Table of Contents
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Relationships with Lindsay A. Rosenwald, M.D., Paramount
BioCapital, Inc. and Affiliates
Dr. Rosenwald and his Family
Lindsay A. Rosenwald, M.D. is the
Chairman, Chief Executive Officer and sole stockholder of Paramount BioCapital, Inc. (Paramount). As of January 25, 2011, Lindsay A.
Rosenwald, M.D. beneficially owned approximately 49.5% of our outstanding common stock. In addition, as of January 25, 2011, certain trusts established
for the benefit of Dr. Rosenwalds children (the Family Trusts) beneficially owned approximately 22.3% of our outstanding common
stock. The above percentages of our common stock beneficially owned by Dr. Rosenwald and his family do not include shares of common stock that will be
beneficially owned by them upon conversion of the 8% Notes upon completion of this offering or shares of common stock issuable upon exercise of the PCP
Warrants and the Noteholder Warrants, each of which will become exercisable upon completion of this offering. Following the completion of the offering,
Dr. Rosenwald will beneficially own approximately 11.1% of our outstanding common stock, and the Family Trusts will beneficially own approximately 1.7%
of our outstanding common stock.
Dr. Rosenwald is the Chairman, Chief
Executive Officer and sole stockholder of Paramount BioCapital, Inc. (Paramount), a FINRA-registered broker-dealer which has acted as
placement agent for one of our past private placements of debt securities, and for which it received customary commissions and the Placement Agent
Warrant, as described below. J. Jay Lobell, a member of our board of directors, and Timothy Hofer, our Corporate Secretary, are employees of Paramount
and certain of its affiliates. In addition, certain employees of Paramount or its affiliates are current stockholders of ours.
Dr. Rosenwald is also the sole member
of Paramount BioSciences, LLC (PBS), a global pharmaceutical development and healthcare investment firm that conceives, nurtures, and
supports new biotechnology and life-sciences companies. As described in more detail below, PBS has provided us with certain support services since our
inception, including pursuant to the PBS Services Agreement, which was terminated in August 2008, and has provided us with credit-enhancement support
by guaranteeing amounts owed by us under the Dong Wha License Agreement and pledging collateral to secure our previous obligations under the Bank of
America Line of Credit and IDB Bank Line of Credit.
In addition, affiliates of Dr.
Rosenwald and Paramount have provided us with a significant portion of our financing since our inception, including through PBS, the Family Trusts and
Capretti Grandi, LLC, an investment partnership of which Dr. Rosenwald is the managing member (Capretti), which have loaned us amounts from
time to time pursuant to the Paramount Notes, as described below. As of September 30, 2010, an aggregate of $2,505,558, including accrued and unpaid
interest, remained outstanding under such the Paramount Notes. In addition, in January and June 2009, we issued the PCP Notes to Paramount Credit
Partners, LLC (PCP), an investment partnership of which Dr. Rosenwald is the managing member, under which an aggregate of $3,080,811,
including accrued and unpaid interest, was outstanding as of September 30, 2010.
Finally, Dr. Rosenwald, the Family
Trusts and certain employees of Paramount and its affiliates, including Messrs. Lobell and Hofer, own a majority of the outstanding capital stock of
Santee Biosciences, Inc. (Santee), one of our licensors, and Mr. Lobell is the sole director and acting president of Santee. Santee is a
development stage biotechnology company that is currently inactive but holds certain intellectual property rights, including the rights to the PB-201
technology we in-licensed pursuant to our sublicense agreement with Santee, as described below. In addition, PBS and the Family Trusts provided loans
to Santee from time to time and PBS provided support services to Santee similar to the services provided to us.
Transactions with Lindsay A. Rosenwald, M.D., Paramount
BioCapital, Inc. and Affiliates
8% Notes and 8% Noteholder Warrants
In February 2010, in connection with
the 8% Notes financing, Dr. Rosenwald purchased an 8% Note in the principal amount of $500,000. Upon the consummation of this offering, the outstanding
principal amount of such 8% Note and all accrued interest thereon will automatically convert into 108,047 shares of common stock assuming an offering
price of $5.00 per share. In connection with the issuance of such 8% Note, Dr. Rosenwald also received 8% Noteholder Warrants, which will be
exercisable following the consummation of this offering
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into 70,000 shares of common stock,
at an exercise price equal to 110% of the offering price of the shares sold in this offering.
In addition, pursuant to the terms of
the PBS Note, $1,000,000 of the principal amount outstanding under the PBS Note converted into an 8% Note in February 2010 in connection with the 8%
Notes financing. Upon the consummation of this offering, assuming an offering price of $5.00 per share, the outstanding principal amount of such 8%
Note and all accrued interest thereon will automatically convert into 216,095 shares of common stock. In connection with the issuance of such 8% Note,
PBS also received 8% Noteholder Warrants, which will be exercisable following the consummation of this offering into 140,000 shares of common stock
(assuming an offering price of $5.00 per share) at an exercise price equal to 110% of the offering price of the shares sold in this
offering.
Paramount Notes and Paramount Noteholder Warrants
From December 1, 2006 through September
30, 2010, PBS had loaned us an aggregate principal amount of $2,282,205, from December 1, 2006 through September 30, 2010, the Family Trusts had loaned
us an aggregate principal amount of $660,000, and from December 18, 2008 through September 30, 2010, Capretti had loaned us an aggregate principal
amount of $50,000. The loans from PBS, the Family Trusts and Capretti are evidenced by the PBS Note, the Family Trusts Note and the Capretti Note,
respectively (collectively, the Paramount Notes). The Paramount Notes are unsecured obligations of ours with a maturity date of March 31,
2011 and accrue interest at the rate of 8% per annum. As described above, $1,000,000 of the principal amount outstanding under the PBS Note converted
into an 8% Note in February 2010 in connection with the 8% Notes financing. As of September 30, 2010, $1,615,172 including accrued and unpaid interest,
was outstanding under the PBS Note, $833,252, including accrued and unpaid interest, was outstanding under the Family Trusts Note, and $57,134,
including accrued and unpaid interest, was outstanding under the Capretti Note. All outstanding principal of the Paramount Notes, and all accrued
interest thereon, will automatically convert into shares of common stock upon a Qualified IPO on the same terms as the 10% Notes. This offering, if
consummated, will be considered a Qualified IPO. Assuming an offering price of $5.00 per share, the Paramount Notes will automatically convert into
513,065 shares of common stock.
Pursuant to amendment agreements dated
as of December 23, 2010 relating to the 10% Notes and the 8% Notes, Dr. Rosenwald and the holders of the Paramount Notes have agreed to assign to the
holders the 10% Notes and the 8% Notes, upon consummation of this offering, the rights to receive the shares of common stock issuable upon exercise of
the Paramount Notes.
Pursuant to amendment agreements dated
as of December 23, 2010 relating to the Paramount Notes, we agreed to issue to the holders of the Paramount Notes, upon consummation of a Qualified
IPO, five-year warrants (the Paramount Noteholder Warrants). The Paramount Noteholder Warrants entitle the holders thereof to purchase a
number of shares of common stock equal to 70% of the original principal amount of the Paramount Notes divided by the price at which shares of our
common stock are sold in a Qualified IPO, at a per share exercise price equal to 110% of the price at which shares of common stock are sold in such
Qualified IPO, subject to adjustment as set forth in the warrant. In the event of a sale of our company (whether by merger, consolidation, sale or
transfer of more than 50% of our capital stock or all or substantially all of our assets), the Paramount Noteholder Warrants will terminate 90 days
after such sale provided that the holders have the right to exercise the Paramount Noteholder Warrants during such 90-day period. Assuming an offering
price of $5.00 per share, the Paramount Noteholder Warrants will entitle the holders thereof to purchase 278,909 shares of common stock at an exercise
price equal to 110% of the offering price of the shares sold in this offering.
PCP Notes and PCP Warrants
On each of January 15, 2009 and June
24, 2009, we issued a senior promissory note to PCP in the principal amount of $2,750,000 and $125,000, respectively, (each a PCP Note and
together, the PCP Notes). The PCP Notes are unsecured obligations of ours with current maturity dates of the earlier of (i) December 31,
2013, (ii) the completion of a Qualified Financing (as defined below), and (iii) the completion of a Reverse Merger (as defined below). The PCP Notes
accrue interest at the rate of 10% per annum. The aggregate amount of accrued and unpaid interest under the PCP Notes as of September 30, 2010 was
$205,811.
For purposes of the PCP Notes,
Qualified Financing means the closing of an equity financing or series of related equity financings by us after our initial public offering
resulting in aggregate gross cash proceeds
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(before brokers fees or other
transaction related expenses) of at least $10,000,000. For purposes of the PCP Notes, Reverse Merger means a merger, share exchange or
other transaction or series of related transactions in which (a) we merge into or otherwise becomes a wholly owned subsidiary of a company subject to
the public company reporting requirements of the Exchange Act and (b) the aggregate consideration payable to us or our stockholders in such
transaction(s) (the Reverse Merger Consideration) is greater than or equal to $10,000,000.
This offering will not constitute a
Qualified Financing for purposes of the PCP Notes and the PCP Notes will remain outstanding following consummation of this offering. We do
not intend to use the proceeds of this offering to repay the PCP Notes.
In connection with the issuance of the
PCP Notes, we issued to PCP five-year warrants to purchase a number of shares of common stock equal to 40% of the aggregate principal amount of the PCP
Notes ($2,875,000), divided by the lowest price paid in a Qualified Financing (each a PCP Warrant and together, the PCP
Warrants). The per share exercise price of each of the PCP Warrants is equal to 110% of the lowest price paid in a Qualified
Financing.
If we complete a Reverse Merger, other
than in connection with a Qualified Financing, the PCP Warrants will be exercisable immediately prior to the Reverse Merger for a number of shares of
common stock and exercise price determined in accordance with, and on the same terms and conditions, as provided for in the event of a Qualified
Financing, except that the lowest price paid will be deemed equal to the quotient obtained by dividing the Reverse Merger Consideration (less the
amount of unpaid principal and accrued interest under the applicable PCP Note) by the number of shares of common stock outstanding immediately prior to
such Reverse Merger, on a fully diluted basis (without giving effect to the conversion of the PCP Notes or any other senior promissory notes or any
placement warrants issued by us).
Under the terms of the PCP Warrants,
they become exercisable commencing on the consummation of a Qualified Financing or a Reverse Merger. However, in the event that neither a Qualified
Financing nor a Reverse Merger is consummated by the two-year anniversary of the issuance of each PCP Note, the applicable PCP Warrant will be
automatically exercisable into an aggregate number of shares of common stock equal to 40% of the principal amount of the corresponding PCP Note divided
by $48.00 ($1.00 on a pre-reserve split basis), at a per share exercise price of $48.00 ($1.00 on a pre-reverse split basis). Because a Qualified
Financing was not consummated by January 15, 2011, the PCP Warrants issued on January 15, 2009 became automatically exercisable into 22,917 shares of
common stock, which is equal to 40% of the principal amount of the PCP Note issued on January 15, 2009 ($2,750,000) divided by $48.00 ($1.00 on a
pre-reverse split basis), at a per share exercise price of $48.00 ($1.00 on a pre-reverse split basis). The PCP Warrants issued on June 24, 2009 are
not yet exercisable in accordance with their terms.
Assuming an offering price of $5.00 per
share, the PCP Warrants issued on June 24, 2009 will entitle the holders thereof to purchase 10,000 shares of common stock at an exercise price equal
to 110% of the offering price of the shares sold in this offering.
The PCP Warrants are subject to
redemption by us in certain circumstances and in the event of a sale of our company (whether by merger, consolidation, sale or transfer of our capital
stock or assets or otherwise) prior to, but not in connection with, a Qualified Financing or Reverse Merger, the PCP Warrants will terminate without
the opportunity for exercise.
Placement Agent Commission and Warrants
Paramount acted as the lead placement
agent in connection with the offering of the 10% Notes. As compensation for its services, Paramount received $198,800 in commissions (a portion of
which was further paid to a selected dealer in the offering of the 10% Notes) and a warrant exercisable for such number of shares of common stock equal
to 10% of the amount of the aggregate purchase price of the 10% Notes ($4,340,000), divided by the lowest price paid in a Qualified Financing (the
Placement Agent Warrant). Because a Qualified Financing was not consummated by December 14, 2009, the Placement Agent Warrant became
automatically exercisable into 9,042 shares of common stock, which is equal to 10% of the aggregate purchase price of the 10% Notes ($4,340,000)
divided by $48.00 ($1.00 on a pre-reverse split basis), at a per share exercise price of $48.00 ($1.00 on a pre-reverse split basis). Qualified
Financing has the same meaning as with respect to the 10% Notes. The Placement Agent Warrant was subsequently assigned by Paramount to selected
dealers in the offering of the 10% Notes and other individuals.
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PBS Services Agreement
On June 1, 2007, we entered into a
services agreement with PBS (the PBS Services Agreement). Pursuant to the PBS Services Agreement, PBS agreed to provide us with certain
drug development, professional, administrative and back office support services for a three-year period from the date of the PBS Services Agreement. In
return for the services provided under the PBS Services Agreement, we agreed to pay PBS $25,000 per month and to reimburse PBS for its actual
out-of-pocket expenses, which are not to exceed $5,000 per month without our prior written consent. The PBS Services Agreement was terminated as of
August 31, 2008. As of September 30, 2010, we still have accrued an unpaid balance to PBS of approximately $375,000 under the PBS Services Agreement
(the PBS Debt). The PBS Debt will not be repaid with the proceeds of this offering and we do not currently have any plans to repay the PBS
Debt.
Sublicense Agreement with Santee
On July 10, 2007, we entered into an
exclusive, multinational sublicense agreement with Santee pursuant to which we in-licensed the PB-201 technology for use in the development of
azole-based antifungal drug formulations and the corresponding United States and foreign patents and applications. Under the terms of the sublicense
agreement, we paid Santee an upfront license fee of $50,000 and we are required to make substantial payments, up to an additional $10,000,000 in total,
to Santee upon the achievement of certain clinical and regulatory-based milestones. See License Agreements & Intellectual
Property.
Guarantee of Payments under Dong Wha License
Agreement
Pursuant to the Dong Wha License
Agreement, Paramount Biosciences, LLC has guaranteed the payment in full of amounts owed by us under the Dong Wha License Agreement, until such time as
we have certifiable net tangible assets of at least $10 million. This offering, if consummated, would cause the guarantee to terminate according to its
terms. See License Agreements & Intellectual Property.
Pledge of Collateral under Line of Credit
On December 3, 2008, we, Paramount
BioSciences, LLC and various other private pharmaceutical companies with common ownership by Dr. Rosenwald, the sole member of Paramount BioSciences,
LLC, entered into a loan agreement with Bank of America, N.A. for a line of credit of $2,000,000, which was subsequently reduced to $1,000,000 pursuant
to an amendment (the Bank of America Line of Credit). Paramount BioSciences, LLC pledged collateral securing our and the other
borrowers obligations to Bank of America, N.A. under the loan agreement. Under the loan agreement, our liability under the line of credit was
several, not joint, with respect to the payment of all obligations thereunder. As of September 30, 2010, the amount borrowed by us that was outstanding
under this line of credit was $150,000. On November 5, 2010, we repaid the amounts outstanding under this line of credit with the proceeds of a new
line of credit we entered into with Israel Discount Bank of New York (IDB Bank) in the amount of $150,000, which is evidenced by a
promissory note we issued to IDB Bank on such date (the IDB Bank Line of Credit). On December 23, 2010, we entered into an amendment with
IDB Bank to increase the IDB Bank Line of Credit to $325,000. Our obligations under the IDB Bank Line of Credit are secured by cash collateral pledged
by Dr. Rosenwald from an account maintained by Dr. Rosenwald at IDB Bank. The interest rate on loans under the IDB Bank Line of Credit is equal to the
interest rate that IDB Bank pays to Dr. Rosenwald on the cash account pledged to secure the loans, plus 1%. Amounts borrowed under the IDB Bank Line of
Credit are due upon the earlier to occur of a demand by IDB Bank or November 4, 2011.
Hofer Consulting Agreement and Warrant
On May 26, 2010, we entered into a
consulting agreement with Timothy Hofer, our Corporate Secretary, pursuant to which Mr. Hofer provides us with general consulting services focused on
general business and company development. This consulting agreement is for a period of one year, subject to renewal for such longer period as we may
agree in writing with Mr. Hofer, and may be terminated by either party upon 30 days prior written notice.
Under the terms of the consulting
agreement with Mr. Hofer and as compensation for his services thereunder, we granted Mr. Hofer a ten-year warrant to purchase 2,083 shares of our
common stock, subject to adjustment as described below (the Hofer Consultant Warrant). The Hofer Consultant Warrant will
become
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exercisable upon the consummation
of a Qualified Financing at a per share exercise price equal to the price at which shares of our common stock are issued in such Qualified Financing.
If a Qualified Financing does not occur on or before March 31, 2011 (extended from September 30, 2010, pursuant to an amendment agreements dated as of
September 16, 2010 and December 23, 2010), then the Hofer Consultant Warrant will be immediately exercisable at a per share exercise price equal to the
fair market value of our common stock, as determined pursuant to a valuation performed by an independent appraisal firm. Under the terms of the Hofer
Consultant Warrant, if we consummate a Qualified Financing, the number of shares of common stock issuable upon exercise of the Hofer Consultant Warrant
will be automatically adjusted so that such number of shares is equal to 1.0% of our outstanding common stock on a fully diluted basis, after giving
effect to such Qualified Financing (including the conversion of all our convertible notes triggered by such Qualified Financing). This adjustment
provision will terminate once we consummate a Qualified Financing. For purposes of the Hofer Consultant Warrant, a Qualified Financing
means our next equity financing (or series of related equity financings) sufficient to trigger conversion of all amounts then outstanding under our
senior convertible promissory notes. This offering, if consummated, will be considered a Qualified Financing.
Future Affiliate Relationships and Competition with
Affiliates
We are not currently aware of nor do we
anticipate any proposed future affiliate relationships or that any affiliates will compete with us or our products.
Review, Approval and Ratification of Transactions with Related
Parties
Previously, our Board of Directors was
comprised solely of affiliates of Paramount and we did not have a formal written policy or procedure for the review, approval or ratification of
related party transactions. However, Delaware corporate law, under which we are governed, generally requires that any transaction between us and any of
our affiliates be on terms that, when taken as a whole, are substantially as favorable to us as those then reasonably obtainable from a person who is
not an affiliate in an arms-length transaction, and we believe that the terms of the agreements we entered into with our affiliates satisfy the
requirement of Delaware law. Following consummation of the proposed offering, all related party transactions will be reviewed and approved by our Audit
Committee, which is comprised entirely of independent directors, before we enter into them.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain
information regarding the beneficial ownership of our common stock as of January 25, 2011, as adjusted to reflect the sale of the shares of common
stock in this offering and the other adjustments discussed below, by the following:
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each of our directors and Named Executive Officers;
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all of our directors and executive officers as a group;
and
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each person, or group of affiliated persons, known to us to
beneficially own 5% or more of our outstanding common stock.
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Beneficial ownership is determined in
accordance with SEC rules and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the stockholders
listed in the table have sole voting and investment power with respect to the shares indicated.
The table below lists the number of
shares and percentage of shares beneficially owned prior to this offering based on 93,328 of common stock issued and outstanding as of January 25,
2011. The table also lists the number of shares and percentage of shares beneficially owned after this offering based on 6,690,039 shares of common
stock outstanding upon completion of this offering, assuming no exercise by the underwriters of their over-allotment option and after giving effect to
the following:
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the automatic conversion of all of our outstanding convertible
notes into an aggregate of 2,596,711 shares of common stock upon the completion of this offering, assuming an initial public offering price of $5.00
per share (the mid-point of the price range set forth on the cover page of this prospectus) and assuming the conversion occurs on February 15,
2011;
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the filing of our amended and restated certificate of
incorporation and the adoption of our amended and restated by-laws effective upon the completion of this offering; and
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no exercise of warrants or options outstanding on the date of
this prospectus, except as specifically set forth herein.
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For purposes of the table below, we
treat shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days after January 25, 2011 to be
outstanding and to be beneficially owned by the person holding the options or warrants for the purpose of computing the percentage ownership of the
person, but we do not treat the shares as outstanding for the purpose of computing the percentage ownership of any other stockholder.
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Except as otherwise set forth below,
the address of each of the persons or entities listed in the table is c/o IASO Pharma Inc., 12707 High Bluff Drive, Suite 200, San Diego, California
92130.
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Shares Beneficially Owned
Prior to
Offering
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Shares Beneficially Owned
After the
Offering
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Name
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|
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Number
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|
Percentage
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Number
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|
Percentage
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Named
Executive Officers and Directors:
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|
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|
|
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Matthew A.
Wikler, M.D.
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6,44 6
(1
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)
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6.9
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%
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163,33 4
(2
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)
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2.4
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%
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James W.
Klingler
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-
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(3)
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-
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|
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62,755
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(4)
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*
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Mark. W. Lotz
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1,500
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(5)
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1.6
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%
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32,878
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(6)
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*
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James Rock
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8 60
(7
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)
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*
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32,237
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(8)
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*
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J. Jay Lobell
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6,250
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|
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6.7
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%
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18,016
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(9)
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*
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Jai Jun
(Matthew) Choung
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|
|
|
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-
|
|
|
|
-
|
|
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11,766
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(9)
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*
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Michael L.
Corrado
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|
|
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-
|
|
|
|
-
|
|
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11,766
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(9)
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*
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Gary G.
Gemignani
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-
|
|
|
|
-
|
|
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11,766
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(9)
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*
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Michael Rice
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|
|
|
|
-
|
|
|
|
-
|
|
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11,766
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(9)
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*
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All executive
officers and directors
as a group (nine persons)
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15,054
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(10)
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15.9
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%
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356,283
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(11)
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5.1
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%
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5%
Stockholders:
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Lindsay A.
Rosenwald, M.D.
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57,584
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(12)
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49.5
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%
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788,235
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(13)
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11.1
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%
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Rosenwald
Family Trusts
|
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20,833
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(14)
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22.3
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%
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113,233
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(14)(15)
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1.7
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%
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Robert
Feldman
|
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6,250
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(16)
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6.3
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%
|
|
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6,250
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(16)
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*
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*
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Represents less than 1%
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(1)
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Does not include an option to purchase such number of shares of
common stock representing 5% of the common stock outstanding upon the consummation of this offering on a fully diluted basis, to be granted to Dr.
Wikler under the Plan upon the consummation of this offering.
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(2)
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Includes 156,888 shares of common stock underlying an option
granted to Mr. Wikler under the Plan upon consummation of this offering that will vest upon consummation of this offering. Does not include 313,775
shares of common stock underlying such option that will not have vested upon consummation of this offering.
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(3)
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Does not include an option to purchase such number of shares of
common stock representing 2% of the common stock outstanding upon the consummation of this offering on a fully diluted basis, to be granted to Mr.
Klingler under the Plan upon the consummation of this offering.
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(4)
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Represents 62,755 shares of common stock underlying an option
granted to Mr. Klingler under the Plan upon consummation of this offering that will vest upon consummation of this offering. Does not include 125,510
shares of common stock underlying such option that will not have vested upon consummation of this offering.
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(5)
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Represents an option to purchase 1,500 shares of our common
stock. Does not include an option to purchase such number of shares of common stock representing 1% of the common stock outstanding upon the
consummation of this offering on a fully diluted basis, to be granted to Mr. Lotz under the Plan upon the consummation of this offering.
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(6)
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Represents (i) an option to purchase 1,500 shares of our common
stock and (ii) 31,378 shares of common stock underlying an option granted to Mr. Lotz under the Plan upon consummation of this offering that will vest
upon consummation of this offering. Does not include 62,755 shares of common stock underlying such option that will not have vested upon consummation
of this offering.
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(7)
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Does not include an option to purchase such number of shares of
common stock representing 1% of the common stock outstanding upon the consummation of this offering on a fully diluted basis, to be granted to Mr. Rock
under the Plan upon the consummation of this offering.
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(8)
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Includes 31,378 shares of common stock underlying an option
granted to Mr. Rock under the Plan upon consummation of this offering that will vest upon consummation of this offering. Does not include 62,755 shares
of common stock underlying such option that will not have vested upon consummation of this offering.
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(9)
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|
Includes 11,766 shares of common stock underlying an option
granted to each of our non-employee directors under the Plan upon consummation of this offering that will vest upon consummation of this offering. Does
not include 11,767 shares of common stock underlying such options that will not have vested upon consummation of this offering.
|
(10)
|
|
Represents 13,554 shares of common stock and an option to
purchase 1,500 shares of common stock. Does not include options to purchase shares common stock to be granted to officers under the Plan upon the
consummation of this offering referred to in notes 1, 3, 5 and 7 above.
|
(11)
|
|
Represents 13,554 shares of common stock and options to purchase
342,729 shares of common stock.
|
(12)
|
|
Includes (i) 34,667 shares of common stock, and (ii) 22,917
shares of common stock issuable upon the exercise of the PCP Warrants issued on January 15, 2009 to Paramount Credit Partners LLC, an affiliate of
Paramount BioCapital, Inc. Does not include (i) shares of common stock underlying the $500,000 principal amount of 8% Notes held by Dr. Rosenwald and
any accrued but unpaid interest thereon and shares of common stock issuable upon the exercise of the related 8% Noteholder Warrant, (ii) shares of
common stock underlying the $1,000,000 principal amount of 8% Notes held by Paramount Biosciences, LLC and any accrued but unpaid interest thereon and
shares of common stock issuable upon the exercise of the related 8% Noteholder Warrant, (iii) 20,833 shares of common stock held in trusts established
for the benefit of Dr. Rosenwald and his family referred to in note 14 below, (iv) 10,000 shares of common stock issuable upon the exercise of the PCP
Warrants issued to Paramount Credit Partners LLC on June 24, 2009, (v) 9,042 shares of common stock issuable upon exercise of the Placement Agent
Warrant, which was subsequently assigned by Paramount to selected dealers in the offering of the 10% Notes and other individuals or (vi) shares of
common stock underlying the $1,992,205 principal amount of Paramount Notes and any accrued but unpaid interest thereon. Pursuant to amendment
agreements dated as of December 23, 2010 relating to the 10% Notes and the 8% Notes, Dr. Rosenwald and the holders of the Paramount Notes have agreed
to assign to the holders the 10% Notes and the 8% Notes, upon consummation of this offering, the rights to receive the shares of common stock issuable
upon exercise of the Paramount Notes.
|
(13)
|
|
Includes (i) 34,667 shares of common stock, (ii) 32,917 shares
of common stock issuable upon the exercise of the PCP Warrants, (iii) 108,047 shares of common stock to be issued upon the automatic conversion of the
8% Note held by Dr. Rosenwald upon consummation of this offering, (iv) 70,000 shares of common stock issuable upon the exercise of the 8% Noteholder
Warrant held by Dr. Rosenwald, which will become exercisable upon consummation of this offering, (v) 216,095 shares of common stock to be issued upon
the automatic conversion of the 8% Note held by Paramount Biosciences, LLC, (vi) 140,000 shares of common stock issuable upon the exercise of the 8%
Noteholder Warrant held by Paramount Biosciences, LLC, which will become exercisable upon consummation of this offering and (vii) 186,509 shares of
common stock issuable upon exercise of the Paramount Warrants to be issued in respect of the PBS Note and the Capretti Note in connection with the
consummation of this offering. Does not include 20,833 shares of common stock held in trusts established for the benefit of Dr. Rosenwald and his
family referred to in note 14 below or 92,400 shares of common stock issuable upon the exercise of the Paramount Warrants to be issued in respect of
the Family Trusts Note in connection with the consummation of this offering referred to in note 15 below, as Dr. Rosenwald disclaims beneficial
ownership of all of such shares, except to the extent of his pecuniary interest therein. Also does not include 9,042 shares of common stock issuable
upon exercise of the Placement Agent Warrant, which was subsequently assigned by Paramount to selected dealers in the offering of the 10% Notes and
other individuals, or 513,065 shares of common stock to be issued upon the automatic conversion of the Paramount Notes upon consummation of this
offering because Dr. Rosenwald and the holders of the Paramount Notes have agreed to assign the rights to receive such shares to the holders the 10%
Notes and the 8% Notes upon consummation of this offering, as described in note 12 above.
|
(14)
|
|
Represents 20,833 shares of common stock owned by four trusts
established for the benefit of Dr. Rosenwald and his family. Hillel Gross is the trustee of such trusts and may be deemed to beneficially own the
shares held by such trusts as he has sole control over the voting and disposition of any shares held by such trusts.
|
(15)
|
|
Includes 92,400 shares of common stock issuable upon the
exercise of the Paramount Warrant to be issued in respect of the Family Trusts Note in connection with the consummation of this offering. The Family
Trusts are trusts established for the benefit of Dr. Rosenwalds children. Jon Rosenwald, Dr. Rosenwalds brother, is the trustee of the
Family Trusts and may be deemed to beneficially own the shares beneficially owned by the Family Trusts as he has sole control over the voting and
disposition of any shares held by the Family Trusts.
|
(16)
|
|
Represents shares of common stock underlying the Feldman
Consultant Warrant.
|
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DESCRIPTION OF CAPITAL
STOCK
General
Currently, our authorized capital stock
consists of 25,000,000 shares, of which (i) 20,000,000 are designated as common stock, par value $0.001 per share, and (ii) 5,000,000 are designated as
preferred stock, par value $0.001 per share. Upon the completion of this offering and filing of our amended and restated certificate of incorporation,
our authorized capital stock will consist of 55,000,000 shares, of which (i) 50,000,000 shares will be designated as common stock, and (ii) 5,000,000
shares will be designated as preferred stock, par value $0.001 per share.
