As
filed with the Securities and Exchange Commission on August 6, 2015
Registration No.
333-203238
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
_____________________________________________________________________________________
Post-Effective
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
_____________________________________________________________________________________
INNOVATION ECONOMY
CORPORATION
(Exact name of
registrant as specified in its charter)
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(State or other jurisdiction of incorporation or
organization)
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(Primary Standard Industrial Classification Code
Number)
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(I.R.S. Employer
Identification No.)
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1650 Spruce Street,
Suite 500
Riverside, CA 92507
Tel. (951) 824-8669
(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive offices)
Paracorp
Incorporated
2140 S DuPont Hwy
Camden, DE 19934
(302) 730-1320
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
with copies
to:
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Richard Baumann,
Esq.
Douglas S. Ellenoff, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, NY 10105
(212)
370-1300
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Louis Taubman,
Esq.
Hunter Taubman Fischer LLC
1450 Broadway,
26th Floor
New York, NY 10018
(212)
732-7184
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Approximate date of proposed sale to public: From time to time
after the effective date of this registration
statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. x
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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(Do not check if a smaller reporting
company)
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Smaller reporting company
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x
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CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
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Proposed Maximum Aggregate Offering
Price(1)
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Amount of Registration
Fee(2)
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Units, each unit consisting of one share of
common stock, par value $0.00001 per share, and one warrant to
purchase one-half of one share of common stock
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$
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25,650,000
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(3)
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$
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2,980.53
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(3)
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Shares of common stock included in the
units
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N/A
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N/A
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(4)
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Warrants included in the units
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N/A
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N/A
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(4)
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Shares of common stock underlying the warrants
included in the units (at an exercise price of 125% of the price of
the shares of common stock included in the units)
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$
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15,775,000
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(5)
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$
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1,833.06
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(5)
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Shares of common stock issuable upon exercise of
the warrants issued to the selling agent in connection with the
offering of the units
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$
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1,500,000
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$
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174.30
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Shares of common stock issuable upon exercise of
the warrants included in the units issued to the placement agent in
connection with the 2014 Private Placement
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$
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200,000
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$
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23.24
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Total
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$
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43,125,000
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$
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5,011.13
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(6)(7)
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The registrant hereby
amends this registration statement on such date or dates as may be
necessary to delay its effective date, until the registrant shall
file a further amendment which specifically states that this
registration statement shall thereafter become effective in
accordance with section 8(a) of the Securities Act of 1933 or until
the registration statement shall become effective on such date as
the commission, acting pursuant to said section 8(a), may
determine.
EXPLANATORY NOTE
This
post-effective amendment is being filed (i) to reflect the extension of the closing date of the initial public offering of the
registrant’s units from August 11, 2015 to September 30, 2015, including the effect such extension will have on the accrual
of interest on the registrant’s outstanding Private Placement Convertible Notes, and the number of units of the registrant
issuable upon the conversion of such Notes into units immediately after the closing of the registrant’s initial public offering
of units; and (ii) to include information relating to the issuance of promissory notes and warrants to certain investors with
whom the Company has had pre-existing relationships, in July 2015.
EXPLANATORY
NOTE
This registration statement contains two forms of prospectus, as
set forth below.
•
Public Offering Prospectus. A prospectus
to be used for the initial public offering by the registrant of up
to $20,000,000 of units (the “Public Offering
Prospectus”).
•
Selling Securityholder Prospectus. A prospectus to be used in connection
with the potential resale by certain selling securityholders of up to an aggregate of 1,015,015 units, each unit consisting of
one share of the registrant’s common stock and one warrant to purchase one-half share of the registrant’s common stock,
issuable upon the forced conversion, immediately after the closing of the Company’s initial public offering of units, of
the Private Placement Convertible Notes sold by the registrant in the Private Placements (the “Selling Securityholder Prospectus”).
By their terms, upon the Company’s election to force such conversion of the Private Placement Convertible Notes, the Private
Placement Convertible Notes shall convert into units at a price equal to $5.10 per unit. There is no minimum amount of securities
that must be sold in the Company’s initial public offering and the conversion of the Private Placement Convertible Notes
will occur even if only a few Units are sold. The Selling Securityholder Prospectus will also include 34,824 Units issuable upon
the forced conversion of notes issuable upon the exercise of placement agent warrants related to the October 2014 Convertible
Notes.
The Public Offering Prospectus and the Selling Securityholder
Prospectus will be identical in all respects except for the
following principal points:
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they will contain different front covers;
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the Table of Contents in the Selling Securityholder Prospectus (but
not in the Public Offering Prospectus) will contain entries for a
Shares Registered for Resale section and a Selling Securityholders
section;
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they will contain different Use of Proceeds sections;
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a Shares Registered for Resale section will be included in the
Selling Securityholder Prospectus (but not in the Public Offering
Prospectus);
•
a Selling Securityholders section will be included in the Selling
Securityholder Prospectus (but not in the Public Offering
Prospectus);
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they will contain different Plan of Distribution sections;
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the Legal Matters section in the Selling Securityholder Prospectus
will not contain a reference to counsel for the selling agent;
and
•
they will contain different back covers.
The registrant has included in this registration statement,
following the financial statement pages, a set of alternative pages
reflecting the foregoing differences between the Public Offering
Prospectus and the Selling Securityholder Prospectus.
As of January 16, 2015, we effectuated a 15-1 reverse split of our
shares, meaning that 15 of our shares held prior to the reverse
split equals one share held after the reverse split. If, as a
result of the split, any stockholder would be entitled to receive a
fraction of a share, in order to avoid issuing fractional shares we
will instead provide that stockholder with an additional whole
share. All share and share equivalents numbers presented in this
prospectus retroactively reflect the effectuation of the 15-1
reverse split dated January 16, 2015, unless otherwise stated or
unless the context otherwise indicates.
The
information in this preliminary prospectus is not complete and may
be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any jurisdiction where an offer or sale is not
permitted.
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PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION, DATED AUGUST 6, 2015
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Up to
3,125,000 Units
Consisting of One Share of Common Stock and
One Warrant to Purchase One-half Share of Common
Stock
This is the initial public
offering of securities of Innovation Economy Corporation, which
does business under the name “ieCrowd”. We are offering
up to 3,125,000 units (the “Units”), each Unit
consisting of one share of our common stock, par value $0.00001 per
share, and one warrant to purchase one-half share of our common
stock. The Units are being offered at a price of $6.40 per Unit,
representing a price of $6.39 for the underlying share of common
stock and $0.01 for the underlying warrant. Each warrant will
entitle the holder to purchase one-half share of our common stock
at an exercise price of 125% of the price of the shares in this
offering, or $8.00 per whole share. The warrants will expire 36
months after the date they are issued. The Units will not be issued
or certificated. Instead, the shares of common stock and the
warrants will be issued separately and may be resold separately,
although they will have been purchased together in this
offering.
Currently, there is no public
market for our Units, common stock or warrants. We have applied to
list our common stock on the NASDAQ Capital Market
(“NASDAQ”) under the symbol “MYIE”, and to
list our warrants on NASDAQ under the symbol “MYIEW”,
on or promptly after the closing date of this offering. We cannot
guarantee that our securities will be approved for listing on
NASDAQ. If they are not, we may in our sole discretion cancel this
offering, and all funds that may have been provided by any
investors will be promptly returned. See “Plan of
Distribution”.
Investing in our securities involves a high
degree of risk. Our company is at an early stage of its development
and our securities may only be appropriate for long-term
investment. Our independent registered public accounting firm has
issued an audit opinion that includes a statement expressing
substantial doubt as to our ability to continue as a going concern.
You should purchase our securities only if you can afford to lose
your entire investment. See “Risk Factors” beginning on
page 10.
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Price to the public
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$
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6.40
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$
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20,000,000
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Selling agent’s
commissions(1)
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$
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0.38
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$
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1,200,000
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Proceeds to us (before
expenses)(2)
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$
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6.02
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$
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18,800,000
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We
plan to market this offering to potential investors through the selling agent and by ourselves, directly, at meetings that we
will conduct at selected locations around the United States with prospective investors. The offering will close on September 30,
2015, unless all the securities are sold before that date, or we and the selling agent agree to extend the offering another 45
days, or we otherwise decide to close the offering early or cancel it, in our sole discretion. If we and the selling agent extend
the offering, we will provide that information in an amendment to this prospectus. If we close the offering early or cancel it,
we may do so without notice to you, although if we cancel the offering all funds that may have been provided by any investors
will be promptly returned. See “Plan of Distribution”.
We are an “emerging growth
company” under applicable law and rules and we may elect to
comply with certain reduced public company reporting requirements
following this offering.
Neither the Securities and Exchange Commission
nor any state securities commission nor any other regulatory body
has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
TriPoint Global Equities,
LLC
The date of
this prospectus is __________, 2015
TABLE OF
CONTENTS
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Prospectus Summary
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1
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The Company
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1
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The Offering
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6
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Summary Consolidated Financial
Data
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9
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Risk
Factors
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10
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Cautionary Note Regarding Forward-Looking
Statements
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31
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Use
of Proceeds
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33
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Dividend Policy
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33
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Capitalization
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34
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Dilution
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36
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Selected Consolidated Financial Data
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38
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Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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39
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Business
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51
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Management
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85
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Executive Compensation
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91
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Certain Relationships and Related Party
Transactions
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100
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Principal Stockholders
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102
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Description of Securities
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104
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Shares Eligible for Future Sale
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107
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Certain U.S. Federal Income Tax
Considerations
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109
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Plan
of Distribution
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113
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Legal
Matters
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119
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Experts
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119
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Where
You Can Find More Information
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119
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Index
to Financial Statements
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F-1
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We are offering to sell, and seeking offers to buy, our securities
only in jurisdictions where such offers and sales are permitted.
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with any
information other than the information contained in this
prospectus.
The information contained in this prospectus is accurate only as of
its date, regardless of the time of its delivery or of any sale or
delivery of our securities. Neither the delivery of this prospectus
nor any sale or delivery of our securities shall, under any
circumstances, imply that there has been no change in our affairs
since the date of this prospectus. This prospectus will be updated
and made available for delivery to the extent required by the
federal securities laws.
This prospectus includes estimates, statistics and other industry
data that we obtained from industry publications, research and
surveys, from studies conducted by third parties and from publicly
available information. All of such data involve a number of
assumptions and limitations, and contains projections and estimates
of the future performance of the industries in which we operate,
all of which is subject to a high degree of uncertainty. We caution
you not to give undue weight to any such estimates, statistics,
other industry data and projections. Internet addresses for such
publicly available information are provided solely for the
convenience of the reader. We do not incorporate by reference any
information available through such websites, other than to the
extent we quote or expressly refer to such information in the body
of this prospectus.
As of January 16, 2015, we effectuated a 15-1 reverse split of our
shares, meaning that 15 of our shares held prior to the reverse
split equals one share held after the reverse split. If, as a
result of the split, any stockholder would be entitled to receive a
fraction of a share, in order to avoid issuing fractional shares we
will instead provide that stockholder with an additional whole
share. All references to the number of shares, options, warrants
and other common stock equivalents, price per share and
weighted-average number of shares of common stock outstanding
presented in this prospectus retroactively reflect the effectuation
of the 15-1 reverse split dated January 16, 2015, unless otherwise
stated or unless the context otherwise indicates.
i
PROSPECTUS
SUMMARY
The following summary
highlights material information contained in this prospectus. This
summary does not contain all of the information you should consider
before investing in our securities. Before making an investment
decision, you should read the entire prospectus carefully,
including our consolidated financial statements and the related
notes, and the information set forth under the headings “Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations”.
Unless the context
requires otherwise, we use the terms “ieCrowd”,
“the Company”, “our Company”,
“we”, “us”, and “our” to refer
to Innovation Economy Corporation and its consolidated
subsidiaries. We do business under the name
“ieCrowd”.
The Company
We are an emerging growth company based on a Collaborative Economy
model with a mission to bring the world together to unlock the
potential of untapped innovations.
We were founded by experienced entrepreneurs who recognized that
research institutions can be filled with un-commercialized
technology discoveries and breakthrough research (which we refer to
throughout this document as “innovations”) which, if
successfully commercialized, could solve or help to solve
significant global challenges. We believe that the potential of
these untapped innovations could be vast. Yet many of these
innovations will never see the light of day because of the
significant difficulties often experienced in the process of taking
laboratory-proven, potentially ground-breaking innovations and
transforming them into products, product platforms, services and
technologies for distribution to global markets.
Recognizing the gap between the marketplace and un-commercialized
but potentially beneficial innovations, the founders of ieCrowd
have created a business model that is intended to bridge this gap.
ieCrowd’s business goal is to license or acquire innovations
with the potential to solve global problems for the purpose of
commercializing them into product platforms, products, services and
technologies that have substantial value-adding impact over large
populations and markets.
When ieCrowd licenses or
acquires a new innovation, it places it into a separate, newly
formed, majority-owned and ieCrowd-operated subsidiary that
benefits from the application of the ieCrowd parent company’s
commercialization platform. Now in its fifth year of existence,
ieCrowd is in the process of applying its commercialization
platform to three innovations, through three separate,
majority-owned and ieCrowd-formed and -operated subsidiaries:
Olfactor Laboratories, Inc. (“OLI”), Nano
Engineered Applications, Inc. (“NEA”) and Smart Oxygen
Solutions, Inc. (“SOS”) (formerly known as Breathing
Technologies, Inc.). These subsidiaries have reached the following
stages of their development:
•
OLI, now in its fourth year of operations,
is seeking to commercialize a range of patent-pending technologies
to control the behavior of mosquitoes and other blood-seeking
insects with non-insecticidal agents, with the aim of lowering the
spread of diseases such as malaria, Dengue fever, West Nile virus
and other diseases that are transmitted by blood-seeking insects.
Transmission of disease from insects to humans is a major global
health issue, and OLI is working to create a number of product
offerings leveraging these technologies for various markets
globally. The Company has chosen “Kite” as the brand
under which its expected future repellant and attractant product
offerings will be marketed. OLI’s initial product offerings
must pass through OLI’s final product development stages,
including testing, the determination of manufacturing
specifications and consumer brand and packaging finalization. OLI
must also pursue regulatory approvals for most of its
“Kite”-branded product offerings prior to sale to
consumers in most countries. In the U.S., OLI must obtain approval
for its Kite-branded products from the EPA. We expect to begin
seeking regulatory approvals for the first of our Kite-branded
products in or about the first half of 2016 (although we can
provide no assurance that we will be able to begin seeking
approvals within this timeframe, or at all). We would expect to
obtain these approvals within approximately 24 to 36 months from
the filing of applications for the approvals (although we can
provide no assurance that we will be able to obtain the approvals
within that timeframe, or at all). We would expect to repeat this
process and timing for later-developed Kite-branded products. OLI
is also pursuing the development of a range of product offerings
for licensing and public health efforts globally. OLI currently
expects to begin selling repellant and attractant products, or
licensing the distribution of such products to others, or both, as
well as beginning to license active ingredients or exclusive rights
to active ingredients, in 2016 (although we can provide no
assurance that we will be able to fully develop, and sell or
license the distribution of, any such products at that time or any
time). From April 25 to May 15, 2015,
1
members of ieCrowd’s
Kite team have been in Uganda — in the Jinja area and
surrounding rural communities — implementing a series of
tests relating to Kite’s technologies in
development.
•
NEA, now in its
fourth year of operations, seeks to commercialize patented and
patent-pending sensor technologies based on nano materials that can
detect airborne gases to the parts-per-billion (PPB) level.
(“Nano materials” are materials sized in at least one
dimension between 1 and 100 nanometers, with a nanometer being
10−9
of a meter.) NEA’s technologies, if commercialized, could
provide a product platform encompassing multiple consumer,
commercial, industrial and security-related products with a variety
of applications, including air quality monitoring, explosives
detection, industrial plant toxic gas detection, gaseous chemical
warfare agent detection, food and agricultural safety hazard
detection and other applications. Before any products can be made
available to the market, laboratory facility and equipment
improvements have to be made, product development (including
sensor, algorithm, form factor, software and prototype development)
must be completed, testing must be conducted, any necessary
regulatory and industry safety and industry standard certifications
must be acquired and manufacturing and quality assurance facilities
and protocols must be established. We expect to begin seeking
regulatory approvals for the first of our NEA-branded products in
or about the second half of 2016 (although we can provide no
assurance that we will be able to begin seeking approvals within
this timeframe, or at all). We would expect to obtain these
approvals within approximately three to four months after the
beginning of the approval process (although we can provide no
assurance that we will be able to obtain the approvals within that
timeframe, or at all). We expect to repeat this process and timing
for later-developed NEA-branded products. We currently expect to
complete these steps and begin licensing the distribution of
products to others, and possibly selling some initial consumer
products ourselves, in 2016 (although we can provide no assurance
that we will be able to fully develop, and license the distribution
of or sell, any such products at that time or any time).
•
SOS, now in its
second year of operations, seeks to commercialize supplemental
oxygen delivery devices that would incorporate a computer
controlled, patient-adaptive dosing system, for people who have
been prescribed supplemental oxygen delivery equipment by a doctor.
The devices would be configured as add-ons to existing,
commercially available supplemental oxygen delivery equipment. If
commercialized, the devices would have the potential to be used by
people who have been prescribed supplemental oxygen therapy by
their doctor in maintaining a more active lifestyle. The current
milestone plan for development of the devices extends through a
currently ongoing FDA pre-submission process and, thereafter, an
expected FDA submission process. We cannot currently foresee when
our FDA processes may be completed. Potential revenue-earning
options will be considered thereafter.
In addition to the foregoing, effective November 3, 2014, we
entered into agreements with the University of California, Los
Angeles (UCLA) to secure licenses, subject to the completion of our
due diligence efforts, for two additional innovations:
•
Head Pain
Management. We are exploring potential therapeutic
treatments based on technology that stimulates the sensory fibers
of a nerve in order to mitigate pain perception. The technology
uses mechanical vibration (as opposed to electrical stimulation) to
stimulate such fibers and is non-invasive and patient controllable.
The target market for the commercialization of this technology
would include migraine sufferers, as well as those with trigeminal
neuropathy (a debilitating, long-lasting oral pain, often arising
from failed or compromised dental procedures) and others.
•
Sleep Disorders.
We are exploring potential therapeutic treatments based on
technology that takes advantage of the fact that signals from the
limbs can be interpreted by the brain as movement and can elicit
altered breathing rates. The device we would expect to develop
would use a nerve stimulation technique to alter the breathing rate
without actual limb movement. The target market for the
commercialization of this technology would include people who
suffer sleep disorders mostly due to irregular breathing, the most
common of which is sleep apnea.
More recently, in May 2015, we negotiated options to license up to
20 different families of patents and patent applications. The
options run for six months, and can be extended for an additional
six months thereafter in the sole discretion of ieCrowd. The
patents and applications relate to subject matters in a variety of
health-related technology areas. ieCrowd intends to use the time
afforded to it under the options to continue its due diligence of
the patents and applications and decide which patent families, if
any, it wishes to license.
2
ieCrowd intends to pursue commercial success with each of these
subsidiaries and innovations, and over time to expand the number of
its subsidiaries and innovations. Ultimately, ieCrowd envisions
having a group of life and health subsidiaries diversified across
various business development stages and product, service and
technology markets. ieCrowd expects that achieving such
diversification may help it mitigate some of the risks typically
associated with investing in early-stage companies and innovative
discoveries and technologies.
The Company does business
under the name “ieCrowd” in order to emphasize its
Collaborative Economy approach to implementing its business model.
By “Collaborative Economy”, we mean a system that
emphasizes the sharing, repurposing and distribution of ideas,
opportunities and other resources among a great number of
participants, typically aided by the use of social media and other
information technology, in order to increase the value and
efficient deployment of those resources not only for the
participants but also for larger populations, societies and the
world generally. We refer to the individuals and entities we seek
to collaborate with as the “Crowd”. The Crowd includes
the people and organizations through which we hope to gain access
to expertise, innovations, social and business networks, marketing
and distribution opportunities and other resources. The Crowd
includes, among others, universities, government agencies,
municipalities, non-governmental organizations
(“NGOs”), stockholders, innovators, investors,
employees, vendors, other stakeholders and collaborators and
potential marketing and distribution partners and customers. The
Crowd plays an integral role in each stage of ieCrowd’s
mission to bring commercialization to bear to help solve global
problems.
Our Business
Strategy
The Company’s strategy for attaining its goals incorporates
three principal components:
•
Licensing
innovations with potential global benefits from
universities, federal agencies, innovators, businesses and other
sources. In the future, we may also acquire innovations outright or
acquire the companies that own the innovations;
•
Commercializing these
innovations, to seek to turn them into products, product
platforms, services and technologies. We seek to do this by
assigning each innovation to a commercialization team, made up of,
among other people, product development members – scientists
and other technical subject matter experts – supported by our
“business infrastructure” members –personnel who
can provide executive leadership, operations management, sales,
marketing and public relations functions and administrative
services (human resources, legal, finance, accounting). We also
provide office space, laboratory space, specialized equipment, raw
materials, supplies and other physical resources; and
•
Deploying these innovations
into global markets, which we
expect to do if and when our first products are fully
commercialized, via licensing these products to regional, national
and international market partners and distribution channels and, in
some cases, through direct-to-consumer sales and marketing
campaigns.
Market
Opportunity
According to the Scholarly Publishing and Academic Resources
Coalition’s January 2014 report (available at http://www.sparc.arl.org/news/omnibus-appropriations-bill-codifies-white-house-directive),
over $60 billion of taxpayer funds is spent annually on research
projects to “advance science, spur the economy, accelerate
innovation, and improve the lives of our citizens”. A large
number of these research projects end when their results are
published and their government funding is complete. Some of this
research is worthy of further development and this is where the
ieCrowd process begins. ieCrowd believes that a significant
innovation gap exists between laboratory-proven innovations and the
global market launch of products and product platforms based on
those innovations.
ieCrowd sees significant potential in working with research
institutions to search through their research portfolios for
possible breakthrough innovations, and then licensing or acquiring
the most promising of these innovations for development and
commercialization. In regard to these innovations, ieCrowd picks up
where government funding left off and seeks to generate value
moving the selected innovation through development to
commercialization.
Our Key
Strengths
There are significant barriers to overcome in taking
laboratory-proven technologies and transforming them into products
for distribution to global markets. Though simple in concept, the
process is difficult in execution. In order to succeed in its
business, ieCrowd relies on the following key strengths:
•
Past experience: ieCrowd’s management team is
comprised of experienced entrepreneurs.
3
•
Business model: ieCrowd believes that its business model
brings systemization, efficiency and greater predictability to the
task of transforming innovations into market-ready products,
services and technologies, and that its Collaborative Economy focus
helps it find more ideas and resources and reach more collaborators
and potential customers and beneficiaries of its efforts.
•
Capital efficiency: ieCrowd targets the licensing or
acquisition of intellectual property rights that require low
initial capital outlays, and then deploys capital efficiently
through the shared services and economies of scale available to the
ieCrowd operating subsidiaries through the ieCrowd parent
company.
•
Parent company-level infrastructure: For each operating
subsidiary, ieCrowd provides operations, sales, marketing, public
relations and administration (human resources, legal, finance,
accounting) functions, as well as capital and executive
leadership.
•
Key relationships: ieCrowd has a demonstrated track record
of identifying and establishing partnerships with research
institutions and other key stakeholders.
•
Flexibility in seeking revenue: Each ieCrowd operating
subsidiary can pursue revenue through licensing, distributorships
or retail and direct-to-consumer campaigns.
•
Diversification: ieCrowd aims eventually to hold a portfolio
of innovations across different phases of development, product
types and markets.
Going Concern
As of March 31, 2015, the Company had a working capital deficiency
of $890,684 and a stockholders’ deficiency of $3,181,300. As
of December 31, 2014, the Company had working capital of $723,267
and a stockholders’ deficiency of $1,576,760. The Company has
not generated any significant revenues from ongoing operations and
has incurred net losses since inception. These matters raise
substantial doubt about the Company’s ability to continue as
a going concern. The consolidated financial statements included in
this prospectus do not include any adjustments relating to the
recoverability and classification of asset amounts or the
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Going
Concern”.
Emerging Growth
Company
We are an “emerging growth company” within the meaning
of the federal securities laws. For as long as we are an emerging
growth company, we will not be required to comply with certain
regulatory requirements applicable to other public companies that
are not emerging growth companies, including but not limited to:
not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act; being
permitted to comply with reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy
statements; and being exempt from the requirements of holding a
non-binding advisory vote on executive compensation and securing
stockholder approval of golden parachute payments. We intend to
take advantage of these reduced regulatory requirements until we
are no longer an emerging growth company. For a description of the
qualifications and other requirements applicable to emerging growth
companies, and certain elections we have made due to our status as
an emerging growth company, see “Risk Factors—”As
an ‘emerging growth company’ under applicable law, we
will be subject to reduced disclosure requirements, which could
leave our stockholders without information or rights available to
stockholders of more mature companies”.
Risks Associated with
Our Business
Our business is subject to numerous significant risks, as more
fully described in the section entitled “Risk Factors”
immediately following this prospectus summary. You should read and
carefully consider the risks summarized immediately below, together
with all the risks more fully described in the section entitled
“Risk Factors” and all of the other information in this
prospectus, including the financial statements and the related
notes, before deciding whether to invest in our securities. If any
of the risks discussed in this prospectus actually occur, our
business, financial condition, operating results, prospects and
share price could be materially and adversely affected. Our risks
include but are not limited to the following:
•
We are an emerging growth company and are subject to the many risks
associated with new businesses.
•
Our independent registered public accounting firm has issued an
audit opinion that includes a statement expressing substantial
doubt as to our ability to continue as a going concern.
4
•
We have not generated substantial revenue and may not generate
revenue in the manner or within the timeframe we anticipate. We do
not have positive operating cash flow. We expect to incur losses
for the foreseeable future.
•
We will need to raise additional investment capital, which may be
unavailable to us or, if raised, may cause dilution of our existing
investors and place significant restrictions on our ability to
operate.
•
Our independent registered public accountants have identified
material weaknesses in our internal control over financial
reporting. In addition, because of our status as an emerging growth
company, our independent registered public accountants are not
required to provide an attestation report as to our internal
control over financial reporting for the foreseeable future.
•
Successful testing of our innovations in the laboratory may not be
indicative of future results and may not result in commercially
viable innovations. Further, our innovations may have to be
modified from their original design in order to reach or be
successful in the market.
•
Our products are still being developed for commercialization, and
our business may fail if we are not able to successfully generate
significant revenues from these products.
•
We focus our efforts on the commercialization of potential products
that not only present revenue and profit opportunities, but also
promise to do good. However, our goal of doing good may at times
undercut our business performance, and we will be our own judge of
what it means for a product, service or technology to “do
good”.
•
If we are unable to establish successful relations with third-party
distributors, or these distributors do not focus adequate resources
on selling our products or are otherwise unsuccessful in selling
them, sales of our products may not develop.
•
Our ownership interest in each of our operating subsidiaries is
less than 100%, ownership interests in our current and to-be-formed
subsidiaries may fluctuate and shares in our subsidiaries may be
sold to third parties at the discretion of management.
•
Our inability to obtain regulatory approvals, or to comply with
ongoing and changing regulatory requirements, could delay or
prevent sales of the products we are developing.
•
The failure to obtain or maintain patents, licensing agreements and
other intellectual property could materially impact our ability to
compete effectively.
•
We are selling Units in this offering without using the traditional
services of an underwriter, and there can be no assurance that all
or any of the Units included in this offering will be sold.
•
We have applied to list our common stock and warrants on NASDAQ,
but we cannot guarantee that our securities will be approved for
listing on NASDAQ.
•
No public market for our common stock currently exists, and an
active trading market may not develop or be sustained following
this offering.
•
The issuance in the future of a significant number of additional
new shares of our common stock may have an adverse effect on our
stock price, even if our business is performing well, and will
dilute then‑existing shareholders.
Corporate
Information
We were formed on October 28, 2010 as a Delaware corporation. Our
principal executive offices are located at 1650 Spruce Street,
Suite 500, Riverside, CA 92507 and our telephone number is (951)
824-8669.
5
The Offering
|
Issuer:
|
|
Innovation Economy
Corporation, which does business under the name
“ieCrowd”
|
|
|
|
|
|
Securities:
|
|
Up to 3,125,000
Units, each Unit consisting of:
•
one share of common
stock; and
•
one warrant to
purchase one-half share of common stock
|
|
|
|
|
|
Number of shares outstanding before the
offering:
|
|
9,444,828
shares(1)
|
|
|
|
|
Number
of shares outstanding after the offering:
|
|
13,619,667
shares(1) (2) (3)
|
|
|
|
|
|
Price per Unit:
|
|
$6.40 per Unit,
representing a price of $6.39 for the underlying share of common
stock and $0.01 for the underlying warrant.
|
|
|
|
|
|
Exercisability of
warrant:
|
|
Each warrant will
entitle the holder to purchase one-half share of our common stock
at an exercise price of 125% of the price of the shares in this
offering, or $8.00 per whole share. No fractional shares will be
issued upon exercise of the warrants. The warrants shall be
exercisable from the date of issuance (except for those persons
subject to the lock-up agreements discussed under “Shares
Eligible for Future Sale”), which is the closing date of this
offering, and expire on the 36-month anniversary thereof. If, upon
exercise of the warrants, a holder would be entitled to receive a
fractional interest in a share, we will, at our election, upon
exercise, either pay a cash adjustment in respect of such fraction
(in an amount equal to such fraction multiplied by the exercise
price) or round the number of shares to be received by the holder
up to the next whole number.
|
|
|
|
|
|
Redemption of warrants
|
|
We may redeem all or
a portion of the warrants offered as part of our Units to the
extent they remain outstanding and unexercised:
•
at a price of $0.01
per warrant;
•
upon a minimum of 30
days’ prior written notice of redemption, which we refer to
as the 30-day redemption period;
•
if, and only if, the
last sale price of our common stock equals or exceeds $16.00 per
share (as may be adjusted for stock splits and similar
transactions) on each of 20 trading days within the 30 trading-day
period ending on the third business day prior to the date on which
notice of the redemption is given to the warrant holders;
and
•
if, and only if, the
average daily trading volume of our common stock exceeds 500,000
shares per day during the redemption period.
We will not redeem the
warrants unless an effective registration statement under the
Securities Act covering the shares of common stock issuable upon
exercise of the warrants is effective, except if the warrants may
be exercised on a cashless basis and such cashless exercise is
exempt from registration under the Securities Act.
|
|
|
|
|
|
Separability of shares and
warrants:
|
|
The Units will not be issued or certificated. Instead, the shares
of common stock and the warrants will be issued separately and may
be resold separately, although they will have been purchased
together in this offering.
|
|
|
|
|
6
|
Marketing:
|
|
TriPoint Global
Equities, LLC has agreed to act as our selling agent for this
offering. It will not purchase the securities offered by us and it
is not required to sell any specific number or dollar amount of
securities, but will arrange for the sale of securities to
investors on a “best efforts” basis. See “Plan of
Distribution”. We plan to market this offering to potential
investors through the selling agent and by ourselves, directly, at
meetings that we will conduct at selected locations around the
United States with prospective investors.
|
|
|
|
|
Duration
of offering:
|
|
The
offering will close on September 30, 2015, unless all the securities are sold before that date, or we and the selling agent agree
to extend the offering another 45 days, or we otherwise decide to close the offering early or cancel it, in our sole discretion.
If we and the selling agent extend the offering, we will provide that information in an amendment to this prospectus. If we close
the offering early or cancel it, including during any extended offering period, we may do so without notice to you, although if
we cancel the offering all funds that may have been provided by any investors will be promptly returned. See “Plan of Distribution”.
|
|
|
|
|
|
Proceeds to us from the offering (after
selling agent’s commissions but before
expenses):
|
|
$18,800,000(3)
|
|
|
|
|
|
Use of proceeds:
|
|
If we sell all of the
securities being offered, our net proceeds (after the selling
agent’s commissions and after our estimated other offering
expenses) will be $18,175,000. We will use the net proceeds to pay
development and commercialization costs for existing innovations;
acquisition, development and commercialization costs for new
innovations; operating expenses (including salaries; legal,
accounting and consulting fees; subsidiary formation costs, program
development, rent; marketing programs; and other general
administrative expenses); and working capital. See “Use of
Proceeds.”
|
|
|
|
|
|
Proposed listings:
|
|
Currently, there is
no public market for our Units, common stock or warrants. We have
applied to list our common stock on the NASDAQ Capital Market
(“NASDAQ”) under the symbol “MYIE”, and to
list our warrants on NASDAQ under the symbol “MYIEW”,
on or promptly after the closing date of this offering. We cannot
guarantee that our securities will be approved for listing on
NASDAQ. NASDAQ’s listing standards require, among other
things, that we have stockholders’ equity of $5 million. As
of March 31, 2015, we had total stockholders’ equity of $2.0
million (on a pro forma basis, taking into account the forced
conversion, immediately after the closing of this offering, of our
Private Placement Convertible Notes). This means that, to have
closed this offering and listed on NASDAQ as of that date, we would
have had to raise approximately $3 million. In this offering, if we
are unable to raise the amount necessary to meet NASDAQ’s
stockholders’ equity requirement, or if we otherwise fail to
meet NASDAQ’s listing standards, our securities will not be
listed on NASDAQ. In that event, we may in our sole discretion
cancel this offering and all funds that may have been provided by
any investors will be promptly returned.
|
|
|
|
|
|
CUSIP:
|
|
The CUSIP for our
common stock is 457696 102 and the CUSIP for our warrants is 457696
110.
|
|
|
|
|
|
Emerging growth
company:
|
|
We are an
“emerging growth company” under applicable law and
rules and we may elect to comply with certain reduced public
company reporting requirements following this offering.
|
|
|
|
|
7
|
Risk factors:
|
|
Investing in our
securities involves a high degree of risk. Our Company is at an
early stage of its development and our securities may only be
appropriate for long‑term investment. Our independent
registered public accounting firm has issued an audit opinion that
includes a statement expressing substantial doubt as to our ability
to continue as a going concern. You should purchase our securities
only if you can afford to lose your entire investment. See
“Risk Factors”.
|
8
Summary
Consolidated Financial Data
These summary consolidated
financial data should be read together with our consolidated
financial statements and the accompanying notes thereto, and the
section entitled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”. The
summary consolidated financial data as of and for the years ended
December 31, 2014 and 2013 have been derived from our annual
consolidated financial statements appearing elsewhere in this
prospectus. The summary consolidated financial data as of March 31,
2015 and for the three months periods ended March 31, 2015 and 2014
have been derived from our unaudited interim condensed consolidated
financial statements appearing elsewhere in this prospectus, and
include all adjustments, consisting of normal recurring
adjustments, which in the opinion of management are necessary for a
fair presentation of our financial position as of such date and our
results of operations for such periods.
Summary Consolidated Statement of
Operations Data
|
|
|
For the years ended
December 31,
|
|
For the three
months
ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
109,688
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Gross
profit
|
|
$
|
—
|
|
|
$
|
11,684
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total operating
expenses
|
|
$
|
4,895,129
|
|
|
$
|
3,651,088
|
|
|
$
|
1,590,317
|
|
|
$
|
1,001,889
|
|
|
Net loss
|
|
$
|
(4,939,395
|
)
|
|
$
|
(3,411,383
|
)
|
|
$
|
(1,715,983
|
)
|
|
$
|
(1,000,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per share
|
|
$
|
(0.49
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding-basic and diluted
|
|
|
9,261,231
|
|
|
|
8,344,836
|
|
|
|
9,444,828
|
|
|
|
8,881,578
|
|
Summary Consolidated Balance Sheet
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,881,776
|
|
|
$
|
722,736
|
|
|
$
|
544,699
|
|
|
Current
assets
|
|
$
|
1,905,916
|
|
|
$
|
744,026
|
|
|
$
|
574,734
|
|
|
Total
assets
|
|
$
|
2,428,504
|
|
|
$
|
938,490
|
|
|
$
|
1,213,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
1,182,649
|
|
|
$
|
1,226,172
|
|
|
$
|
1,465,418
|
|
|
Total
liabilities
|
|
$
|
4,005,264
|
|
|
$
|
1,226,172
|
|
|
$
|
4,394,772
|
|
|
Total
Stockholders’ equity (deficiency)
|
|
$
|
(1,576,760
|
)
|
|
$
|
(287,682
|
)
|
|
$
|
(3,181,300
|
)
|
Summary Consolidated Cash Flow
Statement Data
|
|
|
For the years ended
December 31,
|
|
For the three
months
ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in
operations
|
|
$
|
(3,973,743
|
)
|
|
$
|
(1,413,006
|
)
|
|
$
|
(1,228,667
|
)
|
|
$
|
(715,310
|
)
|
|
Net cash used in
investing activities
|
|
$
|
(25,613
|
)
|
|
$
|
(3,995
|
)
|
|
$
|
(30,412
|
)
|
|
$
|
(5,591
|
)
|
|
Net cash provided by
financing activities
|
|
$
|
5,158,396
|
|
|
$
|
1,754,155
|
|
|
$
|
(77,998
|
)
|
|
$
|
1,503,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of
period
|
|
$
|
1,881,776
|
|
|
$
|
722,736
|
|
|
$
|
544,699
|
|
|
$
|
1,505,085
|
|
9
RISK FACTORS
Investing in our common stock is highly
speculative and involves a significant degree of risk. You should
carefully consider the following risk factors and other information
in this prospectus before making a decision to invest in our common
stock. Additional risks and uncertainties that we are unaware of
may become important factors that affect us. If any of the
following events occur, our business, financial condition and
operating results may be materially and adversely affected. In that
event, the trading price of our common stock may decline, and you
could lose all or part of your investment.
Risks Related to our Company and our
Business
We are an emerging growth company
and are subject to the many risks associated with new
businesses.
We are an emerging growth company
with no history of commercializing our product candidates, and our
principal assets consist of cash raised in private placements and
the intellectual property licensed to us and developed by us. We
have only a short operating history by which you can assess our
Company and our prospects. We are, and expect for the foreseeable
future to be, subject to all the risks and uncertainties inherent
in a new business and the development and sale of new products. As
a result, we still must establish many functions necessary to
operate a business, including developing marketable products,
meeting applicable regulatory requirements, commencing marketing
activities, achieving sales revenue and scaling up our operating
and financial systems and controls.
Accordingly, you
should consider our prospects in light of the costs, uncertainties,
delays and difficulties frequently encountered by companies in
their pre-revenue-generating stages, particularly those in the life
sciences industry. Potential investors should carefully consider
the risks and uncertainties that a new company with a limited
operating history will face. In particular, potential investors
should consider that there is a significant risk that we will not
be able to:
•
implement a sound business
plan;
•
raise sufficient funds to
effectuate our business plan;
•
maintain our management
team;
•
increase the scale and
effectiveness of our management systems and operations;
•
determine that the processes we
are employing and the products we are developing are commercially
viable; and
•
attract, enter into contracts
with, makes sales to and retain market partners, distributors and
customers.
If we cannot execute any one of
the foregoing, our business may fail, in which case you could lose
the entire amount of your investment in our Company.
Our independent registered public
accounting firm has issued an audit opinion that includes a
statement expressing substantial doubt as to our ability to
continue as a going concern.
We are an early stage company, and
the development and commercialization of our products is uncertain
and expected to require substantial expenditures. We have not yet
generated any recurring revenues from our operations to fund our
activities, and are therefore dependent upon external sources for
financing our operations. There is a risk that we will be unable to
obtain necessary financing to continue our operations on terms
acceptable to us or at all. As a result, our independent registered
public accounting firm has expressed in its auditors’ report
on our financial statements included as part of this prospectus a
substantial doubt regarding our ability to continue as a going
concern. Our financial statements do not include any adjustments
that might result from a negative outcome of the uncertainty
regarding our ability to continue as a going concern. If we cannot
continue as a going concern, our stockholders may lose their entire
investment in our Company.
We have not generated substantial
revenue and may not generate revenue in the manner or within the
timeframe we anticipate. We do not have positive operating cash
flow. We expect to incur losses for the foreseeable
future.
We have not generated substantial
revenue to date, since our product candidates are not yet
commercialized. We have incurred operating losses since our
inception in 2010, and we expect to continue to incur operating
losses for the foreseeable future. At March 31, 2015, December 31,
2014 and December 31, 2013, we had accumulated deficits of
$14,839,743, $13,282,055 and $8,749,750, respectively. For the
three months ended March 31, 2015 and the
10
years ended December 31, 2014 and
2013, we had net losses attributable to common shareholders of
$1,557,688, $4,532,305 and $3,059,352, respectively. As a result,
we will need to generate significant revenues to achieve and
maintain profitability. If our revenues grow more slowly than
anticipated, or if our operating expenses exceed our expectations,
then we may not be able to achieve profitability in the near future
or at all.
Because of
the various risks and uncertainties associated with developing,
obtaining regulatory approvals for and marketing new products, we
are unable to predict with any certainty the extent of any future
revenues, cash flows, profits or losses or when we will generate
positive operating cash flow or become profitable, if at all. We
expect to derive future revenues principally from the sale and
licensing of our products, but we cannot guarantee the magnitude of
any sales or licensing revenues. We expect to continue to require
substantial resources to expand our development activities,
introduce manufacturing capabilities and sales and marketing
activities and take other actions necessary for the future
commercialization of our product candidates. We expect that we will
continue to incur significant and increasing operating losses for
the foreseeable future, and we may never be profitable. Continuing
losses will, among other things, have an adverse effect on our
stockholders’ equity and working capital. Failure to generate
revenue or achieve profitability would materially adversely affect
the value of our Company and our ability to grow our
business.
We will need to raise additional
investment capital, which may be unavailable to us or, if raised,
may cause dilution of our existing investors and place significant
restrictions on our ability to operate.
As
of March 31, 2015, we had cash and cash equivalents of $544,699. In April 2015, we issued $2,100,000 of convertible notes in the
2015 Private Placement. On July 21, 2015, we issued two promissory notes, each in the principal amount of $100,000, to two individual
investors with whom we have had relationships predating this IPO. Interest on each note accrues at the rate of 3% per annum. Upon
the occurrence of an event of default that has not been cured for 30 days, the interest rate shall automatically increase to 15%
per annum. Each note is due in September 2015. The notes may be prepaid in part or in full prior to the maturity date, without
penalty. In connection with the issuance of these notes, we issued a warrant to each investor. Each warrant is exercisable for
50,000 shares of our common stock at an exercise price of $8.00 per share. The warrant may be exercised at any time from the date
of issuance until three years thereafter. According to our management’s estimates, based on these funds and our current
budget, and assuming we engage in no other fundraising, we believe that we have sufficient resources to continue our activity
at least until October 2015.
Since
we expect not to generate sufficient, if any, revenue or cash flow to fund our operations for the foreseeable future, we will
likely need to seek additional equity or debt financing to provide the capital required to maintain or expand our operations.
Furthermore, we may need to seek additional short-term bridge financing to provide capital required to maintain our operations
during the extended period of this offering. We may also need additional funding for developing new product candidates, initiating
our sales and marketing capabilities, promoting brand identity and acquiring complementary technologies and assets, as well as
for working capital requirements and other operating and general corporate purposes. Moreover, the regulatory compliance arising
out of being a publicly registered company following the effectiveness of this offering will dramatically increase our operating
costs.
We do not currently have any
arrangements or credit facilities in place as a source of funds,
and there can be no assurance that we will be able to raise
sufficient capital in this offering or additional capital on
acceptable terms, if at all. If such financing is not available on
satisfactory terms, or is not available, we may be required to
delay, scale back or eliminate the development of business
opportunities and our operations and financial condition may be
materially adversely affected.
If we raise additional capital by
issuing equity securities, the percentage ownership of our existing
stockholders will be reduced, and these stockholders may experience
substantial dilution. We may also issue equity securities that
provide for rights, preferences and privileges senior to those of
our common stock.
Debt financing, if obtained, may
involve agreements that include liens on our assets and covenants
limiting or restricting our ability to take specific actions, such
as incurring additional debt, would increase our expenses and could
require that our assets be provided as security for such debt. Debt
financing would also be required to be repaid regardless of our
operating results.
If we raise additional funds
through collaborations and licensing arrangements, we may be
required to relinquish some rights to our technologies or product
candidates, or to grant licenses on terms that are not favorable to
us.
Funding from any source may be
unavailable to us on acceptable terms, if at all. If we do not have
sufficient capital to fund our operations and expenses, this could
lead to the failure of our business and the loss of your
investment.
11
Our independent registered public
accountants have identified material weaknesses in our internal
control over financial reporting. In addition, because of our
status as an emerging growth company, our independent registered
public accountants are not required to provide an attestation
report as to our internal control over financial reporting for the
foreseeable future.
In connection with the audit of
our consolidated financial statements for the year ended December
31, 2014, our independent registered public accountants identified
material weaknesses in our internal control over financial
reporting. A “material weakness” is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis. The material
weaknesses relate to our having only one employee assigned to
positions that involve processing financial information, resulting
in a lack of segregation of duties so that all journal entries and
account reconciliations are not reviewed by someone other than the
preparer, heightening the risk of error or fraud. In addition, we
have identified a material weakness related to accounting for
complex transactions. If we are unable to remediate the material
weaknesses, or other control deficiencies are identified, we may
not be able to report our financial results accurately, prevent
fraud or file our periodic reports as a public company in a timely
manner.
As a public company, we will be
required to maintain internal control over financial reporting and
to report any material weaknesses in such internal control. In
addition, beginning with our annual report on Form 10-K for the
year ending December 31, 2016, we will be required to annually
assess the effectiveness of our internal control over financial
reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are
in the process of designing, implementing, and documenting the
internal control over financial reporting required to comply with
this obligation, which process is time consuming, costly and
complicated. Because of our limited resources, we may be unable
remediate the identified material weaknesses in a timely manner, or
additional control deficiencies may be identified. As a result, we
may be unable to report our financial results accurately on a
timely basis or help prevent fraud, which could cause our reported
financial results to be materially misstated, result in the loss of
investor confidence and cause the market price of our securities to
decline.
Our independent registered public
accounting firm has not assessed the effectiveness of our internal
control over financial reporting and will not be required to
provide an attestation report on the effectiveness of our internal
control over financial reporting so long as we qualify as an
emerging growth company or until we are no longer a non-accelerated
filer, as defined in Rule 12b-2 under the Securities Exchange Act
of 1934 (the “Exchange Act”), whichever is later, which
may increase the risk that weaknesses or deficiencies in our
internal control over financial reporting go undetected. We expect
to be an “emerging growth company” for up to five
years. Accordingly, you will not be able to depend on any
attestation concerning our internal control over financial
reporting from our independent registered public accountants for
the foreseeable future.
There may be limitations on the
effectiveness of our internal controls, and a failure of our
control systems to prevent error or fraud may materially harm our
Company.
We do not expect that internal
control over financial accounting and disclosure, even if timely
and well established, will prevent all error and all fraud. A
control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. Further, the design of a
control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
have been detected. Failure of our control systems to prevent error
or fraud could materially adversely affect our business.
Successful testing of our
innovations in the laboratory may not be indicative of future
results and may not result in commercially viable products,
services or technologies. Further, our products, services or
technologies may have to be modified from their originally
conceived versions in order to reach or be successful in the
market.
Our
business model includes acquiring innovations backed by
laboratory-proven results. Positive results from laboratory
testing, however, may not be predictive of future successful
development, commercialization and sales results and should not be
relied upon as evidence that products developed from our
innovations will become commercially viable and successful.
Further, the products we are developing may have to be
significantly modified from their originally conceived versions in
order for us to control costs, compete with similar products,
receive market acceptance, meet specific development and
commercialization timeframes, avoid potential infringement of the
proprietary rights of others,
12
or
otherwise succeed in developing our business and earning ongoing
revenues. What appear to be promising innovations when we acquire
them may not lead to viable products, service or technologies or to
commercial success.
Our products are still being
developed for commercialization, and our business may fail if we
are not able to successfully generate significant revenues from
these products.
Successful development of our
product candidates will require significant additional investment,
including costs associated with additional development, completing
field trials and obtaining regulatory approval, as well as the
ability to manufacture or have others manufacture our products in
sufficient quantities at acceptable costs while also preserving
product quality. Difficulties often encountered in scaling up
production include problems involving production yields, quality
control and assurance, shortage of qualified personnel, production
costs and process controls. In addition, we are subject to inherent
risks associated with new products, services and technologies.
These risks include the possibility that any product, service or
technology candidate may:
•
be found unsafe;
•
be ineffective or less effective
than anticipated;
•
fail to receive necessary
regulatory approvals;
•
be difficult to competitively
price relative to alternative solutions;
•
be harmful to consumers or the
environment;
•
be difficult or impossible to
manufacture on an economically viable scale;
•
be subject to supply chain
constraints for raw materials;
•
fail to be developed and accepted
by the market prior to the successful marketing of alternative
products by competitors;
•
be difficult or impossible to
market because of infringement on the proprietary rights of third
parties; or
•
be too expensive for commercial
use.
Furthermore, we may be faced with
lengthy market partner or distributor evaluation and approval
processes. Consequently, we may incur substantial expenses and
devote significant management effort in order to customize products
for market partner or distributor acceptance. As a result, we
cannot accurately predict the volume or timing of any future
sales.
We focus our efforts on the
commercialization of potential products that not only present
revenue and profit opportunities, but also promise to do good.
However, our goal of doing good may at times undercut our business
performance, and we will be our own judge of what it means for a
product, service or technology to “do
good”.
Our business focuses on
commercializing innovations that provide revenue and profit
opportunities, and that also meet our self-imposed mandate that the
potential product, product platform, service or technology
“do good”, by which we mean “have a beneficial
impact on people’s lives, their communities and our
planet”. We will be our own judge of how innovations meet or
do not meet this self-imposed mandate, and our own judgments as to
whether a particular product, product platform, service or
technology will or will not do good may not match with, and may
even be at odds with, the judgments that others, including our
investors, might reach. Potential investors in our securities are
cautioned that our business may take longer to generate, or fail to
generate, or be less successful in generating, revenues or profits
because some or all of our decisions as to which potential
products, product platforms, services and technologies to favor
will be based on our judgments as to whether they will “do
good”, and potential investors are further cautioned that
they may not always agree with, and may even be at odds with, some
or all of our decisions as to which may indeed “do
good”.
We may not be successful in
implementing our “Collaborative Economy” business
model, which could negatively affect our future achievements or
results.
The Company does business under
the name “ieCrowd” in order to emphasize its
Collaborative Economy approach to implementing its business model.
By “Collaborative Economy”, we mean a system that
emphasizes the sharing, repurposing and distribution of ideas,
opportunities and other resources among a great number of
participants,
13
typically aided by the use of
social media and other information technology, in order to increase
the value and efficient deployment of those resources not only for
the participants but also for larger populations, societies and the
world generally. We refer to the individuals and entities we seek
to collaborate with as the “Crowd”. To the extent we
are unable to significantly develop a “Crowd” of such
individuals and entities, we may not be able to implement our
business model in the way we envision. This could negatively affect
our ability to “do good”, and could negatively affect
our future operations, results or financial condition.
We may not be successful in
accomplishing our goal of “doing good” and we may
choose not to follow our self-imposed mandate to “do
good” in the future.
We have a
self-imposed mandate that our potential products, product
platforms, services or technologies “do good”, by which
we mean “have a beneficial impact on people’s lives,
their communities and our planet”. However, we may not be
successful in “doing good” or be as successful as we or
our investors might wish. Additionally, we may choose not to follow
this mandate in the future if we decide not to in order to
accomplish competing financial or other objectives. As a result, it
is possible that our potential products, product platforms,
services or technologies will not do good, or not do as much good
as investors or others may hope. Potential investors are
cautioned that we may fail to accomplish our goal of “doing
good”, and potential investors are further cautioned that
they may not always agree with, and may even be at odds with, some
or all of our decisions as to whether to continue to pursue the
mandate to “do good”.
If we are unable to establish
successful relations with third-party market partners or
distributors, or these market partners or distributors do not focus
adequate resources on selling our products or are otherwise
unsuccessful in selling them, sales of our products may not
develop.
We
anticipate relying on independent market partners and distributors
to distribute and assist us with the marketing and sale of our
products. Our future revenue generation and growth will depend in
large part on our success in establishing and maintaining this
sales and distribution channel. If our market partners and
distributors are unable to sell our products, or receive negative
feedback from end users, they may not continue to purchase or
market our products. In addition, there can be no assurance that
our market partners and distributors will focus adequate resources
on selling our products to end users or will be successful in
selling them. Many of our potential market partners and
distributors are in the business of distributing and sometimes
manufacturing other, possibly competing, products. As a result,
these market partners and distributors may perceive our products as
a threat to various product lines currently being distributed or
manufactured by them. In addition, these market partners and
distributors may earn higher margins by selling competing products
or combinations of competing products. If we are unable to
establish successful relationships with independent market partners
and distributors, we will need to further develop our own sales and
distribution capabilities, which would be expensive and
time-consuming and might not be successful.
Our ownership interest in each of
our operating subsidiaries is less than 100%, ownership interests
in our current and to-be-formed subsidiaries may fluctuate and
shares in our subsidiaries may be sold to third parties at the
discretion of management.
We develop discrete innovations
through different operating subsidiaries of the Company and will
continue to form new subsidiaries to develop additional innovations
in the future. In the process of developing particular innovations,
we have in the past sought to incentivize employees, pay licensors
and otherwise deal with certain third parties by providing them
with shares in our subsidiaries. In addition, when developing our
first such subsidiary, OLI, we sold shares in that subsidiary to
outside investors. It is our intention to reduce our past practice
of, and to the extent possible, cease, providing shares in
subsidiaries to third parties. Any issuance or transfer of shares
of a subsidiary to third parties dilutes our percentage ownership
in that subsidiary and our proportionate right to any dividends
paid by that subsidiary or any net gain on the occurrence of any
liquidation event; in addition, if our percentage ownership drops
to too low a level, we make have difficulty controlling the
operations of the subsidiary or controlling it in circumstances
where law or operative agreements require a super-majority vote of
stockholders in order to exercise control. In addition, in
circumstances where we control a subsidiary, to the extent there
are minority investors in the subsidiary we owe them various duties
of fair dealing under applicable state laws, and they may be able
to take the subsidiary to court or seek to be bought out of their
investments at prices favorable to them if they are sufficiently
dissatisfied with our control of the subsidiary. If we are unable
to adequately manage the capital structure of our subsidiaries, our
operations and results may be substantially affected. Nevertheless,
we may continue to issue or transfer shares in our subsidiaries to
third parties if and when we determine that the benefits to our
Company as a whole from continuing to do so outweigh the
considerations against further reducing our ownership in our
subsidiaries and permitting third parties to hold ownership stakes
in our subsidiaries.
14
We may experience conflicts of
interest with our operating subsidiaries with respect to business
opportunities and other matters.
A
significant portion of our operations occur through our operating
subsidiaries OLI, NEA and SOS. We own 70.4% of the outstanding
shares of common stock of OLI, 83.5% of the outstanding shares of
common stock of NEA and 95.0% of the outstanding shares of common
stock of SOS. Although we control these subsidiaries, they are not
wholly owned subsidiaries of ours, and conflicts of interest may
arise with respect to transactions involving business dealings
between us and these subsidiaries, or other transactions in which
our best interests and the best interests of our stockholders may
conflict with the best interests of the stockholders of these
subsidiaries. Because a portion of each of these subsidiaries is
owned by minority stockholders, we cannot treat these entities as
we would a wholly owned subsidiary. With respect to our management
services agreements and any other agreements with our operating
subsidiaries, we cannot assure you that we will negotiate terms
that are as favorable to us as if such transactions were with an
unaffiliated third party or a wholly owned subsidiary, or that any
conflicts of interest will be resolved in our favor. Further, the
fiduciary duties of the members of our operating
subsidiaries’ boards of directors may result in actions that
are not in our stockholders’ best interests. Because of their
importance to our business, we may elect to fund our operating
subsidiaries’ operations in circumstances in which we
undertake substantial risks but which will benefit all of those
subsidiaries’ stockholders, and from which we may only
receive economic benefits in proportion to our ownership interest
in such entities. To the extent we form additional operating
subsidiaries in the future and do not retain 100% ownership of
them, the risks described above will apply to these subsidiaries
and our relationships with them, also.
Customers may not adopt our
products quickly, or at all.
Customers in the health- and life
science-related sectors are generally cautious in their adoption of
new products and technologies. In addition, given the relative
novelty of our product candidates, consumers of those products will
require education regarding their utility and use, which may delay
their adoption. There can be no assurance that customers will adopt
our products quickly, or at all.
If our product candidates fail to
satisfy customer requirements, we may be required to make
significant expenditures to redesign such products, and we may have
insufficient resources to do so.
There is a risk that our product
candidates will not meet anticipated customer requirements or
desires. If we are required to redesign our products to address
customer demands or otherwise modify our business model, we may
incur significant unanticipated expenses and losses, and we may be
left with insufficient resources to engage in such activities. If
we are unable to redesign our products, develop new products or
modify our business model to meet customer desires or any other
customer requirements that may emerge, our operating results would
be materially adversely affected and our business might
fail.
The high level of competition in
the markets for many of our product candidates may result in
pricing pressure, reduced margins or the inability of our product
candidates to achieve market acceptance.
The markets for many of our
product candidates are intensely competitive and rapidly changing.
We may be unable to compete successfully, which may result in price
reductions, reduced margins and the inability to achieve market
acceptance for our products.
Our competitors include major
multinational companies and specialized businesses. Many of these
organizations have longer operating histories, significantly
greater resources, greater brand recognition than we do and large
customer bases. As a result, they may be able to devote greater
resources to the manufacture, promotion or sale of their products,
receive greater resources and support from market partners and
independent distributors, initiate or withstand substantial price
competition or more readily take advantage of acquisition or other
opportunities. Further, many of the large companies have a more
diversified product offering than we do, which may give these
companies an advantage in meeting customers’ needs by
enabling them to offer a broader range of related
products.
If our ongoing or future field
trials are unsuccessful, we may be unable to obtain regulatory
approval of, or commercialize, our product candidates on a timely
basis or at all.
The
successful completion of multiple field trials in domestic and
foreign locations in various settings is likely to be critical to
the success of many of our products. If our ongoing or future field
trials are unsuccessful or produce inconsistent results or
unanticipated adverse side effects, or if we are unable to collect
reliable data, regulatory approval
15
of our
products could be delayed or we may be unable to commercialize our
products. Moreover, the results of our ongoing and future field
trials are subject to a number of conditions beyond our control,
including weather-related events such as drought or floods, severe
heat or frost, hail, tornadoes and hurricanes. Generally, we engage
third parties such as consultants, universities or other
collaboration partners to conduct field tests on our behalf.
Incompatible practices or misapplication of our products by these
third parties could impair the success of our field
trials.
If we are unable to complete
required clinical trials, or we experience significant delays in
completing such clinical trials, we could experience significant
delays in our product launches and impair our viability and
business plan.
The completion of any clinical
trials that we may be required to undertake could be delayed,
suspended or terminated for several reasons, including:
•
our failure or inability to
conduct the clinical trial in accordance with regulatory
requirements;
•
sites participating in the trial
may drop out of the trial, which may require us to engage new sites
for an expansion of the number of sites that are permitted to be
involved in the trial;
•
patients may not enroll in, remain
in or complete, the clinical trial at the rates we expect;
and
•
clinical investigators may not
perform our clinical trial on our anticipated schedule or
consistent with the clinical trial protocol and good clinical
practices.
If our clinical trials are delayed
it will take us longer to ultimately commercialize our products and
generate revenues. Moreover, our development costs will increase if
we have material delays in our clinical trials or if we need to
perform more or larger clinical trials than planned.
If we are unable to identify new
product candidates through our Discovery process, we may not
achieve or maintain profitability.
Our future success will depend in
part on our ability to identify and commercialize additional
product candidates. A failure by us to continue identifying viable
product candidates could make it difficult to grow our business. In
addition, licensing of products requires the identification of new
innovations or new applications for existing innovations and the
willingness of the licensor. If we are unable to identify or
license additional product candidates, our results may not improve
over time and our business could suffer.
Our results of operations will be
affected by the level of royalty payments that we are required to
pay to third parties.
We are a party to license
agreements that require us to remit royalty payments related to
licensed innovations and meet certain performance milestones. Any
failure on our part to pay royalties owed or meet milestones could
lead to us losing rights under our licenses and could thereby
adversely affect our business. As our product sales increase, we
may, from time-to-time, disagree with our third-party collaborators
as to the appropriate royalties owed and the resolution of such
disputes may be costly and may consume management’s time.
Furthermore, we may enter into additional license agreements in the
future, which may also include royalty payments.
We will need to expand our sales
and marketing infrastructure, including by attracting and retaining
additional talented personnel.
We will
need to further develop our sales and marketing capabilities in
order to successfully commercialize the product candidates we are
developing, which may involve substantial costs. There can be no
assurance that members of our sales and marketing team will
successfully compete against the sales and marketing teams of
competitors, many of which may have more established relationships
with market partners, distributors and consumers. Our inability to
recruit, train and retain sales and marketing personnel or their
inability to effectively market and sell the products we are
developing could impair our ability to gain market acceptance of
our products and cause our sales to suffer.
We will need to expand our
management, operational and financial systems and financial and
other controls, including by attracting and retaining additional
talented personnel. We may have difficulties managing our growth,
which could lead to our inability to implement our business
plan.
Any growth will require us to
expand our management, operational and financial systems and
financial and other controls, including by attracting and retaining
additional talented personnel. If we are unable to do so
successfully,
16
our business and financial
condition could be materially harmed. If rapid growth occurs, it
may strain our operational, managerial and financial
resources.
If we fail to maintain and
successfully manage our existing
strategic collaborations and other relationships, or enter into new
strategic collaborations and other relationships, we may not be
able to expand commercial development and sales of many of our
products.
Our ability to enter into,
maintain and manage collaborations and other relationships is
fundamental to the success of our business. We currently have
entered into various license, distribution and other agreements. We
intend to enter into other strategic agreements to produce, market
and sell the products we develop. Any failure to enter into new
strategic arrangements on favorable terms or to maintain or manage
our existing strategic arrangements, in particular with the
University of California, could delay or hinder our ability to
commercialize our products and could adversely affect our results,
financial condition and prospects.
The use of our products may be
limited by regulations, and we may be exposed to product liability
and remediation claims.
The use of certain health- and
life science-related products is regulated by various local, state,
federal and foreign environmental and public health agencies. These
regulations may include requirements that only certified or
professional users may apply the product, that certain products may
only be used in certain circumstances or in certain locations, that
users must post notices on properties to which products have been
or will be applied, that users must notify individuals in the
vicinity that products will be applied in the future or that
certain substances may not be used at all. Even if we are able to
comply with all such regulations and obtain all necessary
registrations, we cannot provide assurance that our products will
not cause injury to the environment or people under all
circumstances. For example, our products may be improperly combined
with other chemicals or, even when properly combined, our products
may be blamed for damage caused by those other chemicals. The costs
of remediation or products liability could materially adversely
affect our results, financial condition and operations.
We may be held liable for, or
incur costs to settle, liability and remediation claims if any
products we develop, or any products that use or incorporate any of
our technologies, cause injury or are found unsuitable during
product testing, manufacturing, marketing, sale or use. These risks
exist even with respect to products that have received, or may in
the future receive, regulatory approval, registration or clearance
for commercial use. We cannot guarantee that we will be able to
avoid product liability exposure.
We maintain product liability
insurance at levels we believe are sufficient and consistent with
industry standards for companies at our stage of development.
However, we cannot guarantee that our product liability insurance
will be sufficient to help us avoid product liability-related
losses. In the future, it is possible that meaningful insurance
coverage may not be available on commercially reasonable terms or
at all. In addition, a product liability claim could result in
liability to us greater than our assets or insurance coverage.
Moreover, even if we have adequate insurance coverage, product
liability claims or recalls could result in negative publicity or
force us to devote significant time and attention to these matters,
which could harm our business.
