of Interest
We did not have an audit or compensation
committee until January 1, 2017, thus providing for a potential conflict of interest in that our directors had the authority to
determine issues concerning management compensation, nominations, and audit issues that may affect management decisions prior to
the creation of such committees.
RS is a company wholly owned by Mr. Rosellini,
which acquires interests in other companies such as Nexeon in exchange for RS assets. RS will not acquire any such properties in
the future that are not first offered to us and voted on by its board of directors, with Mr. Rosellini abstaining.
RS functions as the personal holding company
of Mr. Rosellini, which currently beneficially owns 47.07% of the Company’s common stock. In addition, RS has been the source
of private funding, as well as federal and state grants, all of which benefit us. During the year ended December 31, 2016, RS,
the largest shareholder in the Company, loaned $145,475 to us. The loan was non-interest bearing, with no set terms of repayment.
As of December 31, 2016, the loan was repaid in full in cash and we currently do not have any loans outstanding with RS or Mr.
Rosellini. Mr. Rosellini’s workweek averages 60 to 70 hours, and approximately 10% of this time (or 6 to 7 hours a week)
are committed to the business of RS. Regardless, Mr. Rosellini is devoting, at a minimum, in excess of 40 hours a week to us. Mr.
Rosellini is fully aware of his fiduciary responsibilities and to the principles of the Corporate Opportunity Doctrine as they
relate to the Company. There can be no assurance that a material conflict of interest will not occur in the future. In the event
a potential conflict should occur, it will be fully disclosed to our board of directors for a determination by the board as to
the relevance and/or solution in order to avoid such potential conflict. As of the date of this filing, Mr. Rosellini, to the best
of his knowledge and belief, is unaware of any material conflicts.
All potential or actual conflicts of interest
for all of our officers and directors have been approved by the board of directors (with abstention by the conflicted director)
pursuant to our Code of Business Conduct and Ethics. Such board approval for conflict of interest transactions is consistent with
Nevada corporate law statutes.
Family Relationships
As of the date hereof, there are no family
relationships of any kind among our executive officers, directors, or persons nominated or chosen by us to become executive officers
or directors.
Emily Hamilton, MD, serves as the director
of emerging therapy for NXPROC. Dr. Hamilton is the wife of our CEO, William Rosellini.
Board Leadership Structure and Role
in Risk Oversight
Although we have not adopted a formal policy
on whether the chairman and chief executive officer positions should be separate or combined, we have traditionally determined
that it is in the best interests of the Company and its shareholders to combine these roles. Due to our small size and early stage,
we believe it is currently most effective to have the chairman and chief executive officer positions combined. In addition, having
one person serve as both chairman and chief executive officer eliminates potential for confusion, and provides clear leadership
for the Company, with a single person setting the tone and managing our operations. The board oversees specific risks, including
but not limited to:
|
●
|
Appointing, retaining, and overseeing the work of the independent auditors, including resolving disagreements between the management and the independent auditors relating to financial reporting;
|
|
|
|
|
●
|
Approving all auditing and non-auditing services permitted to be performed by the independent auditors;
|
|
●
|
Reviewing annually the independence and quality control procedures of the independent auditors;
|
|
●
|
Reviewing, approving, and overseeing risks arising from proposed related party transactions;
|
|
●
|
Discussing the annual audited financial statements with the management;
|
|
●
|
Meeting separately with the independent auditors to discuss critical accounting policies, management letters, recommendations on internal controls, the auditor’s engagement letter and independence letter, and other material written communications between the independent auditors and the management; and
|
|
|
|
|
●
|
Monitoring the risks associated with management resources, structure, succession planning, development, and selection processes, including evaluating the effect the compensation structure may have on risk decisions.
|
Board
of Directors Meetings and Attendance
We have no formal policy regarding director
attendance at the annual meeting of stockholders. The board of directors held nine meetings in 2017, and one meeting through March
31, 2018. All board members were present at all of the meetings, with the exception of one meeting. During that meeting, the absent
board member’s consent was provided.
Compliance With Section 16(a) of
the Exchange Act
Section 16(a) of the Exchange Act requires
the Company’s officers and directors, and persons who own more than 10% of a registered class of the Company’s equity
securities, to file reports of ownership and changes of ownership with the SEC. Officers, directors, and beneficial owners of more
than 10% of the Company's Common Stock are required by SEC regulations to furnish the Company with copies of all reports that they
file with the SEC pursuant to Section 16(a) of the Exchange Act. Based solely on a review of the copies of such forms furnished
to the Company and representations received by us from reporting persons, and without conducting any independent investigation
of our own, in 2017, there were the following untimely filings of a Form 3, 4 and/or 5: Christopher Miller (nine Form 4s); Brian
Blischak (six Form 4s); Daniel Powell (one Form 4); Kent J. George (one Forms 4); Michael Neitzel (one Form 4); and Rosellini Scientific,
LLC (three Form 4s).
EXECUTIVE
COMPENSATION
The
tables below summarize all compensation awarded to, earned by, or paid to our executive officers for all services rendered in
all capacities to us for the fiscal period(s) indicated.
Summary
Executive Compensation
Name and Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Rosellini
|
|
2017
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Chief Executive Officer
|
|
2016
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Blischak
|
|
2017
|
|
$
|
250,000
|
|
|
$
|
28,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,956
|
|
|
$
|
293,956
|
|
President & Chief Commercial Officer
|
|
2016
|
|
$
|
20,833
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
356,343
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
377,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark C. Bates
|
|
2017
|
|
$
|
27,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
27,000
|
|
Former Chief Innovation Officer (Resigned effective
November 6, 2017)
|
|
2016
|
|
$
|
9,900
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47,056
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald Conquest
|
|
2017
|
|
$
|
155,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
10,199
|
|
|
$
|
165,199
|
|
Former Executive Vice President of Finance (Resigned
effective October 31, 2017)
|
|
2016
|
|
$
|
81,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,500
|
|
|
$
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth Rosellini
|
|
2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Former Vice President
of Clinical Affairs (Resigned effective December 31, 2016)
|
|
2016
|
|
$
|
20,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher Miller
|
|
2017
|
|
$
|
125,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
6,750
|
|
|
$
|
131,750
|
|
Chief Financial Officer
|
|
2016
|
|
$
|
21,577
|
|
|
$
|
|
|
|
$
|
252
|
|
|
$
|
66,234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
88,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Powell
|
|
2017
|
|
$
|
89,931
|
|
|
|
—
|
|
|
|
|
|
|
$
|
33,392
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
16,359
|
|
|
$
|
139,686
|
|
Vice President Sales and Marketing
|
|
2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Summary Director Compensation
The following table provides information
with respect to the total compensation granted to our directors for services as directors as of December 31, 2017.
Name
|
|
Year
|
|
|
Fees Earned or Paid in Cash
($)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($)
|
|
|
Non-Equity Incentive Plan Compensation
($)
|
|
|
Non-Qualified Deferred Compensation Earnings
($)
|
|
|
All Other Compensation ($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Rosellini
|
|
|
2017
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Bates*
|
|
|
2017
|
|
|
$
|
9,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
9,000
|
|
|
|
|
2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ron Conquest**
|
|
|
2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kent J. George
|
|
|
2017
|
|
|
$
|
16,000
|
|
|
$
|
20,679
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
36,679
|
|
|
|
|
2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Neitzel
|
|
|
2017
|
|
|
$
|
16,000
|
|
|
$
|
20,679
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
36,679
|
|
|
|
|
2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
*
|
Resigned effective November 6, 2017
|
**
|
Resigned effective October 31, 2017
|
On January 1, 2017, we entered into a director
services agreement with each of Kent J. George and Michael Neitzel. The director services agreements for Mr. George and Mr. Neitzel
include the following terms:
Compensation
Director’s
Fees
. An annual director’s fee, payable in arrears in quarterly installments at the end of each calendar quarter during
which a director has served as a director for the Company, shall be $3,000 per quarter. Notwithstanding the foregoing, our board
unanimously approved a one-time $1,000 per quarter increase to the director’s fees payable to Mr. Dittmer in connection with
this appointment.
Director’s
Options.
At the end of each three-month (3) period that the director serves as a director of the Company, we will grant
to the director an option to purchase Twelve Thousand Five Hundred (12,500) shares of the Company’s restricted Common Stock,
at a price equal to One Dollar ($1.00) per share, or, in the alternative, the price per share of the Company’s then current
market price per share. The term of each option shall be for a period of four (4) years from the date of issue of each option.
Expenses.
We
will reimburse the director for all reasonable out of pocket expenses incurred by the director in acting as director, subject to
the director providing reasonable documentation and subject to our policies regarding such expenses, provided further that it is
anticipated that such expenses shall primarily consist of travel expenses to board meetings, or such other expenses discussed and
approved by our CEO and/or board of directors.
Assignment of Intellectual Property
and Limited Non-Competition
Assignment of Intellectual
Property.
In connection with their appointments, directors agree to assign to us any and all rights, improvements, and
copyrightable or patentable subject matter (and other intellectual property relating to our business) that such directors conceive
or develop, either alone or with others, or which otherwise arise during the term of director providing management services to
us, and for a period of six (6) months thereafter.
Limited Non-Competition.
For
a period of eighteen (18) months after the director ceases to be a director of the Company, the director shall not become, directly
or indirectly, an employee of, or provide consulting services for, or have any ownership interest in, any other business entity
that manufactures or sells “Competitive Products.” As used herein, “Competitive Products” means: any product
that the Company develops or acquires the right to sell from time to time during the term of the Agreement.
Term.
Director’s
term shall be until either (i) the director resigns as a director of the Company, (ii) the majority of the members of the Company’s
board of directors vote to remove director as a director of the Company, or (iii) a majority of the shareholders of the Company
vote to elect a board of directors consisting of directors other than the director.
Employment Agreements
William Rosellini
We do not have
a formal employment agreement with William Rosellini in his executive capacity as chief executive officer.
Pursuant to the
Contribution Agreement between us and RS, any compensation paid by us for Mr. Rosellini’s services will be made directly
to his wholly owned company, RS.
Brian Blischak
Effective December 1, 2016, we executed
an employment agreement with Brian Blischak in his capacity of president and chief commercial officer. The term of the employment
agreement is four (4) years, and may automatically be extended for one additional year. Upon expiration of the term of the employment
agreement, Mr. Blischak shall remain an “at will” employee of the Company, but shall still be subject to and bound
by the terms of the employment agreement. The employment agreement provides that Mr. Blischak will have a minimum annual base salary
of $250,000. The base salary shall not include any benefits made available to Mr. Blischak, or any contributions or payments made
on his behalf pursuant to any employee benefit plan or program of the Company, including any health, disability, or life insurance
plan or program, 401(k) plan, cash bonus plan, stock incentive plan, retirement plan, or similar plan or program of any nature.
Benefit programs.
Mr. Blischak
shall be eligible to participate in various company benefit programs, as they become available, pursuant to the terms of the Company’s
applicable benefit plans and policies available to other similarly situated employees of the Company. In addition, we shall establish
and maintain a Health Reimbursement Account (Section 105 Plan) (“HRA”) for the benefit of Mr. Blischak and his immediate
family. During the term of the Employment Agreement, and until Company makes available a health insurance benefit that Mr. Blischak
deems superior to this arrangement, we shall contribute $1,350 per month to Mr. Blischak’s HRA account. Mr. Blischak will
draw upon this account to pay for health insurance premiums, deductibles, co-payments, and any other health care expenses permitted
by the HRA plan (“Health Costs”), and unused funds shall roll forward until thirty (30) days after his employment terminates
for any reason, at which time any remaining funds would revert to the Company. The amount of our contribution to the HRA shall
be reviewed and increased effective January 1 of each year of the Employment Agreement to reflect changes in Health Costs, and
the cost of health insurance available to Mr. Blischak and his immediate family.
Bonus
. The employment agreement
provides that, in addition to the annual base salary described above, Mr. Blischak shall also be eligible for an annual performance-based
bonus of 30% of his annual base salary, to be earned by satisfactorily meeting criteria established by our chief executive officer
and approved by the compensation committee of the board of directors prior to March 1 each year. Mr. Blischak will receive the
full 30% bonus amount if such criteria are satisfactorily met. In the event that Mr. Blischak’s performance exceeds this
standard, he may be considered for a bonus in an amount larger than 30%. In the event that his performance falls short of this
standard, he may receive less than the full bonus percentage. A minimum of 70% of the annual bonus compensation shall be paid in
cash, and the balance shall be paid in unrestricted Common Stock of the Company, or such other mutually agreeable consideration.
During the term of the employment agreement, the yearly annual bonus shall be paid within sixty (60) days of the calendar year
end.
Termination.
Termination
for Cause
. In the event that Mr. Blischak’s employment is terminated by us for Cause (as defined in the employment agreement),
Mr. Blischak shall be entitled to all accrued compensation, including vested stock and stock options, up through the date of termination,
but shall not be entitled to additional severance payments.
Termination
without Cause, or Change in Control
. In the event that Mr. Blischak’s employment is terminated by us without Cause, or
as a result of a Change in Control (as defined in the employment agreement), Mr. Blischak will receive severance compensation pursuant
to the following formulas:
(i) In
the event a termination without Cause or a Change in Control occurs, occurring prior to the first, second, or third year anniversary
of the employment agreement, Mr. Blischak shall receive a lump sum severance amount equal to 4/12
th
, 5/12
th
,
or 6/12
th
respectively of the sum of (A) his highest annual salary in effect at any time during the term of the
employment agreement, or his salary in effect immediately prior to the termination or Change in Control, whichever is the larger
amount, plus (B) the amount of the bonus or incentive compensation targeted for payment to him for the fiscal year during which
the termination or the Change in Control occurs.
(ii) In
the event a termination without Cause or a Change in Control occurs, occurring at any time after the third-year anniversary of
the employment agreement, Mr. Blischak will receive a lump sum severance amount equal to 6/12
th
of the sum of (A)
his highest annual salary in effect at any time during the term of the employment agreement, or his salary in effect immediately
prior to the termination or Change in Control, whichever is the larger amount, plus (B) the amount of the bonus or incentive compensation
targeted for payment to him for the fiscal year during which the termination or the Change in Control occurs.
Termination for
Good Reason
. In the event that Mr. Blischak terminates his employment with the Company for Good Reason (as defined in the employment
agreement), he will receive a severance payment equal to 3/12
th
of the sum of (A) his highest annual salary in
effect at any time during the term of the Employment Agreement, or his salary in effect immediately prior to the termination, whichever
is the larger amount, plus (B) the amount of the bonus or incentive compensation targeted for payment to him for the fiscal year
during which the termination occurs.
Release of claims.
As
a condition to receiving any severance, Mr. Blischak must execute a full general release satisfactory to the Company, releasing
all claims, known or unknown, that Mr. Blischak may have against the Company arising out of or in any way related to his employment
or termination of employment with the Company prior to receipt of the severance payment. If we fail to provide Mr. Blischak with
a signed, full general release within seven (7) days of the termination date, then Company shall waive this requirement. Any severance
and other amounts due shall be paid in full within seven (7) days of the termination date and execution or waiver of the full general
release as applicable.
Stock options
. Upon
execution of the employment agreement, Mr. Blischak was granted an initial grant of 1,150,000 non-transferable stock options to
purchase shares of the Company’s Common Stock, consisting of 500,000 incentive stock options (“ISO”) and 650,000
non-qualified stock options (“NQSO”). With respect to the ISO options, 100,000 ISO options vested on December 1, 2016,
and additional lots of 100,000 ISO options each shall vest on January 2, 2017, 2018, 2019, and 2020. With respect to the NQSO options,
38,000 NQSO options vested on December 1, 2016, and 17,000 NQSO options vested on January 1, 2017. An additional 17,000 options
shall vest on the first day of each month thereafter until all NQSO options are fully vested on December 1, 2019. The exercise
price of all options is $1.00 per share, and the options shall expire eight years from the grant date. All options shall vest immediately
upon a Termination without Cause, Change in Control, or Termination for Good Reason, as set forth above.
Christopher R. Miller
Effective December
1, 2016, we entered into an employment agreement with Christopher R. Miller. The term of the Contract is for three (3) years. The
employment agreement shall automatically renew for an additional one-year term. The employment agreement provides that Mr. Miller
will have an annual base salary of (i) $125,000 per year from December 1, 2016 through December 31, 2017; (ii) $150,000 per year
from January 1, 2018 through December 31, 2018; and (iii) $175,000 per year from January 1, 2019 through December 31, 2019.
Benefit
programs.
Mr. Miller shall be eligible to participate in various company benefit programs, as they become available, pursuant
to the terms of our applicable benefit plans and policies available to other similarly situated employees of the Company.
Bonus
. In addition
to the annual base salary described above, Mr. Miller shall also be eligible for an annual performance-based bonus of 20% of his
annual base salary, to be earned by satisfactorily meeting criteria established by our chief executive officer and approved by
the compensation committee of the board of directors prior to March 1 each year. Mr. Miller will receive the full 20% bonus amount
if such criteria are satisfactorily met. In the event that Mr. Miller’s performance exceeds this standard, he may be considered
for a bonus in an amount larger than 20%. In the event that his performance falls short of this standard, he may receive less than
the full bonus percentage. A minimum of 70% of the annual bonus compensation shall be paid in cash, and the balance shall be paid
in unrestricted Common Stock of the Company, or such other mutually agreeable consideration. During the term of the Contract, the
yearly annual bonus shall be paid within sixty (60) days of the calendar year end. In the event the employment agreement is terminated
by us, or should Mr. Miller terminate his employment under the Employment Contract, Mr. Miller will earn the base salary prorated
to the date of termination. The prorated base salary will be based on a thirty-day (30) calendar month.
Stock options.
Upon
execution of the employment agreement, Mr. Miller was granted stock options to purchase 306,000 shares of the Company’s restricted
Common Stock pursuant to our 2016 Omnibus Incentive Plan (the “2016 Plan”). The option shares vest at the rate of 8,500
shares per month for a period of thirty-six (36) months. The option shares’ exercise price is $1.00 per share. Any option
shares that have not yet been vested as of the date of the end of the term of the employment agreement shall be subject to forfeiture.
Stock award.
In
January 2016, we issued to Mr. Miller 252,000 shares of the Company’s restricted Common Stock for prior and then ongoing
consulting services. On the effective date of the employment agreement, 148,000 shares were vested, and the remaining 104,000 shares
will vest at the rate of 8,000 shares per month for a period of thirteen (13) months.
Termination.
Death
or disability.
In the event that Mr. Miller’s employment terminates due to his death, the employment agreement provides
that his estate shall receive severance benefits equivalent to thirty (30) days of Mr. Miller’s base salary. In the event
that Mr. Miller’s employment terminates due to his Disability (as defined in the employment agreement), the employment agreement
provides that he will receive severance benefits equivalent to ninety (90) days of Mr. Miller’s base salary.
Termination for
Cause
. In the event that Mr. Miller’s employment is terminated by us for Cause (as defined in the employment agreement),
Mr. Miller shall be entitled to all accrued compensation, including vested stock options, up through the date of termination, but
shall not be entitled to additional severance payments.
Termination without
Cause
. In the event that Mr. Miller’s employment is terminated by us without Cause, Mr. Miller will receive the base
salary then in effect, prorated to the date of termination. In addition, Mr. Miller will receive a severance payment equivalent
to ninety (90) days of the base salary.
Termination for
Good Reason.
In the event that Mr. Miller terminates his employment with us for Good Reason (as defined in the employment
agreement), he will receive a severance payment equivalent to ninety (90) days of base salary.
Release of claims.
As
a condition to receiving any severance, Mr. Miller must execute a full general release satisfactory to us, releasing all claims,
known or unknown, that Mr. Miller may have against the Company, arising out of or in any way related to his employment or termination
of employment with Company prior to receipt of the severance package.
Daniel Powell
Effective June
26, 2017, Mr. Powell accepted our offer of employment as vice president of sales and marketing. The employment is defined as “at-will”
with regard to the term. The offer provides that Mr. Powell will have an annual base salary of $175,000 per year.
Benefit
programs.
Mr. Powell is eligible to participate in our Health Reimbursement Plan (HRP) and receive reimbursement through
the HRP of up to $1,350.00 per month, which may be used for approved health care reimbursements. Mr. Powell is entitled
to take up to twenty (20) days paid vacation each calendar year, and is entitled to receive additional benefits as an employee
of the Company as they become available, including any bonus plan.
Stock options.
Upon
acceptance of the offer of employment, Mr. Powell was granted stock options to purchase 220,000 shares of the Company’s restricted
Common Stock pursuant to the Company’s 2016 Plan. The option shares vest at the rate of 8,461 shares per month for a period
of thirty-six (36) months. The option shares’ exercise price is $1.25 per share. Effective on the date that Mr. Powell ceases
to be an employee of the Company or one if its subsidiaries, all unvested options shall expire and be of no further force of effect.
Outstanding Equity Awards at Fiscal
Year End
As of December 31, 2017, we had 1,708,000
outstanding equity awards made to our executives.