The following description of our
capital stock are summaries and are qualified by reference to the amended and restated certificate of incorporation and amended and restated by-laws
that will be in effect upon completion of this offering. Copies of these documents will be filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure
that will occur upon the closing of this offering.
Common Stock
As of January 25, 2011, there were
93,328 shares of common stock issued and outstanding, that were held of record by 59 stockholders.
Holders of common stock are entitled to
one vote per share on matters on which our stockholders vote. There are no cumulative voting rights. At any meeting of the stockholders, all matters,
with certain exceptions, are to be decided by the vote of a majority in voting interest of the stockholders. Directors are to be elected by a plurality
of the votes cast in the election of directors.
Subject to any preferential dividend
rights of any outstanding shares of preferred stock, holders of common stock are entitled to receive dividends, if declared by our Board of Directors,
out of funds that we may legally use to pay dividends. If we liquidate or dissolve, holders of common stock are entitled to share ratably in our assets
once our debts and any liquidation preference owed to any then-outstanding preferred stockholders are paid. Our certificate of incorporation does not
provide the common stock with any redemption, conversion or preemptive rights. All shares of common stock that are outstanding as of the date of this
prospectus and, upon issuance and sale, all shares we are selling in this offering, will be fully paid and nonassessable.
Underwriters Warrants
We have agreed to issue to the
underwriters warrants to purchase a number of shares of our common stock equal to an aggregate of 3% of the shares of our common stock sold in this
offering. The warrants will have an exercise price equal to 110% of the offering price of the shares sold in this offering and may be exercised on a
cashless basis. The warrants are exercisable commencing six months after the effective date of the registration statement related to this offering, and
will be exercisable for four and a half years thereafter. The warrants are not redeemable by us. The warrants also provide for one demand registration
of the shares of common stock underlying the warrants at our expense, an additional demand at the warrant holders expense and for unlimited
piggyback registration rights at our expense with respect to the underlying shares of common stock during the five-year period commencing
six months after the effective date. The warrants and the 120,000 shares of our common stock underlying the warrants (138,000 shares if the
over-allotment option is exercised in full) have been deemed compensation by the Financial Industry Regulatory Authority (FINRA) and are
therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or permitted assignees under the Rule) may not sell,
transfer, assign, pledge, or hypothecate the warrants or the shares of our common stock underlying the warrants, except to any underwriter and selected
dealer participating in the offering and their bona fide officers or partners, nor will they engage in any hedging, short sale, derivative, put, or
call transaction that would result in the effective economic disposition of the warrants or the underlying shares of our common stock for a period of
180 days from the date of this prospectus. Additionally, the warrants may not be sold transferred, assigned, pledged or hypothecated for a one-year
period (including the foregoing 180 day period) following the effective date of the registration statement except to any underwriter and selected
dealer participating in the offering and their bona fide officers or partners. The warrants will provide for adjustment in the number and price of such
warrants (and the shares of common stock underlying such warrants) in the event of recapitalization, merger or other structural transaction to prevent
mechanical dilution.
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Preferred Stock
The Board of Directors has the
authority at any time to establish the rights and preferences of, and issue up to, 5,000,000 shares of preferred stock, of which none currently have
designation. Our amended and restated certificate of incorporation, which will be effective upon the completion of this offering, will provide for
5,000,000 shares of preferred stock over which the Board of Directors will have the authority to establish the rights and preferences.
Convertible Notes
In December 2007, we issued a series of
convertible promissory notes in the aggregate principal amount of $4,340,000, referred to herein as the 10% Notes. The 10% Notes are unsecured
obligations of ours with a maturity date of March 31, 2011 and accrue interest at the rate of 10% per annum. The aggregate amount of accrued and unpaid
interest under the 10% Notes as of September 30, 2010 was $1,222,979. In the event the 10% Notes become due and payable prior to the consummation by us
of a Qualified Financing, reverse merger, sale of the company or other transaction, we will be obligated to pay the noteholders, in addition to the
payment of the unpaid principal amount and all accrued but unpaid interest, a cash premium equal to 42.8571% of the aggregate principal amount plus all
accrued and unpaid interest on the 10% Notes.
Under the terms of the 10% Notes, the
outstanding principal amount of the 10% Notes, and all accrued interest thereon, will automatically convert into equity securities sold in a Qualified
Financing at a conversion price equal to 70% of the lowest per unit price at which such equity securities are sold in such Qualified Financing.
However, pursuant to the amendment agreement dated as of December 23, 2010, the holders of the 10% Notes agreed to eliminate such conversion discount
if (i) we consummate a Qualified IPO by March 31, 2011, (ii) the holders of the 8% Notes and the Paramount notes are not treated more favorably in
connection with such conversion and (iii) the other transactions contemplated by the amendment agreement, which are described below, are consummated.
Under the amendment agreement, we agreed to issue to the holders of the 10% Notes, upon the consummation of a Qualified IPO, the 10% Noteholder
Warrants and Contingent Notes in an aggregate principal amount equal to 10% of the unpaid principal and accrued interest on the 10% Notes as of the
date a Qualified IPO is consummated. In addition, pursuant to the amendment agreement, Dr. Rosenwald and the holders of the Paramount Notes (as defined
below) agreed to assign the rights to receive the shares of our common stock issuable upon conversion of the Paramount Notes to the holders of the 10%
Notes and the 8% Notes on a pro rata basis.
For purposes of the 10% Notes,
Qualified IPO means an underwritten initial public offering of our equity securities that qualifies as a Qualified Financing and
Qualified Financing means the sale of our equity securities in an equity financing or series of related equity financings in which we
receive (minus the amount of aggregate gross cash proceeds to us from our arms length sale of equity or debt securities, or incurrence of new
loans, after December 14, 2009) aggregate gross proceeds of at least $10,000,000 (before brokers fees or other transaction related expenses, and
excluding any such proceeds resulting from any conversion of the 10% Notes). This offering, if consummated, will be considered a Qualified IPO.
Assuming an offering price of $5.00 per share, the 10% Notes will automatically convert into 1,145,146 shares of common stock at a conversion price
equal to the offering price of the shares sold in this offering.
8% Notes
In February and March 2010, we issued
another series of convertible promissory notes in the aggregate principal amount of $4,343,000, referred to herein as the 8% Notes. The 8% Notes are
unsecured obligations of ours with a maturity date of February 9, 2012 and accrue interest at the rate of 8% per annum.
Under the terms of the 8% Notes, the
outstanding principal amount of the 8% Notes, and all accrued interest thereon, will automatically convert into shares of common stock upon the
completion of a Qualified IPO at a conversion price equal to 70% of the price at which shares of common stock are sold in a Qualified IPO. However,
pursuant to an amendment agreement dated as of December 23, 2010, the holders of the 8% Notes agreed to eliminate such conversion discount if (i) we
consummate a Qualified IPO by March 31, 2011, (ii) the holders of the 10% Notes and the Paramount Notes are not treated more favorably in connection
with such conversion and (iii) the other transactions contemplated by the amendment agreement, which are described
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below, are consummated. Under the
amendment agreement, we agreed to issue to the holders of the 8% Notes, upon the consummation of a Qualified IPO, Contingent Notes in an aggregate
principal amount equal to 10% of the unpaid principal and accrued interest on the 8% Notes as of the date a Qualified IPO is consummated. In addition,
pursuant to the amendment agreement, Dr. Rosenwald and the holders of the Paramount Notes (as defined below) agreed to assign the rights to receive the
shares of our common stock issuable upon conversion of the Paramount Notes to the holders of the 10% Notes and the 8% Notes on a pro rata
basis.
For purposes of the 8% Notes,
Qualified IPO means the completion of an underwritten initial public offering of our equity securities resulting in aggregate gross cash
proceeds (before commissions or other expenses) to us of at least $10,000,000. This offering, if consummated, will be considered a Qualified IPO.
Assuming an offering price of $5.00 per share, the 8% Notes will automatically convert into 938,500 shares of common stock at a conversion price equal
to public offering price.
Paramount Notes
From December 1, 2006 through September
30, 2010, Paramount Biosciences, LLC had loaned us an aggregate principal amount of $2,282,205, from December 1, 2006 through September 30, 2010, the
Family Trusts had loaned us an aggregate principal amount of $660,000, and from December 18, 2008 through September 30, 2010, Capretti had loaned us an
aggregate principal amount of $50,000. The loans from PBS, the Family Trusts and Capretti are evidenced by the PBS Note, the Family Trusts Note and the
Capretti Note, respectively, which together are referred to herein as the Paramount Notes. Pursuant to the PBS Note, the principal amount of all loans
made to us under the PBS Note, up to $1,000,000, immediately and automatically converted into an 8% Note. As such, in February 2010, we issued
Paramount Biosciences, LLC an 8% Note in the aggregate principal amount of $1,000.000. In connection with the issuance of the 8% Notes, Paramount
Biosciences, LLC also received 8% Noteholder Warrants. The Paramount Notes are unsecured obligations of ours with a maturity date of March 31, 2011 and
accrue interest at the rate of 8% per annum. As of September 30, 2010, $1,615,172, including accrued and unpaid interest, was outstanding under the PBS
Note, $833,252, including accrued and unpaid interest, was outstanding under the Family Trusts Note, and $57,134, including accrued and unpaid
interest, was outstanding under the Capretti Note. In the event the Paramount Notes become due and payable prior to the consummation by us of a
Qualified Financing, reverse merger, sale of the company or other transaction, we will be obligated to pay the noteholders, in addition to the payment
of the unpaid principal amount and all accrued but unpaid interest, a cash premium equal to 42.8571% of the aggregate principal amount of the Paramount
Notes.
Under the terms of the Paramount Notes,
the outstanding principal amount of the Paramount Notes, and all accrued interest thereon, will automatically convert into equity securities sold in a
Qualified Financing at a conversion price equal to 70% of the lowest per unit price at which such equity securities are sold in such Qualified
Financing. However, pursuant to the amendment agreements dated as of December 23, 2010, the holders of the Paramount Notes agreed to eliminate such
conversion discount if (i) we consummate a Qualified IPO by March 31, 2011, (ii) the holders of the 10% Notes and 8% Notes are not treated more
favorably in connection with such conversion and (iii) the other transactions contemplated by the amendment agreement, which are described below, are
consummated. Under the amendment agreement, we agreed to issue to the holders of the Paramount Notes, upon the consummation of a Qualified IPO, the
Paramount Noteholder Warrants and Contingent Notes in an aggregate principal amount equal to 10% of the unpaid principal and accrued interest on the
Paramount Notes as of the date a Qualified IPO is consummated.
For purposes of the Paramount Notes,
Qualified IPO and Qualified Financing have the same meanings as in the 10% Notes. This offering, if consummated, will be
considered a Qualified IPO. Assuming an offering price of $5.00 per share, the Paramount Notes will automatically convert into 513,065 shares of common
stock at a conversion price equal to the offering price of the shares sold in this offering.
PCP Notes
On each of January 15, 2009 and June
24, 2009, we issued a senior promissory note to PCP in the principal amount of $2,750,000 and $125,000, respectively, each referred to herein as a PCP
Note, and together, the PCP Notes. The PCP Notes are unsecured obligations of ours with current maturity dates of the earlier of (i) December 31, 2013,
(ii) the completion of a Qualified Financing (as defined below), and (iii) the completion of a Reverse Merger (as defined below). The PCP Notes accrue
interest at the rate of 10% per annum. The aggregate amount of accrued and unpaid interest under the PCP Notes as of September 30, 2010 was
$205,811.
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For purposes of the PCP Notes,
Qualified Financing means the closing of an equity financing or series of related equity financings by us after our initial public offering
resulting in aggregate gross cash proceeds (before brokers fees or other transaction related expenses) of at least $10,000,000. For purposes of
the PCP Notes, Reverse Merger means a merger, share exchange or other transaction or series of related transactions in which (a) we merge
into or otherwise becomes a wholly owned subsidiary of a company subject to the public company reporting requirements of the Exchange Act and (b) the
aggregate consideration payable to us or our stockholders in such transaction(s) (the Reverse Merger Consideration) is greater than or
equal to $10,000,000.
This offering will not constitute a
Qualified Financing for purposes of the PCP Notes and the PCP Notes will remain outstanding following consummation of this offering. We do
not intend to use the proceeds of this offering to repay the PCP Notes.
Contingent Notes
Pursuant to amendment agreements dated
as of December 23, 2010 relating to the 10% Notes, the 8% Notes and the Paramount Notes, we agreed to issue to the holders of the 10% Notes, the 8%
Notes and the Paramount Notes, upon consummation of a Qualified IPO, contingent promissory notes, referred to herein as the Contingent Notes, in an
aggregate principal amount equal to 10% of the unpaid principal and accrued interest on the 10% Notes, the 8% Notes and the Paramount Notes as of the
date a Qualified IPO is consummated. The Contingent Notes will become payable upon the occurrence of a Contingency Event together with interest
thereon, which will accrue at the rate of 5% per annum. In addition, in the event we commence commercial sales of our products prior to the occurrence
of a Contingency Event, we will be required to pay to the holders of the Contingent Notes an amount equal to 10% of our net sales from our products for
each calendar quarter, with such payment being due within 60 days after the end of each calendar quarter, until the holders have received the full
principal amount of the Contingent Notes and all accrued interest thereon. For purposes of the Contingent Notes, Contingency Event means
(i) our entry into any agreement relating to the license, development, marketing or sale of PB-101 with any third party, other than our current
agreements with Dong Wha, (ii) the sale of all or substantially all our assets to a non-affiliate or the acquisition by a non-affiliate of a majority
of our outstanding capital stock or the voting power to elect a majority of our board of directors (whether by merger, consolidation, sale or transfer
of our capital stock or otherwise) or (iii) the consummation by us, at any time following approval by the FDA of an NDA for PB-101, of any equity or
debt financing (or series of related equity or debt financings) from non-affiliates yielding at least $10,000,000 in aggregate net cash proceeds (after
commissions and transaction expenses).
This offering, if consummated, will be
considered a Qualified IPO. Assuming an offering price of $5.00 per share, we will issue Contingent Notes to the holders of the 10% Notes, the 8% Notes
and the Paramount Notes in the aggregate principal amount of $1,298,355.
Currently Outstanding Warrants
All of the warrants described below are
currently outstanding and none have been exercised.
8% Noteholder Warrants
In connection with the issuance of the
8% Notes, we issued five-year warrants to the purchasers of the 8% Notes, referred to herein as the 8% Noteholder Warrants. The 8% Noteholder Warrants
entitle the holders thereof to purchase a number of shares of common stock equal to 70% of the principal amount of the 8% Notes divided by the price at
which shares of our common stock are sold in a Qualified IPO, at a per share exercise price equal to 110% of the price at which shares of common stock
are sold in such Qualified IPO, subject to adjustment as set forth in the warrant. If a Qualified IPO does not occur on or before the second
anniversary of the closing of the offering of the 8% Noteholder Warrants, then each warrant will be exercisable for that number of shares of common
stock equal to 70% of the principal amount of the note purchased by the original holder divided by $48.00 ($1.00 on a pre-reverse split basis), at a
per share exercise price of $48.00 ($1.00 on a pre-reverse split basis). In the event of a sale of our company (whether by merger, consolidation, sale
or transfer of more than 50% of our capital stock or all or substantially all of our assets), the 8% Noteholder Warrants will terminate 90 after such
sale provided that the holders have the right to exercise the 8% Noteholder Warrants during such 90-day period. Qualified IPO has the same
meaning as with respect to the 8% Notes. Assuming an offering price of $5.00 per share, the 8% Noteholder Warrants will entitle the holders thereof to
purchase
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608,020 shares of common stock at
an exercise price equal to 110% of the offering price of the shares sold in this offering.
PCP Warrants
In connection with the issuance of the
PCP Notes, we issued to PCP five-year warrants to purchase a number of shares of common stock equal to 40% of the aggregate principal amount of the PCP
Notes ($2,875,000), divided by the lowest price paid in a Qualified Financing, each referred to herein as a PCP Warrant, and together, the PCP
Warrants. The per share exercise price of each of the PCP Warrants is equal to 110% of the lowest price paid in a Qualified Financing.
If we complete a Reverse Merger, other
than in connection with a Qualified Financing, the PCP Warrants will be exercisable immediately prior to the Reverse Merger for a number of shares of
common stock and exercise price determined in accordance with, and on the same terms and conditions, as provided for in the event of a Qualified
Financing, except that the lowest price paid will be deemed equal to the quotient obtained by dividing the Reverse Merger Consideration (less the
amount of unpaid principal and accrued interest under the applicable PCP Note) by the number of shares of common stock outstanding immediately prior to
such Reverse Merger, on a fully diluted basis (without giving effect to the conversion of the PCP Notes or any other senior promissory notes or any
placement warrants issued by us).
The PCP Warrants will become
exercisable commencing on the consummation of a Qualified Financing or a Reverse Merger. However, in the event that neither a Qualified Financing nor a
Reverse Merger is consummated by the two-year anniversary of the issuance of each PCP Note, the applicable PCP Warrant will be automatically
exercisable into an aggregate number of shares of common stock equal to 40% of the principal amount of the corresponding PCP Note divided by $48.00
($1.00 on a pre-reverse split basis), at a per share exercise price of $48.00 ($1.00 on a pre-reverse split basis). The PCP Warrants are subject to
redemption by us in certain circumstances and in the event of a sale of our company (whether by merger, consolidation, sale or transfer our capital
stock or assets or otherwise) prior to, but not in connection with, a Qualified Financing or Reverse Merger, the PCP Warrants will terminate without
the opportunity for exercise.
For purposes of the PCP Warrants,
Qualified Financing, Reverse Merger, and Reverse Merger Consideration have the same meaning as with respect to the
PCP Notes.
Placement Agent Warrant
Paramount received, as partial
compensation for its services in connection with the offering of the 10% Notes, the Placement Agent Warrant, which is a warrant exercisable for such
number of shares of common stock equal to 10% of the amount of the aggregate purchase price of the 10% Notes ($4,340,000), divided by the lowest price
paid in a Qualified Financing, referred to herein as the Placement Agent Warrant. Because the Qualified Financing was not consummated by December 14,
2009, the Placement Agent Warrant became automatically exercisable into 9,042 shares of common stock, which is equal to 10% of the aggregate purchase
price of the 10% Notes ($4,340,000) divided by $48.00 ($1.00 on a pre-reverse split basis), at a per share exercise price of $48.00 ($1.00 on a
pre-reverse split basis). Qualified Financing has the same meaning as with respect to the 10% Notes. The Placement Agent Warrant was
subsequently assigned by Paramount to selected dealers in the offering of the 10% Notes and other individuals.
Consultant Warrants
In September 2007, Robert Feldman, a
former employee of Paramount, received as compensation for certain services provided in connection with the in-licensing of certain of our product
candidates, a warrant currently exercisable into 6,250 shares of common stock at a purchase price of $45.60 per share, subject to adjustment (the
Feldman Consultant Warrant). The Feldman Consultant Warrant expires on September 27, 2012.
On May 26, 2010, we entered into a
consulting agreement with Timothy Hofer, our Corporate Secretary, pursuant to which Mr. Hofer provides us with general consulting services focused on
general business and company development. Under the terms of the consulting agreement with Mr. Hofer and as compensation for his services thereunder,
we granted Mr. Hofer a ten-year warrant to purchase 2,083 shares of our common stock, subject to adjustment as described below (the Hofer
Consultant Warrant). The Hofer Consultant Warrant will
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become exercisable upon the
consummation of a Qualified Financing at a per share exercise price equal to the price at which shares of our common stock are issued in such Qualified
Financing. If a Qualified Financing does not occur on or before March 31, 2011, then the Hofer Consultant Warrant will be immediately exercisable at a
per share exercise price equal to the fair market value of our common stock, as determined pursuant to a valuation performed by an independent
appraisal firm. Under the terms of the Hofer Consultant Warrant, if we consummate a Qualified Financing, the number of shares of common stock issuable
upon exercise of the Hofer Consultant Warrant will be automatically adjusted so that such number of shares is equal to 1.0% of our outstanding common
stock on a fully diluted basis, after giving effect to such Qualified Financing (including the conversion of all our convertible notes triggered by
such Qualified Financing). This adjustment provision will terminate once we consummate a Qualified Financing. For purposes of the Hofer Consultant
Warrant, a Qualified Financing means our next equity financing (or series of related equity financings) sufficient to trigger conversion of
all amounts then outstanding under our senior convertible promissory notes. This offering, if consummated, will be considered a Qualified
Financing.
The Feldman Consultant Warrant and the
Hofer Consultant Warrant are collectively referred to herein as the Consultant Warrants.
Additional Warrants to be Issued
All of the warrants described below
will be issued in connection with the consummation of this offering.
10% Noteholder Warrants
Pursuant to an amendment agreement
dated as of December 23, 2010 relating to the 10% Notes, we agreed to issue to the holders of the 10% Notes, upon consummation of a Qualified IPO,
five-year warrants, referred to herein as the 10% Noteholder Warrants. The 10% Noteholder Warrants entitle the holders thereof to purchase a number of
shares of common stock equal to 70% of the original principal amount of the 10% Notes divided by the price at which shares of our common stock are sold
in a Qualified IPO, at a per share exercise price equal to 110% of the price at which shares of common stock are sold in such Qualified IPO, subject to
adjustment as set forth in the warrant. In the event of a sale of our company (whether by merger, consolidation, sale or transfer of more than 50% of
our capital stock or all or substantially all of our assets), the 10% Noteholder Warrants will terminate 90 days after such sale provided that the
holders have the right to exercise the 10% Noteholder Warrants during such 90-day period. Assuming an offering price of $5.00 per share, the 10%
Noteholder Warrants will entitle the holders thereof to purchase 607,600 shares of common stock at an exercise price equal to 110% of the offering
price of the shares sold in this offering.
Paramount Noteholder Warrants
Pursuant to amendment agreements dated
as of December 23, 2010 relating to the Paramount Notes, we agreed to issue to the holders of the Paramount Notes, upon consummation of a Qualified
IPO, five-year warrants, referred to herein as the Paramount Noteholder Warrants. The Paramount Noteholder Warrants entitle the holders thereof to
purchase a number of shares of common stock equal to 70% of the original principal amount of the Paramount Notes divided by the price at which shares
of our common stock are sold in a Qualified IPO, at a per share exercise price equal to 110% of the price at which shares of common stock are sold in
such Qualified IPO, subject to adjustment as set forth in the warrant. In the event of a sale of our company (whether by merger, consolidation, sale or
transfer of more than 50% of our capital stock or all or substantially all of our assets), the Paramount Noteholder Warrants will terminate 90 days
after such sale provided that the holders have the right to exercise the Paramount Noteholder Warrants during such 90-day period. Assuming an offering
price of $5.00 per share, the Paramount Noteholder Warrants will entitle the holders thereof to purchase 278,909 shares of common stock at an exercise
price equal to 110% of the offering price of the shares sold in this offering.
Registration Rights
10% Notes and 8% Notes; 10% Noteholder Warrants and 8% Noteholder Warrants
Holders of 2,596,711 shares of our
common stock, received upon conversion of our outstanding 10% Notes and 8% Notes upon completion of this offering, have rights, under the terms of the
purchase agreements between us and these holders, to require us to file registration statements under the Securities Act, subject to
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limitations and restrictions, or
request that their shares of common stock be covered by a registration statement that we are otherwise filing, subject to specified
exceptions.
We refer to the shares of common stock
issuable upon conversion of our 10% Notes or 8% Notes and the shares of stock issuable upon exercise of the 10% Noteholder Warrants and the 8%
Noteholder Warrants, as the case may be, as registrable securities. The purchase agreements for our 10% Notes and 8% Notes do not provide for any
liquidated damages, penalties or other rights in the event we do not file a registration statement. These rights will continue in effect following this
offering.
Demand Registration Rights
At any time after 180 days following
the effective date of this registration statement, subject to certain exceptions, (a) the holders of a majority of the registrable securities issuable
upon the conversion of our 10% Notes have the right to demand that we file a registration statement covering the offering and sale of at least 51% of
the registrable securities issuable upon the conversion of our 10% Notes then outstanding and (b) the holders of a majority of the registrable
securities issuable upon the conversion of our 8% Notes have the right to demand that we file a registration statement covering the offering and sale
of at least 51% of the registrable securities issuable upon the conversion of our 8% Notes then outstanding.