Our inability to obtain regulatory
approvals, or to comply with ongoing and changing regulatory
requirements, could delay or prevent sales of the products we are
developing.
The field testing, manufacture,
sale and use of some of the product candidates we are developing
are extensively regulated by the U.S. Environmental Protection
Agency, (the “EPA”) and the U.S. Food & Drug
Administration (the “FDA”) and other authorities,
including at the state, local and foreign governmental levels.
These regulations substantially increase the time and cost
associated with bringing our product candidates to market. If we do
not receive the necessary governmental approvals to test,
manufacture and market our products, or if regulatory authorities
revoke our approvals, do not grant approvals in a timely manner or
grant approvals subject to restrictions on their use, we may be
unable to sell our products in the United States or other
jurisdictions, which could adversely affect our results and
operations. As we introduce new formulations of, and applications
for, our products, we will need to seek new regulatory approvals
prior to commercial sales.
There can be no assurance that we
will be able to obtain regulatory approval for marketing our
current product candidates or new product formulations and
applications we may develop. Because many of the products that may
be
17
sold by us must be registered with
one or more government agencies, the registration process can be
time consuming and expensive, and there is no guarantee that the
product will obtain all needed registrations.
Even if we obtain all necessary
regulatory approvals to market and sell our products, they will be
subject to continuing review and extensive regulatory requirements,
including periodic re-registrations. Regulatory authorities could
withdraw a previously approved product from the market upon receipt
of newly discovered information, including an inability to comply
with regulatory requirements or the occurrence of unanticipated
problems with our products, or for other reasons.
The regulatory approval process is
expensive, time-consuming and uncertain and may prevent us from
obtaining approvals for the commercialization of our future product
candidates, if any.
The testing, manufacturing,
labeling, approval, selling, marketing and distribution of health-
and life science-related products are subject to extensive
regulation, which regulations differ from country to
country.
In the case of those of our
product candidates that qualify as medical devices, we will not be
permitted to market them in the United States until we receive a
clearance letter under the 510(k) premarket notification process,
or approval of a Section 515 premarket approval (or PMA) from the
FDA, depending on the nature of the device. We have not submitted
an application or premarket notification for or received marketing
clearance or approval for any of our product candidates. Obtaining
approval of any premarket approval can be a lengthy, expensive and
uncertain process. While the FDA normally reviews and clears a
premarket notification in three months, there is no guarantee that
our products will qualify for this more expeditious regulatory
process, which is reserved for Class I and II devices, nor is there
any assurance that, even if a device is reviewed under the 510(k)
premarket notification process, the FDA will review it
expeditiously or determine that the device is substantially
equivalent to a lawfully marketed non-premarket approval device. If
the FDA fails to make this finding, then we cannot market the
device. In lieu of acting on a premarket notification, the FDA may
seek additional information or additional data, which would further
delay our ability to market the product. In addition, if we modify
our FDA approved medical devices, we may need to seek additional
clearance or approvals, which, if not granted, would prevent us
from selling our modified products. Furthermore, failure to comply
with FDA, non-U.S. regulatory authorities or other applicable U.S.
and non-U.S. regulatory requirements may, either before or after
product clearance or approval, if any, subject us to administrative
or judicially imposed sanctions, including:
•
restrictions on the products,
manufacturers or manufacturing process;
•
adverse inspectional observations
(Form 483), warning letters or non-warning letters incorporating
inspectional observations;
•
civil and criminal
penalties;
•
injunctions;
•
suspension or withdrawal of
regulatory clearances or approvals;
•
product seizures, detentions or
import bans;
•
voluntary or mandatory product
recalls and publicity requirements;
•
total or partial suspension of
production;
•
imposition of restrictions on
operations, including costly new manufacturing requirements;
and
•
refusal to clear or approve
pending applications or premarket notifications.
The FDA can delay, limit or deny
clearance or approval of a medical device candidate for many
reasons, including:
•
a medical device candidate may not
be deemed safe or effective, in the case of a premarket approval
application;
•
a medical device candidate may not
be deemed to be substantially equivalent to a lawfully marketed
non‑premarket approval device in the case of a 510(k)
premarket notification;
18
•
FDA officials may not find the
data from pre-clinical studies and clinical trials
sufficient;
•
the FDA might not approve our
third-party manufacturer’s processes or facilities;
or
•
the FDA may change its clearance
or approval policies or adopt new regulations.
We may need to rely on third
parties for the production of our products. If these parties do not
produce our products at a satisfactory quality, in a timely manner,
in sufficient quantities or at an acceptable cost, our development
and commercialization efforts could be delayed or otherwise
negatively affected.
We do not currently manufacture
products, and we might not manufacture products in the future. As
such, we may need to rely on third parties for the manufacture of
our products. Our reliance on third parties to manufacture our
products may present significant risks to us, including the
following:
•
reduced control over delivery
schedules, yields and product reliability;
•
price increases;
•
manufacturing deviations from
internal and regulatory specifications;
•
the failure of a key manufacturer
to perform as we require for technical, market or other
reasons;
•
difficulties in establishing
additional manufacturer relationships if we are presented with the
need to transfer our manufacturing process technologies to
them;
•
misappropriation of our
intellectual property; and
•
other risks in potentially meeting
our product commercialization schedule or satisfying the
requirements of our market partners, distributors, direct customers
and end users.
If we need to enter into
agreements for the manufacturing of our products, there can be no
assurance we will be able to do so on favorable terms, if at
all.
Dependence on others for the
manufacture of our products may adversely affect our ability to
commercialize products on a timely and competitive basis. If
manufacturing capacity is reduced or eliminated at one or more of
our manufacturers’ facilities, we could have difficulties
fulfilling customer orders, and our results of operations could be
adversely affected.
We will need to accurately
forecast demand for our products to obtain adequate and
cost-effective capacity from third-party manufacturers and to
purchase materials used in our products at cost-effective rates. If
we inaccurately forecast demand for our products, we may be unable
to meet our customers’ delivery requirements, we may cause
difficulties for our manufacturers’ in meeting targets and we
may accumulate excess inventories of products and
materials.
Our future performance will depend
on the continued engagement of key members of our management
team.
Our future
performance depends to a large extent on the continued services of
members of our current management and other key personnel,
including, among others, Mr. Amro Albanna. In the event that we
lose the continued services of such key personnel for any reason,
this could have a material adverse effect on our business and
prospects.
If we are not able to attract and
retain highly skilled managerial, marketing, scientific and
technical personnel, we may not be able to implement our business
model successfully.
We believe that our management
team must be able to act decisively to apply and adapt our business
model in the rapidly changing markets in which we will compete. In
addition, we will rely upon managerial, marketing, technical and
scientific employees or third party contractors to effectively
establish, manage and grow our business. Consequently, we believe
that our future viability will depend largely on our ability to
attract and retain highly skilled managerial, marketing, scientific
and technical personnel. In order to do so, we may need to pay
higher compensation or fees to our employees or consultants than we
currently expect and such higher compensation payments would have a
negative effect on our operating results. Competition for
experienced, high-quality personnel is intense and we cannot assure
that we will be able to recruit and retain such personnel. We may
not be able to hire or retain the necessary personnel to implement
our business strategy. Our failure to hire and retain such
personnel could impair our ability to develop new products and
manage our business effectively.
19
We use hazardous materials in our
business and are subject to potential liability under environmental
laws. Any claims relating to improper handling, storage or disposal
of hazardous materials could be time consuming and costly to
resolve.
We are subject to federal, state
and local laws and regulations governing the use, manufacture,
storage, handling, disposal and release of hazardous materials and
certain waste products. Our development activities and any future
manufacturing that we undertake ourselves will involve the
controlled use and disposal of such substances. In the event of an
accident, or if any hazardous materials are found within our
operations or on the premises of our manufacturing facility in
violation of the law at any time, we may be liable for cleanup
costs, fines, penalties and other amounts. This liability could
exceed our resources and, if significant losses arise from
hazardous substance contamination, our financial viability could be
substantially and adversely affected.
In addition, we may have to incur
significant costs to comply with future environmental laws and
regulations. We cannot predict the impact of new governmental
regulations that might have an adverse effect on the development,
production and marketing of our products. We may be required to
incur significant costs to comply with future laws or regulations,
and our business could be harmed by such costs.
Our collaborators may use
hazardous materials in connection with our collaborative efforts.
In the event of a lawsuit or investigation, we could be held
responsible for any injury caused to persons or property by
exposure to, or release of, hazardous materials used by these
parties. Further, we may be required to indemnify our collaborators
against damages and other liabilities arising out of our
development activities or products produced in connection with
these collaborations.
Supply problems could harm our
business.
We anticipate that in the future
we may commit to purchase component parts and substances from
suppliers based on sales forecasts of our products. If we cannot
change or be released from these purchase commitments, and if
orders for our products do not materialize, we could incur
significant costs related to the purchase of excess parts and
substances. Additionally, a delay in production of the parts or
substances or inaccuracies in our sales forecasts could materially
adversely affect our results or reputation if we are unable to
timely ship ordered products or provide replacements under warranty
or maintenance contracts.
Sales of some of our products are
expected to be seasonal and subject to weather conditions and other
factors beyond our control, which may cause our operating results
to fluctuate significantly quarterly and
annually.
Sales of some of our products are
expected to be seasonal. In addition, weather conditions may affect
decisions by our market partners, distributors, direct customers
and end users as to how much of our products to purchase and when
to use them.
The level of seasonality that may
affect our business, once we have products to sell, is difficult to
evaluate as a result of our relatively early stage of business. It
is possible that our business may be more seasonal, or experience
seasonality in different periods, than anticipated. Other factors
may also contribute to the unpredictability of our operating
results, including the size and timing of significant market
partner and distributor transactions, the delay or deferral of use
of our products and the fiscal or quarterly budget cycles of our
market partners, distributors, direct customers and end users.
Customers may purchase large quantities of our products in a
particular quarter to store and use over long periods of time or
time their purchases to manage their inventories, which may cause
significant fluctuations in our operating results for a particular
quarter or year, which could result in uncertainty surrounding our
level of earnings and possibly a decrease in our stock
price.
We expect to derive a portion of
our revenues from markets outside the United States, which will
subject us to additional business risks.
Our success depends in part on our
ability to expand internationally, including by obtaining, directly
or indirectly, regulatory approvals to market and sell our products
in foreign countries. International expansion of our operations
could impose substantial burdens on our resources, divert
management’s attention from domestic operations and otherwise
harm our business. Furthermore, international operations are
subject to several inherent risks, including different regulatory
requirements and, depending on the country, reduced protection of
intellectual property rights, any of which could adversely affect
our ability to compete in international markets and have a negative
effect on our operating results. Revenues generated outside the
United States could also result in increased difficulty in
collecting
20
delinquent or unpaid accounts
receivable, adverse tax consequences and losses due to currency
fluctuations. It has not been our practice to engage in foreign
exchange hedging transactions to manage the risk of fluctuations in
foreign exchange rates because of the limited nature of our past
international operations. Moreover, it is likely that we will
engage market partners in foreign countries to help us secure
regulatory approvals in those countries and otherwise navigate the
more unfamiliar aspects of operating in those countries. If such
market partners fail to provide us with valid regulatory
clearances, or otherwise fail to help us manage important local
business issues and avoid legal and other pitfalls, our operations
in those countries could be damaged or derailed and our business,
reputation, results or financial condition could suffer.
In addition, we will be
increasingly subject to general geopolitical risks in foreign
countries where we operate, such as political and economic
instability and changes in diplomatic and trade relationships,
which could affect, among other things, customers’ inventory
levels and consumer purchasing, which could cause our results to
fluctuate and our sales to decline.
We rely on information technology,
and if we are unable to protect against service interruptions, data
corruption, cyber-based attacks or network security breaches, our
operations could be disrupted and our business could be negatively
affected.
We rely on information technology
networks and systems to process, transmit and store electronic and
financial information; to coordinate our business; and to
communicate within our Company and with customers, suppliers,
partners and other third-parties. These information technology
systems may be susceptible to damage, disruptions or shutdowns,
hardware or software failures, power outages, computer viruses,
cyber-attacks, telecommunication failures, user errors or
catastrophic events. If our information technology systems suffer
severe damage, disruption or shutdown, and our business continuity
plans do not effectively resolve the issues in a timely manner, our
operations could be disrupted and our business could be negatively
affected. In addition, cyber-attacks could lead to potential
unauthorized access and disclosure of confidential information, and
data loss and corruption. There is no assurance that we will not
experience these service interruptions or cyber-attacks in the
future.
Healthcare policy changes,
including ongoing efforts to reform the U.S. healthcare system, may
have a material adverse effect on us.
Certain health- and life
science-related markets have experienced downward pressure on
product pricing because U.S. federal and state governments have
made various cost containment efforts relating to health care
expenditures. Furthermore, the industry faces uncertainty brought
by the Patient Protection and Affordable Care Act and other
healthcare reform legislation and regulations. The implementation
of these laws or the adoption of additional healthcare reform
proposals in the future could impose limitations on the prices we
will be able to charge for some of our products, or the amounts of
reimbursement available for some of our products from governmental
agencies or third-party payors. These limitations could have a
material adverse effect on our results of operations.
We anticipate that legislation
could change access to health care products, increase rebates,
reduce prices or the rate of price increases, or cap reimbursement
rates for medical devices. We also anticipate that legislation
could impose sales or excise tax on the medical device
manufacturing sector. Any change on medical device taxation and
downward trending reimbursement rates could affect those of our
product candidates that are regulated as medical devices, and could
affect our results of operations.
We may be subject to federal,
state and foreign healthcare fraud and abuse laws and
regulations.
We may become subject to certain
federal and state regulations, including the federal healthcare
programs’ Anti-Kickback Law, the federal Health Insurance
Portability and Accountability Act of 1996, and other federal and
state false claims laws. The medical device industry has been under
heightened scrutiny as the subject of government investigations and
enforcement actions involving manufacturers who allegedly offered
unlawful inducements to potential or existing customers in an
attempt to procure their business, including arrangements with
physician consultants. Stringent enforcement of medical device laws
could adversely affect our ability to operate our
business.
We do not expect to pay dividends
in the foreseeable future.
We do not intend to declare
dividends for the foreseeable future, as we anticipate that we will
reinvest any and all future earnings in the development and growth
of our business. Therefore, investors will not receive any funds
unless they sell their securities, and holders may be unable to
sell their securities on favorable terms or at all. We cannot
assure you of a positive return on your investment or that you will
not lose the entire amount of your investment.
21
Our majority stockholders are
likely to control our Company for the foreseeable
future.
Our executive officers and
directors collectively have an approximately 43.8% beneficial
ownership of the issued and outstanding shares of our common stock.
In addition, two outside investors beneficially own approximately
28.2% of the issued and outstanding shares of our common stock. As
a result, such individuals will have the ability, acting together,
to control the election of our directors and the outcome of
corporate actions requiring stockholder approval, such as a merger
or a sale of our Company, a sale of all or substantially all of our
assets or amendments to our certificate of incorporation or bylaws.
This concentration of voting power and control could have a
significant effect in delaying, deferring or preventing an action
that might be beneficial to our other stockholders but not to our
controlling stockholders. Certain of these individuals also have
significant control over our business, policies and affairs as
officers or directors of our Company.
Upon dissolution of our Company,
you may not recoup all or any portion of your
investment.
In the event of a liquidation,
dissolution or winding-up of our Company, whether voluntary or
involuntary, our assets would be used to pay all of our debts and
liabilities, and only thereafter would any remaining assets be
distributed to our stockholders, on a pro rata
basis. There can be no assurance that we will have assets available
from which to pay any amounts to our stockholders upon such a
liquidation, dissolution or winding-up. In such an event, you would
lose all of your investment.
Our continuing compliance with
U.S. regulations concerning corporate governance and public
disclosure after the completion of this offering will result in
additional expenses. Moreover, our ability to comply with all
applicable laws, rules and regulations is uncertain given our
management’s relative inexperience with operating a U.S.
public company.
We will be faced with complicated
and evolving disclosure, corporate governance and other compliance
laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002 and
the Dodd-Frank Act, enacted in 2010. New or changing laws,
regulations and standards are subject to varying interpretations,
in many cases due to a lack of specificity, and, as a result, their
application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies, which could result in
continuing uncertainty regarding compliance matters and higher
costs due to ongoing revisions to disclosure and governance
practices. Our efforts to comply with the evolving laws,
regulations and standards governing a U.S. public company are
likely to continue to result in increased general and
administrative expenses and a diversion of management time and
attention from revenue-generating activities.
Our failure to comply with all the
laws, regulations and standards applicable to U.S. public companies
could subject us or our management to regulatory scrutiny or
sanction, which could harm our reputation and stock
price.
As an “emerging growth
company” under applicable law, we will be subject to reduced
disclosure requirements, which could leave our stockholders without
information or rights available to stockholders of more mature
companies.
For as long as we remain an
“emerging growth company” as defined in the Jumpstart
Our Business Startups Act of 2012 (which we refer to as the JOBS
Act), we may take advantage of certain exemptions from various
reporting requirements that are applicable to other public
companies that are not “emerging growth companies”,
including but not limited to:
•
not being required to comply with
the auditor attestation requirements of Section 404 of the
Sarbanes‑Oxley Act;
•
taking advantage of extensions of
time to comply with certain new or revised financial accounting
standards;
•
being permitted to comply with
reduced disclosure obligations regarding executive compensation in
our periodic reports and proxy statements; and
•
being exempt from the requirement
to hold a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not
previously approved.
22
We expect to take advantage of
these reporting exemptions until we are no longer an emerging
growth company. We will remain an “emerging growth
company” for up to five years, although if the market value
of our common stock that is held by non-affiliates exceeds $700
million as of any June 30 before that time, we would cease to be an
“emerging growth company” as of the following December
31.
Because of the lessened regulatory
requirements discussed above, our stockholders will be left without
information or rights available to stockholders of more mature
companies.
Because we have elected to use the
extended transition period for complying with new or revised
accounting standards for an “emerging growth company”,
our financial statements may not be comparable to companies that
comply with the usual public company effective
dates.
We have elected to use the
extended transition period for complying with new or revised
accounting standards that is available to us under Section
102(b)(1) of the JOBS Act. This election allows us to delay the
adoption of new or revised accounting standards that have different
effective dates for public and private companies until those
standards apply to private companies. Consequently, our financial
statements may not be comparable to companies that comply with the
usual public company effective dates. Because our financial
statements may not be comparable to companies that comply with such
public company effective dates, investors may have difficulty
evaluating or comparing our business, performance or prospects in
comparison to such public companies, which may have a negative
impact on the value and liquidity of our common stock.
Anti-takeover provisions in our
charter documents and under Delaware law could discourage, delay or
prevent a change in control of our Company and could affect the
trading price of our securities.
We are a Delaware corporation and
the anti-takeover provisions of the Delaware General Corporation
Law may discourage, delay or prevent a change in control by
prohibiting us from engaging in a business combination with an
interested stockholder for a period of three years after the person
becomes an interested stockholder, even if a change in control
would be beneficial to our existing stockholders. In addition, our
certificate of incorporation and bylaws may discourage, delay or
prevent a change in our management or control over us that
stockholders may consider favorable. Our certificate of
incorporation and bylaws:
•
provide that vacancies on our
board of directors, including newly created directorships, may be
filled only by a majority vote of directors then in
office;
•
provide that special meetings of
stockholders may only be called by the chair of our board of
directors, our chief executive officer, the board of directors or
at the request in writing of stockholders of record owning at least
51% of our outstanding common stock;
•
do not provide stockholders with
the ability to cumulate their votes; and
•
authorize our board of directors
to issue preferred stock without stockholder approval.
Risks Related to Our Intellectual
Property
The failure to obtain or maintain
patents, licensing agreements and other intellectual property could
materially impact our ability to compete
effectively.
In order for our business to be
viable and to compete effectively, we need to develop and maintain,
and we will heavily rely on, a proprietary position with respect to
our technologies and intellectual property. However, there are
significant risks associated with our actual or proposed
intellectual property. The risks and uncertainties that we face
with respect to our rights principally include the
following:
•
pending patent applications we
have filed or will file may not result in issued patents or may
take longer than we expect to result in issued patents;
•
we may be subject to interference
proceedings;
•
we may be subject to reexamination
proceedings;
•
we may be subject to post grant
review proceedings;
•
we may be subject to inter
partes review proceedings;
23
•
we may be subject to derivation
proceedings;
•
we may be subject to opposition
proceedings in the U.S. or in foreign countries;
•
any patents that are issued to us
may not provide meaningful protection;
•
we may not be able to develop
additional proprietary technologies that are patentable;
•
other companies may challenge
patents licensed or issued to us;
•
other companies may have
independently developed and patented (or may in the future
independently develop and patent) similar or alternative
technologies, or duplicate our technologies;
•
other companies may design around
technologies we have licensed or developed;
•
enforcement of patents is complex,
uncertain and very expensive and we may not be able to secure,
enforce and defend our patents; and
•
in the event that we were to ever
seek to enforce our patents in ligation, there is some risk that
they could be deemed invalid, not infringed, or
unenforceable.
We cannot be certain that any
patents will be issued as a result of any pending or future
applications, or that any patents, once issued, will provide us
with adequate protection from competing products. For example,
issued patents may be circumvented or challenged, declared invalid
or unenforceable, or narrowed in scope. In addition, since
publication of discoveries in scientific or patent literature often
lags behind actual discoveries, we cannot be certain that we or our
licensors were the first to invent or to file patent applications
covering them.
It is also possible that others
may have or may obtain issued patents that could prevent us from
commercializing our products or require us to obtain licenses
requiring the payment of significant fees or royalties in order to
enable us to conduct our business. There is no guarantee that such
licenses will be available based on commercially reasonable terms.
As to those patents that we have licensed, our rights depend on
maintaining our obligations to the licensor under the applicable
license agreement, and we may be unable to do so.
In addition to patents and patent
applications, we depend upon agreements relating to trade secrets
and proprietary know-how to protect our rights in innovations. We
require all our consultants, advisors and collaborators to enter
into agreements that prohibit the disclosure of our confidential
information to other parties. In addition, it is our policy to
require our consultants, advisors and collaborators who have access
to proprietary and trade secret material to enter into agreements
that require them to assign any and all intellectual property
rights to us that arise as a result of their work on our behalf.
Moreover, we require our employees to enter into an Invention
Assignment and Confidentiality Agreement and assign to us their
ideas, developments, discoveries and inventions and to prohibit the
disclosure of confidential information to other parties. We also
require our employees to review and acknowledge our trade secret
policies regarding how employees handle trade secrets. These
agreements, acknowledgements and policies may not, however, provide
adequate protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or
disclosure in violation of these agreements, and may not be
sufficient to secure for us the value in such developments that
they are designed to secure.
If we are unable to obtain and
maintain patent protection for our products, or if the scope of the
patent protection obtained is not sufficiently broad, competitors
could develop and commercialize products similar or identical to
ours, and our ability to successfully commercialize our products
could be impaired.
The patent
prosecution process is expensive and time-consuming, and we may not
be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost, in a timely manner, or in all
jurisdictions. It is also possible that we will fail to identify
patentable aspects of our development output before it is too late
to obtain patent protection.
The patent
position of life science companies generally is highly uncertain,
involves complex legal and factual questions and has in recent
years been the subject of much litigation. In addition, the laws of
foreign countries may not protect our rights to the same extent as
the laws of the United States and we may fail to seek or obtain
patent protection in all major markets. For example, unlike the
U.S., European patent law restricts the patentability of methods of
treatment of the human body. Our pending and future patent
applications may not result in patents being issued which protect
our technology or products, in whole or in part, or which
effectively prevent others from commercializing competitive
technologies and products. Changes in either the patent laws or
interpretation of the patent laws in the United States and other
countries may diminish the value of our patents or narrow the scope
of our patent protection, even post-grant.
24
Recent patent reform legislation
has increased the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or
defense of our issued patents. On September 16, 2011, the
Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed
into law. The Leahy-Smith Act includes a number of significant
changes to United States patent law. These include provisions that
affect the way patent applications are prosecuted and may also
affect patent litigation. The U.S. Patent and Trademark Office, or
USPTO, recently developed new regulations and procedures to govern
administration of the Leahy-Smith Act, and many of the substantive
changes to patent law associated with the Leahy-Smith Act, and in
particular, the first to file provisions, only became effective on
March 16, 2013. Accordingly, it is not clear what, if any, impact
the Leahy-Smith Act will have on the operation of our business.
However, the Leahy-Smith Act and its implementation could increase
the uncertainties and costs surrounding the prosecution of our
patent applications and the enforcement or defense of our issued
patents, all of which could have a material adverse effect on our
business and financial condition.
Moreover, we may be subject to a
third-party preissuance submission of prior art to the USPTO, or
become involved in opposition, derivation, reexamination,
inter partes
review, post-grant review or interference proceedings challenging
our patent rights (whether licensed or otherwise held) or the
patent rights of others. An adverse determination in any such
submission, proceeding or litigation could reduce the scope of, or
invalidate, our patent rights (whether licensed or otherwise held),
allow third parties to commercialize our technology or products and
compete directly with us, without payment to us, or result in our
inability to manufacture or commercialize products without
infringing third-party patent rights. In addition, if the breadth
or strength of protection provided by our patents and patent
applications (whether licensed or otherwise held) is threatened, it
could dissuade companies from collaborating with us to license,
develop or commercialize current or future product
candidates.
Even if our patent applications
(whether licensed or otherwise held) result in the issuance of
patents, they may not issue in a form that will provide us with any
meaningful protection, prevent competitors from competing with us
or otherwise provide us with any competitive advantage. Our
competitors may be able to circumvent our owned or licensed patents
by developing similar or alternative technologies or products in a
non-infringing manner.
The issuance of a patent is not
conclusive as to its inventorship, scope, validity or
enforceability, and our licensed or owned patents may be challenged
in the courts or patent offices in the United States and abroad.
Such challenges may result in loss of exclusivity or freedom to
operate or in patent claims being narrowed, invalidated or held
unenforceable, in whole or in part, which could limit our ability
to stop others from using or commercializing similar or identical
products, or limit the duration of the patent protection of our
products. Given the amount of time required for the development,
testing and regulatory review of new life science product
candidates, patents protecting such candidates might expire before
or shortly after such candidates are commercialized. As a result,
our intellectual property rights portfolio may not provide us with
sufficient rights to exclude others from commercializing products
similar or identical to ours.
We may become involved in lawsuits
to protect or enforce our intellectual property rights, which could
be expensive, time-consuming and ultimately
unsuccessful.
Competitors may infringe our
intellectual property. To counter infringement or unauthorized use,
we may be required to file infringement claims, which can be
expensive and time-consuming. Any claims we assert against
perceived infringers could provoke these parties to assert
counterclaims against us alleging that we infringe their
intellectual property or that our intellectual property is invalid
or unenforceable. In addition, in a patent infringement proceeding,
a court may decide that a licensed or owned patent of ours is
invalid or unenforceable, in whole or in part, construe the
patent’s claims narrowly or refuse to stop the other party
from using the technology at issue on the grounds that our patents
do not cover that technology. Moreover, lawsuits to protect or
enforce our intellectual property rights could be expensive,
time-consuming and ultimately unsuccessful.
Third parties may initiate legal
proceedings alleging that we are infringing their intellectual
property rights, the outcome of which would be
uncertain.
Our commercial success depends
upon our ability to develop, manufacture, market and sell our
product candidates without infringing the proprietary rights of
third parties. There is considerable intellectual property
litigation in the life sciences industry. We cannot guarantee that
our product candidates will not infringe third-party patents or
other proprietary rights. We may become party to, or threatened
with, future adversarial proceedings or litigation regarding
intellectual property rights with respect to our products and
technology, including inter partes
review, interference, or derivation proceedings before the USPTO
and similar bodies in other countries. Third parties may
25
assert infringement claims against
us based on existing intellectual property rights and intellectual
property rights that may be granted in the future.
If we are
found to infringe a third party’s intellectual property
rights, we could be required to obtain a license from such third
party to continue developing and marketing our products. However,
we may not be able to obtain any required license on commercially
reasonable terms or at all. Even if we were able to obtain a
license, it could be non-exclusive, thereby giving our competitors
access to the same technologies licensed to us. We could be forced,
including by court order, to cease commercializing the infringing
technology or product. In addition, we could be found liable for
monetary damages, including treble damages and attorneys’
fees if we are found to have willfully infringed a patent. A
finding of infringement could prevent us from commercializing our
product candidates or force us to cease some of our business
operations, which could materially harm our business. Claims that
we have misappropriated the confidential information or trade
secrets of third parties could have a similar negative impact on
our business.
Obtaining and maintaining our
patent protection depends on compliance with various procedural,
document submission, fee payment and other requirements imposed by
governmental patent agencies, and our own patent protection could
be reduced or eliminated for noncompliance with these
requirements.
Periodic maintenance fees and
annuities on any issued patent are due to be paid to the USPTO and
foreign patent agencies in several stages over the lifetime of the
patent. The USPTO and various foreign governmental patent agencies
require compliance with a number of procedural, documentary, fee
payment and other similar provisions during the patent application
process. While an inadvertent lapse can in many cases be cured by
payment of a late fee or by other means in accordance with the
applicable rules, there are situations in which noncompliance can
result in abandonment or lapse of the patent or patent application,
resulting in partial or complete loss of patent rights in the
relevant jurisdiction. Noncompliance events that could result in
abandonment or lapse of a patent or patent application include, but
are not limited to, failure to respond to official actions within
prescribed time limits, non-payment of fees and failure to properly
legalize and submit formal documents. In such an event, our
competitors might be able to enter our markets, which could have a
material adverse effect on our business.
We may be subject to claims by
third parties asserting that our employees or we have
misappropriated their intellectual property, or claiming ownership
of what we regard as our own intellectual
property.
Certain of our employees and
contractors were previously employed at universities or other
companies, including potential competitors. Although we try to
ensure that our employees and contractors do not use the
proprietary information or know-how of others in their work for us,
we may be subject to claims that these employees or we have used or
disclosed intellectual property, including trade secrets or other
proprietary information, of any such employee’s former
employer. Litigation may be necessary to defend against these
claims, and any such litigation could have an unfavorable
outcome.
In addition, while it is our
policy to require our employees and contractors who may be involved
in the development of intellectual property to execute agreements
assigning such intellectual property to us, we may be unsuccessful
in executing such an agreement with each party who in fact develops
intellectual property that we regard as our own. Our and their
assignment agreements may not be self-executing or may be breached,
and we may be forced to bring claims against third parties, or
defend claims they may bring against us, to determine the ownership
of what we regard as our intellectual property.
If we fail in prosecuting or
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel.
Even if we are successful in prosecuting or defending against such
claims, litigation could result in substantial costs and adverse
results, and be a distraction to management.
A substantial portion of our
in-licensed intellectual property will be subject to the provisions
of the Bayh-Dole Act, if the underlying inventions were achieved
using federal government funding. Such innovations are subject to
“march-in” rights and other provisions under that
Act.
Should we fail to take
“effective steps to achieve practical application of”
inventions we have licensed or fail to satisfy “health and
safety needs” of consumers, then, under the federal Bayh-Dole
Act, a federal government agency that has funded the discovery of
the invention may “march in” and, despite our
intellectual property rights in the invention, compel the granting
of a license, or grant the license itself, to the invention to
third-party petitioners who are “reasonable
applicants”. There is also nothing prohibiting such
government agency in exercising its
“march-in”
26
rights by granting such licenses
to any of our competitors. Any such “march-in” under
this Act could disrupt our operations and business plans with
respect to the invention at issue.
Intellectual property litigation
could cause us to spend substantial resources and distract our
personnel from their normal responsibilities.
Even if resolved in our favor,
litigation or other legal proceedings relating to intellectual
property claims may cause us to incur significant expenses, and
could distract our technical and management personnel from their
normal responsibilities. In addition, there could be public
announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors
perceive these results to be negative, it could have an adverse
effect on the price of our common stock. Such litigation or
proceedings could increase our operating losses and reduce the
resources available for development activities or any future sales,
marketing or distribution activities. We may not have sufficient
financial or other resources to conduct such litigation or
proceedings adequately. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more
effectively than we can because of their greater financial
resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could
compromise our ability to compete in the marketplace.
Risks Related to this Offering and Ownership
of Our Common Stock and Warrants
We are selling Units in this
offering without using the traditional services of an underwriter,
and there can be no assurance that all or any of the Units included
in this offering will be sold.
This offering is
self-underwritten; that is, we are not going to engage the services
of an underwriter to sell the Units. Instead, we have engaged the
selling agent to sell Units on a “best efforts” basis
and we intend to market and sell our shares to a substantial extent
through our officers and directors, who will receive no commissions
or other remuneration from any sales made hereunder. Furthermore,
our management has no prior experience marketing a best efforts
registered offering. There can be no assurance that all or any of
the Units included in this offering will be sold. To the extent we
fail to sell Units, our proceeds will be reduced. If we are not
successful in selling a sufficient number of Units, we may not meet
the NASDAQ initial listing requirements and, separately, we may
have to seek additional, alternative financing to implement our
plans as discussed in “Use of Proceeds”. Furthermore,
the conversion of the Private Placement Convertible Notes at a
price equal to $5.10 per Unit will occur even if only a few Units
are sold, which would cause dilution to existing and new
stockholders.
We have applied to list our common
stock and warrants on NASDAQ, but we cannot guarantee that our
securities will be approved for listing on
NASDAQ.
We have
applied to list our common stock and warrants on the NASDAQ Capital
Market (“NASDAQ”). However, to be approved for listing
on NASDAQ, our securities and our Company must meet certain initial
listing requirements and thereafter continue to meet ongoing
continued listing requirements. Among the initial listing
requirements we expect to have to meet are requirements that we
have at least one million shares publicly held, with an aggregate
market value of at least $15 million and a bid price of at least
$4.00 per share, held by at least 300 round-lot holders, and a
minimum stockholders’ equity of $5 million. Our ability to
meet all of the initial listing requirements applicable to us and
thereafter continue to meet ongoing continued listing requirements
will depend substantially on the number of shares we are able to
sell in this offering and the price at which we are able to sell
them. As a result, we cannot guarantee that our securities will be
approved for listing on NASDAQ. In particular, as of March 31,
2015, we had total stockholders’ equity of $2.0 million (on a
pro forma basis, taking into account the forced conversion,
immediately after the closing of this offering, of our Private
Placement Convertible Notes). This means that, to have closed this
offering and listed on NASDAQ as of that date, we would have had to
raise approximately $3 million. In this offering, if we are unable
to raise the amount necessary to meet NASDAQ’s
stockholders’ equity requirement, or if we otherwise fail to
meet NASDAQ’s listing standards, our securities will not be
listed on NASDAQ. In that event, we may in our sole discretion
cancel this offering and all funds that may have been provided by
any investors will be promptly returned.
In the event we close on some or
all of this offering but our securities are not approved for
listing on NASDAQ, we expect they will be quoted for trading on one
of the “over the counter” markets operated by OTC
Markets Group, Inc., such as the OTCQB market. The over-the-counter
markets are relatively unorganized, inter-dealer markets that
provide significantly less liquidity than NASDAQ. No assurance can
be given that our securities, if quoted on one of the
over-the-counter markets, will ever trade on an active and liquid
basis.
27
In the event we do not qualify for
listing on NASDAQ, if you are in the United States you may purchase
securities in this offering only if you reside in one of the states
in which we have registered our securities under the applicable
state securities laws or in which we have qualified for an
exemption from registration, or in which our transactions with you
may otherwise be permitted consistent with applicable state
securities laws.
We have
applied or will apply to register our securities, or qualify for an
exemption from registration, under the state securities, or
“blue sky”, laws of Colorado, Florida, Georgia,
Illinois, Nevada, New York and possibly other states. In the events
we do not qualify for listing on NASDAQ, if you are in the United
States but are not an “institutional investor,” you
will have to be a resident of one of these jurisdictions to
purchase our securities in this offering. The definition of an
“institutional investor” varies from state to state,
but generally includes financial institutions, broker-dealers,
banks, insurance companies and other qualified entities.
Institutional investors in every state may purchase the securities
in this offering pursuant to exemptions provided to such entities
under the blue sky laws of such states. Under the National
Securities Markets Improvement Act of 1996, or NSMIA, the resale of
our securities by investors after this offering will be exempt from
state registration requirements to the extent we regularly file
periodic and annual reports with the SEC under the Exchange Act.
For a more complete discussion of the state securities laws and
regulations affecting this offering, please see “Plan of
Distribution — State Blue Sky Information”.
In the event we do not qualify our
securities for listing on NASDAQ, and must conduct offers and sales
in this offering in compliance with all applicable state securities
laws, we may fail to comply with all such laws in all instances. In
any such instance, we may become subject to fines or other state
regulatory actions.
In the event we do not qualify our
securities for listing on NASDAQ, this offering will not be exempt
from state securities law regulation to the extent available under
NSMIA, and as a result we will have to conduct all offers and sales
in this offering in compliance with the particular state securities
laws that apply to each such offer and sale. The various states can
impose fines on us or take other regulatory actions against us if
we fail to comply with their state securities laws. Although we are
taking steps to help insure that, if our securities do not qualify
for listing on NASDAQ, we will conduct all the offers and sales in
this offering in compliance with all state securities laws, there
can be no assurance that we will be able to achieve such compliance
in all instances, or avoid fines or other state regulatory actions
if we do not achieve such compliance. See “Plan of
Distribution —
State Blue Sky Information”.
In the
event we close on some or all of this offering but
our securities are or in the
future become subject to the “penny stock” rules, they
will thereby be subject to additional sale and trading regulations
that may make it more difficult for you to sell.
An equity security may be
considered a “penny stock” if the following conditions
are met: (i) it trades at a price less than $5 per share; (ii) it
is not traded on a national securities exchange; and (iii) it is
issued by a company that has net tangible assets (meaning total
assets less intangible assets and liabilities) of $2,000,000 or
less if the issuer has been in continuous operation for at least
three years, or $5,000,000 or less if the issuer has been in
continuous operation for less than three years.
The principal result or effect of
being designated a “penny stock” is that broker-dealers
participating in sales of such securities will be subject to the
“penny stock” regulations set forth in Rules 15g-2
through 15g-9 promulgated under the Exchange Act. For example, Rule
15g-2 requires broker-dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of
the document at least two business days before effecting any
transaction in a penny stock for the investor’s account.
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks
before selling any penny stock to that investor. This procedure
requires the broker-dealer to: (i) obtain from the investor
information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are
suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating
the risks of penny stock transactions; (iii) provide the investor
with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv)
receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the
investor’s financial situation, investment experience and
investment objectives.
If compliance with these
requirements is necessary in regard to any of our equity
securities, it may be more difficult and time consuming for holders
of those securities to resell them to third parties or otherwise
dispose of them in the market or otherwise.
28
The issuance in the future of a
significant number of additional new shares of our common stock may
have an adverse effect on our stock price, even if our business is
performing well.
In connection with this offering,
we are registering a substantial number of Units for resale by
investors who participated in one or more of the Private
Placements, hold Private Placement Convertible Notes and are having
their Private Placement Convertible Notes converted into Units
immediately after the closing of this offering. The shares and
warrants comprising these Units will be eligible for resale by the
selling securityholders starting immediately after the closing of
this offering. Resales of a large number of our equity securities
by one or more selling securityholders, or the perception that such
sales could occur, could result in a decrease in the price of our
common stock. In addition, TriPoint Global Equities, LLC, as our
placement agent in the 2014 Private Placement, received warrants
exercisable for the purchase of notes whose terms are identical to
the Private Placement Convertible Notes (including their conversion
terms), and as our selling agent in this offering will receive
warrants exercisable for the purchase of Units. The issuance of
additional equity securities of ours upon the conversion of such
warrants may substantially increase the number of shares available
for sale in the public market, and the sale of such shares, or the
perception that such sales could occur, may further depress the
price of our common stock. In addition, as shares resellable under
Rule 144 under the Securities Act are sold after the closing of
this offering, or as restrictions on resale end, the market price
of our stock could drop if the holders of restricted shares sell
them or are perceived by the market as intending to sell them. For
more detailed information, please see “Share Eligible for
Future Sale.” In addition to the foregoing, we may issue
additional shares and other securities or instruments convertible
into shares, to raise additional capital, close transactions or
incentivize employees and others. Any such issuances that lead to,
or are perceived to anticipate, the addition of shares of our
common stock to the market could result in a decrease in the price
of our common stock.
The issuance in the future of
additional new shares of our common stock will dilute the then
existing holders of our equity securities, including investors in
this offering.
The issuance in the future of
additional new shares of our common stock, including without
limitation upon the issuance of Units to holders of Private
Placement Convertible Notes as a result of the conversion of such
Notes into Units immediately after the closing of this offering,
the issuance of shares upon the exercise of outstanding or
later-issued options or warrants and the issuance of additional
shares or other securities or instruments convertible into shares,
to raise additional capital, close transactions, incentivize
employees and others or otherwise, will all result in the dilution
of the percentage ownership of our common stock held by our then
existing stockholders, including investors in this offering who are
stockholders as of any such time of issuance or additional new
shares.
The Company will likely issue
additional options, warrants or other equity compensation to its
officers, directors, employees and others in the ordinary course of
business, and will likely seek to raise, and may succeed in
raising, additional equity capital. As a result, investors in our
Company are likely to experience dilution of their holdings in the
future, and will in fact experience dilution to the extent of any
of the potential issuances of securities described above increased
the number of our outstanding shares of common stock.
Our stock price may be volatile,
and
an investment in our Company will likely require a long-term
commitment.
There is
no established market for our common stock or warrants, and the
extent to which an active and liquid market for our securities may
develop in the future depends in part on the number of Units we are
able to sell in this offering. As we are in the early stages of
growing our business, an investment in our Company will likely
require a long-term commitment, with no certainty of return. The
market prices of our securities are likely to be highly volatile
and could fluctuate in response to various factors, many of which
will be beyond our control, including the following:
•
competition;
•
additions or departures of key
personnel;
•
our ability to execute on our
business plan on a timely basis;
•
operating results that fall below
expectations;
•
period-to-period actual or
anticipated fluctuations in our operating results;
•
the loss of any strategic
relationships;
•
the extent of our need for
additional capital and its availability to us on acceptable
terms;
29
•
industry and market
developments;
•
changes in the economic
performance or market valuations of companies similar to ours;
and
•
economic and other external
factors.
In particular, the market prices
of health- and life science-related companies such as ours have
been highly volatile due to such factors as:
•
any delay or failure to conduct a
field test or clinical trial for our products or in receiving
approval from the EPA, FDA or other regulators;
•
developments or disputes
concerning our intellectual property rights;
•
our or our competitors’
technological innovations;
•
changes in market valuations of
similar companies;
•
announcements by us or our
competitors of significant contracts, acquisitions, strategic
partnerships, joint ventures, capital commitments, new technologies
or patents; and
•
failure to complete significant
transactions or collaborate with vendors in manufacturing our
products.
In addition, the securities
markets have from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance
of particular companies. These market fluctuations may also
materially and adversely affect the market prices of our
securities.
In addition to negatively
affecting the value of your investment, the lack of an active and
liquid market for our stock may also impair our ability to raise
capital by selling shares and may impair our ability to acquire
additional intellectual property assets by using our shares as
consideration.
Management may invest or spend the
proceeds of this offering in ways with which you may not agree and
in ways that may not yield favorable returns.
Our management will exert control
over the net proceeds from this offering, and may spend them in
ways with which you may not agree and in ways that may not yield
favorable returns. Our current intention is to spend our net
proceeds as described under “Use of Proceeds”. However,
factors beyond our control make render these spending plans
inadvisable or impractical prior to the time when all of the net
proceeds are spent, in which case management would devise
alternative spending plans.
Our board of directors has
determined the offering price of the Units and the exercise price
of the warrants.
Our board of directors has
determined the offering price of the Units and the exercise price
of the warrants. They have done so with reference to the value of
our Company as reflected in the Private Placements, but not
otherwise with reference to our book value or asset values or by
the application of any customary, established models for valuing
companies or securities. Because such prices have not been so
determined, they may not be indicative of any amounts you might
receive should you seek to sell your Company securities or should
there be a liquidation of the Company. In addition, such prices are
not necessarily indicative of any prices at which Company
securities may trade, or any value that might be ascribed to the
Company after the completion of the offering.
We may redeem all or a portion of
the warrants offered as part of our Units prior to their exercise
at a time that is disadvantageous to you, thereby making your
warrants worthless.
We have the ability to redeem all
or a portion of the warrants offered as part of our Units at any
time prior to their expiration, at a price of $0.01 per warrant,
provided, that the last reported sales price of our common stock
equals or exceeds $16.00 per share on each of 20 trading days
within the 30 trading-day period ending on the third business day
prior to the date on which notice of the redemption is given to the
warrant holders and the average daily trading volume of our common
stock exceeds 500,000 shares per day during the redemption period.
Redemption of the outstanding warrants could force you to exercise
your warrants and pay the exercise price therefor at a time when it
may be disadvantageous for you to do so, to sell your warrants at
the then-current market price when you might otherwise wish to hold
your warrants or to accept the nominal redemption price which, at
the time the outstanding warrants are called for redemption, is
likely to be substantially less than the market value of your
warrants.
30
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Certain of the statements in this
prospectus constitute forward-looking statements. All statements
other than statements of historical fact contained in this
prospectus, including statements regarding our future results of
operations and financial condition, business strategy, operations,
plans, prospects, projected revenue and costs and objectives of
management are forward-looking statements. Forward-looking
statements include, without limitation, any statement that may
predict, forecast, indicate, or imply future results, performance
or achievements, and may contain the words “estimate,”
“project,” “intend,”
“forecast,” “potential,”
“anticipate,” “plan,”
“planning,” “expect,”
“believe,” “will,” “will
likely,” “should,” “could,”
“would,” “may” or words or expressions of
similar meaning. These risks and uncertainties include, but are not
limited to, those factors described under the heading “Risk
Factors” in this prospectus. All our forward-looking
statements involve significant risks and uncertainties, including,
but not limited to, risks and uncertainties relating to:
•
our development, marketing and
sales programs;
•
our ability to obtain FDA, EPA and
other applicable regulatory approvals for our product
candidates;
•
the commercial markets for our
product candidates;
•
competition;
•
the proprietary rights of
others;
•
the availability of additional
financing;
•
the effects of existing and future
federal, state and foreign regulations;
•
joint or licensed development,
commercialization, distribution, collaboration, marketing and other
arrangements with third parties; and
•
the period of time over which the
net proceeds of this offering will enable us to fund our
operations.
As more fully described in this
prospectus under the heading “Risk Factors,” many
important factors may affect our ability to achieve our stated
objectives and commercialize product candidates, including, among
other things, our ability to:
•
obtain substantial additional
funds;
•
obtain and maintain all necessary
patents or licenses;
•
demonstrate the safety and
efficacy of product candidates whenever required to do
so;
•
meet applicable regulatory
standards and receive required regulatory approvals;
•
retain key executives and attract,
retain and motivate qualified personnel;
•
manufacture and distribute
products in commercial quantities at reasonable costs;
•
compete against others;
and
•
generate and market our products
in a cash-flow-positive and profitable manner.
Prospective
investors are cautioned that there can be no assurance that any
forward-looking statements included in this prospectus will prove
to be accurate. In light of the often significant uncertainties
inherent in our forward-looking statements, the inclusion of such
statements should not be regarded as a representation or warranty
by the Company or any other person that the objectives and plans of
the Company will be achieved in any specified time frame, if at
all. Except to the extent required by applicable laws or rules, the
Company does not undertake any obligation to update any
forward-looking statements or to announce revisions to any
forward-looking statements.
We caution you that the important
risk factors and cautionary statements described in the sections of
this prospectus entitled “Risk Factors” and
“Management’s Discussion and Analysis of Financial
Condition and Results
31
of Operations”, as well as
in other portions of this prospectus, may not be all of the factors
important to you in determining whether to invest in our
securities. We cannot assure you that we will realize the results
or developments we expect or anticipate or, even if we realize them
substantially, that they will result in the outcomes we expect.
Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time to time. It is not possible
for us to predict all risks, nor can we assess the impact of all
factors on our business or the extent to which any one factor, or
combination of factors, may cause our actual results to differ
materially and adversely from those stated or suggested in our
forward-looking statements. The forward-looking statements included
in this prospectus are made only as of the date hereof. We
undertake no obligation to update or revise any forward-looking
statement as a result of new information, future events or
otherwise, except to the extent required by law.
32
USE OF PROCEEDS
If we sell all of the Units being
offered, our net proceeds (after the selling agent’s
commissions of $1,200,000 and after our estimated other offering
expenses of $625,000) will be $18,175,000. We will use the net
proceeds to pay development and commercialization costs for
existing innovations; acquisition, development and
commercialization costs for new innovations; operating expenses
(including salaries; legal, accounting and consulting fees;
subsidiary formation costs, program development, rent; marketing
programs; and other general administrative expenses); and working
capital. The precise amounts that the Company will devote to each
of these items, and the timing of expenditures, will vary depending
on numerous factors, including but not limited to the progress of
development and commercialization efforts relating to each current
and new project. The following table sets forth a breakdown of the
estimated use of the net proceeds as we currently expect to use
them, assuming the sale of 100%, 75%, 50% and 25% of the Units
offered for sale in this offering:
Assumed
Percentage of Units Sold
|
|
|
|
|
|
|
|
|
|
Price to
Public
|
|
$
|
20,000,000
|
|
$
|
15,000,000
|
|
$
|
10,000,000
|
|
$
|
5,000,000
|
|
Selling
agent’s commissions
|
|
|
1,200,000
|
|
|
900,000
|
|
|
600,000
|
|
|
300,000
|
|
Other offering
expenses
|
|
|
625,000
|
|
|
625,000
|
|
|
625,000
|
|
|
625,000
|
|
Net
proceeds
|
|
$
|
18,175,000
|
|
$
|
13,475,000
|
|
$
|
8,775,000
|
|
$
|
4,075,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Innovation
acquisition, development and
commercialization
|
|
$
|
10,675,000
|
|
$
|
6,475,000
|
|
$
|
2,775,000
|
|
$
|
1,025,000
|
|
Operating
expenses
|
|
|
5,000,000
|
|
|
4,500,000
|
|
|
4,000,000
|
|
|
2,000,000
|
|
Working
capital
|
|
|
2,500,000
|
|
|
2,500,000
|
|
|
2,000,000
|
|
|
1,050,000
|
|
Total use of
proceeds
|
|
$
|
18,175,000
|
|
$
|
13,475,000
|
|
$
|
8,775,000
|
|
$
|
4,075,000
|
As indicated in the table above,
if we sell only 75%, or 50%, or 25% of the Units offered for sale
in this offering, we would expect to use the resulting net proceeds
for the same purposes as we would use the net proceeds from a sale
of 100% of the Units, and in approximately the same proportions.
However, the lower our net proceeds, the less we would expect to
use the funds in the expenditure category “Innovation
acquisition, development and commercialization” for the
acquisition of new innovations, and the more we would expect to use
those funds for the development and commercialization of
innovations we have already acquired.
In the event we do not sell all of
the Units being offered, we may seek additional financing to
support the intended use of proceeds discussed above. If we secure
additional equity funding, investors in this offering would be
diluted. In all events, there can be no assurance that additional
financing would be available when needed and, if available, on
terms acceptable to us.
In addition, if we sell all of the
Units being offered, and if all of the warrants being offered as
part of the Units are exercised, we would receive an additional
$12,500,000 in net proceeds. We cannot predict if or when any such
warrants will be exercised.
DIVIDEND POLICY
We have not paid any dividends on
our common stock since inception, and we currently expect that, in
the foreseeable future, all earnings (if any) will be retained for
the development of our business and no dividends will be declared
or paid. Any future dividends will be subject to the discretion of
our board of directors and will depend upon, among other things,
our earnings (if any), operating results, financial condition and
capital requirements, general business conditions and other
pertinent facts.
33
CAPITALIZATION
The following table sets forth our
cash and our capitalization as of March 31, 2015:
•
on an actual basis;
•
on a pro forma basis after the reflection of $2,100,000 of proceeds from the 2015 Private Placement through April 30,
2015 and the conversion of an aggregate of $5,176,580 of the Private Placement Convertible Notes and accrued interest into Units
immediately after the closing of this offering, including the reclassification of derivative liabilities aggregating $914,838
to additional paid in capital, and $770,484 of unamortized debt discount charged to expense; and
•
on a pro forma basis assuming the
sale in this offering of all of the 3,125,000 Units being offered,
at the price to the public of $6.40 per unit, resulting in net
proceeds to us of $18,175,000, after deducting the selling
agent’s commissions and our estimated total expenses for this
offering of $625,000.
You should
read this table together with our consolidated financial statements
as of and for the years ended December 31, 2014 and 2013 and the
related notes thereto, the condensed consolidated financial
statements as of and for the three months ended March 31, 2015 and
2014 and the related notes thereto, “Selected Consolidated
Financial Data” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,”
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
Pro
Forma as Adjusted (unaudited)
|
|
|
|
|
Conversion
of Notes into Units
|
|
Pro
Forma before Offering
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
544,699
|
|
|
$
|
2,100,000
|
|
|
$
|
2,644,699
|
|
|
$
|
18,175,000
|
|
$
|
20,819,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest on convertible notes
|
|
$
|
101,939
|
|
|
$
|
(101,939
|
)
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Convertible
notes, net of debt discount
|
|
$
|
2,014,516
|
|
|
$
|
(2,014,516
|
)
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Derivative
liabilities
|
|
$
|
914,838
|
|
|
$
|
(914,838
|
)
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
$
|
94
|
|
|
$
|
10
|
|
|
$
|
104
|
|
|
$
|
31
|
|
$
|
135
|
|
Additional
paid-in capital
|
|
$
|
13,110,930
|
|
|
$
|
6,091,408
|
|
|
$
|
19,202,338
|
|
|
$
|
18,174,969
|
|
$
|
37,377,307
|
|
Accumulated
deficit
|
|
$
|
(14,839,743
|
)
|
|
$
|
(770,484
|
)
|
|
$
|
(15,610,227
|
)
|
|
|
|
|
$
|
(15,610,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ (deficiency)
equity-Innovation Economy
|
|
$
|
(1,728,719
|
)
|
|
$
|
5,320,934
|
|
|
$
|
3,592,215
|
|
|
$
|
18,175,000
|
|
$
|
21,767,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest deficiency
|
|
$
|
(1,452,581
|
)
|
|
|
|
|
|
$
|
(1,452,581
|
)
|
|
|
|
|
$
|
(1,452,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity (deficiency)
|
|
$
|
(3,181,300
|
)
|
|
|
|
|
|
$
|
2,139,634
|
|
|
|
|
|
$
|
20,314,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
|
|
$
|
(251,946
|
)
|
|
|
|
|
|
$
|
2,139,634
|
|
|
|
|
|
$
|
20,314,634
|
|
34
The
table above includes 1,015,015 shares of common stock included in the Units issuable upon the forced conversion of the Private
Placement Convertible Notes and accrued interest immediately after closing of this offering. By the terms of the Private Placement
Convertible Notes, this conversion will be effected at a price per unit equal to $5.10. The table above excludes:
•
2,645,967 shares of our common
stock issuable upon the exercise of stock options outstanding as of
March 31, 2015, at a weighted average exercise price of $1.98 per
share;
•
240,333
shares of our common stock issuable upon the exercise of warrants
outstanding as of March 31, 2015, at a weighted average exercise
price of $2.29 per share;
•
20,700
shares of our common stock available for future issuance under our
Amended and Restated Long-Term Incentive Compensation Plan as of
the date of this prospectus;
•
1,250,000 shares of our common
stock that will be made available for future issuance under our
2015 equity incentive plan upon the closing of this
offering;
•
1,562,500 shares of our common
stock issuable upon exercise of the warrants included in the Units
being offered in this offering, assuming all of the Units being
offered are sold;
•
234,375 shares of our common stock
issuable upon exercise of the warrants to be issued to the selling
agent in connection with this offering;
•
507,508 shares of our common stock issuable upon exercise of the warrants included in the Units issuable upon conversion
of the Private Placement Convertible Notes plus accrued interest immediately after the closing of this offering;
•
34,824 shares of our common stock issuable upon conversion of the notes issuable upon the exercise of placement agent
warrants issued in connection with the 2014 Private Placement;
•
1,500 shares of our common stock issued as compensation to a consultant subsequent to June 30, 2015; and
•
100,000 shares of our common stock issuable upon exercise of warrants issued to certain investors subsequent to June
30, 2015.
To the extent such stock options
or warrants are hereafter exercised, or awards made under such
equity compensation plans result in the issuance of additional
shares of our common stock, there will be further dilution to our
investors.
35
DILUTION
If you purchase Units in this offering, your ownership interest in
our common stock will be diluted immediately, to the extent of the
difference between the price to the public charged for each unit
and the pro forma net tangible book value per share of our common
stock after this offering.
Our historical net tangible book value as of March 31, 2015 was a
deficit of $(3,181,300), or ($0.34) per then outstanding share of
our common stock. Historical net tangible book value per share
equals the amount of our total tangible assets less total
liabilities, divided by the total number of shares of our common
stock outstanding, all as of the date specified.
Our
unaudited pro forma net tangible book value as of March 31, 2015 before the offering was $2,139,634, or $0.20 per then outstanding
share of our common stock. Unaudited pro forma net tangible book value per share equals the amount of our total tangible assets
less our total liabilities, divided by the pro forma total number of shares of our common stock outstanding, as of the date specified,
after giving effect to the conversion upon the closing of this offering of the Private Placement Convertible Notes plus accrued
interest into 1,015,015 Units, which include an aggregate of 1,015,015 shares of our common stock.
The following table illustrates this per share dilution to new
investors, assuming the sale of 25%, 50%, 75% and 100% of the Units
offered for sale in this offering, after giving effect to the
deduction of selling agent’s commissions and our estimated
other offering expenses:
|
|
|
|
|
|
|
|
|
|
|
Price to the public charged for each unit in
this offering
|
|
$
|
6.40
|
|
|
$
|
6.40
|
|
|
$
|
6.40
|
|
|
$
|
6.40
|
|
|
Historical net tangible book value per share as
of March 31, 2015
|
|
$
|
(0.34
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.34
|
)
|
|
Increase attributable to the pro forma
transactions described in the preceding paragraphs
|
|
$
|
0.54
|
|
|
$
|
0.54
|
|
|
$
|
0.54
|
|
|
$
|
0.54
|
|
|
Pro forma net tangible book value per share as
of March 31, 2015
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
Increase in net tangible book value per share
attributable to new investors
|
|
$
|
1.29
|
|
|
$
|
1.01
|
|
|
$
|
0.70
|
|
|
$
|
0.35
|
|
|
Pro forma net tangible book value per share
after this offering
|
|
$
|
1.49
|
|
|
$
|
1.21
|
|
|
$
|
0.90
|
|
|
$
|
0.55
|
|
|
Dilution per share to new investors
|
|
$
|
4.91
|
|
|
$
|
5.19
|
|
|
$
|
5.50
|
|
|
$
|
5.85
|
|
These effects on pro forma net
tangible book value per share assume the warrants sold in this
offering will be accounted for as part of stockholders’
equity. Dilution per share to new investors is determined by
subtracting pro forma net tangible book value per share after this
offering from the price to the public charged for each Unit in this
offering.
The following table sets forth, assuming the
sale of 25%, 50%, 75% and 100% of the Units offered for sale in
this offering after giving effect to the same factors given effect
in the table above, as of December 31, 2014, the total number of
shares previously sold to existing stockholders, the total
consideration paid or to be paid for each of the foregoing, and the
average price paid per share or unit, respectively. As the table
shows, new investors purchasing Units may in certain circumstances
pay an average price per share substantially higher than the
average price per share paid by our existing
stockholders.
|
|
|
|
|
|
Average
Price
|
Assuming
100% of Units Sold:
|
|
|
|
|
|
|
|
|
|
|
Existing
stockholders
|
|
10,494,667
|
|
77.0
|
%
|
|
12,645,314
|
|
38.7
|
%
|
|
$
|
1.20
|
New
Investors
|
|
3,125,000
|
|
23.0
|
%
|
|
20,000,000
|
|
61.3
|
%
|
|
$
|
6.40
|
Total
|
|
13,619,667
|
|
100.0
|
%
|
|
32,645,314
|
|
100.0
|
%
|
|
$
|
2.40
|
|
|
|
|
|
|
Average
Price
|
Assuming
75% of Units Sold:
|
|
|
|
|
|
|
|
|
|
|
Existing
Stockholders
|
|
10,494,667
|
|
81.7
|
%
|
|
12,645,314
|
|
45.7
|
%
|
|
$
|
1.20
|
New
Investors
|
|
2,343,750
|
|
18.3
|
%
|
|
15,000,000
|
|
54.3
|
%
|
|
$
|
6.40
|
Total
|
|
12,838,417
|
|
100.0
|
%
|
|
27,645,314
|
|
100.0
|
%
|
|
$
|
2.15
|
36
|
|
|
|
|
|
Average
Price
|
Assuming
50% of Units Sold:
|
|
|
|
|
|
|
|
|
|
|
Existing
Stockholders
|
|
10,494,667
|
|
87.0
|
%
|
|
12,645,314
|
|
55.8
|
%
|
|
$
|
1.20
|
New
Investors
|
|
1,562,500
|
|
13.0
|
%
|
|
10,000,000
|
|
44.2
|
%
|
|
$
|
6.40
|
Total
|
|
12,057,167
|
|
100.0
|
%
|
|
22,645,314
|
|
100.0
|
%
|
|
$
|
1.88
|
|
|
|
|
|
|
Average
Price
|
Assuming
25% of Units Sold:
|
|
|
|
|
|
|
|
|
|
|
Existing
Stockholders
|
|
10,494,667
|
|
93.1
|
%
|
|
12,645,314
|
|
71.7
|
%
|
|
$
|
1.20
|
New
Investors
|
|
781,250
|
|
6.9
|
%
|
|
5,000,000
|
|
28.3
|
%
|
|
$
|
6.40
|
Total
|
|
11,275,917
|
|
100.0
|
%
|
|
17,645,314
|
|
100.0
|
%
|
|
$
|
1.56
|
Each
of the two tables above in this section includes 1,015,015 shares of common stock included in the Units issuable upon the forced
conversion of the Private Placement Convertible Notes plus accrued interest immediately after the closing of this offering. By
the terms of the Private Placement Convertible Notes, this conversion will be effected at a price per unit equal to $5.10. Each
of the two tables above in this section excludes:
•
2,645,967 shares of our common stock issuable upon the exercise of
stock options outstanding as of the date of this prospectus, at a
weighted average exercise price of $1.98 per share;
•
240,333 shares of our common stock issuable upon the exercise of
warrants outstanding as of the date of this prospectus, at a
weighted average exercise price of $2.29 per share;
•
20,700 shares of our common
stock available for future issuance under our Amended and Restated
Long-Term Incentive Compensation Plan as of the date of this
prospectus;
•
1,250,000 shares of our common stock that will be made available
for future issuance under our 2015 equity incentive plan upon the
closing of this offering;
•
1,562,500 shares of our common stock issuable upon exercise of the
warrants included in the Units being offered in this offering,
assuming all of the Units being offered are sold;
•
234,375 shares of our common stock issuable upon exercise of the
warrants to be issued to the selling agent in connection with this
offering;
•
507,508 shares of our common stock issuable upon exercise of the warrants included in the Units issuable upon conversion
of the Private Placement Convertible Notes plus accrued interest immediately after the closing of this offering;
•
34,824 shares of our common stock issuable upon conversion of the notes issuable upon the exercise of placement agent
warrants issued in connection with the 2014 Private Placement;
•
1,500 shares of our common stock issued as compensation to a consultant subsequent to June 30, 2015; and
•
100,000 shares of our common stock issuable upon exercise of warrants issued to certain investors subsequent to June
30, 2015.