The following table sets forth information
regarding each unexercised option held by each of our named executive officers as of December 31, 2017:
Name
|
|
Number of Securities Underlying Unexercised Options Exercisable
|
|
|
Number of Securities Underlying Unexercised Options Unexercisable
|
|
|
Option Exercise Price
|
|
|
Option Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Rosellini
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Blischak
|
|
|
1,150,000
|
|
|
|
—
|
|
|
$
|
1.00
|
|
|
|
12/01/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher R. Miller
|
|
|
306,000
|
|
|
|
—
|
|
|
$
|
1.00
|
|
|
|
12/01/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Powell
|
|
|
220,000
|
|
|
|
—
|
|
|
$
|
1.25
|
|
|
|
07/01/2023
|
|
(1)
|
All option grants reflected in the table above were granted under the Company’s 2016 Plan.
|
Securities Authorized for Issuance Under
Equity Compensation Plans
We may, from time to time, issue certain
equity awards pursuant to our 2016 Plan. The 2016 Plan was adopted by our board of directors on January 2, 2016, and was subsequently
approved by our shareholders on January 2, 2016. As of December 31, 2017, incentive stock options to purchase an aggregate of 2,375,200
shares of Common Stock and non-qualified options to purchase an aggregate of 1,305,200 shares of the Company's Common Stock were
issued under the 2016 Plan, all with exercise prices ranging from $1.00 to $2.00 per share. A total of 354,656 vested immediately
upon grant, and the remaining vest in varying amounts ranging from 100,000 annually to monthly increments ranging from 2,083 to
17,000, based on individual stock option agreements. The options have terms as follows: 1,705,200 options have a three-year term
starting on each date of vesting; 825,000 options have a four-year term starting on each date of vesting; and 1,150,000 have an
eight-year term starting on the date of vesting.
The 2016 Plan is administered by a committee
of two or more non-employee directors designated by the board once outside directors have been elected to the board. In the interim,
the board shall perform the requisite duties of the committee with respect to awards made. The committee currently determines to
whom awards are made, the timing of any such awards, the type of securities, and the number of shares covered by each award, as
well as the terms, conditions, performance criteria, restrictions, and other provisions of awards. The committee has the authority
to cancel or suspend awards, accelerate the vesting, or extend the exercise period of any awards made pursuant to the 2016 Plan.
Shares Available Under the 2016 Plan
The maximum shares available for issuance
under the 2016 Plan are 5,000,000, subject to adjustment as set forth in the 2016 Plan. Any shares subject to an award that expires,
is cancelled or forfeited, or is settled for cash shall, to the extent of such cancelation, forfeiture, expiration, or cash settlement,
again become available for awards under the 2016 Plan. The committee can issue awards comprised of restricted stock, stock options,
stock appreciation rights, stock units, and other awards, as set forth in the 2016 Plan. The Company anticipates effecting an increase
to the amount of shares available under the 2016 Plan in the future.
The following table sets forth, as of December
31, 2017, (A) the number of securities to be issued upon the exercise of outstanding options, warrants, and rights issued under
our equity compensation plans, (B) the weighted-average exercise price of such options, warrants, and rights, and (C) the number
of securities remaining available for future issuance under our equity compensation plans (excluding those securities set forth
in Item (A)).
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Plan Category
|
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights
|
|
|
Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights
|
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities
Reflected in Column (a))
|
|
Equity compensation plans approved by security holders
|
|
|
3,680,200
|
|
|
$
|
1.08
|
|
|
|
1,319,800
|
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
3,680,200
|
|
|
$
|
1.08
|
|
|
|
1,319,800
|
|
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of May 4, 2018, certain information regarding beneficial ownership of our capital stock
according to the information supplied to us, that were beneficially owned by (i) each person known by the Company to be the
beneficial owner of more than 5% of each class of the Company’s outstanding voting stock, (ii) each director, (iii)
each named executive officer identified in the Summary Compensation Table, and (iv) all named executive officers and
directors as a group.
Beneficial ownership is determined in accordance
with the rules and regulations of the SEC. In general, a person is deemed to be the beneficial owner of (i) any shares of the Company’s
Common Stock over that such person has sole or shared voting power or investment power, plus (ii) any shares that such person has
the right to acquire beneficial ownership of within 60 days of the above date, whether through the exercise of options, warrants,
or otherwise. Applicable percentages are based on 27,715,911 shares of Common Stock outstanding on May 4, 2018, adjusted as required
by rules promulgated by the SEC.
Unless otherwise indicated, the address
of each beneficial owner listed in the table below is c/o Nexeon MedSystems Inc, 1910 Pacific Avenue, Suite 20000, Dallas, Texas
75201.
|
|
Shares Beneficially
Owned Prior to Offering
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percent
|
|
|
|
|
|
|
|
|
Beneficial shareholders (greater than 5%):
|
|
|
|
|
|
|
Rosellini Scientific, LLC
|
|
|
13,106,726
|
(1)
|
|
|
47.29
|
%
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
William Rosellini
|
|
|
15,835,826
|
(2)
|
|
|
56.50
|
%
|
Brian Blischak
|
|
|
748,320
|
(3)
|
|
|
2.66
|
%
|
Kent J. George
|
|
|
104,899
|
(4)
|
|
|
*
|
|
Michael Neitzel
|
|
|
677,500
|
(5)
|
|
|
2.44
|
%
|
Christopher R. Miller
|
|
|
468,268
|
(6)
|
|
|
1.68
|
%
|
Daniel Powell
|
|
|
92,490
|
(7)
|
|
|
*
|
|
Wesley Dittmer II
|
|
|
—
|
(8)
|
|
|
*
|
|
All directors and officers as a group (six persons)
|
|
|
17,927,303
|
|
|
|
61.19
|
%
|
|
(1)
|
RS is located at 10210 N.
Central Expressway, Suite 105, Dallas, Texas. William Rosellini is the sole member and manager of RS, and, in such capacity, has
voting and dispositive power over the securities held by such entity.
|
|
(2)
|
Represents (i) 2,416,600
shares of Common Stock held by Mr. Rosellini, (ii) 13,106,726 shares of Common Stock held by RS, (iii) an incentive stock option
grant to purchase up to 125,000 shares of the Common Stock (which represents the vested portion, including shares vesting within
60 days) of an incentive stock option to purchase up to 250,000 shares of Common Stock pursuant to the 2016 Plan, and (iv) a non-qualified
stock option grant to purchase up to 187,500 shares of Common Stock (which represents the vested portion, including shares vesting
within 60 days) of a non-qualified stock option to purchase up to 900,000 shares of Common Stock. Mr. Rosellini is the sole member
and manager of RS, and, in such capacity, has voting and dispositive power over the securities held by such entity.
|
|
(3)
|
Represents (i) an incentive
stock option to purchase up to 300,000 shares of the Company’s Restricted Common Stock (which represents the vested portion,
including shares vesting within 60 days) of an incentive stock option to purchase up to 500,000 shares of the Company’s Restricted
Common Stock pursuant to the 2016 Plan, (ii) non-qualified stock option grants to purchase up to 418,000 shares of the Company’s
Restricted Common Stock (which represents the vested portion, including shares vesting within 60 days) of a non-qualified stock
options to purchase up to 707,500 shares of the Company’s restricted Common Stock, and (iii) 29,820 shares of Common Stock
held by Mr. Blischak.
|
|
(4)
|
Represents (i) 62,500 shares
of Common Stock (which represents the vested portion, including shares vesting within 60 days) of option to purchase up to 62,500
shares of Common Stock, (ii) 5,817 shares of Common Stock held by George Brothers Investment Partnership (“George Brothers”),
(iii) Warrants to purchase up to 5,817 shares of Common Stock held by George Brothers, and (iv) 30,765 shares of Common Stock
held by Paragon Investment Group (“Paragon”). Mr. George is the managing partner of George Brothers and the manager
of Paragon, and, in such capacities, has voting and dispositive power over the securities held by such entities.
|
|
(5)
|
Represents (i) 62,500 shares
of Common Stock (which represents the vested portion, including shares vesting within 60 days) of option to purchase up to 62,500
shares of Common Stock, (ii) 585,000 shares of Common Stock held by Yorkville MGB Investments, LLC (“Yorkville”),
and (iii) 30,000 shares of Common Stock held by Mr. Neitzel. Mr. Neitzel is the manager of Yorkville, and, in such capacity, has
voting and dispositive power over the securities held by such entity.
|
|
(6)
|
Represents (i) a grant of
252,000 shares of Common Stock, (ii) an incentive stock option grant to purchase up to 161,500 shares of Common Stock (which represents
the vested portion, including shares vesting within 60 days) of an option to purchase up to 306,000 shares of Common Stock issued
pursuant to the 2016 Plan, (iii) non-qualified stock option grant to purchase up to 30,000 shares of Common Stock (which represents
the vested portion, including shares vesting within 60 days) of a non-qualified stock option to purchase up to 30,000 shares of
Common Stock, and (iv) 24,768 shares of Common Stock held by Mr. Miller.
|
|
(7)
|
Represents (i) an incentive
stock option grants to purchase 84,330 shares of Common Stock (which represents the vested portion, including shares vesting within
60 days) of options to purchase up to 231,000 shares of Common Stock issued pursuant to the 2016 Plan and (ii) 8,160 shares of
Common Stock held by Mr. Powell.
|
|
(8)
|
Pursuant to Mr. Dittmer’s appointment as director, at the
end of each quarterly period that Mr. Dittmer serves as a director of the Company, the Company will grant to Mr. Dittmer an
option (each an "Option") to purchase 12,500 shares of the Company’s restricted Common Stock, at a price
equal to the price per share of the Company’s then-current market price per share. As of May 4, 2018, no options are
issued, but 12,500 options will be issued on June 30, 2018, and will become immediately exercisable.
|
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
The following reflects certain relationships
and related transactions as of December 31, 2017.
On January 2, 2016, we entered into a contribution
agreement with RS, controlled by our CEO, William Rosellini, and RS’s wholly owned subsidiary Belltower Associates, LLC (collectively,
RS and Belltower Associates, LLC are hereinafter referred to as “RS”). Under this agreement, we issued 13,200,000 shares
of our Common Stock in return for, among other consideration:
|
i.
|
RS’s agreement to an assignment (subject to regulatory transfer approval) to us of Phase II, should it be granted, of the federal NIH/SBIR awarded grant #1R44HL129870-01;
|
|
ii.
|
1,675,000 shares of Common Stock of Nuviant Medical, Inc. (“Nuviant”);
|
|
iii.
|
167 shares of Common Stock of MicroTransponder, Inc., a Delaware corporation; and
|
|
iv.
|
175 shares of Common Stock of Emeritus Clinical Solutions, Inc., a Delaware corporation.
|
These transactions were valued based on
the value of the contributed assets, as our shares had no ascertainable value as of the date of issuance of the shares. This was
in accordance with ASC 845 Non-Monetary Transactions, whereby the value of a non-monetary assets acquired in exchange for another
non-monetary asset is the fair value of the asset surrendered or received, whichever is more clearly evident. In this case, the
value of the contributed assets were more ascertainable than the value of the shares issued. The value of the consideration to
acquire these shares was $272,686.
In accounting for the contributions of
assets regarding the transactions with William Rosellini and RS, we recorded the assets received at fair value in accordance with
ASC 845, Non-Monetary Transactions. Prior to the contributions, William Rosellini and RS were not related parties of the Company.
They became related parties through the issuance of the 13,200,000 shares and a controlling interest in the Company. For the Nuviant
and MicroTransponder, Inc. common stock, the amount at which the assets were acquired from the related persons were based on the
fair market value as determined by an appraisal report establishing a fair market value for each private company’s common
stock of $0.10 and $416 per share respectively. The valuation reports are prepared by a qualified third party independent appraiser
in accordance with the AICPA’s Statement on Standards for Valuations No. 1 and the AICPA’s “Practice Aid”,
Valuation of Privately-Held Company Equity Securities Issued as Compensation. The amount at which the Emeritus Clinical Solutions,
Inc. stock was acquired was based on the most-recent third-party transaction of $204.08 per share. Assets acquired by the related
persons within the last two years include the Nuviant common stock. The cost of the 1,675,000 common shares of Nuviant to the related
party and acquired from RS was $1,675, or approximately $.001 per share. The cost of the 175 shares of Emeritus Clinical Solutions,
Inc. common stock to the related party and acquired from RS was $0.175 at par value $.001.
In October 2016, prior to acquisition by
us, we paid $124,870 to NMB (formerly Rosellini Scientific Benelux, SPRL) for research and development services for our intravascular
drug delivery system technology platform. NMB was a company controlled by our CEO, William Rosellini.
On October 28, 2016, Michael Rosellini
entered into a contribution agreement with the Company to acquire 1,217,000 shares of Common Stock of the Company, and 1,217,000
warrants to acquire another 1,217,000 shares of Common Stock of the Company as follows: (i) 617,000 shares of Common Stock and
617,000 warrants to purchase 617,000 shares of Common Stock at a strike price of $2.00 per share, with a term of 36 months are
held by Michael Rosellini individually. Of such holdings, 617,000 shares of Common Stock and the 617,000 warrants were purchased
from us pursuant to our private placement, which closed on December 2, 2016. The warrants are currently exercisable, and expire
on October 28, 2019. (ii) 600,000 shares of Common Stock and 600,000 warrants to purchase 600,000 shares of Common Stock at a strike
price of $2.00 per share with a term of 36 months are held by the IRA Resources, FBO Randy Michael Rosellini, ROTH IRA. Michael
Rosellini has the sole power to vote and dispose of the shares held by the Roth IRA. The shares of Common Stock and the warrants
were purchased from us pursuant to our private placement, which closed on December 2, 2016. The warrants are currently exercisable,
and expire on October 28, 2019. Michael Rosellini is the father of William Rosellini, our chief executive officer.
Effective December 1, 2016, Brian Blischak,
our president and chief commercial officer, pursuant to the 2016 Plan, was granted an initial grant of 1,150,000 non-transferable
stock options to purchase shares of the Company’s Common Stock, consisting of 500,000 ISOs and 650,000 NQSOs. With respect
to the ISO options, 100,000 ISO options vested on the effective date, and 100,000 ISO options vested on January 1, 2017. Additional
lots of 100,000 ISO options each shall vest on January 1, 2018, 2019 and 2020. With respect to the NQSO options, 38,000 NQSO options
vested on the effective date, and 17,000 NQSO options vested on January 1, 2017. An additional 17,000 options shall vest on the
first day of each month thereafter until all NQSO options are fully vested on December 1, 2019. The exercise price of all options
is $1.00 per share, and the options shall expire eight years from the grant date. The fair value of the options was determined
to be $365,342 using the Black-Scholes Option Pricing Model.
On December 15, 2016, pursuant to the terms
of the License Agreement, William Rosellini sold, assigned, and transferred any and all of his right, title, and interest in and
to the License owned by him related to the Siemens Patents to us pursuant to the Purchase Agreement filed as Exhibit 10.1 to our
Current Report on Form 8-K filed with the SEC on December 20, 2016. As consideration for the transfer of the Siemens Patents and
the License related thereto, we paid to Mr. Rosellini the sum of $140,000 in cash, and will issue to Mr. Rosellini 3,050,000 shares
of the Company’s restricted Common Stock valued at $3,050,000. We have not yet issued the shares of restricted Common
Stock. Mr. Rosellini, the CEO of the Company, is the sole member and manager of RS.
During the year ended December 31, 2016,
RS, the largest shareholder in the Company, loaned $145,475 to us. The loan was non-interest bearing, with no set terms of repayment.
As of December 31, 2016, the loan was repaid in full in cash.
On January 1, 2017, our board of directors
appointed Emily Hamilton, MD to serve as the director of emerging therapy for NXPROC. Dr. Hamilton is the wife of our CEO, William
Rosellini. Dr. Hamilton beneficially owns 83,014 shares of Common Stock of the Company, pursuant to our August 21, 2017 offer to
Company employee, the opportunity to purchase shares of the Company’s restricted Common Stock for a discount through payroll
deductions. These shares were valued at $133,822.
On May 19, 2017, NMB entered into a waiver
of debt agreement to waive the outstanding loan balance and accrued interest outstanding pursuant to the September 21, 2015, loan
agreement between NMB and Nuviant Medical, GmbH, an entity related to RS. The agreement waives the outstanding balance of the loan
and accrued interest in the amount $171,946, and thereby waives any right or action in respect to this debt. An expense had been
recorded as bad debt on the statement of comprehensive income in the amount $174,252. During the year ended December 31, 2017,
and prior to the waiver of debt agreement, NMB loaned Nuviant Medical, GmbH $59,027.
On June 23, 2017, RS transferred 81,035
shares of restricted Common Stock to NMB. The shares were valued at $107,292. The loan is non-interest bearing, and will be re-paid
to RS in restricted Common Stock issued by us through an intercompany loan with NMB. The 81,035 shares were exchanged for outstanding
payables to vendors of NMB in the amount of $107,292. RS is also due $18,595 from a non-interest bearing loan to NMB in 2016. The
total amount due to RS from these transactions is $125,887, and is recorded as due to related party on the balance sheet as of
December 31, 2017
On February 28, 2018, pursuant to the 2016
Plan, the compensation committee of the board of directors approved the following stock option grant to our chief executive officer,
William Rosellini, to purchase up to 250,000 shares of Common Stock with an exercise price of $0.76 per share. 125,000 options
vested immediately, and the remaining 125,000 options vest on the anniversary of the grant date. We granted non-qualified stock
options to purchase up to 900,000 shares of Common Stock with an exercise price of $0.76 per share. These options vest in equal
monthly amounts of 37,500 beginning on March 1, 2018. The fair value of the options was determined to be $226,009 using the Black-Scholes
Option Pricing Model.
Unless otherwise stated, the issuances
of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or contracts relating to compensation (as provided under Rule 701).
The recipients of the securities in the
foregoing transactions represented their intentions to acquire the securities for investment only and not with a view to the resale
or distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients
had access, through their relationships with us, to information about the Company.
Director Independence
Although we are not listed on a national
securities exchange, in determining whether the members of our board and its committees are independent, we have elected to use
the definition of “independence” set forth by The NASDAQ Capital Market, and the standards for independence established
by The NASDAQ Capital Market.
The director independence rules of The
NASDAQ Capital Market require listed companies to have an audit committee of at least three members, each of whom (in addition
to satisfying other conditions) is an independent director. Our audit committee is currently comprised of three independent directors,
and would therefore meet this requirement.
The director independence rules of The
NASDAQ Capital Market require that the compensation of the chief executive officer and other officers of a listed company be determined,
or recommended to the board for determination, either by a compensation committee comprised of independent directors or by a majority
of the independent directors on its board of directors. The compensation committee is currently comprised of three independent
directors.
The director independence rules of The
NASDAQ Capital Market require that board of director nominations must be either selected, or recommended for the board's selection,
by either a nominating committee comprised solely of independent directors or by a majority of the independent directors. Our nominating
& governance committee is comprised of three independent directors, and we therefore believe we meet this requirement.
DESCRIPTION OF SECURITIES
The following description summarizes
the material terms and provisions of our capital stock.
General
Our
authorized capital stock consists of 75,000,000 shares of Common Stock with a par value of $0.001. As of May 4, 2018,
there were 27,715,911 shares of Common Stock outstanding. We have not authorized any shares of preferred stock.
Common Stock
Each share of
our Common Stock is entitled to one vote at all meetings of our shareholders. Our shareholders are not permitted to cumulate votes
in the election of directors. All shares of our Common Stock are equal with respect to liquidation rights and dividend rights. In
the event of our liquidation, dissolution, or winding up, holders of our Common Stock will be entitled to receive, on a pro-rata
basis, all our assets remaining. Except as otherwise required by Nevada law, holders of shares of our Common Stock do not have
cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors,
can elect all the directors to be elected, if they so choose, and, in such event, the holders of the remaining shares will not
be able to elect any of our directors.
Outstanding
Warrants
As of May 4, 2018,
we had 1,160,761 warrants outstanding, all of which are exercisable, with a weighted average exercise price of $2.32 per share.
Warrants to
be Offered
The
following summary of certain terms and provisions of the
Warrant
s
offered hereby is not complete, and is subject to, and qualified in its entirety by, the provisions of the form of the
Warrant
,
which is filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully
review the terms and provisions set forth in the form of
Warrant
.
Exercisability.
The
Warrant
s are exercisable at any time up to the date that is
five years from the closing of this offering. The
Warrant
s will
be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied
by payment in full for the number of shares of our Common Stock purchased upon such exercise (except in the case of a cashless
exercise, as discussed below). Unless otherwise specified in the
Warrant
,
the holder will not have the right to exercise any portion of the
Warrant
if
the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our Common Stock
outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the
terms of the
Warrant
s.
Cashless
exercise.
In the event that a registration statement covering shares of Common Stock underlying the
Warrant
s,
or an exemption from registration, is not available for the resale of such shares of Common Stock underlying the
Warrant
s,
the holder may, in its sole discretion, exercise the
Warrant
in
whole or in part, and, in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment
of the aggregate exercise price, elect instead to receive upon such exercise the net number of shares of Common Stock determined
according to the formula set forth in the
Warrant
. In no event
shall we be required to make any cash payments or net cash settlement to the registered holder in lieu of issuance of Common Stock
underlying the
Warrant
s.
Exercise
price.
The initial exercise price per share of Common Stock purchasable upon exercise of the
Warrant
s
is $ per share ( % of the public offering price of one
share of Common Stock). The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions,
stock splits, stock combinations, reclassifications, or similar events affecting our Common Stock, and also upon any distributions
of assets, including cash, stock, or other property, to our stockholders.