We have the ability to delay the filing
of such registration statement under specified conditions, such as during the period starting with the date of filing of and ending on the date 180
days following the effective date of this offering or if our Board of Directors determines that it is advisable to delay such filing or if we are in
possession of material nonpublic information that would be in our best interests not to disclose. Postponements at the discretion of our Board of
Directors cannot exceed 90 days from the date of such determination by our Board of Directors. We are not obligated to file such registration statement
on more than one occasion upon the request of the holders of a majority of the registrable securities issuable upon the conversion of our 10% Notes,
and we are not obligated to file such registration statement on more than one occasion upon the request of the holders of a majority of the registrable
securities issuable upon the conversion of our 8% Notes.
Form S-3 Registration Rights
If we are eligible to file a
registration statement on Form S-3, the holders of the registrable securities issuable upon the conversion of our 10% Notes and the holders of the
registrable securities issuable upon the conversion of our 8% Notes each have the right, on one or more occasions, to request registration on Form S-3
of the sale of the registrable securities held by such holder provided such securities are anticipated to have an aggregate sale price (before
deducting any underwriting discounts and commissions) of at least $5,000,000.
We have the ability to delay the filing
of any such registration statement under the same conditions as described above under Demand Registration Rights, and we are not obligated
to effect more than one registration of registrable securities on Form S-3 in any twelve-month period for the holders of the registrable securities
issuable upon the conversion of our 10% Notes or more than one such registration for the holders of the registrable securities issuable upon the
conversion of our 8% Notes.
Piggyback Registration Rights
The holders of the registrable
securities described above have piggyback registration rights. Under these provisions, if we register any securities for public sale, including
pursuant to any stockholder-initiated demand registration, these holders will have the right to include their shares in the registration statement,
subject to customary exceptions. The underwriters of any underwritten offering will have the right to limit the number of shares having registration
rights to be included in the registration statement, and piggyback registration rights are also subject to the priority rights of stockholders having
demand registration rights in any demand registration.
Expenses of Registration
We will pay all registration expenses
related to any demand, Form S-3 or piggyback registration, other than underwriting discounts and commissions and any professional fees or costs of
accounting, financial or legal advisors to any of the holders of registrable securities.
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Indemnification
The purchase agreements for our 10%
Notes and 8% Notes contain customary cross-indemnification provisions, under which we are obligated to indemnify the selling stockholders in the event
of material misstatements or omissions in the registration statement attributable to us, and each selling stockholder is obligated to indemnify us for
material misstatements or omissions in the registration statement due to information provided by such stockholder provided that such information was
not changed or altered by us.
PCP Warrants, Placement Agent Warrants and Feldman
Consultant Warrant
The holders of the PCP Warrants, the
Placement Agent Warrants and the Feldman Consultant Warrant also have piggyback registration rights if we register any securities for public sale,
including pursuant to any stockholder-initiated demand registration, subject to customary exceptions.
Anti-Takeover Effects of Delaware Law and Our Corporate
Charter Documents
We are subject to the provisions of
Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination
with an interested stockholder for a three-year period following the time that this stockholder becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. A business combination includes, among other things, a merger, asset or stock
sale or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who,
together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more
of the corporations voting stock. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited
unless it satisfies one of the following conditions:
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before the stockholder became interested, the Board of Directors
approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
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upon completion of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the voting stock outstanding shares owned by persons who are directors and also
officers, and employee stock plans, in some instances; or
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at or after the time the stockholder became interested, the
business combination was approved by the Board of Directors of the corporation and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.
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Our Corporate Charter Documents
Our amended and restated certificate of
incorporation and amended and restated bylaws will include provisions that are intended to enhance the likelihood of continuity and stability in our
Board of Directors and in its policies. These provisions might have the effect of delaying or preventing a change in control of our company even if
such transaction could be beneficial to the interests of stockholders. These provisions include the following:
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prohibiting our stockholders from fixing the number of our
directors; and
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establishing advance notice requirements for stockholder
proposals that can be acted on at stockholder meetings and nominations to our Board of Directors.
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Transfer Agent and Registrar
Upon the completion of this offering,
the transfer agent and registrar for our common stock will be VStock Transfer, LLC.
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Listing
We applied to have our common stock
listed on NYSE Amex under the symbol IASO. We expect that shares of our common stock will begin trading on or promptly after the date of
this prospectus.
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SHARES ELIGIBLE FOR FUTURE
SALE
Prior to this offering, there has been
no public market for our common stock, and we cannot assure you that a significant public market for our common stock will develop or be sustained
after this offering. As described below, no shares currently outstanding will be available for sale immediately after this offering due to certain
contractual and securities law restrictions on resale. Sales of substantial amounts of our common stock in the public market after the restrictions
lapse could cause the prevailing market price to decline and limit our ability to raise equity capital in the future.
Upon completion of this offering, we
will have outstanding an aggregate of 6,690,039 shares of common stock, assuming no exercise of the underwriters option to purchase additional
shares and no exercise of options or warrants to purchase common stock that were outstanding as of the date of this prospectus. The shares of common
stock being sold in this offering will be freely tradable without restriction or further registration under the Securities Act.
The remaining 2,690,039 shares of
common stock held by existing stockholders are restricted securities as that term is defined in Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Section 4(1), or Rules 144
or 701 promulgated under the Securities Act, which rules are summarized below.
The following table shows approximately
when the 2,690,039 shares of our common stock that are not being sold in this offering, but which will be outstanding when this offering is complete,
will be eligible for sale in the public market:
Days After Date of this Prospectus
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Shares Eligible for Sale
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Comment
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Upon
Effectiveness
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|
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4,000,000
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Shares sold in this offering
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90
Days
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24,274
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Shares saleable under Rules 144 and 701 that
are not subject to the lock-up
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180
Days
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|
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2,665,765
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Lock-up released, subject to extension; shares
saleable under Rules 144 and 701
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Resale of 13,554 of the restricted
shares that will become available for sale in the public market starting 180 days after the effective date will be limited by volume and other resale
restrictions under Rule 144 because the holders are our affiliates.
Rule 144
The availability of Rule 144 will vary
depending on whether restricted shares are held by an affiliate or a non-affiliate. Under Rule 144 as in effect on the date of this prospectus, once we
have been a reporting company subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act for 90 days, an affiliate who
has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of either of the following:
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1% of the number of shares of common stock then outstanding,
which will equal 66,900 shares immediately after this offering; and
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the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
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However, the six month holding period
increases to one year in the event we have not been a reporting company for at least 90 days. In addition, any sales by affiliates under Rule 144 are
also limited by manner of sale provisions and notice requirements and the availability of current public information about us.
The volume limitation, manner of sale
and notice provisions described above will not apply to sales by non-affiliates. For purposes of Rule 144, a non-affiliate is any person or entity who
is not our affiliate at the time of sale and has not been our affiliate during the preceding three months. Once we have been a reporting company for 90
days, a non-affiliate who has beneficially owned restricted shares of our common stock for six months may rely on Rule 144 provided that certain public
information regarding us is available. The six month holding period increases to one year in the event we have not been a reporting company for at
least 90 days.
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However, a non-affiliate who has
beneficially owned the restricted shares proposed to be sold for at least one year will not be subject to any restrictions under Rule 144 regardless of
how long we have been a reporting company.
Rule 701
Under Rule 701, common stock acquired
upon the exercise of certain currently outstanding options or pursuant to other rights granted under our stock plans may be resold, to the extent not
subject to lock-up agreements, (a) by persons other than affiliates, beginning 90 days after the effective date of this offering, subject only to the
manner-of-sale provisions of Rule 144, and (b) by affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule
144, in each case, without compliance with the one-year holding period requirement of Rule 144. All Rule 701 shares will be, however, subject to
lock-up agreements and will only become eligible for sale upon the expiration of the contractual lock-up agreements. Ladenburg may release all or any
portion of the securities subject to lock-up agreements.
Lock-Up Agreements
Prior to the completion of this
offering, we and each of our officers, directors, and greater than 5% stockholders will agree, subject to certain exceptions, not to offer, issue,
sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our common stock or other securities
convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the effective date of the registration
statement of which this prospectus is a part without the prior written consent of Ladenburg. This 180-day restricted period will be automatically
extended if: (1) during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event;
or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period following
the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of
the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.
In addition, the holders of our 10%
Notes, 10% Noteholder Warrants, 8% Notes and 8% Noteholder Warrants have agreed pursuant to the purchase agreements for our 10% Notes and our 8% Notes
not to sell the shares of our common stock they receive upon conversion of our 10% Notes or 8% Notes or upon exercise of our 10% Noteholder Warrants or
8% Noteholder Warrants for a period of 180 days after the effective date of the registration statement of which this prospectus is a
part.
Registration Rights
After the completion of this offering,
the holders of 2,596,711 shares of our common stock will be entitled to the registration rights described in the section titled Description of
Capital Stock Registration Rights. All such shares are or will be covered by lock-up agreements. Following the expiration of the lock-up
period, registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration, except for shares purchased by our affiliates.
Form S-8 Registration Statements
Prior to the expiration of the lock-up
period, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of our common stock that are
issuable pursuant to our Amended and Restated 2007 Stock Incentive Plan. See Executive Compensation Equity Compensation Plan
Information for additional information. Subject to the lock-up agreements described above and any applicable vesting restrictions, shares
registered under these registration statements will be available for resale in the public market immediately upon the effectiveness of these
registration statements, except with respect to Rule 144 volume limitations that apply to our affiliates.
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UNDERWRITING
Subject to the terms and conditions of
the underwriting agreement, the underwriters named below, through their representative, Ladenburg Thalmann & Co. Inc., referred to herein as
Ladenburg, have severally agreed to purchase from us on a firm commitment basis the following respective number of shares of common stock at a public
offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus:
Underwriters
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Number of Shares
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Ladenburg
Thalmann & Co. Inc.
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Boenning
& Scattergood, Inc.
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Maxim Group
LLC
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Total
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4,000,000
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The underwriting agreement provides
that the obligation of the underwriters to purchase all of the shares of our common stock being offered to the public is subject to specific
conditions, including the absence of any material adverse change in our business or in the financial markets and the receipt of certain legal opinions,
certificates and letters from us, our counsel and the independent auditors. Subject to the terms of the underwriting agreement, the underwriters will
purchase all of the 4,000,000 shares of our common stock being offered to the public, other than those covered by the over-allotment option described
below, if any of these shares are purchased.
Over-Allotment Option
We have granted to the underwriters an
option, exercisable not later than 45 days after the effective date of the registration statement, to purchase up to 600,000 additional shares of our
common stock at the public offering price less the underwriting discounts and commissions set forth on the cover of this prospectus. The underwriters
may exercise this option only to cover over-allotments made in connection with the sale of shares of our common stock offered by this prospectus. The
over-allotment option will only be used to cover the net syndicate short position resulting from the initial distribution. To the extent that the
underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage
of these additional shares as the number of shares to be purchased by it in the above table bears to the total number of shares offered by this
prospectus. We will be obligated, pursuant to the option, to sell these additional shares of our common stock to the underwriters to the extent the
option is exercised. If any additional shares are purchased, the underwriters will offer the additional shares on the same terms as those on which the
other shares are being offered hereunder.
Commissions and Expenses
The underwriting discounts and
commissions are 7% of the initial public offering price. We have agreed to pay the underwriters the discounts and commissions set forth below, assuming
either no exercise or full exercise by the underwriters of the underwriters over-allotment option. In addition, we have agreed to pay to the
underwriters 1% of the gross proceeds of this offering as a non-accountable expense allowance.
We have been advised by the
representative of the underwriters that the underwriters propose to offer the shares to the public at the public offering price set forth on the cover
of this prospectus and to dealers at a price that represents a concession not in excess of $ per share under the public offering
price of $ per share. The underwriters may allow, and these dealers may re-allow, a concession of not more than $
per share to other dealers. After the initial public offering, the representative of the underwriters may change the offering price and other selling
terms.
The following table summarizes the
underwriting discounts and commissions we will pay to the underwriters. The underwriting discounts and commissions are equal to the public offering
price per share less the amount per share the underwriters pay us for the shares.
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Fee Per Share
(1)
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Total Without
Exercise of Over-
Allotment
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Total With Exercise
of Over-Allotment
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Public
offering price
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|
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$
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|
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$
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$
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Discount
|
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$
|
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$
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$
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Proceeds
before expenses
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$
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$
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$
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(1)
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The fees do not include the over-allotment option granted to the
underwriters, the non-accountable expense allowance in the amount of 1% of the gross proceeds (excluding the over-allotment proceeds), or the warrants
to purchase shares of our common stock equal to 3% of the number of shares sold in the offering issuable to the underwriters at the
closing.
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We estimate that the total expenses of
the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts
and commissions, will be approximately $1.2 million, all of which are payable by us.
Underwriters Warrants
We have also agreed to issue to the
underwriters warrants to purchase a number of shares of our common stock equal to an aggregate of 3% of the shares sold in this offering. The warrants
will have an exercise price equal to 110% of the offering price of the shares sold in this offering and may be exercised on a cashless basis. The
warrants are exercisable commencing six months after the effective date of the registration statement related to this offering, and will be exercisable
for four and a half years thereafter. The warrants are not redeemable by us. The warrants also provide for one demand registration of the shares of
common stock underlying the warrants at our expense, an additional demand at the warrant holders expense and unlimited piggyback
registration rights at our expense with respect to the underlying shares of common stock during the five-year period commencing six months after the
closing date. The warrants and the 120,000 shares of our common stock underlying the warrants (138,000 shares if the over-allotment option is exercised
in full) have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters
(or permitted assignees under the Rule) may not sell, transfer, assign, pledge, or hypothecate the warrants or the shares of our common stock
underlying the warrants, except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners, nor will
they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or
the underlying shares of our common stock for a period of 180 days from the date of this prospectus. Additionally, the warrants may not be sold
transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180 day period) following the effective date of the
registration statement except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners. The
warrants will provide for adjustment in the number and price of such warrants (and the shares of common stock underlying such warrants) in the event of
recapitalization, merger or other structural transaction to prevent mechanical dilution.
Lock-Up Agreements
Prior to the completion of this
offering, we and each of our officers, directors, and greater than 5% stockholders will agree, subject to certain exceptions, not to offer, issue,
sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our common stock or other securities
convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the effective date of the registration
statement of which this prospectus is a part without the prior written consent of Ladenburg. This 180-day restricted period will be automatically
extended if: (1) during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event;
or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period following
the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of
the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.
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Pricing of this Offering
Prior to this offering there has been
no public market for our common stock and we cannot be certain that an active trading market will develop and continue after this offering. The public
offering price of the common stock was negotiated between us and Ladenburg. This price should not be considered an indication of the actual value of
the common stock. This price may not correspond to the price at which our shares of common stock will trade in the public market following this
offering. Factors considered in determining the prices and terms of the common stock include:
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the history and prospects of companies in our
industry;
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prior offerings of those companies;
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our prospects for developing and commercializing our
products;
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an assessment of our management and their
experience;
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general conditions of the securities markets at the time of the
offering; and
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other factors as were deemed relevant.
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However, although these factors were
considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry
since the underwriters are unable to compare our financial results and prospects with those of public companies operating in the same
industry.
Price Stabilization, Short Positions and Penalty
Bids
Until the distribution of our common
stock offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase our securities. As
an exception to these rules, the underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions, and penalty bids
or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange
Act.
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Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater
than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than
the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option
and/or purchasing shares in the open market.
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
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Syndicate covering transactions involve purchases of securities
in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to
close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as
compared to the price at which they may purchase securities through the over-allotment option. If the underwriters sell more securities than could be
covered by the over-allotment option, creating a naked short position, the position can only be closed out by buying securities in the open market. A
naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the
securities in the open market after pricing that could adversely affect investors who purchase in the offering.
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Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the security originally sold by the syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
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These stabilizing transactions,
syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or
retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might
otherwise exist in the open market. These transactions may be effected in the over-the-counter market or otherwise and, if commenced, may be
discontinued at any time.
Neither we nor any of the underwriters
make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our
common stock. In addition, neither we nor any of the underwriters make representation that the underwriters will engage in these stabilizing
transactions or that any transaction, once commenced, will not be discontinued without notice.
Other Terms
The underwriters have informed us that
they do not expect to confirm sales of common stock offered by this prospectus to accounts over which they exercise discretionary authority without
obtaining the specific approval of the account holder.
Although we are not under any
contractual obligation to engage any of the underwriters to provide any services for us after this offering, and have no present intent to do so, any
of the underwriters may, among other things, assist us in raising additional capital, as needs may arise in the future. If any of the underwriters
provide services to us after this offering, we may pay such underwriter fair and reasonable fees that would be determined at that time in an arms
length negotiation; provided that no agreement will be entered into with any of the underwriters and no fees for such services will be paid to any of
the underwriters prior to the date which is 90 days after the effective date of the registration statement, unless FINRA determines that such payment
would not be deemed underwriters compensation in connection with this offering.
Indemnification
We have agreed to indemnify the
underwriters against liabilities relating to the offering arising under the Securities Act, liabilities arising from breaches of some or all of the
representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for
these liabilities.
Electronic Distribution
In connection with this offering, the
underwriters may distribute prospectuses electronically. No forms of prospectus other than printed prospectuses and electronically distributed
prospectuses that are printable in Adobe PDF format will be used in connection with this offering.
A prospectus in electronic format may
be made available on the internet sites or through other online services maintained by one or more of the underwriters participating in this offering,
or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter,
prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to
online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other
allocations.
Other than the prospectus in electronic
format, the information on any underwriters web site and any information contained in any other web site maintained by an underwriter is not part
of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter
in its capacity as underwriter and should not be relied upon by investors.
Relationships
Certain of the underwriters or their
affiliates have provided from time to time and may in the future provide investment banking, lending, financial advisory and other related services to
us and our affiliates for which they have received and may continue to receive customary fees and commissions.
LEGAL MATTERS
The validity of the shares of our
common stock offered hereby will be passed upon for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, New York. In connection with
the offering of our common stock, Sichenzia Ross Friedman Ference LLP, New York, New York advised the underwriters with respect to certain United
States securities law matters.
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EXPERTS
J.H. Cohn LLP, our independent
registered public accounting firm, has audited our balance sheets as of December 31, 2009 and 2008, and the related statements of operations, changes
in stockholders deficiency and cash flows for the years ended December 31, 2009 and 2008 and the period from October 5, 2006 (inception) to
December 31, 2009, as set forth in their report, which includes explanatory paragraphs relating to our ability to continue as a going concern and a
restatement of the classification of certain operating expenses in our 2009 and 2008 statements of operations. We have included our financial
statements in this prospectus and in this registration statement in reliance on J.H. Cohn LLPs report given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We have filed with the SEC a
registration statement on Form S-1, including exhibits and schedules, under the Securities Act with respect to the securities to be sold in this
offering. This prospectus does not contain all the information contained in the registration statement. For further information with respect to us and
the securities to be sold in this offering, we refer you to the registration statement and the exhibits and schedules attached to the registration
statement. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily
complete. When we make such statements, we refer you to the copies of the contracts or documents that are filed as exhibits to the registration
statement because those statements are qualified in all respects by reference to those exhibits.
Upon the closing of this offering, we
will be subject to the informational requirements of the Exchange Act and we intend to file annual, quarterly and current reports, proxy statements and
other information with the SEC. You can read our SEC filings, including the registration statement, at the SECs website at www.sec.gov. You may
also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C. 20549, on official
business days during the hours of 10:00 am to 3:00 pm.
You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the public reference facility.
107
Table of Contents
IASO PHARMA INC.
(A Development
Stage Company)
|
|
|
|
Page
|
|
|
|
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F-2
|
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|
|
|
|
|
|
F-3
|
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|
|
|
|
|
F-4
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
|
F-6 F-19
|
|
F-1
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
CONDENSED BALANCE
SHEETS
|
|
|
|
September 30,
2010
|
|
December 31, 2009
|
|
|
|
|
(Unaudited)
|
|
(Note 1)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
$
|
252,186
|
|
|
$
|
10,728
|
|
Other current
assets
|
|
|
|
|
10,819
|
|
|
|
8,535
|
|
|
Total current
assets
|
|
|
|
|
263,005
|
|
|
|
19,263
|
|
|
Office
equipment, net of accumulated depreciation
|
|
|
|
|
15,940
|
|
|
|
20,416
|
|
Other assets
deferred financing and offering costs
|
|
|
|
|
647,866
|
|
|
|
50,500
|
|
|
Total assets
|
|
|
|
$
|
926,811
|
|
|
$
|
90,179
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
|
$
|
2,469,416
|
|
|
$
|
2,037,683
|
|
Borrowings
under line of credit agreement
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
2007 senior
convertible notes
|
|
|
|
|
4,340,000
|
|
|
|
4,340,000
|
|
Interest
payable 2007 senior convertible notes
|
|
|
|
|
1,222,979
|
|
|
|
800,730
|
|
Notes payable
related parties
|
|
|
|
|
1,992,205
|
|
|
|
2,777,205
|
|
Interest
payable related parties
|
|
|
|
|
513,353
|
|
|
|
378,252
|
|
Interest
payable Paramount Credit Partners, LLC
|
|
|
|
|
205,811
|
|
|
|
205,811
|
|
Deferred
revenuesublicense
|
|
|
|
|
37,714
|
|
|
|
37,714
|
|
|
Total current
liabilities
|
|
|
|
|
10,931,478
|
|
|
|
10,727,395
|
|
|
Notes payable
Paramount Credit Partners, LLC (net of discount of $746,314 in 2010 and $917,451 in 2009)
|
|
|
|
|
2,128,686
|
|
|
|
1,957,549
|
|
2010 senior
convertible notes (net of discount of $1,126,636 in 2010)
|
|
|
|
|
3,216,364
|
|
|
|
|
|
Interest
payable 2010 senior convertible notes
|
|
|
|
|
219,210
|
|
|
|
|
|
Deferred
revenue sublicense
|
|
|
|
|
587,714
|
|
|
|
616,000
|
|
|
Total
liabilities
|
|
|
|
|
17,083,452
|
|
|
|
13,300,944
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficiency:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized, none
issued
|
|
|
|
|
|
|
|
|
|
|
Common stock,
$.001 par value; 20,000,000 shares authorized;
93,328 shares issued and outstanding at September 30, 2010 and December 31, 2009
|
|
|
|
|
93
|
|
|
|
93
|
|
Additional
paid-in capital
|
|
|
|
|
4,180,573
|
|
|
|
2,001,530
|
|
Deficit
accumulated during the development stage
|
|
|
|
|
(20,337,307
|
)
|
|
|
(15,212,388
|
)
|
|
Total
stockholders deficiency
|
|
|
|
|
(16,156,641
|
)
|
|
|
(13,210,765
|
)
|
|
Total
liabilities and stockholders deficiency
|
|
|
|
$
|
926,811
|
|
|
$
|
90,179
|
|
See Notes to Unaudited Condensed Financial
Statements.
F-2
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
Condensed Statements of Operations
(Unaudited)
|
|
|
|
Nine Months Ended
September 30, 2010
|
|
Nine Months Ended
September 30, 2009
|
|
Period from
October 5, 2006
(Inception) to
September 30, 2010
|
Operating
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublicense
|
|
|
|
$
|
28,286
|
|
|
$
|
|
|
|
$
|
34,572
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
|
|
2,127,578
|
|
|
|
646,731
|
|
|
|
12,703,410
|
|
General and
administrative
|
|
|
|
|
676,048
|
|
|
|
260,743
|
|
|
|
2,966,486
|
|
|
Total
operating expenses
|
|
|
|
|
2,803,626
|
|
|
|
907,474
|
|
|
|
15,669,896
|
|
|
Loss from
operations
|
|
|
|
|
(2,775,340
|
)
|
|
|
(907,474
|
)
|
|
|
(15,635,324
|
)
|
|
Interest
income
|
|
|
|
|
2,067
|
|
|
|
|
|
|
|
29,926
|
|
Interest
expense, including amortization of debt discount and deferred financing costs
|
|
|
|
|
(2,351,646
|
)
|
|
|
(802,364
|
)
|
|
|
(4,731,909
|
)
|
|
Net loss
|
|
|
|
$
|
(5,124,919
|
)
|
|
$
|
(1,709,838
|
)
|
|
$
|
(20,337,307
|
)
|
|
Basic and
diluted net loss per common share
|
|
|
|
$
|
(54.91
|
)
|
|
$
|
(18.32
|
)
|
|
|
|
|
|
Weighted
average common shares outstanding basic and diluted
|
|
|
|
|
93,328
|
|
|
|
93,328
|
|
|
|
|
|
See Notes to Unaudited Condensed Financial
Statements.
F-3
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
Condensed Statement of Changes in
Stockholders Deficiency (Unaudited)
Period from January 1, 2010 to September 30, 2010
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Deficit
Accumulated
During the
Development
Stage
|
|
Total
|
Balance at
January 1, 2010
|
|
|
|
|
93,328
|
|
|
$
|
93
|
|
|
$
|
2,001,530
|
|
|
$
|
(15,212,388
|
)
|
|
$
|
(13,210,765
|
)
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
6,058
|
|
|
|
|
|
|
|
6,058
|
|
Warrants
issued to investors in connection with convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
2,172,985
|
|
|
|
|
|
|
|
2,172,985
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,124,919
|
)
|
|
|
(5,124,919
|
)
|
Balance at
September 30, 2010
|
|
|
|
|
93,328
|
|
|
$
|
93
|
|
|
$
|
4,180,573
|
|
|
$
|
(20,337,307
|
)
|
|
$
|
(16,156,641
|
)
|
See Notes to Unaudited Condensed Financial
Statements.