To the extent such stock options or warrants are hereafter
exercised, or awards made under such equity compensation plans
result in the issuance of additional shares of our common stock,
there will be further dilution to our investors.
37
SELECTED CONSOLIDATED
FINANCIAL DATA
The following selected consolidated financial data should be read
together with our financial statements and the accompanying notes
thereto, and the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”, appearing elsewhere in this prospectus. The
selected consolidated financial data as of and for the years ended
December 31, 2014 and 2013 have been derived from our annual
consolidated financial statements appearing elsewhere in this
prospectus. The summary consolidated financial data as of March 31,
2015 and for the three months periods ended March 31, 2015 and 2014
have been derived from our unaudited interim condensed consolidated
financial statements appearing elsewhere in this prospectus, and
include all adjustments, consisting of normal recurring
adjustments, which in the opinion of management are necessary for a
fair presentation of our financial position as of such date and our
results of operations for such periods.
Selected Consolidated Statement of Operations Data
|
|
|
For the years ended December 31,
|
|
For the three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
109,688
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Gross profit
|
|
$
|
—
|
|
|
$
|
11,684
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total operating expenses
|
|
$
|
4,895,129
|
|
|
$
|
3,651,088
|
|
|
$
|
1,590,317
|
|
|
$
|
1,001,889
|
|
|
Net loss
|
|
$
|
(4,939,395
|
)
|
|
$
|
(3,411,383
|
)
|
|
$
|
(1,715,983
|
)
|
|
$
|
(1,000,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.49
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-basic
and diluted
|
|
|
9,261,231
|
|
|
|
8,344,836
|
|
|
|
9,444,828
|
|
|
|
8,881,578
|
|
Selected Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,881,776
|
|
|
$
|
722,736
|
|
|
$
|
544,699
|
|
|
Current assets
|
|
$
|
1,905,916
|
|
|
$
|
744,026
|
|
|
$
|
574,734
|
|
|
Total assets
|
|
$
|
2,428,504
|
|
|
$
|
938,490
|
|
|
$
|
1,213,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,182,649
|
|
|
$
|
1,226,172
|
|
|
$
|
1,465,418
|
|
|
Total liabilities
|
|
$
|
4,005,264
|
|
|
$
|
1,226,172
|
|
|
$
|
4,394,772
|
|
|
Total Stockholders’ equity
(deficiency)
|
|
$
|
(1,576,760
|
)
|
|
$
|
(287,682
|
)
|
|
$
|
(3,181,300
|
)
|
Selected Consolidated Cash Flow Statement Data
|
|
|
For the years ended December 31,
|
|
For the three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations
|
|
$
|
(3,973,743
|
)
|
|
$
|
(1,413,006
|
)
|
|
$
|
(1,228,667
|
)
|
|
$
|
(715,310
|
)
|
|
Net cash used in investing activities
|
|
$
|
(25,613
|
)
|
|
$
|
(3,995
|
)
|
|
$
|
(30,412
|
)
|
|
$
|
(5,591
|
)
|
|
Net cash provided by financing
activities
|
|
$
|
5,158,396
|
|
|
$
|
1,754,155
|
|
|
$
|
(77,998
|
)
|
|
$
|
1,503,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
1,881,776
|
|
|
$
|
722,736
|
|
|
$
|
544,699
|
|
|
$
|
1,505,085
|
|
38
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This
Management’s Discussion & Analysis contains
forward-looking statements relating to, among other things, our
future economic performance, plans and objectives. These
forward-looking statements are often identified by words such as
“may”, “will”, “expect”,
“intend”, “anticipate”,
“believe”, “estimate”,
“continue”, “plan”, “potential”
and similar expressions. These statements involve estimates,
assumptions and uncertainties that could cause actual outcomes to
differ materially from those expressed. You should not place undue
reliance on these forward-looking statements. You should also
consider carefully the statements we make in “Risk
Factors” and in other sections of this prospectus, addressing
factors that could cause actual outcomes to differ from those
expressed in our forward-looking statements and that could
materially and adversely affect our business, operating results and
financial condition.
This
Management’s Discussion and Analysis should be read together
with our consolidated financial statements and the notes thereto
included elsewhere in this prospectus.
Overview
We are an emerging growth company based on a Collaborative Economy
model with a mission to bring the world together to unlock the
potential of untapped innovations. We were founded by experienced
entrepreneurs who recognized that research institutions can be
filled with un-commercialized technology discoveries and
breakthrough research (which we refer to throughout this document
as “innovations”) which, if successfully
commercialized, could solve or help to solve significant global
challenges. We believe that the potential of these untapped
innovations could be vast. Yet many of these innovations will never
see the light of day because of the significant difficulties often
experienced in the process of taking laboratory-proven, potentially
ground-breaking innovations and transforming them into products,
product platforms, services and technologies for distribution to
global markets.
Recognizing the gap between the marketplace and un-commercialized
but potentially beneficial innovations, the founders of ieCrowd
have created a business model that is intended to bridge this gap.
ieCrowd’s business goal is to license or acquire innovations
with the potential to solve global problems for the purpose of
commercializing them into product platforms, products, services and
technologies that have substantial value-adding impact over large
populations and markets.
ieCrowd’s financial condition and results of operations
generally reflect the fact that the Company is still in an early
stage of its business, and that its three operating subsidiaries,
each focused on the development and commercialization of different
innovations, are also in early stages of their businesses. As
discussed in more detail below, from period to period, we generate
little or no revenues and use more cash in our operating activities
than we generate from such activities; we have financed and expect
to continue to finance our operations substantially through the
issuance of equity securities and debt securities convertible into
equity; our assets consist mostly of cash and cash equivalents;
substantially all of our liabilities are current, rather than
long-term, liabilities; and we run a substantial and increasing
stockholders’ deficiency. We expect our financial condition
and results of operations to continue to be generally loss-making,
operating-cash-flow negative and dependent on additional financing,
unless and until we are able to begin to successfully commercialize
one or more of our acquired innovations, and possibly for a
substantial time thereafter.
Going Concern
The accompanying consolidated financial statements of ieCrowd have
been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. As of March 31, 2015, the Company had a
working capital deficiency of $890,684 and a stockholders’
deficiency of $3,181,300. As of December 31, 2014, the Company had
working capital of $723,267 and a stockholders’ deficiency of
$1,576,760. The Company has not generated any significant revenues
from ongoing operations and has incurred net losses since
inception. These matters raise substantial doubt about the
Company’s ability to continue as a going concern. The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset amounts
or the classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
The
Company’s primary source of operating funds since inception has been equity financings. Subsequent to December 31, 2013,
the Company secured additional equity financing through the sale of common stock aggregating
39
$2,840,000
and debt financing in the form of Private Placement Convertible Notes aggregating $2,785,000. Subsequent to December 31, 2014,
the Company secured additional debt financing in the form of Private Placement Convertible Notes aggregating $2,100,000 and $200,000
in the form of short-term promissory notes due in September 2015. The Company expects that its current cash on hand will fund
its operations through October 2015.
The
Company needs to raise additional capital in order to be able to accomplish its business objectives, and is continuing its efforts
to secure additional funds due to the impending lack of funds. The Company intends to raise additional capital through the initial
public offering described in this prospectus and from private debt and equity investors. Furthermore, we may need to seek additional
short-term bridge financing to provide capital required to maintain our operations during the extended period of this offering.
Management believes that it will be successful in obtaining additional financing based on its history of raising funds; however,
no assurance can be provided that the Company will be able to do so. In addition, there can be no assurance that funds raised
will be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the
Company is unsuccessful in its fundraising, it may need to curtail or cease its operations and implement a plan to extend payables
or reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that
any such plan would be successful.
Critical Accounting
Policies and Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and assumptions
that affect the reported amounts of our assets, liabilities,
revenues and expenses. Certain of these accounting policies are
considered to be critical accounting policies, as defined
below.
A critical accounting policy is defined as one that is both
material to the presentation of our consolidated financial
statements and requires management to make difficult, subjective or
complex judgments that could have a material effect on our
financial condition and results of operations. Critical accounting
estimates have the following attributes: (1) they require us to
make assumptions about matters that are highly uncertain at the
time of the estimate; and (2) different estimates we could
reasonably have used, or changes in the estimate we used that are
reasonably likely to occur, could have a material effect on our
financial condition or results of operations.
Estimates and assumptions about future events and their effects
cannot be determined with certainty. We base our estimates on
historical experience and on various other assumptions believed to
be applicable and reasonable under the circumstances. These
estimates may change as new events occur, as additional information
is obtained or as our operating environment changes. We believe the
following critical accounting policies reflect the more significant
estimates and assumptions we have used in the preparation of our
consolidated financial statements:
Revenue Recognition — The Company’s revenue
recognition policies are in compliance with the Financial
Accounting Standards Board’s (“FASB’s”)
Accounting Standards Codification (“ASC”) Topic 605,
“Revenue Recognition”, which establishes criteria that
must be satisfied before revenue is realized or realizable and
earned. Revenue is recognized when persuasive evidence of an
arrangement exists, delivery of the product or service has
occurred, all obligations have been performed pursuant to the terms
of the agreement, the sales price is fixed or determinable and
collectability is reasonably assured.
The Company has generated revenue from sources other than product
sales, namely collaboration and research agreements, prototype
development, conference fees and a Kite Patch Internet crowdfunding
campaign that offered benefits other than securities. In these
cases, revenue is recognized when the contractual milestones are
met, prototype delivery is achieved and, in the case of the
conference, the event has occurred. For the Kite Patch campaign,
revenue was recognized for merchandise delivered, and deferred for
amounts received related to the future delivery of
still-to-be-commercialized products.
On May 1, 2013 the Company entered into an agreement with a third
party to develop an electronic analyzer for a defined market. An
initial payment of $30,000 was due and paid on the signing of the
agreement. On July 12, 2013, the Company entered into a second
agreement to design and deliver a prototype analyzer for the
defined market for $5,000. The Company recognized revenue when all
milestones relative to the funded amount were completed, the
prototype was delivered and collection was reasonably assured.
On May 9, 2013 the Company sponsored the ieCrowd Expo conference
event. The Company generated revenues from general-public ticket
sales and participation fees from event sponsors for booth and
presentation opportunities. Revenue of $74,688 was recognized at
the completion of the event.
40
On July 15, 2013, the Company initiated an INDIEGOGO.com campaign
for the development and testing of Kite Patch (the
“Campaign”). Kite Patch is a mosquito fighting product
under development that is based on technology designed to block
mosquitos’ ability to track humans. On August 29, 2013 at the
close of the Campaign, $516,974 (net of transaction fees) was
collected. As part of the Campaign, the Company offered
“perks” for various levels of contributions. These
items included t-shirts, water bottles, stickers and Kite Patches.
As of December 31, 2013, the Company has delivered all the non-Kite
Patch perks and recognized $14,482 as Other Income, net of pro rata
transaction fees of $4,475 and merchandise product costs of
$43,791. On March 31, 2015, December 31, 2014 and 2013, the Company
had deferred revenue related to the Campaign of $210,210, net of
related transaction fees of $35,000 and estimated Kite Patch
production cost of $249,000 (since the Kite Patches will not be
shipped until they are ready for commercial distribution).
Research and Development — The Company incurs
formulation costs that include salaries, materials and consultant
fees. These costs are classified as research and development
expenses under the Operating Expenses portion of our consolidated
statements of operations. All costs incurred to establish the
technological feasibility of a product to be sold, leased or
otherwise marketed are research and development costs, and shall be
charged to expense when incurred.
Segment Reporting — In
accordance with ASC 280 “Segment Reporting”, operating
segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision-making group, in
making decisions how to allocate resources and assess performance.
The Company’s chief decision maker, as defined under the
FASB’s guidance, is its Chief Executive Officer. It is
determined that the Company operates in one business segment and
one geographic segment, the United States of America.
Material
Weaknesses
In connection with the contemporaneous audit of our consolidated
financial statements for the years ended December 31, 2014 and
2013, our independent registered public accountants identified
material weaknesses in our internal control over financial
reporting. A “material weakness” is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis. The material
weaknesses relates to having only one employee assigned to
positions that involve processing financial information, resulting
in a lack of segregation of duties so that all journal entries and
account reconciliations are not reviewed by someone other than the
preparer. In addition, we have identified a material weakness
related to accounting for complex transactions. See “Risk
Factors”.
Although we are aware of the risks associated with having a small
internal accounting staff, we are also at an early stage in the
development of our business. We expect to expand our accounting
function and improve its ability to handle complex transactions and
other matters as we grow our business and can more readily absorb
the costs of such expansion and improvements. In the meantime,
management will continue to observe and assess our internal audit
function and make necessary improvements whenever they may be
required.
Results of
Operations
We have been operating since October 2010. Our results of
operations for the years ended December 31, 2014 and 2013 reflect,
in general, expenses we have incurred in connection with continuing
to develop mosquito repellents & attractants, gas sensors and a
supplemental oxygen delivery device, and revenue we have received
on an intermittent basis, including revenue related to fees charged
in connection with our “Innovation Economy Expo”
(“ieExpo”), a conference we hosted in May 2013 on
high-growth business ventures, revenue received through research
collaboration and development contracts, cash receipts from our
Kite Patch campaign on Indiegogo.com and government grants from the
National Institutes of Health and the City of Riverside,
California.
Three
Months Ended March 31, 2015 Compared to Three Months Ended March
31, 2014
Revenues. The
Company had zero consolidated revenues in the three months ended
March 31, 2015 and in the three months ended March 31, 2014.
41
Operating
Expenses. The Company’s condensed consolidated
operating expenses for the three months ended March 31, 2015 and
2014 consisted of the following:
|
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
1,216,108
|
|
$
|
687,025
|
|
$
|
529,083
|
|
|
77.0
|
%
|
|
Marketing and sales
|
|
|
130,148
|
|
|
131,891
|
|
|
(1,743
|
)
|
|
(1.3
|
)%
|
|
Research and development
|
|
|
244,061
|
|
|
182,973
|
|
|
61,088
|
|
|
33.4
|
%
|
|
Total Operating
Expenses
|
|
$
|
1,590,317
|
|
$
|
1,001,889
|
|
$
|
588,428
|
|
|
58.7
|
%
|
The individual components of our consolidated operating expenses
are discussed below.
General and Administrative Expenses — General and
administrative expenses include payroll, professional and
consultant fees, stock-based compensation and stock issued for
services. From the three months ended March 31, 2014 to the three
months ended March 31, 2015, general and administrative expenses
increased $529,083, or 77.0%, from $687,025 to $1.216.108. The
increase was due principally to the following:
•
Payroll expense increased $155,229, or 68.5%, from $226,502 to
$381,731, due to the hiring of additional executive personnel to
lead product development efforts and strategic marketing and
partnership development efforts, in anticipation of the sale and
distribution of products when available.
•
Professional and consultant fees increased $303,506, or 229.8%,
from $101,238 to $404,744, due to increased legal, audit and
consultant fees. Increased legal fees were the result of Company
fundraising efforts, intellectual property protection and patent
filings. Audit fees increased in connection with the
Company’s preparations to begin reporting as a public
company. Consultant fees increased due to product development
efforts.
•
Stock-based compensation cost decreased $28,751, or 20.5%, from
$140,194 to $111,443. See “Executive Compensation” for
a discussion of our compensation policies.
•
The cost of stock and warrants issued for services decreased from
$110,950 to $0. During the three months ended March 31, 2014, the
Company issued common stock and warrants to vendors and
contractors. The Company has from time-to-time used this method of
payment to minimize its cash outlays. Issuances are to those
willing to accept payment in stock, which are typically
communications consulting firms. The Company does not anticipate
using this method of payment with vendors and contractors in the
future.
Marketing and Sales
Expenses —
Marketing and sales costs decreased $1,743, or 1.3%, from $131,891
to $130,148.
Research and Development Expenses — Research and
development costs increased $61,088, or 33.4%, from $182,973 to
$244,061. The increase was due principally to increased research
and development payroll costs. All costs incurred to establish the
technological feasibility of a product to be sold, leased or
otherwise marketed are expensed as research and development costs.
This increase occurred despite the absence in the first quarter of
2015 of certain expenses incurred in the first quarter of 2014 for
fees paid to the University of California, Riverside.
Loss from
Operations — For the reasons discussed above, our
consolidated loss from operations increased $588,428, or 58.7%,
from $1,001,889 to $1,590,317, from the three months ended March
31, 2014 to the three months ended March 31, 2015.
Other Income
(Expense) — Our consolidated other income and expense
includes amortization of deferred financing costs and debt
discount, change in the value of derivative liability, loss on
settlement of accounts payable and other income.
•
Amortization of deferred financing costs increased $19,227, from $0
to $19,227, from the three months ended March 31, 2014 to the three
months ended March 31, 2015. The increase was due to the
amortization of the deferred offering costs on the convertible
notes payable issued in October 2014.
•
Amortization of debt discount increased $124,944, from $0 to
$124,944, from the three months ended March 31, 2014 to the three
months ended March 31, 2015. The increase was attributable to
amortization
42
of the debt discount associated with the note conversion feature on
the convertible notes payable issued in October 2014.
•
Change in fair value of derivative liability increased $18,205,
from $0 to a gain of $18,205, from the three months ended March 31,
2014 to the three months ended March 31, 2015. The gain was
associated with a change in value of the note conversion feature on
the convertible notes payable issued in October 2014. The gain
occurred due to the convertible notes moving three months closer to
maturity.
•
Loss on settlement on accounts payable decreased $8,354, from
$8,354 to $0, from the three months ended March 31, 2014 to the
three months ended March 31, 2015. The loss in the prior year was
attributable to the difference between the fair value of the
warrants issued to settle accounts payable and the value of the
accounts payable settled.
•
Other income decreased $9,700 or 97.0%, from $10,000 to $300, from
the three months ended March 31, 2014 to the three months ended
March 31, 2015. The decrease was due to contract revenue earned in
the first quarter of 2014.
Net Loss. For
the reasons discussed above, our consolidated net loss increased
$715,740, or 71.6%, from $1,000,243 to $1,715,983, from the three
months ended March 31, 2014 to the three months ended March 31,
2015.
Year Ended December 31, 2014 Compared to Year Ended December 31,
2013
Revenues. The
Company’s consolidated revenues were $109,688 in the year
ended December 31, 2013, and $0 in the year ended December 31,
2014. The Company’s product candidates are in development and
the Company has no products available for sale. The $109,688 in the
2013 period related to fees of $74,688 charged in connection with
our ieExpo conference and the revenue earned from an electronic
analyzer development contract of $35,000.
The Company’s cost of revenues were $98,004 in the year ended
December 31, 2013, and $0 in the year ended December 31, 2014. Cost
of revenues in the 2013 period included principally catering,
hospitality services and facilities rental for the ieExpo
conference.
Operating
Expenses. The Company’s consolidated operating
expenses for the years ended December 31, 2014 and 2013 consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
3,516,043
|
|
$
|
2,762,461
|
|
$
|
753,582
|
|
27.3
|
%
|
|
Marketing and sales
|
|
|
676,710
|
|
|
317,557
|
|
|
359,153
|
|
113.1
|
%
|
|
Research and development
|
|
|
702,376
|
|
|
571,070
|
|
|
131,306
|
|
23.0
|
%
|
|
Total
Operating Expenses
|
|
$
|
4,895,129
|
|
$
|
3,651,088
|
|
$
|
1,244,041
|
|
34.1
|
%
|
The individual components of our consolidated operating expenses
are discussed below.
General and Administrative Expenses — General and
administrative expenses include payroll, professional and
consultant fees, stock-based compensation and stock issued for
services. From year ended December 31, 2013 to year ended December
31, 2014, general and administrative expenses increased $753,582,
or 27.3%, from $2,762,461 to $3,516,043. The increase was due
principally to the following:
•
Payroll expense increased $786,305, or 101.9%, from $771,618 to
$1,557,923, due to the hiring of additional executive personnel to
lead product development efforts and strategic marketing and
partnership development efforts, in anticipation of the sale and
distribution of products when available.
•
Professional consultant fees increased $72,824, or 16.3%, from
$448,126 to $520,950, due to increased legal, audit and consultant
fees. Increased legal fees were the result of Company fundraising
efforts and patent filings. Audit fees increased in connection with
the Company’s engagement of a new auditor to re-audit and
preparations to begin reporting as a public company. Consultant
fees increased due to product development efforts.
•
Stock-based compensation cost decreased $13,838, or 1.9%, from
$714,905 to $701,067. See “Executive Compensation” for
a discussion of our compensation policies.
43
•
The cost of stock issued for services decreased $270,520, or 76.7%,
from $352,915 to $82,395. The decrease was due primarily to fewer
shares of Company common stock being issued to vendors and
contractors. The Company has from time-to-time used this method of
payment to minimize its cash outlays. Issuances are to those
willing to accept payment in stock, which are typically
communications consulting firms. The Company does not anticipate
using this method of payment with vendors and contractors in the
future.
Marketing and Sales Expenses — Marketing and sales
costs increased $359,153, or 113.1%, from $317,557 to $676,710. The
increase was due primarily to increased fees for marketing
consultants who had been engaged to provide product branding
services.
Research and Development Expenses — Research and
development costs increased $131,306, or 23.0%, from $571,070 to
$702,376. The increase was due principally to increased research
and development payroll costs. All costs incurred to establish the
technological feasibility of a product to be sold, leased or
otherwise marketed are expensed as research and development
costs.
Loss from
Operations — For the reasons discussed above, our
consolidated loss from operations increased $1,255,725, or 34.5%,
from $3,639,404 to $4,895,129, from the year ended December 31,
2013 to the year ended December 31, 2014.
Other Income
(Expense) — Our consolidated other income and expense
includes income from government grants, interest income, research
collaboration and development contracts, other income and certain
expenses such as amortization of deferred financing costs and debt
discount, change in the value of derivative liability and loss on
settlement of accounts payable.
•
Government grants decreased $271,636, from $271,636 to $0, from the
year ended December 31, 2013 to the year ended December 31, 2014.
The 2013 grants were $180,636 from the National Institutes of
Health to OLI and $91,000 from the City of Riverside, CA to
ieCrowd. In 2014, no grants were awarded. The Company and its
operating subsidiaries seek to identify and apply for government
and private grants from time to time, when grant opportunities
relate to their research and development efforts. However, we do
not rely on, or budget for, the receipt of grants in order to meet
our liquidity or capital needs. As a result, we do not expect to
face any cash or financing shortfall at any time in the future due
to any failure to receive grants.
•
Amortization of deferred financing costs increased $28,297, from $0
to $28,297, from the year ended December 31, 2013 to the year ended
December 31, 2014. The increase is due to the amortization of the
deferred offering costs on the convertible notes payable issued in
October 2014.
•
Amortization of debt discount increased $45,996, or 79.1%, from
$58,124 to $104,120 from the year ended December 31, 2013 to the
year ended December 31, 2014. The increase is attributable to
amortization of the debt discount associated with the note
conversion feature on the convertible notes payable issued in
October 2014.
•
Change in fair value of derivative liability increased $66,505,
from $0 to a gain of $66,505, from the year ended December 31, 2013
to the year ended December 31, 2014. The gain was associated a
change in value of the note conversion feature on the convertible
notes payable issued in October 2014. The gain occurred due to the
convertible notes moving 2.5 months closer to maturity.
•
Loss on settlement on accounts payable increased $8,354, from $0 to
$8,354, from the year ended December 31, 2013 to the year ended
December 31, 2014. The loss was attributable to the difference
between the fair value of the warrants issued to settle accounts
payable and the value of the accounts payable settled.
•
Other income increased $15,491, or 106.8%, from $14,509 to $30,000,
from the year ended December 31, 2013 to the year ended December
31, 2014. The increase was due to consulting fees earned of
$20,000.
Net
Loss. For the reasons discussed above, our consolidated
net loss increased $1,528,012, or 44.8%, from $3,411,383 to
$4,939,395, from the year ended December 31, 2013 to the year ended
December 31, 2014.
44
Liquidity and Capital
Resources
As of March 31, 2015, we had cash and cash equivalents of $544,699
and a working capital deficiency of $890,684. Our operations
generally have negative operating cash flows and our working
capital and capital investment requirements have been and will
continue to be significant. As a result, we depend substantially on
financing activities to provide us with the liquidity and capital
resources we need to meet our working capital requirements and to
make capital investments in connection with ongoing operations and
new product commercialization efforts. Since our inception, we have
covered these requirements primarily by making private sales of our
common stock, issuing debt instruments and through the exercise of
warrants.
In
April 2015, we issued $2,100,000 of convertible notes in the 2015 Private Placement. On July 21, 2015, we issued two promissory
notes, each in the principal amount of $100,000, to two individual investors with whom we have had relationships predating this
IPO. Interest on each note accrues at the rate of 3% per annum. Upon the occurrence of an event of default that has not been cured
for 30 days, the interest rate shall automatically increase to 15% per annum. Each note is due in September 2015. The notes may
be prepaid in part or in full prior to the maturity date, without penalty. In connection with the issuance of these notes, we
issued a warrant to each investor. Each warrant is exercisable for 50,000 shares of our common stock at an exercise price of $8.00
per share. The warrant may be exercised at any time from the date of issuance until three years thereafter. Furthermore, we may
need to seek additional short-term bridge financing to provide capital required to maintain our operations during the extended
period of this offering.
In addition, from time to time in the past, the Company and its
operating subsidiaries have applied for and received government and
private grants for research and development efforts. We expect to
continue to apply for and receive such grants from time to time in
the future. Since the inception of our business, the Company and
its operating subsidiaries have received $281,636 from grant
sources, including $0 in the three months to March 31, 2015 of $0
in 2014. However, we do not rely on, or budget for, the receipt of
grants in order to meet our liquidity or capital needs. As a
result, we do not expect to face any cash or financing shortfall at
any time in the future due to any failure to receive grants.
There are a number of risks to investors associated with our
financial condition. The sale of additional equity securities, or
the issuance of debt convertible into equity securities, could
result in dilution to our stockholders. We do not have any credit
facilities or other access to bank credit. In the event we could
raise long-term debt finance, however, its incurrence would result
in increased fixed obligations and could result in our being
subject to covenants that would restrict our operations. In all
events, there can be no assurance that we will be able to raise
additional capital to the extent we require it, when we require it,
on favorable terms, or at all. See “Risk Factors” for
further discussion of the risks inherent in any investment in our
securities, given our need for capital, the early stage of our
operations and our continuing losses and working capital
shortfalls.
Cash Flows and Cash Balances
Three Months Ended March 31, 2015 and 2014
Cash Flows from Operating
Activities — During the three months ended March
31, 2015, our operating
activities used net cash of $1,228,667, compared to $715,310 of net
cash used in our operating activities during the three
months ended March 31, 2014.
Our principal operating sources and uses of cash during the 2015
period included:
•
$161,626 provided by increasing accounts payable, resulting from
efforts to manage our outstanding vendor balances.
Cash Flows Used In Investing Activities — During the
three months ended March 31, 2015, we used net cash of $30,412 for
equipment purchases associated with the expansion of our
operations. During the three months ended March 31, 2014, we used
$5,591 of net cash for the same purpose.
Cash Flows Provided By Financing Activities — During
the three months ended March 31, 2015, we used $77,998 in net cash
from financing activities as a result of repayment of a loan and
payment of deferred offering costs partially offset by proceeds
received from a promissory note. During the three months ended
March 31, 2014, we generated $1,503,250 in net cash from financing
activities, primarily as a result of receiving the proceeds of the
private placement of common stock and partially offset by a
repayment of a loan.
45
Since inception, our principal capital-raising activities have
included the following:
•
The sale of common stock to private investors, from which we have
generated net proceeds of $7,260,314; and
•
The exercise of warrants for common stock totaling $500,000;
•
The 2014 Private Placement, which we closed in October 2014 and
from which we generated net proceeds of $2,631,190; and
•
The 2015 Private Placement, from which we have received proceeds of
$2,100,000 as of the date hereof.
In March 2015, we commenced a “best efforts” private
placement offering of up to $6,000,000 of 8% unsecured convertible
promissory notes, or the “2015 Convertible Notes,”
pursuant to Rule 506(b) of Regulation D of the Securities Act and
the JOBS Act. The terms of these Convertible Notes are
substantially identical to the terms of the Convertible Notes
issued in the 2014 Private Placement. We refer to this offering as
the “2015 Private Placement.” As of the date hereof, we
have received proceeds of $2,100,000 from the 2015 Private
Placement.
On July 14, 2014, we
commenced a “best efforts” private placement offering
of up to $5,000,000 of 8% unsecured convertible promissory notes,
or the “2014 Convertible Notes,” pursuant to Rule
506(c) of Regulation D of the Securities Act and the JOBS Act. In
addition, simultaneously on July 14, 2014, we commenced a
“best efforts” private placement offering of up to
$2,500,000 of 2014 Convertible Notes pursuant to Regulation S of
the Securities Act. We refer to these offerings collectively as the
“2014 Private Placement.” The final closing of the 2014
Private Placement occurred on October 14, 2014, pursuant to which
we issued Convertible Notes in the aggregate amount of
$2,785,000.
The 2015 and 2014 Convertible Notes will mature 24 months from
their respective issuance dates unless converted earlier, including
immediately after the closing of our initial public offering or a
transaction pursuant to which we receive at least $7,500,000 in
gross proceeds. Immediately after the closing of this offering, the
Company will exercise its right to convert all of the Convertible
Notes into Units at a conversion price per Unit equal to 80% of the
price at which the Units are being offered to the public in this
offering. There is no minimum amount of securities that must be
sold in the Company’s initial public offering for the
conversion of all of the Convertible Notes to occur, and the
conversion will occur even if only a few Units are sold.
Cash Balances — As a result principally of the
activities discussed above, as of March 31, 2015 we had cash and
cash equivalents of $544,699. As of December 31, 2014, we had cash
and cash equivalents of $1,881,776.
Cash Flows and Cash Balances
Year Ended December 31,
2014
Cash Flows from Operating Activities — During the year
ended December 31, 2014, our operating activities used net cash of
$3,973,743, compared to $1,413,006 of net cash used in our
operating activities during the year ended December 31, 2013. Our
principal operating sources and uses of cash during the 2014 period
included:
•
$133,430 provided by increasing accounts payable, resulting from
efforts to manage our outstanding vendor balances.
•
$83,542 used to reduce accrued expenses and other current
liabilities, resulting from efforts to reduce certain accrued
expenses, including payroll, as well as operating expenses
associated with the expansion of our operations.
Cash Flows Used In Investing Activities — During the
year ended December 31, 2014, we used net cash of $25,613 for
equipment purchases associated with the expansion of our
operations. During the year ended December 31, 2013, we used $3,995
of net cash for the same purpose.
Cash Flows Provided By Financing Activities — During
the year ended December 31, 2014, we generated $5,158,396 in net
cash from financing activities as a result of receiving the
proceeds of the private placement of common stock we commenced in
December 2013 and completed in 2014, a private placement of
convertible notes completed in October 2014 and warrants exercised
in July 2014. During the year ended December 31, 2013, we
46
generated $1,754,155 in net cash from financing activities,
primarily as a result of receiving the proceeds of the private
placement of common stock we commenced in February 2013 and
proceeds from notes payable issued.
Cash Balances — As a result principally of the
activities discussed above, as of December 31, 2014, we had cash
and cash equivalents of $1,881,776. As of December 31, 2013, we had
cash and cash equivalents of $722,736.
Year Ended December 31,
2013
Cash Flows from Operating Activities — During 2013,
our operating activities used net cash of $1,413,006, compared to
$1,718,343 of net cash used in our operating activities during
2012. Our principal operating sources and uses of cash during 2013
included:
•
$97,691 provided by increasing accounts payable, resulting from
efforts to manage our outstanding vendor balances;
•
$513,037 from accrued expenses arising from payroll, marketing cost
and accrued Kite Patch production cost, as described elsewhere in
this document; and
•
$210,370 of deferred revenue from the Kite Patch Campaign, which
will not be recognized as revenue until the completion of Kite
Patch commercialization and the delivery of products.
Cash Flows Used In Investing Activities — During 2013,
we used net cash of $3,995 for equipment purchases associated with
the expansion of our operations. During 2012, we used $220,527 of
net cash for the build-out of the OLI laboratory facilities.
Cash Flows Provided By Financing Activities — During
2013, we generated $1,754,155 in net cash from financing
activities, principally as a result of our February 2013 private
placement of common stock, which raised $1,627,000, an issuance of
promissory notes in December 2013 for advances of ieExpo costs in
the principal amount of $123,583 ($122,050 as of December 31, 2013)
and a third-party investment of $4,950 at a subsidiary. During
2012, we generated $1,910,504 in net cash from financing
activities, as a result of common stock private placements during
that period.
Cash Balances — As a result principally of the
activities discussed above, as of December 31, 2013, we had cash
and cash equivalents of $722,736. As of December 31, 2012, we had
cash and cash equivalents of $385,582.
Capital Expenditures
Capital expenditures totaled $30,412 during the three months ended
March 31, 2015 for equipment purchases and $5,591 during the three
months ended March 31, 2014 for a vehicle.
Capital expenditures totaled $3,995 in 2013 for equipment purchases
and $25,613 in 2014 for leasehold improvements, equipment and a
vehicle.
Credit Facilities
We do not have any credit facilities or other access to bank
credit.
Contractual Obligations,
Commitments and Contingencies
We are not subject to any material contingencies.
The Company may be involved in legal proceedings, claims and
assessments arising in the ordinary course of business. Such
matters are subject to many uncertainties, and outcomes are not
predictable with assurance. Currently, there are no such matters
deemed material to the Company.
The Company leases 6,900 square feet of office space in Riverside,
CA. The lease agreement runs through October 31, 2015 and imposes
rent on an annual escalating basis, currently at $15,144 per month.
Payments under this lease are being accounted for on a
straight-line basis. The Company also leases 11,846 square feet of
laboratory and office space at a nearby location. The lease
agreement runs through April 30, 2016 and imposes rent
47
of $7,015 per month. The Company’s total rent expense for the
three months ended March 31, 2015 was $61,914 and for the years
ended December 31, 2014 and 2013 was $245,505 and $241,285,
respectively.
The Company is subject to material contractual obligations and
commitments under our various licensing agreements. In general, the
continuation of the exclusivity of our rights, and the continuation
of non-exclusive rights if exclusivity has been lost or has not
been granted, is subject to our payment of various amounts and our
achievement of various milestones over time toward the
commercialization of the licensed innovations. The material payment
obligations applying to our license agreements are summarized
below:
•
OLI license. As partial consideration for the license,
the Company paid a one-time license issue fee of $10,000. The
Company must pay an earned royalty of 3% of net sales of licensed
products upon becoming cash-flow positive or starting 18 months
after the effective date of the license, January 29, 2010,
whichever is earlier. The Company must also pay 3% of all
non-royalty consideration received from sublicensing. OLI must pay
the Board of Regents of the University of California (“the
Regents”) a minimum royalty payment of $30,000 annually,
irrespective of whether or not OLI has generated any revenue.
•
NEA license. As partial consideration for the license,
the Company paid a one-time license issue fee of $10,000. The
Company must pay an earned royalty of 3% of net sales of licensed
products upon becoming cash-flow positive or starting 18 months
after the effective date of the license, March 31, 2010, whichever
is earlier. The Company must also pay 3% of all non-royalty
consideration received from sublicensing. For the year 2017, and
for each year thereafter for the duration of the license, The
Company must pay the greater of the earned royalty described above
or a minimum annual royalty of $5,000 in 2017 and $10,000 in 2018
and each year thereafter.
•
SOS license. The Company must pay an earned royalty of
3% of net sales of licensed products. The Company must also pay 50%
of all non-royalty consideration received from sublicensing. These
fees are reduced, in a tiered fashion, to 15%, upon completion of
certain revenue and business performance milestones. In addition,
on the anniversary date of entering into the license, October 21,
2013, the Company must pay the following amounts: on the first
anniversary, $10,000; on the second anniversary, $15,000; on the
third anniversary, $15,000; on the fourth anniversary, $15,000; on
the fifth anniversary, $30,000; and on each subsequent anniversary,
$30,000. Moreover, after the First Commercial Sale
(“FCS”), the Company must pay minimum royalty fees of
$25,000 in year one, $37,500 in year two and $50,000 in year three
and in each subsequent year.
•
Head Pain Management license. As partial consideration
for the license, the Company must pay $16,000 within 30 days of
entering into the license, November 3, 2014, and another $16,000
within 120 days of entering into the license. The Company must make
a milestone payment of $350,000 on the first to occur of: the
receipt of a letter of approval or clearance for a 510(k) or PMA
application in the U.S. for a licensed product, and the receipt of
marketing approval in Europe or any individual European country for
a licensed product. In addition, on the anniversary date of
entering into the license, the Company must pay $2,500 in each of
years one and two, $5,000 in year three and $10,000 in each
subsequent year. Moreover, after the First Commercial Sale
(“FCS”), the Company must pay minimum royalty fees of
$20,000 in year one, $80,000 in year two, $140,000 in each of years
three and four and $300,000 in each subsequent year.
•
Sleep Disorders license. As partial consideration for
the license, the Company must pay $10,000 within 30 days of
entering into the license, November 3, 2014, and another $10,000
within 120 days of entering into the license. The Company must make
a milestone payment of $140,000 on the first to occur of: the
receipt of a letter of approval or clearance for a 510(k) or PMA
application in the U.S. for a licensed product, and the receipt of
marketing approval in Europe or any individual European country for
a licensed product. In addition, on the anniversary date of
entering into the license, the Company must pay $2,500 in each of
years one and two, $5,000 in year three and $10,000 in each
subsequent year. Moreover, after the First Commercial Sale
(“FCS”), The Company must pay minimum royalty fees of
$20,000 in year one, $80,000 in year two, $140,000 in each of years
three and four and $300,000 in each subsequent year.
48
Off-Balance Sheet
Arrangements
We do not have any off-balance sheet arrangements.
Quantitative and
Qualitative Disclosures about Market Risk
In the ordinary course of our
business, we are not exposed to market risks, such as those that
may arise from changes in interest rates or changes in foreign
currency exchange rates or that may otherwise arise from
transactions in derivatives.
Recent Accounting
Pronouncements
In April 2015, the Financial Accounting Standards Board issued
Accounting Standards Update 2015-03, Interest—Imputation
of Interest. To simplify presentation of debt issuance
costs, the amendments in this Update would require that debt
issuance costs be presented in the balance sheet as a direct
deduction from the carrying amount of debt liability, consistent
with debt discounts or premiums. The recognition and measurement
guidance for debt issuance costs would not be affected by the
amendments in this Update. This Accounting Standards Update is the
final version of Proposed Accounting Standards Update
2014-250—Interest—Imputation of Interest (Subtopic
835-30), which has been deleted. The amendments in this Update are
effective for financial statements issued for fiscal years
beginning after December 15, 2015, and interim periods within those
fiscal years. The Company is currently evaluating the effects of
ASU 2015-03 on the condensed consolidated financial statements.
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts with
Customers,” (“ASU 2014-09”). ASU 2014-09
supersedes the revenue recognition requirements in Accounting
Standards Codification (“ASC”) 605 - Revenue
Recognition, and most industry-specific guidance throughout the
ASC. The standard requires that an entity recognizes revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services. ASU
2014-09 is effective on January 1, 2017 and should be applied
retrospectively to each prior reporting period presented or
retrospectively with the cumulative effect of initially applying
ASU 2014-09 recognized at the date of initial application. The
Company is currently evaluating the impact of the adoption of ASU
2014-09 on its consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-10, “Development
Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation,” (“ASU
2014-10”). ASU 2014-10 removes the definition of a
development stage entity from the ASC, thereby removing the
financial reporting distinction between development stage entities
and other reporting entities from U.S. GAAP. In addition, ASU
2014-10 eliminates the requirements for development stage entities
to (1) present inception-to-date information in the statements of
operations, cash flows, and stockholders’ equity, (2) label
the financial statements as those of a development stage entity,
(3) disclose a description of the development stage activities in
which the entity is engaged, and (4) disclose in the first year in
which the entity is no longer a development stage entity that in
prior years it had been in the development stage. ASU 2014-10 is
effective for annual reporting periods beginning after December 15,
2014, and interim periods therein. Early adoption is permitted. The
Company has elected to adopt ASU 2014-10 and, as a result, is not
required to present the previously required development stage
disclosures.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation
- Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide that a Performance
Target Could be Achieved after the Requisite Service Period,”
(“ASU 2014-12”). The amendments in ASU 2014-12 require
that a performance target that affects vesting and that could be
achieved after the requisite service period be treated as a
performance condition. A reporting entity should apply existing
guidance in ASC Topic No. 718, “Compensation — Stock
Compensation” as it relates to awards with performance
conditions that affect vesting to account for such awards. The
amendments in ASU 2014-12 are effective for annual periods and
interim periods within those annual periods beginning after
December 15, 2015. Early adoption is permitted. Entities may apply
the amendments in ASU 2014-12 either: (a) prospectively to all
awards granted or modified after the effective date; or (b)
retrospectively to all awards with performance targets that are
outstanding as of the beginning of the earliest annual period
presented in the financial statements and to all new or modified
awards thereafter. The Company does not anticipate that the
adoption of ASU 2014-12 will have a material impact on its
consolidated financial statements.
49
In August 2014, the FASB issued ASU No. 2014-15,
“Presentation of Financial Statements — Going Concern
(Subtopic 205-40): Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern”
(“ASU 2014-15”). ASU 2014-15, which is effective for
annual reporting periods ending after December 15, 2016, extends
the responsibility for performing the going-concern assessment to
management and contains guidance on how to perform a going-concern
assessment and when going-concern disclosures would be required
under U.S. GAAP. The Company elected to adopt ASU 2014-15 early.
Management’s evaluations regarding the events and conditions
that raise substantial doubt regarding the Company’s ability
to continue as a going concern have been disclosed in Note 2 to our
consolidated financial statements included elsewhere in this
prospectus.
In November 2014, the FASB issued Accounting Standards Update
(“ASU”) No. 2014-17, “Business Combinations
(Topic 805): Pushdown Accounting” (“ASU
2014-17”). ASU 2014-17 provides an acquired entity with an
option to apply pushdown accounting in its separate financial
statements upon occurrence of an event in which an acquirer obtains
control of the acquired entity. The acquired entity may elect the
option to apply pushdown accounting in the reporting period in
which the change-in-control event occurs. If pushdown accounting is
not applied in the reporting period in which the change-in-control
event occurs, an acquired entity will have the option to elect to
apply pushdown accounting in a subsequent reporting period as a
change in accounting principle in accordance with ASC Topic 250,
“Accounting Changes and Error Corrections”. If pushdown
accounting is applied to an individual change-in-control event,
that election is irrevocable. ASU 2014-17 also requires an acquired
entity that elects the option to apply pushdown accounting in its
separate financial statements to disclose information in the
current reporting period that enables users of financial statements
to evaluate the effect of pushdown accounting. The Company has
adopted the amendments in ASU 2014-17. The adoption did not have an
impact on our consolidated financial statements.
Effects of
Inflation
Our results of operations and financial condition are presented
based on historical cost. While it is difficult to accurately
measure the effects of inflation on our results of operations and
financial condition, due to the imprecise nature of the estimates
required, we believe such effects, if any, have been
immaterial.
50
BUSINESS
Overview
We are an emerging growth company based on a Collaborative Economy
model with a mission to bring the world together to unlock the
potential of untapped innovations.
We were founded by experienced entrepreneurs who recognized that
research institutions can be filled with un-commercialized
technology discoveries and breakthrough research (which we refer to
throughout this document as “innovations”) which, if
successfully commercialized, could solve or help to solve
significant global challenges. We believe that the potential of
these untapped innovations could be vast. Yet many of these
innovations will never see the light of day because of the
significant difficulties often experienced in the process of taking
laboratory-proven, potentially ground-breaking innovations and
transforming them into products, product platforms, services and
technologies for distribution to global markets.
These difficulties include the following:
•
Innovators are not always entrepreneurs. They may lack the skills,
experience or desire to undertake the process of creating products
and taking them to market.
•
Innovators may not have access to the people and resources needed
to move an innovation from the laboratory to the market. In
particular, an innovator’s access to investment capital may
be limited, because early-stage investors often select investments
that have already attracted entrepreneurs and advanced toward
commercialization, and avoid investing in innovations alone.
•
The process of developing and commercializing innovations, although
simple in concept, is difficult in execution. First-time innovators
and entrepreneurs may experience high rates of failure.
•
There is no efficient system for large, successful, market-driving
businesses to learn about innovations with broad or even global
market potential. In addition, such businesses are often
uninterested in or wary of undertaking the development and
commercialization process, and instead prefer to acquire or
distribute products already commercialized by others.
As a result of these difficulties, innovations with the potential
to improve the lives of people around the globe can often sit
languishing in research institutions.
Recognizing the gap between
the marketplace and un-commercialized but potentially beneficial
innovations, the founders of ieCrowd have created a business model
that is intended to bridge this gap. ieCrowd’s business goal
is to license or acquire innovations with the potential to solve
global problems for the purpose of commercializing them into
product platforms, products, services and technologies that have
substantial value-adding impact over large populations and markets.
The Company’s strategy for attaining this goal incorporates
three principal components:
•
Licensing
innovations with potential global benefits from
universities, federal agencies, innovators, businesses and other
sources. In the future, we may also acquire innovations outright or
acquire the companies that own the innovations;
•
Commercializing these
innovations, to seek to turn them into products, product
platforms, services and technologies. We seek to do this by
assigning each innovation to a commercialization team, made up of,
among other people, product development members – scientists
and other technical subject matter experts – supported by our
“business infrastructure” members –personnel who
can provide executive leadership, operations management, sales,
marketing and public relations functions and administrative
services (human resources, legal, finance, accounting). We also
provide office space, laboratory space, specialized equipment, raw
materials, supplies and other physical resources; and
•
Launching these
innovations into global markets, which we expect to do if
and when our first products are fully commercialized, via licensing
these products to regional, national and international market
partners and distribution channels, and, in some cases, through
direct-to-consumer sales and marketing campaigns.
Now in its fifth year of existence, ieCrowd is in the process of
applying its commercialization platform to three innovations,
through three separate, majority-owned and ieCrowd-formed and
-operated subsidiaries: Olfactor
51
Laboratories, Inc. (“OLI”), Nano Engineered
Applications, Inc. (“NEA”) and Smart Oxygen Solutions,
Inc. (“SOS”). These subsidiaries have reached the
following stages of their development:
•
OLI, now in its
fourth year of operations, is seeking to commercialize a range of
patent-pending technologies to control the behavior of mosquitoes
and other blood-seeking insects with non-insecticidal agents, with
the aim of lowering the spread of diseases such as malaria, Dengue
fever, West Nile virus and other diseases that are transmitted by
blood-seeking insects. Transmission of disease from insects to
humans is a major global health issue, and OLI is working to create
a number of product offerings leveraging these technologies for
various markets globally. The Company has chosen “Kite”
as the brand under which its expected future repellant and
attractant product offerings will be marketed. OLI’s initial
product offerings must pass through OLI’s final product
development stages, including testing, the determination of
manufacturing specifications and consumer brand and packaging
finalization. OLI must also pursue regulatory approvals for most of
its “Kite”-branded product offerings prior to sale to
consumers in most countries. In the U.S., OLI must obtain approval
for its Kite-branded products from the EPA. We expect to begin
seeking regulatory approvals for the first of our Kite-branded
products in or about the first half of 2016 (although we can
provide no assurance that we will be able to begin seeking
approvals within this timeframe, or at all). We would expect to
obtain these approvals within approximately 24 to 36 months from
the filing of applications for the approvals (although we can
provide no assurance that we will be able to obtain the approvals
within that timeframe, or at all). We would expect to repeat this
process and timing for later-developed Kite-branded products. OLI
is also pursuing the development of a range of product offerings
for licensing and public health efforts globally. OLI currently
expects to begin selling repellant and attractant products, or
licensing the distribution of such products to others, or both, as
well as beginning to license active ingredients or exclusive rights
to active ingredients, in 2016 (although we can provide no
assurance that we will be able to fully develop, and sell or
license the distribution of, any such products at that time or any
time). From April 25 to May 15, 2015, members of ieCrowd’s
Kite team have been in Uganda — in the Jinja area and
surrounding rural communities — implementing a series of
tests relating to Kite’s technologies in development.
•
NEA, now in its fourth year of operations,
seeks to commercialize patented and patent-pending sensor
technologies based on nano materials that can detect airborne gases
to the parts-per-billion (PPB) level. (“Nano materials”
are materials sized in at least one dimension between 1 and 100
nanometers, with a nanometer being 10−9
of a meter.) NEA’s technologies, if commercialized, could
provide a product platform encompassing multiple consumer,
commercial, industrial and security-related products with a variety
of applications, including air quality monitoring, explosives
detection, industrial plant toxic gas detection, gaseous chemical
warfare agent detection, food and agricultural safety hazard
detection and other applications. Before any products can be made
available to the market, laboratory facility and equipment
improvements have to be made, product development (including
sensor, algorithm, form factor, software and prototype development)
must be completed, testing must be conducted, any necessary
regulatory and industry safety and industry standard certifications
must be acquired and manufacturing and quality assurance facilities
and protocols must be established. We expect to begin seeking
regulatory approvals for the first of our NEA-branded products in
or about the second half of 2016 (although we can provide no
assurance that we will be able to begin seeking approvals within
this timeframe, or at all). We would expect to obtain these
approvals within approximately three to four months after the
beginning of the approval process (although we can provide no
assurance that we will be able to obtain the approvals within that
timeframe, or at all). We expect to repeat this process and timing
for later-developed NEA-branded products. We currently expect to
complete these steps and begin licensing the distribution of
products to others, and possibly selling some initial consumer
products ourselves, in 2016 (although we can provide no assurance
that we will be able to fully develop, and license the distribution
of or sell, any such products at that time or any time).
•
SOS, now in its second year of operations,
seeks to commercialize supplemental oxygen delivery devices that
would incorporate a computer controlled, patient-adaptive dosing
system, for people who have been prescribed supplemental oxygen
delivery equipment by a doctor. The devices would be configured as
add-ons to existing, commercially available supplemental oxygen
delivery equipment. If commercialized, the devices would have the
potential to be used by people who have been prescribed
supplemental oxygen therapy by their doctor in maintaining a more
active lifestyle. The current milestone plan for development of the
devices extends through a currently ongoing FDA
52
pre‑submission process
and, thereafter, an expected FDA submission process. We cannot
currently foresee when our FDA processes may be completed.
Potential revenue-earning options will be considered
thereafter.
In addition to the foregoing, effective November 3, 2014, we
entered into agreements with UCLA to secure licenses, subject to
the completion of our due diligence efforts, for two additional
innovations:
•
Head Pain
Management. The other innovation consists of technology
designed to take advantage of the fact that stimulating the sensory
fibers of a nerve can mask pain perception. The technology uses
mechanical vibration (as opposed to electrical stimulation) to
stimulate such fibers and is non-invasive and patient controllable.
The target market for the commercialization of this technology
would include migraine sufferers; those with trigeminal neuropathy,
a debilitating, long-lasting oral pain, often arising from failed
or compromised dental procedures; and others.
•
Sleep Disorders.
One innovation consists of technology designed to take advantage of
the fact that signals from the limbs interpreted by the brain as
movement can elicit enhanced breathing rates. The device we would
expect to develop would use a nerve stimulation technique to
enhance the breathing rate without actual limb movement. The target
market for the commercialization of this technology would include
people who suffer sleep disorders mostly due to irregular
breathing, the most common of which is sleep apnea.
More recently, in May 2015, we negotiated options to license up to
20 different families of patents and patent applications. The
options run for six months, and can be extended for an additional
six months thereafter in the sole discretion of ieCrowd. The
patents and applications relate to subject matters in a variety of
health-related technology areas. The patents and applications are
owned or co-owned by the University of New Mexico, Torrey Pines
Institute for Molecular Studies, the University of Kansas, New
Mexico State University, the University of Michigan, Ball State
University and the University of Zurich. ieCrowd intends to use the
time afforded to it under the options to continue its due diligence
of the patents and applications and decide which patent families,
if any, it wishes to license.
ieCrowd intends to pursue commercial success with each of these
subsidiaries and innovations, and over time to expand the number of
its subsidiaries and innovations. Ultimately, ieCrowd envisions
having a group of life and health subsidiaries diversified across
various stages of business evolution and various product, service
and technology markets. ieCrowd expects that achieving such
diversification may help it mitigate some of the risks typically
associated with investing in early-stage companies and innovative
discoveries and technologies.
The Company does business under the name “ieCrowd” in
order to emphasize its Collaborative Economy approach to
implementing its business model. By “Collaborative
Economy”, we mean a system that emphasizes the sharing,
repurposing and distribution of ideas, opportunities and other
resources among a great number of participants, typically aided by
the use of social media and other information technology, in order
to increase the value and efficient deployment of those resources
not only for the participants but also for larger populations,
societies and the world generally. We refer to the individuals and
entities we seek to collaborate with as the “Crowd”.
The Crowd includes the people and organizations through which we
hope to gain access to expertise, innovations, social and business
networks, marketing and distribution opportunities and other
resources. The Crowd includes, among others, universities,
government agencies, municipalities, non-governmental organizations
(“NGOs”), stockholders, innovators, investors,
employees, vendors, other stakeholders and collaborators and
potential marketing and distribution partners and customers. The
Crowd plays an integral role in each stage of ieCrowd’s
mission to bring commercialization to bear to help solve global
problems.
Innovation Economy Corporation was incorporated in the State of
Delaware on October 28, 2010. We are an “emerging growth
company” within the meaning of the federal securities laws.
For as long as we are an emerging growth company, we will not be
required to comply with certain regulatory requirements applicable
to other public companies that are not emerging growth companies,
including but not limited to: not being required to comply with the
auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act; being permitted to comply with reduced
disclosure obligations regarding executive compensation in our
periodic reports and proxy statements; and being exempt from the
requirements of holding a non-binding advisory vote on executive
compensation and securing stockholder approval of golden parachute
payments. We intend to take advantage of these reduced regulatory
requirements until we are no longer an emerging growth company. For
a description of the qualifications and other requirements
applicable to emerging growth companies, and certain elections we
have made due to our status as an
53
emerging growth company, see “Risk Factors—We are an
‘Emerging Growth Company’ and we cannot be certain if
the reduced disclosure requirements applicable to Emerging Growth
Companies will make our common stock less attractive to
Investors”.
Market
Opportunity
According to the Scholarly
Publishing and Academic Resources Coalition’s January 2014
report (available at http://www.sparc.arl.org/news/omnibus-appropriations-bill-codifies-white-house-directive),
over $60 billion of taxpayer funds is spent annually on research
projects to “advance science, spur the economy, accelerate
innovation, and improve the lives of our citizens”. A large
number of these research projects end when their results are
published and their government funding is complete. Some of this
research is worthy of further development, and this is where the
ieCrowd process begins. ieCrowd believes that a significant
innovation gap exists between laboratory-proven innovations and the
global market launch of products and product platforms based on
those innovations.
ieCrowd sees significant
potential in working with research institutions to search through
their research portfolios for possible breakthrough innovations,
and then licensing or acquiring the most promising of these
innovations for development and commercialization. In regard to
these innovations, ieCrowd picks up where government funding left
off and seeks to generate value moving the selected innovation
through development to commercialization.
Our Key
Strengths
There are significant barriers to overcome in taking
laboratory-proven technologies and transforming them into products
for distribution to global markets. Though simple in concept, the
process is difficult in execution. In order to succeed in its
business, ieCrowd relies on the following key strengths:
•
Past experience: ieCrowd’s management team is
comprised of experienced entrepreneurs.
•
Business model: ieCrowd believes that its business model
brings systemization, efficiency and greater predictability to the
task of transforming innovations into market-ready products,
services and technologies, and that its Collaborative Economy focus
helps it find more ideas and resources and reach more collaborators
and potential customers and beneficiaries of its efforts.
•
Capital
efficiency:
ieCrowd targets the licensing or acquisition of intellectual
property rights that require low initial capital outlays, and then
deploys capital efficiently through the shared services and
economies of scale available to the ieCrowd operating subsidiaries
through the ieCrowd parent company.
•
Parent company-level infrastructure: For each operating
subsidiary, ieCrowd provides operations, sales, marketing, public
relations and administration (human resources, legal, finance,
accounting) functions, as well as capital and executive
leadership.
•
Key relationships: ieCrowd has a demonstrated track record
of identifying and establishing partnerships with research
institutions and other key stakeholders.
•
Flexibility in seeking revenue: Each ieCrowd operating
subsidiary can pursue revenue through licensing, distributorships
or retail and direct-to-consumer campaigns.
•
Diversification: ieCrowd aims eventually to hold a portfolio
of innovations across different phases of development, product
types and markets.
54
Our Corporate
Organization
ieCrowd currently has three operating subsidiaries, through which
it is seeking to commercialize its licensed innovations. Each of
these subsidiaries is majority-owned and ieCrowd-formed and
-operated: Olfactor Laboratories, Inc. (“OLI”), Nano
Engineered Applications, Inc. (“NEA”) and Smart Oxygen
Solutions, Inc. (“SOS”) (formerly known as Breathing
Technologies, Inc.). The following diagram illustrates the
organization of these entities and the ieCrowd parent company in
the consolidated ieCrowd group:
In addition to the foregoing, OLI has issued, to various key OLI
employees, options to purchase 675 shares of OLI stock, 592 shares
of which have previously vested, 42 shares of which will vest on
September 1, 2015 and 41 shares on September 1, 2016. Moreover, in
September 2012, the Company granted fully vested options to our
President, Dale Hutchins, Chief Discovery Officer, Stephen Abbott,
and an OLI employee to purchase a total of 1,028 shares of OLI
stock from ieCrowd at an exercise price of $210.00. These options
expire in September 2016. If all of the foregoing options were
exercised, the key OLI employees would acquire approximately 4.3%
of OLI’s capital stock on a fully diluted basis, the
employees of ieCrowd would acquire approximately 4.1% of
OLI’s capital stock on a fully diluted basis and ieCrowd
would have a 63.0% ownership stake in OLI on a fully diluted
basis.
NEA and SOS have no options or other potentially dilutive
instruments outstanding.
ieCrowd is not the sole owner of its operating subsidiaries, and
does not expect to be the sole owner of any future
innovation-developing subsidiaries that it may form or acquire, for
two reasons. First, in the case of many innovations (including the
innovations around which each of our current operating subsidiaries
was formed), the university or other research institution where the
innovation was initially developed typically makes it a condition
of licensing or selling the innovation to us that such institution
keep an ownership stake in the innovation’s later
development. Second, ieCrowd typically gives the original innovator
an ownership stake in the innovation’s development, as part
of a policy to encourage maximizing the value of the innovation. In
the case of OLI, which was ieCrowd’s first
innovation-developing subsidiary, there are also third-party
investors with minority ownership stakes. In the future, it is
ieCrowd’s intention generally to avoid having such
third-party investors in its subsidiaries.
As indicated in the diagram above, it is also a policy of
ieCrowd’s to grant, on a case-by-case basis, options,
warrants or other rights to acquire subsidiary shares to the
original innovator, the originating research institution and
employees, again as part of a policy to encourage the maximization
of value of the relevant innovations. Options, warrants or other
rights, or shares, could also be granted to certain vendors or
other partners, if appropriate. Currently, we do not intend to make
any grants of options, warrants or other rights, or shares, if as a
result of such grants ieCrowd’s fully diluted ownership
percentage in any of its subsidiaries would fall below the
ownership percentage necessary to retain majority control.
55
ieCrowd — The
Parent Company
Business
Model
ieCrowd develops its commercialization strategies and methods at
the level of its parent company, and then applies them to each of
its subsidiaries in order to develop their separate innovations.
ieCrowd’s approach is designed to help overcome the
difficulties the Company has identified in the current ways
individuals, businesses and others try to commercialize laboratory
innovations.
ieCrowd’s business model includes the repeated application of
the following process:
•
DISCOVER —
Identify innovations, pre-screen them, subject them to due
diligence, license them. ieCrowd’s efforts to
locate and secure innovations are overseen by its Chief Discovery
Officer. Our discovery process includes the steps described below.
As of the date of this prospectus, our innovations pipeline had 9
potential opportunities, from 4 different research institutions, in
various stages of review. The opportunities are in various stages
of advancement, from initial document review to discussions
regarding license or option terms and conditions. The research
institutions involved include 3 universities and 1 national
laboratory.
•
Identification: ieCrowd’s
Chief Discovery Officer, along with other Company executives,
continually work to develop and maintain ongoing business
relationships with key contacts in research institutions,
businesses, NGOs and government agencies. Most of these
relationships are, or have been, developed through personal
introductions, past business and personal relationships and direct
“cold call” contacts from ieCrowd personnel. It is
principally through these relationships that ieCrowd identifies
innovations to evaluate for potential commercialization. On
occasion, individual innovators and organizations that have heard
of our business approach us.
•
Pre-Screening: ieCrowd
reviews innovations using a number of selection guidelines,
including, as appropriate: whether there is a
laboratory-demonstrated proof of concept; whether the innovation
has attracted significant prior support through private and public
research grants; the potential addressable global market; whether
the innovation would improve technologies already in the market;
and whether the innovation would provide a platform technology that
may lead to multiple market opportunities.
In addition, ieCrowd focuses on commercializing innovations that
meet our self-imposed mandate that the potential product, product
platform, service or technology “do good”, by which we
mean: have a beneficial impact on people’s lives, their
communities and our planet. At ieCrowd, we believe that true
success for a company should be measured not only by the value it
creates for its stockholders, employees and partners, but also by
the good it creates in our world.
•
Due
Diligence: Innovations that have passed pre-screening
are subjected to due diligence by ieCrowd’s Discovery Group,
which is led by our Chief Discovery Officer and includes, among
others, our senior executives, IP attorneys and, as appropriate,
other contracted subject matter experts. Our due diligence process
is designed to investigate and assess an innovation’s
scientific and technical viability; global market viability; legal
and financial requirements; and potential social impact. If
significant issues are identified during the due diligence period
that cannot be resolved to ieCrowd’s satisfaction, ieCrowd
will not move forward with the innovation. Under certain
circumstances, ieCrowd may negotiate an option to license or
otherwise acquire the innovation prior to completing its due
diligence, but subject to the completion of due diligence to
ieCrowd’s satisfaction.
•
Licensing: In
the licensing phase, we structure and execute the transactions by
which ieCrowd or one of its subsidiaries will take its rights in
the innovation. ieCrowd sets up separate subsidiaries for each
separate innovation, and the licenses taken reside in the
subsidiaries. The specific terms and conditions of each license are
negotiated on a case-by-case basis. Generally, however, ieCrowd
seeks to license innovations on an exclusive, worldwide basis, in
perpetuity, although these terms are on occasion conditioned on our
achievement of certain negotiated milestones or minimum performance
requirements. The consideration we pay is generally royalty- and
license fee-based,
56
although we seek to limit the amounts we may owe in upfront fees.
In certain circumstances, we may agree to provide reimbursement for
some costs already incurred in respect of the innovation, including
for patent protection efforts.
Typically, in the past, ieCrowd has also conveyed to the licensing
research institution shares in the relevant ieCrowd subsidiary,
subject to ieCrowd retaining majority control over the subsidiary.
In the future, ieCrowd expects to seek to license innovations with
little or no equity component as consideration. Also, in the past,
ieCrowd has on occasion conveyed subsidiary shares or warrants to
the individual innovator or innovators. In future, we will evaluate
whether to do this on a case-by-case basis. In some cases, ieCrowd
may engage the innovator as a technical advisor on a limited
consulting basis. However, it is a general goal of ours not to
license or otherwise acquire innovations unless they have been
developed past the point at which their success is dependent on the
continued involvement of any particular individual.
In our first five years of existence, we have established three
separate innovation subsidiaries. We have also, in our view,
significantly grown and refined our commercialization platform, to
the point where we now believe we are ready to substantially
increase the pace at which we acquire new innovations and establish
new subsidiaries. We expect that, going forward, we may license new
innovations and create new subsidiaries at an average rate of
approximately 5 per year. Achieving this rate of growth is one of
the reasons we are undertaking this IPO. See “Use of
Proceeds”.