Certain
adjustments.
The exercise price and the number of shares of Common Stock purchasable upon the exercise of the
Warrant
s
are subject to adjustment upon the occurrence of specific events, including stock dividends, stock splits, combinations, and reclassifications
of our Common Stock.
Transferability.
Subject to applicable laws, the
Warrant
s may be transferred at
the option of the holders upon surrender of the
Warrant
s to us,
together with the appropriate instruments of transfer.
Fundamental
transaction.
If, at any time while the
Warrant
s are outstanding,
(1) we consolidate or merge with or into another corporation, and we are not the surviving corporation; (2) we sell, lease, license,
assign, transfer, convey, or otherwise dispose of all or substantially all of our assets; (3) any purchase offer, tender offer,
or exchange offer (whether by us or another individual or entity) is completed pursuant to which holders of our shares of Common
Stock are permitted to sell, tender, or exchange their shares of Common Stock for other securities, cash, or property, and has
been accepted by the holders of 50% or more of our outstanding shares of Common Stock; (4) we effect any reclassification or recapitalization
of our shares of Common Stock, or any compulsory share exchange pursuant to which our shares of Common Stock are converted into
or exchanged for other securities, cash, or property; or (5) we consummate a stock or share purchase agreement or other business
combination with another person or entity whereby such other person or entity acquires more than 50% of our outstanding shares
of Common Stock, each (a “Fundamental Transaction”), then, upon any subsequent exercise of the
Warrant
s,
the holders thereof will have the right to receive the same amount and kind of securities, cash, or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of
Warrant
shares then issuable upon exercise
of the
Warrant
, and any additional consideration payable as part
of the Fundamental Transaction.
Rights
as a stockholder.
Except as otherwise provided in the
Warrant
s
or by virtue of such holder's ownership of shares of our Common Stock, the holder of a
Warrant
does
not have the rights or privileges of a holder of our Common Stock, including any voting rights, until the holder exercises the
Warrant
.
Representative's
Warrants
Please
see "Underwriting—Representative's Warrants" for a description of the
warrant
s
we have agreed to issue to the representative of the underwriters in this offering, subject to the completion of the offering.
We expect to enter into a warrant agreement in respect of the Representative's
warrant
s
prior to the closing of this offering.
Stock Options Under Equity Plans
As
of
May 4, 2018
, there were approximately
5,000,000
shares
of Common Stock reserved for issuance under our stock option and equity plans. Of this number, approximately
4,999,900
shares
are reserved for issuance upon exercise of outstanding options that were previously granted under our equity plans, and
100
shares
may be granted in the future under our equity plans.
Anti-Takeover
Provisions
In the future,
we may become subject to Nevada’s control share law. A corporation is subject to Nevada’s control share law if it has
more than 200 shareholders, at least 100 of whom are shareholders of record and residents of Nevada, conduct business in Nevada,
or do so through an affiliated corporation. The law focuses on the acquisition of a “controlling interest,” which means
the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise
the following proportions of the voting power of the corporation in the election of directors: (i) one-fifth or more, but less
than one-third, (ii) one-third or more, but less than a majority, or (iii) a majority or more. The ability to exercise such voting
power may be direct or indirect, as well as individual or in association with others.
The effect of
the control share law is that the acquiring entity, and those acting in association with it, obtains only such voting rights in
the control shares as are conferred by a resolution of the shareholders of the corporation, approved at a special or annual meeting
of shareholders. The control share law contemplates that voting rights will be considered only once by the other shareholders.
Thus, there is no authority to strip voting rights from the control shares of an acquiring entity once those rights have been approved.
If the shareholders do not grant voting rights to the control shares acquired by an acquiring entity, then those shares do not
become permanent non-voting shares. The acquiring entity is free to sell its shares to others.
If the buyers
of those shares themselves do not acquire a controlling interest, then the control share law does not govern their shares. If control
shares are accorded full voting rights and the acquiring entity has acquired control shares with a majority or more of the voting
power, then any shareholders of record (other than an acquiring entity) who has not voted in favor of approval of voting rights
is entitled to demand fair value for such shareholder’s shares. Nevada’s control share law may have the effect of discouraging
takeovers of the Company.
In addition to
the control share law, Nevada has a business combination law that prohibits certain business combinations between Nevada corporations
and “interested shareholders” for three years after the “interested shareholders” first become “interested
shareholders,” unless the corporation’s board of directors approves the combination in advance.
For purposes of
Nevada law, an “interested shareholders” is any person who is: (i) the beneficial owner, directly or indirectly, of
10% or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation,
and at any time within the three previous years was the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then-outstanding shares of the corporation. The definition of the term “business combination” is sufficiently
broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to
finance the acquisition, or otherwise to benefit its own interests rather than the interests of the corporation and its other shareholders.
The effect of
Nevada’s business combination law is to discourage parties potentially interested in taking control of our Company from doing
so if it cannot obtain the approval of our board of directors.
Listing
The closing price of our Common Stock on
the OTCQB on May 4, 2018, was $0.94. In connection with this offering, we have applied to have our Common Stock listed on The NASDAQ
Capital Market under the symbol “ .” According to the records of our transfer agent, as of May 4, 2018, there were 253
holders of record of our Common Stock.
Transfer Agent and Registrar
The transfer agent
and registrar for our Common Stock is Action Stock Transfer Corp. Its address is 2469 E. Fort Union Blvd, Suite 214, Salt Lake
City, Utah, 84121, and its telephone number is (801) 274-1088.
UNDERWRITING
We have entered into an underwriting agreement,
with National Securities Corporation acting as the representative for the underwriters named below. Subject to the terms and conditions
of the underwriting agreement, the underwriters named below have agreed to purchase, and we have agreed to sell to them, the number
of Units at the public offering price, less the underwriting discounts and commissions, as set forth on the cover page of this
prospectus and as indicated below:
Underwriter
|
|
Number
of Units
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
All of the Units to be purchased by the
underwriters will be purchased from us.
We have agreed to indemnify the underwriter
and its officers, directors, employees, and agents, and each person, if any, who controls the underwriter within the meaning of
Section 15 of the Securities Act, against certain liabilities, including civil liabilities under the Securities Act resulting from
this offering, and to contribute to payments the underwriter may be required to make in respect of such liabilities.
The underwriter is offering the Units subject
to prior sale, when, as, and if issued to and accepted by it, subject to approval of legal matters by its counsel, including the
validity of the Units, and other conditions contained in the underwriting agreement, such as the receipt by the underwriter of
officer’s certificates and legal opinions. The underwriter reserves the right to withdraw, cancel, or modify offers to the
public, and to reject orders in whole or in part.
The underwriter has advised us that it
proposes to initially offer the shares of Common Stock to the public at $ per share. After the initial offering of the shares,
the underwriter may from time to time vary the offering price and other selling terms.
Over-Allotment Option
We have granted to the underwriters an
option, exercisable no later than 45 calendar days after the closing of this offering, to purchase up to an additional Units
(15% of the Units sold in this offering) from us to cover over-allotments, if any, at a price per Unit of $ ,
less the underwriting discounts and commissions. The underwriters may exercise this option only to cover over-allotments made in
connection with this offering.
Lock-Up
Each of our officers and directors have
entered into a lock-up agreement with respect to shares of our Common Stock and other of our securities that they beneficially
own, including securities that are convertible into shares of Common Stock and securities that are exchangeable or exercisable
for shares of Common Stock. This means that, subject to certain exceptions, for a period of days following the date of this
prospectus supplement, such persons may not offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of these
securities without the prior written consent of National Securities Corporation. In addition, we have agreed, subject to certain
exceptions, for a period of days following the date of this prospectus supplement, not to offer, sell, assign, transfer, pledge,
contract to sell, or otherwise dispose of shares of our Common Stock, including securities that are convertible into shares of
Common Stock and securities that are exchangeable or exercisable for shares of Common Stock, without the prior written consent
of National Securities Corporation.
Discounts and Commissions
The representative has advised us that
the underwriters propose to offer the Units to the public at the offering price per Unit set forth on the cover page of this prospectus.
The underwriters may offer shares to securities dealers at that price less a concession of not more than $ per
Unit, of which up to $ per Unit may be reallowed to other
dealers. After the initial offering to the public, the public offering price and other selling terms may be changed by the representative.
The following table summarizes the
public offering price, underwriting discounts, and commissions and proceeds before expenses to us, assuming both no exercise and
full exercise by the underwriters of their over-allotment option. We have also agreed to pay up to $125,000 of the out-of-pocket
fees and expenses of the underwriter, which includes the fees and expenses of counsel to the underwriter. The fees and expenses
of the underwriter that we have agreed to reimburse are not included in the underwriting discount set forth in the table below.
The underwriting discount was determined through arms’ length negotiations between us and the underwriter.
|
|
Per Unit
|
|
|
Total
Without
Over-
Allotment
|
|
|
Total
With
Over-
Allotment
|
|
Public offering price
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting discounts and commissions (9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds, before expenses, to us
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimate that the total expenses of
the offering, excluding the underwriting discount, will be approximately $ . This includes $125,000 of the out-of-pocket fees
and expenses of the underwriter. These expenses are payable by us.
After deducting fees due to the underwriter
and our estimated offering expenses, we expect our net proceeds from this offering to be approximately $ million without the
exercise of the over-allotment option, and approximately $ million assuming the full exercise of the over-allotment option.
Stabilization
To facilitate the offering, the underwriters
may engage in transactions that stabilize, maintain, or otherwise affect the price of the Common Stock during and after the offering.
Specifically, the underwriters may over-allot or otherwise create a short position in the Common Stock for their own account by
selling more shares of Common Stock than have been sold to them by us. The underwriters may elect to cover any such short position
by purchasing shares of Common Stock in the open market, or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the Common Stock by bidding for or purchasing shares of Common
Stock in the open market, and may impose penalty bids. If penalty bids are imposed, selling concessions allowed to broker-dealers
participating in the offering are reclaimed if shares of Common Stock previously distributed in the offering are repurchased, whether
in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the
market price of the Common Stock at a level above that which might otherwise prevail in the open market. The imposition of a penalty
bid may also affect the price of the Common Stock to the extent that it discourages resale of the Common Stock. The magnitude or
effect of any stabilization or other transactions is uncertain. These transactions may be effected on The NASDAQ Capital Market
or otherwise, and, if commenced, may be discontinued at any time. Neither we nor the underwriters make any representation or prediction
as to the effect that the transactions described above may have on the price of our Common Stock.
Passive Market Making
In connection with this offering, the underwriters
(and any dealers that are members of the selling group) may also engage in passive market making transactions in our Common Stock.
Passive market making consists of displaying bids limited by the prices of independent market makers and effecting purchases limited
by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that
each passive market maker may make, and the displayed size of each bid. Passive market making may stabilize the market price of
our Common Stock at a level above that which might otherwise prevail in the open market, and, if commenced, may be discontinued
at any time.
Electronic Offer, Sale, and Distribution
of Shares
A prospectus in electronic format may be
made available on the website maintained by the underwriter, and the underwriter may distribute prospectuses electronically. In
those cases, prospective investors may view offering terms and a prospectus online, and place orders online or through their financial
advisors. Other than the prospectus in electronic format, the information on this website is not part of this prospectus, the accompanying
prospectus, or the registration statement of which this prospectus forms a part. It has not been approved or endorsed by us or
the underwriter, and should not be relied upon by investors.
Offer Restrictions Outside the United
States
Other than in the United States, no action
has been taken by us or the underwriter that would permit a public offering of the securities offered by this prospectus in any
jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly
or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of
any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance
with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised
to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus
in any jurisdiction in which such an offer or a solicitation is unlawful.
Other Relationships
The underwriters and their respective affiliates
are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment research, principal investment, hedging, financing, and brokerage
activities. Certain of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking
and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future
receive, customary fees and commissions for these transactions.
In the ordinary course of their various
business activities, the underwriters and their respective affiliates may make or hold a broad array of investments, and actively
trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their
own accounts and for the accounts of their customers, and such investment and securities activities may involve securities and/or
instruments of the issuer. The underwriters and their respective affiliates may also make investment recommendations and/or publish
or express independent research views in respect of such securities or instruments, and may at any time hold or recommend to clients
that they acquire long and/or short positions in such securities and instruments.
LEGAL MATTERS
The validity of the securities
being offered by this prospectus has been passed upon for us by Sichenzia Ross Ference Kesner LLP, New York, New York. National
Securities Corporation is being represented in connection with this offering by Duane Morris LLP of Philadelphia, Pennsylvania.
EXPERTS
The financial
statements as of and for the fiscal years ended December 31, 2017 and 2016 appearing in this prospectus and registration statement
have been audited by Paritz & Company, P.A., an independent registered public accounting firm, as stated in their report, appearing
elsewhere herein, and are included in reliance upon such report, and upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN
FIND MORE INFORMATION
We are a reporting
company, and file annual, quarterly, and special reports, and other information with the SEC. Copies of the reports and other information
may be read and copied at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You can request copies
of such documents by writing to the SEC and paying a fee for the copying cost. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at
http://www.sec.gov
that contains
reports, proxy, and information statements, and other information regarding registrants that file electronically with the SEC.
This prospectus
is part of a registration statement on Form S-1 that we filed with the SEC. Certain information in the registration statement has
been omitted from this prospectus in accordance with the rules and regulations of the SEC. We have also filed exhibits and schedules
with the registration statement that are excluded from this prospectus. For further information you may:
|
●
|
Read a copy of the registration
statement, including the exhibits and schedules, without charge, at the SEC’s Public Reference Room; or
|
|
|
|
|
●
|
Obtain a copy from the SEC upon payment of the fees prescribed by the SEC.
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
Nexeon Medsystems, Inc.
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated
balance sheets of Nexeon Medsystems, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements
of comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31,
2017, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and
the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the consolidated
financial statements, The Company has sustained operating losses since inception and has an accumulated deficit of $3,743,438 at
December 31, 2017. In addition, the Company does not have sufficient continuing revenue to cover its future operating expenses.
The Company currently has limited liquidity and has not completed its efforts to establish an additional source of revenues sufficient
to cover operating costs of the on-going neurostimulation research and development activities over an extended period of time.
These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 4 to the accompanying consolidated financial statements. The accompanying
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Paritz & Company, P.A.
|
|
|
We have served as the Company’s auditor since 2016.
|
|
|
Hackensack,
New Jersey
|
April 5, 2018
|
|
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Assets
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
883,962
|
|
|
$
|
2,124,795
|
|
Accounts receivable
|
|
|
1,877,743
|
|
|
|
48,842
|
|
Grants receivable
|
|
|
804,152
|
|
|
|
69,391
|
|
Inventory
|
|
|
2,206,570
|
|
|
|
—
|
|
Other current assets
|
|
|
157,621
|
|
|
|
132,453
|
|
Notes receivable – related party
|
|
|
—
|
|
|
|
106,062
|
|
Total Current Assets
|
|
$
|
5,930,048
|
|
|
$
|
2,481,543
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,569,832
|
|
|
|
69,354
|
|
Investments
|
|
|
112,072
|
|
|
|
148,860
|
|
Intangible assets, net
|
|
|
10,739,492
|
|
|
|
9,712,090
|
|
Total Assets
|
|
$
|
20,351,444
|
|
|
$
|
12,411,847
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
2,575,399
|
|
|
|
277,649
|
|
Accrued liabilities
|
|
|
503,751
|
|
|
|
113,019
|
|
Current portion of long-term debt, net of original discount
|
|
|
866,479
|
|
|
|
51,284
|
|
Advance grant payments
|
|
|
935,817
|
|
|
|
400,669
|
|
Deferred liabilities
|
|
|
174,230
|
|
|
|
12,401
|
|
Due to related party
|
|
|
—
|
|
|
|
81,008
|
|
Accrued interest
|
|
|
78,049
|
|
|
|
—
|
|
Accrued interest payable - stockholders
|
|
|
—
|
|
|
|
2,193
|
|
Total Current Liabilities
|
|
|
5,133,725
|
|
|
|
938,223
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt, net of original discount
|
|
|
3,348,730
|
|
|
|
141,419
|
|
Notes payable – stockholders
|
|
|
—
|
|
|
|
10,000
|
|
Total Liabilities
|
|
$
|
8,482,455
|
|
|
$
|
1,089,642
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Common Stock - 75,000,000 shares authorized, $.001 par value; 27,591,441 and 21,711,953 issued and outstanding at December 31, 2017 and December 31, 2016, respectively
|
|
|
27,591
|
|
|
|
21,712
|
|
Additional paid-in capital
|
|
|
15,497,986
|
|
|
|
9,759,560
|
|
Equity instruments to be issued
|
|
|
65,839
|
|
|
|
3,070,000
|
|
Accumulated deficit
|
|
|
(3,743,438
|
)
|
|
|
(1,565,797
|
)
|
Accumulated other comprehensive income
|
|
|
21,011
|
|
|
|
36,730
|
|
Total Stockholders' Equity
|
|
|
11,868,989
|
|
|
|
11,322,205
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
20,351,444
|
|
|
$
|
12,411,847
|
|
The accompanying notes are an integral
part of the unaudited consolidated financial statements.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPRENSIVE
INCOME
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
3,302,775
|
|
|
$
|
1,494,881
|
|
Cost of revenue
|
|
|
2,321,756
|
|
|
|
39,129
|
|
Gross profit
|
|
|
981,019
|
|
|
|
1,455,752
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,831,069
|
|
|
|
693,603
|
|
Research and development expenses – other
|
|
|
2,942,981
|
|
|
|
751,434
|
|
Research and development expenses – related party
|
|
|
—
|
|
|
|
8,068
|
|
Depreciation and amortization
|
|
|
1,297,710
|
|
|
|
636,921
|
|
|
|
|
|
|
|
|
|
|
(Loss) from operations
|
|
|
(6,090,741
|
)
|
|
|
(634,274
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest income – related party
|
|
|
2,036
|
|
|
|
19,049
|
|
Gain on bargain purchase
|
|
|
4,311,554
|
|
|
|
—
|
|
Interest expense
|
|
|
(113,967
|
)
|
|
|
(13,738
|
)
|
Loss on stock exchange
|
|
|
(37,788
|
)
|
|
|
—
|
|
Write-off of loan of related party loan
|
|
|
(174,252
|
)
|
|
|
—
|
|
Loss on impairment of asset
|
|
|
(74,483
|
)
|
|
|
(173,500
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision (benefit) for taxes
|
|
|
(2,177,641
|
)
|
|
|
(802,463
|
)
|
Provision (benefit) for taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,177,641
|
)
|
|
$
|
(802,463
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(15,719
|
)
|
|
|
(23,411
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(2,193,360
|
)
|
|
|
(825,874
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED PER SHARE DATA:
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.04
|
)
|
Weighted average common shares outstanding, basic and diluted
|
|
|
24,861,237
|
|
|
|
19,044,803
|
|
The accompanying notes are an integral
part of the unaudited consolidated financial statements.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(Unaudited)
|
|
|
|
|
Additional
|
|
|
Equity
|
|
|
|
|
|
Other Items of
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Instruments
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
to be Issued
|
|
|
Deficit
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2015
|
|
|
500,000
|
|
|
$
|
500
|
|
|
$
|
367,553
|
|
|
$
|
—
|
|
|
$
|
(763,334
|
)
|
|
$
|
60,141
|
|
|
$
|
(335,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
423,500
|
|
|
|
423
|
|
|
|
171,329
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
171,752
|
|
Common stock issued for acquisition
|
|
|
16,659,943
|
|
|
|
16,660
|
|
|
|
4,811,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,827,846
|
|
Common stock issued for patent license
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,050,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,050,000
|
|
Common stock issued for conversion of notes payable and accrued interest
|
|
|
1,287,564
|
|
|
|
1,288
|
|
|
|
1,389,335
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,390,623
|
|
Common stock issued for 2016 Private Placement for cash
|
|
|
2,840,946
|
|
|
|
2,841
|
|
|
|
2,675,283
|
|
|
|
20,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,698,124
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
82,284
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82,284
|
|
Warrants issued in 2016 Private Placement for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
162,823
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
162,823
|
|
Warrants issued for conversion of notes payable and accrued interest
|
|
|
—
|
|
|
|
—
|
|
|
|
99,767
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
99,767
|
|
Net loss for the year ended December 31, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(802,463
|
)
|
|
|
—
|
|
|
|
(802,463
|
)
|
Other items of comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,411
|
)
|
|
|
(23,411
|
)
|
Balances at December 31, 2016
|
|
|
21,711,953
|
|
|
|
21,712
|
|
|
|
9,759,560
|
|
|
|
3,070,000
|
|
|
|
(1,565,797
|
)
|
|
|
36,730
|
|
|
|
11,322,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
715,667
|
|
|
|
716
|
|
|
|
610,177
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
610,893
|
|
Common stock issued for 2017 Private Placement for cash
|
|
|
932,000
|
|
|
|
932
|
|
|
|
1,164,068
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,165,000
|
|
Common stock issued for cash
|
|
|
150,000
|
|
|
|
150
|
|
|
|
149,850
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,000
|
|
Common stock issued for warrant exercise
|
|
|
606,098
|
|
|
|
606
|
|
|
|
5,330
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,936
|
|
Common stock issued for 2016 Private Placement for cash
|
|
|
24,000
|
|
|
|
24
|
|
|
|
23,976
|
|
|
|
(20,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,000
|
|
Common stock issued for patent license
|
|
|
3,050,000
|
|
|
|
3,050
|
|
|
|
3,046,950
|
|
|
|
(3,050,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Warrants issued for Leonite Capital Convertible Debt
|
|
|
—
|
|
|
|
—
|
|
|
|
90,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90,190
|
|
Common stock issued for Leonite Capital Convertible Debt
|
|
|
100,000
|
|
|
|
100
|
|
|
|
99,900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
Employee payroll stock purchases
|
|
|
203,635
|
|
|
|
203
|
|
|
|
127,044
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127,247
|
|
Common stock canceled per severance agreement
|
|
|
(56,000
|
)
|
|
|
(56
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(56
|
)
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
319,057
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
319,057
|
|
Common stock issued for 2016 merger shares
|
|
|
(77,725
|
)
|
|
|
(78
|
)
|
|
|
(77,647
|
)
|
|
|
77,725
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock issue to related party – repayment of loan
|
|
|
219,927
|
|
|
|
220
|
|
|
|
167,657
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
167,877
|
|
Common stock issue for 2016 merger shares
|
|
|
11,886
|
|
|
|
12
|
|
|
|
11,874
|
|
|
|
(11,886
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss for the year ended December 31, 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,177,641
|
)
|
|
|
—
|
|
|
|
(2,177,641
|
)
|
Other items of comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,719
|
)
|
|
|
(15,719
|
)
|
Balances at December 31, 2017
|
|
|
27,591,441
|
|
|
$
|
27,591
|
|
|
$
|
15,497,986
|
|
|
$
|
65,839
|
|
|
|
(3,743,438
|
)
|
|
$
|
21,011
|
|
|
$
|
11,868,989
|
|
The accompanying notes are an integral
part of the consolidated financial statements.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the
Years
Ended
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,177,641
|
)
|
|
$
|
(802,463
|
)
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,297,710
|
|
|
|
636,921
|
|
Stock-based compensation
|
|
|
1,260,942
|
|
|
|
254,036
|
|
Loss on impairment of asset
|
|
|
74,483
|
|
|
|
173,500
|
|
Loss on exchange for stock
|
|
|
37,788
|
|
|
|
—
|
|
Gain on bargain purchase
|
|
|
(4,311,554
|
)
|
|
|
—
|
|
Bad debt
|
|
|
174,252
|
|
|
|
—
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
Non-cash interest
|
|
|
45,711
|
|
|
|
—
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(491,940
|
)
|
|
|
(28,119
|
)
|
Grants receivable
|
|
|
(511,127
|
)
|
|
|
4,326
|
|
Inventory
|
|
|
(106,006
|
)
|
|
|
—
|
|
Other current asset
|
|
|
2,813
|
|
|
|
(130,529
|
)
|
Accounts payable
|
|
|
1,175,745
|
|
|
|
(27,628
|
)
|
Accrued interest receivable – related party
|
|
|
—
|
|
|
|
(1,736
|
)
|
Accrued liabilities
|
|
|
9,658
|
|
|
|
67,206
|
|
Advance grant payments
|
|
|
484,819
|
|
|
|
198,859
|
|
Accrued interest payable – other
|
|
|
(3,997
|
)
|
|
|
208
|
|
Deferred liabilities
|
|
|
(74,474
|
)
|
|
|
(56,789
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(3,112,818
|
)
|
|
|
287,792
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance of notes receivable – related party
|
|
|
(59,819
|
)
|
|
|
(912,392
|
)
|
Cash paid for acquisitions net of cash acquired
|
|
|
(978,996
|
)
|
|
|
(140,000
|
)
|
Additions to property plant and equipment
|
|
|
(61,667
|
)
|
|
|
(32,567
|
)
|
Net cash used in investing activities
|
|
|
(1,100,482
|
)
|
|
|
(1,084,959
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and issuance of warrants
|
|
|
1,324,936
|
|
|
|
2,860,946
|
|
Proceeds from debt
|
|
|
1,910,552
|
|
|
|
137,813
|
|
Repayment of debt
|
|
|
(181,038
|
)
|
|
|
(52,731
|
)
|
Repayment to related party
|
|
|
(87,369
|
)
|
|
|
(20,088
|
)
|
Net cash provided by financing activities
|
|
|
2,967,081
|
|
|
|
2,925,940
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash
|
|
|
5,386
|
|
|
|
(3,978
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,240,833
|
)
|
|
|
2,124,795
|
|
Cash and cash equivalents at beginning of year
|
|
|
2,124,795
|
|
|
|
—
|
|
Cash and cash equivalents at end of year
|
|
$
|
883.962
|
|
|
$
|
2,124,795
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during period for interest
|
|
$
|
59,546
|
|
|
$
|
8,275
|
|
Cash paid during period for taxes
|
|
|
—
|
|
|
|
—
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
|
|
|
|
|
|
|
Original purchase discount on notes
|
|
$
|
154,266
|
|
|
$
|
—
|
|
Common stock issued for acquisition
|
|
|
—
|
|
|
|
4,505,486
|
|
Common stock issued for conversion of shareholder notes and accrued interest
|
|
|
—
|
|
|
|
1,287,564
|
|
Common stock issued for investments
|
|
|
—
|
|
|
|
322,360
|
|
Settlement of notes receivable in exchange for intangible assets - related party
|
|
|
—
|
|
|
|
805,204
|
|
Equity instruments to be issued for acquisition of patent license
|
|
|
—
|
|
|
|
3,050,000
|
|
The accompanying
notes are an integral part of the unaudited consolidated financial statements.