F-4
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
Condensed Statements of Cash Flows
(Unaudited)
|
|
|
|
Nine Months Ended
September 30, 2010
|
|
Nine Months Ended
September 30, 2009
|
|
Period from
October 5, 2006
(Inception) to
September 30, 2010
|
Cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$
|
(5,124,919
|
)
|
|
$
|
(1,709,838
|
)
|
|
$
|
(20,337,307
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
6,058
|
|
|
|
45,612
|
|
|
|
504,024
|
|
Amortization
of deferred financing costs and debt discount
|
|
|
|
|
852,080
|
|
|
|
175,294
|
|
|
|
1,754,634
|
|
Warrants
issued in connection with related party note conversion
|
|
|
|
|
505,694
|
|
|
|
|
|
|
|
505,694
|
|
Interest
payable 2007 senior convertible notes
|
|
|
|
|
422,249
|
|
|
|
322,659
|
|
|
|
1,222,979
|
|
Expenses paid
on behalf of the Company satisfied through the issuance of notes
|
|
|
|
|
|
|
|
|
|
|
|
|
263,206
|
|
Interest
payable related parties
|
|
|
|
|
135,101
|
|
|
|
111,263
|
|
|
|
513,353
|
|
Interest
payable Paramount Credit Partners
|
|
|
|
|
|
|
|
|
133,936
|
|
|
|
205,811
|
|
Interest
payable 2010 senior convertible notes
|
|
|
|
|
219,210
|
|
|
|
|
|
|
|
219,210
|
|
Depreciation
|
|
|
|
|
6,408
|
|
|
|
6,262
|
|
|
|
27,748
|
|
Amortization
of deferred revenue
|
|
|
|
|
(28,286
|
)
|
|
|
|
|
|
|
(34,573
|
)
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current
assets
|
|
|
|
|
(2,285
|
)
|
|
|
10,115
|
|
|
|
(10,820
|
)
|
Other
assets
|
|
|
|
|
|
|
|
|
8,693
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
|
|
431,733
|
|
|
|
(2,254,418
|
)
|
|
|
2,469,416
|
|
Deferred
revenue sublicense
|
|
|
|
|
|
|
|
|
|
|
|
|
660,000
|
|
|
Net cash used
in operating activities
|
|
|
|
|
(2,576,957
|
)
|
|
|
(3,150,422
|
)
|
|
|
(12,036,625
|
)
|
|
Cash flows
from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
office and computer equipment
|
|
|
|
|
(1,932
|
)
|
|
|
|
|
|
|
(43,688
|
)
|
|
Cash flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
2010 senior convertible notes
|
|
|
|
|
3,343,000
|
|
|
|
|
|
|
|
3,343,000
|
|
Proceeds from
notes payable to Paramount Credit Partners
|
|
|
|
|
|
|
|
|
2,875,000
|
|
|
|
2,875,000
|
|
Proceeds from
notes payable to related party
|
|
|
|
|
215,000
|
|
|
|
214,472
|
|
|
|
4,329,000
|
|
Proceeds from
2007 senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
4,340,000
|
|
Payments for
deferred financing costs
|
|
|
|
|
(737,653
|
)
|
|
|
(62,500
|
)
|
|
|
(1,108,981
|
)
|
Proceeds from
utilization of line of credit
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
150,000
|
|
Repayment of
amounts loaned under related party notes
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,600,000
|
)
|
Proceeds from
receipt of stock issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
4,480
|
|
|
Net cash
provided by financing activities
|
|
|
|
|
2,820,347
|
|
|
|
3,126,972
|
|
|
|
12,332,499
|
|
|
Net increase
(decrease) in cash
|
|
|
|
|
241,458
|
|
|
|
(23,450
|
)
|
|
|
252,186
|
|
Cash
beginning of period
|
|
|
|
|
10,728
|
|
|
|
49,643
|
|
|
|
|
|
|
Cash end of
period
|
|
|
|
$
|
252,186
|
|
|
$
|
26,193
|
|
|
$
|
252,186
|
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
to placement agent
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
358,262
|
|
Warrants issued
to investors in connection with notes
|
|
|
|
$
|
1,667,291
|
|
|
$
|
1,140,915
|
|
|
$
|
2,808,206
|
|
Stock issued to
founders and employees
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52
|
|
Conversion of
PBS Notes to 2010 senior convertible notes
|
|
|
|
$
|
1,000,000
|
|
|
$
|
|
|
|
$
|
1,000,000
|
|
|
Supplemental
disclosure cash paid for interest
|
|
|
|
$
|
217,311
|
|
|
$
|
59,212
|
|
|
$
|
310,227
|
|
See Notes to Unaudited Condensed Financial
Statements.
F-5
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note 1 Organization, Business and
Basis of Presentation:
Organization and business:
IASO Pharma Inc., formerly known as
Pacific Beach BioSciences, Inc. (IASO or the Company), was incorporated in the State of Delaware on October 5, 2006. The
Company changed its name from Pacific Beach BioSciences, Inc. to IASO Pharma Inc. on April 12, 2010. IASO is a biopharmaceutical company developing
therapeutics for the treatment and prevention of infectious diseases.
Basis of presentation:
The accompanying unaudited condensed
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission for interim financial information. Accordingly, the unaudited condensed financial statements do not include all
information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial
statements. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal
recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be
expected for the full year ending December 31, 2010 or for any subsequent period. These unaudited condensed financial statements should be read in
conjunction with the audited financial statements and notes thereto of the Company which are included elsewhere in this registration statement. The
accompanying condensed balance sheet as of December 31, 2009 has been derived from the audited financial statements included elsewhere in this
registration statement.
The Companys primary activities
since incorporation have been organizational activities, including recruiting personnel, establishing office facilities, acquiring licenses for its
pharmaceutical compound pipeline, performing business and financial planning, performing research and development and raising funds through the
issuance of debt and common stock. The Companys planned principal operations have not yet commenced; accordingly, the Company is considered to be
in the development stage. The Companys activities comprise one operating segment.
The Companys financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments through the
normal course of business. For the nine months ended September 30, 2010 and the period from October 5, 2006 (inception) to September 30, 2010, the
Company incurred net losses of $5,124,919 and $20,337,307, respectively. The Company has a stockholders deficiency as of September 30, 2010 of
$16,156,641. Management believes that the Company will continue to incur losses for the foreseeable future and will need additional equity or debt
financing and/or will need to generate significant revenue from the licensing of its products or by entering into strategic alliances to be able to
sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity
financing for the Company, but cannot assure that such financing will be available on acceptable terms, or at all. These matters raise substantial
doubt about the Companys ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Reverse Stock Split:
On January 19, 2011, the Company
effected a 1-for-48 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein have been
adjusted to reflect the effects of the 1-for-48 reverse stock split.
F-6
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note 2 Summary of Significant Accounting
Policies:
Use of estimates:
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Loss per common share:
Basic earnings (loss) per common share
excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted
earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Since the Company has only
incurred losses, basic and diluted loss per share is the same. The number of potentially dilutive securities excluded from the calculation was 7,750
warrants and options at September 30, 2010 and 2009. The number of warrants issued to placement agents that are potentially dilutive and are excluded
from the calculation related to the issuance of senior convertible notes, based upon an exercise price of $48.00 (lowest possible conversion price), at
September 30, 2010 and 2009 is 9,042, respectively. The number of warrants issued to investors that are potentially dilutive and are excluded from the
calculation related to the issuance of senior convertible notes, based upon an exercise price of $48.00 (lowest possible conversion price), at
September 30, 2010 and 2009 is 87,294 and 23,958, respectively.
Fair value measurements:
The carrying value of the
Companys notes payable approximate fair value due to the short-term nature of these notes and since the related interest rate approximates market
rates. There has been no change in the fair value of the Companys notes payable between reporting periods.
Accounting for Convertible Debt, Debt Issued with Stock
Purchase Warrants and Debt Modifications:
In accordance with ASC Topic 470-20,
Debt with Conversion and Other Options, the proceeds from any debt financing in which the Company issues warrants to purchase its common
stock are allocated to the warrants and the debt based upon their estimated relative fair values as of the closing date. The portion of the proceeds
allocated to the warrants is accounted for as additional paid-in capital and a reduction in the carrying value of the related debt. This debt discount
is amortized to interest expense from the issuance date through the maturity date of the debt using the straight-line method.
When the convertible feature of
convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature
(BCF). Prior to the determination of the BCF, the proceeds from the debt instrument are first allocated between the convertible debt and
any detachable free-standing instruments that are included, such as common stock warrants. The Companys outstanding convertible notes currently
have BCFs, however, the number of shares to be issued upon conversion of such will only be determined if a Qualified Financing (as defined in the
notes) is completed. Accordingly, pursuant to ASC Topic 470-20-25, the conversion of the Companys outstanding convertible notes and, therefore,
the recording of the related BCFs, are contingent upon the completion of a Qualified Financing.
As a result of the modifications to the
Companys convertible notes pursuant to the amendment agreements dated December 23, 2010, pursuant to which the holders of such notes agreed to
eliminate the conversion discount at which such notes would automatically convert into common stock upon consummation the Companys proposed
initial public offering (see Note 7), the BCFs associated with such notes will be eliminated upon consummation of such offering and the Company will
not record any beneficial conversion charge to interest expense in connection with the conversion of such notes.
F-7
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Modifications to convertible debt are
recorded in accordance with ASC Topic 470-50, Modifications and Extinguishments of Convertible Debt. A modification of a debt instrument in
a non-troubled situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash
flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of
the original instrument. The modifications to the Companys convertible notes through September 30, 2010 have either been contingent upon the
occurrence of certain events or have not resulted in a change in excess of 10 percent in the present value of the aggregate cash flows associated with
the applicable notes. Accordingly, no charge has been recognized for debt modifications.
As a result of the modifications to the
Companys convertible notes pursuant to the amendment agreements dated December 23, 2010, pursuant to which the holders of such notes agreed to
eliminate the conversion discount at which such notes would automatically convert into common stock upon consummation the Companys proposed
initial public offering in exchange for the Companys issuance of the Contingent Notes and warrants (see Note 7), upon the consummation of such
offering, the Company will record a charge to interest expense in an amount equal to the value of the Contingent Notes and the warrants issued to the
holders of such notes as of the date of such consummation.
Note 3 Related Party Transactions:
Consulting services:
Effective June 2007, the Company began
accruing monthly fees for consulting services at a rate of $25,000 per month to Paramount BioSciences, LLC (PBS), an affiliate of a
significant investor in the Company. Consulting services expense was $0, $0 and $375,000 for the nine months ended September 30, 2010 and 2009 and the
period from October 5, 2006 (inception) to September 30, 2010, respectively. As of September 30, 2010 and December 31, 2009, the Company had $375,000
outstanding under this arrangement which is included in accrued expenses. This agreement was terminated as of August 31, 2008.
Notes payable:
On December 1, 2006, the Company issued
an 8% promissory note payable to PBS. All amounts outstanding under this note, which was amended and restated on September 30, 2009, mature and are
payable on March 31, 2011 (extended from September 30, 2010 pursuant to an extension agreement dated as of September 16, 2010 and from December 31,
2010 pursuant to an amendment agreement dated as of December 23, 2010), or earlier if certain events occur. All amounts outstanding under this note
will automatically convert into the Companys equity securities issued in the Companys next equity financing (or series of related equity
financings) prior to the maturity date involving the sale of securities in which the Company receives at least $10,000,000 in aggregate gross cash
proceeds (before brokers fees or other transaction related expenses, and excluding any such proceeds resulting from any conversion of the
Companys then-existing convertible bridge notes minus the amount of aggregate gross cash proceeds to the Company from the sale of equity or debt
securities of the Company after December 14, 2009 (a Qualified Financing)), at a conversion price equal to 70% of the lowest per unit price
paid for such securities in cash by investors in such Qualified Financing, and upon such other terms, conditions and agreements as may be applicable in
such Qualified Financing. This note will also automatically convert into equity securities of the Company immediately prior to a sale or merger of the
Company, as defined in the notes. In the event that this note becomes due and payable (whether on the due date or earlier) prior to the consummation by
the Company of a Qualified Financing, or a sale or merger of the Company which converts the note into equity securities of the Company, then in
connection with the repayment of the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note,
the Company will be obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount
plus all accrued and unpaid interest on the note. Notwithstanding the foregoing, all loans (including principal and accrued interest thereon) made by
PBS to the Company under this note on or after September 30, 2009, up to $1,000,000 in the aggregate, shall immediately and automatically be converted
into the same equity or derivative securities as are issued in any equity or derivative equity
F-8
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
financing consummated by the
Company on or after September 30, 2009 that does not otherwise constitute a Qualified Financing, on the same terms and conditions that such equity
securities are offered in such non-Qualified Financing. On January 4, 2010, PBS advanced another $215,000 to the Company. On February 9, 2010,
$1,000,000 in principal outstanding under this note was converted into 2010 Notes pursuant to this provision. This note was issued to PBS for expenses
that PBS has paid on behalf of the Company. As of September 30, 2010 and December 31, 2009, the principal amount outstanding under this note is
$1,282,205 and $2,067,205, respectively.
On December 1, 2006, the Company issued
an 8% promissory note payable to a trust established for the benefit of the family of the sole member of PBS. All unpaid principal and accrued and
unpaid interest outstanding under this note, which was amended and restated on September 30, 2009, matures and is payable on March 31, 2011 (extended
from September 30, 2010 pursuant to an extension agreement dated as of September 16, 2010 and from December 31, 2010 pursuant to an amendment agreement
dated as of December 23, 2010), or earlier if certain events occur. All amounts outstanding under this note will automatically convert into the
Companys equity securities issued in the Companys next equity financing (or series of related equity financings) prior to the maturity date
involving the sale of securities in which the Company receives at least $10,000,000 in a Qualified Financing, at a conversion price equal to 70% of the
lowest per unit price paid for such securities in cash by investors in such Qualified Financing, and upon such other terms, conditions and agreements
as may be applicable in such Qualified Financing. This note will also automatically convert into equity securities of the Company immediately prior to
a sale or merger of the Company, as defined in the notes. In the event that this note becomes due and payable (whether on the due date or earlier)
prior to the consummation by the Company of a Qualified Financing, or a sale or merger of the Company which converts the note into equity securities of
the Company, then in connection with the repayment of the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid
interest on the note, the Company will be obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the
aggregate principal amount plus all accrued and unpaid interest on the note. As of September 30, 2010 and December 31, 2009, the principal amount
outstanding under this note is $660,000.
On December 18, 2008, the Company
issued an 8% promissory note payable to an entity related to the sole member of PBS. All unpaid principal and accrued and unpaid interest outstanding
under this note, which was amended and restated on September 30, 2009, matures and is payable on March 31, 2011 (extended from September 30, 2010
pursuant to an extension agreement dated as of September 16, 2010 and from December 31, 2010 pursuant to an amendment agreement dated as of December
23, 2010), or earlier if certain events occur. All amounts outstanding under this note will automatically convert into the Companys equity
securities issued in the Companys next equity financing (or series of related equity financings) prior to the maturity date involving the sale of
securities in which the Company receives at least $10,000,000 in a Qualified Financing, at a conversion price equal to 70% of the lowest per unit price
paid for such securities in cash by investors in such Qualified Financing, and upon such other terms, conditions and agreements as may be applicable in
such Qualified Financing. This note will also automatically convert into equity securities of the Company immediately prior to a sale or merger of the
Company, as defined in the note. In the event that this note becomes due and payable (whether on the due date or earlier) prior to the consummation by
the Company of a Qualified Financing, or a sale or merger of the Company which converts the note into equity securities of the Company, then in
connection with the repayment of the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note,
the Company will be obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount
plus all accrued and unpaid interest on the note. As of September 30, 2010 and December 31, 2009, the principal amount outstanding under this note is
$50,000.
The promissory notes referenced in the
preceding three paragraphs are sometimes referred to herein as the Related Party Notes.
As a result of the modifications to the
Related Party Notes pursuant to the amendment agreement dated December 23, 2010 (see Note 7), the beneficial conversion feature associated with the
Related Party Notes will
F-9
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
be eliminated upon consummation of
the Companys proposed initial public offering and the Company will not record any beneficial conversion charge to interest expense in connection
with the conversion of the Related Party Notes. Instead, upon the consummation of the Companys proposed initial public offering, the Company will
record a charge to interest expense in an amount equal to the value of the Contingent Notes and the warrants to be issued to the holders of the Related
Party Notes upon the consummation of such offering.
On January 15, 2009 and June 24, 2009,
the Company issued 10% promissory notes (the PCP Notes) payable in the aggregate amount of $2,875,000 to Paramount Credit Partners, LLC
(PCP), an entity whose managing member is a significant stockholder of the Company. Interest on this note is payable quarterly, in arrears,
and the principal matures on the earlier of (i) December 31, 2013, (ii) the completion of a Qualified Financing, and (iii) the completion of a Reverse
Merger (each, as defined below). In addition, PCP received five-year warrants (PCP Warrants) to purchase, at an exercise price of 110% of
the lowest price paid for securities in a Qualified Financing, a number of shares of the Companys common stock equal to 40% of the principal
amount of the Notes purchased divided by the lowest price paid for securities in a Qualified Financing prior to the two-year anniversary of the notes.
If the Qualified Financing does not occur on or before the two-year anniversary of the notes, the PCP Warrants will be exercisable for a number of
shares of the Companys common stock equal to 40% of the principal amount of the Notes purchased divided by $48.00, at a per share exercise price
of $48.00. As of September 30, 2010 and December 31, 2009, the principal amount outstanding under these notes is $2,128,686 and $1,957,549,
respectively. For purposes of the PCP Notes, Qualified Financing means the closing of an equity financing or series of related equity
financings by the Company resulting in aggregate gross cash proceeds (before brokers fees or other transaction related expenses) of at least
$10,000,000. For purposes of the PCP Notes, Reverse Merger means a merger, share exchange or other transaction or series of related
transactions in which (a) the Company merges into or otherwise becomes a wholly owned subsidiary of a company subject to the public company reporting
requirements of the Securities Exchange Act of 1934, as amended, and (b) the aggregate consideration payable to the Company or its stockholders in such
transaction(s) (the Reverse Merger Consideration) is greater than or equal to $10,000,000. The Company valued the PCP Warrants issued in
January 2009 at $1,093,725 and the PCP Warrants issued in June 2009 at $47,191 using the Black Scholes pricing model, assuming that the warrants were
presently exercisable in the aggregate for that number of shares of the Companys common stock equal to 40% of the principal amount of the PCP
Notes, divided by $48.00 (or 1,150,000), at an exercise price of $52.80, and the following additional assumptions: (i) a risk-free interest rate of
3.39%; (ii) an expected volatility of 246.18%; (iii) an expected term (contractual term) of five years; and (iv) an expected dividend yield of
0%.
The Company has paid
interest owed to PCP for the first quarter of 2009 and the first three quarters of 2010. For the second, third and fourth quarters of 2009, the Company
had insufficient funds to pay the quarterly interest amount owed to PCP. Interest amounts for these three quarterly periods were paid directly by
Lindsay A. Rosenwald, M.D. to PCP, pursuant to certain guarantee obligations owed by Dr. Rosenwald under PCPs operating
agreement.
Paramount BioCapital,
Inc. (PCI) acted as placement agent for the private placement of the Companys senior convertible notes in the aggregate principal
amount of $4,340,000 during 2007.
On December 3, 2008,
the Company, PBS and various other private pharmaceutical companies with common ownership by the sole member of PBS entered into a loan agreement with
Bank of America, N.A. for a line of credit of $2,000,000. PBS pledged collateral securing the Companys and the other borrowers obligations
to Bank of America, N.A. under the loan agreement. Interest on amounts borrowed under the line of credit accrues and is payable on a monthly basis at
an annual rate equal to the London Interbank Offered Rate (LIBOR) plus 1%. On November 10, 2009, the parties entered into Amendment No. 1 to the Loan
Agreement, which extended the initial one-year term for an additional year to November 5, 2010, and reduced the aggregate amount available under the
line of credit to $1,000,000. Under the loan agreement, the Companys liability under the line of credit was several, not joint, with respect to
the payment of all obligations thereunder. As of each of September 30, 2010 and December 31, 2009, the amounts borrowed by the Company that were
outstanding under this line of credit were $150,000. (See Note 7).
F-10
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note 4 Stockholders Deficiency:
Common stock options and warrants:
A summary of the
Companys stock option activity under the Plan and related information is as follows:
|
|
|
|
Nine Months Ended
September 30, 2010
|
|
Nine Months Ended
September 30, 2009
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
Outstanding
at beginning of period
|
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
Outstanding
at end of period
|
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
Options
exercisable at September 30
|
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
The weighted average remaining
contractual life of stock options outstanding at September 30, 2010 is 7 years.
As of September 30,
2010, the total compensation expense related to common stock options has been recognized.
Equity instruments summary:
The following table summarizes all
equity instruments issued or granted by the Company during the nine months ended September 30, 2010 and sets forth for each issuance/grant date, the
number of options, warrants, or shares issued or granted, the exercise price, the estimated fair value of the common stock, and the intrinsic value, if
any, per equity instrument:
Issuance/Grant Date
|
|
|
|
No. of Shares /
Shares Underlying
Options/
Shares
Underlying
Warrants
|
|
Sales Price /
Exercise Price
|
|
Estimated Fair
Value Per Share of
Common Stock
at
Issuance/Grant Date
(1)
|
|
Intrinsic Value at
Issuance/Grant
Date
(2)
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/09/2010
|
|
|
|
|
|
(3)
|
|
$
|
25.92
|
|
|
N/A
|
3/01/2010
|
|
|
|
|
|
(3)
|
|
|
28.32
|
|
|
N/A
|
5/26/2010
|
|
|
|
2,083
|
|
(4)
|
|
(4)
|
|
N/A
|
(1)
|
|
All determinations of estimated fair value were made by the
Companys management, retrospectively, utilizing the market approach which uses direct comparisons to other enterprises and their equity
securities to estimate the fair value of the common shares of privately issued securities, as described in more detail below.
|
(2)
|
|
Intrinsic value reflects the amount by which the estimated fair
value of the common stock (as of the issuance/grant date) exceeds the exercise price of the stock option or warrant. Items in this column marked
N/A represent equity instruments for which the intrinsic value was not determinable as of the issuance/grant date because the exercise
price of such instrument was not known at the issuance/grant date.
|
(3)
|
|
See Note 5 Private Placements 2010 senior
convertible notes for a discussion of these warrants. Due to the contingent exercisability of these warrants, the number of shares issuable upon
exercise, the exercise price per share and the intrinsic value, if any, of these warrants could not be determined as of the issuance date.
|
(4)
|
|
See Note 6 Commitments Hofer Consulting
Agreement and Warrant for a discussion of this warrant. Due to the contingent exercisability of this warrant, the number of shares issuable
upon
|
F-11
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
exercise, the exercise price per
share and the intrinsic value, if any, of this warrant could not be determined as of the issuance date. In addition, because this warrant does not
provide for a specific exercise price in the event a Qualified Financing is not consummated, the fair value of this warrant could not be
estimated.
The fair values of the Companys
common stock set forth in the table above and used in the Black-Scholes pricing model for valuing the Companys options and warrants were
estimated using a market based approach, a guideline transaction analysis, and a binomial lattice model using a Qualified Financing as the exit event
scenario. The fair values of the common stock were estimated based on enterprise values either implied by capital raises (i.e., financing transactions)
as of their respective dates of issuances, or the trended enterprise values (using a guideline company analysis) from those enterprise values implied
by the capital raises to the respective valuation dates.
The trended enterprise value represents
the estimated enterprise value as of a particular date based on the changes in value from a date on which an enterprise value was otherwise determined,
which changes in value are estimated using a guideline company analysis. For this guideline company analysis the Company used publicly traded
comparable companies (which are referred to as guideline companies) that were selected because they were in similar stages of product development
within the pharmaceutical industry and therefore shared similar business and financial risks. This guideline company analysis involved an analysis of
the percentage changes of the guideline companies enterprise values from valuation dates when there were capital raises for the Company to the
valuation dates when there was not a capital raise. Based on the guideline companies percentage changes in enterprise value, together with
company specific and various market factors (i.e., achievement of product milestones for guideline companies and the Company), a percentage change in
enterprise value was estimated for the Company. This estimated percentage change was then applied to the Companys enterprise value as of the most
current valuation date on which there was a capital raise to estimate the fair value of the Company on the next valuation date when there was not a
capital raise. Considering the limited passage of time between valuation dates and the nature of the Companys operations, the Company believes
that the trended enterprise value using the guideline company analysis, as described above, is the most reasonable and reliable indicator of changes in
enterprise value for the Company, as it provides a market proxy for changes in investor expectations and perception.
The following table summarizes the
derivation of the Companys enterprise value as of each of the valuation dates set forth below.
Valuation Date
|
|
|
|
Method for Derivation of
Enterprise Value
|
|
Transaction
|
|
Trended From
|
|
9/27/2007
|
|
|
|
Trended Using
Guideline
Company Analysis
|
|
|
|
12/14/07
|
|
|
|
|
12/14/2007
|
|
|
|
Transaction
|
|
2007
Notes
|
|
|
|
|
|
|
2/21/2008
|
|
|
|
Trended Using
Guideline
Company Analysis
|
|
|
|
12/14/07
|
|
|
|
|
1/15/2009
|
|
|
|
Transaction
|
|
PCP Notes &
Warrants
|
|
|
|
|
|
|
6/24/2009
|
|
|
|
Trended Using
Guideline
Company Analysis
|
|
|
|
1/15/09
|
|
|
|
|
2/9/2010
|
|
|
|
Transaction
|
|
2010 Notes
& Warrants
|
|
|
|
|
|
|
3/1/2010
|
|
|
|
Trended Using
Guideline
Company Analysis
|
|
|
|
2/9/10
|
|
|
|
|
After arriving at an enterprise value
using the valuation methodologies described above, the enterprise values were then allocated, adjusting for cash and debt, to our different equity
securities using the binomial lattice model. The binomial lattice model provides a quantitative method to estimate the relative values of securities in
a companys capital structure, including its common stock, based on the implied enterprise value from a financing transaction undertaken by the
Company.
F-12
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
The prices that were paid by the
investors for the respective transactions identified in the above table were utilized in the binomial lattice model to imply the enterprise values of
the Company as of those respective valuation dates. As described above, for those valuation dates that utilized a trended enterprise value from the
issuance of debt (and in some cases warrants), the implied enterprise values from the capital raises were trended to the applicable valuation dates
based on consideration of the changes in enterprise values of guideline companies between those same dates using the guideline company analysis
described above.
Using the binomial lattice model, the
concluded enterprise values were allocated among the securities given the capital structure of the Company to derive an estimate for the values of the
common stock as of the respective valuation dates. An incremental lack of marketability discount of 20%25% was then applied to the values of
common stock to estimate the fair values of the common stock at the respective valuation dates.
The concluded enterprise values were
then used to solve for the internal rates of return (IRR), or discount rates, based on the cash flow projections provided by management as
of each of the respective valuation dates. The resulting implied IRRs of 32%34% were then compared to certain market benchmarks, including
venture capital rates of return, to assess the reasonableness thereof from a market based perspective.
As described above, the guideline
transaction method was utilized as additional evidence for the reasonableness of the enterprise values implied by the Companys capital raises.
First, the guideline transactions were identified, using publicly traded guideline companies in similar stages of product development within the
pharmaceutical industry. Then, the implied enterprise values of the guideline transactions were compared with the derived enterprise values of the
Company as of the respective valuation dates to assess the reasonableness thereof from a market perspective.
Note 5 Private Placements:
2007 senior convertible notes:
During 2007, the Company issued 8%
senior convertible notes in connection with a private placement in the aggregate principal amount of $4,340,000 (the 2007 Notes). The 2007
Notes were originally scheduled to mature on December 14, 2008, but the Company exercised its option to extend the maturity date to December 14, 2009,
at an increased interest rate of 10%. The Company subsequently solicited the consent of the Noteholders to an additional extension of the maturity date
of the 2007 Notes to September 30, 2010 (which was subsequently further extended to December 31, 2010 pursuant to an extension agreement dated as of
September 16, 2010 and to March 31, 2011 pursuant to an amendment agreement dated as of December 23, 2010). After giving effect to such consent, the
2007 Notes, plus all accrued interest thereon, will automatically convert into the same securities issued in the Companys next Qualified
Financing (as defined below), at a conversion price equal to 70% of the lowest per unit price paid for such securities in cash by investors in such
Qualified Financing, and upon such other terms, conditions and agreements as may be applicable in such Qualified Financing. The Company valued the
beneficial conversion feature of the 2007 Notes at $1,860,000, which will be recorded as interest expense only if a Qualified Financing is
completed.