•
DEVELOP —
Commercialize innovations through the application of
ieCrowd’s commercialization platform. Once
ieCrowd has secured a new innovation, it seeks to efficiently and
successfully develop the innovation until it is ready to be
marketed, by applying what the Company refers to as its
“commercialization platform”. Our commercialization
platform has the following key components:
•
Team: The
commercialization team for each project has the following
members:
•
ieCrowd Leadership
Member: ieCrowd’s senior executives assign a
member of ieCrowd’s executive team to oversee the
commercialization of the innovation. As a commercialization project
progresses, ieCrowd may place an individual directly in the
relevant subsidiary to lead day-to-day activities, with oversight
by the parent company. Currently, as a measure of further control
at the subsidiary level, the ieCrowd CEO also holds the position of
CEO of each subsidiary.
•
Product Development
Members: The product development members of the
commercialization team are the technical subject matter experts,
such as scientists, laboratory technicians, engineers and
programmers. Product development team members are placed or hired
directly into the relevant subsidiary, to enable those individuals
to focus exclusively on the development of that subsidiary’s
product platforms, products, services or technologies. The number
of product development team members varies from project to project
and over time, depending upon the needs of each project.
•
Business
Infrastructure Members: ieCrowd’s chief-level
executives and their support staff constitute the “business
infrastructure” members of the commercialization team. Each
chief-level executive is responsible for providing each
commercialization project with support, resources and the benefit
of their expertise, relative to their areas of responsibility. This
is an important feature of our model — because these business
infrastructure functions are provided by the business
infrastructure team members, product development team members can
concentrate all of their efforts on technical product development.
Our business infrastructure team members also keep ieCrowd’s
senior executives apprised of activities across all of our
subsidiaries.
Our chief-level executives rely on their own training and
experience (as more fully described in the “Management”
section of this prospectus) to provide or oversee the provision of
the following business infrastructure needs for each operating
subsidiary:
•
Operations and product development support
57
•
Sales, marketing and public relations
•
Administration (human resources, legal, finance, accounting)
Business infrastructure support is provided to each operating
subsidiary through a management services agreement that the
subsidiary enters into with our parent company. This agreement
provides for payments to the parent company for the provision of
these services. The amounts owed by the subsidiaries under the
management services agreements are held on the books of ieCrowd as
receivables or notes until such time as the subsidiary has the
means to pay the parent company.
•
Intellectual Property
Member: ieCrowd’s IP legal counsel, Dr. Donna
Ward of DT Ward, PC, with offices in Groton, MA and Cambridge, MA,
is an active member of each commercialization project.
•
Consultant
Members: Consultants are engaged and participate as
team members when specialized expertise, such as FDA or EPA
regulatory experience, is needed for a project. Business
infrastructure members are generally responsible for the engagement
and management of these consultants.
•
Physical and Capital
Resources: ieCrowd also provides each operating
subsidiary with office space, laboratory space, specialized
equipment, raw materials, supplies and other physical resources.
ieCrowd’s senior management keeps current on the
subsidiary’s cash and capital needs and seeks to address them
in the group’s overall capital-raising efforts.
•
Efficiencies: ieCrowd’s
commercialization approach allows each of its subsidiaries to
benefit from the economies of scale presented by the concentration
of commercialization personnel and resources in ieCrowd’s
parent company. In addition, duplications of effort can be avoided.
Finally, the ieCrowd commercialization platform frees scientific
and technical experts in our subsidiaries from the need to address
business infrastructure issues, allowing them to focus on their
areas of technical expertise.
•
DEPLOY — Take
commercialized innovations to market.
•
Once ieCrowd has completed its commercialization of a particular
innovation and the resulting products, product platforms, services
or technologies are ready to go to market, ieCrowd will commit
itself to a market launch on as large a scale globally as is
practical. ieCrowd will work to launch each of its future market
offerings via three different types of market deployment methods:
licensing to market partners; distribution through distribution
partners; and through traditional retail and direct-to-consumer
marketing and sales campaigns.
While we have yet to advance a technology to the stage of marketing
or selling products, or licensing them for distribution by others,
we are actively seeking to develop relationships with companies in
the Unites States and abroad that could serve as potential
licensees, distributors, or marketing or retail partners. In
addition, we are working to establish a range of product launch
capabilities, including the launching of pre-product campaigns on
non-securities crowdfunding websites (e.g., Indiegogo.com); the
deployment of national media campaigns; and the development of
brands.
Our Deploy efforts will be
guided by ieCrowd staff members with experience in sales,
marketing, licensing, distribution agreements and retail and
direct-to-consumer marketing. The ieCrowd senior management team
includes individuals with experience in licensing new innovations
and technologies; launching new products to retail markets;
developing and executing direct-to‑consumer campaigns;
managing multiple retail products and distribution channels;
launching e-commerce platforms and offerings; and establishing
business-to-business (B2B) and business-to-consumer (B2C)
businesses. See “Management” for the biographies of our
key executives.
We believe that ieCrowd’s Kite Patch fundraising campaign on
Indiegogo.com, in which future OLI products as well as other
merchandise was offered in exchange for donations, was
58
a demonstration of our management team’s ability to develop
and launch a campaign that can generate global attention and meet
(and exceed) financial goals. The Company has chosen
“Kite” as the brand under which OLI’s future
repellant and attractants product offerings will be marketed, and
“Kite Patch” is the name given to one of OLI’s
planned future products. In 2013, the Company conducted a six-week
crowdfunding campaign on Indiegogo.com to raise funds to support a
field test of OLI’s technology in Uganda. The campaign raised
$557,254 (or $516,974, net of transaction fees) from 11,254
contributors and as of December 9, 2014 is still listed on
Indigogo.com as the most funded campaign in that website’s
small business category. The campaign generated significant global
media coverage in only six weeks, including coverage by CNN, the
BBC, Forbes, Fast Co., Entrepreneur and over 400 more publications.
Additionally, the campaign generated over 100,000 social networking
mentions, sharing, likes, and commentary. Bill Gates, who otherwise
has no involvement with the Company, but whose foundation provided
a grant to the University of California, Riverside
(“UCR”) to support one of the early stage technologies
contributing to the development of the Kite Patch, personally
Tweeted to his 12 million followers about a Wired magazine article
about Kite. The Kite Patch campaign also generated hundreds of
licensing, distribution and direct-to-consumer inquiries relating
to the Kite Patch envisioned product, the broader Kite product line
that is still in development and the underlying mosquito repellent
technology.
Prospective investors should be aware that the Kite Patch
Indiegogo.com campaign included drawings, photos and video of the
Kite Patch product in a then-envisioned form. However, through the
date of this prospectus, the final Kite Patch product does not yet
exist in a working, field-tested prototype form. Photos and video
from the campaign may still be available on the web, although the
Company has taken down, or otherwise posted disclaimers adjacent
to, all such photos and video over which it has control.
The Kite Patch campaign led to ieCrowd’s first and, to date,
only multi-year distribution partnership. The distribution partner
— YuYu Pharma, a Seoul, South Korea-based company
— has been granted exclusive rights to distribute any
Kite-branded products we may develop in South Korea, Malaysia and
Indonesia through March 31, 2023, under an Exclusive License
Agreement signed by YuYu Pharma and OLI in March 2014. Under the
agreement, no up-front payments were due from YuYu Pharma; in years
four through nine of the exclusivity period, YuYu Pharma must make
minimum annual payments to OLI, starting at $1 million for the
fourth year and increasing each year until reaching $8 million for
the last year; and YuYu Pharma agreed to use reasonable efforts to
secure regulatory approvals to distribute the Kite-branded products
of its choosing in South Korea, Malaysia and Indonesia. However,
YuYu Pharma may terminate the agreement at any time without
penalty, on notice to OLI. Consequently, there can be no assurance
that we will receive any revenue under the agreement, even if we
are successful in developing Kite-branded products.
An illustrative timeline of ieCrowd’s Discover-Develop-Deploy
business model is shown above.
59
Revenue Model
As an emerging growth company, ieCrowd has not historically earned
significant or consistent revenues, and it may not do so in the
near future, if at all. See “Management’s Discussion
and Analysis of Results of Operations and Financial
Condition”. Nevertheless, ieCrowd intends to establish its
revenues, and it invests only in innovations that it believes have
the potential to achieve substantial revenues, including on a
global basis.
Each ieCrowd operating subsidiary will pursue revenue through
licensing, sales through distributors and retail and
direct-to-consumer marketing and sales campaigns. All of these
strategies are contingent on ieCrowd’s operating subsidiaries
developing their innovations to the point of market launch. As
discussed elsewhere in this prospectus, we do not expect our first
products, services or technologies to be ready for market launch
until 2016, and there can be no assurance that we will meet that or
any market-launch timetable.
Our principal revenue strategies are as follows:
•
Licensing
Partners: we will target a range of licensing
opportunities for our subsidiaries’ product platforms,
products, services and technologies, ranging from exclusive
licenses with global market partners to specific field-of-use or
regional licenses with regional or local market partners.
Generally, in the case of licensing arrangements, the market
partner would be responsible for product development,
manufacturing, distribution and sales, and would compensate ieCrowd
in the form of royalties or license fees;
•
Distribution
Partners: we may distribute our subsidiaries’
products, services and technologies through distribution partners,
for penetration into specific markets worldwide. Generally, in the
case of distribution arrangements, ieCrowd would be responsible for
product development and manufacturing, and the distributor would be
responsible for distribution and sales, and would compensate
ieCrowd by purchasing products directly from ieCrowd at wholesale
prices; and
•
Retail and
Direct-to-Consumer: ieCrowd subsidiaries, with the
support of the parent company’s sales and marketing
capabilities, may launch products through traditional retail
distribution channels and through direct-to-consumer marketing and
sales campaigns, with ieCrowd retaining the responsibility for all
product development, manufacturing, distribution and sales.
In addition, as an important additional form of income, in
particular while innovations are still being developed, ieCrowd
subsidiaries have received, and will routinely continue to seek,
Federal, state and private grant money. For example, in 2013 OLI
received a grant in the amount of $180,000 from the National
Institutes of Health in support of the further development of its
insect-repellant product platform.
There can be no assurance that ieCrowd’s revenue model will
ever deliver significant or consistent revenues or support
profit-making operations. See “Risk Factors”.
Partners
The Company does business under the name “ieCrowd” in
order to emphasize its Collaborative Economy model, stakeholders,
participants, and potential beneficiaries of its business
operations. We refer to these individuals and entities collectively
as the “Crowd”. The Crowd includes the people and
organizations through which we can gain access to expertise,
innovations, social and business networks and resources. When we
establish a relationship with a Crowd member who may help us
acquire new license rights, secure funding, license or distribute
future products or otherwise strengthen and increase the reach of
our business, we tend to refer to those Crowd members as our
“partners”. Our relationships with our partners can
range from informal and temporary associations to structured
interactions memorialized in enforceable contracts and
licenses.
ieCrowd’s goal is to continuously expand its network of
relationships with partners and potential partners, in support of
the Company’s business operations. The Company has and will
continue to foster relationships with the following types of
organizations, among others:
•
Research universities
•
Federal and state government departments and agencies
60
•
Federal and independent research laboratories
•
For-profit companies
•
Non-profit companies and NGOs
•
Foundations
•
Communities and city and county governments
•
Trade and professional associations
•
Crowdfunding websites and other social media platforms
Our focus on developing relationships has helped us form a number
of partnerships that we believe have been of tangible value to the
Company. For example, from April 25 to May 15, 2015, members of
ieCrowd’s Kite team have been in Uganda — in the Jinja
area and surrounding rural communities — implementing a
series of tests relating to Kite’s technologies in
development. They are working with Pilgrim Africa, the Infectious
Disease Research Coalition (IDRC) and the Ugandan Ministry of
Health. ieCrowd will use the data gathered to help further its Kite
product development efforts.
In addition, ieCrowd is in the process of forming a strategic
partnership with Children’s Hospital Los Angeles (CHLA),
which we expect will provide us with access to certain CHLA-derived
innovations that we may wish to consider licensing; access to
medical and public health experts who may be able to provide
support to our product development efforts; and opportunities to
consider entering into collaborations to develop products, services
or technologies with a specific focus on pediatric health needs.
The partnership is expected to be memorialized in the form of a
written, non-binding memorandum of understanding.
The idea for ieCrowd arose initially in connection with the recent
world financial crisis and the urgent need for a different approach
to transforming innovations into social and economic benefits
— a business collaborative approach bringing people and
resources together to more effectively commercialize innovations.
The City of Riverside became the first regional partner through the
Innovation Economy Initiative, a public-private effort to encourage
the development of innovation-focused businesses in the Riverside
area. ieCrowd secured its corporate headquarters space in Riverside
using funds provided by the City of Riverside through the
Innovation Economy Initiative. UCR has been a significant partner
in ieCrowd’s development since the Company’s early days
of operations. ieCrowd licensed its first two innovations from UCR,
ieCrowd has sponsored research at the university and a
nano-engineering laboratory at UCR has been named the Innovation
Economy Corporation Laboratory, in recognition of ieCrowd’s
research sponsorship.
ieCrowd Hub
ieCrowd’s success in forming partnerships in the Riverside
area has led it to envision creating a network of regional
partnership clusters in or around various other U.S. cities. We
refer to this potential network as the Regional Innovation Economy
Hub program, or “ieCrowd Hub”. ieCrowd’s goal is
to work with local partners in each hub to develop an ieCrowd
business presence and a network of interconnected relationships. An
operating ieCrowd Hub would, we believe, give ieCrowd more access
to research institutions, business partners and additional
commercialization opportunities in a number of target regions.
Intellectual
Property
We consider our license
rights, trademarks and other intellectual property to be valuable
assets of ours and we seek to both enforce and defend our rights.
In regard to the license agreements described below, for a
description of the amounts owed in the future by ieCrowd or its
subsidiaries to the licensors, see “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations – Contractual Obligations, Commitments and
Contingencies”.
Licensing Agreements
OLI. On
January 29, 2010, OLI and the Regents entered into an exclusive
licensing agreement. The agreement was subsequently amended, most
recently on September 10, 2012. OLI may not assign the license
without the written consent of the Regents, but may sublicense its
rights under the terms of the agreement.
61
Pursuant to the agreement, as amended, the Regents granted OLI a
license within certain defined fields of use (described below) to
make, have made, use, sell, offer for sale and import products and
to practice methods covered by specified pending patent
applications, and related domestic or foreign patent applications
or patents, held by the Regents, in the United States, and in other
countries where the Regents may lawfully grant such a license. The
fields of use under the license are restricted to use in traps,
chemical lures and repellants for certain specified types of
insects. Any use outside these fields is excluded.
Should OLI fail to meet certain revenue and business performance
milestones set forth in the agreement, the Regents have the right
to unilaterally terminate the license or otherwise convert the
license to a non-exclusive license at any time. Were the Regents to
unilaterally terminate the license or convert it to a non-exclusive
license, we do not believe at this time that we would suffer
material adverse effects to our business. This is because,
subsequent to our licensing of the OLI intellectual property, we
discovered chemical compounds that are not covered by the OLI
intellectual property and that are, in our view, preferable for us
to use in our current product development efforts. Nevertheless, we
consider it possible that at some future point in our product
development efforts we will wish to use the compounds covered by
the OLI intellectual property, and therefore we expect to continue
to take the steps necessary to avoid losing our license from the
Regents or having it convert to a non-exclusive license.
In exchange for these licensing rights, OLI paid the Regents a cash
fee of $10,000 and issued 500 shares of OLI common stock to the
Regents on August 9, 2010 (equal to 10% of the then outstanding
shares of common stock of OLI). Once OLI is cash flow positive, OLI
will be obligated to pay to the Regents a royalty fee equal to 3%
or 4% (depending on the nature of the future product) of any future
net sales of OLI products developed using the licensed technology
covered by the specified patent applications or resulting patents,
payable quarterly if and when OLI develops products and generates
revenue. Royalty fees for any future sales made below fair market
value, as defined in the agreement, must be paid as if such sales
were made at fair market value. OLI must pay the Regents a minimum
royalty payment of $30,000 annually, irrespective of whether or not
OLI has generated any revenue. Late payments bear interest at a
rate of 10% per annum.
Until the commencement of sales of products derived from the
licensed patent applications or patents, OLI is obligated to submit
to the Regents every six months a progress report relating to the
commercialization of products derived from the licensed patents.
Failure to timely submit a report entitles the Regents to terminate
the agreement. We have timely submitted all progress reports to
date.
OLI agreed to indemnify the Regents and individuals affiliated with
the Regents from all claims arising out of the exercise of the
license or any sublicense. OLI is obligated to maintain liability
insurance as described in the agreement, until three years after
the termination of the agreement.
Unless terminated earlier (by operation of law, upon an event of
default under the licensing agreement or upon the filing of a
bankruptcy petition or patent challenge by OLI), the license will
automatically terminate upon the expiration or abandonment of the
licensed patents rights. If granted, patents from the patent
portfolio being licensed would have a 20-year expiration period and
would expire in 2031 (not including any patent term
adjustment).
NEA. On March 31,
2010, NEA and the Regents entered into an exclusive licensing
agreement in connection with certain patents held by the Regents.
The agreement was subsequently amended, most recently on September
1, 2014. As long as NEA retains exclusive rights under the
agreement, NEA retains the right to issue sublicenses in the United
States and in other countries where the Regents may lawfully grant
such licenses.
Pursuant to the agreement, and as amended, the Regents granted NEA
a license with certain defined fields of use (described below)
relating to “Bio-receptor Embedded Conductive Polymer
Nanowire Sensor Arrays”, “Metal Nanoparticles Decorated
Carbon Nanotubes for Gas Sensors”, the “Synthesis of
Nanopeapods by Galvanic Displacement of Segmented Nanowires”,
“Metal and Metal Oxides Co-Functionalization SWNT’s as
High Performance Gas Sensors”, “Ultra-Sensitive Gas
Sensors Based on Tellurium-Single Walled Carbon Nanotube Hybrid
Nanostructures” and “Selective Nanoscale Asymmetric Gas
Sensors”, which we refer to as the NEA Licensed Products. The
fields of use under the license are chemical and biochemical
detection using carbon nanotube-based sensors and conducting
polymer nanowire sensors.
The Regents have the right to terminate the agreement or convert
the rights to non-exclusive licenses should NEA fail to achieve
certain revenue and business performance milestones set forth in
the agreement.
62
Pursuant to the agreement, the Regents granted NEA the exclusive
right to make, use and sell the NEA Licensed Products in all
territories in which the Regents’ patent rights exist,
including the United States. The license is subject to overriding
obligations to the U.S. Government, including those set forth in 35
USC Sections 200-212 and applicable governmental implementing
regulations and the obligation to report on utilization of the
invention set forth in 37 CFR Section 401.14(h). These requirements
are commonly referred to as the Bayh-Dole provisions and apply to
intellectual property that has been developed using federal
government funding. Such intellectual property, if not pursued in a
manner to achieve practical application of the inventions, may be
subject to the government’s “march-in” rights, by
which it can require licenses to be granted in certain
circumstances to third parties. In addition, and pursuant to
further Bayh-Dole requirements, the agreement requires that NEA
Licensed Products be substantially manufactured in the United
States, because the inventions relating to the NEA Licensed
Products by the Regents were made under funding provided by the
U.S. federal government.
NEA paid the Regents a license fee of $10,000, conveyed to the
Regents shares of NEA equal to 10% of the then outstanding shares
of common stock of NEA and agreed to pay a royalty fee of 3% of all
future net sales of NEA Licensed Products. NEA is obligated to pay
a minimum royalty of $5,000 in 2017 and $10,000 in 2018 and each
year thereafter.
NEA is required to submit to
the Regents every six months a progress report summarizing
NEA’s activities related to testing and development of NEA
Licensed Products. In addition, the progress report must also
include milestones achieved or anticipated milestone completion
dates, and any activities related to any sublicenses. This
reporting requirement will remain in force until the commencement
of sale of each NEA Licensed Product. Failure to timely submit a
report entitles the Regents to terminate the agreement. We have
timely submitted all progress reports to date.
NEA agreed to indemnify the Regents and individuals affiliated with
the Regents from all claims arising out of the exercise of the
license or any sublicense. NEA is obligated to maintain general
liability insurance as described in the agreement, until three
years after the termination of the agreement.
Unless terminated earlier (by operation of law, upon an event of
default under the licensing agreement or upon the filing of a
bankruptcy petition or patent challenge by NEA, or termination for
convenience by NEA), the license will automatically terminate upon
the expiration or abandonment of the last licensed patents rights.
If granted, patents from the patent portfolio being licensed would
have a 20-year expiration period and would expire between 2025 and
2033 (not including any patent term adjustment). The termination of
the agreement with the Regents will not relieve NEA of its
obligations to pay any accrued royalties and other consideration
set forth in the agreement.
SOS. On October
21, 2013, SOS and the Regents entered into a licensing agreement in
connection with certain patents held by the Regents relating to an
Automated Fluid Delivery System, which we refer to as the SOS
Licensed Products. Pursuant to the Agreement, the Regents granted
SOS the exclusive right to make, use and sell the SOS Licensed
Products in all territories in which the Regents’ patent
rights exist, including the United States, Europe and China. SOS
paid to the Regents a license fee in the form of 5% of the
initially issued common stock of SOS, and is obligated to pay a
license maintenance fee at one ($10,000), two ($15,000), three
($15,000), four ($15,000), five years ($30,000) and every year
thereafter ($30,000). SOS agreed to pay a royalty fee of 3% of all
future net sales of SOS Licensed Products and 50% of all
non-royalty consideration received from sublicensing, subject to
certain adjustments. These fees are reduced, in a tiered fashion,
to 15%, upon completion of certain revenue and business performance
milestones. In addition, on the anniversary date of entering into
the license, we must pay the following amounts: on the first
anniversary, $10,000; on the second anniversary, $15,000; on the
third anniversary, $15,000; on the fourth anniversary, $15,000; on
the fifth anniversary, $30,000; and on each subsequent anniversary,
$30,000. Moreover, after the First Commercial Sale
(“FCS”), we must pay minimum royalty fees of $25,000 in
year one, $37,500 in year two and $50,000 in year three and in each
subsequent year.
Head Pain
Management. Effective November 3, 2014, ieCrowd and the
Regents entered into an agreement that granted to the Company an
exclusive license to make, have made, use, sell, offer for sale and
import licensed products and to practice licensed methods to treat
pain from headaches, migraines, trigeminal neuralgia or neuropathic
disorders of the head and mouth. The agreement also includes a
non-exclusive license to the copyright over certain user interface
software for controlling and monitoring nerve stimulation. The
agreement allows for sublicensing with a percentage of income to be
paid to the Regents based on sublicense income milestones.
Sublicense income due to the Regents includes 25% prior to
submission to the FDA of a PMA or 510(k); 15% after submission to
the FDA of a PMA or 510(k) but before product approval and 10%
after receiving FDA approval.
63
In exchange for these licensing rights, the Company paid the
Regents a cash fee of $32,000, with $1,600 attributable to the
copyright. License maintenance fees are triggered on the
anniversary date of entering into the license and are $2,500 in
each of years one and two, $5,000 in year three and $10,000 in each
subsequent year, with 5% of the fees attributable to the licensed
copyright. Such fees will not be due if the Company is selling a
licensed product and paying the earned royalty.
The Company is obligated to pay to the Regents a royalty fee equal
to 6% of the net sales of licensed products. There is no royalty
due on the copyright. After the First Commercial Sale
(“FCS”), we must pay minimum royalty fees of $20,000 in
year one, $80,000 in year two, $140,000 in each of years three and
four and $300,000 in each subsequent year.
The Company will be obligated to pay the Regents a $350,000
milestone payment on the first to occur of: the receipt of a letter
of approval or clearance for a 510(k) or PMA application in the
U.S. for a licensed product, and the receipt of marketing approval
in Europe or any individual European country for a licensed
product.
The Company is obligated to submit to the Regents every six months
a progress report relating to the commercialization of products
derived from the licenses. Failure to timely submit a report
entitles the Regents to terminate the agreement. We have not yet
been required to submit a progress report to date.
The Company has agreed to indemnify the Regents and individuals
affiliated with the Regents from all claims arising out of the
exercise of the license or any sublicense. The Company is obligated
to maintain liability insurance as described in the agreement,
until three years after the termination of the agreement.
Unless terminated earlier (by operation of law, upon an event of
default under the licensing agreement or upon the filing of a
bankruptcy petition or patent challenge by the Company), the
license will automatically terminate upon the expiration or
abandonment of the licensed patents rights. If granted, patents
from the patent portfolio being licensed would have a 20-year
expiration period and would expire in 2034 (not including any
patent term adjustment).
Sleep Disorders.
Effective November 3, 2014, ieCrowd and the Regents entered into an
agreement that granted to the Company an exclusive license to make,
have made, use, sell, offer for sale and import licensed products
and to practice licensed methods for treatment of conditions
related to sleep-disordered breathing, including sleep apnea,
congenital central hypoventilation syndrome and the improvement of
sleep quality. The agreement also includes a non-exclusive license
to the copyright over certain user interface software for
controlling and monitoring nerve stimulation. The agreement allows
for sublicensing with a percentage of income paid to the Regents
based on sublicense income milestones. Sublicense income due to the
Regents includes 25% prior to submission to the FDA of a PMA or
510(k); 15% after submission to the FDA of a PMA or 510(k) but
before product approval and 10% after receiving FDA approval.
In exchange for these licensing rights, the Company paid the
Regents a cash fee of $20,000 with $1,000 attributable to the
copyright. License maintenance fees are triggered on the
anniversary date of entering into the license and are $2,500 in
each of years one and two, $5,000 in year three and $10,000 in each
subsequent year, with 5% of the fees attributable to the licensed
copyright. Such fees will not be due if the Company is selling a
licensed product and paying the earned royalty.
The Company is obligated to pay to the Regents a royalty fee equal
to 4% of the net sales of licensed products. There is no royalty
due on the copyright. After the First Commercial Sale
(“FCS”), we must pay minimum royalty fees of $20,000 in
year one, $80,000 in year two, $140,000 in each of years three and
four and $300,000 in each subsequent year.
The Company will be obligated to pay the Regents a $140,000
milestone payment on the first to occur of: the receipt of a letter
of approval or clearance for a 510(k) or PMA application in the
U.S. for a licensed product, and the receipt of marketing approval
in Europe or any individual European country for a licensed
product.
The Company is obligated to submit to the Regents every six months
a progress report relating to the commercialization of products
derived from the licenses. Failure to timely submit a report
entitles the Regents to terminate the agreement. We have not yet
been required to submit progress report to date.
64
The Company has agreed to indemnify the Regents and individuals
affiliated with the Regents from all claims arising out of the
exercise of the license or any sublicense. The Company is obligated
to maintain liability insurance as described in the agreement,
until three years after the termination of the agreement.
Unless terminated earlier (by operation of law, upon an event of
default under the licensing agreement or upon the filing of a
bankruptcy petition or patent challenge by the Company), the
license will automatically terminate upon the expiration or
abandonment of the licensed patents rights. If granted, patents
from the patent portfolio being licensed would have a 20-year
expiration period and would expire in 2034 (not including any
patent term adjustment).
Recent Developments
In May 2015, we negotiated options to license up to 20 different
families of patents and patent applications. The options run for
six months, and can be extended for an additional six months
thereafter in the sole discretion of ieCrowd. The patents and
applications relate to subject matters in a variety of technology
areas, including the treatment of various cancers, ischemic stroke,
diabetes and bacterial infections. The patents and applications are
owned or co-owned by the University of New Mexico, with certain
patent families co-owned by other academic institutions, including
the Torrey Pines Institute for Molecular Studies, the University of
Kansas, New Mexico State University, the University of Michigan,
Ball State University and the University of Zurich.
ieCrowd intends to use the time afforded to it under the options to
continue its due diligence of the patents and applications and
decide which patent families, if any, it wishes to license.
The opportunity to secure the
options arose from ieCrowd’s relationship with one of its
principal investors, Sunbelt III Technologies Management, LLC
(“Sunbelt”). A company managed by a Sunbelt affiliate
had earlier secured options over the patents and applications, and
some time thereafter Sunbelt had proposed that the options be
conveyed to ieCrowd on arm’s-length terms. Following
negotiations, we were able to enter into an agreement with the
Sunbelt affiliate that terminated its options, allowing us to
negotiate for the options. See “Certain Relationships and
Related Party Transactions — Agreement with Company Managed
by an Affiliate of Sunbelt Technologies
Management”.
Trademarks
We own the registered trademark for “Innovation
Economy”. One of our subsidiary companies, OLI, owns a
registered trademark for “kite” as a stylized logo.
Additionally, we have trademark applications pending for
“Democratizing Entrepreneurship”,
“Olfactor”, “ieCrowd”, and
“Nuuma” in regard to our products and services under
development. We have also registered numerous domain names,
including, among others: www.iecrowd.com, www.olfactorlabs.com,
www.kitepatch.com, www.neaapplications, nuumaair.com, iecorp.co,
iecrowdhub.com, iekonnect.com and ieinitiative.com.
Patents
The details of the patents licensed or filed and owned by the
ieCrowd subsidiaries are shown in the description of each ieCrowd
operating subsidiary. See “— Our Subsidiary, Olfactor
Laboratories, Inc.”, “— Our Subsidiary, Nano
Engineered Applications, Inc.” and “— Our
Subsidiary, Smart Oxygen Solutions, Inc.”, respectively,
elsewhere in this Business section.
ieCrowd’s general patent strategy is to license the initial
intellectual property for an innovation to be commercialized,
followed by ieCrowd subsidiaries filing for additional protections,
as appropriate, for advances to the technology made by the
subsidiaries.
Competition
ieCrowd believes that its business model represents a new,
systematized approach to the commercialization of innovations.
Nevertheless, ieCrowd faces competition and potential competition
from other entities and enterprises, on a number of fronts:
•
Competition for
innovations: ieCrowd competes against for-profit and
non-profit organizations of various types in seeking to identify
and secure commercializable intellectual property from research
institutions. Many of these organizations are bigger, better known,
better connected and better financed
65
than ieCrowd. In addition, because ieCrowd tries to avoid investing
substantial amounts of capital when acquiring its intellectual
property rights, it is particularly vulnerable to competition from
others who may be willing to pay more for the same rights.
Furthermore, in the case of young start-up innovators seeking
lucrative exits, ieCrowd’s typical offer to license a
technology may be less attractive than other sorts of offers, such
as M&A buyout offers.
•
Competition for
capital: the investor communities from which ieCrowd
seeks to raise capital are also targeted by a range of investment
funds, crowdfunding companies and venture capital firms.
ieCrowd’s value proposition for investors, which is based on
an investor’s willingness to invest for a long time period,
take high risks and attribute benefit to ieCrowd’s stated
goal of investing in opportunities that “do good”, must
compete against alternative investment opportunities that may offer
higher pecuniary gains, less risk, shorter time horizons for
investment and other benefits.
•
Competition from
non-profit organizations and others: ieCrowd also faces
competition from a range of less familiar sources. For example,
ieCrowd’s work to commercialize socially beneficial
innovations may draw it into competition with the efforts of
non-profits, NGOs, foundations and governments to achieve similar
goals without the constraint of also pursuing, as ieCrowd does,
positive financial returns. Potential markets for ieCrowd products,
services and technologies could be disrupted or made less
attractive by a foundation, government or other actor spending
sizable amounts of money on non-commercial intervention strategies
in the same markets.
•
Competition facing
individual ieCrowd subsidiaries: In addition to the
foregoing, each ieCrowd operating subsidiary faces its own
competitors and competitive pressures in regard to the specific
products, product platforms, services and technologies it is
seeking to develop and commercialize. See “— Our
Subsidiary, Olfactor Laboratories, Inc.—Competition”,
“— Our Subsidiary, Nano Engineered Applications,
Inc.—Competition” and “— Our Subsidiary,
Smart Oxygen Solutions, Inc.—Competition” elsewhere in
this Business section.
Regulation
Given the corporate organization of our various operations, our
subsidiaries are more heavily regulated than our parent company,
and our regulatory compliance efforts are undertaken principally at
the subsidiary level. See “— Our Subsidiary, Olfactor
Laboratories, Inc.—Regulation”, “— Our
Subsidiary, Nano Engineered Applications,
Inc.—Regulation” and “— Our Subsidiary,
Smart Oxygen Solutions, Inc.—Regulation” elsewhere in
this Business section.
Insurance
We maintain what we believe to be reasonable and customary types
and levels of insurance coverage, given the extent of our current
operations. We anticipate that, if and when our business expands
and matures, we may need to acquire additional types of insurance,
such as product liability insurance, and higher levels of insurance
coverage.
Employees
ieCrowd and its subsidiaries have in the aggregate 26 full-time
employees, 2 part-time employees and 5 independent contractors.
They are employed as follows:
•
Parent
company: 15 full-time employees, 1 part-time employee
and 4 independent contractors (1 full‑time and 3
part-time);
•
OLI:
8 full-time employees and 1 part-time employee;
•
NEA:
3 full-time employees; and
•
SOS:
1 part-time independent contractor.
ieCrowd has no unionized employees. Management believes that the
relations between the Company and its employees are good.
66
Facilities
Our executive offices are located at 1650 Spruce Street, Suite 500,
Riverside, CA 92507. We currently rent this space for approximately
$15,000 a month through a lease expiring October 31, 2015. Our
11,846 square-foot OLI laboratory facility is located at 1140
Citrus Street, Riverside, CA 92507. We currently rent this space
for $6,872 a month through a lease expiring April 30, 2015.
Additionally, we are currently negotiating to rent an additional
6,000 square-foot facility in Riverside, CA to be used as a
laboratory for NEA. We do not foresee any significant difficulties
in obtaining any required additional space, if needed. We do not
own any real property.
Legal
Proceedings
From time to time, ieCrowd and its subsidiaries may be subject to
lawsuits or other legal proceedings that arise in the ordinary
course of business. As of the date of this prospectus, ieCrowd is
not aware of any legal proceedings involving it or any of its
subsidiaries that may have a material adverse effect on the Company
and its consolidated subsidiaries, taken as a whole.
Our Subsidiary, Olfactor
Laboratories, Inc.
ieCrowd’s 70.4% owned subsidiary, Olfactor Laboratories, Inc.
(“OLI”), is seeking to develop products that will
change the behavior of blood-seeking insects, based on chemically
modulating those insects’ CO2-detection systems.
Mosquitoes, ticks, bed bugs and many other blood-seeking insects
use the detection of CO2 as one of the principal
mechanisms to find hosts, including humans. The discoveries OLI has
licensed arose from research performed at UCR and incorporated into
pending patent applications. UCR scientists showed that chemically
modulating the mosquito CO2 detection system caused
behavioral changes that made mosquitoes less able to find
CO2 sources in experimental laboratory tests and
semi-field tests.
We believe these discoveries could be developed into three types of
new products for managing and controlling of blood-seeking
insects:
1)
Products
that block blood-seeking insects from finding people;
2)
Products
that lure blood-seeking insects for purposes of surveillance;
and
3)
Products
that lure mosquitoes into traps as an alternative means of mosquito
control.
Our hope is that we are able to commercialize new insect-control
products that can help people avoid insect bites, and thereby help
to substantially reduce the transmission rates of deadly,
insect-borne diseases. OLI’s first group of planned future
products target mosquitoes, which are both a nuisance and carriers
of certain diseases.
The Market
The market for insect control agents is part of the broader market
for residential and commercial pest control. Insect pests affect
commercial establishments, public health, residences and
individuals. Mosquito control products are also used by
governmental and public health agencies to control mosquito
populations in outdoor areas. Additionally, public health agencies
perform indoor residual spraying in some areas to further control
mosquito populations and to limit the transmission of diseases such
as malaria. The market for mosquito control products is global,
because there are over 3,000 species of mosquitoes throughout the
world, with different geographic distributions, host preferences,
and times of flying and biting activity.
Public health concerns are motivating increased effort in mosquito
control around the world. Mosquitoes transmit numerous blood-borne
diseases, including malaria, yellow fever, dengue fever,
Chikungunya fever, West Nile virus, St. Louis encephalitis and
other arboviral encephalitis diseases. Several of these diseases
can cause significant morbidity and mortality to those infected.
According to the U.S. Centers for Disease Control (CDC) and the
World Health Organization (WHO), over half of the world’s
population (that is, over 3.4 billion people) live in regions of
the world where there is risk of malaria transmission, over 200
million cases of malaria occur each year and these cases result in
over 600,000 deaths, the majority of which occur in Africa. (See
http://www.cdc.gov/malaria/malaria_worldwide/impact.html.)
67
Product Types
There are a variety of types of insect control products. Some
insect pest control products act by killing the insects, while
others act by changing their behavior, such as by repelling or
attracting them. Furthermore, some insect control products exert
their effects on a variety of insects, while others are specialized
and act on specific types of insects.
Repellents
Mosquito repellents are used to help people avoid mosquito bites,
both for nuisance-avoiding and disease-avoiding purposes. Personal
and spatial mosquito repellent products are marketed globally. In
developing nations where mosquito-borne diseases pose significant
public health problems, WHO, governmental, and non-governmental
agencies provide financial support for personal mosquito
protection, as well as other forms of mosquito control.
Current mosquito repellent products include a very limited number
of active ingredients. Over 500 EPA-registered mosquito repellents
include DEET as an active ingredient, making it the most widely
used insect repellent on the market. Although widely used, recently
published studies from scientists in Europe and the University of
Florida have shown that at high levels, DEET can inhibit certain
insect and mammalian enzymes that are involved in neuromuscular
control. These findings, combined with individual medical case
studies in which adverse effects were associated with the use of
DEET, have prompted public health organizations such as Health
Canada and the American Academy of Pediatrics to issue
recommendations that the use of DEET-containing products be limited
in children. (See http://www.aap.org/en-us/about-the-aap/aap-press-room/aap-press-room-media-center/Pages/Insect-Repellents.aspx;
http://healthycanadians.gc.ca/healthy-living-vie-saine/environment-environnement/pesticides/insect_repellents-insectifuges-eng.php.)
Another insect control substance, Permethrin, has been listed by
the EPA as a “restricted use” substance due to its high
toxicity in aquatic environments, which limits the use of this
compound near the vicinity of waterways, the main breeding grounds
for mosquitoes. Additionally, the EPA has designated pyrethroids a
“likely human carcinogen” at high concentrations.
The U.S. home insect repellent market was valued at $527 million in
2013, according to Spectrum Brands. Spectrum Brands controls 28% of
the U.S. market through its subsidiary United Industries Corp., the
maker of personal and outdoor repellent products under the brands
Cutter and Repel.
Spatial
Repellents
Spatial insect repellent products release a repellent in the form
of a smoke or vapor into an area. A variety of technologies are
used to vaporize the repellent materials by heat (such as coils
that are ignited, candles, torches, and heaters with repellent
mats), by active dispersion of the repellent with a fan mechanism
or by passive vaporization when the repellent is sufficiently
volatile to vaporize in ambient conditions.
A research study published in
the scientific journal Indoor Air estimated that 45 to 50 billion
mosquito coils are used annually by approximately 2 billion people
worldwide. Mosquito coils are commonly used in Asia, Africa and
South America and for over 100 years have been made from pyrethrum,
an extract from the chrysanthemum plant.
Based on our research, the wholesale price for a mosquito coil
ranges from $0.01 to $0.25, and the retail price ranges from $0.02
to $0.65. Using the low end of the estimated retail price range of
$0.02 per mosquito coil, we estimate total global annual mosquito
coil sales to be at least $900 million.
Attractants
There are several mosquito traps currently on the consumer market
that aim to control the exposure of people to mosquitoes by luring
them away from people and into traps. Most of these traps use
CO2 as a mosquito attractant. The CO2 is
generated by burning propane, the sublimation of dry ice into
CO2 gas or with CO2 gas canisters. These
traps are used primarily to control mosquitoes in residential
yards, and range from relatively inexpensive ($20-30) to moderately
expensive ($200-600) equipment that includes automated controls and
timers.
Professional Markets
In the U.S., Europe, Canada,
and many other markets, state and local agencies practice
integrated pest management (IPM), which aims to limit the amount of
insecticide used in the environment to only that amount necessary
for
68
the desired level of insect
pest population control. Surveillance is a critical part of this
strategy, with applications of insecticide made only when pest
populations rise to unacceptable levels, or when the prevalence of
disease pathogens rises. Typically, surveillance activities are
performed by mosquito control and public health agencies at the
state or local (county, regional) levels. Budgets for mosquito
control agencies vary substantially. In a North Carolina study,
available funds in districts throughout the state ranged from
nothing to over $50 per resident annually.
Most mosquito control programs use CO2 as an attractant
in surveillance traps, which they may supplement with 1-octen-3-ol
(“octenol”), other chemical lures sold commercially and
light. There are three general methods to generate the
CO2 needed for mosquito traps: the burning of propane,
the sublimation of dry ice into CO2 gas, and the use of
CO2 gas canisters. Although they are commonly used, both
gas tanks and dry ice pose challenges in the field, because they
are often difficult to obtain, transport and maintain.
We estimate that the annual budget for dry ice used in mosquito
surveillance traps in the U.S. is approximately $17.5 million,
based on extrapolations from the estimates of the amount of dry ice
used by the Coachella Valley Mosquito Control District of
California, which has published the acreage they monitor, their
number of traps and the number of trap-nights in 2013.
OLI’s
Technology
Mosquitoes and many other
insects, such as bedbugs, ticks, many flies (such as horse flies,
sand flies, deer flies and black flies), midges, fleas and lice
have evolved specialized sensory systems that attract them to their
blood-hosts. The CO2
in exhaled breath is one of the principal cues used by mosquitoes
and bed bugs to track humans and other animals for blood meals.
Scientific studies suggest that mosquitoes can detect
CO2 from 35 meters away, or more.
The discoveries licensed by OLI
identify chemical molecules that change the ability of insects to
detect and respond to CO2. Focusing on products that
impair the insect’s olfactory system, OLI scientists have
identified over 250 single compounds or compositions that alter the
normal responses of mosquitoes to CO2. We believe that,
if we can commercialize products that use these compounds and
compositions, we can make it much more difficult for mosquitoes and
other blood-seeking carriers of human disease to find human
targets. We intend that these compounds and compositions will serve
as active ingredients in a variety of insect repellent and
attractant products.
The great majority of the active compositions and many of the
active compounds that OLI scientists have discovered are not
described in the pending patent applications licensed from the
Regents, and are described as novel inventions in pending OLI
patent applications.
Currently, OLI scientists are
testing the effects of various molecules on the behaviors of
mosquito species and bedbugs. These tests provide an initial
lab-based assessment of the general or specific nature of the
insect behavior modification properties of the compound or
composition. Each of our active ingredients and product forms will
eventually require field testing in a variety of settings to
demonstrate efficacy in preventing mosquito attraction to
CO2 sources and human skin odors. Successful field
testing and a successful demonstration of efficacy will likely be
necessary to secure regulatory reviews, product registrations and
acceptance by the market.
Product
Development
OLI aims to deliver products that can be used by themselves or with
other products to provide superior insect control and environmental
safety.
OLI product development requires the selection of appropriate
active ingredients and the incorporation of these active
ingredients into products that provide the necessary spatial and
temporal release of active molecules during the time periods
required in order for the product to be effective. OLI intends to
develop certain of its products using innovative modes of spatial
delivery, which take advantage of the unique chemical, physical and
safety properties of the OLI active ingredients. Products derived
from OLI active ingredients may also use existing modes of
delivery, such as in spray and lotion products that are applied to
the skin or clothing, or in mats, coils, aerosols, vaporizers,
candles and the like.
69
Each of OLI’s product development projects is managed as a
stage-gated project, which must progress through the following
stages:
•
Discovery (including lab-based experimentation)
•
Early Development (progressing to semi-field conditions, and
regulatory assessment)
•
Advanced Development (field tests, prototyping, interaction with
the U.S. Environmental Protection Agency (EPA), including the EPA
pre-registration meeting)
•
Pre-Market Activities (animal toxicology, environmental testing,
market preparation)
•
Launch
We consider both our attractant and repellent projects to be in the
early stages of Advanced Development. We have performed field tests
on attractant prototypes (although we still need to perform
additional field studies and prototyping and interact with the
EPA). For our repellent prototypes, we are prototyping and planning
field tests (though we must perform those field tests, as well as
additional prototyping, and interact with the EPA).
We anticipate different formulations of OLI active ingredients will
be incorporated into products aimed at different target markets,
and may require different characteristics of longevity, mosquito
species-specificity, vaporization characteristics, fragrance and
possibly many other characteristics desired by particular types of
users. For example, for outdoor activities in mosquito-infested
areas, we imagine that certain customers will want products that
provide protection all day, while other products are desired only
for a few hours at night. In addition, we may discover through
field testing that products aimed for different geographies may
require different active ingredients to achieve appropriate
efficacy in repelling particular mosquito species.
We believe that products incorporating OLI’s active
ingredients will provide attractive alternatives to current
products used for mosquito control purposes in many areas around
the world.
OLI’s Intended
Products
OLI’s intended mosquito control products have been branded as
Kite products. Products may include OLI active ingredients alone,
or in combination with other currently marketed insect repellents.
Creating such combination products may require business
relationships with other companies around the world.
Repellent Products
Most of our Kite repellent active ingredients are approved flavor
or fragrance compounds, which are readily available on the market.
Costs of these compounds vary, but recent price quotations for
compounds of interest were in the $20-500/kg range. OLI has filed
U.S. and PCT patent applications seeking intellectual property
protection on the active molecules for their uses in insect
control.
Kite
Patch
OLI’s Kite Patch is
intended as an innovative approach to protecting individual humans
from mosquitoes. We envision it as a small fabric or plastic patch
that would adhere to the user’s clothing, bag, stroller or
backpack. The patch would release active ingredients into the air
and create a zone of active ingredients around the individual that
would block mosquitos’ ability to efficiently find the
individual wearing the patch. The patch would work for a period of
time, and after its effects have worn off, it could be thrown away.
The patch could also be marketed in the form of a pendant or
clothing attachment. The design of the Kite Patch is intended to be
rugged, simple, and effective. We intend that the Kite Patch will
be a superior alternative to current mosquito repellent
products.
Kite Yard
Repellent
The Kite Yard Repellent is
envisioned as a small device that would emit active ingredients to
create a zone of protection from mosquito around an outdoor group
of people. The Kite Yard Repellent could also be marketed
in
70
the form of pellets or
granules that would be cast about a yard. OLI scientists have
currently selected the candidate active ingredients for the Kite
Yard Repellent product, and have a short list of backup candidates.
Additional development work is ongoing to identify the optimal
placements of the Kite Yard Repellent product, determine the
species of mosquitoes that are affected and determine the impact of
various environmental variables, such as humidity, temperature,
wind and the complex odor environments of mosquito habitats, on the
efficacy of the product.
Kite Home
Repellent
Many parts of the world lack
screens on windows and doors, and in other areas mosquito densities
are sufficiently high that mosquitoes enter structures despite the
presence of window and door screens. The Kite Home Repellent is
envisioned as a small device that emits active ingredients to
create a zone of protection from mosquito bites inside of a
structure. The Kite Home Repellent must be suitable for use inside
of an enclosed space, which diminishes the challenges of
environmental influences found in exterior areas, but increases the
need for safety and pleasant odors. OLI scientists have currently
selected the candidate active ingredients for the Kite Home
Repellent product, and have a short list of backup candidates.
Additional development work is ongoing to identify the optimal
placements of the Kite Home Repellent product, determine the
species of mosquitoes that are affected and test for consumer
fragrance preferences.
Other
Potential Repellent Products
We believe that the active ingredients that we have identified also
may be formulated into other more traditional modes of mosquito
repellent products, such as sprays or lotions, or traditional area
products, such as mats, vaporizers, candles and the like. These
products may be developed by ourselves or others, under license
from us.
Attractant Products
A variety of mosquito
attractant products are planned using OLI active ingredients. Some
of these products are intended to serve professionals, such as
scientists working with mosquito control agencies, who need more
convenient alternatives to dry ice and other CO2 sources
for surveillance traps. Other products are intended for users
around the world, who use trapping of mosquitoes as an additional
form of area mosquito control. These products may include OLI
active ingredients alone or in combination with other currently
marketed insect attractant products. Creating such combination
products may require business relationships with other companies
around the world.
Kite
Pro
Development of the Kite Pro
attractant product will depend on our ability to identify active
ingredients that perform as well as CO2 in attracting
mosquitoes into a surveillance trap. A short list of active
ingredients, and a list of backup candidates, have been created.
Recent efforts to create the Kite Pro product have been focused on
controlling the release of the active ingredients, and documenting
the impact of various control methods on the effectiveness at
luring mosquitoes into the surveillance trap. Physical and chemical
methods to control release, as well as alternative chemical actives
have been explored in OLI’s efforts to meet the
characteristics desired in the Kite Pro product. As additional
field tests are performed, we may adjust active ingredients for
better effectiveness in attracting different species of mosquitoes,
for different climatic conditions, or to achieve better temporal or
spatial dispersal.
Kite Yard
Attractant and Kite Home Attractant Products
Products that use attractants for the purpose of mosquito control
(rather than surveillance) either for indoor or outdoor use are
regulated in the U.S. by the EPA. We anticipate incorporating OLI
active attractant ingredients into existing commercially available,
consumer market traps, either through partnerships with the current
trap manufacturers or through making our products compatible with
existing trap designs. The active ingredients selected for Kite
Home Attractant and Kite Yard Attractant products will have many of
the same constraints on desirable traits as in the Kite Home
Repellent and Kite Yard Repellent products.
71
Other Potential Products
A strategy of great interest today in mosquito and insect control
is termed Push-Pull, in which the Push of an insect repellent
product located near people is paired with the Pull of an insect
attractant product located at a distance from people. OLI believes
that novel repellent and attractant products will provide new
products that will allow consumers to practice the Push-Pull
strategy, providing more powerful solutions for preventing mosquito
bites.
OLI has performed laboratory-based screening to identify several
molecules with good ability in laboratory tests to attract bed
bugs, as well as molecules with the good ability in laboratory
tests to repel bed bugs. We may pursue business relationships to
couple these active ingredients with others products to produce
superior bed bug control products.
Sales and Marketing
Strategy
OLI intends to deploy mosquito control products globally. For now,
we intend to retain rights for distribution and marketing of OLI
products in the U.S. and to use partnerships to expand outside the
U.S. OLI products may also be sold directly to consumers with the
support of ieCrowd’s sales and marketing expertise. OLI may,
in limited cases, launch products through traditional retail and
direct to consumer campaigns, with OLI and ieCrowd retaining the
responsibility for all product development, manufacturing,
distribution and sales.
Partners
OLI will seek licensing and joint development partners who will
license OLI’s intended product platforms. In these
relationships, we expect that the market partner will be
responsible for all aspects of further product development,
manufacturing, distribution and sales of products, as well as
regulatory approvals that are required to sell the products in the
licensed territory.
OLI has used, and will continue to use, paid and unpaid
collaboration partners who may help with the discovery, development
and performance testing of OLI products. These collaborators
include Walter Reed Army Institute of Research, which provided
testing of certain OLI products in Peru, Thailand and various U.S.
locations; commercial entities; and non-profit organizations that
have an interest in OLI products. Furthermore, OLI has
collaborations that augment OLI expertise in the area of materials
science, in order to help us better achieve the spatial and
temporal dispersion of active ingredients that we believe will be
necessary in successful products.
Intellectual
Property
Patents
OLI has licensed the patent applications described below, which
were derived from discoveries in the laboratory of Dr. Anandasankar
Ray at UCR. The work at the UCR campus was funded by a variety of
public and private agencies, and it is estimated that over $2.6
million of research funding was undertaken by Dr. Ray. The licensed
patent applications focus on methods and identification of
compounds capable of manipulating CO2 receptors in
certain insects, including mosquitoes, bedbugs and other flying
blood-seeking insects. Certain of the licensed UCR patent
applications have been returned to UCR, primarily because they
covered specific applications and markets that we are no longer
pursuing (Asian Citrus Psyllid) or because they claim compounds
that we do not believe have commercial potential. In addition, OLI
has applied for patent protection on discoveries made solely by OLI
scientists, and will continue to add to its own portfolio of
patents pending and patents.
72
|
Name
|
|
Patent Application
#
|
|
Filing
Date
|
|
Country
|
|
Status
|
|
Patent
#
|
|
Issue
Date
|
|
Inventor(s)
|
|
Executive License or
Original IP
|
|
Insect Repellents &
Attractants
|
|
12/398,164
WO/2010/102049
|
|
3/4/2009
|
|
US/PCT
|
|
pending
|
|
N/A
|
|
N/A
|
|
Ray, A
Turner, SL
|
|
Exclusive License (and
terminated by letter March 2014)
|
|
Ligands for Olfactory
Nuerons
|
|
61/325,236
WO/2011/130726
|
|
4/16/2010
|
|
US/PCT
|
|
pending
|
|
N/A
|
|
N/A
|
|
Ray, A
Boyle, SM
|
|
Exclusive
License
|
|
Odors for Asian Citrus
Psyllid, Trapping, Repelling and Control
|
|
61/547,559
WO/2013/056176
|
|
10/14/2011
|
|
US/PCT
|
|
pending
|
|
N/A
|
|
N/A
|
|
Ray, A
Forster, L
Gomes, I
|
|
Exclusive License
(terminated by letter March 2014)
|
|
Compositions and Methods
for the Attraction and Repulsion of Insects
|
|
61/684,242;
61/805,172;
61/858,931;
WO/2014/028835
Nationalized US, EP, AE,
AP, AU, CA, CN, ID, IL, JP, KR, MX, NG, SA, SG and ZA
|
|
8/17/2012
|
|
US/PCT
|
|
pending
|
|
N/A
|
|
N/A
|
|
Brown, MA
Lomeli, MA
Elkashef, S
Zion, T
Frutos, U
|
|
Original IP
|
|
Compositions and Methods
for Controlling Insect Populations
|
|
62,017,963
|
|
6/27/2014
|
|
US/
provisional
|
|
pending
|
|
N/A
|
|
N/A
|
|
Brown, MA
Lomeli, MA
Elkashef, S
|
|
Original IP
|
|
Compositions and Methods
for Capturing, Killing or Relling Bed Bugs
|
|
61/932,950
|
|
1/29/2014
|
|
US/
provisional
|
|
pending
|
|
N/A
|
|
N/A
|
|
Brown, MA
Lomeli, MA
Elkashef, S
|
|
Original IP
|
|
Compositions and Methods
for Pest Control
|
|
62/058,049
|
|
9/30/2014
|
|
US/
provisional
|
|
pending
|
|
N/A
|
|
N/A
|
|
Elkashef, S
Lomeli, MA
Barkar-McGowan,
HL
Higa, J
Brown, MA
Schmid, MB
|
|
Original IP
|
Government Regulations,
Approvals
OLI’s insect repellent and attractant active ingredients are
intended for uses that the EPA regulates as pesticides. OLI
products may also include devices that will trap or mitigate the
effects of insect pests, which the EPA considers pesticide devices.
Therefore, most or all of OLI’s intended products will
require registration with the EPA. In addition, most U.S. states
register or license pesticides for use in those states. Worldwide,
most nations have regulations to ensure that products sold in their
markets are non-toxic to humans and the environment, including
beneficial insects and other wildlife.
EPA registration requires the sponsor company to produce data
demonstrating that when the product is used according to its label
directions, that there is a reasonable certainty of no harm to
human health and that the appropriate use of the product does not
pose unreasonable risks to the environment. According to the EPA,
the agency generally requires much less data to register a
biopesticide than to register a conventional pesticide.
Nonetheless, the EPA always conducts rigorous reviews to ensure
that pesticides will not have adverse effects on human health or
the environment, and therefore requires the submission of a variety
of data about the composition, toxicity, degradation and other
characteristics of the pesticide.
In the future, we will need to secure legal counsel with expertise
in regulatory affairs, so that we can appropriately comply with the
regulations of the EPA, US state environmental regulatory agencies
and other regulatory agencies around the world. We have not yet
secured such legal counsel. Furthermore, regulations can change,
and may thereby require revisions to some of our current plans for
how we will bring products onto the market.
73
Competition
The development and commercialization of insect repellents and
attractants is highly competitive. There are currently
approximately 680 skin-applied EPA-registered mosquito repellent
products available for sale in the U.S. These products are marketed
by over 100 companies. Some of these companies market just one
insect repellent, while others, such as S.C. Johnson & Sons,
Inc., Avon Products, Inc., ScottsMiracle-Gro Company, United
Industries Corporation (a subsidiary of Spectrum Brands Holdings,
Inc.), 3M and Sawyer Products market portfolios of insect repellent
products.
There are several mosquito traps currently on the market that aim
to control the exposure of people to mosquitoes by luring them away
from people and into traps. Most of these traps use CO2
as an attractant. These consumer market products include: Mosquito
Magnets (American Biophysics), Lentek MK01 (Lentek), Skeeter Vac
(BlueRhino), Flowtron Power Trap (Flowtron), Megacatch
(Envirosafe), Terminator (Paraclipse), Dragonfly (BioSensory),
Mosquito Deleto (Coleman), Sonic Web (Applica, Inc.), Gobblin
(MosquitoEater), Black Hole (Advante), Nosquito (Kaz, Inc.) and
Bite Shield (Koolatron).
Biological control mechanisms and products are under exploration
that involve the purposeful release of genetically modified
mosquitoes for the purpose of interbreeding with natural mosquito
populations to reduce mosquito population densities. Such
approaches are being undertaken by companies such as Oxitech, who
are creating sterile male mosquitoes.
We face competition with respect to our intended products, and we
expect we will face competition with respect to any additional
products we may develop. There can be no assurance that we will be
able to complete the development of competitive products and
commercialize them on a competitive basis. Our competitors may be
able to develop competing or superior technologies and processes,
compete more aggressively and sustain their competitive efforts
over a longer period of time than we may be able to.
Our Subsidiary, Nano
Engineered Applications, Inc.
ieCrowd’s 83.5% owned subsidiary, Nano-Engineered
Applications (“NEA”), is seeking to develop
nano-materials-based sensors for detecting airborne gases to the
parts-per-billion (ppb) level. We are in an early stage of
commercializing a core technology platform of gas sensors, which
are intended to be easily embedded into existing or new electronic
devices, be small in size and use little power, and be put to a
variety of uses, including air quality monitoring, food and
agricultural safety uses, security-related uses, explosives
detection, industrial plant toxic gas detection, gaseous chemical
warfare agent detection and other applications.
Examples of existing devices made by others that could incorporate
future products from NEA include wearables (such as smart watches
and wireless health and fitness monitors), home automation systems,
air purifiers, production line systems and professional gas
detection equipment. To support the commercial use of our core
technology by such product manufacturers and others, we are
currently developing certain electronic devices that would serve as
components in third-party devices and engaging in application
software development. Our future goal is that NEA’s products
be adaptable to a wide variety of applications, including portable
and stationary gas detection products.
We believe NEA has the capacity to develop gas-sensing products
that will represent a substantial improvement over existing
technologies. This is because existing technologies are very
specific as to which chemical substances (or
“analytes”) they can detect and how they detect them.
NEA’s technology would include replaceable nano-sensors,
useable in either NEA or third-party devices, which could detect a
variety of analytes at the same time. In addition, our sensors
would be small, easily portable and consume little power. We
envision that once our products are fully developed and
commercialized, customers would be able to customize their
monitoring systems by ordering and installing sensors specifically
targeted to one or more analytes of their choosing. Analytes that
we expect our sensors to be able to target initially would include
carbon monoxide (CO), nitrogen dioxide (NO2), ozone,
formaldehyde and other volatile organic compounds (VOCs). Further
in the future, we expect we would design sensors to detect a great
number of additional analytes, selected in large part based on
customer demand.
In both consumer and professional applications, we believe the
potential market for the products we hope to develop is extensive,
because end users would be able to more accurately, conveniently,
efficiently and cheaply inform themselves as to the presence of a
large (and expandable) number of specific airborne gases and as to
air quality generally. At the consumer level, we believe users with
specific health issues such as asthma, respiratory diseases
74
or heart disease would be able to better monitor the air
surrounding them. Professional uses could help to detect gas leaks,
monitor the exposure of workers and others to airborne analytes,
monitor environmental pollution, detect chemicals commonly used in
improvised explosive devices and detect food spoilage and
contamination when specific gases are emitted. We plan to focus on
approximately one area of market potential at a time, depending on
such factors as the costs of development and the availability of
funding, the amount of estimated additional technology development
required, the expected ease or difficulty of reaching the
“proof of concept” stage of development, the expected
overall development timeline, manufacturability, the quality of
available market research, the competitive landscape and access to
partners to assist in distribution, marketing and sales. Currently,
we are focusing on developing the central product platform from
which specific products with specific market applications would be
developed.
NEA licenses the underlying technology patents through a license
from the Regents in 2010. See “Business — ieCrowd - The
Parent Company — Intellectual Property — Licensing
Agreements”. More than $2.8M in funding, in the aggregate,
from the National Institutes of Health (NIH), Center for
Nanoscience Innovation for Defense (CNID), Defense MicroElectronics
Activity (DMEA) and other sources was used for research relating to
this technology prior to NEA acquiring the license.
The Market
Almost all of us breathe in harmful airborne gases, such as ozone,
nitrogen dioxide and sulfur dioxide, every day without knowing it.
These gases are difficult to avoid, avert or remove, which makes
them all the more problematic for our health. (See EPA, What Are
the Six Common Air Pollutants, 2012, available at: www.epa.gov/air/urbanair.)
Outdoor air pollution in cities and rural areas is estimated by the
World Health Organization (WHO) to have caused 3.7 million
premature deaths worldwide in 2012. In addition to outdoor air
pollution, indoor smoke is a health risk for an estimated 3 billion
people globally who cook and heat their homes with biomass fuels
and coal. According to WHO, 4.3 million premature deaths were
attributed to indoor air pollution in 2012, with most of the deaths
occurring in low- to middle-income countries. (Ambient (outdoor)
air quality and health – Fact sheet N°313, WHO, 2014,
available at: http://www.who.int/mediacentre/factsheets/fs313/en/.)
By reducing exposure to air pollution levels, we can reduce the
burden of disease from stroke, heart disease, lung cancer and
chronic and acute respiratory diseases, including asthma.
NEA’s technology may potentially be used in a wide variety of
applications to test environmental and indoor/outdoor air
quality.
NEA’s technology may potentially be used in a wide variety of
additional industry sectors, including agriculture, the food and
beverage sector, water quality, the military, public safety,
manufacturing and the medical sector. The detection of VOCs may be
an area of particular opportunity. VOCs are organic chemical
compounds whose composition makes it possible for them to evaporate
under normal atmospheric conditions of temperature and pressure.
They are emitted by a variety of solids and liquids, including
common household and workplace items such as paints and lacquers,
paint strippers, aerosol sprays, stored fuels, cleaning supplies,
pesticides, building materials, furnishings, permanent markers,
copiers, printers and craft materials including glues and
adhesives. Some VOCs may have short- and long-term adverse health
effects. Examples of VOCs include methylene chloride, benzene,
perchloroethylene and formaldehyde. (See EPA, Volatile Organic
Compounds (VOCs), 2012, available at: www.epa.gov/iaq/voc.html.)
The planned NEA products we envision would fit into a number of
market sectors, including gas sensors, wearable electronics
(including electronic fitness devices) and indoor air quality
monitors. The global gas sensors market was estimated by Grand View
Research to be at $1.7 billion in 2012, and is expected to grow at
a compound annual growth rate (CAGR) of 5.1% from 2014 to 2020.
(Gas Sensors Market Analysis and Segment Forecasts to 2020, March
2014, available at:
http://www.grandviewresearch.com/industry-analysis/gas-sensors-market.)