NEXEON MEDSYSTEMS INC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS –
NATURE OR ORGANIZATION
Unless the context otherwise requires,
references to “we,” “our,” “us,” “Nexeon” or the “Company” in these
Notes mean Nexeon MedSystems Inc, a Nevada corporation, on a consolidated basis with its wholly-owned subsidiaries, as applicable.
Organization and Operations
Nexeon MedSystems Inc was incorporated
in the State of Nevada on December 7, 2015. Nexeon MedSystems Inc is a neuromodulation medical device manufacturing company. As
a development stage enterprise, the Company’s primary purposes are to develop and commercialize our neurostimulation technology
platform for the treatment of various disorders via electrical stimulation of tissues associated with the nervous system. The neurostimulation
technology platform was acquired through the acquisition of Nexeon Medsystems Belgium, SPRL (“NMB”). During 2016, the
Company formed the following wholly owned subsidiaries: Nexeon Medsystems Europe, SARL (“Nexeon Europe”), Nexeon Medsystems
Puerto Rico Operating Company Corporation (“NXPROC”), and Pulsus Medical LLC. Nexeon Europe is the holding company
for NXPROC and Nexeon Medsystems Belgium, SPRL (“NMB”). NXPROC is focused on advanced computational biology and deep
learning utilization associated with the Internet of Medical Things technology. Pulsus Medical, LLC conducts research and development
related to cardiovascular disease technology acquired in the acquisition of NXDE. On September 1, 2017, through its wholly-owned
subsidiary Nexeon Europe, the Company completed the acquisition of NMB, along with NMB’s wholly owned subsidiaries Medi-Line
and its holding company INGEST, SPRL (“INGEST”), which are incorporated under the laws of Belgium. INGEST is the holding
company for Medi-Line. Medi-Line provides the medical device manufacturing expertise and experience needed to scale our business.
Medi-Line is a leading global source of innovative medical device solutions with existing customers that include Fortune 50 companies,
neurostimulator companies, and the Company. On September 27, 2017 Nexeon Medsystems Inc began trading on the OTCQB stock exchange
under the symbol NXNN.
NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Management Estimates and Assumptions
The preparation of the Company’s
financial statements are in conformity with accounting principles generally accepted in the United States of America which requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods.
Management makes these estimates using the best information available at the time the estimates are made; however, actual results
could differ materially from these estimates.
Principals of Consolidation
The consolidated financial statements include
the accounts of the Company, and its wholly-owned subsidiaries. All material inter-company accounts, transactions, and profits
have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers those short-term,
highly liquid investments with maturities of three months or less as cash and cash equivalents. The Company currently has no cash
equivalents.
Long-lived Assets
Long-lived assets such as property, equipment
and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may
not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the
asset. The fair value is determined based on estimates of future cash flows, market value, of similar assets, if available, or
independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash
flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values
are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with
the risk associated with the recovery of the assets. The Company recognized impairment losses in the amount of $74,483 during the
year ended December 31, 2017.
Property and Equipment
Property and equipment are stated at cost.
Equipment is depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are
amortized based upon the lesser of the term of the lease or the useful life of the asset and such expense is included in depreciation
expense. Repair and maintenance costs are expensed as incurred. The Company capitalizes all furniture and equipment with cost greater
than $1,000 and benefiting more than one accounting period in the period purchased.
Net Income (Loss) Per Share
The Company calculates net income (loss)
per share as required by Accounting Standards Codification subtopic 260-10, “
Earnings per Share”
(“ASC
260-10”). Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is calculated by dividing net income (loss) by the weighted average
number of common shares and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, common
stock equivalents, if any, are not considered in the computation. Basic and diluted earnings per share were the same for the years
ended December 31, 2017 and 2016, respectively as the Company has no dilutive securities.
Revenue Recognition
Revenues currently consist of single use
medical devices for the medical and pharmaceutical sectors at Med-Line and pre-clinical neurostimulation device sales at NMB. We
recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the
product or service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable;
and (4) the collection of our fees is probable. The Company will record revenue when it is realizable and earned and the services
have been rendered to the customers. Additionally, the Company will record revenue from the sale of its manufactured products and
medical devices when the product is delivered to the customer.
Income Taxes
The Company uses the asset and liability
method of accounting for income taxes in accordance with ASC Topic 740,
“Income Taxes.”
Under this method, income
tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences
of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is
provided to reduce the deferred tax assets reported if, based on the weight of the available positive and negative evidence, it
is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods
presented.
All tax positions are first analyzed to
determine if the weight of available evidence indicates that it is more likely than not that the position will be sustained under
audit, including resolution of any related appeals or litigation processes. After the initial analysis, the tax benefit is measured
as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
If the Company is required to pay interest
on the underpayment of income taxes, the Company recognizes interest expense in the first period the interest becomes due according
to the provisions of the relevant tax law.
If the Company is subject to payment of
penalties, the Company recognizes an expense for the amount of the statutory penalty in the period when the position is taken on
the income tax return. If the penalty was not recognized in the period when the position was initially taken, the expense is recognized
in the period when the Company changes its judgment about meeting minimum statutory thresholds related to the initial position
taken.
Research and Development Expenses
Research and development expenses are charges
to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical and regulatory
expenses, payroll and other personnel expenses, materials, supplies, consulting costs, and non-recurring engineering costs. These
expenses are assigned to the research, development and clinical projects to develop the Company’s implantable neurostimulation,
sensing, and recording technology for a variety of clinical therapeutic applications and for manufacturing product development.
The Company has been awarded grants subsidies
for on-going research and development projects from the National Institutes of Health Department of Health and Human Services,
through the Public Service of Wallonia - Department of Technology Development and the Research Programs Department (the Wallonia
region is located in South Brussels, in Belgium) and the Cancer Prevention and Research Institute of Texas to support our research
projects with potential for commercialization. The Company receives the funding in a combination of advance payments at commencement
of a project and through reimbursement requests, invoices, for applicable research and development expenses as expenses are incurred.
These grants and subsidies provide non-dilutive funds that do not include a repayment obligation. Participation by the granting
agency typically accounts for 50% to 100% of the project costs in grants or subsidies.
The Company recognizes the amounts receivable
in regard to the grants contracts at fair value when there is reasonable assurance that the contract amount will be received and
that all the conditions of the specific contract will be complied with in order to properly match the reimbursements with the specific
expenditures that the specific contract intends to reimburse. The Company recognizes the amounts received in accordance with the
contracts as a reduction of research and development expenses over the periods necessary to match the contract on a systematic
basis to the costs that it is intended to compensate. The Company records, on the balance sheet, Grants receivable upon meeting
the criteria discussed above until cash is received. Where the Company receives payments in advance it is recorded as Advance grant
payments on the balance sheet and relieved against research and development expense as the associated costs are incurred.
As of December 31, 2017, the Company has
$804,152 in Grants receivable for project expenses invoiced and to be invoiced, but not yet paid which have been recorded as a
reduction of research and development expense in the accompanying statement of operations and $935,817 in Advance payments received
and yet to be expended.
Foreign Currency Translation
and Transactions
The Company’s reporting currency
is the U.S. dollar. The Company’s operations in Belgium use their local currencies as their functional currency. The financial
statements in foreign currency are translated into U.S. Dollars, “USD,” in accordance with ASC Topic 830, Foreign Currency
Translation. All assets and liabilities are translated at the year-end currency exchange rate, stockholders’ equity items
are translated at the historical rates and income statement items are translated at the average exchange rate prevailing during
the year. Translation adjustments resulting from this process are reported under other comprehensive income (“OCI”)
in accordance with ASC Topic 220, Reporting Comprehensive Income as a Component of Stockholders’ Equity. Foreign exchange
transaction gains and losses are reflected in the statement of comprehensive income.
Fair Value Measurements
The Company adopted the provisions of ASC
Topic 820,
“Fair Value Measurements and Disclosures,”
which defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial
instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because
of the short-term nature of these instruments.
ASC 820 defines “fair value”
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC
820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair
value:
Level 1 — quoted prices in active
markets for identical assets or liabilities
Level 2 — quoted prices for similar
assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable
(for example cash flow modeling inputs based on assumptions)
The Company currently has no assets or
liabilities valued at fair value on a recurring basis.
Investments in Non-Consolidated
Subsidiaries
Investments in non-consolidated entities
are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise
significant influence over the operating and financial policies of the investee. When the equity method is used, investments are
recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income
or losses after the date of investment. When net losses from an investment accounted for under the equity method exceed its carrying
amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for
the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income
exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down
only when there is clear evidence that a decline in value that is other than temporary has occurred. The Company accounts for its
investment in MicroTransponder, Inc. under the cost method due to the lack of significant influence.
Leases
Leases are reviewed and classified as capital
or operating at their inception in accordance with ASC Topic 840, Accounting for Leases. For leases that contain rent escalations,
the Company records monthly rent expense equal to the total amount of the payments due in the reporting period over the lease term.
The difference between rent expense recorded and the amount paid is credited or charged to deferred rent account, when presented
on balance sheet.
Acquired Intangibles
Acquired intangibles include patents and
patent licenses acquired by the Company, which are recorded at fair value, assigned an estimated useful life, and are amortized
on a straight-line basis over their estimated useful lives ranging from 3 to 19 years. The Company periodically evaluates whether
current facts or circumstances indicate that the carrying values of its acquired intangibles may not be recoverable. If such circumstances
are determined to exist, an estimate of the undiscounted future cash flows of these assets, or appropriate asset groupings, is
compared to the carrying value to determine whether an impairment exists. If the asset is determined to be impaired, the loss is
measured based on the difference between the carrying value of the intangible asset and its fair value, which is determined based
on the net present value of estimated future cash flows.
Common Stock Purchase Warrants and
Other Derivative Financial Instruments
The Company classifies as equity any contracts
that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own
shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC
815-40
“Contracts in Entity's Own Equity.”
We classify as assets or liabilities any contracts that require net-cash
settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control)
or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
We assess classification of our common stock purchase warrants at each reporting date to determine whether a change in classification
between assets and liabilities is required.
Stock-Based Compensation
ASC 718 requires companies to measure all
stock compensation awards using a fair value method and recognize the related compensation cost in its financial statements. Beginning
with the Company’s quarterly period that began on January 1, 2016, the Company adopted the provisions of FASB ASC 718 and
expenses the fair value of employee stock options and similar awards in the financial statements. The Company accounts for share-based
payments in accordance with ASC 718, “
Compensation - Stock Compensation
,” which requires all share-based payments
to employees, including grants of employee stock options, to be recognized in the financial statements based on the grant date
fair value of the award. In accordance with ASC 718-10-30-9, “
Measurement Objective – Fair Value at Grant Date
,”
the Company estimates the fair value of the award using the Black-Scholes option pricing model for valuation of the share-based
payments. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that
change over time, such as volatility and interest rates, and to allow for actual exercise behavior of option holders. The simplified
method is used to determine compensation expense since historical option exercise experience is limited relative to the number
of options issued. The compensation cost is recognized ratably using the straight-line method over the expected vesting period.
The Company accounts for stock-based compensation
to other than employees in accordance with FASB ASC 505-50. Equity instruments issued to other than employees are valued at the
earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments, and is recognized
as expense over the service period.
During the years ended December 31,
2017 and 2016, the Company recognized stock-based compensation expense aggregating $319,057
and
$82,284, respectively for common stock options issued to Company personnel, directors and consultants. Stock-based
compensation consisting of restricted common stock issued to employees aggregating $127,247 and $0, respectively, and paid
stock-based compensation consisting of restricted common stock issued to non-employees aggregating $610,893 and $171,500,
respectively. During the years ended December 31, 2017 and 2016, the Company paid stock-based compensation, to affiliates
aggregating $0 and $252, respectively.
Recently Issued Accounting
Pronouncements
Management does not believe that any recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial
statements.
Other recent accounting pronouncements
issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC during the current reporting period did not,
or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.
NOTE 3 – BUSINESS COMBINATIONS
On September 1, 2017 (the “Acquisition Date”), the Company, through its wholly-owned subsidiary
Nexeon Europe, completed the acquisition of NMB pursuant to the Acquisition Agreement entered into on January 10, 2017, between
Rosellini Scientific, LLC (“RS”), a Texas limited liability company controlled by our Chief Executive Officer, William
Rosellini, and Nexeon Europe (the “Acquisition”). RS was the sole shareholder of NMB owning 107,154 shares (the
“Shares”).
Pursuant to the Acquisition Agreement,
RS granted to Nexeon Europe the exclusive and irrevocable right to purchase the Shares upon the terms and conditions set forth
in the Acquisition Agreement (the “Right to Purchase”). The consideration for the Right to Purchase was US $1,000 (the
“Acquisition Price”). Upon Nexeon Europe exercising the Right to Purchase, the Agreement was automatically deemed converted
into and considered a share transfer agreement for the purchase of the Shares and the Acquisition Price became the Purchase Price
of the Shares and was deemed to have been satisfied by Nexeon Europe to RS as of the date of the Acquisition Agreement.
Due to
RS controlling both the
Company and NMB, the acquisition has been recorded as a combination of entities under common control and the results of NMB for
the years ended December 31, 2017 and 2016 are reported retrospectively on a consolidated basis in the Company’s financial
statements.
Included in the acquisition of NMB, are its wholly-owned subsidiaries, Medi-Line and its holding company
INGEST. On August 30, 2017, NMB acquired INGEST and Medi-Line for $1,648,240 (payable as €1,450,000 EUR cash) or $977,996
(€891,496 EUR) net of cash acquired. As part of the transaction, and prior to the acquisition, Nexeon Europe loaned NMB $970,400
(€818,075 EUR) pursuant to the existing loan agreement and promissory note, NMB secured a credit facility in the amount of
$330,319 (€275,000 EUR) and Medi-Line loaned NMB $540,032 (€450,000 EUR). Payment of the purchase price included the
settlement of a note payable in the amount of $120,007 (€100,000 EUR) and a dividend payable in the amount of $9,901 (€8,250
EUR) to the sellers of INGEST. The balance of the loan and all accrued interest related to the loan agreement and promissory note
between Nexeon Europe and NMB along with the $540,032 (€450,000 EUR) loan from Medi-Line to NMB is eliminated through consolidation
in the financial statements.
Medi-Line provides the medical device manufacturing
expertise and experience needed to scale our business. Medi-Line is a leading global source of innovative medical device
solutions with existing customers that include Fortune 50 companies, neurostimulator companies, and the Company. Medi-Line provides
high quality and efficiency in the development, engineering, and manufacturing of medical devices for the med-tech and pharmaceutical
industries.
The acquisition of INGEST and Medi-Line
was accounted for using the acquisition method and, accordingly, the results of operations of INGEST and Medi-Line were reported
in the Company's financial statements beginning on August 30, 2017, the date of acquisition. The Revenue and Net loss reported
in the financial statements for the combined INGEST and Medi-Line for the year ending December 31, 2017 were $2,972,993 and $116,974
respectively. Medi-Line incurred a charge in the amount of $168,933 related to a severance payment for a long-term employee that
was terminated. In Belgium, severance payment requirements and accruals are administered by and mandated by the Belgian government
and accrue based on time in service.