The amount of the value of the
beneficial conversion feature is not dependent upon the price at which the 2007 Notes convert to common stock. The number of shares to be issued upon
conversion will be determined for the principal amount of the 2007 Notes and the accrued interest on such 2007 Notes if a Qualified Financing (as
defined below) is completed. Accordingly, pursuant to ASC Topic 470-20-25, the conversion of the 2007 Notes and, therefore, the recording of the
beneficial conversion feature, are contingent upon the completion of a Qualified Financing. The value of the beneficial conversion feature for the 2007
Notes was determined based on the amount of the 2007 Notes and the discount at which such 2007 Notes convert, contingent on the occurrence of certain
events (including a Qualified Financing), into common stock. Upon conversion of the 2007 Notes, the Company will record as interest expense a
beneficial conversion charge of $1,860,000 for the principal amount of the 2007 Notes plus an additional beneficial conversion charge for the accrued
interest on the 2007 Notes through the date of conversion. Specifically, the beneficial conversion feature calculation is as follows:
F-13
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Principal
amount of 2007 Notes
|
|
|
|
$
|
4,340,000
|
|
Divided by
percentage of price at which 2007 Notes convert to common stock
|
|
|
|
|
70
|
%
|
Aggregate
value to investors
|
|
|
|
|
6,200,000
|
|
Less
principal amount of 2007 Notes
|
|
|
|
|
4,340,000
|
|
Amount of
beneficial conversion feature
|
|
|
|
$
|
1,860,000
|
|
However, as a result of the
modifications to the 2007 Notes pursuant to the amendment agreement dated December 23, 2010 (see Note 7), the beneficial conversion feature associated
with the 2007 Notes will be eliminated upon consummation of the Companys proposed initial public offering and the Company will not record any
beneficial conversion charge to interest expense in connection with the conversion of the 2007 Notes. Instead, upon the consummation of the
Companys proposed initial public offering, the Company will record a charge to interest expense in an amount equal to the value of the Contingent
Notes and the warrants to be issued to the holders of the 2007 Notes upon the consummation of such offering.
The 2007 Notes will also automatically
convert into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the 2007 Notes. In the event that the
2007 Notes become due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified Financing, or a sale or
merger of the Company which converts the 2007 Notes into equity securities of the Company, then in connection with the repayment of the 2007 Notes, in
addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the 2007 Notes, the Company will be obligated to pay to
the Noteholders, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid interest on
the 2007 Notes. For purposes of the 2007 Notes, Qualified Financing means the sale of the Companys equity securities in an equity
financing or series of related equity financings in which the Company receives (minus the amount of aggregate gross cash proceeds to the Company from
our arms length sale of equity or debt securities, or incurrence of new loans, after December 14, 2009) aggregate gross proceeds of at least
$10,000,000 (before brokers fees or other transaction related expenses, and excluding any such proceeds resulting from any conversion of the 2007
Notes).
In connection with the offering of the
2007 Notes, PCI and the Company entered into a placement agency agreement dated September 18, 2007, pursuant to which the Company paid PCI cash
commissions of $198,800 (of which $38,500 was further allocated to third party agents) for their services. The Company also has agreed to pay to PCI a
commission on sales by the Company of securities during the 18-month period subsequent to December 14, 2007 to the purchasers of the 2007 Notes who
were introduced to the Company by PCI. The Company also granted PCI the right of first refusal to act as exclusive finder, placement agent or other
similar agent in relation to any securities offerings on its behalf during the 18-month period following December 14, 2007. This agreement has since
expired. PCI is a related party to the Company since it is an affiliate of a significant investor in the Company.
In addition, PCI received warrants (the
Placement Warrants) to purchase, at an exercise price of 110% of the lowest price paid for securities in a Qualified Financing, a number of
shares of the Companys common stock equal to 10% of the principal amount of the 2007 Notes purchased, less any amount used to repay the related
party notes, or amounts due to PBS or their affiliates or employees as finders fees, payments under the services agreement or other similar
payments, divided by the lowest price paid for securities in a Qualified Financing prior to December 14, 2009. If the Qualified Financing did not occur
on or before December 14, 2009, the Placement Warrants will be exercisable for a number of shares of the Companys common stock equal to 10% of
the principal amount of the 2007 Notes purchased, less any amount used to repay the related party notes, or amounts due to PBS or their affiliates or
employees as finders fees, payments under the services agreement or other similar payments, divided by $48.00, at a per share exercise price of
$48.00 and are exercisable for seven years. Since the Qualified Financing did not occur by such date, the Placement Warrants are now exercisable into
9,042 shares of the Companys common stock, at a per share exercise price of $48.00. The Company estimated the value of the Placement Warrants at
approximately $358,000 using the Black-Scholes option pricing model and the following assumptions: (i) a risk-free interest rate of 3.88%; (ii) an
expected volatility of 98.94%;
F-14
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(iii) an expected term (contractual
term) of seven years; and (iv) an expected dividend yield of 0%. The Company recorded the value of the warrants as deferred financing costs, which was
amortized to interest expense over the term of the 2007 Notes. (See Note 7).
2010 senior convertible notes:
In February and March 2010, the Company
issued 8% senior convertible notes in connection with a private placement in the aggregate principal amount of $4,343,000 (the 2010 Notes).
The 2010 Notes mature on February 9, 2012. Upon the closing of a Qualified IPO (as defined below), the 2010 Notes plus any accrued but unpaid interest
thereon will convert automatically into shares of the Companys common stock at 70% of the price at which shares of common stock are sold in the
Qualified IPO (the IPO Price), upon the terms and conditions on which such securities are issued in the Qualified IPO. The Company valued
the beneficial conversion feature of the 2010 Notes at $1,861,000, which will be recorded as interest expense only if a Qualified IPO is
completed.
The amount of the value of the
beneficial conversion feature is not dependent upon the price at which the 2010 Notes convert to common stock. The number of shares to be issued upon
conversion will be determined for the principal amount of the 2010 Notes and the accrued interest on such 2010 Notes if a Qualified IPO (as defined
below) is completed. Accordingly, pursuant to ASC Topic 470-20-25, the conversion of the 2010 Notes and, therefore, the recording of the beneficial
conversion feature, are contingent upon the completion of a Qualified IPO. The value of the beneficial conversion feature for the 2010 Notes was
determined based on the amount of the 2010 Notes and the discount at which such 2010 Notes convert, contingent on the occurrence of certain events
(including a Qualified IPO), into common stock. Upon conversion of the 2010 Notes, the Company will record as interest expense a beneficial conversion
charge of $1,861,000 for the principal amount of the 2010 Notes plus an additional beneficial conversion charge for the accrued interest on the 2010
Notes through the date of conversion. Specifically, the beneficial conversion feature calculation is as follows:
Principal
amount of 2010 Notes
|
|
|
|
$
|
4,343,000
|
|
Divided by
percentage of price at which 2010 Notes convert to common stock
|
|
|
|
|
70
|
%
|
Aggregate
value to investors
|
|
|
|
|
6,204,000
|
|
Less
principal amount of 2010 Notes
|
|
|
|
|
4,343,000
|
|
Amount of
beneficial conversion feature
|
|
|
|
$
|
1,861,000
|
|
However, as a result of the
modifications to the 2010 Notes pursuant to the amendment agreement dated December 23, 2010 (see Note 7), the beneficial conversion feature associated
with the 2010 Notes will be eliminated upon consummation of the Companys proposed initial public offering and the Company will not record any
beneficial conversion charge to interest expense in connection with the conversion of the 2010 Notes. Instead, upon the consummation of the
Companys proposed initial public offering, the Company will record a charge to interest expense in an amount equal to the value of the Contingent
Notes to be issued to the holders of the 2010 Notes upon the consummation of such offering.
For purposes hereof, Qualified
IPO means the consummation of an initial public offering by the Company of equity securities resulting in aggregate gross cash proceeds (before
commissions or other expenses) to the Company of at least $10,000,000.
Each 2010 Noteholder also holds a
warrant to purchase a number of shares of the Companys common stock equal to 70% of the principal amount of the 2010 Notes purchased by it
divided by the IPO Price at a per share exercise price equal to the exercise price of the warrants issued in the Qualified IPO, subject to adjustment.
Each of these warrants will expire and no longer be exercisable on February 9, 2015. Notwithstanding the foregoing, if a Qualified IPO does not occur
on or before February 9, 2012, then each warrant will be exercisable for that number of shares of the Companys common stock equal to 70% of the
principal amount of the 2010 Note purchased by the original holder divided by $48.00, at a per share exercise price of $48.00. In the event of a sale
of the Company (whether my merger, consolidation, sale or transfer of the Companys capital stock or
F-15
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
assets or otherwise) prior to, but
not in connection with, a Qualified IPO, each of these warrants will terminate 90 days following such sale and the warrants shall continue to be
exercisable pursuant to its terms during such 90-day period. The Company valued these warrants at $2,172,985 using the Black Scholes option pricing
model, assuming that the warrants were presently exercisable in the aggregate for that number of shares of the Companys common stock equal to 70%
of the principal amount of the 2010 Notes, divided by $48.00 (or $3,040,100), at an exercise price of $48.00, and the following additional assumptions:
(i) a risk-free interest rate of 2.32% (2.28% for warrants issued in March 2010); (ii) an expected volatility of 110% (100% for warrants issued in
March 2010); (iii) an expected term (contractual term) of five years; and (iv) an expected dividend yield of 0%.
Lindsay A. Rosenwald, M.D., a
significant stockholder of the Company and a related party, purchased $500,000 in aggregate principal amount of 2010 Notes and related warrants in this
offering. In addition, a 2010 Note and related warrant in the aggregate principal amount of $1,000,000 were issued to PBS for the cancellation of
certain debt, discussed above.
In connection with the offering of the
2010 Notes and related warrants, Maxim Group LLC (Maxim) and the Company entered into a placement agency agreement dated October 13, 2009,
as amended on February 8, 2010, pursuant to which the Company paid Maxim cash commissions of $351,730 for its services.
The Company also granted Maxim the
right of first negotiation to co-manage any public underwriting or private placement of debt or equity securities, subject to customary exclusions, of
the Company or any subsidiary or successor of the Company, receiving the right to underwrite or place a minimum of 50% of the securities to be sold
therein, until eighteen months after completion of the offering of the 2010 Notes and related warrants.
Note 6 Commitments:
Hofer Consulting Agreement and
Warrant:
On May 26, 2010, the Company entered
into a consulting agreement with Timothy Hofer, the Companys Corporate Secretary, pursuant to which Mr. Hofer provides the Company with general
consulting services focused on general business and company development. Mr. Hofer is also a stockholder of the Company and an employee of PBS, a
related party. This consulting agreement is for a period of one year, subject to renewal for such longer period as the Company may agree in writing
with Mr. Hofer, and may be terminated by either party upon 30 days prior written notice.
Under the terms of the consulting
agreement with Mr. Hofer and as compensation for his services thereunder, the Company granted Mr. Hofer a ten-year warrant to purchase 2,083 shares of
the Companys common stock, subject to adjustment as described below (the Hofer Consultant Warrant). The Hofer Consultant Warrant will
become exercisable upon the consummation of a Qualified Financing at a per share exercise price equal to the price at which shares of the
Companys common stock are issued in such Qualified Financing. If a Qualified Financing does not occur on or before March 31, 2011 (extended from
September 30, 2010 pursuant to an extension agreement dated as of September 16, 2010 and from December 31, 2010 pursuant to an amendment agreement
dated as of December 23, 2010), then the Hofer Consultant Warrant will be immediately exercisable at a per share exercise price equal to the fair
market value of the Companys common stock, as determined pursuant to a valuation performed by an independent appraisal firm. Under the terms of
the Hofer Consultant Warrant, if the Company consummates a Qualified Financing, the number of shares of common stock issuable upon exercise of the
Hofer Consultant Warrant will be automatically adjusted so that such number of shares is equal to 1.0% of the Companys outstanding common stock
on a fully diluted basis, after giving effect to such Qualified Financing (including the conversion of all the Companys convertible notes
triggered by such Qualified Financing). This adjustment provision will terminate once the Company consummates a Qualified Financing. For purposes of
the Hofer Consultant Warrant, a Qualified Financing means the Companys next equity financing (or series of related equity financings)
sufficient to trigger conversion of all amounts then outstanding under the Companys senior convertible promissory notes.
F-16
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Klingler Employment Agreement
Effective July 12, 2010, the Company
entered into an employment agreement with James W. Klingler, pursuant to which Mr. Klingler serves as the Companys Chief Financial Officer. Mr.
Klinglers employment is at-will, subject to certain severance payments payable to him. Mr. Klinglers employment agreement provides for an
annual base salary of $225,000. Effective as of July 12, 2010 through September 6, 2010, Mr. Klingler was employed on a part-time basis and was
eligible to receive 50% of his base salary. Since September 7, 2010, Mr. Klingler has been employed on a full-time basis and receives 100% of his base
salary.
Mr. Klingler will also be eligible to
receive an additional annual discretionary bonus in an amount equal to up to 20% of the salary earned by Mr. Klingler in the prior year, and based upon
corporate and Mr. Klinglers individual performance on our behalf in the prior year, in the Board of Directors sole discretion. The annual
discretionary bonus will be payable in a lump-sum payment or in installments, in our sole discretion. As additional compensation, Mr. Klingler will
also be eligible to receive a $60,000 bonus upon our completion of an initial public offering, payable within thirty days of the closing of such
initial public offering.
Pursuant to Mr. Klinglers
employment agreement, as amended on December 22, 2010, Mr. Klingler will be granted options to purchase such number of shares of common stock equal to
2% of the common stock outstanding on a fully diluted basis upon the completion of an initial public offering (which exact number will be determined by
the Compensation Committee) in accordance with the terms of the Companys 2007 Stock Incentive Plan. Such options will vest in three equal
installments over a two-year period with the first installment vesting on the grant date and the remaining two installments vesting on the first and
second anniversaries of the grant date, respectively.
Note 7 Subsequent events:
The Company has evaluated subsequent
events through January 19, 2011, the date at which the condensed financial statements were available to be issued.
Following discussions with Dong Wha
regarding a delay between the initiation of the Companys Phase 2 CAP trial in March 2010 and the first patient dosing in such trial in May 2010,
on November 4, 2010, the Company entered into an amendment to the Dong Wha License Agreement, pursuant to which the Company agreed to pay Dong Wha
$200,000 by February 28, 2011 to compensate Dong Wha for such delay. In connection with such amendment, the Company also agreed to two additional
milestones: A financing milestone requiring that the Company conduct an equity offering yielding at least $10 million in net proceeds by February 28,
2011 and an additional development milestone requiring that the Company complete patient enrollment in the Phase 2 CAP trial by April 30, 2012 and
deliver a draft clinical study report to Dong Wha by July 31, 2012. If the Company fails to achieve either of these new milestones, Dong Wha will have
the right to terminate the license agreement at anytime within 90 days of such failure.
On November 5, 2010, the Company repaid
the amounts outstanding under the line of credit with Bank of America, N.A. with the proceeds of a new line of credit the Company entered into with
Israel Discount Bank of New York (IDB Bank) in the amount of $150,000, which is evidenced by a promissory note the Company issued to IDB
Bank on such date. On December 23, 2010, the Company entered into an amendment with IDB Bank to increase the line of credit to $325,000. The
Companys obligations under the IDB Bank line of credit are secured by cash collateral pledged by Dr. Rosenwald from an account maintained by Dr.
Rosenwald at IDB Bank. The interest rate on loans under the IDB Bank line of credit is equal to the interest rate that IDB Bank pays to Dr. Rosenwald
on the cash account pledged to secure the loans, plus 1%. Amounts borrowed under the IDB Bank line of credit are due upon the earlier to occur of a
demand by IDB Bank or November 4, 2011. The Company intends to use borrowings under the IDB Bank line of credit to fund the Companys operations
until the completion of its proposed initial public offering.
On December 22, 2010, the Company
entered into amendments to the employment agreements with the Companys Chief Executive Officer and its Chief Financial Officer, which replaced
their existing equity incentive compensation provisions with an agreement to grant to them, upon consummation of the Companys
proposed
F-17
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
initial public offering, options to
purchase shares of common stock representing 5% and 2%, respectively, of the common stock outstanding upon consummation of such offering on a fully
diluted basis. Also on December 22, 2010, the Companys board of directors approved the issuance, upon consummation of the Companys proposed
initial public offering, of options to purchase shares of common stock representing 1% of the common stock outstanding upon consummation of such
offering on a fully diluted basis to each of the Companys Director of New Product Development and its Vice President of Regulatory Affairs. All
such options will have an exercise price equal to the price at which shares of common stock are sold in such offering and will vest in three equal
installments over a two-year period with the first installment vesting on the grant date and the remaining two installments vesting on the first and
second anniversaries of the grant date, respectively. On such date, the Companys board of directors also approved the issuance, upon consummation
of the Companys proposed initial public offering, of options to purchase shares of common stock representing 0.25% of the common stock
outstanding upon consummation of such offering on a fully diluted basis to each of the Companys five non-employee directors, which options will
have an exercise price equal to the price at which shares of common stock are sold in such offering and will vest in two equal installments over a
one-year period with the first installment vesting on the grant date and the remaining installment vesting on the first anniversary of the grant
date.
On December 23, 2010, the Company
entered into amendment agreements with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes, pursuant to which the holders agreed
to eliminate their 30% conversion discount if the Company consummates a Qualified IPO by March 31, 2011 and the other transactions contemplated by the
amendment agreements, which are described below, are consummated. The amendment agreement with the holders of the 2007 Notes will be become effective
upon the execution thereof by holders of 66-2/3% of the aggregate outstanding principal amount of the 2007 Notes and the amendment agreement with the
holders of the 2010 Notes will be become effective upon the execution thereof by holders of 66-2/3% of the aggregate outstanding principal amount of
the 2010 Notes.
Under the amendment agreements, the
Company agreed to issue to the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes, upon the consummation of a Qualified IPO,
contingent promissory notes in an aggregate principal amount equal to 10% of the unpaid principal and accrued interest on the 2007 Notes, the 2010
Notes and the Related Party Notes as of the date a Qualified IPO is consummated (the Contingent Notes). The Contingent Notes will become
payable upon the occurrence of a Contingency Event (as defined below) together with interest thereon, which will accrue at the rate of 5% per annum. In
addition, in the event the Company commences commercial sales of its products prior to the occurrence of a Contingency Event, the Company will be
required to pay to the holders of the Contingent Notes an amount equal to 10% of the Companys net sales from its products for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until the holders have received the full principal amount
of the Contingent Notes and all accrued interest thereon. For purposes of the Contingent Notes, Contingency Event means (i) the entry by
the Company into any agreement relating to the license, development, marketing or sale of PB-101 with any third party, other than its current
agreements with Dong Wha (ii) the sale of all or substantially all the Companys assets to a non-affiliate or the acquisition by a non-affiliate
of a majority of the Companys outstanding capital stock or the voting power to elect a majority of the Companys board of directors (whether
by merger, consolidation, sale or transfer of capital stock or otherwise) or (iii) the consummation by the Company, at any time following approval by
the FDA of an NDA for PB-101, of any equity or debt financing (or series of related equity or debt financings) from non-affiliates yielding at least
$10,000,000 in aggregate net cash proceeds (after commissions and transaction expenses).
Under the amendment agreements with the
holders of the 2007 Notes and the Related Party Notes, the Company agreed to issue to the holders of the 2007 Notes and the Related Party Notes, upon
the consummation of a Qualified IPO, five-year warrants to purchase common stock equal to 70% of the original principal amount of the 2007 Notes on
similar terms as the warrants issued to the holders of the 2010 Notes.
In addition, under the amendment
agreements with the holders of the 2007 Notes and the 2010 Notes, Dr. Rosenwald and the holders of the Related Party Notes agreed to assign the rights
to receive the shares of the
F-18
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Companys common stock
issuable upon conversion of the Related Party Notes to the holders of the 2007 Notes and the 2010 Notes on a pro rata basis.
The amendment agreements with the
holders of the 2007 Notes and the Related Party Notes also extended the maturity dates from December 31, 2010 to March 31, 2011.
On December 23, 2010, the Company also
entered into an amendment agreement with respect to the PCP Notes to provide that the Companys initial public offering would not constitute a
Qualified Financing and would not accelerate the maturity of the PCP Notes and an amendment agreement to extend the exercise trigger date
of the Hofer Consultant Warrant from December 31, 2010 to March 31, 2011.
On January 19, 2011, the Companys
board of directors and stockholders approved an Amended and Restated 2007 Stock Incentive Plan, under which 1,500,000 shares are authorized for
issuance in accordance with the terms of such plan.
F-19
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
|
|
|
|
Page
|
|
|
|
|
|
F-21
|
|
|
|
|
|
|
|
|
December 31,
2009 and 2008
|
|
|
|
|
F-22
|
|
|
|
|
|
|
|
|
Years ended
December 31, 2009 (Restated) and 2008 (Restated) and the period from October 5, 2006 (Inception) to December 31, 2009 (Restated)
|
|
|
|
|
F-23
|
|
|
|
|
|
|
|
|
Period from
October 5, 2006 (Inception) to December 31, 2009
|
|
|
|
|
F-24
|
|
|
|
|
|
|
|
|
Years ended
December 31, 2009 and 2008 and the period from October 5, 2006 (Inception) to December 31, 2009
|
|
|
|
|
F-25
|
|
|
|
|
|
|
F-26 - F-42
|
|
F-20
Table of Contents
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
IASO Pharma
Inc.
We have audited the accompanying
balance sheets of IASO Pharma Inc., formerly known as Pacific Beach BioSciences, Inc., (A Development Stage Company) as of December 31, 2009 and 2008,
and the related statements of operations, changes in stockholders deficiency and cash flows for the years then ended and the period from October
5, 2006 (Inception) to December 31, 2009. These financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of IASO Pharma Inc. as of December 31, 2009 and 2008, and
its results of operations and cash flows for the years then ended and the period from October 5, 2006 (Inception) to December 31, 2009, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements
have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred a
net loss of $4,184,511 for the year ended December 31, 2009 and, as of that date, had a deficit accumulated during the development stage of
$15,212,388. These matters, among others, raise substantial doubt about the Companys ability to continue as a going concern. Managements
plans concerning these matters are also described in Note 1. The accompanying financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
As discussed in Note 9, the Company
restated its financial statements to correct the classification of certain operating expenses.