As part of its product offerings, NEA expects to include
smartphone-enabled wearable products. According to Transparency
Market Research, the global wearable technology market stood at
$750 million in 2012 and is expected to reach $5.8 billion in 2018,
at a CAGR of 40.8% from 2012 to 2018. (Global Wearable Technology
Market Research Report 2018, PRWeb, January 14, 2013, available at:
http://www.prweb.com/releases/2014/01/prweb11478994.htm.)
According to BCC Research, the U.S. market for indoor air quality
(IAQ) equipment was valued at over $7.7 billion in 2013 and is
projected to grow to $8.1 billion in 2014 and $11.4 billion by
2019, representing a five-year CAGR of 7%. (Report: U.S. Indoor Air
Quality Market, September 2014, available at: http://www.bccresearch.com/market-research/environment/indoor-air-quality-market-report-env003e.html.)
75
China Market
China represents an especially large potential market for products
we are able to commercialize from our nano-sensor technology. Air
pollution is a severe problem in China and has led to concern about
the attendant health risks. Only three of the 74 Chinese cities
monitored by the central government managed to meet official
minimum standards for air quality in 2013, the Ministry of
Environmental Protection announced March 2014. (New York Times,
Most Chinese Cities Fail Minimum Air Quality Standards, Study Says,
March 27, 2014, available at: http://www.nytimes.com/2014/03/28/world/asia/most-chinese-cities-fail-pollution-standard-china-says.html?_r=0.)
Chinese concern about air pollution has grown sharply in recent
years, according to a 2014 Pew Research Center survey. In that
survey, 47% of Chinese citizens said air pollution was a
“very big” problem facing the country, up from 31% in
2008. (As China coughs and chokes, public concern about air
pollution rises, by Drew Desilver, October 22, 2013, available at:
http://www.pewresearch.org/fact-tank/2013/10/22/as-china-coughs-and-chokes-public-concern-about-air-pollution-rises/.)
To combat air pollution,
Chinese citizens are increasing their use of purifiers and masks.
Total Chinese sales of air purifiers reached $563 million in 2013,
according to Daxue Consulting, and Matthieu David-Experton, CEO of
Daxue Consulting, has been reported as saying there was an 80-100%
growth in sales of air purifiers in China from 2012 to 2013.
(theguardian.com, China’s pollution levels spark boom in sale
of air purifiers and face masks, by Jennifer Duggan, March 7, 2014,
available at: http://www.theguardian.com/environment/2014/mar/07/china‑pollution-smog-air-purifiers-masks.)
Chinese state media reported that in February 2014, 217,000 people
bought masks in seven days on the online retail platform Tmall.com
(a division of Alibaba). One manufacturer, 3M, which sells its
products on Tmall, sold out of 26 of its 29 products.
(China’s smog suspended, not terminated, February 28, 2014,
available at: http://english.peopledaily.com.cn/90882/8549468.html.)
NEA’s
Technology
NEA’s core technology platform, which we call
“Nuuma”, is a gas sensor in the form of a chip, based
on nano materials and capable of detecting airborne gases to the
parts-per-billion (ppb) level. (“Nano materials” are
materials sized in at least one dimension between 1 and 100
nanometers, with a nanometer being 10−9
of a meter.) The sensor is small and high-density, and built to
allow the real-time detection of multiple airborne chemical
molecules simultaneously at a low power consumption rate. Using
singled-walled carbon nanotubes (SWNT) and solid state electrical
sensing, Nuuma is being designed to increase performance while
reducing the cost and footprint of the sensing mechanism.
Figure: Sample multiple-analyte sensor
The figure above shows a simulation of a sensor with 14 channels.
Each channel would have the ability to detect a specific analyte
when exposed to it. Our plan is to design the Nuuma sensor to be
miniaturized (as small as 5mm by 5mm) and run using extremely small
amounts of power to greatly expand the type, location, reliability,
flexibility and accuracy of its operation in diverse settings and
for diverse applications. For example, Nuuma chips could be
incorporated into small wearable devices (such as activity trackers
or smartwatches), allowing consumers to monitor the air quality
around them in real time.
76
In addition to Nuuma, we are developing application software that
would support multiple NEA product lines. We intend to make such
software available for various applications, including smartphones,
tablets, personal computers and self-contained stationary devices.
In addition, we are developing a cloud-based data repository and
reporting software, which would enable real-time gas detection
activities to be shared and viewed by a network of voluntary end
users.
NEA’s Intended
Products
NEA has so far identified four potential product categories:
•
NEA Branded Products would carry the NEA brand name
“Nuuma” followed by the product name for a specific
application. These products would be sold and marketed directly by
NEA through sales and marketing strategies yet to be devised.
•
NEA White Labeled Products would be available to strategic
partners who would rebrand NEA products as their own products.
•
NEA Technology Licenses would allow device and product
development companies to incorporate NEA’s technology into
their product lines.
•
NEA Data Licenses would allow companies, organizations and
governments to use the gas detection data repository that is
expected to be collected and tracked by certain anticipated NEA
products; we would expect to market NEA Data Licenses only to the
extent that any data privacy issues that might arise in connection
with the product were resolved in a commercially acceptable
manner.
Before any products can be made available to the market, detailed
market research must be carried out, competitive landscape has to
be addressed, laboratory facility and equipment improvements or
acquisitions have to be made, product development (including
sensor, algorithm, form factor, software and prototype development)
must be completed, beta-testing must be conducted, any necessary
regulatory and industry safety and industry standard certifications
must be acquired, manufacturing and quality assurance facilities
and protocols must be established and marketing and distribution
partner relationships must be established. Beta testing (conducted
internally and by third-parties) would involve testing our products
in our laboratories as well as field-testing under real-world
conditions. None of the products that we are currently developing
have reached the completion of their development or the
beta-testing stage or are available in any market.
The product candidates that NEA is currently developing are further
described below:
NEA Branded Products
Nuuma Personal and Nuuma Air would be smartphone-enabled devices,
allowing users to be alerted when specific indoor/outdoor gases
known to be harmful to health are detected. We believe the value of
these products to consumers would arise principally from the fact
that the products would give them sufficiently local, accurate and
real-time information about air quality to allow them to take
specific actions.
Nuuma Personal. Nuuma Personal would be a wearable
activity tracker with a real-time nano sensor designed to detect
carbon monoxide and certain VOCs. We believe its customers would
include fitness- and health-conscious consumers, niche technology
consumers and people with certain health conditions such as heart
disease. Users would be able to monitor and track fitness-related
metrics in addition to knowing about toxic airborne gas levels
around them. The dimensions of the Nuuma Personal device are
expected to be approximately 25 mm wide x 55mm long x 12mm high. It
would be sold connected to a wristband, bracelet or pendant. We
expect that Nuuma Personal will be accompanied by Nuuma Personal
software, which would allow users to control the device as well as
share information to the Nuuma Personal Cloud, which would act as a
repository for the data that multiple Nuuma users might choose to
share. Final determination of the exact product look and feel,
activity tracking features and analyte detection capabilities would
depend on the product deployment strategy, the competitive
landscape and prototype field test results.
Nuuma
Air. Nuuma Air would be a wearable or stationary device
capable of detecting multiple airborne pollutants. We believe its
customers would include outdoor and environmental enthusiasts as
well as niche technology
77
consumers. Our first version is expected to provide for the
detection of carbon monoxide, nitrogen dioxide, ozone and
formaldehyde. The dimensions of the Nuuma Air device are expected
to be approximately 60mm wide x 60mm long x 20mm high. It would be
sold with a holder and different clasps to clip to belts, handbags,
backpacks, strollers or bicycles. We expect that Nuuma Air will be
accompanied by Nuuma Air software, which would allow users to
control the device as well as share information to the Nuuma
Personal Cloud, which would act as a repository for the data that
multiple Nuuma users might choose to share Final determination of
the exact product look and feel and analyte detection capabilities
would depend on the product deployment strategy, the competitive
landscape and prototype field test results.
Other Branded
Products. NEA is currently evaluating other potential
branded products, including Nuuma Home and Nuuma Office, to detect
analytes specific to the personal, home and office environments. We
envision Nuuma Home and Nuuma Office having multiple stationary
sensor devices that communicate with a base unit for networked
toxic air detection.
NEA Technology Licenses
NEA’s gas sensors could be licensed for future use in a broad
spectrum of applications, including:
•
Air Quality
Monitoring. Gas sensors could help detect air
pollution, effluents, toxic spills and hazardous gases that can
cause disease, death to humans, damage to other living organisms
(including food crops) and damage to the natural environment.
•
Agriculture. Air
quality issues have become an increasing concern for the
agriculture industry. Excessive ammonia emissions, a byproduct of
livestock and poultry operations, can be harmful to livestock,
humans and the environment as a whole. Personally worn, gas sensors
could help alert agriculture workers and their superiors when
workers are reaching their permissible exposure limit to ammonia in
a given work day (per OSHA standards). Stationary sensors could
monitor ammonia levels within animal facilities in order to alert
workers to risks to the welfare of the animals.
•
Food Packaging &
Food Safety. The food packaging industry uses gases
such as carbon dioxide in the process of manufacturing and sealing
food items for distribution to consumers. Gas sensors could be used
to measure and monitor permissible gas levels.
•
Homeland
Security. Gas sensors could help detect chemical
weapons and illegal drugs in various settings, including at ports
of entry and in border patrol, governmental and large event
locations.
•
Industrial. Industrial
plants use and produce hazardous and toxic gases that could put
their employees and local residents at risk. Gas sensors could help
detect the buildup of such gases in order to decrease risks.
•
Military. The
military has an array of uses for gas sensors, in addition to the
obvious use of detecting chemical warfare agents. For example, in
the U.S. Navy, sulfide gas detecting systems are used on all
surface vessels in spaces containing sanitary waste equipment.
Furthermore, in the U.S. Air Force, gas sensors are used in order
to detect jet fuel leaks.
•
Water Treatment
Plants. Water and wastewater treatment often release
harmful amounts of chemicals into the air. Gas sensors could help
protect employees and the community from toxic and combustible gas
hazards such as ammonia, carbon monoxide, chlorine, hydrogen
sulfide, nitric oxide, nitrogen dioxide, sulfur dioxide and
others.
NEA Data Licenses
To support its technology, NEA
is currently developing a cloud-based enterprise application
software that will allow end users to track and share content and
data relating to gases being detected. If and when NEA devices are
used by a substantial number of users, data could be made available
through this software to research facilities, news agencies,
mapping companies, industries affected by air pollution
regulations, environmental organizations and federal, state and
local governments. We would expect to market NEA Data Licenses only
to the extent that any data privacy issues that might arise in
connection with the product were resolved in a commercially
acceptable manner.
78
Product
Development
Current product development activities for Nuuma Personal and Nuuma
Air include team development, lab development, electronics
development, materials selection, gas sensing and optimization,
pattern recognition algorithm development, mobile application
software development, automated and predictive alerts software
development, cloud data repository development and regulatory
filings. Currently, we have detection capabilities for
approximately twenty analytes, and we expect this number will
continue to rise. We are currently researching the ability to carry
out mass production of sensor chips while ensuring repeatability
and consistencies across the manufacturing process. We expect that
these activities will be followed by product prototype development,
field tests and systems optimization, prior to manufacturing and
product launch. Future product development activities may include
the development of replaceable chips to detect additional gases for
Nuuma Air and other products that NEA may develop. In addition, we
will continue to invest in ongoing core technology development
activities related to the detection of additional analytes.
Sales and Marketing
Strategy
NEA plans to use some or all of the following methods to generate
revenues from its intended products:
Retail/Direct
to Consumer: NEA may, in limited cases, launch
products through traditional retail and direct to consumer
campaigns. NEA has not begun direct sales or entered into any sales
agreements for any of its intended products.
Master
Distributors/OEM: NEA may distribute products via
master distributor/OEM partners for penetration into specific
markets worldwide. Generally, in the case of master distributor/OEM
partnerships, NEA would be responsible for all product development
and manufacturing and, once products were sold to a distribution
partner, the distribution partner would be responsible for all
costs, distribution obligations and sales. On March 19, 2014, NEA
entered into an agreement with YuYu Pharma whereby the parties
agreed to negotiate an exclusive distribution agreement for South
Korea, Malaysia, and Indonesia and NEA agreed not to enter into any
agreement regarding the distribution of NEA products in any of
those countries with any other parties, during the negotiation
period. That period ends on December 31, 2015. NEA has not entered
into any other master distributor/OEM agreements or any agreements
that might lead to a master distributor/OEM agreement, other than
the agreement with YuYu Pharma.
Licensing
Partners: NEA may target a range of licensing
opportunities for its product platform and products, from exclusive
licenses with large, global partners to specific field of use
licenses or licenses with regional market partners. NEA has not
entered into any such license agreements.
Government Regulations,
Approvals and Other Industry Certifications
NEA will comply with all
necessary governmental regulations and industry standards to help
ensure the quality and safety of its products. NEA believes that
the following requirements could apply to its products as currently
envisioned:
1.
FCC Declaration of
Conformity
The FCC Declaration of Conformity, or the FCC label, or the FCC
mark, is a certification mark employed on electronic products
manufactured or sold in the United States, which certifies that the
electromagnetic interference from the device complies with limits
approved by the Federal Communications Commission.
2.
CSA Mark
CSA International (Canadian Standards Association), a member of the
CSA Group, is a provider of product testing and certification
services for electrical, mechanical, plumbing, gas and other
products. Recognized in the U.S., Canada and around the world, CSA
International certification marks indicate that a product, process
or service has been tested to a Canadian or U.S. standard and meets
the requirements of an applicable CSA standard or other recognized
basis for certification. CSA International is accredited by
national agencies and organizations, including:
•
U.S. Occupational Safety & Health Administration (OSHA)
•
American National Standards Institute (ANSI)
•
National Voluntary Laboratory Accreditation Program (NVLAP)
79
•
National Evaluation Service (NES)
•
Standards Council of Canada (SCC)
3.
CE Mark
The CE mark, formerly the EC mark, is a mandatory conformity
marking for certain products sold within the European Economic Area
(EEA). The CE marking is also found on products sold outside the
EEA that are manufactured in, or designed to be sold in, the EEA.
The CE marking is the manufacturer’s declaration that the
product meets the requirements of applicable EC directives.
4.
UL Mark
Underwriters Laboratories (UL) is a safety consulting and
certification company headquartered in Northbrook, Illinois. It
maintains offices in 46 countries. UL is one of several companies
approved to perform safety testing by the U.S. Occupational Safety
and Health Administration (OSHA).
Intellectual
Property
Seven families of patents
cover the product platform and products currently being developed
by NEA. NEA has licensed the patents below through a license from
the Regents in 2010. In addition, NEA has applied for patent
protection on discoveries made solely by NEA scientists and
engineers and will continue to add to its own portfolio of patents
pending and patents. See “Business — ieCrowd - The
Parent Company — Intellectual Property — Licensing
Agreements”.
|
Name
|
|
Patent Application
#
|
|
Filing
Date
|
|
Country
|
|
Status
|
|
Patent
#
|
|
Issue
Date
|
|
Inventor(s)
|
|
Exclusive License or
Original IP
|
|
Conducting Polymer
Nanowire Sensors
|
|
11/259,557
|
|
10/25/2005
|
|
US
|
|
Granted
|
|
8,034,222 B2
|
|
10/11/2011 (expires
9/3/2029)
|
|
Myung, Mulchandani and
Chen
|
|
Exclusive
License
|
|
Nanomaterial-Based Gas
Sensor
|
|
13/672,632
|
|
5/7/2009
|
|
US
|
|
Granted
|
|
8,683,672
|
|
04/01/2014 (expires
11/10/2027)
|
|
Bosze, Deshusses, and
Myung
|
|
Exclusive
License
|
|
Metal and Metal Oxide
Co-functionalized Single-Walled Carbon Nanotubes for High
Performance Gas Sensors
|
|
13/111,452
PCT/US2011/000896
|
|
5/19/2010
5/19/2010
|
|
US/PCT
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Myung, Mubeen,
Mulchandani, and Deshusses
|
|
Exclusive
License
|
|
Synthesis of Nanopeapods
by Galvanic Displacement of Segmented Nanowires
|
|
13/113,623
PCT/US2011/000918
|
|
5/21/2010
5/23/2011
|
|
US/PCT
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Myung and
Hangarter
|
|
Exclusive
License
|
|
Ultra-Sensitive Gas
Sensors Based on Tellurium-Single Walled Carbon Nanotube Hybrid
Nanostructures
|
|
61/712,023
14/050,932
|
|
10/12/2012
10/10/2013
|
|
US
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Myung and
Zhang
|
|
Exclusive
License
|
|
Selective Nanoscale
Asymmetric Gas Sensors
|
|
61/727,181
14/082,349
|
|
11/15/2012
11/18/2014
|
|
US
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Myung and
Brooks
|
|
Exclusive
License
|
|
Chemical
Sensor
|
|
62/131,586
|
|
3/11/2015
|
|
US
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Doshi, Su, Chen, and
Hutchins
|
|
Original IP
|
|
Chemical Sensor
Device
|
|
29524749
|
|
4/23/2015
|
|
US
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Frandsen and
Smiles
|
|
Original IP
|
|
Case for a Chemical
Sensor Device
|
|
29524750
|
|
4/23/2015
|
|
US
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Frandsen and
Smiles
|
|
Original IP
|
80
Trademark protection is being sought for “Nuuma” and
the trademark application is currently held by NEA’s parent
company, ieCrowd.
Competition
The development and commercialization of gas sensors is highly
competitive. We face competition with respect to our intended
products, and we expect we will face competition with respect to
any additional products we may develop, from a variety of entities
and enterprises. Some of the products and technologies with which
we expect to compete are based on scientific and technological
approaches similar to ours. We anticipate facing competition
principally from large and small manufacturers of commercial and
personal chemical detection systems, including Smiths Detection,
Riken Keiki Co. Ltd., Thermo Scientific, RAE Systems, SKC Inc.,
Honeywell Analytics, Analytical Technology, Inc., Sensigent,
Owlstone Inc., Kanomax, USA, Inc., Design West Technologies, Inc.,
NASA’s Ames Research Center and Topac, Inc. We also
anticipate facing competition from wearable product companies such
as Fitbit, Nike, Jawbone and Microsoft. General competitive
pressures in the sensor market may increase if there is an increase
in demand for sensors from manufacturers of smartphones and similar
technologically advanced and widely adopted products — in
particular if the manufacturers are large, well-established
companies, such as Samsung. Potential competitors may also include
academic institutions, government agencies and other public and
private research organizations and private companies that conduct
research into, seek patent protection for and establish
collaborative arrangements for the research, development,
manufacturing and commercialization of gas sensing technologies and
devices.
There can be no assurance that we will be able to complete the
development of competitive products and be able to commercialize
them on a competitive basis. Our competitors may be able to develop
competing or superior technologies and processes, compete more
aggressively and sustain their competitive efforts over a longer
period of time than we may be able to.
Our Subsidiary, Smart
Oxygen Solutions, Inc.
ieCrowd’s 95.0% owned
subsidiary, Smart Oxygen Solutions, Inc. (“SOS”)
(formerly known as Breathing Technologies, Inc.), is seeking to
develop a supplemental oxygen delivery device that would
incorporate a computer controlled, patient-adaptive dosing system
for use by people who require supplemental oxygen therapy. The
underlying technology was originally developed at the University of
California, San Diego. SOS licensed the underlying technology from
the Regents of the University of California in October 2013. See
“Business — ieCrowd - The Parent Company —
Intellectual Property — Licensing
Agreements”.
The Market
The device being developed by SOS is envisioned to be used by
people who have been prescribed supplemental oxygen by their
doctor. Doctors prescribe supplemental oxygen for many reasons,
such as Chronic Obstructive Pulmonary Disease (“COPD”).
According to estimates of the World Health Organization (WHO), in
2012 COPD was among the top four causes of death in the world.
(Fact sheet N°310, WHO, 2014, available at: http://www.who.int/mediacentre/factsheets/fs310/en/.)
As of 2010, in the United States, COPD afflicted over 14.8 million
physician-diagnosed patients and an estimated additional 12 million
un-diagnosed individuals. (National Institutes of Health,
“Morbidity and Mortality: 2012 Chart Book on Cardiovascular,
Lung, and Blood Diseases”, page 5, Feb. 2012, available at:
http://www.nhlbi.nih.gov/files/docs/research/2012_ChartBook.pdf.)
In 2010, the American Lung Association in California published a
“Strategic Plan to Address COPD in California”, in
which it estimated that nearly 1.6 million Californians (4.4% of
the State’s population) suffered from COPD. (Strategic Plan
to Address COPD in California, page 7, available at: http://www.lung.org/associations/states/california/assets/pdfs/programs/strategic-plan-to-address.pdf.)
In China, which is reportedly the home of approximately one third
of all the smokers in the world, smoking-related lung diseases,
including COPD, are a “major epidemic”. In 2000, in
China, the total cost of COPD and other smoking-related diseases
was estimated to be more than U.S. $5 billion, and COPD was the
second leading cause of death. (ATS Journals, “Breaking Down
the ‘Great Wall’ of COPD Care in China”, 2007,
available at: http://www.atsjournals.org/doi/full/10.1164/rccm.200706-927ED.)
81
Supplemental oxygen therapy is a major treatment option for COPD.
(“Treatment of Respiratory Failure in COPD”,
International Journal of Chronic Obstructive Pulmonary Disease,
2008, available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2650592/.)
Supplemental oxygen therapy can help increase survival rates and
also help improve exercise tolerance and mobility. In addition, it
can help patients increase their activity levels, and in that way
improve their health and well-being in a variety of ways.
In addition to COPD, other conditions for which doctors might
prescribe supplemental oxygen therapy include:
•
Pulmonary fibrosis
•
Severe kyphoscoliosis
•
Neuromuscular disorders
•
Cystic fibrosis
•
Chronic asthma
•
Chronic heart failure
All of these conditions use supplemental oxygen as a therapy.
The size of the supplemental oxygen therapy market was estimated to
approximately $1 billion in 2013, with a projected revenue CAGR of
2.2% from 2013 to 2018. (HIS Technology Abstract, “Oxygen
Therapy — World — 2014”, 2014 available at:
https://technology.ihs.com/api/binary/510021?attachment=true.)
We are not aware of any currently available supplemental oxygen
delivery devices that monitor a person’s depth of breath and
blood oxygen levels and automatically adjust the amount of oxygen
delivered based on the patient’s needs. The SOS device is
intended to address these shortfalls. It is being developed to
deliver not only the benefit of an oxygen conserving device, but
also the benefit of delivering a dose of oxygen commensurate with
demand. It could also incorporate technology that could enable a
level of remote monitoring of a patient’s use and lung
function by health care professionals.
SOS’s Intended
Products
The full function products
that SOS plans to develop include stationary and mobile versions of
a supplemental oxygen delivery control device that uses, for each
breath, blood oxygen readings and inhaled breath depth measurements
to deliver an appropriate oxygen flow to satisfy the user’s
need. As a user requires a greater volume of oxygen, the SOS device
would be designed to automatically respond, breath by breath, to
deliver the appropriate oxygen dose. Blood oxygen readings would be
taken by an integrated pulse oximeter (a non-invasive monitoring
device) attached to the user’s finger or ear. Inhaled breath
depth measurements would be taken from the air hose that delivers
the oxygen to the user. Unlike continuous-flow supplemental oxygen
delivery devices, the planned SOS device would not deliver oxygen
flow while the user is exhaling, and thus may serve an oxygen
conserving function as well.
SOS envisions that its device would be attached to an oxygen
cylinder, between the oxygen source and the user. We anticipate
that the initial version of the device will use depth of breath as
the algorithm component to determine the size of the oxygen dose to
be released to the user and that a subsequent version of the device
will monitor the blood oxygen level of the user as well as the
depth of breath and deliver its oxygen dose based on an algorithm
using both measurements.
Certain iterations of the SOS device are intended to include
communications capabilities, whereby the device would be able to
deliver information to properly secured health monitoring sites,
allowing remote patient care monitoring and responses.
Product
Development
The SOS device is planned to
be a powered unit (battery or plug-in) that is configured to add to
and work with existing oxygen delivery equipment. It would be
operable by home and mobile users and clinical and hospital staff
and patients.
When ieCrowd secured its license over the SOS technology, the
inventors had already designed and built a prototype device based
in part on the personal knowledge of one of the inventors, who is a
lung function disease sufferer and an engineer. There are currently
two versions of the prototype, the original version and the
advanced version. The
82
original version does not use pulse oximetry as an input into its
dosing calculations, but instead relies entirely on inhalation
depth to determine the amount of oxygen to deliver. The advanced
version uses both pulse oximetry and inhalation depth, and has been
used in a formal human proof-of-concept study, which has been
funded by the University of California’s Office of the
President and conducted at the Pulmonary Clinic of the University
of California, San Diego Medical Center. The study has completed
its patient contact phase and is now in the data evaluation phase,
during which the information collected during the study is being
statistically analyzed to determine if any inferences can be drawn
about the value of the device. SOS did not participate directly in
the study, but via interaction with the Primary Investigator and
the study team we understand that the patients in the study
experienced no adverse effects from using the device and reported
general subjective satisfaction with it. The completion of the data
evaluation phase will allow for more formal declarations to be made
on the outcomes of the trial. There is currently no set schedule
for the publication of the formal trial results.
SOS has done its review of the results of the trials and in
SOS’s opinion the data suggests that the efficacy of the
device warrants continued effort toward a commercial product.
SOS now plans to move forward with the following product
development plan:
•
Device
Engineering. SOS will do an engineering review
of the advanced version of the prototype to ascertain opportunities
for improvements. These improvements could include size changes,
electronic signal noise changes, power consumption changes, and
parts choice changes for efficiency, stability and cost savings and
other changes affecting the device’s ability to perform in a
targeted deployment. SOS believes that it may choose to develop a
number of different device types based on varying sizes, weights
and shapes.
•
Software. The control software within the unit will
potentially go through an optimization process to create a more
refined algorithm for calculating dose response.
•
Form Factor. The device will likely be put through an
industrial engineering review so as to properly encase the
operating electronics to comply with regulations, safety concerns
and usability metrics.
•
FDA and Other Approvals. SOS intends to assess the
particular regulatory requirements for taking the product to
market. To the extent additional trials may be needed, SOS will
work with established trial clinics to design the appropriate
protocols to develop the needed data to satisfy regulatory and
permitting requirements. See “—Government Regulation,
Approvals”.
Because SOS is in the phase of development in which it needs FDA
feedback to develop a full business plan, the size, scope and
makeup of the team and operating plan needed to execute the product
development plan described above is still to be determined.
Sales and Marketing
Strategy
SOS’s device is intended to allow people who require
supplemental oxygen to live a more active lifestyle and potentially
to provide additional opportunities to users to achieve some level
of rehabilitation. Because SOS is in the “Discovery”
phase of the ieCrowd business model, it has not yet established a
go-to-market strategy. Potential options for revenue generation
include field of use or geographic territory licenses, master
distributor agreements and retail or direct-to-consumer campaigns.
SOS currently expects that its initial revenues would be generated
by a third-party license.
The intended users of the SOS
device are expected to be home, clinical and hospital users. Given
the characteristics of the current prototype device, SOS believes
that the device would provide price-performance value in all of
these settings.
Government Regulation,
Approvals
SOS believes that an FDA medical device approval will be required
if the device is to be used in the United States. SOS believes that
a submission to the FDA would take the form of a Premarket
Notification (“PMN”) under Section 510(k) of the Food,
Drug and Cosmetic Act. Under Section 510(k), certain device
manufacturers must notify the FDA of their intent to market a
medical device by filing a PMN at least 90 days in advance of
marketing, to allow the FDA to determine whether the device is
equivalent to a device already classified by the FDA. SOS believes
that its device has many of the characteristics of an oxygen
conserving device, and that existing oxygen conserving devices that
have FDA approvals would be used as predicates in a SOS device PMN
submission.
83
The regulatory portion of the
SOS project does include all facets of governmental and industry
approvals. SOS additionally envisions the eventual need for either
a CE or UL mark and, if a device is developed that delivers
information to health monitors, for adhering to any FCC
requirements for devices containing communications
capabilities.
Intellectual
Property
Patent applications covering the core technology that SOS licenses
from the Regents have been filed as follows:
|
Name
|
|
Patent Application
#
|
|
Filling
Date
|
|
Country
|
|
Status
|
|
Patent
#
|
|
Issue
Date
|
|
Inventor(s)
|
|
Exclusive License or
Original IP
|
|
Automated Fluid Delivery
System and Method
|
|
13/814,934
|
|
2/7/2013
|
|
US/PCT
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Lischer and
Roberts
|
|
Exclusive
License
|
|
Automated Fluid Delivery
System and Method
|
|
11816942.2
|
|
2/7/2013
|
|
Europe
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Lischer and
Roberts
|
|
Exclusive
License
|
|
Automated Fluid Delivery
System and Method
|
|
201180045992.4
|
|
2/7/2013
|
|
China
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Lischer and
Roberts
|
|
Exclusive
License
|
|
System and Method for
automated control of oxygen
|
|
62139285
|
|
3/27/15
|
|
US
|
|
Pending
|
|
N/A
|
|
N/A
|
|
Abbott
|
|
Original IP
|
Competition
Supplemental oxygen delivery devices can be broken into two market
segments: continuous flow and intermittent flow. Continuous flow is
the traditional form of supplemental oxygen delivery, with a
constant and unchanging flow rate provided by the delivery device.
This is currently the standard method for administering
supplemental oxygen to patients and is typically delivered using an
oxygen source, a tank regulator and a nasal cannula. In
application, continuous flow delivery can be inefficient and
wasteful because gas is delivered both while the patient is
breathing in (inhalation) and breathing out (exhalation).
Intermittent flow is a more recently developed mode of delivery,
created to conserve oxygen (but not to improve patient outcomes) by
delivering a volume of oxygen in response to the start of an
inhalation by the user. There are several different types of
“oxygen conserving devices” (OCDs) on the market today.
OCDs have varying performance characteristics, including those
based on the oxygen volume delivered, trigger sensitivity and
trigger response time. A user’s exertion can result in
shortfalls in the delivery of oxygen by these devices. (American
Journal of Respiratory Critical Care Medicine, “Critical
Comparisons of the Clinical Performance of Oxygen-conserving
Devices”, 2010, available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2874449/.)
The development and commercialization of supplemental oxygen
delivery devices is highly competitive. We face competition with
respect to our current intended product, and we will face
competition with respect to any products that we may develop or
commercialize in the future, from a variety of entities and
enterprises. We anticipate facing competition principally from
large and small manufacturers of supplemental oxygen delivery and
general medical devices, including DeVilbiss, Invacare, Southmedic,
Inc., Philips Respironics, and CHAD Therapeutics. Potential
competitors may also include academic institutions, government
agencies and other public and private research organizations that
conduct research, seek patent protection and establish
collaborative arrangements for research, development, manufacturing
and commercialization of any sort of device or therapy that would
compete in and or change the nature of the supplemental oxygen
delivery device market.
There can be no assurance that we will be able to complete the
development of competitive products and be able to commercialize
them on a competitive basis. Factors affecting competition in the
supplemental oxygen delivery device industry include the financial,
research and development, testing, and marketing strengths of
individual competitors, trends in industry consolidation,
consumers’ product options, product quality, price and
technology, reputation, customer service capabilities and access to
market partners and customers. Our competitors may be able to
develop competing or superior technologies and processes, compete
more aggressively and sustain their competitive efforts over a
longer period of time than we may be able to.
84
MANAGEMENT
The following table sets forth the name, age and position of each
of our directors, director nominees and executive officers:
|
|
|
|
|
|
|
Amro Albanna
|
|
44
|
|
Chief Executive Officer, Director and
Chair
|
|
Dale Hutchins
|
|
51
|
|
President
|
|
Vernon Hall
|
|
76
|
|
Independent Director Nominee*
|
|
George Reyes
|
|
61
|
|
Independent Director Nominee*
|
|
Albert Cervantes
|
|
62
|
|
Chief Financial Officer
|
|
Stephen Abbott
|
|
60
|
|
Chief Discovery Officer
|
|
Rowena Albanna
|
|
49
|
|
Chief Operating Officer
|
|
Larry Eason
|
|
52
|
|
Chief Marketing Officer
|
Constitution of Our New
Board of Directors
Mr. Albanna currently serves as the sole member of our board of
directors. Immediately after the closing of this offering, we intend to
expand the size of our board of directors to three members,
including the two independent director nominees listed in the table
above. In addition, our board of directors intends to establish
three standing committees — audit, compensation and
nominating and corporate governance — in accordance with
NASDAQ rules and as described below.
Backgrounds of Our
Directors, Director Nominees and Executive Officers
The following is a brief summary of the background of each of our
directors and executive officers. In addition, in regard to our
directors, the following includes specific information about each
director’s experience, qualifications, attributes or skills
that led the board to conclude that the individual was qualified to
serve on our board, in light of our business and structure. There
are no family relationships among any of the directors and
executive officers, except that our Chief Executive Officer, Amro
Albanna, and our Chief Operating Officer, Rowena Albanna, are
husband and wife.
Directors and Director Nominees
Amro Albanna has
served as our Chief Executive Officer and director since our
formation in 2010. He also serves as a director of our subsidiaries
OLI, NEA, and SOS. Mr. Albanna has a Bachelor of Science degree in
Business Administration and Computer Information Systems from
California State University, San Bernardino. In 1997, he founded
Timely Technology Corporation (TTC), which designed and developed
internet-based software systems for organizations and industries
seeking to transact online. In 2002, TTC was acquired by Digital
Angel Corporation. In 2003, Mr. Albanna founded Qmotions, Inc.
(subsequently renamed Deal A Day Group Corp.). He served as its
Chief Executive Officer and Chairman until 2011. Qmotions designed
and developed a new generation of video game controllers that
incorporated body motion. In 2008, Mr. Albanna co-founded the
Innovation Economy Initiative, a public-private initiative to
encourage the development of innovation-focused businesses in the
Riverside, CA area. The initiative led to the creation of
Innovation Economy Corporation (ieCrowd). In addition to the
foregoing, Mr. Albanna is a co-founder of the Riverside Technology
CEO Forum and serves on the board of SmartRiverside, a non-profit
organization promoting the local entrepreneurial ecosystem. He has
also been involved in establishing the University of California,
Riverside Research Park, and has served as a “Practicing
Entrepreneur” in the Integrated Technology Transfer Network
at California State University, San Bernardino. Awards and honors
he has received include the “ComputerWorld Honors Laureate,
Economic Development” (ComputerWorld, 2012); “Emerging
Entrepreneur of the Year” (Center for Entrepreneurship,
California State University, San Bernardino, 2005);
“Entrepreneurial Excellence Award” (Bourns College of
Engineering, University of California, Riverside, 2004); and
“Distinguished Alumni of the Year” (California State
University, San Bernardino, 2003).
Vernon Hall is a
founding member of the Leonard Financial Group, LLC and has more
than 50 years of experience in accounting and financial services.
Mr. Hall is a member of the California Society of CPAs (Citrus Belt
Chapter), a
85
member of that society’s State PFP (Personal Financial
Planner) Committee, and is a past PFP Committee chairman in the
Citrus Belt Chapter. He is also a member of the AICPA’s PFP
Division, and a member of the Institute of Certified Financial
Planners. He was a founding board member of the Riverside Chapter
of the International Association for Financial Planning, and a
previous adjunct faculty member for the College of Financial
Planning in Denver, CO. Mr. Hall has served as Chairman of the
Board of Parkview Community Hospital, has served on the board of
the local affiliate of the National Lung Association, was on the
Joint Powers Commission to build Riverside City Hall and the
Raincross Square Convention Center, and has served on gift planning
bodies at the University of California, Riverside and the Community
Foundation of Riverside. Mr. Hall received his Certified Public
Accountant (CPA) license in 1967, earned his Certified Financial
PlannerTM
certification (CFP®) in 1985 and received his Personal
Financial Specialist (PFS) designation in 1995. He earned a
Bachelor’s degree in Business Administration from Woodbury
College (now Woodbury University) in 1963.
In the early 1990s, Mr. Hall and another CPA business partner of
his wrote a paper on “Income Equalization”, describing
an accounting technique for mutual funds that could limit taxable
distributions and lead to higher year-end returns. The paper was
used by the accounting firm of which Mr. Hall was a partner as the
basis for establishing the Tax Planning Federal Cash Fund in 1991.
World Money Managers, a registered investment adviser, operated as
the adviser to the fund and Mr. Hall’s accounting firm
operated as the sub-adviser. The fund never became profitable, and
in June 1992 it was closed. There were closing costs of
approximately $60,000, which would normally have been charged to
the fund but which Mr. Hall’s firm determined to pay for over
time by accepting a loan in the same amount from World Money
Managers and providing services to a family of funds advised by
World Money Managers. The SEC challenged the foregoing as an
improperly disclosed arrangement by which the firm recommended the
family of funds to its clients as a means of paying off the loan,
and in 1996 imposed sanctions under the federal securities laws on
various parties, including Mr. Hall. Mr. Hall and others appealed
the SEC decision through the federal courts until it was upheld by
the U.S. Ninth Circuit Court of Appeals. Thereafter, in 2003, the
SEC published an enforcement order requiring, among other things,
that Mr. Hall be suspended from association with any investment
adviser for six months and that he and others disgorge a total of
approximately $75,000. The disgorgements were made and Mr.
Hall’s suspension was completed in June 2004.
George Reyes has
been an attorney at Best & Krieger LLP since 1978 and is a
partner in the firm’s Business Services practice group since
1985. His practice includes general counsel work for privately
owned businesses and non-profits. He has provided legal
representation to various businesses, from start-ups to
well-established going concerns. Mr. Reyes has served as the
chairman of the board of the Inland Empire Economic Partnership
since January 2013, is a director of the Monday Morning Group, the
Children’s Fund, the Riverside Community Health Foundation,
the La Sierra University Foundation and the California State
University San Bernardino Foundation and is a member of the Board
of Visitors of California Baptist University. Mr. Reyes is also a
former member of the Make-A-Wish Foundation for Orange County and
the Inland Empire and a former director of Riverside Community
Hospital and the UCR Foundation. He received his B.A. from Harvard
University in 1975 and his J.D. from the University of California,
Davis in 1978.
Executive Officers
Dale Hutchins has
served as our President since our formation in 2010. Additionally,
Mr. Hutchins serves as a director of our subsidiaries, OLI, NEA and
SOS. Mr. Hutchins is also the co-founder of Innovation Economy
Initiative, a public-private initiative to encourage the
development of innovation-focused businesses in the Riverside, CA
area. Established in 2009, the Initiative lead to the creation of
Innovation Economy Corporation. Previously, from 2004 to 2009, Mr.
Hutchins served as President, Director, and Corporate Secretary for
Qmotions, Inc. and its public successor, a start-up company that
developed first-of-its-kind (pre Nintendo Wii), full-motion video
game controllers. From 2003 to 2007, Mr. Hutchins was the founder
and chief executive of The Canyon Group, a reseller of specialized,
component-level, international travel insurance/assistance, as well
as a provider of consulting and training services. Prior to this,
Mr. Hutchins served as President of Medical Advisory Systems, Inc.
and Chief Administrative Officer and Executive Vice President of
Digital Angel Corporation, from 2002 to 2004. Digital Angel
Corporation, a developer of technologies that enabled the
identification, location tracking and condition monitoring of high
value assets, animals & people, went public as a result of a
merger with Medical Advisory Systems, Inc., in 2002. Prior to this,
from 1992 to 2002, Mr. Hutchins served as Chief Operating Officer
and Executive Vice President of Medical Advisory Systems, Inc., a
publicly-traded company on the American Stock Exchange and provider
of 24-hour physician consultations and ancillary medical &
pharmaceutical services to ships-at-sea, remote locations and
aircraft worldwide, as well as a first-to-market provider of
internet-based, one-on-one, confidential medical information chats
between physicians and consumers.
86
Albert “Al”
Cervantes has been our Chief Financial Officer since
December 2010 and has years of experience in financial, accounting,
and strategic planning for large corporations. Prior to joining
ieCrowd, from January 2008 to December 2010, Mr. Cervantes served
as Chief Financial Officer of Actiga, Inc., a publicly-traded video
game software and game controller development company, and its
private predecessor. Prior to that, from 2005 to 2008, Mr.
Cervantes served as Chief Financial Officer of the Soboba Band of
Luiseño Indians where he was responsible for finance,
accounting and the strategic planning of future commercial
developments. From 2001 to 2005, Mr. Cervantes was Chief Financial
Officer of Specialized Direct, Inc. From 1997 to 2001, Mr.
Cervantes served as Chief Financial Officer of Locus Direct
Marketing Group, Inc. From 1990 to 1997, Mr. Cervantes also served
as Vice President of Finance and Administration of KTTV Channel 11,
a Fox-owned Los Angeles-based television station, and as Vice
President Controller of Fox Inc., a global entertainment
corporation. Mr. Cervantes received a Bachelor of Arts in Economics
from Stanford University in 1975 and a Master’s in Business
Administration from the University of California, Los Angeles in
1978. Mr. Cervantes is a Certified Public Accountant California and
a member of the American and California Society of CPAs.
Stephen
“Steve” Abbott has been ieCrowd’s Chief
Discovery Officer since 2012 and has served in other capacities
with ieCrowd since 2010. Mr. Abbott is responsible for leading the
identification, securing, and integration of new innovative
discoveries and intellectual properties. In addition, Mr. Abbott
oversees the Company’s initial due diligence process on all
pre- and post-acquisition technologies. Mr. Abbott served as a
founding executive of Avisio, Inc., a public company focused on
transforming underutilized assets into successful companies. Prior
to joining Avisio, Inc., Mr. Abbott operated in various capacities,
including business unit president and divisional Chief Technology
Officer for a multi-billion dollar holding company made up of over
100 operating units. There he was responsible for growing business
unit revenue and developing operational strategy. He also served as
a member of due diligence teams in connection with acquisitions.
Mr. Abbott founded and served as CEO for an independent consulting
firm that specialized in mergers and acquisitions transactions for
high-value closely held companies, and mentored and coached
promising entrepreneurs. Prior to that, Mr. Abbott participated in
the formation of Specialty Insurance Services, where he served as
Chief Technology Officer, Chief Executive Officer and Partner. Mr.
Abbott graduated Magna Cum Laude from Cal Poly San Luis Obispo with
a degree in Mathematics in 1976. He earned an accreditation as an
Associate of the Society of Actuaries. In 2003, Mr. Abbott earned
his EMBA from The Peter Drucker School of Management at the
Claremont Graduate University.
Rowena Albanna
has been Chief Operating Officer of the Company since August 2013
and prior thereto was Senior Vice President of the Company since
its inception. Ms. Albanna also co-founded the Innovation Economy
Initiative in 2009. Established in 2009, the initiative lead to the
creation of Innovation Economy Corporation. Her responsibilities
include serving in both a corporate leadership role and as head of
the group that provides operational support to each ieCrowd
company. She oversees support services in the areas of
manufacturing, regulatory compliance, product development,
engineering and IT. Previously, from 2004 to 2009, Ms. Albanna
founded and operated two e-commerce and online marketing sites.
From 2003 to 2004, Ms. Albanna was Head of Product Development at
Qmotions, Inc. where she led the development of the Company’s
first golf video game controller system. Prior to this, she served
as Vice President of Product Development at Digital Angel Systems
in 2002. The company later went public on the American Stock
Exchange via a merger. Ms. Albanna has over 20 years of experience
managing interdisciplinary teams developing products in a wide
variety of industries, including nanotechnology, e-commerce, online
marketing, finance, telecommunications, medicine, embedded systems,
integrated circuit layout design and defense. She earned her
Bachelor of Science Degree in Computer Science with a minor in
Mathematics from California State University, San Bernardino in
1988.
Larry Eason has
been Chief Marketing Officer for ieCrowd since April 2014 and
served as Chief Partnerships Officer from December 2013 to March
2014. Mr. Eason is responsible for leading ieCrowd’s
marketing, communications and public relations initiatives. Since
September 2013, Mr. Eason has served on the advisory board of big
data firm and IBM/IBM Watson strategic partner Findability
Sciences. Previously, from 2012 to 2013, Mr. Eason served as Senior
Consultant for Business Engagement for Sustain Global Partnership
(SGP). SGP is a global collaboration of UPS, TNT, Accenture, Booz
Allen Hamilton, World Vision and CARE that is working to bring
scale, efficiency and business thinking to the global humanitarian
supply chain. Prior to that, in 2008, Mr. Eason founded
DotOrgPower, a digital strategy firm focused on communications,
technology and social impact, and served as its President until
2014. As President of DotOrgPower, Mr. Eason secured and advised a
roster of clients including RAND Corporation, World Vision
International (Global Innovation and Collaboration), International
Medical Corps, Social Venture Partners International, Charity
Navigator, the California Department of Mental Health and more.
Prior to that, Mr. Eason co-founded a digital agency in 2001 and
served as partner until
87
it was acquired in 2005 by Mindshare Interactive Campaigns (later
Virilion), where he served for 3 years as Senior Vice President.
From 2009 to 2011, Mr. Eason served as board chair of Healthy Child
Healthy World. Mr. Eason is a founding member of Children’s
Hospital Los Angeles’ Digital Philanthropy Committee. Mr.
Eason graduated with a Bachelor of Arts degree in Art from
Occidental College in 1984. In 2005, Mr. Eason won the Institute
for Politics, Democracy & the Internet’s Golden Dot award
for Best Statewide Internet Campaign for his work developing and
directing the online presence for the YesOn63.org campaign, a
successful California state ballot measure that supports funding
for mental health services in California.
Board
Composition
Immediately after the closing of this offering, our board of
directors will consist of three members. Our board of directors is
authorized to have up to nine members. Each director of the Company
serves until the next annual meeting of stockholders and until his
successor is elected and duly qualified, or until his earlier
death, resignation or removal. Our board is authorized to appoint
persons to the offices of Chief Executive Officer, Chief Financial
Officer, Secretary and such other offices as may be determined by
the board.
We have no formal policy regarding board diversity. In selecting
board candidates, we seek individuals who will further the
interests of our stockholders through an established record of
professional accomplishment, the ability to contribute positively
to our collaborative culture, knowledge of our business and
understanding of our prospective markets.
Sunbelt III Technologies Management, LLC, or Sunbelt, has a
contractual right to designate a member of our board of directors.
Sunbelt has informed us that it does not intend to exercise such
right until such time as our board of directors is comprised of
seven or more members.
Director
Independence
Rule 5605 of the NASDAQ Listing Rules requires a majority of a
listed company’s board of directors to be comprised of
independent directors within one year of listing. In addition, the
NASDAQ Listing Rules require that, subject to specified exceptions,
each member of a listed company’s audit, compensation and
nominating and corporate governance committees be independent and
that audit committee members also satisfy the independence criteria
set forth in Rule 10A-3 under the Exchange Act.
Under Rule 5605(a)(2) of the NASDAQ Listing Rules, a director will
only qualify as an “independent director” if, certain
specific independence criteria are met and, in the opinion of the
board of directors, that person does not have a relationship that
would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. In order to be
considered independent for purposes of Rule 10A-3 of the Exchange
Act, a member of an audit committee of a listed company may not,
other than in his or her capacity as a member of the audit
committee, the board of directors or any other board committee,
accept, directly or indirectly, any consulting, advisory, or other
compensatory fee from the listed company or any of its subsidiaries
or otherwise be an affiliated person of the listed company or any
of its subsidiaries.
Our board of directors has reviewed the composition of its
committees, to be in effect immediately after the closing of this
offering, and the independence of each director and director
nominee. Based upon information requested from and provided by each
director and director nominee concerning that director’s or
director nominee’s background, employment and affiliations,
including family relationships, our board has determined that each
of our director nominees is an “independent director”
as defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. Our
board has also determined that Mr. Hall and Mr. Reyes satisfy the
independence standards for such committees established by SEC and
NASDAQ rules. In making such determinations, our board considered
the relationships that each such person has with our Company and
all the other facts and circumstances our board deemed relevant in
determining independence, including the beneficial ownership of our
capital stock by each such person.
Board
Committees
Immediately after the closing of this offering, our board will
establish three standing committees — audit, compensation and
nominating and corporate governance — each of which will
operate under a charter that has been approved by our board.
88
Audit Committee
Immediately after the closing of this offering, the members of our
audit committee will be Mr. Hall, Mr. Reyes and Mr. Albanna. Mr.
Hall will be the chair of the audit committee. Messrs. Hall and
Reyes are independent. We intend to appoint an independent director
to the audit committee, in lieu of Mr. Albanna, within one year
following the completion of this offering pursuant to the phase-in
provisions of the NASDAQ listing standards for initial public
offerings. Mr. Albanna owns greater than 10% of our voting equity
securities.
Our board of directors has determined that Mr. Hall qualifies as an
audit committee financial expert within the meaning of SEC
regulations and the NASDAQ Listing Rules. In making this
determination, our board has considered the formal education and
nature and scope of his previous experience. Our audit committee
will assist our board of directors in its oversight of our
accounting and financial reporting process and the audits of our
financial statements. Our audit committee’s responsibilities
will include:
•
appointing, approving the compensation of, and assessing the
independence of our registered public accounting firm;
•
overseeing the work of our registered public accounting firm,
including through the receipt and consideration of reports from
such firm;
•
reviewing and discussing with management and the registered public
accounting firm our annual and quarterly financial statements and
related disclosures;
•
monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business conduct and
ethics;
•
overseeing our internal accounting function;
•
discussing our risk management policies;
•
establishing policies regarding hiring employees from our
registered public accounting firm and procedures for the receipt
and retention of accounting-related complaints and concerns;
•
meeting independently with our internal accounting staff,
registered public accounting firm and management;
•
reviewing and approving or ratifying related party transactions;
and
•
preparing the audit committee reports required by SEC rules.
Compensation Committee
Immediately after the closing of this offering, the members of our
compensation committee will be Mr. Hall and Mr. Reyes. Mr. Hall
will be the chair of the compensation committee. Our compensation
committee will assist our board of directors in the discharge of
its responsibilities relating to the compensation of our executive
officers. The compensation committee’s responsibilities will
include:
•
reviewing and approving corporate goals and objectives with respect
to Chief Executive Officer compensation;
•
making recommendations to our board with respect to the
compensation of our Chief Executive Officer and our other executive
officers;
•
overseeing evaluations of our senior executives;
•
overseeing and administering our equity incentive plans;
•
reviewing and making recommendations to our board with respect to
director compensation;
•
reviewing and discussing with management our “Compensation
Discussion and Analysis” disclosure; and
•
preparing the compensation committee reports required by SEC
rules.
89
Nominating and Corporate Governance
Committee
Immediately after the closing of this offering, the members of our
nominating and corporate governance committee will be Mr. Hall and
Mr. Reyes. Mr. Reyes will be the chair of the nominating and
corporate governance committee. The nominating and corporate
governance committee’s responsibilities will include:
•
identifying individuals qualified to become board members;
•
recommending to our board the persons to be nominated for election
as directors and to be appointed to each committee of our board of
directors;
•
reviewing and making recommendations to the board with respect to
management succession planning;
•
developing and recommending corporate governance principles to the
board; and
•
overseeing periodic evaluations of board members.
Board Leadership
Structure, Executive Sessions of Non-Management
Directors
Mr. Albanna currently serves as our chief executive officer and
chair of our board of directors. Our board has determined not to
separate the Company’s chief executive officer and chair
positions because the Company is at an early stage in its
development, and therefore the additional expense and complexity of
maintaining separate chairman and CEO functions and personnel would
not be cost-effective for it. As the Company grows, the board plans
to re-evaluate this policy from time to time.
Risk
Oversight
The board of directors oversees our business and considers the
risks associated with our business strategy and decisions. The
board currently implements its risk oversight function as a whole.
Each of the board committees also provides risk oversight in
respect of its areas of concentration and reports material risks to
the board for further consideration.
Code of Business Conduct
and Ethics
We have adopted a written code of business conduct and ethics that
applies to our directors, officers and employees, including our
principal executive officer, principal financial officer and
principal accounting officer or controller, or persons performing
similar functions. We will post on our website a current copy of
the code and all disclosures that are required by law or NASDAQ
rules in regard to any amendments to, or waivers from, any
provision of the code.
90
EXECUTIVE
COMPENSATION
We are providing compensation disclosure that satisfies the
requirements applicable to emerging growth companies, as defined in
the JOBS Act.
Summary Compensation
Table
We are an emerging growth company and have opted to comply with the
executive compensation disclosure rules applicable to
“smaller reporting companies,” as such term is defined
under the Securities Act, which require compensation disclosure for
our principal executive officer and the two most highly compensated
executive officers other than our principal executive officer. The
table below sets forth the annual compensation earned during fiscal
2014 and 2013 by our current principal executive officer and our
next two most highly compensated executive officers (collectively,
our “Named Executive Officers”).
Name
and Principal Position
|
|
|
|
|
|
All
Other
Compensation(1)
($)
|
|
|
|
Amro
Albanna
|
|
2014
|
|
154,000
|
|
—
|
|
154,000
|
|
Chief Executive Officer
|
|
2013
|
|
65,692
|
|
24,538
|
|
90,230
|
|
Dale
Hutchins
|
|
2014
|
|
143,992
|
|
—
|
|
143,992
|
|
President
|
|
2013
|
|
65,692
|
|
24,538
|
|
90,230
|
|
Stephen Abbott
|
|
2014
|
|
123,977
|
|
—
|
|
123,977
|
|
Chief Discovery Officer
|
|
2013
|
|
65,692
|
|
24,538
|
|
90,230
|
Employment Agreements
Following this offering, we intend to enter into an employment
agreement with our Chief Executive Officer, and may enter into
employment agreements with other of our executive officers.
Outstanding Equity Awards at December 31, 2014
The following table sets forth information regarding outstanding
stock options to acquire shares of ieCrowd common stock held by our
Named Executive Officers as of December 31, 2014:
Name
and Principal Position
|
|
Number of securities underlying unexercised options
exercisable
(#)
|
|
Number of securities underlying unexercised options
unexercisable
(#)
|
|
Option
exercise price
($/share)
|
|
|
|
Amro
Albanna
Chief Executive Officer
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Dale
Hutchins
President(1)
|
|
66,667
|
|
—
|
|
2.25
|
|
29-Dec-22
|
|
Stephen Abbott
Chief Discovery Officer
|
|
866,667
|
|
—
|
|
1.50
|
|
31-Dec-21
|
Equity and Other
Compensation Plans
The equity incentive plans described in this section are our
Amended and Restated Long-Term Incentive Plan (the
“LTIP”) and our 2015 Equity Incentive Plan (the
“2015 Plan”). Under the LTIP, awards can be made in
respect of a
91
remaining approximately 20,700 shares of common stock. We may make
further awards up to this amount under the LTIP, and we expect
shortly to begin making awards under the 2015 Plan.
Amended and Restated Long-Term Incentive Plan
Our board of directors adopted the LTIP on March 1, 2011. The LTIP
was most recently amended on July 14, 2011 by our board of
directors and our stockholders approved and adopted the amended and
restated plan on the same date. The LTIP allows for the grant of
incentive stock options and performance bonuses to our employees
and for the grant of nonqualified stock options, restricted stock
awards, stock appreciation rights and performance units to our
employees, directors and consultants.
We set aside 2,666,667 shares of common stock for issuance under
the LTIP, and as of March 31, 2015 and December 31, 2014, options
in respect of 2,645,967 shares have been awarded. Options awarded
under the LTIP have a term of up to 10 years and the exercise price
of the outstanding options ranges from $0.03 to $5.25 per share,
with a weighted average exercise price of approximately $2.10 per
share. No awards will be granted under the LTIP following the
completion of this offering. The LTIP will continue to govern
outstanding awards previously granted.
Plan
Administration. Our board of directors currently
administers the LTIP and following this offering our Compensation
Committee will administer the LTIP. Subject to the provisions of
the LTIP, the administrator has the power to determine the form
(including whether awards are granted singly or in combination),
conditions (including performance requirements), restrictions and
terms (including recipients) of awards, the time and conditions of
exercise or vesting, the times at which awards are to be made, the
number of shares subject to each award, and the terms of the award
agreement for use under the LTIP (which may include the waiver or
amendment of prior terms or conditions or acceleration or early
vesting or payment of an award). In addition, the administrator has
the power to accelerate the vesting, exercise or payment of an
award or the performance period of an award, to determine whether
and to what extent a performance bonus may be deferred, and to take
all other action it deems necessary or advisable for the proper
operation or administration of the LTIP. The administrator’s
interpretation of the LTIP or any awards thereunder and all
decisions and determinations by the administrator with respect to
the plan are final, binding and conclusive on all relevant
parties.
Grant of
Awards. The administrator is prohibited from
canceling, reissuing or modifying an award if such action will have
the effect of repricing such award. The maximum term of all stock
awards is ten years.
Options. Stock
options may be granted under the LTIP. The exercise price per share
of all options must equal at least the fair market value per share
of our common stock on the date of grant. The administrator will
determine the methods of payment of the exercise price of an
option, which may include cash, shares or certain other property or
other consideration acceptable to the administrator.
Restricted
Stock. Restricted stock may be granted under the LTIP.
Restricted stock awards are grants of shares of our common stock
that are subject to various restrictions, including restrictions on
transferability. Shares of restricted stock will vest, and the
restrictions on such shares will lapse, in accordance with terms
and conditions established by the administrator. Restricted stock
awards granted to employees must require the holder to remain
employed by us or an affiliate of ours for a period of time, as
determined by the administrator. Restricted stock awards granted to
consultants or directors must require the holder to provide
continued services to us for a period of time, as determined by the
administrator. In addition to any time vesting conditions
determined by the administrator, restricted stock awards may be
subject to the achievement by us of specified operational,
financial or stock performance criteria established by the
administrator from time to time.
Stock Appreciation
Rights. The LTIP provides for the grant of stock
appreciation rights, or SARs. SARs are governed by the terms
provided by the administrator in an award agreement. SARs may be
granted in tandem with a stock option or independently. The
exercise price of the SAR may not be less than the fair market
value of a share of our common stock on the date of grant of the
SAR.
Performance
Units. The LTIP provides for the grant of performance
units. Performance units are governed by the terms provided by the
administrator in an award agreement. Each award must state the
target, maximum and minimum value of the performance unit upon the
achievement of performance goals. The administrator must establish
performance targets for each award for a period of no less than one
year based upon specified operational,
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financial or performance criteria. Performance units may be paid in
cash or shares of our common stock, as determined in the sole
discretion of the administrator.
Performance
Bonus. The LTIP provides for the grant of performance
bonuses to employees. The administrator must determine the amount
that may be earned as a performance bonus in any period of one year
or more upon the achievement of specified operational, financial or
performance criteria. In order for any employee to be entitled to
payment of a performance bonus, the applicable targets must first
be obtained or exceeded. Generally, payment of a performance bonus
must be made within 60 days of the administrator’s
determination that performance targets have been achieved and may
be paid in cash or shares of our common stock, as determined in the
sole discretion of the administrator.
Transferability or
Assignability of Awards. The LTIP generally does not
allow for the transfer or assignment of nonqualified stock options,
other than by gift to an immediate family member.
Certain
Adjustments. In the event of certain changes in our
capitalization, the exercise prices of and the number of shares
subject to outstanding options, and the purchase price of and the
numbers of shares subject to outstanding awards will be
proportionately adjusted, subject to any required action by our
board of directors or stockholders.
Termination of
Employment. After an employee’s termination of
employment, the employee generally may exercise his or her options
or SARs, to the extent vested as of such date of termination, for
one year after termination. If termination is due to death,
disability or retirement, the options and SARs generally (unless
otherwise stated in the award agreement) will remain exercisable,
to the extent vested as of such date of termination, until the
two-year anniversary of such termination. The administrator may, in
its sole discretion, accelerate the vesting of unvested options and
SARs in the event of the termination of employment of any employee.
The unvested portion of any award is forfeited unless otherwise
accelerated pursuant to the terms of the award agreement or by the
administrator. However, in no event may an option be exercised
later than the expiration of its term. All other benefits that have
not been earned, including if performance goals were not met, on
the date of termination of employment shall be terminated on the
date employment is terminated.
Termination of
Service. After a consultant or director ceases to
provide services to us, the consultant or director generally may
exercise his or her nonqualified stock options or SARs, to the
extent vested as of such date of termination, for one year after
termination. The unvested portion of any award is forfeited unless
otherwise accelerated pursuant to the terms of the award agreement
or by the administrator. All other benefits that have not been
earned, including if performance goals were not met, on the date of
termination of service shall be terminated on the date employment
is terminated.
Amendment;
Termination. Our board of directors may alter, suspend
or terminate the LTIP at any time, provided that, unless approved
by our stockholders, such amendment does not allow for the grant of
incentive stock options. As noted above, upon completion of this
offering, no further awards will be granted under the LTIP.
2015 Equity Incentive Plan
The Company’s Board of Directors has adopted the
Company’s 2015 Equity Incentive 2015 Plan (the “2015
Plan”). The purpose of the 2015 Plan is to attract and retain
key personnel and to provide a means for directors, officers,
employees, consultants and advisors to acquire and maintain an
interest in the Company, which interest may be measured by
reference to the value of our common stock.
If approved by the Company’s stockholders, the 2015 Plan will
be effective on or about May 12, 2015 (the date that the
Company’s Board of Directors approved the 2015 Plan). The
following description is qualified in its entirety by reference to
the 2015 Plan.
Administration. Our
Compensation Committee will administer the 2015 Plan. The Committee
will have the authority to determine the terms and conditions of
any agreements evidencing any Awards granted under the 2015 Plan
and to adopt, alter and repeal rules, guidelines and practices
relating to the 2015 Plan. Our Compensation Committee will have
full discretion to administer and interpret the 2015 Plan and to
adopt such rules, regulations and procedures as it deems necessary
or advisable and to determine, among other things, the time or
times at which the awards may be exercised and whether and under
what circumstances an award may be exercised.
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Eligibility. Employees,
directors, officers, advisors or consultants of the Company or its
affiliates are eligible to participate in the 2015 Plan. Our
Compensation Committee has the sole and complete authority to
determine who will be granted an award under the 2015 Plan,
however, it may delegate such authority to one or more officers of
the Company under the circumstances set forth in the 2015 Plan.
Number of Shares
Authorized. The 2015 Plan provides for an aggregate of
1,250,000 shares of common stock to be available for awards. If an
award is forfeited or if any option terminates, expires or lapses
without being exercised, the common shares subject to such award
will again be made available for future grant. Shares that are used
to pay the exercise price of an option or that are withheld to
satisfy the Participant’s tax withholding obligation will not
be available for re-grant under the 2015 Plan.
If there is any change in our corporate capitalization, the
Compensation Committee in its sole discretion may make
substitutions or adjustments to the number of shares reserved for
issuance under our 2015 Plan, the number of shares covered by
awards then outstanding under our 2015 Plan, the limitations on
awards under our 2015 Plan, the exercise price of outstanding
options and such other equitable substitution or adjustments as it
may determine appropriate.
The 2015 Plan will have a
term of ten years and no further awards may be granted under the
2015 Plan after that date.
Awards Available for
Grant. Our Compensation Committee may grant awards of
Non-Qualified Stock Options, Incentive (qualified) Stock Options,
Stock Appreciation Rights, Restricted Stock Awards, Restricted
Stock Units, Stock Bonus Awards, Performance Compensation Awards
(including cash bonus awards) or any combination of the foregoing;
provided, that our Compensation Committee may not grant funds to
any one person in any one calendar year for more than 500,000
common shares in the aggregate.