The following table presents the fair value of assets acquired and liabilities assumed as of the acquisition
date on August 30, 2017, based on management’s preliminary allocation as well as the adjustments made up to December 31,
2017, based on the certified valuations:
|
|
Preliminary
|
|
|
Final
|
|
|
|
August 30 2017
|
|
|
December 31, 2017
|
|
Purchase price
|
|
$
|
1,740,102
|
|
|
$
|
1,740,102
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
670,244
|
|
|
|
670,244
|
|
Inventory
|
|
|
2,224,907
|
|
|
|
2,100,668
|
|
Accounts receivable
|
|
|
1,384,957
|
|
|
|
1,384,957
|
|
Grants receivable
|
|
|
190,002
|
|
|
|
190,002
|
|
Other current assets
|
|
|
21,819
|
|
|
|
21,819
|
|
Property, plant and equipment
|
|
|
1,728,151
|
|
|
|
3,633,826
|
|
Software licenses
|
|
|
35,513
|
|
|
|
—
|
|
Note receivable
|
|
|
540,032
|
|
|
|
540,032
|
|
Intangible assets
|
|
|
445,585
|
|
|
|
2,150,000
|
|
Total Assets Acquired
|
|
|
7,241,210
|
|
|
|
10,691,548
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
2,452,166
|
|
|
|
2,225,735
|
|
Deferred charges
|
|
|
12,244
|
|
|
|
12,244
|
|
Non-current liabilities
|
|
|
2,401,913
|
|
|
|
2,401,913
|
|
Total Liabilities Assumed
|
|
|
4,866,323
|
|
|
|
4,639,892
|
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
|
|
2,374,887
|
|
|
|
6,015,656
|
|
Goodwill
|
|
$
|
(634,785
|
)
|
|
$
|
(4,311,554
|
)
|
The acquisition of INGEST and Medi-Line
resulted in approximately $4,311,554 of negative goodwill based on third-party valuations. The negative goodwill is recorded as
a bargain purchase in other income on the statements of comprehensive income. The income related to the bargain purchase is not
expected to be applicable for tax purposes.
Unaudited Pro forma Consolidated Results
The following table provides unaudited
pro forma results of operations for the years ended December 31, 2017 and 2016, as if INGEST and Medi-line had been acquired as
of January 1, 2016. The pro forma results include the effect of certain purchase accounting adjustments such as the estimated changes
in depreciation and amortization expense on the acquired tangible and intangible assets and the recognition of grant subsidies.
However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of INGEST and
Medi-Line. Accordingly, such amounts are not necessarily indicative of the results if the acquisition had occurred on the dates
indicated or which may occur in the future.
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
7,880,467
|
|
|
$
|
8,496,687
|
|
Net income (loss)
|
|
|
(1,837,096
|
)
|
|
|
(504,113
|
)
|
Net income (loss) per common share, basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
NOTE 4 – GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting
principles, which contemplate continuation of the Company as a going concern. The Company has sustained operating losses since
inception and has an accumulated deficit of $3,743,438 at December 31, 2017. In addition, the Company does not have sufficient
continuing revenue to cover its future operating expenses. The Company currently has limited liquidity and has not completed its
efforts to establish an additional source of revenues sufficient to cover operating costs of the on-going neurostimulation research
and development activities over an extended period of time. These factors, among others, raise substantial doubt about the Company’s
ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts and classification of liabilities should the Company be unable
to continue as a going concern. The Company is seeking additional financing and for continue operations, but there is no guarantee
such financing will be available or on terms favorable to the Company.
NOTE 5 – LOANS AND LEASES
Loans and leases consist of the following
as of December 31, 2017:
Notes Payable
12.00% Senior Secured Convertible Promissory
Note:
On August 21, 2017, Company entered into a securities purchase agreement with Leonite Capital, LLC (“LC”),
a Delaware limited liability company to provide the Company with additional resources to conduct its business. Pursuant to the
securities purchase agreement, LC purchased a unit consisting of (i) a note in the principal amount of $1,120,000 at an original
issue discount of $120,000, (ii) warrants to purchase 500,000 shares of the Company’s common stock, and (iii) the commitment
shares equaling 100,000 shares of the Company’s restricted common stock valued at $100,000 (the “Commitment Shares”).
Interest is at the rate of 12.00% per annum and the maturity date is 24 months from the date of issue. The note is a senior secured
obligation of the Company, with priority over all future indebtedness of the Company. LC shall have the right at any time at LC’s
option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the note into
fully paid and non-assessable shares of common stock or any shares of capital stock or other securities of the Company into which
such common stock shall hereafter be changed or reclassified with a limitation of owning a maximum of 4.99% of outstanding common
stock of the Company at time of conversion. The conversion price shall be, at the option of LC, $1.75, subject
to a one-time re-pricing 275 days after the closing, or (ii) 80% multiplied by the price per share paid by the investors in a subsequent
Equity Financing. An amount of $274,266 was recorded on the balance sheet as an original discount to the consist of $120,000 original
discount, $100,000 in restricted common stock and $54,266 as the fair value of the warrants issued in the transaction. The $274,266
will be expensed as interest expense over the 24-month term of the loan. For the LC loan, $373,333 is recorded as Loans and
lease payable- current portion and $746,667 is recorded as Loan and lease payable – long-term on the balance sheet. $137,136
of the original discount is recorded as Loans and lease payable- current portion and $91,419 is recorded as Loan and lease payable
– long-term on the balance sheet.
1.27% Secured bank Loan:
On August 29, 2017, Medi-Line entered into
a credit contract with CBC Banque in the original amount of approximately $2,036,362 (€1,700,000 EUR). The loan is secured
by a mortgage on the Medi-Line manufacturing facility and carries an interest rate of 1. % per annum with a seven-year term having
monthly payments of interest and principal of approximately $23,365 (€21,175 EUR). $281,013 of the outstanding balance is
recorded as Loans and lease payable- current portion and $1,662,505 is recorded as Loan and lease payable – long-term on
the balance sheet.
1.27% Secured Bank Loan:
On August 29, 2017, NMB entered into a credit
contract with CBC Banque in the original amount of approximately $329,412 (€275,000 EUR). The loan carries an interest rate
of 1.27% per annum with a seven-year term having monthly payments of interest and principal of approximately $4,103 (€ 3,425
EUR). The loan is secured by the shares of NMB. $45,458 of the outstanding balance is recorded as Loans and lease payable- current
portion and $268,935 is recorded as Loan and lease payable – long-term on the balance sheet.
0.72% Secured Bank Loan:
On May 7, 2016, Medi-Line entered into a
credit contract with CBC Banque in the original amount of approximately $68,781 (€57,420 EUR). The loan carries an interest
rate of 0.72% per annum with a 48-month term having monthly payments of interest and principal of approximately $1,454 (€
1,214 EUR). The loan is secured by the assets of Medi-Line. Proceeds of the loan were used to acquire manufacturing equipment.
The loan is secured by the shares of NMB. $17,195 of the outstanding balance is recorded as Loans and lease payable- current portion
and $26,028 is recorded as Loan and lease payable – long-term on the balance sheet.
Loan
Subsidy:
NMB was awarded a loan subsidy through
the Public Service of Wallonia in the amount of $598,665 (€499,779 EUR). Of the total amount awarded, $179,600 (€149,934
EUR) is categorized as loan with repayment amounts ranging from $5,986 and $23,947 annually from 2018 through 2032. The current
portion of the liability is recorded as Loans and leases payable in the amount of $5,987 and $173,613 is included in long-term
debt on the balance sheet. The award amounts in excess of the loan amount are invoiced for reimbursement and recorded as a credit
to applicable research and development expenses.
Revolving
Credit:
The Company has a revolving credit card
with BB&T Financial with an outstanding balance of $13,313 as of December 31, 2017, a credit limit of $60,000 and a current
APR of 25.4%, and a revolving credit card with Comerica Bank with an outstanding balance of $9,860 as of December 31, 2017, a credit
limit of $11,000 and a current APR of 0%.
KBC Accounts Receivable Factoring Facility:
Medi-Line has an accounts receivable discounting
agreement with KBC Commercial Finance for up to 85% of Medi-Line’s customer accounts receivables. The fee for the advances
on receivables is the 2-month LIBOR plus 1.5% on annual basis. As of December 31, 2017, the outstanding balance on the credit facility
was $49,018 and is recorded as Loans and lease payable- current portion on the balance sheet.
0.72% Secured Line of Credit:
Medi-line also has an unsecured line of
credit with CBC Banque in the amount of approximately $89,840 (€75,000 EUR). The outstanding balance of this credit line as
of December 31, 2017 is $0. The line of credit is secured by the assets of Medi-Line.
Capital Leases
Building
Lease:
Medi-Line has a capital lease payable in
the amount of $749,337 to KBC Vendor Lease. On December 13, 2005, Medi-Line entered into a capital lease facility for the financing
of the manufacturing facility construction in the amount of $3,425,880 (€2,860,000 EUR) with a 15- year term. Quarterly lease
payments excluding VAT are $46,730 (€39,011 EUR). The Company has the right to purchase the building at the end of the lease
term for three percent (3%) of the original lease amount. $186,936 of the outstanding balance is recorded as Loans and lease payable-
current portion and $562,401 is recorded as Loan and lease payable – long-term on the balance sheet.
Equipment
Lease:
NMB has a capital lease payable in the
amount of $21,502, which is record as Loans and lease payable- current portion, to Biotech Coaching S.A. On February 4, 2015, the
Company entered into a sale-leaseback transaction with Biotech Coaching S.A. for the sale and lease in the original amount of $131,765
(€110,000 EUR) for medical and clean-room equipment. In March 2015, the Company commenced leasing the equipment with a 36-month
term. Monthly lease payments excluding VAT are $3,824 (€3,192 EUR). The Company has the right to purchase the equipment at
the end of the lease term for a residual value of $1,298 (€1,318 EUR).
|
|
Carrying Amount
|
|
Long-Term Debt
|
|
|
|
12.00% Senior Convertible Secured Note, amortization begins 2018, 2019 maturity
|
|
$
|
1,120,000
|
|
1.27% Secured Bank Loan, monthly amortization, 2024 maturity
|
|
|
1,943,518
|
|
1.27% Secured Bank Loan, monthly amortization, 2024 maturity
|
|
|
314,393
|
|
0.72% Secured Bank Loan, monthly amortization, 2020 maturity
|
|
|
43,223
|
|
Loan Subsidy, amortization begins 2018, 2032 maturity
|
|
|
179,600
|
|
Revolving Credit
|
|
|
23,173
|
|
KBC Accounts Receivable Factoring
|
|
|
49,018
|
|
Capitalized Building lease
|
|
|
749,337
|
|
Capitalized Equipment lease
|
|
|
21,502
|
|
Less: original purchase discount, net of amortization
|
|
|
(228,555
|
)
|
Total debt
|
|
|
4,215,209
|
|
Less: current portion of debt, net of original discount current portion
|
|
|
(866,479
|
)
|
Total long-term debt
|
|
$
|
3,348,730
|
|
Aggregate maturities
of long-term obligations commencing in 2018 are:
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
After 2022
|
|
Loans and notes
|
|
$
|
658,041
|
|
|
|
1,009,136
|
|
|
|
349,620
|
|
|
|
351,253
|
|
|
|
355,518
|
|
|
|
720,802
|
|
Capital leases
|
|
|
208,438
|
|
|
|
187,201
|
|
|
|
187,467
|
|
|
|
187,733
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
866,479
|
|
|
|
1,196,337
|
|
|
|
537,087
|
|
|
|
538,986
|
|
|
|
355,518
|
|
|
|
720,802
|
|
NOTE 6 – INCOME TAXES
The Company is incorporated in the United
States of America and is subject to United States federal taxation. No provisions for income taxes have been made, as the Company
had no U.S. taxable income for the year ended December 31, 2017 and 2016. The effective income tax rate for the Company for both
of the years ended December 31, 2017 and 2016 were 34% and 40%, respectively. Some of our subsidiaries generated income and we
accrued income tax according to the Belgian corporate income tax rate, but some had a loss and no tax provision was recorded. The
Belgium corporate income tax (“CIT”) is levied at a rate of 33% plus a 3% crisis tax, which is a sur-tax on the CIT
amount, implying an effective rate of 33.99%. No state, region or municipal income tax is levied.
The Belgian government enacted in December
2017 a significant tax reform law. The new tax legislation contains several key tax provisions including the reduction of the corporate
income tax rate from the current 33.99% to 29.58% in 2018 and 2019 and 25% from 2020. Additionally, the use of net operating losses
which could previously offset 100% of taxable income is now limited to offset only 70% of taxable income. The Company will not
have to pay additional current tax due to the enacted changes.
The reconciliation of income tax provision
(benefit) at the U.S. statutory rate of 34% for the years ended December 31, 2017 and 2016 to the Company’s effective tax
rate is as follows:
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Income tax (benefit) at U.S. statutory rate
|
|
$
|
(740,000
|
)
|
|
$
|
(636,000
|
)
|
Tax rate difference between Belgium and U.S.
|
|
|
—
|
|
|
|
—
|
|
Permanent difference
|
|
|
(1,526,000
|
)
|
|
|
—
|
|
Change in valuation allowance
|
|
|
2,266,000
|
|
|
|
636,000
|
|
Tax provision (benefit) at effective tax rate
|
|
$
|
—
|
|
|
$
|
—
|
|
The provision for income taxes are summarized
as follows:
|
|
|
Years Ended December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Federal
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
Total income tax provision (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
The tax
effects of temporary differences that give rise to the Company’s net deferred tax asset as of December 31, 2017 and 2016
are as follows:
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net loss carryforward U.S. – tax effect
|
|
$
|
1,295,000
|
|
|
$
|
—
|
|
Net loss carryforwards Belgium – tax effect
|
|
|
406,000
|
|
|
|
636,000
|
|
Less valuation allowance
|
|
|
(1,701,000
|
)
|
|
|
(636,000
|
)
|
Deferred tax asset, net of allowance
|
|
$
|
—
|
|
|
$
|
—
|
|
As of December 31, 2017, the Company has
approximately $7,789,555 of net operating losses (“NOL”) carryovers to offset taxable income, if any, in future years
which expire in fiscal 2036. In assessing the realization of deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred
tax assets relating to the NOL period because it is more likely than not that all of the deferred tax assets will not be realized.
The Company’s deferred tax assets
and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, and a reduction
in the Belgian tax rate from 34% to 25%, resulting in a deferred tax expense of approximately $1,202,000 for the year ended December
31, 2017 that is still fully valued against as of December 31, 2017. This expense is attributable to the Company being in a net
deferred tax asset position at the time of remeasurement. As the company maintains a full valuation allowance, this amount can
be seen on the rate reconciliation as an adjustment to deferred tax asset and corresponding valuation allowance.
On December 22,
2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal
Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning
after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and
a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We have estimated our provision for income
taxes in accordance with the Tax Act and guidance available as of the date of this filing but have kept the full valuation allowance.
As a result, we have recorded no income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted.
On December
22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations
when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable
detail to complete the accounting for certain income tax effects of the Tax Act. The deferred tax expense recorded in connection
with the remeasurement of deferred tax assets is a provisional amount and a reasonable estimate at December 31, 2017 based upon
the best information currently available. The ultimate impact may differ from these provisional amounts, possibly materially, due
to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory
guidance that may be issued, and actions the Company may take as a result of the Tax Act. Any subsequent adjustment to these amounts
will be recorded to current tax expense in the quarter of 2018 when the analysis is complete. The accounting is expected to be
complete when the 2017 U.S. corporate income tax return is filed in 2018.
NOTE 7 – PROPERTY PLANT and
EQUIPMENT
Property Plant and equipment at cost and
accumulated depreciation as of December 31, 2017 and 2016 were:
|
|
Estimated useful lives
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Land
|
|
|
|
$
|
96,884
|
|
|
$
|
—
|
|
Capitalized building
|
|
39 years
|
|
|
3,017,552
|
|
|
|
—
|
|
Machinery and equipment
|
|
5 to 15 years
|
|
|
677,734
|
|
|
|
149,204
|
|
Total property plant and equipment – gross
|
|
|
|
|
3,792,170
|
|
|
|
149,204
|
|
Less: accumulated depreciation
|
|
|
|
|
(222,338
|
)
|
|
|
(79,850
|
)
|
Total property plant and equipment – net
|
|
|
|
$
|
3,569,832
|
|
|
$
|
69,354
|
|
Property plant and equipment depreciation expense for the years ended December 31, 2017 and 2016 was $127,677
and $38,962, respectively.
NOTE 8 – INTANGIBLE ASSETS
Intangible assets that have finite useful
lives are amortized over their estimated useful lives. Intangible assets as of December 31, 2017 and 2016 are as follows:
|
|
Estimated useful lives
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Intangible assets with definitive lives:
|
|
|
|
|
|
|
|
|
|
|
Patents, licenses and intellectual property
|
|
4 to 20 years
|
|
$
|
10,363,097
|
|
|
$
|
10,313,660
|
|
Fair value of customer relationships at acquisition
|
|
10 years
|
|
|
600,000
|
|
|
|
—
|
|
Less: accumulated amortization
|
|
|
|
|
(1,773,605
|
)
|
|
|
(601,570
|
)
|
Patents, licenses and intellectual property – net
|
|
|
|
|
9,189,492
|
|
|
|
9,712,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
Fair value of trade secrets and know-how at acquisition
|
|
|
|
|
1,550,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets – net
|
|
|
|
$
|
10,739,492
|
|
|
$
|
9,712,090
|
|
Intangible asset amortization expense for
the years ended December 31, 2017 and 2016 was $1,170,032 and $597,960, respectively.
NOTE 9 – INVENTORIES
Inventory balances as of December 31, 2017
and 2016 are as follow:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Raw materials and supplies
|
|
$
|
1,811,749
|
|
|
$
|
—
|
|
Work in process
|
|
|
334,322
|
|
|
|
—
|
|
Finished goods
|
|
|
60,499
|
|
|
|
—
|
|
Total inventories
|
|
$
|
2,206,570
|
|
|
$
|
—
|
|
NOTE 10 – SEGMENTS
OF BUSINESS
The
Company operates in two distinct business segments within the medical device industry; manufacturing and neurostimulation. The
manufacturing segment includes the manufacturing operations of our wholly-owned subsidiary Medi-Line located in Angleur (Liege)
Belgium. The neurostimulation segment includes development, manufacturing, and commercialization of neurostimulation technology.
Operations for the neurostimulation segment are conducted in the United States, Puerto Rico, Belgium and Germany. Other items
of revenue, not directly related to manufacturing or neurostimulation revenues are categorized as other operating income. Other
operating income and expenses not directly related to a specific segment are identified as Income (expense) not allocated to segments.
|
|
Revenue
|
|
|
Long Lived Assets
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Manufacturing
|
|
$
|
2,932,664
|
|
|
$
|
—
|
|
|
$
|
3,535,516
|
|
|
$
|
—
|
|
Neurostimulation
|
|
|
291,750
|
|
|
|
1,456,038
|
|
|
|
8,643,118
|
|
|
|
9,780,556
|
|
Other
|
|
|
78,361
|
|
|
|
38,843
|
|
|
|
2,130,690
|
|
|
|
888
|
|
Consolidated total
|
|
$
|
3,302,775
|
|
|
$
|
1,494,881
|
|
|
$
|
14,309,324
|
|
|
$
|
9,781,444
|
|
|
|
Income Before Tax
|
|
|
Identifiable Assets
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Manufacturing
|
|
$
|
(31,698
|
)
|
|
$
|
—
|
|
|
$
|
7,803,409
|
|
|
$
|
—
|
|
Neurostimulation
|
|
|
(6,117,404
|
)
|
|
|
(673,117
|
)
|
|
|
9,421,311
|
|
|
|
10,141,459
|
|
Other
|
|
|
3,971,461
|
|
|
|
(129,346
|
)
|
|
|
3,126,724
|
|
|
|
2,270,388
|
|
Consolidated total
|
|
$
|
(2,177,641
|
)
|
|
$
|
(802,463
|
)
|
|
$
|
20,351,444
|
|
|
$
|
12,411,847
|
|
|
|
Additions to Property Plant and Equipment
|
|
|
Depreciation and Amortization
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Manufacturing
|
|
$
|
50,495
|
|
|
$
|
—
|
|
|
$
|
74,344
|
|
|
$
|
—
|
|
Neurostimulation
|
|
|
11,172
|
|
|
|
31,581
|
|
|
|
1,203,169
|
|
|
|
636,822
|
|
Other
|
|
|
—
|
|
|
|
986
|
|
|
|
20,197
|
|
|
|
99
|
|
Consolidated total
|
|
$
|
61,667
|
|
|
$
|
32,567
|
|
|
$
|
1,297,710
|
|
|
$
|
636,921
|
|
NOTE 11 –
EQUITY
Common Stock Issuances
During the year ended December 31,
2017, the Company issued an aggregate of 715,667 shares of the Company’s restricted common stock for certain legal,
corporate structuring and research and development consulting services rendered by third-party consultants. The foregoing
shares were valued at $610,893.
On March 17, 2017, the Company offered to
current warrant holders who participated in the 2016 Private Placement which closed on December 2, 2016, the opportunity to convert
their warrants into common stock of the Company on the following terms (the “Warrant Conversion Offer”). The offer
terms included the exercise of seventeen (17) warrants for seventeen (17) shares of the Company’s common stock at an exercise
price of $0.01 per share for every one hundred (100) warrants owned. The remaining eighty-three (83) warrants per hundred warrants
owned would be cancelled. The offer was on an all-or-nothing basis to convert all warrants held by each warrant holder (the “Warrant
Conversion Offer”). Pursuant to the offer, 593,598 warrants have been exercised for an aggregate of 593,598 shares of the
Company’s common stock and 2,898,151 warrants were cancelled in connection with the Warrant Conversion Offer. The total proceeds
from the exercise of the 593,598 warrants pursuant to the Warrant Conversion Offer were $5,936.