/s/ J.H. Cohn LLP
Roseland, New Jersey
April 14, 2010, except for the effects
of the matters discussed in Note 9 and Note 1 (Reverse Stock Split), which are as of December 22, 2010 and January 19, 2011,
respectively
F-21
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
BALANCE SHEETS
|
|
|
|
December 31,
2009
|
|
December 31,
2008
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
$
|
10,728
|
|
|
$
|
49,643
|
|
Other current
assets
|
|
|
|
|
8,535
|
|
|
|
10,115
|
|
|
Total current
assets
|
|
|
|
|
19,263
|
|
|
|
59,758
|
|
|
Office
equipment, net of accumulated depreciation of $21,340 and $12,989
|
|
|
|
|
20,416
|
|
|
|
28,767
|
|
Other assets
|
|
|
|
|
50,500
|
|
|
|
8,693
|
|
|
Total assets
|
|
|
|
$
|
90,179
|
|
|
$
|
97,218
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
|
$
|
2,037,683
|
|
|
$
|
3,456,662
|
|
Borrowings
under line of credit agreement
|
|
|
|
|
150,000
|
|
|
|
50,000
|
|
Senior
convertible notes
|
|
|
|
|
4,340,000
|
|
|
|
|
|
Interest
payable senior convertible notes
|
|
|
|
|
800,730
|
|
|
|
|
|
Notes payable
related parties
|
|
|
|
|
2,777,205
|
|
|
|
|
|
Interest
payable related parties
|
|
|
|
|
378,252
|
|
|
|
|
|
Interest
payable Paramount Credit Partners, LLC
|
|
|
|
|
205,811
|
|
|
|
|
|
Deferred
revenue sublicense
|
|
|
|
|
37,714
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
|
|
10,727,395
|
|
|
|
3,506,662
|
|
|
Notes payable
Paramount Credit Partners, LLC (net of discount of $917,451)
|
|
|
|
|
1,957,549
|
|
|
|
|
|
Notes payable
related parties
|
|
|
|
|
|
|
|
|
1,876,851
|
|
Senior
convertible notes
|
|
|
|
|
|
|
|
|
4,340,000
|
|
Interest
payable senior convertible notes
|
|
|
|
|
|
|
|
|
368,365
|
|
Interest
payable related parties
|
|
|
|
|
|
|
|
|
221,756
|
|
Deferred
revenue sublicense
|
|
|
|
|
616,000
|
|
|
|
|
|
|
Total
liabilities
|
|
|
|
|
13,300,944
|
|
|
|
10,313,634
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficiency:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized, none issued
|
|
|
|
|
|
|
|
|
|
|
Common stock,
$.001 par value; 20,000,000 shares authorized; 93,328 shares issued and outstanding at December 31, 2009 and 2008
|
|
|
|
|
93
|
|
|
|
93
|
|
Additional
paid-in capital
|
|
|
|
|
2,001,530
|
|
|
|
811,368
|
|
Deficit
accumulated during the development stage
|
|
|
|
|
(15,212,388
|
)
|
|
|
(11,027,877
|
)
|
|
Total
stockholders deficiency
|
|
|
|
|
(13,210,765
|
)
|
|
|
(10,216,416
|
)
|
|
Total
liabilities and stockholders deficiency
|
|
|
|
$
|
90,179
|
|
|
$
|
97,218
|
|
See Notes to Financial Statements
F-22
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
STATEMENTS OF
OPERATIONS
|
|
|
|
Year Ended
December 31, 2009
(Restated
See Note 9)
|
|
Year Ended
December 31, 2008
(Restated
See Note 9)
|
|
Period from
October 5, 2006
(Inception) to
December 31, 2009
(Restated
See Note 9)
|
Operating
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublicense
|
|
|
|
$
|
6,286
|
|
|
$
|
|
|
|
$
|
6,286
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
|
|
2,679,323
|
|
|
|
3,299,632
|
|
|
|
10,575,832
|
|
General and
administrative
|
|
|
|
|
421,628
|
|
|
|
783,611
|
|
|
|
2,290,438
|
|
Total
operating expenses
|
|
|
|
|
3,100,951
|
|
|
|
4,083,243
|
|
|
|
12,866,270
|
|
Loss from
operations
|
|
|
|
|
(3,094,665
|
)
|
|
|
(4,083,243
|
)
|
|
|
(12,859,984
|
)
|
|
Interest
income
|
|
|
|
|
|
|
|
|
21,850
|
|
|
|
27,859
|
|
Interest
expense, including amortization of debt discount and deferred financing costs
|
|
|
|
|
(1,089,846
|
)
|
|
|
(1,115,730
|
)
|
|
|
(2,380,263
|
)
|
|
Net loss
|
|
|
|
$
|
(4,184,511
|
)
|
|
$
|
(5,177,123
|
)
|
|
$
|
(15,212,388
|
)
|
|
Basic and
diluted net loss per common share
|
|
|
|
$
|
(44.84
|
)
|
|
$
|
(55.47
|
)
|
|
|
|
|
|
Weighted
average common shares
outstanding basic and diluted
|
|
|
|
|
93,328
|
|
|
|
93,328
|
|
|
|
|
|
See Notes to Financial Statements
F-23
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
STATEMENT OF CHANGES IN
STOCKHOLDERS DEFICIENCY
Period from October 5, 2006 (Inception) to December 31, 2009
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Stock
Subscription
Receivable
|
|
Deficit
Accumulated
During the
Development
Stage
|
|
Total
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(243,542
|
)
|
|
$
|
(243,542
|
)
|
Balance at
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243,542
|
)
|
|
|
(243,542
|
)
|
Issuance of
common stock to founders
and employees at $.048 per share in March and April 2007
|
|
|
|
|
93,328
|
|
|
$
|
93
|
|
|
$
|
4,387
|
|
|
$
|
(52
|
)
|
|
|
|
|
|
|
4,428
|
|
Warrants
issued to placement agent in connection with senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
358,262
|
|
|
|
|
|
|
|
|
|
|
|
358,262
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
188,313
|
|
|
|
|
|
|
|
|
|
|
|
188,313
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,607,212
|
)
|
|
|
(5,607,212
|
)
|
Balance at
December 31, 2007
|
|
|
|
|
93,328
|
|
|
|
93
|
|
|
|
550,962
|
|
|
|
(52
|
)
|
|
|
(5,850,754
|
)
|
|
|
(5,299,751
|
)
|
Stock
subscription receipts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
52
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
260,406
|
|
|
|
|
|
|
|
|
|
|
|
260,406
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,177,123
|
)
|
|
|
(5,177,123
|
)
|
Balance at
December 31, 2008
|
|
|
|
|
93,328
|
|
|
|
93
|
|
|
|
811,368
|
|
|
|
|
|
|
|
(11,027,877
|
)
|
|
|
(10,216,416
|
)
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
49,247
|
|
|
|
|
|
|
|
|
|
|
|
49,247
|
|
Warrants
issued in connection with 10% notes to PCP
|
|
|
|
|
|
|
|
|
|
|
|
|
1,140,915
|
|
|
|
|
|
|
|
|
|
|
|
1,140,915
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,184,511
|
)
|
|
|
(4,184,511
|
)
|
Balance at
December 31, 2009
|
|
|
|
|
93,328
|
|
|
$
|
93
|
|
|
$
|
2,001,530
|
|
|
$
|
|
|
|
$
|
(15,212,388
|
)
|
|
$
|
(13,210,765
|
)
|
See Notes to Financial Statements
F-24
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
STATEMENTS OF CASH
FLOWS
|
|
|
|
Year ended
December 31, 2009
|
|
Year ended
December 31, 2008
|
|
Period from
October 5, 2006
(Inception) to
December 31, 2009
|
Cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$
|
(4,184,511
|
)
|
|
$
|
(5,177,123
|
)
|
|
$
|
(15,212,388
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
49,247
|
|
|
|
260,406
|
|
|
|
497,966
|
|
Amortization
of deferred financing costs and debt discount
|
|
|
|
|
235,464
|
|
|
|
637,651
|
|
|
|
902,554
|
|
Interest
payable senior convertible notes
|
|
|
|
|
432,365
|
|
|
|
351,969
|
|
|
|
800,730
|
|
Expenses paid
on behalf of the Company satisfied through the issuance of notes
|
|
|
|
|
354
|
|
|
|
314
|
|
|
|
263,205
|
|
Interest
payable related party
|
|
|
|
|
156,496
|
|
|
|
125,370
|
|
|
|
378,252
|
|
Interest
payable Paramount Credit
Partners, LLC
|
|
|
|
|
205,811
|
|
|
|
|
|
|
|
205,811
|
|
Depreciation
|
|
|
|
|
8,351
|
|
|
|
8,351
|
|
|
|
21,340
|
|
Amortization
of deferred revenue
|
|
|
|
|
(6,286
|
)
|
|
|
|
|
|
|
(6,286
|
)
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current
assets
|
|
|
|
|
1,580
|
|
|
|
214,842
|
|
|
|
(8,535
|
)
|
Other assets
|
|
|
|
|
8,693
|
|
|
|
9,769
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
|
|
(1,418,979
|
)
|
|
|
1,083,078
|
|
|
|
2,037,683
|
|
Deferred
revenue sublicense
|
|
|
|
|
660,000
|
|
|
|
|
|
|
|
660,000
|
|
|
Net cash used
in operating activities
|
|
|
|
|
(3,851,415
|
)
|
|
|
(2,485,373
|
)
|
|
|
(9,459,668
|
)
|
|
Cash flows
from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
office and computer equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,756
|
)
|
|
Cash flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
notes payable to Paramount Credit Partners, LLC
|
|
|
|
|
2,875,000
|
|
|
|
|
|
|
|
2,875,000
|
|
Proceeds from
notes payable to related party
|
|
|
|
|
1,000,000
|
|
|
|
70,000
|
|
|
|
4,114,000
|
|
Proceeds from
senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
4,340,000
|
|
(Payments)/Credits for deferred financing costs
|
|
|
|
|
(62,500
|
)
|
|
|
50,951
|
|
|
|
(371,328
|
)
|
Proceeds from
utilization of line of credit
|
|
|
|
|
100,000
|
|
|
|
50,000
|
|
|
|
150,000
|
|
Repayment of
amounts loaned under related party notes
|
|
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
(1,600,000
|
)
|
Proceeds from
receipt of stock issuances
|
|
|
|
|
|
|
|
|
52
|
|
|
|
4,480
|
|
|
Net cash
provided by financing activities
|
|
|
|
|
3,812,500
|
|
|
|
171,003
|
|
|
|
9,512,152
|
|
|
Net
(decrease) / increase in cash
|
|
|
|
|
(38,915
|
)
|
|
|
(2,314,370
|
)
|
|
|
10,728
|
|
Cash, beginning
of period
|
|
|
|
|
49,643
|
|
|
|
2,364,013
|
|
|
|
|
|
|
Cash, end of
period
|
|
|
|
$
|
10,728
|
|
|
$
|
49,643
|
|
|
$
|
10,728
|
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
to placement agent
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
358,262
|
|
Warrants issued
to investors
|
|
|
|
$
|
1,140,915
|
|
|
$
|
|
|
|
$
|
1,140,915
|
|
Stock issued to
founders and employees
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
52
|
|
|
Supplemental
disclosure of cash flow data cash paid for interest
|
|
|
|
$
|
59,710
|
|
|
$
|
740
|
|
|
$
|
92,916
|
|
See Notes to Financial Statements
F-25
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Note 1 Organization, Business and
Basis of Presentation:
Organization and business:
IASO Pharma Inc., formerly known as
Pacific Beach BioSciences, Inc. (IASO or the Company), was incorporated in the State of Delaware on October 5, 2006. The
Company changed its name from Pacific Beach BioSciences, Inc. to IASO Pharma Inc. on April 12, 2010. IASO is a biopharmaceutical company developing
therapeutics for the treatment and prevention of infectious diseases.
Basis of presentation:
The Companys primary activities
since incorporation have been organizational activities, including recruiting personnel, establishing office facilities, acquiring licenses for its
pharmaceutical compound pipeline, performing business and financial planning, performing research and development and raising funds through the
issuance of debt and common stock. The Companys planned principal operations have not yet commenced; accordingly, the Company is considered to be
in the development stage. The Companys activities comprise one operating segment.
The Companys financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments through the
normal course of business. For the year ended December 31, 2009 and the period from October 5, 2006 (inception) to December 31, 2009, the Company
incurred net losses of $4,184,511 and $15,212,388, respectively. The Company has a stockholders deficiency as of December 31, 2009 of
$13,210,765. Management believes that the Company will continue to incur losses for the foreseeable future and will need additional equity or debt
financing or will need to generate revenue from the licensing of its products or by entering into strategic alliances to be able to sustain its
operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for
the Company, but cannot assure that such financing will be available on acceptable terms, or at all. These matters raise substantial doubt about the
Companys ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Reverse Stock Split:
On January 19, 2011, the Company
effected a 1-for-48 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein have been
adjusted to reflect the effects of the 1-for-48 reverse stock split.
Note 2 Summary of Significant Accounting
Policies:
Cash:
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash. The Company maintains its cash in bank deposit and other accounts,
the balances of which, at times, may exceed Federally insured limits.
Use of estimates:
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
F-26
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Office equipment:
Office equipment is stated at cost and
depreciated using the straight-line method over the estimated useful life of five years.
Stock based compensation:
The Company accounts for stock options
granted to employees according to the Financial Accounting Standards Board Accounting Standards Codification No. 718 (ASC 718),
Compensation Stock Compensation. Under ASC 718, share-based compensation cost is measured at grant date, based on the estimated fair
value of the award, and is recognized as expense over the employees requisite service period on a straight-line basis. The Company accounts for
stock options and warrants granted to non-employees on a fair value basis in accordance with ASC 718 using the Black-Scholes option pricing method. The
initial non-cash charge to operations for non-employee options and warrants with vesting are revalued at the end of each reporting period based upon
the change in the fair value of the options and recognized as consulting expense over the related vesting period.
For the purpose of valuing options and
warrants granted to employees and non-employees the Company uses the Black-Scholes option pricing model utilizing the assumptions noted in the
following table. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a
term consistent with the expected term of the Companys awards. The Company estimated the expected life of the options granted based on
anticipated exercises in the future periods assuming the success of its business model as currently forecasted. For warrants and non-employee options,
the Company used the contractual term of the warrant or option as the expected term. The expected dividend yield reflects the Companys current
and expected future policy for dividends on its common stock. The expected stock price volatility for the Companys stock options was calculated
by examining historical volatilities for publicly traded industry peers as the Company does not have any trading history for its common stock. The
Company will continue to analyze the expected stock price volatility and expected term assumptions as more historical data for the Companys
common stock becomes available. Given the limited service period for its current employees and non-employees and the senior nature of the roles of
those employees, the Company currently estimates that it will experience no forfeitures for those options currently outstanding.
|
|
|
|
2009
|
|
2008
|
Risk-free
interest rate
|
|
|
|
|
3.39
|
%
|
|
|
2.80
|
%
|
Expected
volatility
|
|
|
|
|
110.0
|
%
|
|
|
90.0
|
%
|
Expected term
of options and warrants
|
|
|
|
|
5
|
|
|
|
5
|
|
Expected
dividend yield
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
Research and development:
Research and development costs,
including license fees, are expensed as incurred.
Income taxes:
Under Accounting Standards Board
Accounting Standards Codification No. 740 (ASC 740), Income Taxes, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. 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. Under ASC 740, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely
than not that some or all of the deferred tax assets will not be realized.
F-27
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Loss per common share:
Basic earnings (loss) per common share
excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted
earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Since the Company has only
incurred losses, basic and diluted loss per share is the same. The amount of potentially dilutive securities excluded from the calculation was 7,750
shares of common stock being held in escrow, warrants and options at December 31, 2009 and 2008. The number of warrants issued to placement agents that
are potentially dilutive and are excluded from the calculation related to the issuance of senior convertible notes (see Note 9), based upon an exercise
price of $48.00 (lowest possible conversion price), at December 31, 2009 and 2008 is 9,042. The number of warrants issued to investors that are
potentially dilutive and are excluded from the calculation related to the issuance of senior convertible notes, based upon an exercise price of $48.00
(lowest possible conversion price), at December 31, 2009 and 2008 is 23,958 and 0, respectively.
Fair value measurements:
The carrying value of the senior
convertible notes and related party notes approximate fair value due to the short-term nature of these items and the related interest rate approximates
market rates. Since the senior convertible and related party notes have been recorded at carrying value there has been no change in the value between
reporting periods.
Milestone payments and upfront
payments
:
The Company recognizes milestone
payments and upfront payments over the term of the sublicense. The Companys deferred revenue consists of milestone and upfront payments received
and is being recognized on a straight-line basis over the term of the sublicense agreement, which is the remaining patent life of the sublicensed
technology. Annual sublicense revenue to be recognized approximates $38,000 based on the Companys existing sublicense agreement.
Accounting for Convertible Debt, Debt Issued with Stock
Purchase Warrants and Debt Modifications:
In accordance with ASC Topic 470-20,
Debt with Conversion and Other Options, the proceeds from any debt financing in which the Company issues warrants to purchase its common
stock are allocated to the warrants and the debt based upon their estimated relative fair values as of the closing date. The portion of the proceeds
allocated to the warrants is accounted for as additional paid-in capital and a reduction in the carrying value of the related debt. This debt discount
is amortized to interest expense from the issuance date through the maturity date of the debt using the straight-line method.
When the convertible feature of
convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature
(BCF). Prior to the determination of the BCF, the proceeds from the debt instrument are first allocated between the convertible debt and
any detachable free-standing instruments that are included, such as common stock warrants. The Companys outstanding convertible notes currently
have BCFs, however, the number of shares to be issued upon conversion of such will only be determined if a Qualified Financing (as defined in the
notes) is completed. Accordingly, pursuant to ASC Topic 470-20-25, the conversion of the Companys outstanding convertible notes and, therefore,
the recording of the related BCFs, are contingent upon the completion of a Qualified Financing.
Modifications to convertible debt are
recorded in accordance with ASC Topic 470-50, Modifications and Extinguishments of Convertible Debt. A modification of a debt instrument in
a non-troubled situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash
flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of
the original instrument. The modifications to the Companys convertible notes through December 31, 2009 have either been contingent upon the
occurrence of certain events
F-28
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
%
or have not resulted in a change in excess of 10 percent in the present value of the aggregate cash flows associated with the applicable notes.
Accordingly, no charge has been recognized for debt modifications.
Recently issued accounting
standards:
In March 2010, the Financial Accounting
Standards Board ratified the consensus of the Emerging Issues Task Force included in EITF Issue No. 08-9, Milestone Method of Revenue
Recognition. (ASC Topic 605.28; ASU No. 2010-17). The milestone method is optional by arrangement and generally provides that upon achievement of
a substantially uncertain milestone, the related milestone payment may be recognized in income in its entirety. The Company has not yet evaluated the
effects of this consensus and, accordingly, has not yet made an accounting policy decision for future arrangements. When the consensus becomes
effective (years beginning on or after June 15, 2010; first quarter of 2011 for the Company), the Company will consider application of the consensus on
a prospective or retrospective basis.
Note 3 Related Party Transactions:
Consulting services:
Effective June 2007, the Company began
accruing monthly fees for consulting services at a rate of $25,000 per month to Paramount BioSciences, LLC (PBS), an affiliate of a
significant investor in the Company. Consulting services expense was $0, $200,000 and $375,000 for the years ended December 31, 2009 and 2008 and the
period from October 5, 2006 (inception) to December 31, 2009, respectively. As of December 31, 2009, the Company had $375,000 outstanding under this
arrangement which is included in accrued expenses as of December 31, 2009. This agreement was terminated as of August 31, 2008.
Notes payable:
On December 1, 2006, the Company issued
an 8% promissory note payable to PBS. All amounts outstanding under this note, which was amended and restated on September 30, 2009, mature and are
payable on September 30, 2010, or earlier if certain events occur. All amounts outstanding under this note will automatically convert into the
Companys equity securities issued in the Companys next equity financing (or series of related equity financings) prior to the maturity date
involving the sale of securities in which the Company receives at least $10,000,000 in aggregate gross cash proceeds (before brokers fees or
other transaction related expenses, and excluding any such proceeds resulting from any conversion of the Companys then-existing convertible
bridge notes minus the amount of aggregate gross cash proceeds to the Company from the sale of equity or debt securities of the Company after December
14, 2009 (a Qualified Financing)), at a conversion price equal to 70% of the lowest per unit price paid for such securities in cash by
investors in such Qualified Financing, and upon such other terms, conditions and agreements as may be applicable in such Qualified Financing. This note
will also automatically convert into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the notes. In
the event that this note becomes due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified
Financing, or a sale or merger of the Company which converts the note into equity securities of the Company, then in connection with the repayment of
the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note, the Company will be obligated to
pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid
interest on the note. Notwithstanding the foregoing, all loans (including principal and accrued interest thereon) made by PBS to the Company under this
note on or after September 30, 2009, up to $1,000,000 in the aggregate, shall immediately and automatically be converted into the same equity or
derivative securities as are issued in any equity or derivative equity financing consummated by the Company on or after September 30, 2009 that does
not otherwise constitute a Qualified Financing, on the same terms and conditions that such equity securities are offered in such non-Qualified
Financing. On February 9, 2010, $1,000,000 in principal outstanding under this note was converted into 2010 Notes pursuant to this provision. This note
was issued to PBS for expenses that PBS has paid on behalf of
F-29
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
the Company. As of December 31,
2009 and 2008, the principal amount outstanding under this note is $2,067,205 and $1,166,851, respectively.
On December 1, 2006, the Company issued
an 8% promissory note payable to a trust established for the benefit of the family of the sole member of PBS. All unpaid principal and accrued and
unpaid interest outstanding under this note, which was amended and restated on September 30, 2009, matures and is payable on September 30, 2010, or
earlier if certain events occur. All amounts outstanding under this note will automatically convert into the Companys equity securities issued in
the Companys next equity financing (or series of related equity financings) prior to the maturity date involving the sale of securities in which
the Company receives at least $10,000,000 in a Qualified Financing, at a conversion price equal to 70% of the lowest per unit price paid for such
securities in cash by investors in such Qualified Financing, and upon such other terms, conditions and agreements as may be applicable in such
Qualified Financing. This note will also automatically convert into equity securities of the Company immediately prior to a sale or merger of the
Company, as defined in the notes. In the event that this note becomes due and payable (whether on the due date or earlier) prior to the consummation by
the Company of a Qualified Financing, or a sale or merger of the Company which converts the note into equity securities of the Company, then in
connection with the repayment of the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note,
the Company will be obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount
plus all accrued and unpaid interest on the note. As of December 31, 2009 and 2008, the principal amount outstanding under this note is
$660,000.
On December 18, 2008, the Company
issued an 8% promissory note payable to an entity related to the sole member of PBS. All unpaid principal and accrued and unpaid interest outstanding
under this note, which was amended and restated on September 30, 2009, matures and is payable on September 30, 2010, or earlier if certain events
occur. All amounts outstanding under this note will automatically convert into the Companys equity securities issued in the Companys next
equity financing (or series of related equity financings) prior to the maturity date involving the sale of securities in which the Company receives at
least $10,000,000 in a Qualified Financing, at a conversion price equal to 70% of the lowest per unit price paid for such securities in cash by
investors in such Qualified Financing, and upon such other terms, conditions and agreements as may be applicable in such Qualified Financing. This note
will also automatically convert into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the note. In
the event that this note becomes due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified
Financing, or a sale or merger of the Company which converts the note into equity securities of the Company, then in connection with the repayment of
the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note, the Company will be obligated to
pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid
interest on the note. As of December 31, 2009 and 2008, the principal amount outstanding under this note is $50,000.
On January 15, 2009 and June 24, 2009,
the Company issued 10% promissory notes (the PCP Notes) payable in the aggregate amount of $2,875,000 to Paramount Credit Partners, LLC
(PCP), an entity whose managing member is a significant stockholder of the Company. Interest on this note is payable quarterly, in arrears,
and the principal matures on the earlier of (i) December 31, 2013, (ii) the completion of a Qualified Financing, and (iii) the completion of a Reverse
Merger (each, as defined below). In addition, PCP received five-year warrants (PCP Warrants) to purchase, at an exercise price of 110% of
the lowest price paid for securities in a Qualified Financing, a number of shares of the Companys common stock equal to 40% of the principal
amount of the Notes purchased divided by the lowest price paid for securities in a Qualified Financing prior to the two-year anniversary of the notes.
If the Qualified Financing does not occur on or before the two-year anniversary of the notes, the PCP Warrants will be exercisable for a number of
shares of the Companys common stock equal to 40% of the principal amount of the Notes purchased divided by $48.00, at a per share exercise price
of $48.00. As of December 31, 2009, the principal amount outstanding under these notes is $1,957,549. For purposes of the PCP Notes, Qualified
Financing means the closing of an equity financing or
F-30
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
series of related equity financings
by the Company resulting in aggregate gross cash proceeds (before brokers fees or other transaction related expenses) of at least $10,000,000.
For purposes of the PCP Notes, Reverse Merger means a merger, share exchange or other transaction or series of related transactions in
which (a) the Company merges into or otherwise becomes a wholly owned subsidiary of a company subject to the public company reporting requirements of
the Securities Exchange Act of 1934, as amended, and (b) the aggregate consideration payable to the Company or its stockholders in such transaction(s)
(the Reverse Merger Consideration) is greater than or equal to $10,000,000.
Paramount BioCapital, Inc.
(PCI) acted as placement agent for the private placement of the Companys senior convertible notes in the aggregate principal amount
of $4,340,000 during 2007. (See Note 8).
Line of Credit:
On December 3, 2008, the Company, PBS
and various other private pharmaceutical companies with common ownership by the sole member of PBS entered into a loan agreement with Bank of America,
N.A. for a line of credit of $2,000,000. PBS pledged collateral securing the Companys and the other borrowers obligations to Bank of
America, N.A. under the loan agreement. Interest on amounts borrowed under the line of credit accrues and is payable on a monthly basis at an annual
rate equal to the London Interbank Offered Rate (LIBOR) plus 1%. On November 10, 2009, the parties entered into Amendment No. 1 to the Loan Agreement,
which extended the initial one-year term for an additional year, such that it currently matures on November 5, 2010, and reduced the aggregate amount
available under the line of credit to $1,000,000. Under the loan agreement, the Companys liability under the line of credit is several, not
joint, with respect to the payment of all obligations thereunder. As of December 31, 2009 and 2008, the amounts borrowed by the Company that were
outstanding under this line of credit were $150,000 and $50,000, respectively.
Sole director:
As of December 31, 2009, Jay Lobell, an
employee of PBS, was the sole director of the Company. On February 28, 2010, Matthew A Wikler joined the board of directors of the
Company.
Note 4 Income Taxes:
There was no net current or deferred
income tax provision for the years ended December 31, 2009 and 2008.
The Companys deferred tax assets
as of December 31, 2009 and 2008 consist of the following:
|
|
|
|
2009
|
|
2008
|
Net operating
loss carryforwards Federal
|
|
|
|
$
|
4,382,000
|
|
|
$
|
3,035,000
|
|
Net operating
loss carryforwards State
|
|
|
|
|
774,000
|
|
|
|
536,000
|
|
Totals
|
|
|
|
|
5,156,000
|
|
|
|
3,571,000
|
|
Less
valuation allowance
|
|
|
|
|
(5,156,000
|
)
|
|
|
(3,571,000
|
)
|
Deferred tax
assets
|
|
|
|
$
|
|
|
|
$
|
|
|
At December 31, 2009, the Company had
potentially utilizable Federal and state net operating loss tax carryforwards of approximately $12,890,000, expiring through 2029.
The utilization of the Companys
net operating losses may be subject to a substantial limitation due to the change of ownership provisions under Section 382 of the Internal
Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their
utilization.
A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred tax assets will not be realized. The net change in the total valuation allowance
for the years ended December 31, 2009 and 2008 and for the period from October 5, 2006 (inception) to December 31, 2009 was
F-31
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
$1,585,000, $1,927,000 and $5,156,000, respectively. The tax
benefit assumed the Federal statutory tax rate of 34% and a state tax rate of 6% and has been fully offset by the aforementioned valuation
allowance.
|
|
|
|
2009
|
|
2008
|
Statutory
Federal tax rate
|
|
|
|
|
(34.0
|
%)
|
|
|
(34.0
|
%)
|
State income
taxes (net of Federal)
|
|
|
|
|
(6.0
|
%)
|
|
|
(6.0
|
%)
|
Debt discount
amortization
|
|
|
|
|
5
|
%
|
|
|
|
%
|
Effect of
valuation allowance
|
|
|
|
|
35
|
%
|
|
|
40
|
%
|
Effective tax
rate
|
|
|
|
|
|
%
|
|
|
|
%
|
Management feels that the Company does
not have any tax positions that will result in a material impact on the Companys financial statements because of the adoption of ASC 740.
However, managements conclusion may be subject to adjustment at a later date based on factors including additional implementation guidance from
the Financial Accounting Standards Board and ongoing analyses of tax laws, regulations and related interpretations.
Note 5 Commitments:
Employment agreements:
An employment agreement with Matthew
Wikler, M.D., became effective as of February 28, 2010. Pursuant to that employment agreement, Dr. Wikler re-joined the Company as President and Chief
Executive Officer, for an initial term of two years, which term will extend automatically for additional one-year periods unless appropriate notice is
given by one of the parties. Pursuant to the employment agreement, Dr. Wikler will receive an annual base salary of $300,000, a guaranteed annual bonus
of $60,000 on each anniversary of the effective date of the employment agreement, and a one-time bonus of $100,000 upon consummation of an initial
public offering by the Company. In addition, in full and final consideration and settlement of any amount of compensation that may be claimed by or due
to Dr. Wikler with respect to his services to the Company during his earlier term of employment with the Company, the Company paid to Dr. Wikler
$25,000 within thirty days after effectiveness of his employment agreement, and is obligated to pay to Dr. Wikler an additional $75,000 upon the
earlier of thirty days after consummation of an initial public offering by the Company or December 31, 2010, regardless of whether Dr. Wikler remains
an employee of the Company upon the earlier of such events. In addition, Dr. Wikler will be entitled to receive certain market capitalization cash
bonuses, as follows: (i) $125,000, upon the market capitalization of the Company exceeding $125,000,000; (ii) $300,000, upon the market capitalization
of the Company exceeding $300,000,000; (iii) $500,000, upon the market capitalization of the Company exceeding $500,000,000; (iv) $750,000, upon the
market capitalization of the Company exceeding $750,000,000; and (v) $1,000,000, upon the market capitalization of the Company exceeding
$1,000,000,000. Each of the market capitalization bonuses are subject to certain minimum trading days and minimum volume. Dr. Wikler is also entitled
to receive that number of options so that his total ownership, as defined, of the Company, together with shares of the Companys common stock held
by him, equals 7.5% of the outstanding common stock of the Company. These options will vest in full on February 28, 2011. In addition, Dr. Wikler is
entitled to receive additional options sufficient to maintain his ownership interest at 7.5% of the outstanding common stock of the Company, on a fully
diluted basis for in-the-money derivative securities, until such time as the Company has raised at least $15,000,000 through equity or debt
securities. These options will also vest in full on February 28, 2011. The Company has agreed to make certain severance payments to Dr. Wikler in the
event his employment with the Company is terminated by the Company without cause, if he resigns for good reason, or if his employment is terminated in
connection with a change of control, equal to six months of continued base salary and health benefits, and that portion of such years guaranteed
bonus, pro-rated through the date of termination. PBS has guaranteed the payment to Dr. Wikler of an amount equal to three months of continued base
salary and health benefits, plus that portion of such years guaranteed bonus, pro-rated through the date of termination, which may be owed by the
Company to Dr. Wikler pursuant to this severance obligation. PBS guarantee terminates upon the Companys initial public
offering.