Options. Our
Compensation Committee will be authorized to grant Options to
purchase common shares that are either “qualified,”
meaning they are intended to satisfy the requirements of Code
Section 422 for incentive stock options, or
“non-qualified,” meaning they are not intended to
satisfy the requirements of Section 422 of the Code. Options
granted under the 2015 Plan will be subject to the terms and
conditions established by our Compensation Committee. Under the
terms of the 2015 Plan, unless our Compensation Committee
determines otherwise in the case of an Option substituted for
another Option in connection with a corporate transaction, the
exercise price of the Options will not be less than the fair market
value (as determined under the 2015 Plan) of our common shares at
the time of grant. Options granted under the 2015 Plan will be
subject to such terms, including the exercise price and the
conditions and timing of exercise, as may be determined by our
Compensation Committee and specified in the applicable award
agreement. The maximum term of an option granted under the 2015
Plan will be ten years from the date of grant (or five years in the
case of a qualified option granted to a 10% stockholder). Payment
in respect of the exercise of an option may be made in cash or by
check, by surrender of unrestricted shares (at their fair market
value on the date of exercise) that have been held by the
participant for any period deemed necessary by our accountants to
avoid an additional compensation charge or have been purchased on
the open market, or our Compensation Committee may, in its
discretion and to the extent permitted by law, allow such payment
to be made through a broker-assisted cashless exercise mechanism, a
net exercise method, or by such other method as our Compensation
Committee may determine to be appropriate.
Stock Appreciation
Rights. Our Compensation Committee will be authorized
to award Stock Appreciation Rights (or SARs) under the 2015 Plan.
SARs will be subject to the terms and conditions established by our
Compensation Committee. An SAR is a contractual right that allows a
participant to receive, either in the form of cash, shares or any
combination of cash and shares, the appreciation, if any, in the
value of a share over a certain period of time. An Option granted
under the 2015 Plan may include SARs and SARs may also be awarded
to a participant independent of the grant of an Option. SARs
granted in connection with an Option shall be subject to terms
similar to the Option corresponding to such SARs. SARs shall be
subject to terms established by our Compensation Committee and
reflected in the award agreement.
Restricted
Stock. Our Compensation Committee will be authorized
to award Restricted Stock under the 2015 Plan. Unless otherwise
provided by our Compensation Committee and specified in an award
agreement, restrictions on Restricted Stock will lapse after three
years of service with the Company. Our Compensation Committee will
determine the terms of such Restricted Stock awards. Restricted
Stock consists of common shares that generally are non-transferable
and subject to other restrictions determined by our Compensation
Committee for a specified period. Unless our Compensation Committee
determines otherwise or specifies otherwise in an award agreement,
if
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the participant terminates employment or services during the
restricted period, then any unvested restricted stock is
forfeited.
Restricted Stock Unit
Awards. Our Compensation Committee will be authorized
to award Restricted Stock Unit awards. Unless otherwise provided by
our Compensation Committee and specified in an award agreement,
Restricted Stock Units will vest after three years of service with
the Company. Our Compensation Committee will determine the terms of
such Restricted Stock Units. Unless our Compensation Committee
determines otherwise or specifies otherwise in an award agreement,
if the participant terminates employment or services during the
period of time over which all or a portion of the units are to be
earned, then any unvested units will be forfeited. At the election
of our Compensation Committee, the participant will receive a
number of common shares equal to the number of units earned or an
amount in cash equal to the fair market value of that number of
shares at the expiration of the period over which the units are to
be earned or at a later date selected by our Compensation
Committee.
Stock Bonus
Awards. Our Compensation Committee will be authorized
to grant awards of unrestricted common shares or other awards
denominated in common shares, either alone or in tandem with other
awards, under such terms and conditions as our Compensation
Committee may determine.
Performance
Compensation Awards. Our Compensation Committee will
be authorized to grant any award under the 2015 Plan in the form of
a Performance Compensation Award by conditioning the vesting of the
award on the attainment of specific levels of performance of the
Company and/or one or more Affiliates, divisions or operational
units, or any combination thereof, as determined by the
Committee.
Transferability. Each
award may be exercised during the participant’s lifetime only
by the participant or, if permissible under applicable law, by the
participant’s guardian or legal representative and may not be
otherwise transferred or encumbered by a participant other than by
will or by the laws of descent and distribution. Our Compensation
Committee, however, may permit awards (other than incentive stock
options) to be transferred to family members, a trust for the
benefit of such family members, a partnership or limited liability
company whose partners or stockholders are the participant and his
or her family members or anyone else approved by it.
Amendment. The
2015 Plan will have a term of ten years. Our board of directors may
amend, suspend or terminate the 2015 Plan at any time; however,
shareholder approval to amend the 2015 Plan may be necessary if the
law so requires. No amendment, suspension or termination will
impair the rights of any participant or recipient of any award
without the consent of the participant or recipient.
Change in
Control. Except to the extent otherwise provided in an
Award agreement, in the event of a Change in Control, all
outstanding options and equity awards (other than performance
compensation awards) issued under the 2015 Plan will become fully
vested and performance compensation awards will vest, as determined
by our Compensation Committee, based on the level of attainment of
the specified performance goals. In general, our Compensation
Committee may, in its discretion, cancel outstanding awards and pay
the value of such awards to the participants in connection with a
Change in Control. Our Compensation Committee can also provide
otherwise in an award agreement under the 2015 Plan.
U.S. Federal Income
Tax Consequences. The following is a general summary
of the material U.S. federal income tax consequences of the grant
and exercise and vesting of awards under the 2015 Plan and the
disposition of shares acquired pursuant to the exercise of such
awards and is intended to reflect the current provisions of the
Code and the regulations thereunder. This summary is not intended
to be a complete statement of applicable law, nor does it address
foreign, state, local and payroll tax considerations. Moreover, the
U.S. federal income tax consequences to any particular participant
may differ from those described herein by reason of, among other
things, the particular circumstances of such participant.
Options. There
are a number of requirements that must be met for a particular
option to be treated as a qualified option. One such requirement is
that common shares acquired through the exercise of a qualified
option cannot be disposed of before the later of (i) two years from
the date of grant of the option, or (ii) one year from the date of
exercise. Holders of qualified options will generally incur no
federal income tax liability at the time of grant or upon exercise
of those options. However, the spread at exercise will be an
“item of tax preference,” which may give rise to
“alternative minimum tax” liability for the taxable
year in which the exercise occurs. If the holder does not dispose
of the shares before the later of two years following the date of
grant and one year following the date of exercise, the difference
between the exercise price and the amount realized upon disposition
of the shares
95
will constitute long-term capital gain or loss, as the case may be.
Assuming both holding periods are satisfied, no deduction will be
allowed to the Company for federal income tax purposes in
connection with the grant or exercise of the qualified option. If,
within two years following the date of grant or within one year
following the date of exercise, the holder of shares acquired
through the exercise of a qualified option disposes of those
shares, the participant will generally realize taxable compensation
at the time of such disposition equal to the difference between the
exercise price and the lesser of the fair market value of the share
on the date of exercise or the amount realized on the subsequent
disposition of the shares, and that amount will generally be
deductible by the Company for federal income tax purposes, subject
to the possible limitations on deductibility under Sections 280G
and 162(m) of the Code for compensation paid to executives
designated in those Sections. Finally, if an otherwise qualified
option becomes first exercisable in any one year for shares having
an aggregate value in excess of $100,000 (based on the grant date
value), the portion of the qualified option in respect of those
excess shares will be treated as a non-qualified stock option for
federal income tax purposes.
No income will be realized by a participant upon grant of a
non-qualified stock option. Upon the exercise of a non-qualified
stock option, the participant will recognize ordinary compensation
income in an amount equal to the excess, if any, of the fair market
value of the underlying exercised shares over the option exercise
price paid at the time of exercise. The company will be able to
deduct this same amount for U.S. federal income tax purposes, but
such deduction may be limited under Sections 280G and 162(m) of the
Code for compensation paid to certain executives designated in
those Sections.
Restricted
Stock. A
participant will not be subject to tax upon the grant of an award
of restricted stock unless the participant otherwise elects to be
taxed at the time of grant pursuant to Section 83(b) of the Code.
On the date an award of restricted stock becomes transferable or is
no longer subject to a substantial risk of forfeiture, the
participant will recognize taxable compensation equal to the
difference between the fair market value of the shares on that date
over the amount the participant paid for such shares, if any,
unless the participant made an election under Section 83(b) of the
Code to be taxed at the time of grant. If the participant made an
election under Section 83(b), the participant will recognize
taxable compensation at the time of grant equal to the difference
between the fair market value of the shares on the date of grant
over the amount the participant paid for such shares, if any.
(Special rules apply to the receipt and disposition of restricted
shares received by officers and directors who are subject to
Section 16(b) of the Exchange Act). The Company will be able to
deduct, at the same time as it is recognized by the participant,
the amount of taxable compensation to the participant for U.S.
federal income tax purposes, but such deduction may be limited
under Sections 280G and 162(m) of the Code for compensation paid to
certain executives designated in those Sections.
Restricted
Stock Units. A
participant will not be subject to tax upon the grant of a
restricted stock unit award. Rather, upon the delivery of shares or
cash pursuant to a restricted stock unit award, the participant
will have taxable compensation equal to the fair market value of
the number of shares (or the amount of cash) the participant
actually receives with respect to the award. The company will be
able to deduct the amount of taxable compensation to the
participant for U.S. federal income tax purposes, but the deduction
may be limited under Sections 280G and 162(m) of the Code for
compensation paid to certain executives designated in those
Sections.
SARs. No
income will be realized by a participant upon grant of an SAR. Upon
the exercise of an SAR, the participant will recognize ordinary
compensation income in an amount equal to the fair market value of
the payment received in respect of the SAR. The company will be
able to deduct this same amount for U.S. federal income tax
purposes, but such deduction may be limited under Sections 280G and
162(m) of the Code for compensation paid to certain executives
designated in those Sections.
Stock
Bonus Awards. A
participant will have taxable compensation equal to the difference
between the fair market value of the shares on the date the common
shares subject to the award are transferred to the participant over
the amount the participant paid for such shares, if any. The
company will be able to deduct, at the same time as it is
recognized by the participant, the amount of taxable compensation
to the participant for U.S. federal income tax purposes, but such
deduction may be limited under Sections 280G and 162(m) of the Code
for compensation paid to certain executives designated in those
Sections.
Section
162(m). In
general, Section 162(m) of the Code denies a publicly held
corporation a deduction for U.S. federal income tax purposes for
compensation in excess of $1,000,000 per year per person to its
principal executive officer and the three other officers (other
than the principal executive officer and principal financial
officer) whose compensation is disclosed in its proxy statement as
a result of their total compensation, subject to certain
96
exceptions. The 2015 Plan is intended to satisfy an exception with
respect to grants of options to covered employees. In addition, the
2015 Plan is designed to permit certain awards of restricted stock,
restricted stock units, cash bonus awards and other awards to be
awarded as performance compensation awards intended to qualify
under the “performance-based compensation” exception to
Section 162(m) of the Code.
2015 Plan
Benefits. Future grants under the 2015 Plan will be
made at the discretion of the Compensation Committee and,
accordingly, are not yet determinable. In addition, the value of
the awards granted under the 2015 Plan will depend on a number of
factors, including the fair market value of our common shares on
future dates, the exercise decisions made by the participants and
the extent to which any applicable performance goals necessary for
vesting or payment are achieved. Consequently, it is not possible
to determine the benefits that might be received by participants
receiving discretionary grants under, or having their annual bonus
paid pursuant to, the 2015 Plan.
Required
Vote. Approval of the 2015 Plan will require the
affirmative vote of the holders of a majority of the shares of the
Company’s common stock represented in person or by proxy and
entitled to vote at the meeting called for consideration of the
approval of the 2015 Plan.
Interests of
Directors of Officers. Our directors may grant awards
under the Incentive 2015 Plan to themselves as well as to our
officers and others.
Compensation Plans at the Subsidiary Level
Amended and Restated
Long-Term Incentive Compensation Plan of OLI
The board of directors and stockholders of our OLI subsidiary
adopted the Olfactor Laboratories Inc. Long-Term Incentive
Compensation Plan, or OLI LTIP, on July 15, 2010. The OLI LTIP was
most recently amended in September 10, 2012 by the OLI board of
directors and stockholders. The OLI LTIP allows for the grant of
incentive stock options and performance bonuses to OLI employees
and for the grant of nonqualified stock options, restricted stock
awards, stock appreciation rights and performance units to OLI
employees, directors and consultants.
OLI set aside 1,000 shares of its common stock for issuance under
the OLI LTIP, and as of March 31, 2015 and December 31, 2014,
options in respect of 675 shares have been awarded. Options awarded
under the OLI LTIP have a term of up to 10 years and the exercise
price is $210.43 per share. No awards will be granted under the OLI
LTIP following the completion of this offering. The OLI LTIP will
continue to govern outstanding awards previously granted.
Plan
Administration. The OLI board of directors currently
administers the OLI LTIP. Subject to the provisions of the OLI
LTIP, the administrator has the power to determine the form
(including whether awards are granted singly or in combination),
conditions (including performance requirements), restrictions and
terms (including recipients) of awards, the time and conditions of
exercise or vesting, the times at which awards are to be made, the
number of shares subject to each award, and the terms of the award
agreement for use under the OLI LTIP (which may include the waiver
or amendment of prior terms or conditions or acceleration or early
vesting or payment of an award). In addition, the administrator has
the power to accelerate the vesting, exercise or payment of an
award or the performance period of an award, to determine whether
and to what extent a performance bonus may be deferred, and to take
all other action it deems necessary or advisable for the proper
operation or administration of the OLI LTIP. The
administrator’s interpretation of the OLI LTIP or any awards
thereunder and all decisions and determinations by the
administrator with respect to the plan are final, binding and
conclusive on all relevant parties.
Grant of
Awards. The administrator is prohibited from
canceling, reissuing or modifying an award if such action will have
the effect of repricing such award. The maximum term of all stock
awards is ten years.
Options. Stock
options may be granted under the OLI LTIP. The exercise price per
share of all options must equal at least the fair market value per
share of OLI common stock on the date of grant. The administrator
will determine the methods of payment of the exercise price of an
option, which may include cash, shares or certain other property or
other consideration acceptable to the administrator.
Restricted
Stock. Restricted stock may be granted under the OLI
LTIP. Restricted stock awards are grants of shares of OLI common
stock that are subject to various restrictions, including
restrictions on transferability. Shares of restricted stock will
vest, and the restrictions on such shares will lapse, in accordance
with terms and conditions established by the administrator.
Restricted stock awards granted to employees must require the
holder to remain
97
employed by us or an affiliate of OLI’s for a period of time,
as determined by the administrator. Restricted stock awards granted
to consultants or directors must require the holder to provide
continued services to us for a period of time, as determined by the
administrator. In addition to any time vesting conditions
determined by the administrator, restricted stock awards may be
subject to the achievement by us of specified operational,
financial or stock performance criteria established by the
administrator from time to time.
Stock Appreciation
Rights. The OLI LTIP provides for the grant of stock
appreciation rights, or SARs. SARs are governed by the terms
provided by the administrator in an award agreement. SARs may be
granted in tandem with a stock option or independently. The
exercise price of the SAR may not be less than the fair market
value of a share of OLI common stock on the date of grant of the
SAR.
Performance
Units. The OLI LTIP provides for the grant of
performance units. Performance units are governed by the terms
provided by the administrator in an award agreement. Each award
must state the target, maximum and minimum value of the performance
unit upon the achievement of performance goals. The administrator
must establish performance targets for each award for a period of
no less than one year based upon specified operational, financial
or performance criteria. Performance units may be paid in cash or
shares of OLI common stock, as determined in the sole discretion of
the administrator.
Performance
Bonus. The OLI LTIP provides for the grant of
performance bonuses to employees. The administrator must determine
the amount that may be earned as a performance bonus in any period
of one year or more upon the achievement of specified operational,
financial or performance criteria. In order for any employee to be
entitled to payment of a performance bonus, the applicable targets
must first be obtained or exceeded. Generally, payment of a
performance bonus must be made within 60 days of the
administrator’s determination that performance targets have
been achieved and may be paid in cash or shares of OLI common
stock, as determined in the sole discretion of the
administrator.
Transferability or
Assignability of Awards. The OLI LTIP generally does
not allow for the transfer or assignment of nonqualified stock
options, other than by gift to an immediate family member.
Certain
Adjustments. In the event of certain changes in OLI
capitalization, the exercise prices of and the number of shares
subject to outstanding options, and the purchase price of and the
numbers of shares subject to outstanding awards will be
proportionately adjusted, subject to any required action by the OLI
board of directors or the OLI stockholders.
Termination of
Employment. After an employee’s termination of
employment, the employee generally may exercise his or her options
or SARs, to the extent vested as of such date of termination, for
one year after termination. If termination is due to death,
disability or retirement, the options and SARs generally (unless
otherwise stated in the award agreement) will remain exercisable,
to the extent vested as of such date of termination, until the
two-year anniversary of such termination. The administrator may, in
its sole discretion, accelerate the vesting of unvested options and
SARs in the event of the termination of employment of any employee.
The unvested portion of any award is forfeited unless otherwise
accelerated pursuant to the terms of the award agreement or by the
administrator. However, in no event may an option be exercised
later than the expiration of its term. All other benefits that have
not been earned, including if performance goals were not met, on
the date of termination of employment shall be terminated on the
date employment is terminated.
Termination of
Service. After a consultant or director ceases to
provide services to us, the consultant or director generally may
exercise his or her nonqualified stock options or SARs, to the
extent vested as of such date of termination, for one year after
termination. The unvested portion of any award is forfeited unless
otherwise accelerated pursuant to the terms of the award agreement
or by the administrator. All other benefits that have not been
earned, including if performance goals were not met, on the date of
termination of service shall be terminated on the date employment
is terminated.
Amendment;
Termination. The OLI board of directors may alter,
suspend or terminate the OLI LTIP at any time, provided that,
unless approved by OLI stockholders, such amendment does not allow
for the grant of incentive stock options. As noted above, upon
completion of this offering, no further awards will be granted
under the OLI LTIP.
Pension
Benefits
We do not maintain any defined benefit pension plans.
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Nonqualified Deferred
Compensation
We do not maintain any nonqualified deferred compensation
plans.
401(k) Retirement
Plan
We maintain a 401(k) retirement plan that is intended to be a
tax-qualified defined contribution plan under Section 401(k) of the
Internal Revenue Code. In general, all of our employees are
eligible to participate beginning on the first day of their
employment. The 401(k) plan includes a salary deferral arrangement
pursuant to which participants may elect to reduce their current
compensation by up to the statutorily prescribed limit, equal to
$17,500 in 2014, and have the amount of the reduction contributed
to the 401(k) plan.
Rule 10b5-1 Sales
Plans
Following the closing of this offering, our directors and executive
officers may adopt written plans, known as Rule 10b5-1 plans, in
which they will contract with a broker to buy or sell shares of our
common stock on a periodic basis. Under a Rule 10b5-1 plan, a
broker executes trades pursuant to parameters established by the
director or officer when entering into the plan, without further
direction from the director or officer. The director or officer may
amend or terminate the plan in some circumstances. Our directors
and executive officers may also buy or sell additional shares
outside of a Rule 10b5-1 plan when they are not in possession of
material, nonpublic information.
Key-Man
Insurance
The Company has a key-man insurance policy in force in respect of
Mr. Albanna in the amount of $1.0 million.
Director
Compensation
Effective after the closing of this offering, our non-employee
directors will be compensated on an annual basis for their services
on the board of directors as follows:
•
each non-employee director will receive an annual cash retainer of
$20,000;
•
each non-employee director will receive an annual stock option
grant to purchase 2,000 shares of our common stock, generally to be
granted in quarterly installments;
•
the chair of the Audit Committee will receive an additional annual
retainer of $5,000;
•
the chair of the Compensation Committee will receive and additional
annual retainer of $5,000;
•
the chair of the Nominating and Governance Committee will receive
an additional annual retainer of $5,000; and
•
Non-chair members of the Audit Committee, Compensation Committee
and the Nominating and Governance Committee will receive an
additional annual retainer of $1,500.
Each member of our board of directors will also be entitled to
reimbursement of reasonable travel and other expenses incurred in
connection with attending meetings of the board of directors and
any committee on which the member serves.
We have not agreed to compensate any member of our board of
directors or director nominees until after the closing of this
offering.
99
CERTAIN RELATIONSHIPS
AND RELATED PARTY TRANSACTIONS
Transactions with Deal A
Day Group Corp. (f/k/a Avisio, Inc.)
Our majority-owned OLI and NEA subsidiaries were previously
majority-owned subsidiaries of Deal A Day Group Corp. (formerly
known as Avisio, Inc.), or Deal A Day, an entity in which Amro
Albanna, our Chairman and CEO, was the Chairman, CEO and holder of
a varying aggregate of 34.3% to 24.6% of the issued and outstanding
shares of common stock of Deal A Day, from January 1, 2011 to
December 31, 2011. We acquired a majority equity stake in each of
OLI and NEA from Deal A Day while Mr. Albanna controlled Deal A
Day.
As for our shares of OLI common stock, we acquired:
•
an aggregate of 4,500 such shares from Deal A Day in a number of
private securities purchase transactions from June 2011 to November
2011 in exchange for an aggregate of $31,067 and 533,333 shares of
our common stock; and
•
9,400 such shares directly from OLI in exchange for an aggregate of
$860,046.
As for our shares of NEA common stock, we acquired:
•
an aggregate of 4,500 such shares from Deal A Day in a number of
private securities purchase transactions from June 2011 to November
2011 in exchange for an aggregate of $187,024 and 133,333 shares of
our common stock; and
•
1,812 such shares directly from NEA in exchange for an aggregate of
$90,600.
As result of these transactions, Deal A Day currently owns 6.0% of
our issued and outstanding shares of common stock.
Transaction with
Innovation Economy Hub, Inc. (f/k/a Innovation Economy Initiative,
Inc., Innovation Economy Corporation, Inc., Extreme
Entrepreneurship Exchange, Inc.)
On April 1, 2012 we purchased all 100 outstanding shares of
Innovation Economy Hub, Inc. (“Hub”), a wholly owned
subsidiary of ours that holds the lease of our office and
laboratory premises, for a price of $100, from Mr. Albanna. Hub is
a California corporation in which Mr. Albanna was the sole
shareholder. The assets and liabilities of Hub are consolidated in
the financial statements of the Company. As of March 31, 2015 and
December 31, 2014, Hub was an inactive company with no assets or
liabilities other than the lease.
Management Services
Agreement with Olfactor Laboratories, Inc.
On April 1, 2012, our parent company entered into a Management
Services Agreement with our majority-owned subsidiary OLI. The
agreement calls for our parent company to provide management
services, administration, finance, accounting and other corporate
functions for a fee of $14,229 per month.
Management Services
Agreement with Nano Engineered Applications, Inc.
On January 1, 2013, our parent company entered into a Management
Services Agreement with our majority-owned subsidiary NEA. The
agreement calls for our parent company to provide management
services, administration, finance, accounting and other corporate
functions for a fee of $14,229 monthly.
Campaign Management
Agreement with Olfactor Laboratories, Inc.
On May 15, 2013, our parent company entered into a Campaign
Management Agreement with our majority-owned subsidiary OLI. The
agreement called for our parent company to design, develop and
conduct a crowdfunding campaign for OLI. The fee for the campaign
was 40.0% of the 516,974 net total amount raised in the campaign.
See “Business — ieCrowd - The Parent Company —
Business Model”.
Advertising Agreement
with Sunbelt IV Technologies Management, LLC
On August 21, 2014 we entered into an Advertising Agreement with
Sunbelt IV Technologies Management, LLC, or Sunbelt IV. The
management of Sunbelt IV controls Sunbelt III Technologies
Management, LLC, which is one
100
of our principal stockholders. Under the agreement, Sunbelt IV
provided us advertising services related to our 2014 Private
Placement, which was conducted under Rule 506(c) of Regulation D
under the Securities Act and the JOBS Act. The agreement was
amended on August 22, 2014. Sunbelt IV received a total of $16,000
under the agreement.
Gift Agreement with the
Regents of the University of California
On March 8, 2012 we entered into a Gift Agreement with the Regents
of the University of California (the “Regents”) on
behalf of the UCR. The Regents are shareholders in our NEA and OLI
subsidiaries under the name of Shellwater & Co. Under the
agreement, we gave a gift of $100,000 to UCR in support of research
in materials electrochemistry under the direction of Dr. Nosang V.
Myung, professor in the UCR Department of Chemical &
Environmental Engineering and a shareholder of our NEA subsidiary.
In recognition of the gift, UCR named a laboratory in which the
research would be conducted the Innovation Economy
Corporation Lab.
While we believe we benefitted from all of the above-referenced
agreements, due to their related party nature such agreements may
not reflect the terms that would have been reached by two
unaffiliated parties negotiating at arm’s length. The
transactions may have been less favorable to us than would have
been the case if they had been negotiated with unaffiliated third
parties.
Other than the foregoing, none of our directors or executive
officers, nor any person who owned of record or was known to us to
own beneficially more than 5% of our outstanding shares of common
stock, nor any associate or affiliate of any such persons, has any
material interest, direct or indirect, in any transaction that has
occurred during the past fiscal year, or in any proposed
transaction, which has materially affected or will materially
affect us.
In connection with our preparation for this offering, we have
established an Audit Committee of the board of directors. Following
the completion of this offering, one of the responsibilities of our
Audit Committee will be to review and approve or ratify related
party transactions.
Agreement with Company
Managed by an Affiliate of Sunbelt Technologies
Management
On May 1, 2015 ieCrowd executed an agreement with Accelera LLC, a
company managed by an affiliate of Sunbelt III Technologies Management, LLC, one of
our principal stockholders, pursuant to which Accelera gave up
options to license certain patents and patent applications,
allowing ieCrowd to negotiate its own options over those patents
and applications. As an inducement to Accelera to terminate its
options, ieCrowd agreed that if it exercises an option to license
any or all of the relevant patent families, ieCrowd shall grant
Accelera 125,000 shares of ieCrowd’s common stock (on a
restricted basis) and pay Accelera $132,367.77 (as reimbursement
for Accelera’s cash expenses related to its option
agreements). The agreement between ieCrowd and Accelera was
negotiated on an arm’s-length basis.
101
PRINCIPAL
STOCKHOLDERS
The following table sets forth the numbers and percentages of our
common stock beneficially owned both immediately before and
immediately after the closing of this offering by:
•
each person known to us to be the beneficial owner of more than 5%
of any class of our outstanding voting shares;
•
each of our directors and director nominees;
•
each of our executive officers; and
•
all of our directors, director nominees and executive officers as a
group.
Beneficial ownership is determined in accordance with SEC rules and
generally includes voting or investment power with respect to
securities. For purposes of this table, a person or group of
persons is deemed to have “beneficial ownership” of any
shares of common stock that such person or any member of such group
has the right to acquire within 60 days of the date of this
prospectus. For purposes of computing the percentage of outstanding
shares of our common stock held by each person or group of persons
named above, any shares that such person or persons has the right
to acquire within 60 days of the date of this prospectus are deemed
to be outstanding for such person, but not deemed to be outstanding
for the purpose of computing the percentage ownership of any other
person. The inclusion herein of any shares listed as beneficially
owned does not constitute an admission of beneficial ownership by
any person.
In
the table below, the number of shares of common stock outstanding before this offering is deemed to be 9,444,828. Each of this
number, the number of shares of common stock shown in the table below to be outstanding after this offering and the percentages
shown in the table reflect the inclusion of 1,015,015 shares of common stock included in the Units issuable upon the forced conversion
of the Private Placement Convertible Notes plus accrued interest that will take place immediately after the closing of this offering.
By the terms of the Private Placement Convertible Notes, this conversion will be effected at a price per unit equal to $5.10.
The numbers of shares of common stock shown to be outstanding both before and after this offering and the percentages shown exclude:
•
2,645,967 shares of our common stock issuable upon the exercise of
stock options outstanding as of the date of this prospectus, at a
weighted average exercise price of $1.98 per share;
•
240,333 shares of our common stock issuable upon the exercise of
warrants outstanding as of the date of this prospectus, at a
weighted average exercise price of $2.29 per share;
•
20,700 shares of our common stock available for future issuance
under our Amended and Restated Long-Term Incentive Compensation
Plan as of the date of this prospectus;
•
1,250,000 shares of our common stock that will be made available
for future issuance under our 2015 equity incentive plan upon the
closing of this offering;
•
1,562,500 shares of our common stock issuable upon exercise of the
warrants included in the Units being offered in this offering,
assuming all of the Units being offered are sold;
•
234,375 shares of our common stock issuable upon exercise of the
warrants to be issued to the selling agent in connection with this
offering;
•
507,508 shares of our common stock issuable upon exercise of the warrants included in the Units issuable upon conversion
of the Private Placement Convertible Notes immediately after the closing of this offering;
•
34,824 shares of our common stock issuable upon conversion of the notes issuable upon the exercise of placement agent
warrants issued in connection with the 2014 Private Placement;
•
1,500 shares of our common stock issued as compensation to a consultant subsequent to June 30, 2015; and
•
100,000 shares of our common stock issuable upon exercise of warrants issued to certain investors subsequent to June
30, 2015.
Unless otherwise indicated, the business address of each person
listed is c/o Innovation Economy Corporation, 1650 Spruce Street,
Suite 500, Riverside, California 92507.
102
|
|
|
|
|
|
|
|
|
|
Name
and Address of Beneficial Owner
|
|
Number of
Shares of
Common
Stock
Beneficially
Owned
|
|
Percentage
of Common
Stock
Beneficially
Owned(2)
|
|
Number of
Shares of
Common
Stock
Beneficially
Owned
|
|
Percentage
of Common
Stock
Beneficially
Owned(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amro Albanna
|
|
3,383,493
|
(4)
|
|
32.4
|
%
|
|
3,833,493
|
(4)
|
|
24.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rowena Albanna
|
|
750,000
|
(5)
|
|
7.2
|
%
|
|
750,000
|
(5)
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dale Hutchins
|
|
816,667
|
(6)
|
|
7.8
|
%
|
|
816,667
|
(6)
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen Abbott
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vernon Hall
|
|
3,334
|
(7)
|
|
|
*
|
|
3,334
|
(7)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George Reyes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors, director nominees and executive
officers as a group (nine individuals)
|
|
4,200,160
|
|
|
40.2
|
%
|
|
4,200,160
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunbelt III Technologies Management, LLC 6040 S
Durango Drive, Suite 105, Las Vegas, NV 89113
|
|
2,000,000
|
|
|
19.2
|
%
|
|
2,000,000
|
|
|
14.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deal A Day Group Corp. f/k/a Avisio, Inc. 5150 E
Pacific Coast Hwy, Suite 200, Long Beach, CA, 90804
|
|
666,667
|
|
|
6.4
|
%
|
|
666,667
|
|
|
4.9
|
%
|
103
DESCRIPTION OF
SECURITIES
The Company’s authorized capital consists of 500,000,000
shares of common stock, par value $0.00001 per share, and
10,000,000 shares of preferred stock, par value $0.00001 per
share.
Units
Each Unit being offering in this offering consists of one share of
our common stock and one warrant to purchase one-half share of our
common stock. The Units will not be issued or certificated.
Instead, the shares of common stock and the warrants will be issued
separately and may be resold separately, although they will have
been purchased together in this offering.
Common Stock
As of March 31, 2015 and December 31, 2014, there were 9,444,828
shares of common stock outstanding, which were held by
approximately 139 stockholders of record. Each outstanding share of
common stock entitles the holder thereof to one vote per share on
matters submitted to a vote of stockholders. Stockholders do not
have preemptive rights to purchase shares in any future issuances
of our common stock.
Holders of common stock will be entitled to receive such dividends,
if any, as may be declared from time to time by our board of
directors in its discretion out of funds legally available
therefor. In no event will any stock dividends or stock splits or
combinations of stock be declared or made on common stock unless
the shares of common stock at the time outstanding are treated
equally and identically. Our board of directors has never declared
a dividend. See “Dividend Policy”. The holders of the
common stock will be entitled to receive an equal amount per share
of all of our assets of whatever kind available for distribution to
stockholders, after the rights of the holders of the preferred
stock have been satisfied.
All of the issued and outstanding shares of our common stock are
duly authorized, validly issued, fully paid and non-assessable. To
the extent additional shares of our common stock are issued, the
relative interests of existing stockholders will be diluted.
As of January 16, 2015, we effectuated a 15-1 reverse split of our
shares, meaning that 15 of our shares held prior to the reverse
split equals one share held after the reverse split. If, as a
result of the split, any stockholder would be entitled to receive a
fraction of a share, in order to avoid issuing fractional shares we
will instead provide that stockholder with an additional whole
share. All references to the number of shares, options, warrants
and other common stock equivalents, price per share and
weighted-average number of shares of common stock outstanding
presented in this prospectus retroactively reflect the effectuation
of the 15-1 reverse split dated January 16, 2015, unless otherwise
stated or unless the context otherwise indicates.
Except as otherwise required by law or as otherwise provided in any
certificate of designation for any series of preferred stock, the
holders of common stock possess all voting power for the election
of our directors and all other matters requiring stockholder
action. Holders of common stock are entitled to one vote per share
on matters to be voted on by stockholders.
Election of Directors
Directors are elected by plurality vote. There is no cumulative
voting with respect to the election of directors.
Meeting of Stockholders; No Action by Written Consent
Except as otherwise required by law or as otherwise provided in any
certificate of designation for any series of preferred stock,
special meetings of stockholders may be called only by the
Chairman, the Chief Executive Officer, a majority of the members of
the board of directors or stockholders holding at least 51% of the
issued and outstanding shares of capital stock eligible to vote at
such meeting. Any action required or permitted to be taken by
stockholders must be effected by a duly called annual or special
meeting of such holders and may not be effected by written
consent.
104
Preferred Stock
Shares of preferred stock may be issued from time to time in one or
more series. Our board of directors will be authorized to fix the
voting rights, if any, designations, powers, preferences, the
relative, participating, optional or other special rights and any
qualifications, limitations and restrictions thereof, applicable to
the shares of each series. Our board of directors will be able to,
without stockholder approval, issue preferred stock with voting and
other rights that could adversely affect the voting power and other
rights of the holders of common stock. The ability of our board of
directors to issue preferred stock without stockholder approval
could have the effect of delaying, deferring or preventing a change
of control of our company or the removal of existing management. We
have no preferred stock outstanding at the date hereof.
Warrants Included in the
Units
Each warrant included in the Units will entitle the holder to
purchase one-half share of our common stock at an exercise price of
125% of the price of the shares in this offering. The warrants
shall be exercisable from the date of issuance (except for those
persons subject to the lock-up agreements discussed under
“Shares Eligible for Future Sale”), which is the
closing date of this offering, and expire on the 36-month
anniversary thereof.
We may redeem all or a
portion of these warrants to the extent they remain outstanding and
unexercised:
•
at a price of $0.01 per warrant;
•
upon a minimum of 30 days’ prior written notice of
redemption, which we refer to as the 30-day redemption period;
•
if, and only if, the last sale price of our common stock equals or
exceeds $16.00 per share (as may be adjusted for stock splits and
similar transactions) on each of 20 trading days within the 30
trading-day period ending on the third business day prior to the
date on which notice of the redemption is given to the warrant
holders; and
•
if, and only if, the average daily trading volume of our common
stock exceeds 500,000 shares per day during the redemption
period.
We will not redeem the
warrants unless an effective registration statement under the
Securities Act covering the shares of common stock issuable upon
exercise of the warrants is effective, except if the warrants may
be exercised on a cashless basis and such cashless exercise is
exempt from registration under the Securities Act.
No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of
the warrants. As to any fraction of a share which the holder would
otherwise be entitled to purchase upon such exercise, the Company
shall, at its election, either pay a cash adjustment in respect of
such fraction (in an amount equal to such fraction multiplied by
the exercise price) or round the number of shares to be received by
the holder up to the next whole number.
Convertible
Notes
Our outstanding Private Placement Convertible Notes are not being
offered in this offering, but pursuant to the terms thereof, the
Company will elect to convert such notes into Units immediately
after the closing of this offering.
Pursuant
to the Private Placements, we issued Private Placement Convertible Notes plus accrued interest that are convertible into units
of our common stock, including, if the Company so elects, immediately after the closing of this offering, into units identical
to the Units being offered in this offering. Up to 1,015,015 of such units, issuable
upon the forced conversion of the Private Placement Convertible Notes plus accrued interest, and 34,824 additional such
units, issuable upon the forced conversion of notes issuable upon the exercise of placement agent warrants, are being offered
under a separate prospectus for selling securityholders. As of December 31, 2014, the aggregate amount of outstanding unpaid principal
under the Private Placement Convertible Notes was $2,785,000 and the aggregate amount of accrued interest under the Private Placement
Convertible Notes was $48,273. Subsequent to December 31, 2014, we have secured additional debt financing in the form of Private
Placement Convertible Notes aggregating $2,100,000. Unless converted or repaid in full before maturity, the Private Placement
Convertible Notes placed prior to December 31, 2014 mature in October 2016 and the Private Placement Convertible Notes placed
subsequent to December 31, 2014 mature in April 2017.
105
The holders of the Private Placement Convertible Notes (the
“Holders”) have certain rights to convert the Private
Placement Convertible Notes, in whole or in part, into units of our
common stock, at $5.10 per unit, subject to the Company’s
right to cause the Holders to convert in the case of a Forced
Conversion Event, as described below.
If, during the term of the Private Placement Convertible Notes, the
Company completes a Forced Conversion Event, the Company can cause
the Holders to convert all or any portion of their outstanding
Private Placement Convertible Notes into the securities issued in
such event at a price equal to 80% of the price of the common stock
issued in such event (the “Discount Conversion Price”).
A Forced Conversion Event consists of either an initial public
offering of the Company’s common stock or a transaction
resulting in gross proceeds of more than $7,500,000 to the Company.
Once the Discount Conversion Price is established and used, that
shall be the Conversion Price of all Private Placement Convertible
Notes, whether or not previously converted in full. Immediately
after the closing of this offering, the Company will exercise its
right to convert all of the Convertible Notes into Units at a
conversion price per Unit equal to $5.10. There is no minimum
amount of securities that must be sold in the Company’s
initial public offering for the conversion of the Private Placement
Convertible Notes to occur, and the conversion will occur even if
only a few Units are sold. If the offering does not close and the
Company does not otherwise elect to force a conversion when able,
the Private Placement Convertible Notes will remain outstanding
until the earlier of the time at which the holder converts them in
full or maturity.
Notwithstanding any other terms to the contrary, no conversion of
the Private Placement Convertible Notes, either by the Holder or by
the Company, is permitted if the issuance of shares pursuant to
such conversion would cause the Holder’s beneficial ownership
of common stock to exceed 9.99% of our then outstanding shares of
common stock.
We granted investors in the
Private Placement certain “piggyback” registration
rights in regard to any registered securities offering by us, on
our own behalf or on behalf of selling securityholders, subject to
customary exceptions. Contemporaneously with the filing with the
SEC of the registration statement of which this prospectus forms a
part, a resale registration statement is being filed for the
purpose of providing such investors the opportunity to resell the
securities they are receiving as a result of the forced conversion
of the Private Placement Convertible Notes.
Interest on the unpaid principal balance of the Private Placement
Convertible Notes shall accrue at the rate of 8% per annum, which
shall increase to 10% upon the occurrence of an event of default,
as such term is defined in the Private Placement Convertible Notes.
Upon an event of default, as defined in the Private Placement
Convertible Notes, the Holders may declare the unpaid principal
balance, together with all accrued and unpaid interest thereon,
immediately due and payable.
Warrants to be Issued to
Selling Agent in Connection with this Offering
As part of its compensation for serving as the Company’s
selling agent in this offering, TriPoint Global Equities, LLC, will
receive warrants exercisable for three years entitling it to
purchase for cash such number of shares of common stock as are
equal to 5% of the number of Units sold in this offering, at an
exercise price equal to 110% of the offering price of the Units
sold in this offering, and will also receive warrants exercisable
for three years entitling it to purchase for cash such number of
shares of common stock as are equal to 5% of the number of shares
of common stock underlying the warrants included in the Units sold
in this offering, at an exercise price equal to 110% of the
exercise price of the warrants in this offering (excluding, in each
case, the issuance of securities upon the conversion of the Private
Placement Convertible Notes). Such selling agent warrants will be
subject to FINRA Rule 5110(g)(1) in that, except as otherwise
permitted by FINRA rules, for a period of 180 days following the
date of effectiveness or commencement of sales of this offering,
such selling agent warrants shall not be (A) sold, transferred,
assigned, pledged or hypothecated or (B) the subject of any
hedging, short sale, derivative, put, or call transaction that
would result in the effective economic disposition of the
securities by any person. We may redeem all or a portion of these
warrants to the extent they remain outstanding and unexercised on
terms substantially similar to the terms for the warrants included
in the Units, as described under “—Warrants Included in
the Units”.
Additional
Information
We refer you to our Certificate of Incorporation and Bylaws and the
applicable provisions of the Delaware General Corporation Law for a
more complete description of the rights and liabilities of holders
of our securities.
106
SHARES ELIGIBLE FOR
FUTURE SALE
Prior to this offering, there has been no market for our common
stock or warrants. Future sales of substantial amounts of our
common stock, or securities or instruments convertible into our
common stock, in the public market, or the perception that such
sales may occur, could adversely affect the market price of our
common stock prevailing from time to time. Furthermore, because
there will be limits on the number of shares available for resale
shortly after this offering due to contractual and legal
restrictions described below, there may be resales of substantial
amounts of our common stock in the public market after those
restrictions lapse. This could adversely affect the market price of
our common stock prevailing at that time.
Upon
completion of this offering, assuming that all Units offered in this offering are sold, we will have 13,619,667 shares (excluding
1,500 shares issued as compensation to a consultant subsequent to June 30, 2015) of common stock outstanding including (i) 3,125,000
shares included in the Units offered in this offering and (ii) 1,015,015
shares included in the Units issuable upon the forced conversion of the Private Placement
Convertible Notes plus accrued interest immediately after the closing of this offering. In addition, prior to the closing of this
offering, we expect the placement agent warrants from the 2014 Private Placement to be exercised for notes which, immediately
after the closing of this offering, will be converted into 34,824 units, which would include 34,824 shares. Of these shares, 4,119,652
shares (including (i) 3,125,000 shares included in the Units offered in this offering and (ii) 1,015,015
shares included in the Units issuable upon the forced conversion of the Private Placement
Convertible Notes plus accrued interest immediately after the closing of this offering) will have been issued in or contemporaneously
with the closing of this offering, all of which will be freely transferable without restriction or further registration under
the Securities Act, except for any shares acquired by any of our “affiliates,” as that term is defined in Rule 144
under the Securities Act. In addition, the 34,824 shares underlying the units issuable upon the exercise of placement agent warrants
from the 2014 Private Placement will be freely tradable without restriction or further registration under the Securities Act.
The remaining 9,444,828 shares will be “restricted shares” as defined in Rule 144. Restricted shares may be sold in
the public market only if registered under the Securities Act or if they qualify for an exemption from registration, including
under Rule 144. In addition, as a result of the lock-up agreements described below, approximately 4,950,159 shares will be subject
to the additional contractual lock-up provisions described below.
Rule 144
In general, a person who has
beneficially owned restricted shares of our common stock for at
least six months would be entitled to sell such securities,
provided that (i) such person is not deemed to have been one of our
affiliates at the time of, or at any time during the 90 days
preceding, the sale and (ii) we are subject to the periodic
reporting requirements of the Exchange Act for at least 90 days
before the sale. Persons who have beneficially owned restricted
shares of our common stock for at least six months but who are
affiliates of ours at the time of, or at any time during the 90
days preceding, the sale, would be subject to additional
restrictions, by which such person would be entitled to sell within
any three-month period only a number of securities that does not
exceed the greater of the following:
•
1% of the number of shares of our common stock then outstanding,
which will equal approximately 136,035 shares immediately after
this offering; or
•
the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing by such person of a notice
on Form 144 with respect to the sale;
provided, in each case, that we are subject to the periodic
reporting requirements of the Exchange Act for at least 90 days
before the sale. Such sales by non-affiliates and affiliates must
also comply with the manner of sale, notice and other provisions of
Rule 144, to the extent applicable.
Rule 701
In general, Rule 701 allows a stockholder who purchased shares of
our capital stock pursuant to a written compensatory plan or
contract and who is not deemed to have been an affiliate of ours
during the immediately preceding 90 days to sell those shares in
reliance upon Rule 144, but without being required to comply with
the public information, holding period, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares, however,
are required to wait until 90 days after the date of this
prospectus before selling those shares pursuant to Rule 701.
107
Lock-up
Agreements
The Company, along with its directors and executive officers and
the holders of 5% or more of its shares, have agreed with the
selling agent to the following lock-up provisions with regard to
future sales of our common stock, warrants and other securities
convertible into or exercisable or exchangeable for common stock,
for the period beginning on the effective date of this Registration
Statement and ending 180 days thereafter, with the following
exceptions:
•
transfers to spouses, siblings, parents or any natural or adopted
children or other descendants or to any personal trust of the
Transferor;
•
transfers upon death to an estate, executor, administrator or
personal representative or to beneficiaries pursuant to a devise or
bequest or by laws of descent and distribution;
•
gift transfers or other transfer without consideration;
•
transfers as a bona fide pledge of shares to a lender; and,
•
participation in any transaction in which all holders of the shares
of ieCrowd participate or have the opportunity to participate
pro rata,
including, without limitation, a merger, consolidation or binding
share exchange involving ieCrowd, a disposition of the shares in
connection with the exercise of any rights, warrants or other
securities distributed to ieCrowd’s stockholders, or a tender
or exchange offer.
108
CERTAIN U.S. FEDERAL
INCOME TAX CONSIDERATIONS
The following are the material U.S. federal income tax consequences
to non-U.S. holders, as defined below, of the ownership and
disposition of the securities being sold in this offering. The
discussion below of the U.S. federal income tax consequences with
respect to actual holders of common stock and warrants should also
apply to holders of Units (as the deemed owners of the underlying
common stock and warrants that comprise the Units). This summary
applies to you only if you are a non-U.S. holder of our securities
that purchases such securities in this offering and will hold such
securities as capital assets within the meaning of section 1221 of
the Internal Revenue Code of 1986, as amended (the
“Code”) (generally, property held for investment).
For purposes of this discussion, a “non-U.S. holder”
means a beneficial owner of our securities that, for U.S. federal
income tax purposes, is not any of the following:
•
an individual who is a citizen or resident of the United
States;
•
a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized (or deemed
to be created or organized) in or under the laws of the United
States, any state thereof or the District of Columbia;
•
an estate the income of which is subject to U.S. federal income
taxation regardless of its source;
•
a trust if it (1) is subject to the primary supervision of a court
within the United States and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (2)
has a valid election in effect under applicable U.S. Treasury
Regulations to be treated as a U.S. person for U.S. federal income
tax purposes; or
•
an entity treated as a partnership or other pass-through entity for
U.S. federal income tax purposes.
Additionally, this discussion does not consider the tax treatment
of partnerships or other pass-through entities that hold our
securities, or persons who hold our securities through such
entities. If any entity or arrangement treated as a partnership for
U.S. federal income tax purposes holds our securities, the tax
treatment of a partner in such partnership generally will depend
upon the status of the partner and the activities of the partner
and the partnership. If you are a partner or owners of a
partnership or other pass-through entity considering an investment
in our securities, you should consult your tax advisors.
This summary is based upon provisions of the Code, applicable U.S.
Treasury Regulations promulgated thereunder, rulings and other
administrative pronouncements, and judicial decisions, all as of
the date hereof. These authorities are subject to different
interpretations and may be changed, perhaps retroactively, so as to
result in U.S. federal income tax consequences different from those
summarized below. We cannot assure you that a change in law will
not significantly alter the tax considerations described in this
summary.
This summary assumes that the common stock and warrants underlying
a unit will trade separately and does not address all aspects of
U.S. federal income taxation (such as the alternative minimum tax
or the 3.8% Medicare tax on certain investment income). This
summary also does not address any aspects of other federal taxes
(such as gift and estate taxes) or state, local or non-U.S. taxes
that may be relevant to non-U.S. holders in light of their
particular circumstances. In addition, this summary does not
describe the U.S. federal income tax consequences applicable to you
if you are subject to special treatment under U.S. federal income
tax laws (including if you have income that is effectively
connected with a U.S. trade or business or if you are a U.S.
expatriate or an entity subject to the U.S. anti-inversion rules, a
bank or other financial institution, an insurance company, a
tax-exempt organization, a trader, broker or dealer in securities
or currencies, a regulated investment company, a real estate
investment trust, a “controlled foreign corporation,” a
“passive foreign investment company,” an entity treated
as a partnership or other pass-through entity for U.S. federal
income tax purposes (or an investor in such a partnership or
pass-through entity), a person who acquired our securities as
compensation or otherwise in connection with the performance of
services, a person whose functional currency is other than the
United States dollar, or a person who has acquired our securities
as part of a straddle, hedge, conversion transaction, synthetic
security or other integrated investment).
We have not sought and do not expect to seek any rulings from the
IRS regarding the matters discussed below. There can be no
assurance that the IRS will not take positions concerning the tax
consequences of the ownership or disposition of our securities that
differ from those discussed below.
109
This discussion is only
a summary of the material U.S. federal income tax consequences of
the acquisition, ownership and disposition of our securities and is
not intended to constitute a complete description of all U.S.
federal income tax consequences for non-U.S. holders relating to
the acquisition, ownership and disposition of our securities. If
you are considering the purchase of our securities, you should
consult your tax advisors concerning the particular U.S. federal
income tax consequences to you of the acquisition, ownership and
disposition of our securities, as well as the consequences to you
arising under other U.S. federal tax laws and the laws of any other
applicable taxing jurisdiction in light of your particular
circumstances.
Allocation of Purchase
Price and Characterization of a Unit
There is no authority addressing the treatment, for U.S. federal
income tax purposes, of securities with terms substantially the
same as the units being offered in this offering, and, therefore,
that treatment is not entirely clear. Each unit may be treated for
U.S. federal income tax purposes as an investment unit consisting
of one shares of our common stock and one warrant to acquire
one-half share of our common stock. If this is the case, then for
U.S. federal income tax purposes, each holder of a unit may be
required to allocate the purchase price of a unit among the shares
of common stock and the warrant that comprise the unit based on the
relative fair market value of each at the time of issuance. The
price allocated to each such share or warrant generally will be the
holder’s tax basis in such share, right or warrant, as the
case may be.
Neither the foregoing description of the treatment of our common
stock and warrants nor a holder’s purchase price allocation
is binding on the IRS or the courts. Because there are no
authorities that directly address instruments that are similar to
the units, no assurance can be given that the IRS or the courts
will agree with the characterization described above or the
discussion below. Accordingly, each holder is advised to consult
its own tax advisor regarding the risks associated with an
investment in a unit (including alternative characterizations of a
unit) and regarding an allocation of the purchase price among the
common stock and the warrant that comprise a unit. The balance of
this discussion generally assumes that the characterization of the
units described above is respected for U.S. federal income tax
purposes.
Dividends
In general, distributions on
shares of our common stock will constitute dividends for U.S.
federal income tax purposes to the extent paid from our current or
accumulated earnings and profits, as determined under U.S. federal
income tax principles. To the extent any such distributions exceed
both our current and our accumulated earnings and profits, they
will first be treated as a return of capital reducing a non-U.S.
holder’s tax basis in our common stock (determined on a share
by share basis), but not below zero, and thereafter will be treated
as gain from the sale of such stock, the treatment of which is
discussed below under “Gain on Disposition of Shares of
Common Stock.”
As discussed under “Dividend Policy” above, we do not
currently expect to pay dividends. In the event that we do pay
dividends, dividends paid to a non-U.S. holder generally will be
subject to a U.S. federal withholding tax at a 30% rate, or such
lower rate as may be specified by an applicable income tax treaty.
A non-U.S. holder of shares of our common stock who wishes to claim
the benefit of an applicable treaty rate (and avoid backup
withholding, as discussed below) for dividends generally will be
required (a) to complete IRS Form W-8BEN (or other applicable form)
and certify under penalty of perjury that such holder is not a
“United States person” as defined under the Code and is
eligible for treaty benefits, or (b) if shares of our common stock
are held through certain foreign intermediaries (including certain
foreign partnerships), satisfy the relevant certification
requirements of applicable U.S. Treasury Regulations. This
certification must be provided to us or our paying agent prior to
the payment to the non-U.S. holder of any dividends, and may be
required to be updated periodically.
A non-U.S. holder of shares of our common stock eligible for a
reduced rate of United States federal withholding tax pursuant to
an income tax treaty may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim for refund with the
IRS.
110
Gain on Disposition of
our Securities
Subject to the discussions below of backup withholding and the
Foreign Account Tax Compliance Act (“FATCA”)
legislation, any gain realized by a non-U.S. holder on the sale or
other disposition of our securities generally will not be subject
to United States federal income tax, unless:
•
the non-U.S. holder is an individual who is present in the United
States for 183 days or more in the taxable year of such sale or
other disposition, and certain other conditions are met; or
•
we are or have been a U.S. real property holding corporation (a
“USRPHC”) for U.S. federal income tax purposes at any
time during the shorter of the five-year period ending on the date
of the disposition or the period that the non-U.S. holder held such
securities (the “applicable period”).
The determination of whether we are a USRPHC depends on the fair
market value of our U.S. real property relative to the fair market
value of other business assets, there can be no assurance that we
are not currently or will not become a USRPHC in the future. Even
if we are or become a USRPHC, so long as our common stock is
regularly traded on an established securities market, a non-U.S.
holder will be subject to U.S. federal income tax on any gain not
otherwise taxable only if such non-U.S. holder actually or
constructively owned more than five percent of our outstanding
common stock at some time during the applicable period. You should
consult your tax advisor about the consequences that could result
if we are, or become, a USRPHC.
Acquisition of Common
Stock Pursuant to the Exercise of a Warrant
A non-U.S. holder generally will not recognize gain or loss upon
the acquisition of common stock pursuant to the exercise of a
warrant for cash. Common stock acquired pursuant to the exercise of
a warrant for cash generally will have a tax basis equal to the
non-U.S. holder’s tax basis in the warrant, increased by the
amount paid to exercise the warrant. The holding period of such
common stock generally would begin on the day after the date of
receipt of such common stock upon exercise of the warrant and will
not include the period during which the non-U.S. holder held the
warrant. If a warrant is allowed to lapse unexercised, a non-U.S.
holder generally will recognize a capital loss equal to such
holder’s tax basis in the warrant.
The tax consequences of a cashless exercise of a warrant are not
clear under current tax law. A cashless exercise may be tax-free,
either because the exercise is not a gain realization event or
because the exercise is treated as a recapitalization for U.S.
federal income tax purposes. In either tax-free situation, a
non-U.S. holder’s basis in the common stock received would
equal the holder’s basis in the warrant. If the cashless
exercise were treated as not being a gain realization event, a
non-U.S. holder’s holding period in the common stock would be
treated as commencing on the date following the date of exercise of
the warrant. If the cashless exercise were treated as a
recapitalization, the holding period of the common stock would
include the holding period of the warrant. It is also possible that
a cashless exercise could be treated as a taxable exchange in which
gain or loss would be recognized. In such event, a non-U.S. holder
could be deemed to have surrendered warrants equal to the number of
shares of common stock having a value equal to the exercise price
for the total number of warrants to be exercised. The non-U.S.
holder would recognize capital gain or loss in an amount equal to
the difference between the fair market value of the common stock
represented by the warrants deemed surrendered and the non-U.S.
holder’s tax basis in the warrants deemed surrendered. In
this case, a non-U.S. holder’s tax basis in the common stock
received would equal the sum of the fair market value of the common
stock represented by the warrants deemed surrendered and the
non-U.S. holder’s tax basis in the warrants exercised. A
non-U.S. holder’s holding period for the common stock would
commence on the date following the date of exercise of the warrant.
Due to the absence of authority on the U.S. federal income tax
treatment of a cashless exercise, there can be no assurance which,
if any, of the alternative tax consequences and holding periods
described above would be adopted by the IRS or a court of law.
Accordingly, non-U.S. holders should consult their tax advisors
regarding the tax consequences of a cashless exercise.
If the cashless exercise of a warrant results in taxable gain to a
non-U.S. holder, then the consequences to such holder will be as
described above under “—Gain on Disposition of our
Securities.”
Information Reporting
and Backup Withholding
The amount of dividends paid to each non-U.S. holder, and the tax
withheld with respect to such dividends generally will be reported
annually to the IRS and to each such holder, regardless of whether
withholding was reduced or
111
eliminated by an applicable tax treaty. Copies of the information
returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder resides or is established under the provisions of
an applicable income tax treaty or agreement.
A non-U.S. holder generally will be subject to backup withholding
with respect to dividends paid to such holder unless such holder
certifies under penalty of perjury (generally on an applicable IRS
Form W-8) that it is not a “United States person” as
defined under the Code (and the payer does not have actual
knowledge or reason to know that such holder is such a United
States person), or such holder otherwise establishes an
exemption.
Information reporting and, depending on the circumstances, backup
withholding will apply to the proceeds of a sale or other
disposition by a non-U.S. holder of our securities within the
United States or conducted through certain U.S.-related financial
intermediaries, unless such non-U.S. holder certifies under penalty
of perjury that it is not a “United States person” (as
defined under the Code), and the payer does not have actual
knowledge or reason to know that the non-U.S. holder is such a
United States person, or such non-U.S. holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules may be allowed as a refund or a
credit against a non-U.S. holder’s U.S. federal income tax
liability provided the required information is timely furnished to
the IRS.
Legislation Affecting
Taxation of Securities Held by or Through Foreign
Entities
Legislation enacted in 2010, known as the “FATCA”
legislation, generally will impose a withholding tax of 30% on
dividend income from our common stock and on the gross proceeds of
a sale or other disposition of our securities paid to certain
“foreign financial institutions” (as specifically
defined under FATCA), unless such institution enters into an
agreement with the U.S. government to, among other things, collect
and provide to the U.S. tax authorities substantial information
regarding U.S. account holders of such institution (which includes
certain equity and debt holders of such institution, as well as
certain account holders that are non-U.S. entities with U.S.
owners), or another exception applies. The FATCA legislation also
generally will impose a withholding tax of 30% on dividend income
from our common stock and the gross proceeds of a sale or other
disposition of our securities paid to a non-U.S. entity that is not
a “foreign financial institution” unless such entity
provides the applicable withholding agent with a certification
identifying the substantial U.S. owners of the entity (if any),
which generally includes any U.S. person who directly or indirectly
owns more than 10% of the entity (or more than zero percent in the
case of some entities), or another exception applies. Under certain
circumstances, a non-U.S. holder of our securities might be
eligible for refunds or credits of such withholding taxes, and a
non-U.S. holder might be required to file a U.S. federal income tax
return to claim such refunds or credits. Under final U.S. Treasury
Regulations and subsequent administrative guidance, this
legislation only applies to payments of dividends made after June
30, 2014 and payments of gross proceeds made after December 31,
2016. Non-U.S. holders should consult their tax advisors regarding
the implications of this legislation on their investment in our
securities.
POTENTIAL PURCHASERS OF
OUR SECURITIES ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE
THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND
OTHER TAX CONSIDERATIONS OF OWNING AND DISPOSING OF OUR
SECURITIES.
112
PLAN OF
DISTRIBUTION
We are publicly offering our Units through TriPoint Global
Equities, LLC (“TriPoint”) and through their BANQ
online brokerage division. TriPoint has agreed to act as our
selling agent for this offering. The selling agent is not
purchasing any of the securities offered by us and is not required
to sell any specific number or dollar amount of securities, but
will instead arrange for the sale of securities to investors on a
“best efforts” basis, meaning that it need only use its
best efforts to sell the securities. The selling agent may sell
some of our securities through selected dealers.
Our board of directors has determined the offering price of the
Units and the exercise price of the warrants. They have done so
with reference to the value of our Company as reflected in the
Private Placements, but not otherwise with reference to our book
value or asset values or by the application of any customary,
established models for valuing companies or securities. Because
such prices have not been so determined, they may not be indicative
of any amounts you might receive should you seek to sell your
Company securities or should there be a liquidation of the Company.
In addition, such prices are not necessarily indicative of any
prices at which Company securities may trade, or any value that
might be ascribed to the Company after the completion of the
offering.
We are offering up to 3,125,000 Units, each Unit consisting of one
share of our common stock and one warrant to purchase one-half
share of our common stock. Each warrant will entitle the holder to
purchase one-half share of our common stock at an exercise price of
125% of the price of the shares in this offering. The warrants will
expire 36 months after the date they are issued. The Units will not
be issued or certificated. Instead, the shares of common stock and
the warrants will be issued separately and may be resold
separately, although they will have been purchased together in this
offering.
The
offering will close on September 30, 2015, unless all the securities are sold before that date, or we and the selling agent agree
to extend the offering for another 45 days, or we otherwise decide to close the offering early or cancel it, in our sole discretion.
If we and the selling agent extend the offering, we will provide that information in an amendment to this prospectus. If we close
the offering early or cancel it, including during any extended offering period, we may do so without notice to you, although if
we cancel the offering all funds that may have been provided by any investors will be promptly returned.
We plan to market this offering to potential investors through the
selling agent and by ourselves, directly, at meetings that we will
conduct at selected locations around the United States and
internationally with prospective investors.
U.S. investors may participate in this offering by opening an
account with BANQ, an online brokerage division of TriPoint, the
selling agent. The BANQ website may be found at Banq.co.
BANQ is open to qualified U.S. investors and accepts individual,
joint, corporate or IRA accounts. The application process takes
approximately 10 minutes and there are no account minimums.
Deposits to BANQ can be made via wire transfer or ACH deposit
or by mailing in a check. Deposits usually post to an account
within 3-5 days. BANQ® is a division of TriPoint
Global Equities LLC, a member of the Financial Industry Regulatory
Authority (FINRA) and the Securities Investor Protection
Corporation (SIPC), which protects the securities of its
members’ customers up to $500,000 (including $250,000 for
claims for cash).
Investors investing through
BANQ will be required to open their accounts and deposit funds into
their respective BANQ accounts after the effectiveness of the
registration statement relating to this offering but prior to the
closing of this offering; in all events, no funds may be used to
purchase securities issued in this offering until the registration
statement relating to this offering and filed by the Company with
the SEC has been declared effective by the SEC. After an account is
opened but before 48 hours prior to the closing of the offering,
the investor will be required to deposit funds into the account
sufficient to purchase the amount of securities that the investor
intends to purchase in the offering. Such funds will not be held in
an escrow account or otherwise segregated as part of the offering
process. During the marketing period for the offering and after the
registration statement has been declared effective, the investor
will provide an indication of interest as to the amount of
securities the investor intends to purchase. Forty-eight
(48) hours prior to the
completion of the offering, each investor will be asked by BANQ via
e-mail and notification to the secure messages section of the
website for the BANQ online brokerage account to confirm and
finalize the indication of the amount of securities such investor
wishes to purchase. Indications will not be finalized without
sufficient funds in the investor’s BANQ online brokerage
account. Upon the final closing and completion of the offering, the
funds required to purchase that amount of securities will be
removed from such investor’s account and transferred to the
account of the Company, and the amount of securities purchased will
be deposited into such investor’s account. If an investor
fails to confirm such investor’s desired investment within
the required time, no funds will be withdrawn, no securities will
be provided and the investor’s indication will not be
confirmed. In addition, if this offering fails to close, no funds
will be withdrawn, no securities will be provided, the
investor’s indication will not
113
be confirmed and the funds in
the investor’s BANQ account will remain available for
withdrawal, in accordance with the investor’s account
agreement with BANQ.
U.S. investors who
participate in this offering other than through BANQ, including
through selected dealers, will be required to deposit their funds
in an escrow account held at Wilmington Trust, N.A.; any such funds
that Wilmington Trust receives shall be held in escrow until the
closing of the offering or such other time as mutually agreed
between the Company and the selling agent, and then used to
complete securities purchases, or returned if this offering fails
to close.
Non-U.S. investors may
participate in this offering by depositing their funds in the
escrow account held at Wilmington Trust, N.A.; any such funds that
Wilmington Trust receives shall be held in escrow until the closing
of the offering or such other time as mutually agreed between the
Company and the selling agent, and then used to complete securities
purchases, or returned if this offering fails to close.