The Company conducted the 2017 Private
Placement, which closed on July 20, 2017 for up to 2,000,000 shares of common stock to accredited investors only. Pursuant to which
it would receive up to $2,500,000 in proceeds. The shares of common stock were offered at $1.25 per share. The Company received
$1,165,000 from the sale of common stock and issued 932,000 shares of common stock.
On December 15, 2016, Mr. Rosellini sold,
assigned, and transferred all his right, title, and interest in and to the license owned by him related to the Siemens Patents
to the Company pursuant to a Patent License Asset Purchase Agreement (the “Purchase Agreement”). Pursuant to the terms
of the Purchase Agreement, during the year ended December 31, 2017, 3,050,000 shares of the Company’s restricted common stock
were issued to Mr. Rosellini valued at $3,050,000. See
Note 13 – Related Party Transactions, Patent License Agreement
(Siemens Patents) and Patent License Asset Purchase Agreement to the Consolidated Financial Statements included herein.
On August 21, 2017, the Company entered
into a securities purchase agreement with LC to provide the Company with additional resources to conduct its business. Pursuant
to the SPA, the Company issued to LC the Commitment Shares as consideration for entering into the SPA with the Company. The shares
were valued at $100,000.
On September 28, 2017, the Company issued
24,000 shares of common stock to an individual subscriber of the 2016 Private Placement. $20,000 of the subscription was previously
recorded in Equity Instruments to be Issued. The remaining $4,000 of the subscription was deposited and the shares were transferred
to common stock and Additional paid in capital on the balance sheet. The shares were valued at $24,000.
On October 9, 2017, the Company issued
150,000 shares of the Company’s restricted common stock through a subscription of the shares for cash to Henri Decloux following
NMB’s acquisition of INGEST and Medi-Line. Henri Decloux was one of the two previous owners and sellers of INGEST to NMB.
HD Resources, SPRL (“HD”) is owned by Henri Decloux and Medi-Line has contracted with HD for the management of Medi-Line.
On October 9, 2017, the Company issued
81,035 shares of the Company’s restricted common stock to RS, a company controlled by our Chief Executive Officer, William
Rosellini, as repayment for 81,035 shares of the Company’s restricted common stock RS loaned to NMB for payment of outstanding
vendor invoices. On December 29, 2017 an additional 61,884 shares of the Company’s restricted common stock were issued to
RS in settlement for a cash loan to NMB from RS and for an adjustment to the market value of the 81,035 shares described above
per the debt repayment agreement dated December 29, 2017. In total, the 142,919 shares were valued $119,746.
On November 22, 2017, Michael Rosellini exercised his right to purchase 200,000 shares of the Company’s
restricted common stock. The cashless exercise pursuant to the warrant was elected and the Company issued 12,500 shares of restricted
common stock pursuant to the exercise.
On December 7, 2017, 56,000 shares originally issued to Ron Conquest were cancelled pursuant to a Resignation
and Release agreement dated November 7, 2017.
On December 29, 2017, the Company issued
to Michael Rosellini 77,008 shares of the Company’s restricted common stock as repayment for a loan to the Company per the
loan agreement dated December 29, 2017. The shares were valued at $48,130. Michael Rosellini is a shareholder of the Company and
father of our Chief Executive Officer.
On August 21, 2017, the Company offered
to current employees the opportunity to purchase shares of the Company’s restricted common stock for a discount through payroll
deductions. As of the date of this filing, 203,635 shares of the Company’s restricted common stock were issued. The shares
were valued at $127,247.
Related to the Merger with NXDE, 1,659,943
shares of the Company’s common stock were recorded as issued as of the closing of the merger. The Company had been unsuccessful
in contacting five NXDE preferred stock holders and issuing 77,725 shares of the Company’s stock. In 2017, these shares are
valued at $77,725 and have been adjusted from Common stock and Additional paid in capital to Equity instruments to be issued until
these shares can be issued. On October 25, 2017, the Company issued 11,886 shares of the Company’s common stock to one of
the five beneficial owners. The value of these shares is $11,886. As of December 31, 2017, 65,839 shares remain unissued and
recorded as Equity instruments to be issued.
The issuance of the above securities was
deemed to be exempt from the registration requirements of the Securities Act, by Section 4(a)(2) thereof, as a transaction
by an issuer not involving a public offering.
Warrants
On February 1, 2016, the Company initiated
a private placement for the sale of up to 5,500,000 units at $1.00 per Unit (the “2016 Private Placement”). Each Unit
consists of one share of restricted common stock and one warrant to purchase one additional share of restricted common stock. The
2016 Private Placement was closed on December 2, 2016. The warrants have an exercise price of $2.00 per share and expire 36 months
from the date of issue. The warrants have limited transferability to an affiliate of the holder only, cannot be sold as a warrant
and do not contain cashless exercise provisions.
On March 17, 2017, the Company offered
to current warrant holders who participated in the 2016 Private Placement the opportunity to convert their warrants into common
stock of the Company on the following terms (the “Warrant Conversion Offer”). The offer terms included the exercise
of seventeen (17) warrants for seventeen (17) shares of the Company’s common stock at an exercise price of $0.01 per share
for every one hundred (100) warrants owned. The remaining eighty-three (83) warrants per hundred warrants owned would be cancelled.
The offer was on an all-or-nothing basis to convert all warrants held by each warrant holder.
As of December 31,2017, 593,598 warrants have been exercised for an aggregate of 593,598 shares of the
Company’s common stock and 2,898,151 warrants were cancelled in connection with the Warrant Conversion Offer and 660,761
warrants are outstanding related to the 2016 Private Placement. 24,000 of the outstanding 660,761 warrants were issued in the year
ended December 31, 2017 upon completion of the subscription agreement by an individual subscriber of the 2016 Private Placement.
On August 21, 2017, the Company entered into a securities purchase agreement with LC to provide the Company
with additional resources to conduct its business. Pursuant to the SPA, the Company issued to LC warrants to purchase 250,000 shares
of the Company’s common stock with an exercise price of $2.50 per share purchased and having a 2-year term and issued warrants
to purchase 250,000 shares of the Company’s common stock with an exercise price of $3.00 per share purchased and having a
5-year term.
The options were valued at $54,266 using
the Black-Scholes option pricing model using a risk-free rate of 1.33%, expected volatility of 44.45%, expected life of 2 and 5
years, far value of the Company’s common stock of $1.25 with no expected dividends.
In connection with the securities purchase
agreement with LC, Michael Rosellini, a shareholder in the Company and father of the Company’s CEO William Rosellini, provided
a personal guarantee in the amount of $1,120,000 to induce LC to make the loan to the Company and accept the promissory note in
the amount of $1,120,000. As consideration for providing the personal guarantee, the Company issued Michael Rosellini warrants
to purchase 200,000 shares of the Company’s common stock with an exercise price of $1.50 per share purchased and having
a 2-year term.
The options were valued at $35,924 using
the Black-Scholes option pricing model using a risk-free rate of 1.33%, expected volatility of 44.45%, expected life of 2 years,
far value of the Company’s common stock of $1.25 with no expected dividends.
Note 13 –Related Party Transactions
Warrants Issued for Personal Guarantee.
On November 22, 2017, Michael Rosellini exercised his right to purchase 200,000 shares of the Company’s
restricted common stock. The cashless exercise pursuant to the warrant was elected and the Company issued 12,500 shares of restricted
common stock pursuant to the exercise.
As of December 31, 2017, 793,598 warrants
have been exercised and 2,898,151 warrants have been cancelled.
As of December 31, 2017, a total of 1,160,761
shares of common stock of the Company have been reserved for issuance upon exercise of the warrants.
Options Grants – 2016
Plan
The Company may, from time to time, issue
certain equity awards pursuant to our 2016 Plan. The 2016 Plan was adopted by our
Board of Directors on January 2, 2016 and was subsequently approved by our shareholders. The Company reserved 5,000,000 shares
of common stock for issuance pursuant option grants under the 2016 Plan.
During the year ended December 31,
2017, the Company issued stock options to purchase a total of 1,895,200 shares of the Company’s common stock under the
2016 Plan, with exercise prices ranging from $1.00 to $2.00 per share and cancelled 677,000 shares with an exercise price of
$1.00, as follows:
|
(i)
|
Granted to the Chief Science Officer of Nexeon Medsystems Puerto Rico Operating Company
Corporation, a wholly owned subsidiary of the Company, 100,000 incentive stock options to purchase 100,000 shares of common
stock, with an exercise price of $1.00 per share. The options vest in monthly increments of 8,333 options per month for 11
months and 8,337 options shall vest in the 12
th
month, with the three-year term for each option beginning upon
each date of vesting. And granted 325,000 nonqualified stock options to purchase 325,000 shares of common stock, with an
exercise price of $1.00 per share. The options vest in monthly increments of 27,083 options per month for 11 months and
27,087 options shall vest in the 12
th
month, with the three-year term for each option beginning upon each date of
vesting. The fair value of the options was determined to be $113,073 using the Black-Scholes Option Pricing Model. The total
425,000 options were cancelled as of September 28, 2017 pursuant to the amended employment agreement with the executive.
|
|
(ii)
|
Granted to a Director appointed to the Board of Directors nonqualified stock options to purchase a total
of 50,000 shares of common stock, in four grants of 12,500 each, with a weighted average exercise price of $1.45 per share. The
options are immediately exercisable, and each option grant expires four years from the date of grant. The fair value of the options
was determined to be $20,679 using the Black-Scholes Option Pricing Model.
|
|
(iii)
|
Granted to a second Director appointed to the Board of Directors nonqualified stock options to
purchase a total of 50,000 shares of common stock, in three grants of 12,500 each, with a weighted average exercise price of $1.45
per share. The options are immediately exercisable, and each option grant expires four years from the date of grant. The fair value
of the options was determined to be $20,679 using the Black-Scholes Option Pricing Model.
|
|
(iv)
|
Granted to our Vice President, Sales and Marketing, an initial grant of 220,000 nontransferable
incentive stock options to purchase 220,000 shares of common stock, with an exercise price of $1.25 per share. Each option shall
expire 36 months from the date of vesting. The options shall vest at the rate of 6,111 options per month for a period of 35 months
and 6,115 options shall vest in the 36th month. Vesting commences on the first day of the month following the Grant Date. The fair
value of the options was determined to be $33,392 using the Black-Scholes Option Pricing Model.
|
|
(v)
|
Granted to a consultant of the Company nonqualified stock options to purchase a total of 150,000
shares of common stock, with an exercise price of $1.00 per share. The options shall vest at the rate of 50,000 options per year
beginning on January 2, 2018, 50,000 options on January 2, 2019 and 50,000 options on January 2, 2020 and each option grant expires
three years from the date of vesting. The fair value of the options was determined to be $35,917 using the Black-Scholes Option
Pricing Model. The total 150,000 options were cancelled upon resignation of the consultant prior to vesting of the options.
|
|
(vi)
|
Granted to a consultant of the Company nonqualified stock options to purchase a total of 380,000
shares of common stock, with an exercise price of $1.00 per share. 84,448 options vested immediately and the remaining 295,552
options vest over 28 months at approximately 10,556 options per month from the grant date and each option grant expires three years
from the date of vesting. The fair value of the options was determined to be $128,778 using the Black-Scholes Option Pricing Model.
|
|
(vii)
|
Three non-executive employees of NMB were granted stock options upon the acquisition of NMB by
the Company. Stock options to purchase a total of 725,000 shares of common stock with an exercise price of $1.25 were granted.
161,104 options vested immediately and the remaining 563,896 will vest over 28 months from the grant date at approximately 20,138
per month and each option grant expires four years from the date of vesting. The fair value of the options was determined to be
$204,532 using the Black-Scholes Option Pricing Model.
|
|
(viii)
|
Granted to a consultant of NMB nonqualified stock options to purchase a total of 25,200 shares
of common stock, with an exercise price of $1.00 per share. The options vest at a rate of 2,100 per month and vesting commences
on the first day of the month following the Grant Date and each option expires three years from the date of vesting. The fair value
of the options was determined to be $6,706 using the Black-Scholes Option Pricing Model.
|
|
(ix)
|
On November 6th, 2017, Mark Bates resigned from his position as Chief Innovation Officer and member
of the Board of Directors. Pursuant to the severance agreement between Dr. Bates and the Company, of the original grant of 252,000
options on April 1, 2016, 102,000 options were cancelled, and 150,000 options became fully vested.
|
The options were valued at $563,754 using
the Black-Scholes option pricing model with the following weighted average assumptions:
Risk-free interest rate
|
|
|
1.56
|
%
|
Expected life
|
|
|
3.41 years
|
|
Expected dividends
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
46.51
|
%
|
Fair value of the Company's common stock
|
|
$
|
1.14
|
|
Aggregate options expense recognized for
the year ended December 31, 2017 was $319,057.
As of December 31, 2017, there were 1,319,800
shares available for grant under the 2016 Plan, excluding the 3,680,200 options outstanding.
As
of
December 31, 2017, there were 2,375,200 incentive
stock options outstanding to purchase an aggregate of 3,680,200 shares of common stock and 1,305,200 non-qualified options outstanding
to purchase an aggregate of 1,305,200 shares of the Company's common stock and 1,449,800 shares available for grant under the
2016 Plan.
Stock option activity, both within and
outside the 2016 Plan, and warrant activity for the year ended December 31, 2017, are as follows:
|
|
Stock Options
|
|
|
Stock Warrants
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2016
|
|
|
2,332,000
|
|
|
$
|
1.00
|
|
|
|
4,128,510
|
|
|
$
|
2.00
|
|
Granted
|
|
|
2,025,200
|
|
|
|
1.14
|
|
|
|
724,000
|
|
|
|
2.38
|
|
Canceled
|
|
|
(677,000
|
)
|
|
|
1.00
|
|
|
|
(2,898,151
|
)
|
|
|
2.00
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
(793,598
|
)
|
|
|
0.39
|
|
Outstanding at December 31, 2017
|
|
|
3,680,200
|
|
|
$
|
1.08
|
|
|
|
1,160,761
|
|
|
$
|
2.32
|
|
Exercisable at December 31, 2017
|
|
|
1,480,400
|
|
|
$
|
1.07
|
|
|
|
1,160,761
|
|
|
$
|
2.32
|
|
The range of exercise prices and remaining
weighted average life of the options outstanding at December 31, 2017 were $1.00 to $2.00 and 2.56 to 6.92 years, respectively.
The range of exercise prices and remaining
weighted average life of the warrants outstanding at December 31, 2017 were $1.00 to $3.00 and 1.10 to 4.67 years, respectively.
NOTE 12 – 2016 OMNIBUS INCENTIVE
PLAN
The 2016 Plan was adopted by our Board
of Directors on January 2, 2016 and was subsequently approved by our shareholders. As of December 31, 2017, options to purchase
a total of 3,680,200 shares of the Company's common stock were issued under the 2016 Plan, 2,685,200 with an exercise price of
$1.00 per share and 945,000 with an exercise price of $1.25 per share and 25,000 with an exercise price of $1.80 per share and
25,000 with an exercise price of $2.00 per share. 454,656 options vested immediately upon grant and the remaining vest in varying
amounts ranging from 100,000 annually to monthly increments ranging from 2,083 to 17,000 based on individual stock option agreements.
The options have terms as follows: 1,705,200 options have a three-year term starting on each date of vesting, 825,000 options have
a four-year term starting on each date of vesting, and 1,150,000 have an eight-year term starting on the date of vesting.
The 2016 Plan is administered by a committee
of two or more non-employee independent directors designated by the Board. The committee shall perform the requisite duties with
respect to awards granted. The committee currently determines to whom awards are made, the timing of any such awards, the type
of securities, and number of shares covered by each award, as well as the terms, conditions, performance criteria, restrictions,
and other provisions of awards. The committee has the authority to cancel or suspend awards, accelerate the vesting, or extend
the exercise period of any awards made pursuant to the 2016 Plan.
Shares Available under the
2016 Plan
The maximum shares available for issuance
under the 2016 Plan are 5,000,000 shares, subject to adjustment as set forth in the 2016 Plan. Any shares subject to an award that
expires, is cancelled or forfeited or is settled for cash shall, to the extent of such cancelation, forfeiture, expiration or cash
settlement, again become available for awards under the 2016 Plan. The committee can issue awards comprised of restricted stock,
stock options, stock appreciation rights, stock units and other awards, as set forth in the 2016 Plan.
Transferability
Except as otherwise provided in the 2016
Plan, (i) during the lifetime of a participant, only the participant or the participant’s guardian or legal representative
may exercise an option or stock appreciation right, or receive payment with respect to any other award and (ii) no award may be
sold, assigned, transferred, exchanged or encumbered, voluntarily or involuntarily, other than by will or the laws of descent and
distribution.
Change in
Control
In the event of a merger, the surviving
or successor entity (or its parent) may continue, assume or replace outstanding awards as of the date of the relevant transaction
and such awards or replacements therefore shall remain outstanding and be governed by their respective terms. Such awards or replacements
can be executed in part on the condition that the contractual obligations represented by the award are expressly assumed by the
surviving or successor entity (or its parent) with appropriate adjustments to the number and type of securities subject to the
award and the exercise price thereof so as to preserve the intrinsic value of the award existing at the time of the relevant transaction.
Alternatively, the surviving or successor entity (or its parent) could issue to a participant a comparable equity-based award that
preserves the intrinsic value of the original award existing at the time of the relevant transaction and contains terms and conditions
that are substantially similar to those of the award.
If and to the extent that outstanding awards
under the 2016 Plan are not continued, assumed or replaced in connection with a merger or relevant corporate transaction, then
all outstanding awards shall become fully vested and exercisable for such period of time prior to the effective date of the relevant
transaction as is deemed fair and equitable by the committee and shall terminate at the effective date of said transaction.
NOTE 13 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2017,
the Company had the following transactions with related parties.
Patent License Agreement (Siemens
Patents) and Patent License Asset Purchase Agreement Shares Issued
During the year ended December 31,
2017, the Company issued to Mr. Rosellini 3,050,000 shares of the Company’s restricted common stock valued at
$3,050,000 in connection with the Patent License Agreement. On September 29, 2016, William Rosellini, our Chief Executive
Officer, a director and a majority shareholder of the Company, entered into a patent license agreement (the “License
Agreement”) with Magnus IP GmbH, German corporation (“Magnus”). Pursuant to the terms of the License
Agreement, Magnus granted to Mr. Rosellini, and his affiliates, a non-exclusive, non-transferable, non-assignable without the
right to sublicense worldwide license to a portfolio of 86 patents, referred to herein as the “Siemens
Patents”.
The intellectual property relates to IOT
technology as described by a system of interrelated computing devices, mechanical and digital machines, objects, animals, and/or
people that have unique identifiers and a subsequent ability to transfer data over a network without requiring human-to-human or
human-to-computer interaction. This technology can be utilized in a wide variety of medical device applications, most notably in
hospitals, nursing facilities, or patients’ homes.
On December 15, 2016, Mr. Rosellini sold,
assigned, and transferred all his right, title, and interest in and to the license owned by him related to the Siemens Patents
to the Company pursuant to the Purchase Agreement. As consideration for the transfer of the Siemens Patents and the license related
thereto, the Company paid to Mr. Rosellini the sum of $140,000 in cash and 3,050,000 shares of the Company’s restricted common
stock valued at $3,050,000.
January 6, 2017 Stock Exchange
Agreement
On January 6, 2017, the Company and RS, a company controlled by our CEO William Rosellini, entered into a stock
exchange agreement. Subject to the terms and conditions set forth the stock exchange agreement, on the Effective Date, RS sold,
transferred, and assigned to Nexeon all of its right, title and interest in and to 100 shares of common stock of MicroTransponder
Inc., a Delaware corporation (the “MTI Shares”) in exchange for 389 shares of common stock of Emeritus Clinical Solutions,
Inc. (formerly Telemend, Inc.), a Texas corporation, owned by Nexeon and Nexeon sold, transferred and assigned to RS 389 shares
of common stock of Emeritus Clinical Solutions, Inc. in exchange for the 100 MTI Shares.
January 10, 2017 Acquisition
Agreement
On January 10, 2017, RS, a company controlled
by our CEO, William Rosellini, and Nexeon Europe, which is a wholly-owned subsidiary of the Company, and in the presence of NMB,
entered into an acquisition agreement. RS is the sole shareholder of NMB owning 107,154 shares (the “NMB Shares”).
Pursuant to the acquisition agreement,
RS
granted to Nexeon Europe the exclusive and irrevocable right to purchase the NMB Shares upon the terms and conditions set forth
in the acquisition agreement (the “Right to Purchase”). The consideration for the Right to Purchase is US $1,000 (the
“Acquisition Price”). Nexeon Europe shall have the right to exercise the Right to Purchase commencing from the date
of the acquisition agreement and terminating on December 31, 2017 (the “Acquisition Period”). In the event Nexeon
Europe exercises the Right to Purchase, the acquisition agreement shall be automatically deemed converted into and considered
a share transfer agreement for the purchase of the NMB Shares and the Acquisition Price shall be considered the purchase price
of the NMB Shares and shall be deemed to have been satisfied by Nexeon Europe to RS as of the date of the acquisition agreement.