F-32
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
On January 19, 2007, the Company
entered into an employment agreement with James Rock, pursuant to which Mr. Rock serves as the Companys Director, New Product Development. The
term of employment commenced on January 19, 2007, and is on an at will basis. Mr. Rock receives an annual base salary of $135,000, and is
eligible to receive an annual discretionary bonus up to 15% of his base salary. In 2010, Mr. Rock received a bonus of $25,000. Pursuant to an addendum
dated August 18, 2008 to the employment agreement, dated January 19, 2007, the Company has agreed to make certain severance payments to Mr. Rock in the
event his employment with the Company is terminated by the Company without cause, as defined in the employment agreement, as addended, equal to up to
three months of continued base salary and health benefits. PBS has guaranteed in full the payment of this severance obligation to Mr. Rock, until such
time as the Company has raised $20,000,000 in aggregate gross proceeds through the issuance of equity or debt securities.
On May 17, 2007, the Company entered
into an employment agreement with Mark Lotz, pursuant to which Mr. Lotz serves as the Companys Vice President, Regulatory Affairs. The term of
employment commenced on May 28, 2007, and is on an at will basis. Mr. Lotz receives an annual base salary of $220,000, and is eligible to
receive an annual discretionary bonus up to 20% of his base salary. If Mr. Lotzs employment is terminated by the Company other than as a result
of Mr. Lotzs death or disability and for reasons unrelated to cause, then the Company agreed to continue to pay Mr. Lotz his base salary and
benefits for a period of four months following the termination of his employment and pay any expense reimbursements amounts owed Mr. Lotz through the
termination of his employment. In addition, all options that have vested as of the date of Mr. Lotzs termination will remain exercisable for a
period of ninety days.
Note 6 Stockholders
Deficiency:
Common Stock:
During March and April 2007, the
Company issued 93,328 shares of common stock to its founders for $4,480, or $.048 per share, of which the Company received $4,428 in 2007 and $52 in
2008.
Common stock options and warrants:
In 2007, the Company established a
stock incentive plan (the Plan), which was amended in January 2011, under which incentive stock and/or options may be granted to officers,
directors, consultants and key employees of the Company for the purchase of up to 1,500,000 shares of common stock. The options have a maximum term of
ten years, vest over a period to be determined by the Companys Board of Directors and have an exercise price at or above fair market value on the
date of grant.
There were no options or warrants
issued under the Plan for the period from October 5, 2006 to December 31, 2006 or in 2009.
During 2007, the Company granted 1,500
options under the Plan to an employee with an exercise price of $45.60 per share. The options granted during 2007 vest equally over a three-year period
and have a ten year term. The Company recorded $14,539 and $14,539 of compensation expense during 2009 and 2008, respectively.
During 2008, the Company granted 917
options under the Plan to employees with an exercise price of $45.60 per share. The options granted during 2008 vests equally over a three-year period
and have a ten year term. The Company recorded $6,729 of compensation expense during 2008. Such options subsequently were forfeited in
2008.
F-33
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
A summary of the Companys stock
options activity under the Plan and related information is as follows:
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
Outstanding
at beginning of year
|
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
917
|
|
|
$
|
45.60
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
(917
|
)
|
|
$
|
45.50
|
|
Outstanding
at end of year
|
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
|
|
1,500
|
|
|
$
|
45.60
|
|
Options
exercisable at end of year
|
|
|
|
|
1,125
|
|
|
$
|
45.60
|
|
|
|
500
|
|
|
$
|
45.60
|
|
Weighted-average fair value of options granted during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71.04
|
|
The weighted average remaining
contractual life of stock options outstanding at December 31, 2009 is 7.75 years.
As of December 31, 2009, the total
compensation expense related to non-vested options not yet recognized totaled $14,539. The weighted-average vesting period over which the total
compensation expense related to non-vested options not yet recognized at December 31, 2009 was approximately 0.7 years.
On September 27, 2007, the Company
granted 6,250 warrants outside of the Plan in connection with a consulting agreement with one-third of the options vesting immediately and the
remainder vesting evenly from the issuance date through June 1, 2009. These warrants are fully vested and expire on September 27, 2012. Each warrant
was issued with an exercise price of $45.60 and a five year term. Such warrants were valued using the Black-Scholes option pricing model and the
following assumptions: risk-free interest rate of 4.22%; expected volatility of 74.7%; expected term (contractual term) of five years; and expected
dividend yield of 0%. During the years ended December 31, 2009 and 2008, the Company recorded $34,708 and $245,867, respectively, of consulting expense
to research and development expenses, in connection with the above mentioned warrants.
Equity instruments summary:
The following table summarizes all
equity instruments issued or granted by the Company from inception through December 31, 2009 and sets forth for each issuance/grant date, the number of
options, warrants, or shares issued or granted, the exercise price, the estimated fair value of the common stock, and the intrinsic value, if any, per
equity instrument:
Issuance/Grant Date
|
|
|
|
No. of Shares /
Shares Underlying
Options/
Shares
Underlying
Warrants
|
|
Sales Price /
Exercise Price
|
|
Estimated Fair
Value Per Share of
Common Stock
at
Issuance/Grant Date
(1)
|
|
Intrinsic Value at
Issuance/Grant
Date
(2)
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/21/2007
|
|
|
|
|
93,245
|
(3)
|
|
$
|
0.048
|
|
|
$
|
0.048
|
|
|
$
|
|
|
4/16/2007
|
|
|
|
|
83
|
(3)
|
|
|
0.048
|
|
|
|
0.048
|
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/2007
|
|
|
|
|
1,500
|
|
|
|
45.60
|
|
|
|
56.64
|
|
|
|
11.04
|
|
2/21/2008
|
|
|
|
|
917
|
(4)
|
|
|
45.60
|
|
|
|
34.08
|
|
|
|
|
|
F-34
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Issuance/Grant Date
|
|
|
|
No. of Shares /
Shares Underlying
Options/
Shares
Underlying
Warrants
|
|
Sales Price /
Exercise Price
|
|
Estimated Fair
Value Per Share of
Common Stock
at
Issuance/Grant Date
(1)
|
|
Intrinsic Value at
Issuance/Grant
Date
(2)
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/2007
|
|
|
|
|
6,250
|
|
|
|
45.60
|
|
|
|
56.64
|
|
|
|
11.04
|
|
12/14/2007
|
|
|
|
|
9,042
|
(5)
|
|
|
48.00
|
(5)
|
|
|
43.68
|
|
|
|
N/A
|
|
1/15/2009
|
|
|
|
|
22,917
|
(6)
|
|
|
48.00
|
(6)
|
|
|
45.12
|
|
|
|
N/A
|
|
6/24/2009
|
|
|
|
|
|
(6)
|
|
|
|
(6)
|
|
|
44.64
|
|
|
|
N/A
|
|
(1)
|
|
All determinations of estimated fair value were made by the
Companys management, retrospectively, utilizing the market approach which uses direct comparisons to other enterprises and their equity
securities to estimate the fair value of the common shares of privately issued securities, as described in more detail below.
|
(2)
|
|
Intrinsic value reflects the amount by which the estimated fair
value of the common stock (as of the issuance/grant date) exceeds the exercise price of the stock option or warrant. Items in this column marked
N/A represent equity instruments for which the intrinsic value was not determinable as of the issuance/grant date because the exercise
price of such instrument was not known at the issuance/grant date.
|
(3)
|
|
Represents founder shares of common stock issued for
cash.
|
(4)
|
|
Consists of options granted to former employees in February
2008. These options were forfeited in accordance with their terms upon the termination of these employees during 2008.
|
(5)
|
|
See Note 8 Private Placements Senior
convertible notes for a discussion of this warrant. Under the terms of this warrant, because a Qualified Financing (as defined therein) did not
take place by December 14, 2009, this warrant became exercisable on such date into 434,000 shares of common stock at a per share exercise price of
$1.00; however, due to the contingent exercisability of this warrant at the time it was issued, the number of shares issuable upon exercise and the
exercise price of this warrant could not be determined as of the issuance date.
|
(6)
|
|
See Note 3 Related Party Transactions Notes
payable for a discussion of these warrants. Due to the contingent exercisability of these warrants, the number of shares issuable upon exercise,
the exercise price per share and the intrinsic value, if any, of these warrants could not be determined as of the issuance date.
|
The fair values of the Companys
common stock set forth in the table above and used in the Black-Scholes pricing model for valuing the Companys options and warrants were
estimated using a market based approach, a guideline transaction analysis, and a binomial lattice model using a Qualified Financing as the exit event
scenario. The fair values of the common stock were estimated based on enterprise values either implied by capital raises (i.e., financing transactions)
as of their respective dates of issuances, or the trended enterprise values (using a guideline company analysis) from those enterprise values implied
by the capital raises to the respective valuation dates.
The trended enterprise value represents
the estimated enterprise value as of a particular date based on the changes in value from a date on which an enterprise value was otherwise determined,
which changes in value are estimated using a guideline company analysis. For this guideline company analysis the Company used publicly traded
comparable companies (which are referred to as guideline companies) that were selected because they were in similar stages of product development
within the pharmaceutical industry and therefore shared similar business and financial risks. This guideline company analysis involved an analysis of
the percentage changes of the guideline companies enterprise values from valuation dates when there were capital raises for the
F-35
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Company to the valuation dates when
there was not a capital raise. Based on the guideline companies percentage changes in enterprise value, together with company specific and
various market factors (i.e., achievement of product milestones for guideline companies and the Company), a percentage change in enterprise value was
estimated for the Company. This estimated percentage change was then applied to the Companys enterprise value as of the most current valuation
date on which there was a capital raise to estimate the fair value of the Company on the next valuation date when there was not a capital raise.
Considering the limited passage of time between valuation dates and the nature of the Companys operations, the Company believes that the trended
enterprise value using the guideline company analysis, as described above, is the most reasonable and reliable indicator of changes in enterprise value
for the Company, as it provides a market proxy for changes in investor expectations and perception.
The following table summarizes the
derivation of the Companys enterprise value as of each of the valuation dates set forth below.
Valuation Date
|
|
|
|
Method for Derivation of
Enterprise Value
|
|
Transaction
|
|
Trended From
|
|
9/27/2007
|
|
|
|
Trended Using
Guideline
Company Analysis
|
|
|
|
12/14/07
|
|
|
|
|
12/14/2007
|
|
|
|
Transaction
|
|
2007
Notes
|
|
|
|
|
|
|
2/21/2008
|
|
|
|
Trended Using
Guideline
Company Analysis
|
|
|
|
12/14/07
|
|
|
|
|
1/15/2009
|
|
|
|
Transaction
|
|
PCP Notes &
Warrants
|
|
|
|
|
|
|
6/24/2009
|
|
|
|
Trended Using
Guideline
Company Analysis
|
|
|
|
1/15/09
|
|
|
|
|
After arriving at an enterprise value
using the valuation methodologies described above, the enterprise values were then allocated, adjusting for cash and debt, to our different equity
securities using the binomial lattice model. The binomial lattice model provides a quantitative method to estimate the relative values of securities in
a companys capital structure, including its common stock, based on the implied enterprise value from a financing transaction undertaken by the
Company.
The prices that were paid by the
investors for the respective transactions identified in the above table were utilized in the binomial lattice model to imply the enterprise values of
the Company as of those respective valuation dates. As described above, for those valuation dates that utilized a trended enterprise value from the
issuance of debt (and in some cases warrants), the implied enterprise values from the capital raises were trended to the applicable valuation dates
based on consideration of the changes in enterprise values of guideline companies between those same dates using the guideline company analysis
described above.
Using the binomial lattice model, the
concluded enterprise values were allocated among the securities given the capital structure of the Company to derive an estimate for the values of the
common stock as of the respective valuation dates. An incremental lack of marketability discount of 20%25% was then applied to the values of
common stock to estimate the fair values of the common stock at the respective valuation dates.
The concluded enterprise values were
then used to solve for the internal rates of return (IRR), or discount rates, based on the cash flow projections provided by management as
of each of the respective valuation dates. The resulting implied IRRs of 32%34% were then compared to certain market benchmarks, including
venture capital rates of return, to assess the reasonableness thereof from a market based perspective.
As described above, the guideline
transaction method was utilized as additional evidence for the reasonableness of the enterprise values implied by the Companys capital raises.
First, the guideline transactions were identified, using publicly traded guideline companies in similar stages of product development within the
pharmaceutical industry. Then, the implied enterprise values of the guideline transactions were compared with the derived enterprise values of the
Company as of the respective valuation dates to assess the reasonableness thereof from a market perspective.
F-36
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Note 7 License Agreements:
In June 2007, the Company entered into
an exclusive, multinational license agreement with Dong Wha for PB-101. Specifically, the Company in-licensed several quinolone compounds (including
PB-101) for the treatment of various bacterial infections, and the corresponding United States and foreign patents and applications for all therapeutic
uses. Under the terms of the license agreement, the Company is permitted to develop and commercialize PB-101 in all of the countries of the world other
than Australia, New Zealand, India, Japan, Korea, China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam and Hong Kong. As consideration in
part for the aforementioned rights to PB-101, the Company paid to Dong Wha an initial license fee of $1,500,000 and was required to pay Dong Wha a
subsequent license fee of $1,500,000 by March 2008. A total of $3,000,000 was recorded in research and development expense during 2007 in connection
with this agreement. An amendment, executed in April 2008, extended the deadline for the payment of the subsequent license fee and increased the amount
of the subsequent license fee by $250,000 from $1,500,000 to $1,750,000, and required the Company to make a milestone payment of $500,000 by September
12, 2008. A total of $750,000 in license fees and milestone payments was recorded and expensed to research and development expense during 2008 in
connection with this agreement. The Company did not incur any license fee or milestone payments under this agreement during 2009. In addition, the
Company is required to make substantial payments to Dong Wha upon the achievement of certain clinical, regulatory-based and net sales-based milestones,
up to $53,000,000 in the aggregate. In the event that PB-101 is commercialized, the Company is obligated to pay to Dong Wha annual royalties equal to
10% of net sales. In the event that the Company sublicenses PB-101 to a third party, the Company is obligated to pay to Dong Wha a portion of the
royalties, sublicensing fees or other lump sum payments it receives from the sublicensee. In addition, pursuant to the license agreement, the Company
is obligated to purchase 100% of its requirements for clinical supply of the licensed products and 75% of its requirements for commercial supply of the
licensed products from Dong Wha, in each case at a cost not to exceed Dong Whas cost of goods sold, plus 25%. Pursuant to the terms of the
license agreement, the Company was required to initiate a Phase 2 clinical trial for an oral formulation of PB-101 within nine months of execution of
the license agreement. In accordance with the license agreement, the Company purchased certain extension periods from Dong Wha, which
extended the deadline before which the Company needed to initiate the Phase 2 clinical trial, in return for certain cash payments. The Company has
purchased extension periods for the extension of such deadline until March 2010. For the years ended December 31, 2009 and 2008, the Company paid
$400,000 and $50,000, respectively, in extension payments under the terms of this agreement, which were expensed to research and development expense in
those periods. We initiated a Phase 2 clinical trial in the United States for the CAP indication in March 2010. PBS has guaranteed the full and prompt
payment to Dong Wha of all amounts due under the license agreement, until such time as the Company has net tangible assets of at least $10,000,000. The
license agreement terminates on the expiration of the Companys obligation to make payments to Dong Wha, unless earlier terminated in accordance
with the terms of the license agreement. The license agreement may be terminated by the Company, in its sole discretion, upon 30 days prior
written notice to Dong Wha. The license agreement may be terminated by Dong Wha upon or after the Companys breach of any material provision of
the agreement if the Company has not cured such breach within 90 days after receipt of express written notice thereof by Dong Wha. However, if any
default is not capable of being cured within such 90 day period and the Company is diligently undertaking to cure such default as soon as commercially
feasible thereafter under the circumstances, Dong Wha shall not have the right to terminate the license agreement. In addition Dong Wha may terminate
the license agreement upon not less than 60 days prior written notice if the Company fails to meet a development milestone, subject to the
Companys right to extend such development milestone as set forth in the agreement.
In June 2007, the Company entered into
an exclusive, worldwide license agreement with UCB Celltech (UCB) for a platform of aniline derivative compounds including PB-200a.
Specifically, the Company in-licensed a series of compounds for the treatment of various fungal conditions, and the corresponding United States and
foreign patents and applications for all therapeutic uses. As consideration in part for the aforementioned rights, the Company paid to UCB an initial
license fee of $100,000, which was expensed to research and development expense during 2007. In addition, the Company is required to make
substantial
F-37
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
payments to UCB upon the
achievement of certain clinical and regulatory-based milestones, up to $12,000,000 in the aggregate. In the event that PB-200a or another covered
compound is commercialized, the Company and its sublicensees are obligated to pay to UCB annual royalties equal to a percentage of net sales in the
single-digit range. In June 2008 and each successive year, the Company paid to UCB an annual license maintenance fee of $100,000, which is creditable
against royalties otherwise due to the licensor. During the years ended December 31, 2008 and 2007, the Company expensed $100,000 in license fees under
the terms of this agreement. The license agreement terminates on the expiration of the Companys obligation to pay royalties to UCB, unless
earlier terminated in accordance with the terms of the license agreement. The license agreement may be terminated by the Company, in its sole
discretion, upon 30 days prior written notice to UCB. The license agreement may be terminated by UCB immediately upon any material breach and/or
any breach capable of remedy by the Company if the Company has not cured such remediable breach within 90 days after notice thereof by UCB requiring
its remedy or any breach of any representation or warranty given by the Company to UCB.
In November 2009, the Company granted a
non-exclusive worldwide sublicense to Merck Sharp & Dohme Corp. (Merck) and in return Merck paid IASO an upfront sublicense fee of
$480,000, which did not meet the criteria for revenue recognition upon receipt since the license agreement provides for rights to the use of a patent
that extend through July 1, 2022. In addition, Merck paid the Company a milestone fee of $180,000 related to the initiation of a Phase II trial related
to this product. Since the Company had performed substantially all of the research and development necessary to initiate the Phase II clinical trial
prior to signing the agreement in November 2009, this milestone is without substance and the $180,000 has been treated in the same manner as the
upfront license fee. See Note 2 Summary of Significant Accounting Policies, for a discussion of the Companys revenue recognition policy
for upfront payments. Merck is also required to make additional payments, up to $540,000 in the aggregate, to the Company upon the achievement of
certain clinical and regulatory-based milestones. Under the terms of the original license agreement, $132,000 became due to UCB in connection with the
sublicense agreement with Merck. The Company has recorded deferred revenue for the cash received under the sublicense agreement in 2009 that is being
recognized as revenue over the term of the sublicense agreement at approximately $38,000 per annum.
In July 2007, the Company entered into
an exclusive sublicense agreement for North America and Europe with Santee Biosciences, Inc. (Santee) for use of PB-201, a formulation
technology (PB-201), in the development of azole-based antifungal drug formulations and the corresponding United States and foreign patents
and applications. Santee is a related party of the Company, in that significant stockholders of the Company, including Mr. Lobell, the Companys
sole director as of December 31, 2009, are also significant stockholders and/or directors of Santee. As consideration in part for the aforementioned
rights, the Company paid to Santee an upfront license fee of $50,000. In addition, the Company is required to make substantial payments, up to an
additional $10 million in total, to Santee upon the achievement of certain clinical and regulatory-based milestones. In the event that any drug the
Company formulates using the PB-201 technology is commercialized, the Company and its sublicensees are obligated to pay to Santee annual royalties
equal to a percentage of net sales in the single-digit range. In the event that the Company sublicenses PB-201 to a third party, the Company is
obligated to pay Santee a portion of the royalties it receives from the sublicensee. The license agreement terminates on the date of expiration of the
last to expire valid claim contained in the patent rights covering a licensed product in any country in North America and Europe, unless earlier
terminated in accordance with the license agreement. The license agreement may be terminated by the Company, for any reason or no reason, by giving 30
days prior written notice to Santee. The license agreement will automatically terminate if the Company becomes insolvent. Santee has the right to
terminate the license agreement (i) within 90 days after giving written notice of termination if the Company fails to make payment to Santee of
royalties or other payments due in accordance with the terms of the agreement which are not the subject of a bona fide dispute between Santee and the
Company unless the Company pays Santee, within the 90-day period, all such royalties and other payments due and payable and (ii) by giving 90
days prior written notice to the Company upon any material breach or default of the agreement by the Company, subject to the Companys right
to cure such breach or default during such 90-day period, unless the nature of the breach is such that additional time is reasonably
F-38
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
needed to cure it, and the Company
has commenced with good faith efforts to cure such breach, then Santee shall provide the Company with additional time to cure it.
Note 8 Private Placements:
Senior convertible notes:
During 2007, the Company issued 8%
senior convertible notes in connection with a private placement in the aggregate principal amount of $4,340,000 (the Notes). The Notes were
originally scheduled to mature on December 14, 2008, but the Company exercised its option to extend the maturity date to December 14, 2009, at an
increased interest rate of 10%. The Company subsequently solicited the consent of the Noteholders to an additional extension of the maturity date of
the Notes to September 30, 2010. After giving effect to such consent, the Notes, plus all accrued interest thereon, will automatically convert into the
same securities issued in the Companys next Qualified Financing (as defined below), at a conversion price equal to 70% of the lowest per unit
price paid for such securities in cash by investors in such Qualified Financing, and upon such other terms, conditions and agreements as may be
applicable in such Qualified Financing. The Company valued the beneficial conversion feature of the 2007 Notes at $1,860,000, which will be recorded as
interest expense only if a Qualified Financing is completed.
The amount of the value of the
beneficial conversion feature is not dependent upon the IPO price. The number of shares to be issued upon conversion will be determined for the
principal amount of the 2007 Notes and the accrued interest on such 2007 Notes if a Qualified Financing (as defined below) is completed. Accordingly,
pursuant to ASC Topic 470-20-25, the conversion of the 2007 Notes and, therefore, the recording of the beneficial conversion feature, are contingent
upon the completion of a Qualified Financing. The value of the beneficial conversion feature for the 2007 Notes was determined based on the amount of
the 2007 Notes and the discount at which such 2007 Notes convert, contingent on the occurrence of certain events (including a Qualified Financing),
into common stock. Upon conversion of the 2007 Notes, the Company will record as interest expense a beneficial conversion charge of $1,860,000 for the
principal amount of the 2007 Notes plus an additional beneficial conversion charge for the accrued interest on the 2007 Notes through the date of
conversion. Specifically, the beneficial conversion feature calculation is as follows:
Principal
amount of 2007 Notes
|
|
|
|
$
|
4,340,000
|
|
Divided by
percentage of IPO Price at which 2007 Notes convert to common stock
|
|
|
|
|
70
|
%
|
Aggregate
value to investors
|
|
|
|
|
6,200,000
|
|
Less
principal amount of 2007 Notes
|
|
|
|
|
4,340,000
|
|
Amount of
beneficial conversion feature
|
|
|
|
$
|
1,860,000
|
|
The Notes will also automatically
convert into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the Notes. In the event that the
Notes become due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified Financing, or a sale or
merger of the Company which converts the Notes into equity securities of the Company, then in connection with the repayment of the Notes, in addition
to the payment of the unpaid principal amount and all accrued but unpaid interest on the Notes, the Company will be obligated to pay to the
Noteholders, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid interest on the
Notes. For purposes of the Notes, Qualified Financing means the sale of the Companys equity securities in an equity financing or
series of related equity financings in which the Company receives (minus the amount of aggregate gross cash proceeds to the Company from our arms
length sale of equity or debt securities, or incurrence of new loans, after December 14, 2009) aggregate gross proceeds of at least $10,000,000 (before
brokers fees or other transaction related expenses, and excluding any such proceeds resulting from any conversion of the Notes).
F-39
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
In connection with the offering of the
Notes, PCI and the Company entered into a placement agency agreement dated September 18, 2007, pursuant to which the Company paid PCI cash commissions
of $198,800 (of which $38,500 was further allocated to third party agents) for their services. The Company also has agreed to pay to PCI a commission
on sales by the Company of securities during the 18-month period subsequent to December 14, 2007 to the purchasers of the Notes who were introduced to
the Company by PCI. The Company also granted PCI the right of first refusal to act as exclusive finder, placement agent or other similar agent in
relation to any securities offerings on its behalf during the 18-month period following December 14, 2007. This agreement has since expired. PCI is a
related party to the Company since it is an affiliate of a significant investor in the Company.
In addition, PCI received warrants (the
Placement Warrants) to purchase, at an exercise price of 110% of the lowest price paid for securities in a Qualified Financing, a number of
shares of the Companys common stock equal to 10% of the principal amount of the Notes purchased, less any amount used to repay the related party
notes, or amounts due to PBS or their affiliates or employees as finders fees, payments under the services agreement or other similar payments,
divided by the lowest price paid for securities in a Qualified Financing prior to December 14, 2009. If the Qualified Financing did not occur on or
before December 14, 2009, the Placement Warrants will be exercisable for a number of shares of the Companys common stock equal to 10% of the
principal amount of the Notes purchased, less any amount used to repay the related party notes, or amounts due to PBS or their affiliates or employees
as finders fees, payments under the services agreement or other similar payments, divided by $48.00, at a per share exercise price of $48.00 and
are exercisable for seven years. Since the Qualified Financing did not occur by such date, the Placement Warrants are now exercisable into 9,042 shares
of the Companys common stock, at a per share exercise price of $48.00. The Company estimated the value of the warrants using the Black-Scholes
option pricing model at approximately $358,000 and recorded them as deferred financing costs, which were amortized to interest expense over the term of
the Notes.