We will pay the selling agent
an aggregate selling agent fee equal to 6.0% of the gross proceeds
of the sale of securities in the offering (excluding the issuance
of securities upon the conversion of the Private Placement
Convertible Notes); provided that the fee shall be equal to 4.0%
for sales originating from non-U.S. investors and investors the
Company introduces to TriPoint. In addition, subject to compliance
with FINRA Rule 5110(f)(2)(D), the Company will reimburse
TriPoint’s expenses up to $25,000 (exclusive of the fees of
selling agent’s counsel, which the Company will reimburse
(but not in excess of $75,000, or $50,000 in the event that less
than $10 million of securities are sold in this offering)).
Throughout this prospectus, when calculating expected net proceeds
of this offering or otherwise calculating or assuming the
commissions to be paid to the selling agent in this offering, we
have assumed that all sales of Units generate a commission of 6.0%
for the selling agent. After deducting the aforementioned fees due
to the selling agent and our estimated offering expenses, we expect
the net proceeds from this offering to be approximately $18,175,000
if all the securities being offered are sold. If the selling agent
sells any of our securities through selected dealers, it may remit
a portion of its selling agent fee to such dealers.
The selling agency agreement between the selling agent and the
Company provides that the obligations of the selling agent and the
Company under that agreement are subject to certain customary
conditions precedent, including the absence of any material adverse
changes in our business and the receipt by the selling agent of
certain customary legal opinions, letters and certificates prior to
the completion of the offering.
TriPoint is an underwriter of
this offering within the meaning of Section 2(a)(11) of the
Securities Act and any commissions received by it and any profit
realized on the sale of the securities by it while so acting may be
deemed to be underwriting compensation. TriPoint will be required
to comply with the requirements of the Securities Act and the
Exchange Act, including, without limitation, Rule 10b-5 and
Regulation M under the Exchange Act. These rules and regulations
may limit the timing of purchases and sales of Units, shares of
common stock and warrants to purchase shares of common stock by
TriPoint. Under these rules and regulations, TriPoint may not,
among other things, (i) engage in any stabilization activity in
connection with our securities or (ii) bid for or purchase any of
our securities or attempt to induce any person to purchase any of
our securities, other than as permitted under the Exchange
Act.
As part of its compensation for serving as selling agent in this
offering, TriPoint will receive warrants exercisable for three
years entitling it to purchase for cash such number of shares of
common stock as are equal to 5% of the Units sold in this offering,
at an exercise price equal to 110% of the offering price of the
Units sold in this offering, and will also receive warrants
exercisable for three years entitling it to purchase for cash such
number of shares of common stock as are equal to 5% of the number
of shares of common stock underlying the warrants included in the
Units sold in this offering, at an exercise price equal to 110% of
the exercise price of the warrants in this offering (excluding, in
each case, the issuance of securities upon the conversion of the
Private Placement Convertible Notes). Such selling agent warrants
will be subject to FINRA Rule 5110(g)(1) in that, except as
otherwise permitted by FINRA rules, for a period of 180 days
following the date of effectiveness or commencement of sales of
this offering, such selling agent warrants shall not be (A) sold,
transferred, assigned, pledged or hypothecated or (B) the subject
of any hedging, short sale, derivative, put, or call transaction
that would result in the effective economic disposition of the
securities by any person.
As part of its compensation
for serving as placement agent for the 2014 Private Placement,
TriPoint received warrants exercisable for five years entitling it
to purchase up to $114,025 of notes with the same terms as those of
the Private Placement Convertible Notes. Primary Capital, LLC,
which served as a selected broker-dealer in the 2014 Private
Placement, received similar warrants entitling it to purchase
$4,375 of the same type of notes. Prior to the closing of this
offering, TriPoint and Primary Capital, LLC are expected to
exercise their warrants privately so as to purchase $114,025 and
$4,375, respectively, of such notes. Immediately after the closing
of this offering, upon our election to
114
force the conversion of the
Private Placement Convertible Notes, the notes held by TriPoint and
Primary Capital, LLC will become exercisable into $114,025 and
$4,375, respectively, of units, at a price equal to $5.10 per unit,
with the same terms as the Units being offered in this offering.
Such units would consist of an aggregate of 34,824 shares of common
stock and 17,412 warrants with the same terms as the warrants being
offered in this offering.
These warrants are considered an additional item of value pursuant
to FINRA Rule 5110(c)(2)(C).
TriPoint is subject to the provisions of the lock-up agreement
described above.
All of the warrants, and the securities underlying the warrants,
issued to TriPoint from this offering and the 2014 Private
Placement are subject to FINRA Rule 5110(g).
Pursuant to FINRA Rule
5110(g), the selling agent warrants and any shares issued upon
exercise of the selling agent warrants and any securities TriPoint
received from the 2014 Private Placement, shall not be sold,
transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put, or call transaction
that would result in the effective economic disposition of the
securities by any person for a period of 180 days immediately
following the date of effectiveness or commencement of sales of
this offering, except the transfer of any security:
•
by operation of law or by reason of reorganization of our
company;
•
to any FINRA member firm
participating in the offering and the officers or partners thereof,
if all securities so transferred remain subject to the lock-up
restriction set forth above for the remainder of the time
period;
•
if the aggregate amount of securities of our company held by the
holder of the selling agent warrants or related persons do not
exceed 1% of the securities being offered;
•
that is beneficially owned on a pro-rata basis by all equity owners
of an investment fund, provided that no participating member
manages or otherwise directs investments by the fund, and
participating members in the aggregate do not own more than 10% of
the equity in the fund; or
•
the exercise or conversion of any security, if all securities
received remain subject to the lock-up restriction set forth above
for the remainder of the time period.
The selling agent does not have any present intention or
arrangement to release any shares of our common stock subject to
lock-up agreements prior to the expiration of the 180-day lock-up
period.
The Company, along with its
directors and executive officers and the holders of 5% or more of
its shares, have agreed with the selling agent to certain lock-up
provisions as described under “Share Eligible for Future Sale
- Lock-up Agreements”.
We have agreed to indemnify
the selling agent against certain liabilities, including
liabilities under the Securities Act. We have also agreed to
contribute to payments the selling agent may be required to make in
respect of such liabilities.
We have applied to list our common stock and warrants on the NASDAQ
Capital Market (“NASDAQ”) under the symbols
“MYIE” and “MYIEW”, respectively, on or
promptly after the date this offering is completed. We cannot
guarantee that our securities will be approved for listing on
NASDAQ. NASDAQ’s listing standards require, among other
things, that we have stockholders’ equity of $5 million. As
of March 31, 2015, we had total stockholders’ equity of $2.0
million (on a pro forma basis, taking into account the forced
conversion, immediately after the closing of this offering, of our
Private Placement Convertible Notes). This means that, to have
closed this offering and listed on NASDAQ as of that date, we would
have had to raise approximately $3 million. In this offering, if we
are unable to raise the amount necessary to meet NASDAQ’s
stockholders’ equity requirement, or if we otherwise fail to
meet NASDAQ’s listing standards, our securities will not be
listed on NASDAQ. In that event, we may in our sole discretion
cancel this offering and all funds that may have been provided by
any investors will be promptly returned. In the event we close on
some or all of this offering but our securities are not listed on
NASDAQ, we expect they will be quoted for trading on one of the
“over the counter” markets operated by OTC Markets
Group, Inc., such as the OTCQB market. The over-the-counter markets
are relatively unorganized, inter-dealer markets that provide
significantly less liquidity than NASDAQ. No assurance can be given
that our securities, if quoted on one of the over-the-counter
markets, will ever trade on an active and liquid basis.
The CUSIP for our common stock is 457696 102 and the CUSIP for our
warrants is 457696 110.
The transfer agent for our shares is V-Stock Transfer & Trust
Company.
115
State Blue Sky
Information
In the event we do not qualify for listing on NASDAQ, we intend to
offer and sell the Units to retail customers in the United States
only in Colorado, Florida, Georgia, Illinois, Nevada and New York,
where we have applied to have the Units registered for sale. We
will not sell the Units to retail customers in these states until
registration is effective in each such state (including in
Colorado, pursuant to 11-51-302(6) of the Colorado Revised
Statutes). Notwithstanding the foregoing, we may choose to
register, or otherwise qualify, the Units for sale in additional
states.
In the event we do not qualify for listing on NASDAQ and you are in
the United States but not an “institutional investor”,
you may purchase our securities in this offering only in the states
in which we have registered or otherwise qualified them for sale.
Institutional investors in every state may purchase the Units in
this offering pursuant to exemptions provided to such entities
under the blue sky laws of such states. The definition of an
“institutional investor” varies from state to state but
generally includes financial institutions, broker-dealers, banks,
insurance companies and other qualified entities.
The National Securities Markets Improvement Act of 1996
(“NSMIA”), which is a federal statute, prevents or
preempts the states from regulating transactions in certain
securities, which are referred to as “covered
securities”. NSMIA nevertheless allows the states to
investigate if there is a suspicion of fraud or deceit, or unlawful
conduct by a broker or dealer, in connection with the sale of
securities. If there is a finding of fraudulent activity, the
states can regulate or bar the sale of covered securities in a
particular case.
State securities laws require that a company’s securities be
registered for sale or that the securities themselves or the
transaction under which they are issued, be exempt from
registration. When a state law provides an exemption from
registration, it is excusing an issuer from the general requirement
to register securities before they may be sold in that state.
States may, by rule or regulation, place conditions on the use of
exemptions, so that certain companies may not be allowed to rely on
such exemptions for the sale of their securities. If an exemption
is not available and the securities the company wishes to sell are
not covered securities under NSMIA, then the company must register
its securities for sale in the state in question.
We will file periodic and
current reports under the Exchange Act. Therefore, under NSMIA, the
states and territories of the United States are preempted from
regulating the resale by stockholders of the Units and the common
stock and warrants comprising the Units once they become separately
transferable. However, NSMIA does allow states and territories to
require notice filings and collect fees with regard to resale
transactions, and a state may suspend the offer and resale of
securities within such state if any such required filing is not
made or fee is not paid. As of the date of this prospectus, the
following states and territories do not require any resale notice
filings or fee payments and stockholders may resell the Units, and
the common stock and warrants comprising the Units once they become
separately transferable: Alabama, Alaska, Arizona, Arkansas,
California, Colorado, Connecticut, Delaware, Florida, Georgia,
Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana,
Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina,
Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South
Dakota, Utah, Virginia, Virgin Islands, Washington, West Virginia,
Wisconsin and Wyoming.
As of the date of this
prospectus, in the following states and territories, stockholders
may resell the Units, and the common stock and warrants comprising
the Units once they become separately transferable, if the proper
notice filings have been made and fees paid: the District of
Columbia, Maryland, Montana, New Hampshire, North Dakota, Oregon,
Puerto Rico, Tennessee, Texas and Vermont. As of the date of this
prospectus, we have not determined in which of these states and
territories, if any, we will submit the required filings or pay the
required fees. Additionally, if any of the states that have not yet
adopted a statute, rule or regulation requiring a filing or fee or
if any state amends its existing statutes, rules or regulations
with respect to its requirements, we would need to comply with
those new requirements in order for the securities to continue to
be eligible for resale by stockholders in those
jurisdictions.
In addition, aside from the
exemption from registration provided by NSMIA, we believe that the
Units, and the common stock and warrants comprising the Units once
they become separately transferable, may be eligible for resale in
various states without any notice filings or fee payments, based
upon the availability of applicable exemptions from such
states’ registration requirements, in certain instances
subject to waiting periods, notice filings or fee
payments.
The various states can impose
fines on us or take other regulatory actions against us if we fail
to comply with their state securities laws. Although we are taking
steps to help insure that, if our securities do not qualify for
listing on NASDAQ, we will conduct all the offers and sales in this
offering in compliance with all state securities laws (which steps
include, among other things, registering our securities in certain
states; restricting our marketing efforts to avoid making offers or
sales in states in which we are not registered; relying on
institutional investor exemptions from registration as available
from state to state; and restricting access to this offering on the
BANQ website to residents
116
of states in which our
securities are registered), there can be no assurance that we will
be able to achieve such compliance in all instances, or avoid fines
or other state regulatory actions if we do not achieve such
compliance.
Other Selling
Restrictions
European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
‘‘Relevant Member State’’), from and
including the date on which the European Union Prospectus Directive
(the ‘‘EU Prospectus Directive’’) was
implemented in that Relevant Member State (the
‘‘Relevant Implementation Date’’) an offer
of securities described in this prospectus may not be made to the
public in that Relevant Member State prior to the publication of a
prospectus in relation to the shares which has been approved by the
competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified
to the competent authority in that Relevant Member State, all in
accordance with the EU Prospectus Directive, except that, with
effect from and including the Relevant Implementation Date, an
offer of securities described in this prospectus may be made to the
public in that Relevant Member State at any time:
•
to any legal entity which is a qualified investor as defined under
the EU Prospectus Directive;
•
to fewer than 100 or, if the Relevant Member State has implemented
the relevant provision of the 2010 PD Amending Directive, 150
natural or legal persons (other than qualified investors as defined
in the EU Prospectus Directive); or
•
in any other circumstances falling within Article 3(2) of the EU
Prospectus Directive, provided that no such offer of securities
described in this prospectus shall result in a requirement for the
publication by us of a prospectus pursuant to Article 3 of the EU
Prospectus Directive.
For the purposes of this provision, the expression an
‘‘offer of securities to the public’’ in
relation to any securities in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or
subscribe for the securities, as the same may be varied in that
Member State by any measure implementing the EU Prospectus
Directive in that Member State. The expression “EU Prospectus
Directive” means Directive 2003/71/EC (and any amendments
thereto, including the 2010 PD Amending Directive, to the extent
implemented in the Relevant Member State) and includes any relevant
implementing measure in each Relevant Member State, and the
expression “2010 PD Amending Directive” means Directive
2010/73/EU.
Hong Kong
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an offer to
the public within the meaning of the Companies Ordinance (Cap.32,
Laws of Hong Kong), or (ii) to “professional investors”
within the meaning of the Securities and Futures Ordinance
(Cap.571, Laws of Hong Kong) and any rules made thereunder, or
(iii) in other circumstances which do not result in the document
being a “prospectus” within the meaning of the
Companies Ordinance (Cap.32, Laws of Hong Kong), and no
advertisement, invitation or document relating to the shares may be
issued or may be in the possession of any person for the purpose of
issue (in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed or
read by, the public in Hong Kong (except if permitted to do so
under the laws of Hong Kong) other than with respect to shares
which are or are intended to be disposed of only to persons outside
Hong Kong or only to “professional investors” within
the meaning of the Securities and Futures Ordinance (Cap. 571, Laws
of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus and
any other document or material in connection with the offer or
sale, or invitation for subscription or purchase, of the shares may
not be circulated or distributed, nor may the shares be offered or
sold, or be made the subject of an invitation for subscription or
purchase, whether directly or indirectly, to persons in Singapore
other than (i) to an institutional investor under Section 274 of
the Securities and Futures Act, Chapter 289 of Singapore (the
“SFA”), (ii) to a relevant person, or any person
pursuant to Section 275(1A), and in accordance with the
conditions,
117
specified in Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a
relevant person which is: (a) a corporation (which is not an
accredited investor) the sole business of which is to hold
investments and the entire share capital of which is owned by one
or more individuals, each of whom is an accredited investor; or (b)
a trust (where the trustee is not an accredited investor) whose
sole purpose is to hold investments and each beneficiary is an
accredited investor, shares, debentures and units of shares and
debentures of that corporation or the beneficiaries’ rights
and interest in that trust shall not be transferable for 6 months
after that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor under Section
274 of the SFA or to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions, specified
in Section 275 of the SFA; (2) where no consideration is given for
the transfer; or (3) by operation of law.
Japan
The securities have not been and will not be registered under the
Financial Instruments and Exchange Law of Japan (the Financial
Instruments and Exchange Law) and each underwriter has agreed that
it will not offer or sell any securities, directly or indirectly,
in Japan or to, or for the benefit of, any resident of Japan (which
term as used herein means any person resident in Japan, including
any corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly, in
Japan or to a resident of Japan, except pursuant to an exemption
from the registration requirements of, and otherwise in compliance
with, the Financial Instruments and Exchange Law and any other
applicable laws, regulations and ministerial guidelines of
Japan.
118
LEGAL MATTERS
Ellenoff Grossman & Schole LLP, New York, New York, is acting
as counsel in connection with the registration of our securities
under the Securities Act, and as such will pass upon the validity
of the securities offered in this prospectus. The selling agent is
being represented by Hunter Taubman Weiss LLP, New York, New
York.
EXPERTS
The consolidated financial statements of the Company as of and for
the years ended December 31, 2014 and 2013 appearing in this
prospectus have been audited by Marcum LLP, independent registered
public accounting firm, as set forth in their report thereon (which
contains an explanatory paragraph relating to substantial doubt
about the Company’s ability to continue as a going concern,
as discussed in Note 2 to the consolidated financial statements),
appearing elsewhere in this prospectus, and are included in
reliance on such report given on the authority of such firm as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE
INFORMATION
This prospectus constitutes a part of the registration statement
that we have filed with the SEC in connection with this offering.
It does not contain all of the information in the registration
statement and in the exhibits thereto. Statements contained in this
prospectus as to the contents of any contract or other document
that we file as an exhibit to the registration statement are not
necessarily complete, and each such statement is qualified in all
respects by reference to the full text of such exhibit. The
registration statement and the exhibits thereto may be inspected
and copied at the principal office of the SEC, 100 F Street, NE,
Washington, D.C. 20549, and copies of all or any part thereof may
also be obtained at prescribed rates from the SEC’s Public
Reference Section, at that address. In addition, the registration
statement and the exhibits thereto may be viewed on and printed out
from the SEC’s website at www.sec.gov.
We will also make available, free of charge, copies of the
registration statement and the exhibits thereto, upon written
request to Mr. Amro Albanna, our Chief Executive Officer, c/o the
Company at its principal executive offices.
119
INNOVATION ECONOMY
CORPORATION
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
|
Condensed Consolidated Financial Statements (Unaudited) for
the Three Months Ended March 31, 2015 and 2014
|
|
|
|
Condensed Consolidated Balance Sheets as of
March 31, 2015 (unaudited) and December 31, 2014
|
|
F - 2
|
|
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2015 and 2014
(unaudited)
|
|
F - 3
|
|
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2015 and 2014
(unaudited)
|
|
F - 4
|
|
Notes to Condensed Consolidated Financial
Statements
|
|
F - 5 – F - 9
|
|
|
|
|
|
Consolidated Financial Statements for Years Ended December
31, 2014 and 2013
|
|
|
|
Report of Independent Registered Public
Accounting Firm
|
|
F - 10
|
|
Consolidated Balance Sheets as of December 31,
2014 and 2013
|
|
F - 11
|
|
Consolidated Statements of Operations for the
years ended December 31, 2014 and 2013
|
|
F - 12
|
|
Consolidated Statements of Stockholders’
Deficiency for the years ended December 31, 2014 and
2013
|
|
F - 13
|
|
Consolidated Statements of Cash Flows for the
years ended December 31, 2014 and 2013
|
|
F - 14
|
|
Notes to Consolidated Financial
Statements
|
|
F - 15 – F - 32
|
F-1
INNOVATION ECONOMY
CORPORATION
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
544,699
|
|
|
$
|
1,881,776
|
|
|
Other current assets
|
|
|
30,035
|
|
|
|
24,140
|
|
|
Total Current Assets
|
|
|
574,734
|
|
|
|
1,905,916
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
173,160
|
|
|
|
159,031
|
|
|
Deferred financing costs, net
|
|
|
106,286
|
|
|
|
125,513
|
|
|
Deferred offering costs
|
|
|
359,292
|
|
|
|
238,044
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,213,472
|
|
|
$
|
2,428,504
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
573,849
|
|
|
$
|
412,223
|
|
|
Accrued expenses and other current
liabilities
|
|
|
590,654
|
|
|
|
512,761
|
|
|
Notes payable
|
|
|
90,705
|
|
|
|
47,455
|
|
|
Deferred revenue
|
|
|
210,210
|
|
|
|
210,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,465,418
|
|
|
|
1,182,649
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of debt discount
of $770,484 and $895,428 as of March 31, 2015 and December 31,
2014, respectively
|
|
|
2,014,516
|
|
|
|
1,889,572
|
|
|
Derivative liabilities
|
|
|
914,838
|
|
|
|
933,043
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Liabilities
|
|
|
2,929,354
|
|
|
|
2,822,615
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,394,772
|
|
|
|
4,005,264
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficiency
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.00001 par value, 500,000,000
shares authorized, 9,444,828 shares issued and outstanding at March
31, 2015 and December 31, 2014
|
|
|
94
|
|
|
|
94
|
|
|
Additional paid-in capital
|
|
|
13,110,930
|
|
|
|
12,999,487
|
|
|
Accumulated deficit
|
|
|
(14,839,743
|
)
|
|
|
(13,282,055
|
)
|
|
|
|
|
(1,728,719
|
)
|
|
|
(282,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(1,452,581
|
)
|
|
|
(1,294,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficiency
|
|
|
(3,181,300
|
)
|
|
|
(1,576,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
DEFICIENCY
|
|
$
|
1,213,472
|
|
|
$
|
2,428,504
|
|
See accompanying
notes to condensed consolidated financial statements.
F-2
INNOVATION ECONOMY
CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,216,108
|
|
|
|
687,025
|
|
|
Marketing and sales
|
|
|
130,148
|
|
|
|
131,891
|
|
|
Research and development
|
|
|
244,061
|
|
|
|
182,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
1,590,317
|
|
|
|
1,001,889
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(1,590,317
|
)
|
|
|
(1,001,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing
costs
|
|
|
(19,227
|
)
|
|
|
—
|
|
|
Amortizaton of debt discount
|
|
|
(124,944
|
)
|
|
|
—
|
|
|
Change in fair value of derivative
liabilities
|
|
|
18,205
|
|
|
|
—
|
|
|
Loss on settlement of accounts
payable
|
|
|
—
|
|
|
|
(8,354
|
)
|
|
Other income
|
|
|
300
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(125,666
|
)
|
|
|
1,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(1,715,983
|
)
|
|
|
(1,000,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non-controlling
interests
|
|
|
(158,295
|
)
|
|
|
(115,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss attributed to stockholders of Innovation Economy
Corporation
|
|
$
|
(1,557,688
|
)
|
|
$
|
(884,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Share: Basic and Diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding: Basic and
Diluted
|
|
|
9,444,828
|
|
|
|
8,881,578
|
|
See accompanying
notes to condensed consolidated financial statements.
F-3
INNOVATION ECONOMY
CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,715,983
|
)
|
|
$
|
(1,000,243
|
)
|
|
Adjustments to reconcile net loss to net cash
used by operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
111,443
|
|
|
|
251,144
|
|
|
Depreciation and
amortization expense
|
|
|
16,283
|
|
|
|
14,706
|
|
|
Change in fair value of
derivative liabilities
|
|
|
(18,205
|
)
|
|
|
—
|
|
|
Loss on settlement of
accounts payable
|
|
|
—
|
|
|
|
8,354
|
|
|
Amortization of deferred
financing costs
|
|
|
19,227
|
|
|
|
—
|
|
|
Amortization of debt
discount
|
|
|
124,944
|
|
|
|
—
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Other current
assets
|
|
|
(5,895
|
)
|
|
|
3,000
|
|
|
Accounts
payable
|
|
|
161,626
|
|
|
|
48,358
|
|
|
Accrued expenses and
other current liabilities
|
|
|
77,893
|
|
|
|
(40,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,228,667
|
)
|
|
|
(715,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(30,412
|
)
|
|
|
(5,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
(6,750
|
)
|
|
|
(56,750
|
)
|
|
Proceeds from notes payable
|
|
|
50,000
|
|
|
|
—
|
|
|
Payment of deferred offering costs
|
|
|
(121,248
|
)
|
|
|
—
|
|
|
Proceeds from common stock issued for
cash
|
|
|
—
|
|
|
|
1,560,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES
|
|
|
(77,998
|
)
|
|
|
1,503,250
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(1,337,077
|
)
|
|
|
782,349
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of
period
|
|
|
1,881,776
|
|
|
|
722,736
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
544,699
|
|
|
$
|
1,505,085
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH
FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Warrants issued to settle accounts
payable
|
|
$
|
—
|
|
|
$
|
26,855
|
|
See accompanying
notes to condensed consolidated financial statements.
F-4
INNOVATION ECONOMY
CORPORATION
NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS
ENDED MARCH 31, 2015 AND 2014
(unaudited)
NOTE 1 — NATURE OF
BUSINESS
Innovation Economy Corporation
(“IEC” or the “Company”) was incorporated
in Delaware on October 28, 2010. The Company intends to position
itself as a commercialization and global distribution company that
supports the innovation sector in the Inland Empire Southern
California region. The Company’s business model is to create
a diversified portfolio of subsidiary operating companies by
harvesting high-quality innovation-based assets and resources from
the Inland Empire Southern California region; developing and
commercializing the assets and resources; forming a line of
business and corporate structure around each asset or resource;
securing funding as needed; and marketing and selling the resulting
products and services through national and global distribution
channels.
The accompanying unaudited
condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) for interim
financial information. Accordingly, they do not include all of the
information and disclosures required by U.S. GAAP for annual
financial statements. In the opinion of management, such statements
include all adjustments (consisting only of normal recurring items)
that are considered necessary for a fair presentation of the
condensed consolidated financial statements of the Company as of
March 31, 2015 and for the three months ended March 31, 2015 and
2014. The results of operations for the three months ended March
31, 2015 are not necessarily indicative of the operating results
for the full year ending December 31, 2015 or any other period.
These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements and related disclosures of the Company as of December
31, 2014 and for the year then ended, which are included elsewhere
in this document. The Company’s primary activities
since inception, have been the design and development of its
products, negotiating strategic alliances and other agreements, and
raising capital. The Company has not commenced its principal
operations, nor has it generated any significant revenues from its
ongoing operations through March 31, 2015.
On January 16, 2015, the Company effected a 1-for-15 reverse stock
split of its issued and outstanding shares of common stock. All
references in these condensed consolidated financial statements to
the number of shares, options, warrants and other common stock
equivalents, price per share and weighted-average number of shares
outstanding of common stock have been adjusted to retroactively
reflect the effect of the reverse stock split.
NOTE 2 — GOING
CONCERN AND MANAGEMENT’S PLANS
The accompanying condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. As of March 31, 2015, the Company had a
working capital deficiency of $890,684 and stockholders’
deficiency of $3,181,300. The Company has not generated any
significant revenues from operations and has incurred net losses
since inception. These matters raise substantial doubt about the
Company’s ability to continue as a going concern. The
condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
asset amounts or the classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
Subsequent to March 31, 2015,
the Company filed a Registration Statement on Form S-1 with the
Securities & Exchange Commission in connection with a best
efforts primary offering of units consisting of shares of the
Company, common stock and warrants to purchase common stock.
In addition, the Company received proceeds of $2,100,000 from
unsecured convertible promissory notes (see Note 7). The
Company needs to raise additional capital in order to be able to
accomplish its business plan objectives. The Company is continuing
its efforts to secure additional funds through debt or equity
instruments due to the impending lack of funds. Management believes
that it will be successful in obtaining additional financing based
on its limited history of raising funds; however, no assurance can
be provided that the Company will be able to do so. There is no
assurance that any funds it raises will be sufficient to enable the
Company to attain profitable operations or continue as a going
concern. To the extent that the Company is unsuccessful, the
Company may need to curtail or cease its operations and implement a
plan to extend payables or reduce overhead until sufficient
additional capital is raised to support further operations. There
can be no assurance that such a plan will be successful.
F-5
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(unaudited)
NOTE 3 — SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The accompanying condensed consolidated financial statements
include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
At March 31, 2015, the Company owns 100% of Innovation Economy HUB,
Inc. and Innovation Economy Konnect, Inc., 95.0% of Smart Oxygen
Solutions, Inc. (formerly Breathing Technologies, Inc.)
(“SOS”), 70.4% of OlFactor Laboratories, Inc.
(“OLI”) and 83.5% of Nano Engineered Applications, Inc.
and all are included in the condensed consolidated financial
statements of the Company. The non-controlling interest represents
the remaining ownership of the majority-owned subsidiaries.
Use of
Estimates
The condensed consolidated financial statements and accompanying
notes are prepared in accordance with generally accepted accounting
principles in the United States of America. The preparation of
financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those
estimates. The Company’s significant estimates include
reserves related to the recoverability and useful lives of
long-lived assets, the valuation allowance related to deferred tax
assets, and the valuation of equity instruments, derivatives and
debt discounts.
Fair Value
of Financial Assets and Liabilities Measured on a Recurring
Basis
Level 3
Financial Liabilities – Derivative conversion features and
warrant liabilities
Financial assets and liabilities measured at fair value on a
recurring basis are summarized below and disclosed on the condensed
consolidated balance sheet as of March 31, 2015:
|
|
|
Carrying
|
|
Fair
Value Measurement Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion option liabilities
|
|
$
|
914,838
|
|
$
|
—
|
|
$
|
—
|
|
$
|
914,838
|
|
$
|
914,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below provides a summary of the changes in fair value,
including net transfers in and/or out, of all financial assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) during the three months
ended March 31, 2015:
|
|
|
Fair
Value
Measurement
Using Level 3
Inputs Total
|
|
Balance, January 1, 2015
|
|
$
|
933,043
|
|
|
Change in fair value of derivative
liabilities
|
|
|
(18,205
|
)
|
|
Balance, March 31, 2015
|
|
$
|
914,838
|
|
Net Loss
Per Share of Common Stock
Basic loss per common share is computed by dividing net loss by the
weighted average number of vested common shares outstanding during
the period. Diluted earnings per common share is computed by
dividing net income by the weighted average number of vested common
shares outstanding, plus the impact of common shares, if dilutive,
resulting from the exercise of outstanding stock options and
warrants, plus the conversion of convertible notes.
F-6
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(unaudited)
NOTE 3 — SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
The following securities are excluded from the calculation of
weighted average dilutive common shares outstanding because their
inclusion would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
2,645,967
|
|
2,439,834
|
|
Warrants
|
|
267,637
|
|
219,333
|
|
Convertible Promissory Notes
|
|
546,078
|
|
—
|
|
Total potentially dilutive shares
|
|
3,459,682
|
|
2,659,167
|
Recently
Issued Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board issued
Accounting Standards Update 2015-03, Interest—Imputation
of Interest. To simplify presentation of debt issuance
costs, the amendments in this Update would require that debt
issuance costs be presented in the balance sheet as a direct
deduction from the carrying amount of debt liability, consistent
with debt discounts or premiums. The recognition and measurement
guidance for debt issuance costs would not be affected by the
amendments in this Update. This Accounting Standards Update is the
final version of Proposed Accounting Standards Update
2014-250—Interest—Imputation of Interest (Subtopic
835-30), which has been deleted. The amendments in this Update are
effective for financial statements issued for fiscal years
beginning after December 15, 2015, and interim periods within those
fiscal years. The Company is currently evaluating the effects of
ASU 2015-03 on the condensed consolidated financial statements.
Subsequent
Events
Management has evaluated subsequent events or transactions
occurring through the date on which the financial statements were
issued. Based upon the evaluation, the Company did not identify any
recognized or non-recognized subsequent events that would have
required adjustment or disclosure in the condensed consolidated
financial statements, except as disclosed.
NOTE 4 —
CONVERTIBLE NOTES PAYABLE
During the three months ended March 31, 2015, the Company
recognized $124,944 and $19,227 in amortization of the debt
discount and deferred financing costs, respectively, relating to
the convertible notes payable.
The fair value of the conversion feature of the convertible notes
payable on March 31, 2015 was calculated using a binomial option
model valued with the following weighted average assumptions:
|
Dividend Yield
|
|
|
0
|
%
|
|
Volatility
|
|
|
67.55
|
%
|
|
Risk-free interest rate
|
|
|
0.56
|
%
|
|
Contractual term
|
|
|
1.542 years
|
|
|
Weighted average unit fair value
|
|
$
|
1.675
|
|
|
Common shares assumed issued
|
|
|
546,078
|
|
|
Aggregate fair value
|
|
$
|
914,838
|
|
During the three months ended March 31, 2015, the Company marked
the conversion feature of the convertible notes payable to fair
value and recorded a gain of $18,205 relating to the change in fair
value.
In March 2015, the Company received proceeds of $50,000 in an
intended purchase of an unsecured convertible promissory note.
However, as of March 31, 2015, the investor did not complete the
necessary documentation for the Company to issue the note. As a
result, as of March 31, 2015, $50,000 was accounted for as a
non-interest bearing short term promissory note.
F-7
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(unaudited)
NOTE 5 —
STOCKHOLDERS’ DEFICIENCY
Stock-Based
Compensation
The Company uses the Black-Scholes option pricing model to
determine the fair value of the options and warrants granted.
No options were granted during the three months ended March 31,
2015 or 2014.
In applying the Black-Scholes option pricing model to warrants
granted, the Company used the following weighted average
assumptions:
|
|
|
For
The Three Months Ended
March 31,
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
—
|
|
1.76
|
%
|
|
Dividend yield
|
|
—
|
|
0.00
|
%
|
|
Expected volatility
|
|
—
|
|
154
|
%
|
|
Expected life in years
|
|
—
|
|
4
|
|
|
Forfeiture Rate
|
|
—
|
|
0.00
|
%
|
The weighted average fair value of the warrants granted during the
three months ended March 31, 2014 was $4.18 per warrant.
Stock-based compensation for stock options and warrants has been
recorded in the condensed consolidated statements of operations and
totaled $111,443 and $200,575 for the three months ended March 31,
2015 and 2014, respectively. As of March 31, 2015, the remaining
balance of unamortized expense is $385,596 and is expected to be
amortized over a period of 2.25 years.
NOTE 6 —
LITIGATIONS, CLAIMS AND ASSESSMENTS
In the normal course of business, the Company may be involved in
legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance. There are no such
matters that are deemed material to the condensed consolidated
financial statements as of March 31, 2015.
NOTE 7 —
SUBSEQUENT EVENTS
In April 2015, the Company through private placements of unsecured
convertible promissory notes (the “2015 Convertible
Notes”) raised an aggregate principal amount of $2,100,000.
The notes bear interest at 8% per annum and mature in two years.
Any unpaid principal and accrued interest due under the notes will
automatically convert into shares of common stock at the maturity
date.
The principal of the notes are convertible into 411,765 shares of
common stock at a conversion price of $5.10 per share. The notes
contain a provision to lower the conversion price to any subsequent
common stock issuance at a lower price, if any convertible debt
subsequently issued has a lower conversion price or if any options
or warrants have lower exercise prices. If the Company
completes a registered initial public offering (“IPO”)
prior to the maturity date, the Company shall have the right to
force conversion of any unpaid principal and accrued interest owed
under the notes, in whole, or in part, into the securities issued
pursuant to the IPO at a 20% discounted conversion price to the
price of the securities sold in the IPO. If the Company completes a
qualifying transaction that results in the Company receiving gross
proceeds of more than $7,500,000 prior to the maturity date, the
Company shall also have the right to force conversion of any unpaid
principal and accrued interest owing under the previous convertible
notes, in whole, or in part, into the securities issued pursuant to
the IPO at a 20% discounted conversion price to the price of the
qualifying transaction. The Company determined that the conversion
feature of the notes did not contain fixed settlement provisions
because the conversion price can be adjusted based on new
issuances, and
F-8
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(unaudited)
NOTE 7 —
SUBSEQUENT EVENTS(cont.)
accordingly, the Company will record the note conversion feature as
a liability and mark to market the derivative to fair value each
reporting period.
In May 2015, the Company negotiated options to license certain
patents and patent applications from various third parties (the
“IP Portfolio”). The options run for six months, and
can be extended for an additional six months thereafter in the sole
discretion of the Company. The patents and applications relate to
subject matters in a variety of technology areas, including the
treatment of various cancers, ischemic stroke, diabetes and
bacterial infections. The opportunity to secure the options arose
from the Company relationship with one of its principal investors,
Sunbelt III Technologies Management, LLC (“Sunbelt”). A
company managed by a Sunbelt affiliate had earlier secured options
over the patents and applications, and some time thereafter Sunbelt
had proposed that the options be conveyed to the Company on
arm’s-length terms. Following negotiations, we were able to
enter into an agreement with the Sunbelt affiliate that terminated
its options (the “Termination Agreement”), allowing us
to negotiate for the options. As per the terms of the Termination
Agreement should the Company exercise its right to license the IP
Porfolio then the Company shall grant and issue to the Sunbelt
affiliate 125,000 shares of the Company’s restricted common
stock and a cash payment of approximately $132,000.
In May 2015, the Company extended its office lease for an
additional 12 months through on April 30, 2016. The Company is
obligated to pay monthly base rental payments of $5,641.
On
May 28, 2015, the Company’s Board of Directors and stockholders approved a Second Amended and Restated Certificate of Incorporation,
which authorized the Company to issue up to 10,000,000 shares of preferred stock with a par value of $0.00001 per share.
On
July 14, 2015, the Company issued 1,500 shares of common stock to a consultant for vendor services.
On
July 21, 2015, the Company entered into two promissory notes for $100,000 each. The notes accrue interest at an annual rate
of 3% and mature 60 days from the date of issuance. Each note grants the noteholder 50,000 warrants to purchase common stock
at a price of $8.00. The warrants expire 3 years from the date of issuance.
F-9
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Innovation Economy Corporation
We have audited the accompanying consolidated balance sheets of
Innovation Economy Corporation (the “Company”) as of
December 31, 2014 and 2013, and the related consolidated statements
of operations, stockholders’ deficiency and cash flows for
the years then ended. These financial statements are the
responsibility of the Company’s 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. The Company
is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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 consolidated financial
position of Innovation Economy Corporation as of December 31, 2014
and 2013, and the consolidated results of its operations and its
cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As more fully described in Note 2, the Company has not
generated any significant revenues from operations and has incurred
losses since inception. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Marcum LLP
Marcum LLP
New York, NY
April 3, 2015, except for Note 8a and Note 14, as to which the date
is May 12, 2015
F-10
INNOVATION ECONOMY
CORPORATION
CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,881,776
|
|
|
$
|
722,736
|
|
|
Other current assets
|
|
|
24,140
|
|
|
|
21,290
|
|
|
Total Current Assets
|
|
|
1,905,916
|
|
|
|
744,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
159,031
|
|
|
|
194,464
|
|
|
Deferred financing costs, net
|
|
|
125,513
|
|
|
|
—
|
|
|
Deferred offering costs
|
|
|
238,044
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,428,504
|
|
|
$
|
938,490
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
412,223
|
|
|
$
|
297,294
|
|
|
Accrued expenses and other current
liabilities
|
|
|
512,761
|
|
|
|
596,303
|
|
|
Notes payable
|
|
|
47,455
|
|
|
|
122,205
|
|
|
Deferred revenue
|
|
|
210,210
|
|
|
|
210,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,182,649
|
|
|
|
1,226,172
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of debt discount
of $895,428 as of December 31, 2014
|
|
|
1,889,572
|
|
|
|
—
|
|
|
Derivative liabilities
|
|
|
933,043
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Liabilities
|
|
|
2,822,615
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,005,264
|
|
|
|
1,226,172
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficiency
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.00001 par value, 500,000,000
shares authorized, 9,444,828 and and 8,833,112 shares issued and
outstanding at December 31, 2014 and 2013, respectively
|
|
|
94
|
|
|
|
88
|
|
|
Additional paid-in capital
|
|
|
12,999,487
|
|
|
|
9,349,176
|
|
|
Accumulated deficit
|
|
|
(13,282,055
|
)
|
|
|
(8,749,750
|
)
|
|
Total Stockholders’ (Deficiency)
Equity-Innovation Economy Corporation
|
|
|
(282,474
|
)
|
|
|
599,514
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(1,294,286
|
)
|
|
|
(887,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficiency
|
|
|
(1,576,760
|
)
|
|
|
(287,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
DEFICIENCY
|
|
$
|
2,428,504
|
|
|
$
|
938,490
|
|
See accompanying
notes to consolidated financial statements.
F-11
INNOVATION ECONOMY
CORPORATION
CONSOLIDATED STATEMENTS
OF OPERATIONS
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
109,688
|
|
|
Cost of revenue
|
|
|
—
|
|
|
|
(98,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
—
|
|
|
|
11,684
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
3,516,043
|
|
|
|
2,762,461
|
|
|
Marketing and sales
|
|
|
676,710
|
|
|
|
317,557
|
|
|
Research and development
|
|
|
702,376
|
|
|
|
571,070
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
4,895,129
|
|
|
|
3,651,088
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(4,895,129
|
)
|
|
|
(3,639,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
Grant income
|
|
|
—
|
|
|
|
271,636
|
|
|
Amortization of deferred financing
costs
|
|
|
(28,297
|
)
|
|
|
—
|
|
|
Amortization of debt discount
|
|
|
(104,120
|
)
|
|
|
(58,124
|
)
|
|
Change in fair value of derivative
liability
|
|
|
66,505
|
|
|
|
—
|
|
|
Loss on settlement of accounts
payable
|
|
|
(8,354
|
)
|
|
|
—
|
|
|
Other income
|
|
|
30,000
|
|
|
|
14,509
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
(44,266
|
)
|
|
|
228,021
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(4,939,395
|
)
|
|
|
(3,411,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non-controlling
interests
|
|
|
(407,090
|
)
|
|
|
(352,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss attributed to stockholders of Innovation Economy
Corporation
|
|
$
|
(4,532,305
|
)
|
|
$
|
(3,059,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share: Basic and Diluted
|
|
$
|
(0.49
|
)
|
|
$
|
(0.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding: Basic and
Diluted
|
|
|
9,261,231
|
|
|
|
8,344,836
|
|
See accompanying
notes to consolidated financial statements.
F-12
INNOVATION ECONOMY
CORPORATION
CONSOLIDATED STATEMENT
OF STOCKHOLDERS’ DEFICIENCY
FOR THE YEARS ENDED
DECEMBER 31, 2014 AND 2013
|
|
|
|
|
Additional
Paid-in
|
|
Non-Controlling
Interest in
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 1,
2013
|
|
8,133,622
|
|
$
|
81
|
|
$
|
6,380,163
|
|
$
|
(535,165
|
)
|
|
$
|
(5,690,398
|
)
|
|
$
|
154,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for
cash
|
|
434,950
|
|
|
4
|
|
|
1,626,996
|
|
|
—
|
|
|
|
—
|
|
|
|
1,627,000
|
|
|
Stock issued for
services
|
|
85,040
|
|
|
1
|
|
|
344,164
|
|
|
—
|
|
|
|
—
|
|
|
|
344,165
|
|
|
Stock in subsidiary
issued for services
|
|
—
|
|
|
—
|
|
|
8,750
|
|
|
—
|
|
|
|
—
|
|
|
|
8,750
|
|
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
714,905
|
|
|
—
|
|
|
|
—
|
|
|
|
714,905
|
|
|
Stock issued for
conversion of note payable
|
|
179,500
|
|
|
2
|
|
|
269,248
|
|
|
—
|
|
|
|
—
|
|
|
|
269,250
|
|
|
Stock issued in
subsidiary for cash
|
|
—
|
|
|
—
|
|
|
4,950
|
|
|
—
|
|
|
|
—
|
|
|
|
4,950
|
|
|
Net loss for the year
ended December 31, 2013
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(352,031
|
)
|
|
|
(3,059,352
|
)
|
|
|
(3,411,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31,
2013
|
|
8,833,112
|
|
$
|
88
|
|
$
|
9,349,176
|
|
$
|
(887,196
|
)
|
|
$
|
(8,749,750
|
)
|
|
$
|
(287,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for
cash
|
|
490,417
|
|
|
5
|
|
|
2,339,995
|
|
|
—
|
|
|
|
—
|
|
|
|
2,340,000
|
|
|
Stock issued for
exercise of warrants
|
|
104,167
|
|
|
1
|
|
|
499,999
|
|
|
—
|
|
|
|
—
|
|
|
|
500,000
|
|
|
Stock issued for
services
|
|
17,132
|
|
|
|
|
|
82,395
|
|
|
|
|
|
|
|
|
|
|
82,395
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
701,067
|
|
|
|
|
|
|
|
|
|
|
701,067
|
|
|
Warrants issued to
settle accounts payable
|
|
|
|
|
|
|
|
26,855
|
|
|
|
|
|
|
|
|
|
|
26,855
|
|
|
Net loss for the year
ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
(407,090
|
)
|
|
|
(4,532,305
|
)
|
|
|
(4,939,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31,
2014 (revised)
|
|
9,444,828
|
|
$
|
94
|
|
$
|
12,999,487
|
|
$
|
(1,294,286
|
)
|
|
$
|
(13,282,055
|
)
|
|
$
|
(1,576,760
|
)
|
See accompanying
notes to consolidated financial statements
F-13
INNOVATION ECONOMY
CORPORATION
CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,939,395
|
)
|
|
$
|
(3,411,383
|
)
|
|
Adjustments to reconcile net loss to net cash
used by operating activities:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
701,067
|
|
|
|
714,905
|
|
|
Stock issued for services
|
|
|
82,395
|
|
|
|
352,915
|
|
|
Depreciation and amortization expense
|
|
|
61,046
|
|
|
|
58,210
|
|
|
Change in fair value of derivative
liability
|
|
|
(66,505
|
)
|
|
|
—
|
|
|
Loss on settlement of accounts
payable
|
|
|
8,354
|
|
|
|
—
|
|
|
Amortization of deferred financing
costs
|
|
|
28,297
|
|
|
|
—
|
|
|
Amortization of debt discount
|
|
|
104,120
|
|
|
|
58,124
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
(2,850
|
)
|
|
|
(6,875
|
)
|
|
Accounts payable
|
|
|
133,430
|
|
|
|
97,691
|
|
|
Accrued expenses and other current
liabilities
|
|
|
(83,542
|
)
|
|
|
513,037
|
|
|
Deferred revenue
|
|
|
(160
|
)
|
|
|
210,370
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(3,973,743
|
)
|
|
|
(1,413,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(25,613
|
)
|
|
|
(3,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from loan payable
|
|
|
—
|
|
|
|
123,583
|
|
|
Repayment of loan payable
|
|
|
(74,750
|
)
|
|
|
(1,378
|
)
|
|
Proceeds from convertible notes
payable
|
|
|
2,785,000
|
|
|
|
—
|
|
|
Payment of deferred financing costs
|
|
|
(153,810
|
)
|
|
|
—
|
|
|
Payment of deferred offering costs
|
|
|
(238,044
|
)
|
|
|
—
|
|
|
Proceeds from common stock issued for
cash
|
|
|
2,340,000
|
|
|
|
1,627,000
|
|
|
Proceeds from the exercise of
warrants
|
|
|
500,000
|
|
|
|
—
|
|
|
Proceeds from private placement in
subsidiary
|
|
|
—
|
|
|
|
4,950
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING
ACTIVITIES
|
|
|
5,158,396
|
|
|
|
1,754,155
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
1,159,040
|
|
|
|
337,154
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of
year
|
|
|
722,736
|
|
|
|
385,582
|
|
|
Cash and cash equivalents, end of
year
|
|
$
|
1,881,776
|
|
|
$
|
722,736
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Note payable and accrued interest converted to
common stock
|
|
$
|
—
|
|
|
$
|
269,250
|
|
|
Warrants issued to settle accounts
payable
|
|
$
|
26,855
|
|
|
$
|
—
|
|
|
Debt discount in conjunction with the recording
of the original value of the derivative liability
|
|
$
|
999,548
|
|
|
$
|
—
|
|
See accompanying
notes to consolidated financial statements.
F-14
INNOVATION ECONOMY
CORPORATION
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2014 AND 2013
NOTE 1 — NATURE OF
BUSINESS
Innovation Economy Corporation
(“IEC” or the “Company”) was incorporated
in Delaware on October 28, 2010. The Company intends to position
itself as a commercialization and global distribution company that
supports the innovation sector in the Inland Empire Southern
California region. The Company’s business model is to create
a diversified portfolio of subsidiary operating companies by
harvesting high-quality innovation-based assets and resources from
the Inland Empire Southern California region; developing and
commercializing the assets and resources; forming a line of
business and corporate structure around each asset or resource;
securing funding as needed; and marketing and selling the resulting
products and services through national and global distribution
channels.
The Company’s primary activities since inception, have been
the design and development of its products, negotiating strategic
alliances and other agreements, and raising capital. The Company
had not commenced its principal operations, nor had it generated
any significant revenues from its ongoing operations through
December 31, 2014.
On January 16, 2015, the Company effected a 1-for-15 reverse stock
split of its issued and outstanding shares of common stock. All
references in these consolidated financial statements to the number
of shares, options, warrants and other common stock equivalents,
price per share and weighted-average number of shares outstanding
of common stock have been adjusted to retroactively reflect the
effect of the stock split.
NOTE 2 — GOING
CONCERN AND MANAGEMENT’S PLANS
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. As of December 31, 2014, the Company had
a stockholders’ deficiency of $1,458,932. The Company has not
generated any significant revenues from operations and has incurred
net losses since inception. These matters raise substantial doubt
about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
asset amounts or the classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
Subsequent to December 31, 2014, the Company filed a Registration
Statement on Form S-1 with the Securities & Exchange Commission
in connection with a best efforts primary offering of units
consisting of shares of the Company, common stock and warrants to
purchase common stock. The Company needs to raise additional
capital in order to be able to accomplish its business plan
objectives. The Company is continuing its efforts to secure
additional funds through debt or equity instruments due to the
impending lack of funds. Management believes that it will be
successful in obtaining additional financing based on its limited
history of raising funds; however, no assurance can be provided
that the Company will be able to do so. There is no assurance that
any funds it raises will be sufficient to enable the Company to
attain profitable operations or continue as a going concern. To the
extent that the Company is unsuccessful, the Company may need to
curtail or cease its operations and implement a plan to extend
payables or reduce overhead until sufficient additional capital is
raised to support further operations. There can be no assurance
that such a plan will be successful.
NOTE 3 — SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
At December 31, 2014 and 2013, the Company owns 100% of Innovation
Economy HUB, Inc. and Innovation Economy Konnect, Inc., 95.0% of
Smart Oxygen Solutions, Inc. (formerly Breathing Technologies,
Inc.) (“SOS”), 70.4% of Olfactor Laboratories, Inc.
(“OLI”) and 83.5% of Nano Engineered Applications, Inc.
and all are included in the consolidated financial statements of
the Company. The non-controlling interest represents the remaining
ownership of the majority-owned subsidiaries.
F-15
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
Use of Estimates
The consolidated financial statements and accompanying notes are
prepared in accordance with generally accepted accounting
principles in the United States of America. The preparation of
financial statements in conformity with United States generally
accepted accounting principles (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those
estimates. The Company’s significant estimates include
reserves related to the recoverability and useful lives of
long-lived assets, the valuation allowance related to deferred tax
assets, and the valuation of equity instruments, derivatives and
debt discounts.
Segment Reporting
In accordance with ASC 280 “Segment Reporting”,
operating segments are identified as components of an enterprise
about which separate discrete financial information is available
for evaluation by the chief operating decision maker, or
decision-making group, in making decisions how to allocate
resources and assess performance. The Company’s chief
decision maker, as defined under the FASB’s guidance, is its
Chief Executive Officer. It is determined that the Company operates
in one business segment and one geographic segment, the United
States of America.
Concentrations of Credit Risk
The Company maintains its cash accounts at financial institutions
which are insured by the Federal Deposit Insurance Corporation
(“FDIC”). At times, the Company has deposits in excess
of federally insured limits.
Cash and Cash Equivalents
The Company considers all
highly liquid investments with an original maturity of three months
or less when purchased to be cash equivalents. As of December 31,
2014 and 2013, cash equivalents included money market
accounts.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided over the estimated useful
life of each class of assets using the straight-line method.
Expenditures for maintenance and repairs are charged to expense as
incurred. Additions and betterments that substantially extend the
useful life of the asset are capitalized. Upon the sale,
retirement, or other disposition of property and equipment, the
cost and related accumulated depreciation are removed from the
balance sheet, and any gain or loss on the transaction is included
in the statement of operations.
Deferred Financing Costs
The Company classifies costs related to the issuance of Notes
Payable as Deferred Financing Costs. Deferred Financing Costs are
amortized using the straight-line method over the term of the
notes.
Deferred Offering Costs
The Company classifies amounts related to a potential future equity
financing not closed as of the balance sheet date as Deferred
Offering Costs. As of December 31, 2014, the Company capitalized
costs in the amount of $238,044 that relates to a potential future
financing as Deferred Offering Costs in the accompanying balance
sheet.
F-16
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to estimated undiscounted future cash flows expected to be
generated by the asset.
If the carrying amount of an asset exceeds its undiscounted
estimated future cash flows, an impairment review is performed. An
impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to
be disposed of would be separately presented in the balance sheet
and reported at the lower of the carrying amount or fair value less
costs to sell, and are no longer depreciated. The assets and
liabilities of a disposed group classified as held for sale would
be presented separately in the appropriate asset and liability
sections of the balance sheet.
The Company determined that there was no indication of impairment
of long-lived assets during the years ended December 31, 2014 and
2013.
Convertible Instruments
The Company bifurcates conversion options from their host
instruments and accounts for them as free standing derivative
financial instruments according to certain criteria. The criteria
includes circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and
closely related to the economic characteristics and risks of the
host contract, (b) the hybrid instrument that embodies both the
embedded derivative instrument and the host contract is not
re-measured at fair value under otherwise applicable generally
accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the
same terms as the embedded derivative instrument would be
considered a derivative instrument. An exception to this rule is
when the host instrument is deemed to be conventional as that term
is described under applicable U.S. GAAP.
For instruments in which the Company has determined that the
embedded conversion options should not be bifurcated from their
host instruments, the Company records, when necessary, discounts to
convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the
fair value of the underlying common stock at the commitment date of
the note transaction and the effective conversion price embedded in
the note. Debt discounts under these arrangements are amortized
over the term of the related debt to their stated date of
redemption.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash
equivalents, other current assets, accounts payable, accrued
expenses, other current liabilities and notes payable. The carrying
amount of these financial instruments approximates fair value due
either to length of maturity or interest rates that approximate
prevailing market rates unless otherwise disclosed in these
financials statements.
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. These fair value
measurements apply to all financial instruments that are measured
and reported on a fair value basis.
F-17
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
Based on the observability of the inputs used in the valuation
techniques, financial instruments are categorized according to the
fair value hierarchy, which ranks the quality and reliability of
the information used to determine fair values. Financial assets and
liabilities carried at fair value are classified and disclosed in
one of the following three categories:
Level 1 — Observable inputs such as quoted prices in active
markets.
Level 2 — Inputs, other than the quoted prices in active
markets, that are observable either directly or indirectly.
Level 3 — Unobservable inputs in which there is little or no
market data, which require the reporting entity to develop its own
assumptions.
Financial assets are considered Level 3 when their fair values are
determined using pricing models, discounted cash flow methodologies
or similar techniques and at least one significant model assumption
or input is unobservable.
In certain cases, the inputs used to measure fair value may fall
into different levels of the fair value hierarchy. In such cases,
the assignment of an asset or liability within the fair value
hierarchy is based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of
the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.
The Company uses Level 3 of the fair value hierarchy to measure the
fair value of the derivative liabilities and revalues its
derivative liabilities at every reporting period and recognizes
gains or losses in the consolidated statements of operations that
are attributable to the change in the fair value of the derivative
liabilities.
Fair Value of
Financial Assets and Liabilities Measured on a Recurring
Basis
Level 3 Financial Liabilities – Derivative conversion
features and warrant liabilities
Financial assets and liabilities measured at fair value on a
recurring basis are summarized below and disclosed on the
consolidated balance sheet as of December 31, 2014:
|
|
|
Carrying
|
|
Fair
Value Measurement Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion option liabilities
|
|
$
|
933,043
|
|
$
|
—
|
|
$
|
—
|
|
$
|
933,043
|
|
$
|
933,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below provides a summary of the changes in fair value,
including net transfers in and/or out, of all financial assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) during the year ended
December 31, 2014:
|
|
|
Fair
Value Measurement
Using Level 3 Inputs
|
|
|
|
|
|
Balance, December 31, 2013
|
|
$
|
—
|
|
|
Aggregate fair value of derivatives
issued
|
|
|
999,548
|
|
|
Change in fair value of derivative
liabilities
|
|
|
(66,505
|
)
|
|
Balance, December 31, 2014
|
|
$
|
933,043
|
|
Changes in the unobservable input values could potentially cause
material changes in the fair value of the Company’s Level 3
financial instruments. The significant unobservable inputs used in
the fair value measurements are the expected volatility assumption
and fair value of the Company’s common stock price. A
significant increase
F-18
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
(decrease) in the expected volatility and/or fair value of the
Company’s common stock price assumptions could potentially
result in a higher (lower) fair value measurement.
Level 3 liabilities are valued using unobservable inputs to the
valuation methodology that are significant to the measurement of
the fair value of the warrant liabilities. For fair value
measurements categorized within Level 3 of the fair value
hierarchy, the Company’s Chief Financial Officer, who reports
to the Chief Executive Officer, determines its valuation policies
and procedures.
The development and determination of the unobservable inputs for
Level 3 fair value measurements and fair value calculations are the
responsibility of the Company’s Chief Financial Officer and
are approved by the Chief Executive Officer.
Level 3 financial liabilities consist of the warrant liabilities
for which there is no current market for these securities such that
the determination of fair value requires significant judgment or
estimation. Changes in fair value measurements categorized within
Level 3 of the fair value hierarchy are analyzed each period based
on changes in estimates or assumptions and recorded as
appropriate.
Income Taxes
Income taxes are computed using the asset and liability method.
Under the asset and liability method, deferred income tax assets
and liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the currently enacted tax rates and laws. A
valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be
realized.
U.S. GAAP prescribes a recognition threshold and measurement
process for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return.
Management has evaluated and concluded that there were no material
uncertain tax positions requiring recognition in the
Company’s financial statements as of December 31, 2014 and
2013. The Company does not expect any significant changes in the
unrecognized tax benefits within twelve months of the reporting
date.
The Company classifies interest expense and any related penalties
related to income tax uncertainties as a component of income tax
expense. No interest or penalties have been recognized during the
years ended December 31, 2014 and 2013.
Debt Discounts
The Company records, as a discount to notes and convertible notes,
the relative fair value of warrants issued in connection with the
issuances and the intrinsic value of any conversion options based
upon the differences between the fair value of the underlying
Common Stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts
under these arrangements are amortized to interest expense using
the interest method over the earlier of the term of the related
debt or their earliest date of redemption.
Net Loss per Share of Common Stock
Basic loss per common share is computed by dividing net loss by the
weighted average number of vested common shares outstanding during
the period. Diluted earnings per common share is computed by
dividing net income by the weighted average number of vested common
shares outstanding, plus the impact of common shares, if dilutive,
resulting from the exercise of outstanding stock options and
warrants, plus the conversion of convertible notes.
F-19
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
The following securities are excluded from the calculation of
weighted average dilutive common shares outstanding because their
inclusion would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
2,645,967
|
|
2,439,834
|
|
Warrants
|
|
267,637
|
|
219,333
|
|
Convertible Promissory Notes
|
|
546,078
|
|
—
|
|
Total potentially dilutive shares
|
|
3,459,682
|
|
2,659,167
|
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement
exists, delivery of the product or service has occurred, all
obligations have been performed pursuant to the terms of the
agreement, the sales price is fixed or determinable, and
collectability is reasonably assured.
The Company has generated revenue from sources other than product
sales, namely collaboration and research agreements, development of
prototypes, conference fees and from a Kite Patch campaign.
Revenue is recognized when the contractual milestones are met,
proto-type delivery and in the case of the conference the event has
occurred. For the Kite Patch campaign revenue was recognized for
merchandise delivered and deferred for contributions related to the
delivery of the product. The Company had minimal revenue during the
year ended December 31, 2013, and did not generate any revenue
during the year ended December 31, 2014.
On May 1, 2013, the Company entered into an agreement with third
party to develop an electronic analyzer for a defined market. An
initial payment of $30,000 was due and paid on signing of the
agreement. On July 12, 2013, the Company entered into a second
agreement to design and deliver a proto-type analyzer for the
defined market for $5,000. The Company recognized revenue when all
milestones relative to the funded amount were completed and the
proto-type delivered and collection reasonably assured.
On May 9, 2013, the Company sponsored the ieCrowd Expo conference
event. The Company generated revenues from general public ticket
sales and participation fees from event sponsors for booth and
presentation opportunities. Revenue of $74,688 was recognized at
the completion of the event.
On July 15, 2013, the Company initiated an INDIEGOGO.com campaign
for the development and testing of Kite Patch (the
“Campaign”). Kite Patch is a mosquito fighting
technology designed to block mosquitos’ ability to track
humans and spread disease. On August 29, 2013 at the close of the
Campaign, $516,974 (net of transaction fees) was collected. As part
of the Campaign, the Company offered “perks” for
various levels of contributions. These items included t-shirts,
water bottles, stickers and Kite Patches. As of December 31, 2013,
the Company has delivered all the non-kite perks and recognized
$14,482 as Other Income “Income from sale of non-operating
merchandise”, net of pro-rata transaction fees of $4,475 and
merchandise product cost of $43,791. As of December 31, 2014 and
2013, the Company has Deferred Revenue related to the Campaign of
approximately $210,000, net of related transaction fees of $35,000
and estimated Kite Patch production cost of approximately $249,000
since the underlying products have not been shipped.
Stock-Based Compensation
On March 1, 2011, the Company adopted its long-term incentive
compensation plan (the “Plan”). A total of 1,000,000
options were allocated to the Plan. On July 14, 2011, the Company
amended and restated the Plan to a total of 2,666,667 options
allocated. Under the Plan, 2,650,300 options have been issued as of
December 31, 2014.
F-20
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
The Company measures the cost
of services received in exchange for an award of equity instruments
based on the fair value of the award. For employees, the fair value
of the award is measured on the grant date and for non-employees,
the fair value of the award is generally re-measured on vesting
dates and interim financial reporting dates until the service
period is complete. The fair value amount is then recognized over
the period during which services are required to be provided in
exchange for the award, usually the vesting period. Awards granted
to directors are treated on the same basis as awards granted to
employees.
Common Stock Warrants and Other Derivative Financial
Instruments
The Company classifies as equity any contracts that (i) require
physical settlement or net-share settlement or (ii) provide the
Company with a choice of net-cash settlement or settlement in its
own shares (physical settlement or net-share settlement) providing
that such contracts are indexed to the Company’s own stock.
The Company classifies as assets or liabilities any contracts that
(i) require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is
outside the Company’s control) or (ii) gives the counterparty
a choice of net-cash settlement or settlement in shares (physical
settlement or net-share settlement).
The Company assesses classification of its Common Stock warrants
and other free standing derivatives at each reporting date to
determine whether a change in classification between assets and
liabilities is required. The Company evaluated its free standing
warrants to purchase Common Stock to assess their proper
classification in the balance sheets as of December 31, 2014 and
2013 using the applicable classification criteria enumerated under
GAAP and determined that the Common Stock purchase warrants contain
fixed settlement provisions.
Advertising
Advertising costs are charged to operations as incurred. For the
years ended December 31, 2014 and 2013, the Company incurred
advertising costs of $3,586 and $135, respectively.
Research and Development
Research and development expenses are charged to operations as
incurred. For the years ended December 31, 2014 and 2013, the
Company incurred research and development costs of $702,736 and
$571,070, respectively.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts with
Customers,” (“ASU 2014-09”). ASU 2014-09
supersedes the revenue recognition requirements in Accounting
Standards Codification (“ASC”) 605 - Revenue
Recognition and most industry-specific guidance throughout the ASC.