If Nexeon Europe elects not to exercise the Right to Purchase on or before December 31, 2017, then the acquisition agreement shall
become null and void and of no further force and effect.
On September 1, 2017, through its wholly-owned subsidiary Nexeon Europe, the Company completed the acquisition
of NMB, along with NMB’s wholly owned subsidiaries Medi-Line and its holding company INGEST, which are incorporated under
the laws of Belgium. INGEST is the holding company for Medi-Line. The option price of $1,000 is due and payable to
RS and is recorded as Due to related party on the balance sheet as of December 31, 2017.
Warrant Conversion Offer
On March 21, 2017, the Company offered to current warrant holders who participated in the 2016 Private
Placement which closed on December 2, 2016, the opportunity to convert their warrants into common stock of the Company on the following
terms. The offer terms included the exercise of seventeen (17) warrants for seventeen (17) shares of the Company’s common
stock at an exercise price of $0.01 per share for every one hundred (100) warrants owned. The remaining eighty-three (83) warrants
per hundred warrants owned would be cancelled. The offer was on an all-or-nothing basis to convert all warrants held by each warrant
holder. During the year ended December 31, 2017, the following officers, directors and related parties have converted warrants
pursuant to the Warrant Exchange Offer, as follows:
Mark C. Bates, previously our Chief Innovation
Officer and a Director, held 370,000 warrants and pursuant to the terms of the Warrant Conversion Offer, converted 62,900 warrants
into 62,900 shares of common stock, with 307,100 warrants being cancelled. The 62,900 shares of common stock were value at $629.
Dr.
Michael Rosellini, the father of William Rosellini, our Chief Executive Officer, held 617,000 warrants individually and 600,000
warrants under the Michael Rosellini ROTH IRA. Dr. Rosellini, pursuant to the terms of the Warrant Conversion Offer, converted
206,890 warrants into 206,890 shares of common stock, with 1,010,110 warrants being cancelled. The 206,890 shares of common stock
are held as follows: 104,890 shares by Dr. Rosellini individually and 102,000 shares by the Michael Rosellini ROTH IRA. The 206,890
shares of common stock were value at $2,069.
Michael Neitzel, a Director, held 500,000
warrants through Yorkville MGB Investments, LLC (“Yorkville”). Mr. Neitzel is the Managing Partner of Yorkville. Mr.
Neitzel converted 85,000 warrants into 85,000 shares of common stock pursuant to the terms of the Warrant Conversion Offer, with
415,000 warrants being cancelled. The 85,000 shares of common stock were value at $850.
Nuviant Medical, GmbH Waiver
of Debt Agreement
On May 19, NMB entered into a Waiver of debt agreement to waive the outstanding loan balance and accrued
interest outstanding pursuant to the September 21, 2015, loan agreement between NMB and Nuviant Medical, GmbH, a related entity
to RS. The agreement waives the outstanding balance of the loan and accrued interest in the amount $171,946 and thereby waiving
any right or action in respect to this debt. An expense had been recorded as bad debt on the statement of comprehensive income
in the amount $174,252. During the year ended December 31, 2017 and prior to the waiver of debt agreement, NMB loaned Nuviant Medical,
GmbH $59,027.
RS Loan of Nexeon MedSystems Inc Common Stock and Debt Repayment Agreement Dated December 29, 2017
On June 23, 2017, RS transferred
81,035 shares of restricted common stock of the Company to NMB. The shares were valued at $107,292. The loan is non-interest
bearing and is to be re-paid to RS in Nexeon MedSystems Inc restricted common stock issued by the Company through an
intercompany loan with NMB. The 81,035 shares were exchanged for outstanding payables to vendors of NMB in the amount of
$107,292.
On October 9, 2017, the Company issued
81,035 shares of the Company’s restricted common stock to RS, a company controlled by our Chief Executive
Officer, William Rosellini as repayment for 81,035 shares of the Company’s restricted common stock RS loaned to NMB for payment
of outstanding vendor invoices. On December 29, 2017 an additional 61,884 shares of the Company’s restricted common stock
were issued to RS in settlement for a cash loan to NMB from RS and for an adjustment to the market value of the 81,035 shares described
above per the debt repayment agreement dated December 29, 2017. In total, the 142,919 shares were valued $119,746. The issuance
of these securities was deemed to be exempt from the registration requirements of the Securities Act, by Section 4(a)(2) thereof,
as a transaction by an issuer not involving a public offering.
Warrants Issued for Personal
Guarantee
In connection with the securities purchase
agreement with LC, Michael Rosellini, a shareholder in the Company and father of the Company’s CEO William Rosellini, provided
a personal guarantee in the amount of $1,120,000 to induce LC to make the loan to the Company and accept the promissory note in
the amount of $1,120,000. As consideration for providing the personal guarantee, the Company issued Michael Rosellini warrants
to purchase 200,000 shares of the Company’s common stock with an exercise price of $1.50 per share purchased and having a
2-year term.
On November 22, 2017, Michael Rosellini exercised his right to purchase 200,000 shares of the Company’s
restricted common stock. The cashless exercise pursuant to the warrant was elected and the Company issued 12,500 shares of restricted
common stock pursuant to the exercise.
Share Loan Agreement Dated
December 29, 2017
On December 29, 2017, the Company issued
77,008 shares of restricted common stock pursuant to the share loan agreement with Michael Rosellini as repayment for a loan of
53,214 shares of registered common stock borrowed by the Company and used to pay certain vendors of the Company. The 77,008 restricted
shares were valued at $48,130. Michael Rosellini is a shareholder of the Company and father of our Chief Executive Officer.
NOTE 14 – COMMITMENTS AND
CONTINGENCIES
The Company is subject to a patent royalty
agreement that requires 3% of Net Product Sales received from commercialization of the 35 patents or other intellectual property
acquired in the Merger with NXDE to be paid to NXDE, LLC. No sales have been generated from any of the acquired patents or intellectual
property.
The Company acquired a non-exclusive license
to a portfolio of 86 patents and is subject to a 6% royalty to Magnus IP GmbH of the Net Sales of all licensed products sold, licensed,
leased or otherwise disposed of pursuant to the license. No sales have been generated from the licensed intellectual property.
NOTE 15 – CONCENTRATION
For
the year ended December 31, 2017, two of our customers accounted for approximately 45% and 23% of sales. For the year ended December
31, 2016, one of our customer accounted for approximately 94% of sales.
For
the year ended December 31, 2017, the company purchased approximately 13% of its products from one distributor, as compared to
2016 where no distributor accounted for more than 10% of product purchased.
For
the year ended December 31, 2017, three of our customers accounted for 54%, 15% and 15% of accounts receivable, as compared to
2016 where no customer accounted for more than 10% of accounts receivable.
NOTE 16 – SUBSEQUENT
EVENTS
On February 28, 2018, pursuant to the 2016
Plan, the Compensation Committee of the Board of Director’s approved the following stock options grants:
|
(i)
|
Granted to the Company’s Chief Executive Officer, incentive stock option to purchase up to
250,000 shares of common stock with an exercise price of $0.76 per share. 125,000 options vested immediately and the remaining
125,000 options vest on the anniversary of the grant date. Granted non-qualified stock options to purchase up to 900,000 shares
of common stock with an exercise price of $0.76 per share. These options vest in equal monthly amounts of 37,500 beginning on March
1, 2018. Each option grant expires three years from the date of vesting. The fair value of the options was determined to be $226,009
using the Black-Scholes Option Pricing Model.
|
|
(ii)
|
Granted to the Company’s Chief Commercialization officer non-qualified stock options to purchase
up to 57,000 shares of common stock with an exercise price of $0.76 per share. These options vested immediately on the grant date.
The options expire eight years from the date of vesting. The fair value of the options was determined to be $12,855 using the Black-Scholes
Option Pricing Model.
|
|
(iii)
|
Granted to the Company’s Chief Financial Officer, non-qualified stock options to purchase
up to 40,000 shares of common stock with an exercise price of $0.76 per share. These options vested immediately upon
grant date. Each option grant expires three years from the date of vesting. The fair value of the options was determined to be
$9,021 using the Black-Scholes Option Pricing Model.
|
|
(iv)
|
Granted to the Vice President Sales and Marketing incentive stock options to purchase up to 11,000
shares of common stock with an exercise price of $0.76 per share. These options vested immediately on the grant date. The options
expire three years from the date of vesting. The fair value of the options was determined to be $2,481 using the Black-Scholes
Option Pricing Model.
|
|
(v)
|
Granted to non-executive employees incentive stock options to purchase up to 46,200 shares of common
stock with an exercise price of $0.76 per share. 31,200 of these options vested immediately on the grant date and 15,000 vest in
equal monthly amounts of 2,500 beginning on March 1, 2018. The options expire three years from the date of vesting. The fair value
of the options was determined to be $10,420 using the Black-Scholes Option Pricing Model.
|
On February 23, 2018, Medi-Line’s
line of credit with CBC bank was amended to increase the advance amount to €300,000 approximately $368,982 and structure the
financing as a straight loan with an interest rate of 1.25% above the EURIBOR rate for the period the funds are drawn down. The
€300,000 will be available for drawdown through April 30, 2018 at which point the facility will be reduced to €200,000
and further reduced €100,000 on May 31, 2018. The security includes a pledge of Medi-Line business assets in the amount of
€300,000.
On March 8, 2018, the Company issued an
aggregate of 23,744 shares of the Company’s restricted common stock for certain sales and marketing and software consulting
services rendered by third-party consultants. The foregoing shares were valued at $14,840. 8,160 of these shares were issued to
Daniel Powell, the Company’s Vice President Sales and Marketing. These shares were issued for services provided by Mr. Powell
prior to his employment by the Company. The issuance of these securities was deemed to be exempt from the registration requirements
of the Securities Act, by Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On March 31, 2018, pursuant to the 2016
Plan, the Company issued the following stock options per director’s agreements:
|
(i)
|
Granted to a director appointed to the Board of Directors nonqualified stock options to purchase
a total of 12,500 shares of common stock with an exercise price of $0.865 per share. The options are immediately exercisable, and
each option grant expires four years from the date of grant. The fair value of the options was determined to be $3,596 using the
Black-Scholes Option Pricing Model.
|
|
(ii)
|
Granted to a second director appointed to the Board of Directors nonqualified stock options to
purchase a total of 12,500 shares of common stock with an exercise price of $0.865 per share. The options are immediately exercisable,
and each option grant expires four years from the date of grant. The fair value of the options was determined to be $3,596 using
the Black-Scholes Option Pricing Model.
|
Units
Consisting of One Share of Common Stock and
One
Warrant to Purchase One Share of Common Stock
PROSPECTUS
________________,
2018
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth the fees and expenses to be incurred in connection with the registration of the securities being registered
hereby, all of which will be borne by the registrant. Except for the SEC registration fee, all amounts are estimates.
Description
|
|
Amount
|
|
SEC registration fee
|
|
$
|
3,847.05
|
|
FINRA filing fee
|
|
|
*
|
|
NASDAQ listing fee
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Printing expenses
|
|
|
*
|
|
Miscellaneous expenses
|
|
|
*
|
|
Total expenses
|
|
$
|
*
|
|
*
To be filed by amendment.
Item
14. Indemnification of Directors and Officers
Our
officers and directors are indemnified as provided by the Nevada Revised Statutes (“NRS”) and our bylaws. Under the
NRS, unless modified by a corporation's articles of incorporation, a director is not liable to a corporation, its shareholders,
or creditors for damages unless the director's action or failure constituted a breach of fiduciary duty and such breach involved
intentional misconduct, fraud, or a knowing violation of law. Our bylaws provide that we will indemnify our directors and officers
to the extent fully permissible under Nevada law if such person acted in good faith and in a manner that such person reasonably
believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action, had no reasonable
cause to believe such conduct was unlawful.
The
Company has purchased and maintains directors’ and officers’ liability insurance, and may make other financial arrangements
on behalf of any individual entitled to indemnity. Our bylaws also provide that we will advance all expenses incurred to any person
entitled to indemnity upon receipt of an undertaking by, or on behalf of, such person to repay said amounts should it be ultimately
determined that the person was not entitled to indemnification.
Item
15. Recent Sales of Unregistered Securities
Set forth below is an enumeration of all securities issued by the Company
since December
7, 2015 (inception)
that have not been registered under the Securities Act.
2015
& 2016 Management Issuances
On
December 15, 2015, we issued 500,000 shares of Common Stock to our chief operating officer, Ron Conquest, for the sum of $500.
212,000 shares of the 500,000 shares became vested upon issue, and the remaining 288,000 shares shall vest over a 36-month period
at the rate of 8,000 shares per month. Vesting began January 1, 2016.
On
January 1, 2016, we issued 252,000 shares of Common Stock to Christopher Miller for certain accounting and budget-related services
rendered, as well as for serving as interim chief financial officer until such time as a permanent chief financial officer was
hired. The shares vest over a 36-month period at the rate of 7,000 shares per month.
On
January 2, 2016, we issued 1,800,000 shares of Common Stock to our vice president of clinical affairs, Dr. Elizabeth Rosellini
DDS (the sister of our CEO), in return for 214 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation,
and 60,000 shares of common stock of Nuviant Medical, Inc., a Nevada corporation. The value of the consideration to acquire these
shares was $49,673.
January
2016 Contribution Agreement
On
January 2, 2016, we entered into a contribution agreement with RS. Under this agreement, we issued 13,200,000 shares of Common
Stock in return for, among other consideration:
i.
RS’s agreement to an assignment (subject to regulatory transfer approval) to us of Phase II, should it be granted, of
the federal NIH/SBIR awarded grant #1R44HL129870-01;
ii.
1,675,000 shares of Common Stock of Nuviant Medical, Inc., a Nevada corporation;
iii.
167 shares of Common Stock of MicroTransponder, Inc., a Delaware corporation; and
iv.
175 shares of Common Stock of Emeritus Clinical Solutions, Inc., a Delaware corporation.
The
value of the consideration to acquire these shares was $272,686.
These
transactions were valued based on the value of the contributed assets, as our shares had no ascertainable value as of the date
of issuance of the shares. This was in accordance with ASC 845 Non-Monetary Transactions, whereby non-monetary assets acquired
in exchange for another non-monetary asset are valued at the fair value of the asset surrendered or received, whichever is more
clearly evident. In this case, the value of the contributed assets were more ascertainable than the value of the shares issued.
Prior
to the contribution, William Rosellini was not a related party of ours, but became a related party on January 2, 2016, through
the issuance of the 13,200,000 shares and a controlling interest in the Company. Mr. Rosellini, our CEO, is the sole member and
manager of RS.
2016
Plan Issuances
On
April 1, 2016, pursuant to the 2016 Plan, we issued non-qualified options to purchase 252,000 shares of Common Stock, with an
exercise price of $1.00 and a term of three years to each of the following: Dr. Mark Bates MD; Dr. Elizabeth Rosellini DDS; and
Sheneka Rains (a consultant) for services rendered to the Company since inception, as well as ongoing services to be provided
from time to time. The options vest in monthly increments of 7,000 shares, with a three-year term for each option beginning upon
each date of vesting. The fair value of the options was determined to be $141,168 using the Black-Scholes Option Pricing Model.
Dr. Rosellini resigned as our officer effective November 6, 2017, and these options for Dr. Rosellini were cancelled.
On
June 1, 2016, pursuant to the 2016 Plan, we issued Dr. Melanie McWade, PhD incentive stock options to purchase 252,000 shares
of Common Stock with an exercise price of $1.00. The options vest in monthly increments of 7,000 shares, with a three-year term
for each option beginning upon each date of vesting. The fair value of the options was determined to be $42,113 using the Black-Scholes
Option Pricing Model.
Effective
December 1, 2016, Brian Blischak, our president and chief commercial officer, pursuant to the 2016 Plan, received an initial grant
of 1,150,000 non-transferable stock options to purchase shares of the Company’s Common Stock, consisting of 500,000 ISOs
and 650,000 NQSOs. With respect to the ISO options, 100,000 ISO options vested on the effective date, and 100,000 ISO options
vested on January 1, 2017. Additional lots of 100,000 ISO options each shall vest on January 1, 2018, 2019, and 2020. With respect
to the NQSO options, 38,000 NQSO options vested on the effective date, and 17,000 NQSO options vested on January 1, 2017. An additional
17,000 options shall vest on the first day of each month thereafter until all NQSO options are fully vested on December 1, 2019.
The exercise price of all options is $1.00 per share. The fair value of the options was determined to be $365,342 using the Black-Scholes
Option Pricing Model.
Effective
December 1, 2016, Christopher R. Miller, our chief financial officer, was granted 306,000 three-year incentive stock options to
purchase 306,000 shares of Common Stock. The options vest in monthly increments of 8,500 shares, with the three-year term for
each option beginning upon each date of vesting. The exercise price of all options is $1.00 per share. The fair value of the options
was determined to be $66,234 using the Black-Scholes Option Pricing Model.
On
December 1, 2016, Navid Khodaparast, our director of clinical research, was granted 120,000 three-year incentive stock
options to purchase 120,000 shares of Common Stock. The options vest in monthly increments of 3,333 shares, with the
three-year term for each option beginning upon each date of vesting. As of May 4, 2018, 10,000 options were vested, but none
exercised. The exercise price of all options is $1.00 per share. The fair value of the options was determined to be $25,974
using the Black-Scholes Option Pricing Model.
February
2016 Merger
On February 16, 2016, we merged with NXDE. We were the surviving entity. We converted 100% of NXDE’s issued
and outstanding common and preferred stock into 1,659,943 shares of our Common Stock. As of the date of this filing, we have been
unsuccessful in contacting four beneficial owners of 65,829 of the above-mentioned shares, and these shares are recorded in Equity
instruments to be issued until such time as we are able to issue these shares.
In
addition to the conversion of NXDE shares into our Common Stock, we shall pay a limited liability company formed by the former
shareholders of NXDE for the purpose of receiving a royalty equal to three percent (3%) of net product sales received by the Company,
its affiliates, and licensees derived from the commercialization of patents or other intellectual property owned by NXDE prior
to the merger. Our former chief innovation officer and director, Dr. Mark Bates, was the chief executive officer of NXDE.
This
merger was unanimously approved at a meeting of NXDE’s common and preferred shareholders, all of whom are “Accredited
Investors” as defined by Rule 501 of SEC Regulation D. Based on these facts, we believe the issuance of Company Common Stock
to the NXDE common and preferred shareholders qualifies as a Section 4(a)(2) exemption from registration.
As
part of the merger agreement with NXDE (“Merger Agreement”), Dr. Bates, our former chief innovation officer and
director, received a total of 386,212 shares of the Company’s Common Stock upon conversion of the NXDE preferred
shares, and converted $370,000 of debt owed to him by NXDE into 370,000 shares of our Common Stock and warrants to purchase
370,000 additional shares of Common Stock at a strike price of $2.00 per share, with a term of 36 months. In addition, Dr.
Bates contributed $202,825 of accrued interest on his debt, which were reflected as additional paid-in capital to the Company
during the first quarter of 2016. On November 7, 2017, Dr. Bates formally resigned from his positions as chief innovation
officer and as a member of the board of directors. As of May 4, 2018, 62,900 of these warrants have been exercised for 62,900
shares of the Company’s Common Stock, and 307,100 warrants have been cancelled.
As
part of the Merger Agreement with NXDE, Mr. Ralph Ballard, who was a co-founder and director of NXDE, received a total of
123,759 shares of the Company’s Common Stock upon conversion of the NXDE preferred shares, which were divided as
follows: 1,398 shares to Mr. Ballard personally, 7,691 shares to a custodial IRA FBO Ralph Ballard, and 114,670 shares to
Ballard Investments, Inc. In addition, as part of the Merger Agreement with NXDE, Mr. Ballard converted $451,482 of debt owed
to him by NXDE, and received 451,482 shares of our Common Stock, and warrants to purchase 451,482 shares at a strike price of
$2.00 per share with a term of 36 months, which shares and warrants were issued to Ballard Investments, Inc. Mr. Ballard has
the power to vote and dispose of the shares held by his IRA and Ballard Investments, Inc. In addition, three trusts
representing three of Mr. Ballard’s children converted a total of $431,821 of debt and received 431,821 shares of our
Common Stock, and warrants to purchase 431,821 shares of Common Stock at a strike price of $2.00 per share with a term of 36
months, divided between and issued to the three trusts. The three trusts are irrevocable trusts managed by an
arm’s-length third-party professional fiduciary. Mr. Ballard disclaims any beneficial ownership in the Common Stock and
warrants issued to the three trusts. As of May 4, 2018, 150,162 of these warrants have been exercised for 150,162 shares of
the Company’s Common Stock, and 733,141 warrants have been cancelled.
Subsequent
to the Merger, three additional NXDE shareholders converted a total of $34,261 in debt for 34,261 shares of our Common Stock,
and warrants to purchase 34,261 shares of our Common Stock at a strike price of $2.00 per share with a term of 36 months. As of
May 4, 2018, none of these warrants have been exercised.
2016
Private Placement
On
December 2, 2016, we closed the 2016 Private Placement, pursuant to which we received $
2,860,946
in
net cash proceeds from the issuance of 2,840,946 units, and converted $
1,287,564
in
shareholder debt to 1,287,564 units in the private placement. Each unit consisted of one share of restricted Common Stock
and one warrant to purchase one additional share of restricted Common Stock. As of May 4, 2018, 593,598 warrants have been
exercised for an aggregate of 593,598 shares of the Company’s Common Stock, and 2,898,151 warrants have been
cancelled.