Note 9 Restatement:
Subsequent to the issuance of the
Companys financial statements for the years ended December 31, 2008 and 2009, the Companys management determined that certain operating
expenses were incorrectly classified between general and administrative expenses and research and development expenses. As a result, the Companys
statements of operations for the years ended December 31, 2009 and 2008 and for the period from October 5, 2006 (Inception) to December 31, 2009 have
been restated to reflect adjustments to correct the classification of these operating expenses between general and administrative expenses and research
and development expenses. The restatement does not affect the Companys total operating expenses, loss from operations or net loss or the
Companys balance sheet, statement of changes in stockholders deficiency or statement of cash flows for any period. The impact of these
adjustments on the Companys statements of operations for the above periods is as follows:
|
|
|
|
Year Ended
December 31, 2009
|
|
Year Ended
December 31, 2008
|
|
Period from
October 5, 2006 (Inception) to
December 31, 2009
|
|
|
|
|
|
As
Previously
Reported
|
|
Effect
of
Adjustments
|
|
As
Restated
|
|
As
Previously
Reported
|
|
Effect
of
Adjustments
|
|
As
Restated
|
|
As
Previously
Reported
|
|
Effect
of
Adjustments
|
|
As
Restated
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development
|
|
|
|
$
|
2,470,157
|
|
|
$
|
209,166
|
|
|
$
|
2,679,323
|
|
|
$
|
2,715,377
|
|
|
$
|
584,255
|
|
|
$
|
3,299,632
|
|
|
$
|
9,336,545
|
|
|
$
|
1,239,287
|
|
|
$
|
10,575,832
|
|
|
|
|
|
General and
administrative
|
|
|
|
|
630,794
|
|
|
|
(209,166
|
)
|
|
|
421,628
|
|
|
|
1,367,866
|
|
|
|
(584,255
|
)
|
|
|
783,611
|
|
|
|
3,529,725
|
|
|
|
(1,239,287
|
)
|
|
|
2,290,438
|
|
|
|
|
|
Total operating
expenses
|
|
|
|
$
|
3,100,951
|
|
|
$
|
|
|
|
$
|
3,100,951
|
|
|
$
|
4,083,243
|
|
|
$
|
|
|
|
$
|
4,083,243
|
|
|
$
|
12,866,270
|
|
|
$
|
|
|
|
$
|
12,866,270
|
|
|
|
|
|
Loss from
operations
|
|
|
|
$
|
(3,094,665
|
)
|
|
$
|
|
|
|
$
|
(3,094,665
|
)
|
|
$
|
(4,083,243
|
)
|
|
$
|
|
|
|
$
|
(4,083,243
|
)
|
|
$
|
(12,859,984
|
)
|
|
$
|
|
|
|
$
|
(12,859,984
|
)
|
|
|
|
|
Net loss
|
|
|
|
$
|
(4,184,511
|
)
|
|
$
|
|
|
|
$
|
(4,184,511
|
)
|
|
$
|
(5,177,123
|
)
|
|
$
|
|
|
|
$
|
(5,177,123
|
)
|
|
$
|
(15,212,388
|
)
|
|
$
|
|
|
|
$
|
(15,212,388
|
)
|
|
|
|
|
F-40
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Note 10 Subsequent Events:
The Company has evaluated subsequent
events through April 14, 2010, the date at which the financial statements were available to be issued, except for the matters discussed in Note 9 and
Note 1 (Reverse Stock Split), which are as of December 22, 2010 and January 19, 2011, respectively.
In February and March 2010, the Company
issued 8% senior convertible notes in connection with a private placement in the aggregate principal amount of $4,343,000 (the 2010 Notes).
The 2010 Notes mature on February 9, 2012. Upon the closing of a Qualified IPO (as defined below), the 2010 Notes plus any accrued but unpaid interest
thereon will convert automatically into shares of the Companys common stock at 70% of the price at which shares of common stock are sold in the
Qualified IPO (the IPO Price), upon the terms and conditions on which such securities are issued in the Qualified IPO. The Company valued
the beneficial conversion feature of the 2010 Notes at $1,861,000, which will be recorded as interest expense only if a Qualified IPO is
completed.
The amount of the value of the
beneficial conversion feature is not dependent upon the IPO Price. The number of shares to be issued upon conversion will be determined for (a) the
principal amount of the 2010 Notes, (b) the accrued interest on such 2010 Notes and (c) the beneficial conversion amount when the IPO Price is
established. However, pursuant to ASC Topic 470-20-25, the conversion of the 2010 Notes and, therefore, the recording of the beneficial conversion
feature, are contingent upon the completion of a Qualified IPO. The value of the beneficial conversion feature for the 2010 Notes was
determined based on the amount of the 2010 Notes and the discount at which such 2010 Notes convert, contingent on the occurrence of certain events
(including an initial public offering), into common stock. Upon conversion of the 2010 Notes, the Company will record as interest expense a beneficial
conversion charge of $1,861,000 for the principal amount of the 2010 Notes plus an additional beneficial conversion charge for the accrued interest on
the 2010 Notes through the date of conversion. Specifically, the beneficial conversion feature calculation is as follows:
Principal
amount of 2010 Notes
|
|
|
|
$
|
4,343,000
|
|
Divided by
percentage of IPO Price at which 2010 Notes convert to common stock
|
|
|
|
|
70
|
%
|
Aggregate
value to investors
|
|
|
|
|
6,204,000
|
|
Less
principal amount of 2010 Notes
|
|
|
|
|
4,343,000
|
|
Amount of
beneficial conversion feature
|
|
|
|
$
|
1,861,000
|
|
For purposes hereof,
Qualified IPO means the consummation of an initial public offering by the Company of equity securities resulting in aggregate gross cash
proceeds (before commissions or other expenses) to the Company of at least $10,000,000. Each 2010 Noteholder also holds a warrant to purchase a number
of shares of the Companys common stock equal to 70% of the principal amount of the 2010 Notes purchased by it divided by the IPO Price at a per
share exercise price equal to the exercise price of the warrants issued in the Qualified IPO, subject to adjustment. Each of these warrants will expire
and no longer be exercisable on February 9, 2015. Notwithstanding the foregoing, if a Qualified IPO does not occur on or before February 9, 2012, then
each warrant will be exercisable for that number of shares of the Companys common stock equal to 70% of the principal amount of the 2010 Note
purchased by the original holder divided by $48.00, at a per share exercise price of $48.00. In the event of a sale of the Company (whether my merger,
consolidation, sale or transfer of the Companys capital stock or assets or otherwise) prior to, but not in connection with, a Qualified IPO, each
of these warrants will terminate 90 days following such sale and the warrants shall continue to be exercisable pursuant to its terms during such 90-day
period.
Lindsay A. Rosenwald, M.D., a
significant stockholder of the Company and a related party, purchased $500,000 in aggregate principal amount of 2010 Notes and related warrants in this
offering. In addition, a 2010 Note and related warrant in the aggregate principal amount of $1,000,000 were issued to PBS for the cancellation of
certain debt, discussed above. (See Note 3).
F-41
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
In connection with the offering of the
2010 Notes and related warrants, Maxim Group LLC (Maxim) and the Company entered into a placement agency agreement dated October 13, 2009,
as amended on February 8, 2010, pursuant to which the Company paid Maxim cash commissions of $351,730 for its services.
The Company also granted Maxim the
right of first negotiation to co-manage any public underwriting or private placement of debt or equity securities, subject to customary exclusions, of
the Company or any subsidiary or successor of the Company, receiving the right to underwrite or place a minimum of 50% of the securities to be sold
therein, until eighteen months after completion of the offering of the 2010 Notes and related warrants.
F-42
Table of Contents
4,000,000 Shares of Common Stock
Ladenburg Thalmann & Co. Inc.
Boenning & Scattergood, Inc.
|
|
Maxim Group
LLC
|
Table of Contents
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The following table sets forth the
various expenses (other than selling commissions and other fees to be paid to the underwriters) which will be paid by the Registrant in connection with
the issuance and distribution of the securities being registered. With the exception of the SEC registration fee and the FINRA filing fee, all amounts
shown are estimates.
SEC registration
fee
|
|
|
|
$
|
3,034
|
|
FINRA filing fee
|
|
|
|
|
2,876
|
|
NYSE Amex
listing fee and expenses
|
|
|
|
|
60,000
|
|
Printing and
engraving expenses
|
|
|
|
|
200,000
|
|
Legal fees and
expenses
|
|
|
|
|
650,000
|
|
Accounting fees
and expenses
|
|
|
|
|
200,000
|
|
Transfer Agent
and Registrar fees and expenses
|
|
|
|
|
5,000
|
|
Miscellaneous
|
|
|
|
|
79,090
|
|
Total
|
|
|
|
$
|
1,200,000
|
|
Item 14. Indemnification of Directors and
Officers.
The amended and restated certificate of
incorporation of the Registrant to be effective upon the completion of the offering described in the prospectus filed herewith will provide that the
Registrant will indemnify, to the extent permitted by the DGCL, any person whom it may indemnify thereunder, including directors, officers, employees
and agents of the Registrant. In addition, the Registrants amended and restated certificate of incorporation will eliminate, to the extent
permitted by the DGCL, personal liability of directors to the Registrant and its stockholders for monetary damages for breach of fiduciary
duty.
The Registrants authority to
indemnify its directors and officers is governed by the provisions of Section 145 of the DGCL, as follows:
(a) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
the persons conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that the persons conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that
the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys
fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
II-1
Table of Contents
matter as to
which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem
proper.
(c) To the extent that a present or former director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in
connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority
vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys fees) incurred
by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this
section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to
action in another capacity while holding such office. A right to indemnification or to advancement of expenses arising under a provision of the
certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to such provision after the occurrence of the act or
omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or
advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or
impairment after such action or omission has occurred.
(g) A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such persons status as such, whether or not the corporation would have the power to indemnify such
person against such liability under this section.
(h) For purposes of this section, references to the corporation shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position
under this section with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its
separate existence had continued.
II-2
Table of Contents
(i) For purposes of this section, references to other enterprises shall include employee benefit plans;
references to fines shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to
serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as
referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors,
or otherwise. The Court of Chancery may summarily determine a corporations obligation to advance expenses (including attorneys
fees).
Pursuant to the Underwriting Agreement
to be filed as Exhibit 1.1 to this Registration Statement, the Registrant will agree to indemnify the Underwriters and the Underwriters will agree to
indemnify the Registrant and its directors, officers and controlling persons against certain civil liabilities that may be incurred in connection with
the offering, including certain liabilities under the Securities Act.
The Registrant will enter into
indemnification agreements with each of its directors after the completion of the offering, whereby it will agree to indemnify each director and
officer from and against any and all judgments, fines, penalties, excise taxes and amounts paid in settlement or incurred by such director or officer
for or as a result of action taken or not taken while such director was acting in his capacity as a director or executive officer of the
Registrant.
Item 15. Recent Sales of Unregistered
Securities.
During the past three years, the
following securities were sold by the Registrant without registration under the Securities Act of 1933, as amended (the Securities Act).
All certificates representing the securities described herein and currently outstanding have been appropriately legended. The securities described
below were deemed exempt from registration under the Securities Act in reliance upon Section 4(2), Regulation D or Regulation S of the Securities Act.
There were no underwriters employed in connection with any of the transactions set forth in this Item 15. All of these securities, to the extent not
included in this registration statement, are deemed restricted securities for purposes of the Securities Act. The terms of these securities are
discussed in greater detail in the section of the prospectus entitled Description of Capital Stock.
1.
|
|
On December 1, 2006, we issued the PBS Note. Pursuant to the PBS
Note, we borrowed an aggregate principal amount of $1,282,205 from December 1, 2006 through September 30, 2010.
|
2.
|
|
On December 1, 2006, we issued the Family Trusts Note. Pursuant
to the Family Trusts Note, we borrowed an aggregate principal amount of $660,000 from December 1, 2006 through September 30, 2010.
|
3.
|
|
During March and April 2007, we issued 93,328 shares of common
stock to our founders for $4,480, or $.048 per share, including 6,445 shares to Matthew A. Wikler, MD, our President and Chief Executive Officer, 859
shares to James Rock, our Director of New Product Development, 2,083 shares to Lindsay A. Rosenwald, MD, 2,083 shares to the Family Trusts, and 44,356
shares to certain employees and affiliates of Paramount BioSciences, LLC.
|
4.
|
|
In September 2007, we issued to Robert Feldman, a former
employee of Paramount, as compensation for certain services provided in connection with the in-licensing of certain of
|
II-3
Table of Contents
|
|
our product candidates, the Feldman Consultant Warrant, which is
currently exercisable for 6,250 shares of common stock at a per share exercise price of $45.60.
|
5.
|
|
In December 2007, we issued the 10% Notes, in the aggregate
principal amount of $4,340,000, to 23 accredited investors.
|
6.
|
|
In December 2007, we issued to Paramount, in partial
compensation for its services in connection with the offering of the 10% Notes, the Placement Agent Warrant, which is currently exercisable for 9,042
shares of common stock at a per share exercise price of $48.00.
|
7.
|
|
On December 18, 2008, we issued the Capretti Note. Pursuant to
the Capretti Note, we borrowed an aggregate principal amount of $50,000 from December 18, 2008 through September 30, 2010.
|
8.
|
|
On each of January 15, 2009 and June 24, 2009, respectively, we
issued the PCP Notes, in the aggregate principal amount of $2,875,000, and the PCP Warrants, to PCP.
|
9.
|
|
In February and March 2010, we issued the 8% Notes, in the
aggregate principal amount of $3,343,000, and the 8% Noteholder Warrants, to 45 accredited investors, including Lindsay A. Rosenwald, M.D., the
Chairman, Chief Executive Officer and sole stockholder of Paramount BioCapital, Inc., a FINRA-registered broker-dealer. In addition, pursuant to the
terms of the PBS Note, $1,000,000 of the principal amount outstanding under the PBS Note converted into an 8% Note in February 2010 in connection with
the 8% Notes financing and PBS received a corresponding 8% Noteholder Warrant.
|
10.
|
|
In May 2010, we granted Timothy Hofer, our Corporate Secretary,
as compensation for his services under his consulting agreement, a ten-year warrant to purchase 2,083 shares of our common stock, subject to
adjustment.
|
Item 16. Exhibits and Financial
Statements.
Number
|
|
|
|
Description of Exhibit
|
1.1
|
|
|
|
Form
of Underwriting Agreement.*
|
3.1
|
|
|
|
Certificate of Incorporation.**
|
3.2
|
|
|
|
Certificate of Amendment of Certificate of Incorporation dated April 12, 2010.**
|
3.3
|
|
|
|
By-laws.**
|
3.4
|
|
|
|
Certificate of Amendment of Certificate of Incorporation, dated January 19, 2011.**
|
3.5
|
|
|
|
Form
of Amended and Restated Certificate of Incorporation, to be effective upon the completion of the offering.**
|
3.6
|
|
|
|
Form
of Amended and Restated By-laws, to be effective upon the completion of the offering.**
|
4.1
|
|
|
|
Specimen common stock certificate.**
|
4.2
|
|
|
|
Form
of underwriters warrant.*
|
4.3
|
|
|
|
Form
of Note Purchase Agreement for 10% Notes (filed as Exhibit 4.6 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
|
4.4
|
|
|
|
Form
of 10% Note (filed as Exhibit 4.7 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.5
|
|
|
|
Note
and Warrant Purchase Agreement, dated as of January 15, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.8 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.6
|
|
|
|
10%
Senior Promissory Note, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.9 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).**
|
4.7
|
|
|
|
Common Stock Warrant, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.10 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).**
|
II-4
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
4.8
|
|
|
|
Note
and Warrant Purchase Agreement, dated as of June 24, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.11 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.9
|
|
|
|
10%
Senior Promissory Note, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.12 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).**
|
4.10
|
|
|
|
Common Stock Warrant, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.13 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.11
|
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Paramount Biosciences, LLC (filed as Exhibit 4.14 to
the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.12
|
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to The Lindsay A. Rosenwald 2000 Family Trusts Dated
December 15, 2000 (filed as Exhibit 4.15 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.13
|
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Capretti Grandi, LLC (filed as Exhibit 4.16 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.14
|
|
|
|
Form
of Note and Warrant Purchase Agreement for 8% Notes (filed as Exhibit 4.17 to the Registrants Registration Statement on Form S-1 filed on April
15, 2010).**
|
4.15
|
|
|
|
Form
of 8% Note (filed as Exhibit 4.18 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.16
|
|
|
|
Form
of 8% Warrant (filed as Exhibit 4.19 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.17
|
|
|
|
Placement Agent Warrant (filed as Exhibit 4.20 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
|
4.18
|
|
|
|
Feldman Consultant Warrant (filed as Exhibit 4.21 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
|
4.19
|
|
|
|
Hofer Consultant Warrant (filed as Exhibit 4.22 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
|
4.20
|
|
|
|
10%
Note Extension Agreement, dated September 16, 2010, between the Registrant and the noteholders listed on the signature pages
thereto.**
|
4.21
|
|
|
|
PBS
Note Extension Agreement, dated as of September 16, 2010, between the Registrant and PBS.**
|
4.22
|
|
|
|
Family Trusts Note Extension Agreement, dated as of September 16, 2010, between the Registrant and the Family Trusts.**
|
4.23
|
|
|
|
Capretti Note Extension Agreement, dated as of September 16, 2010, between the Registrant and Capretti.**
|
4.24
|
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of September 16, 2010, between the Registrant and Timothy Hofer.**
|
4.25
|
|
|
|
10%
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature pages
thereto.**
|
4.26
|
|
|
|
8%
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature pages
thereto.**
|
4.27
|
|
|
|
PBS
Note Amendment Agreement, dated December 23, 2010, between the Registrant and PBS.**
|
4.28
|
|
|
|
Family Trusts Note Amendment Agreement, dated December 23, 2010, between the Registrant and the Family Trusts.**
|
4.29
|
|
|
|
Capretti Note Amendment Agreement, dated December 23, 2010, between the Registrant and Capretti.**
|
4.30
|
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of December 23, 2010, between the Registrant and Timothy Hofer.**
|
4.31
|
|
|
|
PCP
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and PCP.**
|
5.1
|
|
|
|
Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.* *
|
II-5
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
10.1
|
|
|
|
License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and the Registrant.**
|
10.2
|
|
|
|
Amendment No. 1, effective as of April 22, 2008, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.**
|
10.3
|
|
|
|
License Agreement, dated as of June 12, 2007, between UCB Celltech and the Registrant.**
|
10.4
|
|
|
|
Non-Exclusive Patent License Agreement, effective as of November 4, 2009, by and between the Registrant and Merck Sharp & Dohme
Corp.**
|
10.5
|
|
|
|
Exclusive Sublicense Agreement, effective as of July 10, 2007, by and between Santee Biosciences, Inc. and the
Registrant.**
|
10.6
|
|
|
|
Amended and Restated 2007 Stock Incentive Plan.**
|
10.7
|
|
|
|
Employment Agreement, effective as of February 28, 2010, by and between the Registrant and Matthew A. Wikler, M.D.**
|
10.8
|
|
|
|
Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James Rock.**
|
10.9
|
|
|
|
Amendment, dated August 18, 2008, to Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James
Rock.**
|
10.10
|
|
|
|
Employment Agreement, dated May 17, 2007, by and between the Registrant and Mark Lotz.**
|
10.11
|
|
|
|
Employment Agreement, effective as of July 12, 2010, by and between the Registrant and James W. Klingler.**
|
10.12
|
|
|
|
Amendment No. 2, effective as of November 4, 2010, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.**
|
10.13
|
|
|
|
Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New York.**
|
10.14
|
|
|
|
First Amendment, dated as of December 23, 2010, to Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New
York.**
|
10.15
|
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of February 28, 2010, by and between the Registrant and
Matthew A. Wikler, M.D.**
|
10.16
|
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of July 12, 2010, by and between the Registrant and
James W. Klingler.**
|
10.17
|
|
|
|
Form
of Indemnification Agreement between the Company and each of its directors and executive officers.**
|
10.18
|
|
|
|
Form
of Lock-up Agreement for directors, executive officers and 5% stockholders of the Company.* *
|
23.1
|
|
|
|
Consent of J.H. Cohn LLP.*
|
23.2
|
|
|
|
Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP (included in Exhibit 5.1).* *
|
24.1
|
|
|
|
Powers of Attorney.**
|
|
|
Confidential treatment has been requested for portions of this
document. The omitted portions of this document have been filed separately with the SEC.
|
Item 17. Undertakings.
(a) The undersigned
registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as
indemnification for liabilities arising under the Securities Act of 1933 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 SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification
II-6
Table of Contents
against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant 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.
(c) The undersigned
registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-7
Table of Contents
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the Registrant has duly caused this Amendment No. 5 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Diego, State of California on the 9 th day of Febru ary,
2011.
IASO PHARMA
INC.
By:
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|
/s/ Matthew A. Wikler
Name: Matthew A. Wikler
Title: President and Chief Executive Officer
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Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the
dates indicated.
Signature
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Title
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Date
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/s/ Matthew A. Wikler
Matthew A. Wikler
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President,
Chief Executive Officer
and Director
(Principal Executive Officer)
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February 9 , 2011
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/s/ James W.
Klingler
James W. Klingler
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Executive Vice
President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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February 9 , 2011
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*
J. Jay Lobell
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Director
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February 9 , 2011
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*
Jai Jun (Matthew) Choung
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Director
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February 9 , 2011
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*
Michael L. Corrado
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Director
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February 9 , 2011
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*
Gary G. Gemignani
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Director
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February 9 , 2011
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*
Michael Rice
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Director
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February 9 , 2011
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*By: /s/ Matthew
A. Wikler
Matthew A. Wikler
Attorney-in-Fact
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II-8
Table of Contents
EXHIBIT INDEX
Number
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|
Description of Exhibit
|
1.1
|
|
|
|
Form
of Underwriting Agreement.*
|
3.1
|
|
|
|
Certificate of Incorporation.**
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3.2
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|
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Certificate of Amendment of Certificate of Incorporation, dated April 12, 2010.**
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3.3
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|
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By-laws.**
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3.4
|
|
|
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Certificate of Amendment of Certificate of Incorporation, dated January 19, 2011.**
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3.5
|
|
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Form
of Amended and Restated Certificate of Incorporation, to be effective upon the completion of the offering.**
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3.6
|
|
|
|
Form
of Amended and Restated By-laws, to be effective upon the completion of the offering.**
|
4.1
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|
|
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Specimen common stock certificate.**
|
4.2
|
|
|
|
Form
of underwriters warrant.*
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4.3
|
|
|
|
Form
of Note Purchase Agreement for 10% Notes (filed as Exhibit 4.6 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
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4.4
|
|
|
|
Form
of 10% Note (filed as Exhibit 4.7 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
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4.5
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|
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Note
and Warrant Purchase Agreement, dated as of January 15, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.8 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.6
|
|
|
|
10%
Senior Promissory Note, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.9 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).**
|
4.7
|
|
|
|
Common Stock Warrant, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.10 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.8
|
|
|
|
Note
and Warrant Purchase Agreement, dated as of June 24, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.11 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.9
|
|
|
|
10%
Senior Promissory Note, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.12 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).**
|
4.10
|
|
|
|
Common Stock Warrant, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.13 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).**
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4.11
|
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Paramount Biosciences, LLC (filed as Exhibit 4.14 to
the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
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4.12
|
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to The Lindsay A. Rosenwald 2000 Family Trusts Dated
December 15, 2000 (filed as Exhibit 4.15 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
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4.13
|
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Capretti Grandi, LLC (filed as Exhibit 4.16 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.14
|
|
|
|
Form
of Note and Warrant Purchase Agreement for 8% Notes (filed as Exhibit 4.17 to the Registrants Registration Statement on Form S-1 filed on April
15, 2010).**
|
4.15
|
|
|
|
Form
of 8% Note (filed as Exhibit 4.18 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.16
|
|
|
|
Form
of 8% Warrant (filed as Exhibit 4.19 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).**
|
4.17
|
|
|
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Placement Agent Warrant (filed as Exhibit 4.20 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
|
II-9
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
4.18
|
|
|
|
Feldman Consultant Warrant (filed as Exhibit 4.21 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
|
4.19
|
|
|
|
Hofer Consultant Warrant (filed as Exhibit 4.22 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).**
|
4.20
|
|
|
|
10%
Note Extension Agreement, dated September 16, 2010, between the Registrant and the noteholders listed on the signature pages
thereto.**
|
4.21
|
|
|
|
PBS
Note Extension Agreement, dated as of September 16, 2010, between the Registrant and PBS.**
|
4.22
|
|
|
|
Family Trusts Note Extension Agreement, dated as of September 16, 2010, between the Registrant and the Family Trusts.**
|
4.23
|
|
|
|
Capretti Note Extension Agreement, dated as of September 16, 2010, between the Registrant and Capretti.**
|
4.24
|
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of September 16, 2010, between the Registrant and Timothy Hofer.**
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4.25
|
|
|
|
10%
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature pages
thereto.**
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4.26
|
|
|
|
8%
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature pages
thereto.**
|
4.27
|
|
|
|
PBS
Note Amendment Agreement, dated December 23, 2010, between the Registrant and PBS.**
|
4.28
|
|
|
|
Family Trusts Note Amendment Agreement, dated December 23, 2010, between the Registrant and the Family Trusts.**
|
4.29
|
|
|
|
Capretti Note Amendment Agreement, dated December 23, 2010, between the Registrant and Capretti.**
|
4.30
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|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of December 23, 2010, between the Registrant and Timothy Hofer.**
|
4.31
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|
|
|
PCP
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and PCP.**
|
5.1
|
|
|
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Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.* *
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10.1
|
|
|
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License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and the Registrant.**
|
10.2
|
|
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|
Amendment No. 1, effective as of April 22, 2008, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.**
|
10.3
|
|
|
|
License Agreement, dated as of June 12, 2007, between UCB Celltech and the Registrant.**
|
10.4
|
|
|
|
Non-Exclusive Patent License Agreement, effective as of November 4, 2009, by and between the Registrant and Merck Sharp & Dohme
Corp.**
|
10.5
|
|
|
|
Exclusive Sublicense Agreement, effective as of July 10, 2007, by and between Santee Biosciences, Inc. and the
Registrant.**
|
10.6
|
|
|
|
Amended and Restated 2007 Stock Incentive Plan.**
|
10.7
|
|
|
|
Employment Agreement, effective as of February 28, 2010, by and between the Registrant and Matthew A. Wikler, M.D.**
|
10.8
|
|
|
|
Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James Rock.**
|
10.9
|
|
|
|
Amendment, dated August 18, 2008, to Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James
Rock.**
|
10.10
|
|
|
|
Employment Agreement, dated May 17, 2007, by and between the Registrant and Mark Lotz.**
|
10.11
|
|
|
|
Employment Agreement, effective as of July 12, 2010, by and between the Registrant and James W. Klingler.**
|
10.12
|
|
|
|
Amendment No. 2, effective as of November 4, 2010, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.**
|
II-10
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
10.13
|
|
|
|
Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New York.**
|
10.14
|
|
|
|
First Amendment, dated as of December 23, 2010, to Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New
York.**
|
10.15
|
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of February 28, 2010, by and between the Registrant and
Matthew A. Wikler, M.D.**
|
10.16
|
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of July 12, 2010, by and between the Registrant and
James W. Klingler.**
|
10.17
|
|
|
|
Form
of Indemnification Agreement between the Company and each of its directors and executive officers.**
|
10.18
|
|
|
|
Form
of Lock-up Agreement for directors, executive officers and 5% stockholders of the Company.* *
|
23.1
|
|
|
|
Consent of J.H. Cohn LLP.*
|
23.2
|
|
|
|
Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP (included in Exhibit 5.1).* *
|
24.1
|
|
|
|
Powers of Attorney.**
|
|
|
Confidential treatment has been requested for portions of this
document. The omitted portions of this document have been filed separately with the SEC.
|
II-11
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