2016
Patent License Asset Purchase
On
December 15, 2016, Mr. Rosellini sold, assigned, and transferred all his right, title, and interest in and to the license owned
by him related to the Siemens Patents to the Company pursuant to a Patent License Asset Purchase Agreement (the “Purchase
Agreement”). Pursuant to the terms of the Purchase Agreement, during the year ended December 31, 2017, 3,050,000 shares
of the Company’s restricted Common Stock were issued to Mr. Rosellini valued at $3,050,000. (
See Note 13 – Related
Party Transactions, Patent License Agreement (Siemens Patents) and Patent License Asset Purchase Agreement to the Consolidated
Financial Statements included herein.)
2016
& 2017 Issuances for Services
For
the year ended December 31, 2016, we issued an aggregate of 171,500 shares of Common Stock for certain legal, corporate structuring,
and research and development consulting services rendered by third-party consultants. The foregoing shares were valued at $171,500.
On
December 9, 2016, Nexeon MedSystems Puerto Rico, a wholly owned subsidiary of the Company, entered into a services agreement with
Adaptive Business Solutions, LLC to provided corporate structuring consulting services in exchange for $60,000 in restricted shares
of the Company’s Common Stock. No stock was issued at the time the agreement was entered into in 2016. As of the date of
this filing, 54,715 shares of the Company’s Common Stock have been issued in exchange for services provided.
On
February 14, 2017, we entered into a services agreement with ACORN Management Partners, LLC to provide strategic business outreach
and strategic relations services in exchange for a monthly fee of $7,500, and $125,000 in restricted shares of our Common Stock.
The initial term of the agreement is six months. As of the date of this filing, 125,000 shares of the Company’s Common Stock
have been issued in exchange for services provided.
On
February 23, 2017, we entered into a services agreement with Sichenzia Ross Ference Kesner LLP to provide drafting and filing
of a registration statement on Form S-1for a flat rate of $40,000. The fee shall be paid $20,000 in cash and $20,000 in restricted
shares of the Company’s Common Stock. As of the date of this filing, 20,000 shares of the Company’s Common Stock have
been issued in exchange for services provided.
For
the year ended December 31, 2017, we issued an aggregate of 715,667 shares of Common Stock for certain legal, corporate structuring,
and research and development consulting services rendered by third-party consultants. The foregoing shares were valued at $610,893.
2017
Warrant Conversion Offer
On
March 17, 2017, we offered to current warrant holders who participated in the 2016 Private Placement (which closed on December
2, 2016) the opportunity to convert their warrants into Common Stock of the Company on the following terms (the “Warrant
Conversion Offer”). The offer terms included the exercise of seventeen (17) warrants for seventeen (17) shares of the Company’s
Common Stock at an exercise price of $0.01 per share for every one hundred (100) warrants owned. The remaining eighty-three (83)
warrants per hundred warrants owned would be cancelled. The offer was on an all-or-nothing basis to convert all warrants held
by each warrant holder. Pursuant to the offer, 593,598 warrants have been exercised for an aggregate of 593,598 shares of the
Company’s Common Stock, and 2,898,151 warrants were cancelled in connection with the Warrant Conversion Offer. The total
proceeds from the exercise of the 593,598 warrants pursuant to the Warrant Conversion Offer were $5,936.
2017
Private Placement
We
conducted the 2017 Private Placement (which closed on July 20, 2017) for up to 2,000,000 shares of Common Stock to accredited
investors only, pursuant to which we could receive up to $2,500,000 in proceeds. The shares of Common Stock were offered at $1.25
per share. We received $1,165,000 from the sale of Common Stock, and issued 932,000 shares of Common Stock.
2017
Loan to NMB
On
April 1, 2017, we issued 175,000 shares of the Company’s Common Stock in exchange for an increase of $175,000 in loan to
NMB. The shares were issued to AtidTek, LLC for certain project management and engineering services provided to NMB. The shares
were valued at $175,000.
On
October 9, 2017, we issued 81,035 shares of the Company’s restricted Common Stock to RS, a company controlled by our chief
executive officer, William Rosellini, as repayment for 81,035 shares of our restricted Common Stock that RS loaned to NMB for
payment of outstanding vendor invoices. On December 29, 2017, an additional 61,884 shares of our restricted Common Stock were
issued to RS in settlement for a cash loan to NMB from RS, and for an adjustment to the market value of the 81,035 shares described
above per the debt repayment agreement dated December 29, 2017. In total, the 142,919 shares were valued at $119,746.
2017
Employee Purchase Plan
On
August 21, 2017, we offered to current employees the opportunity to purchase shares of our restricted Common Stock for a discount
through payroll deductions. As of the date of this filing, 203,635 shares of our restricted Common Stock were issued. The shares
were valued at $127,247.
2017
Private Offering to Leonite Capital, LLC
On
August 21, 2017, we entered into a securities purchase agreement with Leonite Capital, LLC, a Delaware limited liability
company, pursuant to which Leonite Capital, LLC purchased a unit consisting of (i) a note in the principal amount of
$1,120,000 at an original issue discount of $120,000, (ii) warrants to purchase 500,000 shares of our Common Stock, and (iii)
100,000
shares of our Common Stock. The funds from the purchase were received by the Company on August 24, 2017.
As of
May 4, 2018, none of these warrants have been exercised.
2017
Private Offering to Henri Decloux
On
October 9, 2017, we issued 150,000 shares of our restricted Common Stock through a subscription of the shares for cash to Henri
Decloux following NMB’s acquisition of INGEST and Medi-Line. Henri Decloux was one of the two previous owners and sellers
of INGEST to NMB. HD Resources, SPRL (“HD”) is owned by Henri Decloux, and Medi-Line has contracted with HD for the
management of Medi-Line. These shares were valued at $150,000.
2017
Cancellation of Shares
On
December 7, 2017, 56,000 shares originally issued to Ron Conquest were cancelled pursuant to a resignation and release agreement
dated November 7, 2017.
2017
Loan to Michael Rosellini
On
December 29, 2017, we issued to Michael Rosellini 77,008 shares of our restricted Common Stock as repayment for a loan of 53,214
shares of registered Common Stock borrowed by the Company and used to pay certain vendors of the Company pursuant to a loan agreement
dated December 29, 2017. The shares were valued at $48,130.
On
December 29, 2017, we issued 12,500 shares of our restricted Common Stock to Michael Rosellini, pursuant to the exercise notice
from Mr. Rosellini dated November 22, 2017. Mr. Rosellini exercised his right to purchase 200,000 shares of the Company’s
restricted Common Stock. The cashless exercise pursuant to the warrant was elected, and we issued 12,500 shares of restricted
Common Stock pursuant to the exercise. The shares were valued at $20,000.
2017
& 2018 Plan Issuances
For
the year ended December 31, 2017, we issued, pursuant to our 2016 Plan, 2,025,200 options grants to purchase 2,025,200 common
shares to directors, employees, and non-employee contractors. 1,045,000 options were granted as non-qualified stock options, and
980,200 options were granted as incentive stock options. The range of exercise prices for these options were between $1.00 and
$2.00. The term of these options at grant date ranged from three to four years. The fair value of the options was determined to
be $563,754 using the Black-Scholes Option Pricing Model. During the year ended December 31, 2017, 677,000 options to purchase
677,000 common shares of the Company were cancelled. (
See Note 11 – EQUITY to the Consolidated Financial Statements
included herein.
)
On
February 28, 2018, pursuant to the 2016 Plan, the compensation committee of the board of director’s approved the incentive
stock option grants to purchase up to 307,200 shares of Common Stock with an exercise price of $0.76 per share. 167,200 options
vested immediately, and the remaining 140,000 options vest over the following 12 months. The compensation committee granted non-qualified
stock options to purchase up to 987,500 shares of Common Stock with an exercise price of $0.76 per share. 87,500 options vested
immediately, and the remaining 900,000 options vest over the following 24 months. The fair value of the options was determined
to be $258,531 using the Black-Scholes Option Pricing Model.
On
March 31, 2018, we granted to two directors previously appointed to the board of directors non-qualified stock options to purchase
a total of 25,000 shares of Common Stock with an exercise price of $0.865 per share. The fair value of the options was determined
to be $7,191 using the Black-Scholes Option Pricing Model.
2018
Issuances for Services
On
March 8, 2018, we issued an aggregate of 23,744 shares of restricted Common Stock for certain sales and marketing and software
consulting services rendered by third-party consultants. The foregoing shares were valued at $14,840. 8,160 of these shares were
issued to Daniel Powell, the Company’s vice president of sales and marketing. These shares were issued for services provided
by Mr. Powell prior to his employment by the Company.
On
April 19, 2018, we issued an aggregate of 100,726 shares of restricted Common Stock for certain research and development and valuation
services provided by third-party consultants. The foregoing shares were valued at $96,308.
Unless
otherwise stated, the issuance of the above securities were deemed to be exempt from registration under the Securities Act in
reliance upon Section 4(a)(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act as transactions by an issuer not involving any public offering or contracts relating to compensation,
as provided under Rule 701.
Item
16.
Exhibits and Financial Statement Schedules
Exhibit
Number
|
|
Description
|
1.01**
|
|
Form
of Underwriting Agreement
|
3.01
(1)
|
|
Articles
of Incorporation as filed with the Nevada Secretary of State on December 7, 2015 (filed as Exhibit 3.01)
|
3.02
(1)
|
|
Certificate
of Amendment to the Articles of Incorporation filed with the Nevada Secretary of State on February 22, 2016 (filed as Exhibit
3.02)
|
3.03
(1)
|
|
Articles
of Merger filed with the Nevada Secretary of State on February 17, 2016 (filed as Exhibit 3.03)
|
3.04
(1)
|
|
Certificate
of Merger filed with the Delaware Secretary of State on February 25, 2016 (filed as Exhibit 3.04)
|
3.05
(1)
|
|
By-laws
(filed as Exhibit 3.05)
|
4.01
(2)
|
|
2016
Omnibus Incentive Plan (filed as Exhibit 4.01)
|
4.02
(1)
|
|
2016
Omnibus Incentive Plan - Form of Stock Option Award Agreement (filed as Exhibit 4.02)
|
5.01**
|
|
Opinion
of Sichenzia Ross Ference Kesner LLP, as to the legality of securities being registered
|
10.01
(3)
|
|
Agreement
and Plan of Merger dated February 8, 2016, between Nexeon MedSystems, Inc., a Delaware corporation, and Nexeon MedSystems
Inc., a Nevada corporation (filed as Exhibit 10.01)
|
10.02
(1)
|
|
Form
of Director Indemnification Agreement (filed as Exhibit 10.07)
|
10.03
(1)
|
|
Contribution
Agreement by and between Nexeon MedSystems Inc., Rosellini Scientific LLC, and Belltower Associates LLC, dated January 2,
2016 (filed as Exhibit 10.02)
|
10.04
(1)
|
|
Contribution
Agreement by and between Nexeon MedSystems Inc. and Elizabeth Rosellini, dated January 2, 2016 (filed as Exhibit 10.03)
|
10.05
(4)
|
|
Patent
License Asset Purchase Agreement by and between Nexeon MedSystems Inc. and William M. Rosellini, dated December 15, 2016 (filed
as Exhibit 10.1)
|
10.06
(5)
|
|
Employment
Agreement by and between Nexeon MedSystems Inc. and Brian Blischak, dated December 20, 2016 (filed as Exhibit 10.1)
|
10.07
(5)
|
|
Executive
Employment Contract by and between Nexeon MedSystems Inc. and Christopher R. Miller, dated December 1, 2016 (filed as Exhibit
10.2)
|
10.08
(6)
|
|
Acquisition
Agreement by and between Rosellini Scientific, LLC and Nexeon MedSystems Europe, SARL, dated January 10, 2017 (filed as Exhibit
10.1)
|
10.09
(6)
|
|
Loan
Agreement by and between Nexeon MedSystems Europe, SARL and Nexeon MedSystems Belgium, SARL, dated January 10,
2017 (filed as Exhibit 10.2)
|
10.10
(6)
|
|
Promissory
Note dated January 10, 2017 (filed as Exhibit 10.3)
|
10.11
(6)
|
|
Security
Agreement by and between Nexeon MedSystems Europe, SARL and Nexeon MedSystems Belgium, SARL, dated January 10,
2017 (filed as Exhibit 10.4)
|
10.12
(7)
|
|
Stock
Exchange Agreement by and between Nexeon MedSystems Inc. and Rosellini Scientific LLC, dated January 6, 2017 (filed as Exhibit
10.1)
|
10.13
(8)
|
|
Executive
Employment Contract by and between Nexeon MedSystems Inc. and Emily Hamilton, dated January 1, 2017 (filed as Exhibit 10.1)
|
10.14
(8)
|
|
Director
Services Agreement by and between Nexeon MedSystems Inc. and Kent J. George, dated January 1, 2017 (filed as Exhibit 10.2)
|
10.15
(8)
|
|
Director
Services Agreement by and between Nexeon MedSystems Inc. and Michael Neitzel, dated January 1, 2017 (filed as Exhibit 10.3)
|
10.16
(9)
|
|
Offer
of Employment between the Company and Daniel Powell, dated May 24, 2017 (filed as Exhibit 10.1)
|
10.17
(9)
|
|
Confidentiality
Agreement between the Company and Daniel Powell, dated May 24, 2017 (filed as Exhibit 10.2)
|
10.18
(9)
|
|
Option
Agreement between the Company and Daniel Powell, dated June 26, 2017 (filed as Exhibit 10.3)
|
10.19
(10)
|
|
Securities
Purchase Agreement between the Company and Leonite Capital LLC, dated August 21, 2017 (filed as Exhibit 10.1)
|
10.20
(10)
|
|
Senior
Secured Convertible Promissory Note between the Company and Leonite Capital LLC, dated August 21, 2017 (filed as Exhibit 10.2)
|
Exhibit
Number
|
|
Description
|
10.21
(10)
|
|
Two-Year
Warrant issued to Leonite Capital LLC, dated August 24, 2017 (filed as Exhibit 10.3)
|
10.22
(10)
|
|
Five-Year
Warrant issued to Leonite Capital LLC, dated August 24, 2017 (filed as Exhibit 10.4)
|
10.23
(10)
|
|
Security
and Pledge Agreement between the Company, Nexeon MedSystems Puerto Rico Operating Company Corporation, Pulsus Medical LLC,
Rosellini Scientific LLC, and Leonite Capital LLC, dated August 21, 2017 (filed as Exhibit 10.5)
|
10.24
(10)
|
|
Share
Pledge Agreement between Nexeon MedSystems Belgium SPRL and Leonite Capital LLC, dated August 18, 2017 (filed as Exhibit 10.6)
|
10.25
(10)
|
|
Personal
Guaranty of Randy Michael Rosellini, dated August 18, 2017 (filed as Exhibit 10.7)
|
10.26
(10)
|
|
Warrant
issued to Randy M. Rosellini, dated August 24, 2017 (filed as Exhibit 10.8)
|
10.27
(10)
|
|
Deed
of Trust from Roseland Limited Partnership to Leonite Capital LLC, dated August 21, 2017 (filed as Exhibit 10.9)
|
10.28
(11)
|
|
Stock
Purchase Agreement between Henri Decloux and Paul Macors and Nexeon Medsystesm Belgium, SPRL, dated April 7, 2017
|
10.29
(11)
|
|
Form
Services Agreement between Medi-Line, S.A. and H.D. Resources, S.P.R.L., dated April 7, 2017
|
10.30
(11)
|
|
CBC
Banque and Medi-Line Credit Contract - 729-1405073-45 1.27% Secured, 0.72% Secured Loans, dated July 12, 2017
|
10.31
(11)
|
|
CBC
Banque and Nexeon MedSystems Belgium, SPRL Credit Contract - C13-66835555-84 1.27% Secured Loan, dated July 7, 2017
|
10.32
(11)
|
|
KBC
Commercial Finance Invoice Discounting Agreement, dated September 29, 2017
|
10.33
(11)
|
|
CBC
Banque and Medi-Line Business Credit Line Credit Contract – 729-3094852-84, dated February 2, 2017
|
10.34
(11)
|
|
Debt Repayment Agreement between Rosellini Scientific, LLC and Nexeon MedSystems Belgium, SPRL, dated December 29, 2017
|
10.35
(11)
|
|
Share Loan Agreement between Michael Rosellini and Nexeon MedSystems Inc., dated December 29, 2017
|
10.36
(11)
|
|
Waiver of Debt Agreement between Nexeon MedSystems Belgium, SPRL and Nuviant Medical, GmbH, dated May 29, 2017
|
14.01
(1)
|
|
Code
of Business Conduct and Ethics
|
21.1(11)
|
|
Subsidiaries
|
23.1*
|
|
Consent of Paritz & Company, P.A.
|
23.2**
|
|
Consent
of Sichenzia Ross Ference Kesner LLP (included in Exhibit 5.1)
|
24.1*
|
|
Power of Attorney (set forth on the signature page of this Registration Statement on Form S-1)
|
101.INS*
|
|
XBRL Instance
Document
|
101.SCH*
|
|
XBRL
Extension Schema Document
|
101.CAL*
|
|
XBRL
Extension Calculation Linkbase Document
|
101.DEF*
|
|
XBRL
Extension Definition Linkbase Document
|
101.LAB*
|
|
XBRL
Extension Labels Linkbase Document
|
101.PRE*
|
|
XBRL
Extension Presentation Linkbase Document
|
*
|
Filed
herewith.
|
**
|
To
be filed by amendment.
|
(1)
|
Incorporated
by reference to the Company’s Form 10 filed with the Securities and Exchange Commission on July 6, 2016.
|
(2)
|
Incorporated
by reference to the Company’s Amendment No. 1 to the Form 10 filed with the Securities and Exchange Commission on August
16, 2016.
|
(3)
|
Incorporated
by reference to the Company’s Amendment No. 2 to the Form 10 filed with the Securities and Exchange Commission on September
9, 2016.
|
(4)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December
20, 2016.
|
(5)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December
29, 2016.
|
(6)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January
17, 2017.
|
(7)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January
19, 2017.
|
(8)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February
28, 2017.
|
(9)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 28,
2017.
|
(10)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August
25, 2017.
|
(11)
|
Incorporated
by reference to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April
5, 2018.
|
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
(i)
|
To
include any prospectus required by Section 10(a)(3) of the Securities Act;
|
|
|
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) that, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Securities
and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
|
|
|
|
|
(iii)
|
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement,
or any material change to such information in the registration statement.
|
(2)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at
the termination of the offering.
(4)
That, for the purpose of determining liability of the undersigned registrant under the Securities Act to any purchaser in the
initial distribution of the securities:
The
undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser,
and will be considered to offer or sell such securities to such purchaser:
|
(i)
|
Any
preliminary prospectus, or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424 (§ 230.424 of this chapter);
|
|
|
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant, or used or referred
to by the undersigned registrant;
|
|
|
|
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
|
|
|
(iv)
|
Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act, and is, therefore,
unenforceable.
In
the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person in the successful defense of any action, suit, or proceeding) is asserted
by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.
For
the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other
than prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter), shall be deemed to be part of and included
in the registration statement as of the date it is first used after effectiveness—provided, however, that no statement made
in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to
a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date
of first use.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Dallas, Texas, on the 7th day of May, 2018.
|
NEXEON
MEDSYSTEMS INC
|
|
|
|
|
By:
|
/s/
William Rosellini
|
|
|
William
Rosellini
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
By:
|
/s/
Christopher R. Miller
|
|
|
Christopher
R. Miller
|
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
POWER
OF ATTORNEY
We,
the undersigned officers and directors of Nexeon MedSystems Inc., hereby severally constitute and appoint William Rosellini and
Christopher R. Miller, our true and lawful attorney-in-fact and agents, with full power of substitution and resubstituting for
him and in his name, place, and stead, and in any and all capacities, to sign for us and in our names in the capacities indicated
below any and all amendments (including post-effective amendments) to this registration statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended),
and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the
capacities and on the date indicated.
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
William Rosellini
|
|
Chief
Executive Officer, Director
|
|
May 7, 2018
|
William
Rosellini
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Christopher R. Miller
|
|
Chief
Financial Officer
|
|
May 7, 2018
|
Christopher
R. Miller
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Brian Blischak
|
|
President
and Chief Commercial Officer
|
|
May 7, 2018
|
Brian
Blischak
|
|
|
|
|
|
|
|
|
|
/s/
Kent J. George
|
|
Director
|
|
May 7, 2018
|
Kent
J. George
|
|
|
|
|
|
|
|
|
|
/s/
Michael Neitzel
|
|
Director
|
|
May 7, 2018
|
Michael
Neitzel
|
|
|
|
|
|
|
|
|
|
/s/
R. Wesley Dittmer II
|
|
Director
|
|
May 7, 2018
|
R.
Wesley Dittmer II
|
|
|
|
|
II-10
Nexeon Medsystems (CE) (USOTC:NXNN)
Graphique Historique de l'Action
De Mai 2024 à Juin 2024
Nexeon Medsystems (CE) (USOTC:NXNN)
Graphique Historique de l'Action
De Juin 2023 à Juin 2024