The standard requires that an entity recognizes revenue to depict
the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the Company expects
to be entitled in exchange for those goods or services. ASU 2014-09
is effective on January 1, 2017 and should be applied
retrospectively to each prior reporting period presented or
retrospectively with the cumulative effect of initially applying
ASU 2014-09 recognized at the date of initial application. The
Company is currently evaluating the impact of the adoption of ASU
2014-09 on its consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-10, “Development
Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation,” (“ASU
2014-10”). ASU 2014-10 removes the definition of a
development stage entity from the ASC, thereby removing the
financial reporting distinction between development stage entities
and other reporting entities from U.S. GAAP. In addition, ASU
2014-10 eliminates the requirements for development stage entities
to (1) present inception-to-date information in the statements of
operations, cash flows, and stockholders’ equity, (2) label
the financial statements as those of a development stage entity,
(3) disclose a description of the development stage activities in
which the entity is engaged, and (4) disclose in the first year in
which the entity is no
F-21
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont.)
longer a development stage entity that in prior years it had been
in the development stage. ASU 2014-10 is effective for annual
reporting periods beginning after December 15, 2014, and interim
periods therein. Early adoption is permitted. The Company has
elected to adopt ASU 2014-10 and as a result, is not required to
present the previously required development stage disclosures. The
Company’s planned principal operations are to develop its
business model. The Company’s activities are subject to
significant risks and uncertainties, which are detailed in Note 2
— Going Concern and Management’s Plans.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation
- Stock Compensation (Topic 718): Accounting for Share-Based
Payments When the Terms of an Award Provide that a Performance
Target Could be Achieved after the Requisite Service Period,”
(“ASU 2014-12”). The amendments in ASU 2014-12 require
that a performance target that affects vesting and that could be
achieved after the requisite service period be treated as a
performance condition. A reporting entity should apply existing
guidance in ASC Topic No. 718, “Compensation — Stock
Compensation” as it relates to awards with performance
conditions that affect vesting to account for such awards. The
amendments in ASU 2014-12 are effective for annual periods and
interim periods within those annual periods beginning after
December 15, 2015. Early adoption is permitted. Entities may apply
the amendments in ASU 2014-12 either: (a) prospectively to all
awards granted or modified after the effective date; or (b)
retrospectively to all awards with performance targets that are
outstanding as of the beginning of the earliest annual period
presented in the financial statements and to all new or modified
awards thereafter. The Company does not anticipate that the
adoption of ASU 2014-12 will have a material impact on its
consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15,
“Presentation of Financial Statements — Going Concern
(Subtopic 205-40): Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern”
(“ASU 2014-15”). ASU 2014-15, which is effective for
annual reporting periods ending after December 15, 2016, extends
the responsibility for performing the going-concern assessment to
management and contains guidance on how to perform a going-concern
assessment and when going-concern disclosures would be required
under U.S. GAAP. The Company elected to early adopt ASU 2014-15.
Management’s evaluations regarding the events and conditions
that raise substantial doubt regarding the Company’s ability
to continue as a going concern have been disclosed in Note 2.
In November 2014, the FASB issued Accounting Standards Update
(“ASU”) No. 2014-17, “Business Combinations
(Topic 805): Pushdown Accounting” (“ASU
2014-17”). ASU 2014-17 provides an acquired entity with an
option to apply pushdown accounting in its separate financial
statements upon occurrence of an event in which an acquirer obtains
control of the acquired entity. The acquired entity may elect the
option to apply pushdown accounting in the reporting period in
which the change-in-control event occurs. If pushdown accounting is
not applied in the reporting period in which the change-in-control
event occurs, an acquired entity will have the option to elect to
apply pushdown accounting in a subsequent reporting period as a
change in accounting principle in accordance with ASC Topic 250,
“Accounting Changes and Error Corrections”. If pushdown
accounting is applied to an individual change-in-control event,
that election is irrevocable. ASU 2014-17 also requires an acquired
entity that elects the option to apply pushdown accounting in its
separate financial statements to disclose information in the
current reporting period that enables users of financial statements
to evaluate the effect of pushdown accounting. The Company has
adopted the amendments in ASU 2014-17. The adoption did not have an
impact on our consolidated financial statements.
NOTE 4 —
INVESTMENTS IN SUBSIDIARIES
On April 17, 2013, as part of an OLI equity call to existing
shareholders, the Company sold 99 shares of common stock of OLI for
$4,950 to third parties.
F-22
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 5 — PROPERTY
AND EQUIPMENT
Property and equipment consists of the following at December 31,
2014 and 2013:
|
|
|
|
|
|
|
Lab equipment
|
|
$
|
82,834
|
|
|
$
|
70,611
|
|
|
Vehicles
|
|
|
5,591
|
|
|
|
—
|
|
|
Leasehold improvements
|
|
|
228,326
|
|
|
|
220,527
|
|
|
Total fixed assets
|
|
|
316,751
|
|
|
|
291,138
|
|
|
Less: Accumulated depreciation
|
|
|
(157,720
|
)
|
|
|
(96,674
|
)
|
|
Property and equipment, net
|
|
$
|
159,031
|
|
|
$
|
194,464
|
|
Depreciation and amortization expense was $61,046 and $58,210 for
the years ended December 31, 2014 and 2013, respectively.
NOTE 6 — ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consists of the
following at December 31, 2014 and 2013:
|
|
|
|
|
|
|
Accrued payroll and payroll taxes
|
|
$
|
30,470
|
|
$
|
107,885
|
|
Accrued professional fees
|
|
|
—
|
|
|
8,300
|
|
Other current liabilities
|
|
|
5,714
|
|
|
50,543
|
|
Accrued interest
|
|
|
47,002
|
|
|
—
|
|
Accrued marketing cost
|
|
|
181,244
|
|
|
181,244
|
|
Accrued Kite production cost
|
|
|
248,331
|
|
|
248,331
|
|
Total accrued expenses
|
|
$
|
512,761
|
|
$
|
596,303
|
NOTE 7 — NOTES
PAYABLE
On December 12, 2013, the Company executed two promissory notes for
a total of $123,583 for advances made on behalf of the Company to
fund the Company’s conference event. The notes bear interest
at 7.75% per annum. The notes matured on December 31, 2014 and the
maturity dates were subsequently extended to December 31, 2015. At
December 31, 2014, the amount outstanding under these notes is
$47,455.
NOTE 8 —
CONVERTIBLE NOTES PAYABLE
On November 3, 2011, the Company entered into a two year unsecured
convertible promissory note for the principal sum of $250,000 plus
simple interest at a rate of 4.0% per annum. At the option of the
holder, the note was convertible into common shares of the Company
at a share price of $1.50. Interest payments were due and payable
quarterly in arrears on the date that is thirty days after the end
of each calendar quarter. Payments of principal and any accrued but
unpaid interest were to be made on or before the maturity date. The
convertible promissory note was recorded net of a beneficial
conversion feature of $148,540, based on the relative fair value of
the conversion feature. The beneficial conversion feature is being
amortized over the term of the debenture. During the year ended
December 31, 2013, the Company recorded amortization of the
beneficial conversion feature related to this convertible
promissory note of $58,124. On October 4, 2013, the convertible
promissory note plus interest of $19,250 was converted into 179,500
common shares of the Company.
On October 15, 2014, the Company closed private placements of
Unsecured Convertible Promissory Notes (the “October 2014
Notes”) in the aggregate principal amount of $2,785,000. The
October 2014 Notes bear interest at 8% per annum and mature on
October 15, 2016. Any unpaid principal and accrued interest due
under the October 2014 notes will automatically convert into shares
of common stock at the maturity date. If the Company completes a
registered initial public offering (“IPO”) prior to the
Maturity Date, the Company shall have the right to force
F-23
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 8 —
CONVERTIBLE NOTES PAYABLE
(cont.)
conversion of any unpaid principal and accrued interest owed under
the October 2014 Notes, in whole, or in part, into the securities
issued pursuant to the IPO at a 20% discounted conversion price to
the price of the securities sold in the IPO. If the Company
completes a qualifying transaction that results in the Company
receiving gross proceeds of more than $7,500,000 prior to the
Maturity Date, the Company shall also have the right to force
conversion of any unpaid principal and accrued interest owing under
the October 2014 Notes, in whole, or in part, into the securities
issued pursuant to the IPO at a 20% discounted conversion price to
the price of the qualifying transaction.
The principal of the October 2014 Notes is convertible into 546,078
shares of common stock at a conversion price of $5.10 per share.
The October 2014 Notes contain a provision to lower the conversion
price to any subsequent common stock issuance at a lower price, if
any convertible debt subsequently issued has a lower conversion
price or if any options or warrants have lower exercise prices. The
Company determined that the conversion feature of the October 2014
Notes did not contain fixed settlement provisions because the
conversion price can be adjusted based on new issuances, and
accordingly, the Company recorded the note conversion feature as a
liability and mark to market the derivative to fair value each
reporting period.
The aggregate fair value of the conversion feature of $999,548 was
applied to the principal amount of the October 2014 Notes to
determine the debt discount. Accordingly, the Company allocated
$999,548 of the offering proceeds to the fair value of the note
conversion feature on the date of issuance and recorded it as a
derivative liability in the accompanying consolidated balance
sheet. Such amount was being amortized over the terms of the
October 2014 notes using the effective interest method. During the
year ended December 31, 2014, the Company recognized $104,120 in
amortization of the debt discount relating to the October 2014
Notes.
The fair value of the conversion feature of the October 2014 Notes
on the issuance date was calculated using a binomial option model
valued with the following weighted average assumptions:
|
Dividend Yield
|
|
|
0
|
%
|
|
Volatility
|
|
|
65.55
|
%
|
|
Risk-free interest rate
|
|
|
0.34
|
%
|
|
Contractual term
|
|
|
2 years
|
|
|
Weighted average unit fair value
|
|
$
|
1.336
|
|
|
Common shares assumed issued
|
|
|
546,078
|
|
|
Aggregate fair value
|
|
$
|
999,548
|
|
During the year ended December 31, 2014, the Company marked the
conversion feature of the October 2014 Notes to fair value and
recorded a gain of $66,505 relating to the change in fair
value.
Note 8a — Warrants to Placement Agent (Revised
— See Note 14)
In connection with the October 2014 Notes, the Company granted
warrants to the placement agent exercisable for the purchase of
convertible notes, whose terms are identical to the October 2014
Notes, aggregating approximately $115,000.
In addition, the Company also
paid financing fees totaling $153,810. Which recorded as Deferred
Financing Costs and are being amortized on a straight line basis
over the stated term of the October 2014 Notes. During the year
ended December 31, 2014, amortization of deferred financing costs
relating to the October 2014 Notes totaled $28,297.
F-24
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 9 —
STOCKHOLDERS’ EQUITY (DEFICIENCY)
Authorized Capital
The Company is authorized to issue up to 500,000,000 shares of
common stock, $0.00001 par value. The holders of the
Company’s common stock are entitled to one vote per
share.
Common Stock
For the year ended December 31, 2013, 434,950 shares of common
stock were sold resulting in proceeds of $1,627,000. In addition,
the Company issued 85,040 shares of common stock to vendors for
services provided of $344,165.
For the year ended December 31, 2014, 490,417 shares of common
stock were sold resulting in proceeds of $2,340,000. Warrants were
exercised into 104,167 shares of common stock for $500,000. In
addition, the Company issued 17,132 shares of common stock to
vendors for services provided with a value of $82,395.
Conversion of Accounts Payable into Warrants
In February 2014, the Company reached a settlement agreement with a
vendor on $18,500 of outstanding accounts payable by issuing five
year warrants to purchase 6,667 shares common stock at an exercise
price of $3.75 per share. In applying the Black-Scholes option
pricing model to the warrants granted, the Company used the
following assumptions:
|
Risk free interest rate
|
|
0.70%
|
|
Dividend yield
|
|
0.00%
|
|
Expected Volatility
|
|
153.0%
|
|
Expected life in years
|
|
3.01
|
|
Forfeiture Rate
|
|
0.00%
|
A loss on settlement of accounts payable of $8,354 was recorded in
the consolidated statement of operations, representing the
difference between the fair value of the warrants and the
outstanding accounts payable.
Stock-Based Compensation
The Company uses the Black-Scholes option pricing model to
determine the fair value of the options and warrants granted. In
applying the Black-Scholes option pricing model to stock options
granted, the Company used the following weighted average
assumptions:
|
|
|
For
The Years Ended
December 31,
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
1.66% to 2.77%
|
|
1.66% to 2.78%
|
|
Dividend yield
|
|
0.00%
|
|
0.00%
|
|
Expected volatility
|
|
125.0% to 134.0%
|
|
130.0% to 134.0%
|
|
Expected life in years
|
|
5.0 to 6.5
|
|
5.0 to 7.0
|
|
Forfeiture Rate
|
|
0.00%
|
|
0.00%
|
The weighted average fair value of the stock options granted during
the years ended December 31, 2014 and 2013 was $4.81 and $3.15 per
option, respectively.
F-25
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 9 —
STOCKHOLDERS’ EQUITY (DEFICIENCY) (cont.)
In applying the Black-Scholes option pricing model to warrants
granted, the Company used the following weighted average
assumptions:
|
|
|
For
The Years Ended
December 31,
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
1.37% to 1.76%
|
|
|
0.85% to 0.87%
|
|
Dividend yield
|
|
0.00%
|
|
|
0.00%
|
|
Expected volatility
|
|
138.20% to 154.0%
|
|
|
159.0% to 160.0%
|
|
Expected life in years
|
|
4.00 to 5.00
|
|
|
4.00 to 4.99
|
|
Forfeiture Rate
|
|
0.00%
|
|
|
0.00%
|
The weighted average fair value of the warrants granted during the
years ended December 31, 2014 and 2013 was $4.81 and $3.00 per
warrant, respectively.
A summary of the stock option activity during the years ended
December 31, 2014 and 2013 is presented below:
|
|
|
|
|
Weighted Average Exercise Price
|
|
Weighted
Average
Remaining
Life In Years
|
|
Aggregate Intrinsic Value
|
|
Outstanding, January 1, 2013
|
|
2,160,500
|
|
|
$
|
1.50
|
|
7.98
|
|
$
|
7,068,650
|
|
Granted
|
|
279,333
|
|
|
|
3.30
|
|
9.33
|
|
|
|
|
Exercised
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
2,439,833
|
|
|
$
|
1.65
|
|
8.14
|
|
$
|
7,452,400
|
|
Granted
|
|
210,467
|
|
|
|
4.81
|
|
8.87
|
|
|
|
|
Exercised
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(4,333
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
2,645,967
|
|
|
$
|
1.99
|
|
7.28
|
|
$
|
8,254,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2014
|
|
2,423,500
|
|
|
$
|
1.67
|
|
7.14
|
|
$
|
8,096,100
|
During the year ended December 31, 2014, the Company granted
options to purchase an aggregate of 210,467 shares of Common Stock
to certain employees. These options vest over a three year period,
have a term of 10 years, and contain an exercise price between
$4.80 and $5.10 per share. The options were granted under a
previously approved plan and had an aggregate grant date fair value
of $950,270.
During the year ended December 31, 2013, the Company granted
options to purchase an aggregate of 279,333 shares of Common Stock
to certain employees. These options vest over a one year to three
year period, have a term of 10 years, and contain an exercise price
between $2.25 and $5.25 per share. The options were granted under a
previously approved plan and had an aggregate grant date fair value
of $1,147,656.
F-26
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 9 —
STOCKHOLDERS’ EQUITY (DEFICIENCY) (cont.)
A summary of the stock warrant activity during the years ended
December 31, 2014 and 2013 is presented below:
|
|
|
|
|
Weighted Average Exercise Price
|
|
Weighted
Average
Remaining
Life In Years
|
|
Aggregate Intrinsic Value
|
|
Outstanding, January 1, 2013
|
|
205,667
|
|
|
$
|
2.10
|
|
1.17
|
|
$
|
566,200
|
|
Granted
|
|
14,000
|
|
|
|
3.00
|
|
3.16
|
|
|
|
|
Exercised
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
219,667
|
|
|
$
|
2.10
|
|
1.29
|
|
$
|
590,050
|
|
Granted
|
|
152,137
|
|
|
|
4.85
|
|
0.96
|
|
|
|
|
Exercised
|
|
(104,167
|
)
|
|
|
4.80
|
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
267,637
|
|
|
$
|
2.77
|
|
2.14
|
|
$
|
650,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2014
|
|
267,637
|
|
|
$
|
2.77
|
|
2.14
|
|
$
|
650,550
|
During the year ended December 31, 2014, the Company granted
warrants to purchase an aggregate of 13,999 shares of Common Stock
to certain contract vendors. The warrants vest immediately, have a
term of three to four years and contain exercise prices between
$3.75 and $4.80 per share. The warrants had an aggregate grant date
fair value of $87,235.
During the year ended December 31, 2014, the Company granted
warrants to purchase an aggregate of 104,167 shares to an investor
for a ninety day period. The warrants were issued to the investor
in conjunction with common stock purchased by the investor. The
warrants vest immediately and have an exercise price of $4.80 per
share. The investor exercised the warrant for $500,000.
During the year ended December 31, 2013, the Company granted
warrants to purchase an aggregate of 14,000 shares of Common Stock
to certain contract vendors. These warrants vest over a one year or
three year period, have a term of 4 years, and contain an exercise
price between $3.00 and $4.80 per share. The warrants had an
aggregate grant date fair value of $36,327.
Stock-Based Compensation: Olfactor Laboratories Inc.
A subsidiary of the Company has granted options to purchase its
common stock to certain employees of the Company and the
subsidiary. The Company uses the Black-Scholes option pricing model
to determine the fair value of the options granted. In applying the
Black-Scholes option pricing model to stock options granted, the
Company used the following weighted average assumptions:
|
|
|
For
The Years Ended
December 31,
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
—
|
|
1.56% to 2.03%
|
|
Dividend yield
|
|
—
|
|
0.00%
|
|
Expected volatility
|
|
—
|
|
128.0% to 136.0%
|
|
Expected life in years
|
|
—
|
|
2.0 to 6.5
|
|
Forfeiture Rate
|
|
—
|
|
0.00%
|
The weighted average fair value of the stock options granted during
the year ended December 31, 2013 was $210.43 per option.
F-27
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 9 —
STOCKHOLDERS’ EQUITY (DEFICIENCY) (cont.)
A summary of the stock option activity of the subsidiary during the
years ended December 31, 2014 and 2013 is presented below:
|
|
|
|
|
Weighted Average Exercise Price
|
|
Weighted
Average
Remaining
Life In Years
|
|
Aggregate Intrinsic Value
|
|
Outstanding, January 1, 2013
|
|
1,578
|
|
$
|
210.15
|
|
3.22
|
|
$
|
—
|
|
Granted
|
|
125
|
|
|
210.43
|
|
5.55
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
1,703
|
|
$
|
210.17
|
|
4.85
|
|
$
|
—
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding, December 31, 2014
|
|
1,703
|
|
$
|
210.17
|
|
3.85
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2014
|
|
1,620
|
|
$
|
210.16
|
|
3.60
|
|
$
|
—
|
During the year ended December 31, 2013, the Company granted
options to purchase an aggregate of 125 shares of common stock in
one of its subsidiaries to certain employees. These options vest
over a one year to three year period, have a term of 10 years, and
contain an exercise price of $210.43 per share. The options had an
aggregate grant date fair value of $23,361.
Stock-based compensation for stock options and warrants has been
recorded in the consolidated statements of operations and totaled
$701,067 and $714,905 for the years ended December 31, 2014 and
2013, respectively. As of December 31, 2014, the remaining balance
of unamortized expense is $497,039, which is expected to be
amortized over a period of 2.5 years.
NOTE 10 — RELATED
PARTY TRANSACTIONS
On August 21, 2014, the
Company entered into an Advertising Agreement with Sunbelt IV
Technologies Management, LLC, or Sunbelt IV, an entity under common
control. The management of Sunbelt IV controls Sunbelt III
Technologies Management, LLC, which is one of the Company’s
principal stockholders. Under the agreement, Sunbelt IV provided
the Company advertising services related to an upcoming private
placement of convertible notes. The services were completed at the
close of the private placement on the October 2014 notes. Sunbelt
IV received a total of $16,000 under the agreement, and this was
included as a part of deferred financing costs (see Note
8).
NOTE 11 —
COMMITMENTS AND CONTINGENCIES
Operating
Leases
The Company leases 6,900 square feet of office space. The lease
agreement calls for payment on an annual escalating basis currently
at $15,144 and is through October 31, 2015. Such payments are being
accounted for on a straight-line basis. The Company leases
laboratory and office space of 11,846 square feet. The lease
payment is $7,015 per month through October 31, 2015. Rent expense
for the year ended December 31, 2014 and 2013 was $245,505 and
$241,285 respectively. Deferred rent as of December 31, 2014 and
2013 was immaterial to the consolidated financial statements.
F-28
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 11 —
COMMITMENTS AND CONTINGENCIES
(cont.)
Financial Advisory
and Investment Banking Agreement
The Company entered into an exclusive Financial Advisory and
Investment Banking Agreement with TriPoint Global Securities, LLC
(“TriPoint”) effective June 18, 2014 (the
“TriPoint Advisory Agreement”). Pursuant to the
TriPoint Advisory Agreement, TriPoint will act as the
Company’s exclusive financial advisor and placement agent to
assist the Company in connection with a best efforts registered
primary offering (the “Offering”) of up to $20 million
of the Company’s common stock. The Company upon closing of
the Offering shall pay consideration to TriPoint a fee in an amount
equal to 6.5% of the aggregate gross proceeds raised in the
Offering. The Company shall grant and deliver to TriPoint at the
closing of the Offering three year warrants covering a number of
securities equal to 5% of the total number of securities sold in
the Offering. The warrants shall be exercisable at any time after
the first six months of the offering at a price equal to 110% of
the offering price in connection with the Offering. Along with the
above fees, the Company paid a $20,000 engagement fee upon
execution of the agreement. In addition, the Company will pay (i)
all expenses related to the Offering and (ii) all legal fees
incurred by TriPoint up to a maximum of $75,000. As of December 31,
2014 and through the date of this report, the Offering had not been
completed. The Company has capitalized $238,044 in Deferred
Offering Costs as of December 31, 2014.
Licenses
The Company is subject to material contractual obligations and
commitments under the Company’s various licensing agreements.
In general, the continuation of the exclusivity of the
Company’s rights, and the continuation of non-exclusive
rights if exclusivity has been lost or has not been granted, is
subject to the Company payment of various amounts and the
Company’s achievement of various milestones over time toward
the commercialization of the licensed innovations. The material
payment obligations applying to the Company’s license
agreements are summarized below:
OLI license
OLI is a party to a license agreement relating to patent-pending
technologies to control the behavior of mosquitoes and other
blood-seeking insects with non-insecticidal agents. As partial
consideration for the license, the Company paid a one-time license
issue fee of $10,000. The Company must pay an earned royalty of 3%
of net sales of licensed products upon becoming cash-flow positive
or starting 18 months after the effective date of the license,
January 29, 2010, whichever is earlier. The Company must also pay
3% of all non-royalty consideration received from sublicensing. OLI
must pay the Board of Regents of the University of California a
minimum royalty payment of $30,000 annually, irrespective of
whether or not OLI has generated any revenue. In addition, the
Company is responsible for patent maintenance costs. The Company
has expensed $95,287 and $30,000 for the years ended December 31,
2014 and 2013, respectively, related to such agreement. The
agreement is cancellable at any time by OLI.
NEA license
NEA is a party to a license agreement relating to patented and
patent-pending sensor technologies based on nano materials that can
detect airborne gases to the parts-per-billion (PPB) level. As
partial consideration for the license, the Company paid a one-time
license issue fee of $10,000. The Company must pay an earned
royalty of 3% of net sales of licensed products upon becoming
cash-flow positive or starting 18 months after the effective date
of the license, March 31, 2010, whichever is earlier. The Company
must also pay 3% of all non-royalty consideration received from
sublicensing for the year 2017, and for each year thereafter for
the duration of the license. The Company must pay the greater of
the earned royalty described above or a minimum annual royalty of
$5,000 in 2017 and $10,000 in 2018 and each year thereafter. In
addition, the Company is responsible for patent maintenance costs.
The Company has expensed $13,520 and $117,341 for the years ended
December 31, 2014 and 2013, respectively, related to such
agreement. The agreement is cancellable at any time by NEA.
F-29
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 11 —
COMMITMENTS AND CONTINGENCIES
(cont.)
SOS license
SOS is a party to a license agreement relating to oxygen delivery
devices that would incorporate a computer controlled,
patient-adaptive dosing system, for people who use supplemental
oxygen therapy. As partial consideration for the license, the
Company paid a one-time license issue fee of $10,000. The Company
must pay an earned royalty of 3% of net sales of licensed products
upon becoming cash-flow positive or starting 18 months after the
effective date of the license, October 21, 2013, whichever is
earlier. The Company must also pay 3% of all non-royalty
consideration received from sublicensing for the year 2017, and for
each year thereafter for the duration of the license. The Company
must pay the greater of the earned royalty described above or a
minimum annual royalty of $5,000 in 2017 and $10,000 in 2018 and
each year thereafter. In addition, the Company is responsible for
patent maintenance costs The Company has expensed $16,630 and
$23,392 for the years ended December 31, 2014 and 2013,
respectively, related to such agreement. The agreement is
cancellable at any time by SOS.
On November 3, 2014, the Company executed the following license
agreements with the Regents of the University of California:
Head Pain Management license
The Company is a party to a
license agreement,
dated November 3, 2014, relating to potential therapeutic
treatments based on technology that stimulates the sensory fibers
of a nerve in order to mitigate pain perception. As partial
consideration for the license, the Company must pay $16,000 within
30 days of entering into the license and another $16,000 within 120
days of entering into the license. The Company must make a
milestone payment of $350,000 on the first to occur of: the receipt
of a letter of approval or clearance for the premarket
notifications process required by the FDA under section 510(k) of
the Food, Drug, and Cosmetic Act (“501(k)”) or
premature approval under section 515 of the Food, Drug, and
Cosmetic Act (“PMA”) application in the U.S. for a
licensed product, and the receipt of marketing approval in Europe
or any individual European country for a licensed product. In
addition, on the anniversary date of entering into the license, the
Company must pay $2,500 in each of years one and two, $5,000 in
year three and $10,000 in each subsequent year. Moreover, after the
First Commercial Sale (“FCS”), the Company must pay
minimum royalty fees of $20,000 in year one, $80,000 in year two,
$140,000 in each of years three and four and $300,000 in each
subsequent year. The Company has expensed $16,000 for the year
ended December 31, 2014 related to such agreement. The agreement is
cancellable at any time by the Company.
Sleep Disorders license
The Company is a party to a
license agreement, dated November 3, 2014, relating to potential
therapeutic treatments based on technology that takes advantage of
the fact that signals from the limbs can be interpreted by the
brain as movement and can elicit altered breathing rates. As
partial consideration for the license, the Company must pay $10,000
within 30 days of entering into the license and another $10,000
within 120 days of entering into the license. The Company must make
a milestone payment of $140,000 on the first to occur of: the
receipt of a letter of approval or clearance for a 510(k) or PMA
application in the U.S. for a licensed product, and the receipt of
marketing approval in Europe or any individual European country for
a licensed product. In addition, on the anniversary date of
entering into the license, the Company must pay $2,500 in each of
years one and two, $5,000 in year three and $10,000 in each
subsequent year. Moreover, after the First Commercial Sale
(“FCS”), the Company must pay minimum royalty fees of
$20,000 in year one, $80,000 in year two, $140,000 in each of years
three and four and $300,000 in each subsequent year. The Company
has expensed $10,000 for the year ended December 31, 2014 related
to such agreement. The agreement is cancellable at any time by the
Company.
Litigations, Claims
and Assessments
In the normal course of business, the Company may be involved in
legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties,
and outcomes are not predictable with assurance. There are no such
matters that are deemed material to the consolidated financial
statements as of December 31, 2014 and 2013.
F-30
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 12 — INCOME
TAXES
As of December 31, 2014 and 2013, the Company had $12,440,374 and
$8,256,254, respectively, of federal and state net operating loss
carryforwards (“NOL’s”) that may be available to
offset future taxable income. The net operating loss carryforwards,
if not utilized, will expire from 2031 to 2034. In accordance with
Section 382 of the Internal Revenue Code, the usage of the
Company’s net operating loss carryforwards could be limited
in the event of a change in ownership.
The Company files income tax returns in the U.S. federal
jurisdiction and various state and local jurisdictions and is
subject to examination by the various taxing authorities. The
Company’s federal, state and local income tax returns
beginning in 2011 remain subject to examination.
The income tax provision (benefit) for the years ended December 31,
2014 and 2013 was as follows:
|
|
|
For
The Years Ended
December 31,
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Deferred
|
|
|
(1,660,926
|
)
|
|
|
(909,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
State and local:
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
—
|
|
|
Deferred
|
|
|
(284,995
|
)
|
|
|
(155,090
|
)
|
|
|
|
|
(1,945,921
|
)
|
|
|
(1,064,238
|
)
|
|
Valuation allowance
|
|
|
1,945,921
|
|
|
|
1,064,238
|
|
|
Income tax provision (benefit)
|
|
$
|
—
|
|
|
$
|
—
|
|
The effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities for the years
ended December 31, 2014 and 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
4,955,498
|
|
|
$
|
3,288,829
|
|
|
Derivative liabilities
|
|
|
41,475
|
|
|
|
—
|
|
|
Debt discounts
|
|
|
(41,475
|
)
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
1,371,204
|
|
|
|
1,091,952
|
|
|
Total deferred tax assets
|
|
|
6,326,702
|
|
|
|
4,380,781
|
|
|
Valuation allowance
|
|
|
(6,326,702
|
)
|
|
|
(4,380,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company assesses the
likelihood that deferred tax assets will be realized. To the extent
that realization is not likely, a valuation allowance is
established. Management believes that it is more likely than not
that future benefits of deferred tax assets will not be realized.
The valuation allowance increased by $1,945,921 and $1,064,238 at
December 31, 2014 and 2013, respectively.
F-31
INNOVATION ECONOMY CORPORATION
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NOTE 12 — INCOME
TAXES
(cont.)
For the years ended December 31, 2014 and 2013, the expected tax
expense (benefit) based on the statutory rate is reconciled with
the actual tax expense (benefit) as follows:
|
|
|
For
The Years Ended
December 31,
|
|
|
|
|
|
|
|
US federal statutory rate
|
|
(34.0
|
)%
|
|
(34.0
|
)%
|
|
State tax rate, net of federal
benefit
|
|
(5.8
|
)%
|
|
(5.8
|
)%
|
|
Permanent differences:
|
|
|
|
|
|
|
|
Stock based compensation
|
|
—
|
%
|
|
8.4
|
%
|
|
Other permanent differences
|
|
0.4
|
%
|
|
0.1
|
%
|
|
Valuation allowance
|
|
39.4
|
%
|
|
31.3
|
%
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
0.0
|
%
|
|
0.0
|
%
|
NOTE 13 —
SUBSEQUENT EVENTS
Management has evaluated subsequent events or transactions
occurring through the date on which the financial statements were
issued. Based upon the evaluation, the Company did not identify any
recognized or non-recognized subsequent events that would have
required adjustment or disclosure in the consolidated financial
statements, except as disclosed.
NOTE 14 — REVISED
CONSOLIDATED BALANCE SHEET AND STATEMENT OF STOCKHOLDERS’
DEFICIENCY
During the preparation of the Company’s Form S-1 (Amendment
#2), the Company identified an error related to the overstatement
of deferred financing costs. The error has a de minimus effect on
the Company’s consolidated statement of operations for the
year ended December 31, 2014. On the consolidated balance sheet,
deferred financing costs and additional paid-in capital were
overstated by $117,828 at December 31, 2014.
In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108
(“SAB 99” and “SAB 108”), the Company has
evaluated this error, based on an analysis of quantitative and
qualitative factors, as to whether it was material to the
consolidated balance sheet as of December 31, 2014 and if
amendments of previously filed registration statements with the SEC
are required. The Company has determined that, although
quantitatively material to the consolidated balance sheet as of
December 31, 2014, qualitatively the Company believes the
overstatement of deferred financing costs would not have influenced
an investor’s decision making process. In accordance with SAB
108, the Company will include this revised financial information in
subsequent filings.
A summary of the effects of the correction on the consolidated
balance sheet as of December 31, 2014 are presented in the table
below:
|
|
|
|
|
|
|
Deferred financing costs
|
|
$
|
243,341
|
|
$
|
125,513
|
|
Additional paid in capital
|
|
$
|
13,117,315
|
|
$
|
12,999,487
|
Note 8a to the consolidated financial statements for the year ended
December 31, 2014 relating to warrants issued to a placement agent
has also been added.
F-32
Up to 3,125,000
Units
Consisting of One Share of Common Stock and
One Warrant to Purchase One-half Share of Common
Stock
________________
PROSPECTUS
________________
TriPoint
Global Equities, LLC
The date of this
prospectus is __________, 2015
Through and including the 25th day
after the date of this prospectus, all dealers effecting
transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in
addition to a dealer’s obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold
allotment or subscription.
The
information in this preliminary prospectus is not complete and may
be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any jurisdiction where an offer or sale is not
permitted.
[Alternative page for
Selling Securityholder Prospectus]
|
Preliminary
Prospectus
|
|
|
|
Subject to
completion, dated AUGUST 6, 2015
|
Units
Consisting of One Share of Common Stock and
One Warrant to Purchase One-half Share of Common
Stock
This prospectus relates to the
offer for sale of units (“Units”), each Unit consisting
of one share of common stock, par value $0.00001 per share, and one
warrant to purchase one-half share of common stock, of Innovation
Economy Corporation, which does business under the name
“ieCrowd” (the “Company”), by the holders
of the Units named in this prospectus, referred to throughout this
prospectus as the “selling securityholders”. Each
warrant will entitle the holder to purchase one-half share of
ieCrowd’s common stock at an exercise price of 125% of the
price of the shares in the Company’s initial public offering.
The warrants will expire 36 months after the date they are issued.
The Units will not be issued or certificated. Instead, the shares
of common stock and the warrants will be issued separately and may
be resold separately. This prospectus also relates to the exercise
of warrants by any purchaser of warrants from the selling
securityholders.
The
Units being offered hereunder are issuable upon the forced conversion, immediately after the closing of the Company’s initial
public offering of Units, of the Private Placement Convertible Notes sold by the registrant in the Private Placements. Upon the
Company’s election to force their conversion, the Notes shall convert into Units at a price equal to $5.10 per Unit. That
offering is expected to close on September 30, 2015.
Currently, there is no public
market for ieCrowd’s Units, common stock or warrants. ieCrowd
has applied to list its common stock on the NASDAQ Capital Market
(“NASDAQ”) under the symbol “MYIE”, and to
list its warrants on NASDAQ under the symbol “MYIEW”,
on or promptly after the closing of ieCrowd’s initial public
offering of Units. ieCrowd cannot guarantee that its securities
will be approved for listing on NASDAQ or that, if so approved, a
liquid market for the securities will develop.
If and when
the Company’s securities are listed on NASDAQ, the sale of
securities offered hereby may be effected on NASDAQ, including
through ordinary brokers’ transactions. Sales may also be
effected in over-the-counter markets, including through dealers who
would resell such securities as principals, or through privately
negotiated transactions. Depending in part on the type of
transaction effected, the securities may be sold at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Until there is a
market for the securities, securityholders will sell their
securities at the fixed price of $5.10 per unit. Parties to the
transactions may be required to pay usual and customary, or
specifically negotiated, brokerage or other fees or
commissions.
The selling securityholders and any
intermediaries by or through whom any of the securities are offered
and sold may be deemed “underwriters” within the
meaning of the Securities Act of 1933, as amended, or the
Securities Act, and any profits realized or commissions received
may be deemed underwriting compensation. Any such
“underwriters” within the meaning of the Securities Act
will be subject to the prospectus delivery requirements of the
Securities Act. See “Plan of Distribution”.
In the 2014 Private Placement,
TriPoint Global Equities, LLC, which served as the Company’s
placement agent in the 2014 Private Placement, together with
Primary Capital, LLC, received five-year warrants entitling the
holders thereof to purchase up to $114,025 and $4,375,
respectively, of notes with the same terms as those of the Private
Placement Convertible Notes. Prior to the closing of the
Company’s initial public offering, TriPoint and Primary
Capital, LLC exercised their warrants privately so as to purchase
$114,025 and $4,375, respectively, of such notes. Immediately after
the closing of the Company’s initial public offering, upon
the Company’s election to force the conversion of the Private
Placement Convertible Notes, the notes held by TriPoint and Primary
Capital, LLC were converted into $114,025 and $4,375, respectively,
of units, at a price equal to $5.10 per unit, with the same terms
as the Units being offered in the Company’s initial public
offering. Securities offered by TriPoint and Primary Capital, LLC
pursuant to this prospectus are securities converted from notes
received from the exercise of warrants to purchase Private
Placement Convertible Notes, issued to TriPoint and Primary
Capital, LLC in connection with the 2014 Private
Placement.
In connection with the 2014 Private
Placement, ieCrowd paid TriPoint a cash commission of up to eight
percent (8%) of the gross proceeds of the Convertible Notes, which
resulted in total cash placement agent fees of $118,400 to TriPoint
and certain other selected broker-dealers. Additionally, ieCrowd
paid a $20,000 due diligence fee to TriPoint in connection with the
2014 Private Placement.
Investing in
ieCrowd’s securities involves a high degree of risk. ieCrowd
is at an early stage of its development and its securities may only
be appropriate for long-term investment. Its independent registered
public accounting firm has issued an audit opinion that includes a
statement expressing substantial doubt as to its ability to
continue as a going concern. You should purchase ieCrowd securities
only if you can afford to lose your entire investment. See
“Risk Factors” beginning on page 10.
The Company is an “emerging
growth company” under applicable law and rules and it may
elect to comply with certain reduced public company reporting
requirements following its initial public offering.
Neither the Securities and Exchange Commission
nor any state securities commission nor any other regulatory body
has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is
__________, 2015
[Alternative page for
Selling Securityholder Prospectus]
TABLE OF
CONTENTS
|
|
|
|
|
Prospectus Summary
|
|
1
|
|
The
Company
|
|
1
|
|
The
Offering
|
|
6
|
|
Summary Consolidated
Financial Data
|
|
8
|
|
Risk
Factors
|
|
9
|
|
Cautionary Note Regarding Forward-Looking
Statements
|
|
30
|
|
Use
of Proceeds
|
|
32
|
|
Dividend Policy
|
|
33
|
|
Capitalization
|
|
34
|
|
Dilution
|
|
36
|
|
Selected Consolidated Financial Data
|
|
38
|
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
|
39
|
|
Business
|
|
51
|
|
Management
|
|
85
|
|
Executive Compensation
|
|
91
|
|
Certain Relationships and Related party
transactions
|
|
100
|
|
Principal Stockholders
|
|
102
|
|
Description of Securities
|
|
104
|
|
Shares Eligible for Future Sale
|
|
107
|
|
Certain U.S. Federal Income Tax
Considerations
|
|
109
|
|
Shares Registered for Resale
|
|
|
|
Selling Securityholders
|
|
|
|
Plan
of Distribution
|
|
|
|
Legal
Matters
|
|
|
|
Experts
|
|
|
|
Where
You Can Find More Information
|
|
|
|
Index
to Financial Statements
|
|
|
We are offering to sell, and seeking offers to buy, the
Company’s securities only in jurisdictions where such offers
and sales are permitted. You should rely only on the information
contained in this prospectus. We have not authorized anyone to
provide you with any information other than the information
contained in this prospectus.
The information contained in
this prospectus is accurate only as of its date, regardless of the
time of its delivery or of any sale or delivery of the
Company’s securities. Neither the delivery of this prospectus
nor any sale or delivery of the Company’s securities shall,
under any circumstances, imply that there has been no change in the
Company’s affairs since the date of this prospectus. This
prospectus will be updated and made available for delivery to the
extent required by the federal securities laws.
This prospectus includes estimates, statistics and other industry
data obtained from industry publications, research and surveys,
from studies conducted by third parties and from publicly available
information. All of such data involve a number of assumptions and
limitations, and contains projections and estimates of the future
performance of the industries in which the Company operates, all of
which is subject to a high degree of uncertainty. We caution you
not to give undue weight to any such estimates, statistics, other
industry data and projections.
As of January 16, 2015, the Company effectuated a 15-1 reverse
split of the Company’s shares, meaning that 15 of the
Company’s shares held prior to the reverse split equals one
share held after the reverse split. If, as a result of the split,
any stockholder would be entitled to receive a fraction of a share,
in order to avoid issuing fractional shares the Company will
instead provide that stockholder with an additional whole share.
All references to the number of shares, options, warrants and other
common stock equivalents, price per share and weighted-average
number of shares of common stock outstanding presented in this
prospectus retroactively reflect the effectuation of the 15-1
reverse split dated January 16, 2015, unless otherwise stated or
unless the context otherwise indicates.
[Alternative page for
Selling Securityholder Prospectus]
USE OF
PROCEEDS
The Company will not receive any of the proceeds from the sale of
the common stock by the selling securityholders named in this
prospectus. All proceeds from the sale of the common stock will be
paid directly to the selling securityholders.
[Alternative page for
Selling Securityholder Prospectus]
SECURITIES REGISTERED
FOR RESALE
2014 Private Placement
of Convertible Notes
On July 14, 2014, the Company commenced a “best
efforts” private placement offering of up to $5,000,000 of 8%
unsecured convertible promissory notes, or the “Private
Placement Convertible Notes,” pursuant to Rule 506(c) of
Regulation D of the Securities Act and the JOBS Act. In addition,
simultaneously on July 14, 2014, the Company commenced a
“best efforts” private placement offering of up to
$2,500,000 of Private Placement Convertible Notes pursuant to
Regulation S of the Securities Act. Although these offerings were
conducted separately and were separate and distinct offerings,
these offerings are referred to, collectively, as the “2014
Private Placement” in this Prospectus for convenience
purposes. The final closing of the 2014 Private Placement occurred
on October 14, 2014, pursuant to which the Company issued Private
Placement Convertible Notes in the aggregate amount of $2,785,000
($2,760,000 pursuant to the Regulation D offering and $25,000
pursuant to the Regulation S offering).
Under the terms of the Private Placement Convertible Notes, the
Company may elect to force the holders of the Private Placement
Convertible Notes to convert the Private Placement Convertible
Notes into the securities offered in the Company’s initial
public offering, immediately after the closing of such offering, at
a conversion price equal to $5.10 per Unit. Immediately after the
closing of the Company’s initial public offering, the Company
intends to force such a conversion. There is no minimum amount of
securities that must be sold in the Company’s initial public
offering and the conversion of the Private Placement Convertible
Notes will occur even if only a few Units are sold. If the offering
does not close and the Company does not otherwise elect to force a
conversion upon the occurrence of a qualified transaction, the
Private Placement Convertible Notes will remain outstanding until
the earlier of such time as the holder chooses to convert them in
full or maturity.
In connection with this prospectus, the Company is registering for
resale 578,873 Units, issuable upon the forced conversion of the
Private Placement Convertible Notes plus accrued interest issued in
the 2014 Private Placement upon the closing of the Company’s
initial public offering.
The Company granted investors in the 2014 Private Placement certain
“piggyback” registration rights in regard to any
registered securities offering by the Company, on the
Company’s own behalf or on behalf of selling securityholders,
subject to customary exceptions. The registration statement of
which this prospectus forms a part is a resale registration
statement being filed with the SEC for the purpose of providing
such investors the opportunity to resell the securities they are
receiving as a result of the forced conversion of the Private
Placement Convertible Notes.
2015 Private Placement of Convertible Notes
In March 2015, the Company commenced a “best efforts”
private placement offering of up to $6,000,000 of Convertible
Notes, pursuant to Rule 506(b) of Regulation D of the Securities
Act and the JOBS Act. The terms of these Convertible Notes are
substantially identical to the terms of the Convertible Notes
issued in the 2014 Private Placement. This offering is referred to
as the “2015 Private Placement” in this prospectus for
convenience purposes. As of the date hereof, the Company has issued
Private Placement Convertible Notes in the aggregate amount of
$2,100,000 in the 2015 Private Placement.
In connection with this prospectus, the Company is registering for
resale 419,977 Units, issuable upon the forced conversion of the
Private Placement Convertible Notes plus accrued interest issued in
the 2015 Private Placement upon the closing of the Company’s
initial public offering.
The Company granted investors in the 2015 Private Placement certain
“piggyback” registration rights in regard to any
registered securities offering by the Company, on the
Company’s own behalf or on behalf of selling securityholders,
subject to customary exceptions. The registration statement of
which this prospectus forms a part is a resale registration
statement being filed with the SEC for the purpose of providing
such investors the opportunity to resell the securities they are
receiving as a result of the forced conversion of the Private
Placement Convertible Notes.
[Alternative page for
Selling Securityholder Prospectus]
SELLING
SECURITYHOLDERS
An
aggregate of up to 1,015,015 shares of common stock and 507,508 warrants may be sold from time to time by the selling securityholders
(other than the placement agents for the 2014 Private Placement) set forth in the table below. In addition, an aggregate of 34,824
shares of common stock and 17,412 warrants may be sold from time to time by the placement agents for the 2014 Private Placement
set forth in the table below, following the conversion of notes issuable upon the exercise of placement agent warrants.
The shares of common stock being offered by the selling
securityholders are those issuable to:
•
holders of Private Placement Convertible Notes issued pursuant to
the terms of the Private Placements, including shares of common
stock issuable upon exercise of the warrants such holders will
receive upon forced conversion of the Private Placement Convertible
Notes into Units, and
•
the placement agents, such shares of common stock underlying
warrants to purchase Private Placement Convertible Notes in
connection with the 2014 Private Placement.
For additional information
regarding the issuance of those Private Placement Convertible
Notes, see “Securities Registered for Resale—2014
Private Placement of Convertible Notes” and “Securities
Registered for Resale—2015 Private Placement of Convertible
Notes” above. The Company is registering the shares of common
stock and warrants in order to permit the selling securityholders
to offer the securities for resale from time to time. The following
table sets forth certain information with respect to each selling
securityholder for whom the Company is registering securities for
resale. Except for the ownership of Private Placement Convertible
Notes, warrants and shares of the Company’s common stock, no
selling securityholder has had any material relationship with the
Company within the past three years.
Beneficial ownership is
determined in accordance with SEC rules and generally includes
voting or investment power with respect to securities. For purposes
of this table, a person or group of persons is deemed to have
“beneficial ownership” of any shares of common stock
that such person or any member of such group has the right to
acquire within 60 days of the date of this prospectus. For purposes
of computing the percentage of outstanding shares of the
Company’s common stock held by each person or group of
persons named below, any shares that such person or persons has the
right to acquire within 60 days of the date of this prospectus are
deemed to be outstanding for such person, but not deemed to be
outstanding for the purpose of computing the percentage ownership
of any other person.
In the table below, the
number of shares of common stock outstanding before this offering
is deemed to be 9,444,828.By the terms of the Private Placement
Convertible Notes, this conversion will be effected at a price per
unit equal to $5.10. The numbers of shares of common stock shown to
be outstanding both before and after this offering and the
percentages shown exclude:
•
2,645,967 shares of the Company’s common stock issuable upon
the exercise of stock options outstanding as of March 31, 2015, at
a weighted average exercise price of $1.98 per share;
•
240,333 shares of the Company’s common stock issuable upon
the exercise of warrants outstanding as of March 31, 2015, at a
weighted average exercise price of $2.29 per share;
•
20,700 shares of the Company’s common stock available for
future issuance under the Company’s Amended and Restated
Long-Term Incentive Compensation Plan as of the date of this
prospectus;
•
1,250,000 shares of the Company’s common stock that will be
made available for future issuance under the Company’s 2015
equity incentive plan upon the closing of this offering;
•
1,562,500 shares of the Company’s common stock issuable upon
exercise of the warrants included in the Units being offered in
this offering, assuming all of the Units being offered are
sold;
•
234,375 shares of the Company’s common stock issuable upon
exercise of the warrants to be issued to the selling agent in
connection with this offering;
•
507,508 shares of the Company’s common stock issuable upon exercise of the warrants included in the Units issuable
upon conversion of the Private Placement Convertible Notes plus accrued interest immediately after the closing of this offering;
•
34,824 shares of the Company’s common stock issuable upon conversion of the notes issuable upon the exercise of
private placement warrants issued in connection with the 2014 Private Placement;
•
1,500 shares of our common stock issued as compensation to a consultant subsequent
to June 30, 2015; and
•
100,000 shares of our common stock issuable upon exercise of warrants issued to
certain investors subsequent to June 30, 2015.
The table below lists the
selling securityholders and other information regarding the
beneficial ownership of the shares of common stock by each of the
selling securityholders. Column II lists the number of shares of
common stock
beneficially owned by each
selling securityholder prior to the offering. The number of shares
being offered included in Column III includes the shares underlying
the Units issuable to the holders of the Private Placement
Convertible Notes, issuable upon the forced conversion of such
Notes into Units immediately after the closing of the
Company’s initial public offering. The entire outstanding
balance, including all accrued interest, of the Private Placement
Convertible Notes, will be converted into Units once the Company
elects to force such conversion. The Private Placement Convertible
Notes earn interest at 8% per annum and convert into Units at a
price equal to $5.10 per Unit. The number of warrants being offered
included in Column IV includes the number of warrants underlying
the Units issuable upon conversion of the Private Placement
Convertible Notes. Column V assumes the sale of all of the shares
offered by the selling securityholders pursuant to this prospectus,
to the extent permitted under the Ownership Cap, as defined
below.
Because the number of shares
of common stock issuable may increase as a result of an increase in
the accrued interest due on the Private Placement Convertible
Notes, and a resultant increase in the number of Units issued, the
number of shares that will actually be issued may be more than the
number of shares being offered. In the event that additional Units
are issued, the Company will be obligated to register, up to a
certain point, those Units as well as any additional common shares
and warrants underlying the Units that may be owed to the investors
as a result of interest on the Notes.
Under the terms of the Private Placement Convertible Notes, a
selling securityholder may not convert the Notes to the extent such
conversion would cause such selling securityholder, together with
its affiliates, to beneficially own a number of shares of common
stock that would exceed 9.99% of the Company’s then
outstanding shares of common stock following such conversion (the
“Ownership Cap”), excluding for purposes of such
determination shares of common stock not yet issuable upon
conversion of Notes which have not been converted. The number of
shares in Columns III and IV do reflect this limitation. The
selling securityholders may sell all, some or none of their
securities in this offering. See “Plan of
Distribution.”
The following table sets forth certain information with respect to
each selling securityholder for whom the Company is registering
securities for resale to the public. Except for the ownership of
Private Placement Convertible Notes, warrants and shares of the
Company’s common stock, no material relationships exist
between any of the selling securityholders and the Company, nor
have any such material relationships existed within the past three
years.
|
|
|
Number of Shares of
|
|
|
|
|
|
Shares Beneficially Owned After
Offering
|
|
|
|
Common Stock Beneficially
Owned(1)
|
|
Shares Being Offered(2)(3)
|
|
|
|
|
|
|
|
Alan
C Schwartz and Kerry G Schwartz JTWROS(4)
|
|
|
|
20,700
|
|
10,350
|
|
|
|
|
*
|
%
|
|
Alsava Corporation(5)
|
|
|
|
413,989
|
|
206,995
|
|
|
|
|
*
|
%
|
|
Bridglal Ramkissoon(6)
|
|
44,167
|
|
5,175
|
|
2,588
|
|
44,167
|
|
|
*
|
%
|
|
Bruce
A. Shear(7)
|
|
|
|
5,175
|
|
2,588
|
|
|
|
|
*
|
%
|
|
J.
Randall White(8)
|
|
6,667
|
|
5,175
|
|
2,588
|
|
6,667
|
|
|
*
|
%
|
|
Jayanth Bolaram(9)
|
|
10,667
|
|
7,245
|
|
3,623
|
|
10,667
|
|
|
*
|
%
|
|
John
Altieri(10)
|
|
30,417
|
|
5,175
|
|
2,588
|
|
30,417
|
|
|
*
|
%
|
|
JW
Opportunities Fund, LLC(11)
|
|
|
|
4,140
|
|
2,070
|
|
|
|
|
*
|
%
|
|
JW
Partners, LP(12)
|
|
|
|
16,550
|
|
8,280
|
|
|
|
|
*
|
%
|
|
Mal
Warwick Trust Dated March 4, 1995(13)
|
|
13,333
|
|
10,350
|
|
5,175
|
|
13,333
|
|
|
*
|
%
|
|
Margileth Living Trust(14)
|
|
|
|
20,700
|
|
10,350
|
|
|
|
|
*
|
%
|
|
Philip W. Wong(15)
|
|
18,750
|
|
5,175
|
|
2,588
|
|
18,750
|
|
|
*
|
%
|
|
Ramon
Torres(16)
|
|
29,875
|
|
5,175
|
|
2,588
|
|
29,875
|
|
|
*
|
%
|
|
Roger
Arumugam(17)
|
|
2,083
|
|
5,175
|
|
2,588
|
|
2,083
|
|
|
*
|
%
|
|
Ukeme
Umana & Christina Umana JTWROS(18)
|
|
|
|
5,175
|
|
2,588
|
|
|
|
|
*
|
%
|
|
William R. Jordan III(19)
|
|
47,500
|
|
31,050
|
|
15,525
|
|
47,500
|
|
|
*
|
%
|
|
Rick
E. Briggs(20)
|
|
|
|
5,175
|
|
2,588
|
|
|
|
|
*
|
%
|
|
Helmsbridge Holdings Limited(21)
|
|
|
|
5,175
|
|
2,588
|
|
|
|
|
*
|
%
|
|
TriPoint Global Equities, LLC^(22)
|
|
|
|
22,358
|
|
11,179
|
|
|
|
|
*
|
%
|
|
Primary Capital, LLC^(23)
|
|
|
|
858
|
|
429
|
|
|
|
|
*
|
%
|
|
Roger D.
Gurganus(24)
|
|
120,000
|
|
9,957
|
|
4,979
|
|
120,000
|
|
1.1
|
%
|
|
|
YuYu Pharma
Inc.(25)
|
|
208,334
|
|
398,260
|
|
199,130
|
|
208,334
|
|
2.0
|
%
|
|
|
Jobikan Nigeria
Limited(26)
|
|
|
|
9,957
|
|
4,979
|
|
|
|
|
*
|
%
|
Each of the selling securityholders that is an affiliate of a
broker-dealer, which is indicated in the table above, has
represented to the Company that it purchased the securities offered
by this prospectus in the ordinary course of business and, at the
time of purchase of those securities, did not have any agreements,
understandings or other plans, directly or indirectly, with any
person to distribute those securities. To the extent that the
Company becomes aware that such selling securityholder did not
acquire its securities in the ordinary course of business or did
have such an agreement or understanding, the Company will file a
post-effective amendment to the registration statement to designate
such affiliate as an “underwriter” within the meaning
of the Securities Act.
[Alternative page for
Selling Securityholder Prospectus]
PLAN OF
DISTRIBUTION
The selling securityholders,
which term, as used herein, includes donees, pledgees, transferees
or other successors-in-interest selling securities received after
the date of this prospectus from a selling securityholder as a
gift, pledge, partnership distribution or other similar transfer,
may, from time to time, sell, transfer or otherwise dispose of any
or all of their securities on any stock exchange, market or trading
facility on which the securities are traded or in private
transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the
time of sale or at negotiated prices.
Currently, there is no public market for ieCrowd’s Units,
common stock or warrants. ieCrowd has applied to list its common
stock on the NASDAQ Capital Market (“NASDAQ”) under the
symbol “MYIE”, and to list its warrants on NASDAQ under
the symbol “MYIEW”, on or promptly after the closing
date of ieCrowd’s initial public offering of Units; however,
there can be no assurance that ieCrowd’s securities will be
approved for listing on NASDAQ. No public exchange
sales of the securities covered by this prospectus shall occur
until the shares of common stock and warrants included in the Units
begin separate trading on NASDAQ, if ever. Following the
date on which the registration statement of which this prospectus
forms a part is declared effective and until such time as the
shares of common stock and warrants included in the Units begin
trading on NASDAQ, if ever, there may be no public market in which
any selling securityholder will be able to sell its securities
covered by this prospectus. In addition, there can be no assurance
that a listing on NASDAQ will provide an active public market for
the securities.
If and when the Company’s securities are listed on NASDAQ,
the sale of securities offered hereby may be effected on NASDAQ,
including through ordinary brokers’ transactions. Sales may
also be effected in over-the-counter markets, including through
dealers who would resell such securities as principals, or through
privately negotiated transactions. Depending in part on the type of
transaction effected, the securities may be sold at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Until there is a
market for the securities, securityholders will sell their
securities at the fixed price of $5.10 per unit. Parties to the
transactions may be required to pay usual and customary, or
specifically negotiated, brokerage or other fees or
commissions.
The selling securityholders may use any one or more of the
following methods when disposing of securities:
•
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
•
block trades in which the broker-dealer will attempt to sell the
securities as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
•
purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
•
an exchange transaction in accordance with the rules of the
applicable exchange;
•
privately negotiated transactions;
•
short sales;
•
through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
•
broker-dealers selling on behalf of a selling securityholder a
specified number of securities at a stipulated price per
security;
•
a combination of any such methods of sale; and
•
any other method permitted pursuant to applicable law.
The selling securityholders may, from time to time, pledge or grant
a security interest in some or all of the securities owned by them
and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the
securities, from time to time, under this prospectus, or under an
amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending the list of
selling securityholders to include the pledgee, transferee or other
successors in interest as selling securityholders under this
prospectus. The selling securityholders also may transfer the
securities in other circumstances, in which case the
transferees,
pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus; provided,
however,
that prior to any such transfer the following information (or such
other information as may be required by the federal securities laws
from time to time) with respect to each such selling beneficial
owner must be added to the prospectus by way of a prospectus
supplement or post-effective amendment, as appropriate: (1) the
name of the selling beneficial owner; (2) any material relationship
the selling beneficial owner has had within the past three years
with the Company or any of the Company’s predecessors or
affiliates; (3) the amount of securities of the class owned by such
security beneficial owner before the offering; (4) the amount to be
offered for the security beneficial owner’s account; and (5)
the amount and (if one percent or more) the percentage of the class
to be owned by such security beneficial owner after the offering is
complete.
In connection with the sale of the Company’s securities, the
selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn
engage in short sales of the securities in the course of hedging
the positions they assume. The selling securityholders may also
sell the Company’s securities short and deliver these
securities to close out their short positions, or loan or pledge
the securities to broker-dealers that in turn may sell these
securities. The selling securityholders may also enter into option
or other transactions with broker-dealers or other financial
institutions or participate in the creation of one or more
derivative securities which require the delivery to such
broker-dealer or other financial institution of securities offered
by this prospectus, which securities such broker-dealer or other
financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling securityholders from the sale
of the securities offered by them will be the purchase price of the
securities less discounts or commissions, if any. Each of the
selling securityholders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in
part, any proposed purchase of securities to be made directly or
through agents. The Company will not receive any of the proceeds
from selling securityholder transaction. Upon any exercise of
warrants by payment of cash, however, the Company will receive the
exercise price of the warrants.
The selling securityholders
may also resell all or a portion of the securities in open market
transactions in reliance upon Rule 144 under the Securities Act,
provided that they meet the criteria and conform to the
requirements of that rule.
The selling securityholders and any underwriters, broker-dealers or
agents that participate in the sale of the securities may be deemed
“underwriters” within the meaning of the Securities
Act. Any discounts, commissions, concessions or profits they
receive may be deemed underwriting compensation. Any such
“underwriters” within the meaning of the Securities Act
will be subject to the prospectus delivery requirements of the
Securities Act. The selling securityholders may indemnify any
broker-dealer that participates in transactions involving the sale
of the securities against certain liabilities, including
liabilities arising under the Securities Act.
The maximum amount of compensation to be received by any FINRA
member or independent broker-dealer for the sale of any securities
registered under this prospectus will not be greater than 8.0% of
the gross proceeds from the sale of such securities.
In order to comply with the securities laws of some states, if
applicable, the securities may be sold in those jurisdictions only
through brokers or dealers registered or licensed in those
jurisdictions. In addition, in some states the securities may not
be sold unless it has been registered or qualified for sale or an
exemption from registration or qualification requirements is
available and is complied with.
The Company has advised the selling securityholders that the
anti-manipulation rules of Regulation M under the Exchange Act may
apply to sales of securities in the market and to the activities of
the selling securityholders and their affiliates.
The Company will make copies of this prospectus (as it may be
supplemented or amended from time to time) available to the selling
securityholders for the purpose of satisfying the prospectus
delivery requirements of the Securities Act.
To the Company’s knowledge, except for TriPoint Global
Equities, LLC and Primary Capital, LLC, no selling securityholder
is a broker-dealer or an affiliate of a broker-dealer.
[Alternative page for
Selling Securityholder Prospectus]
LEGAL MATTERS
Ellenoff Grossman & Schole LLP, New York, New York, is acting
as counsel in connection with the registration of the
Company’s securities under the Securities Act, and as such
will pass upon the validity of the securities offered in this
prospectus.
EXPERTS
The consolidated financial statements of the Company as of and for
the years ended December 31, 2014 and 2013 appearing in this
prospectus have been audited by Marcum LLP, independent registered
public accounting firm, as set forth in their report thereon (which
contains an explanatory paragraph relating to substantial doubt
about the Company’s ability to continue as a going concern,
as discussed in Note 2 to the consolidated financial statements),
appearing elsewhere in this prospectus, and are included in
reliance on such report given on the authority of such firm as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE
INFORMATION
This prospectus constitutes a part of the registration statement
that the Company has filed with the SEC in connection with this
offering. It does not contain all of the information in the
registration statement and in the exhibits thereto. Statements
contained in this prospectus as to the contents of any contract or
other document that the Company files as an exhibit to the
registration statement are not necessarily complete, and each such
statement is qualified in all respects by reference to the full
text of such exhibit. The registration statement and the exhibits
thereto may be inspected and copied at the principal office of the
SEC, 100 F Street, NE, Washington, D.C. 20549, and copies of all or
any part thereof may also be obtained at prescribed rates from the
SEC’s Public Reference Section, at that address. In addition,
the registration statement and the exhibits thereto may be viewed
on and printed out from the SEC’s website at www.sec.gov.
The Company will also make available, free of charge, copies of the
registration statement and the exhibits thereto, upon written
request to Mr. Amro Albanna, the Company’s Chief Executive
Officer, c/o the Company at its principal executive offices.
[Alternative page for Selling Securityholder
Prospectus]
Units
Consisting of One Share of Common Stock and
One Warrant to Purchase One-half Share of Common
Stock
________________
PROSPECTUS
________________
The
date of this prospectus is __________, 2015
PART II –
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES
OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by us, other
than selling agent’s commissions, in connection
with the sale and distribution of the securities being registered.
All amounts shown are estimates except the SEC registration fee and
the FINRA filing fee.
|
SEC registration fee
|
|
$
|
4,636
|
|
FINRA filing fee
|
|
$
|
6,485
|
|
Listing Fee
|
|
$
|
50,000
|
|
Accounting fees and expenses
|
|
$
|
15,000
|
|
Legal fees and expenses
|
|
$
|
275,000
|
|
Printing and marketing expenses
|
|
$
|
250,000
|
|
Transfer agent and registrar fees
|
|
$
|
10,000
|
|
Miscellaneous expenses
|
|
$
|
13,879
|
|
Total
|
|
$
|
625,000
|
ITEM 14. INDEMNIFICATION
OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware
General Corporation Law provides that a corporation may indemnify
directors and officers as well as other employees and individuals
against expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with any threatened, pending
or completed actions, suits or proceedings in which such person is
made a party by reason of such person being or having been a
director, officer, employee or agent to the registrant. The
Delaware General Corporation Law provides that Section 145 is not
exclusive of other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise. Section 102(b)(7) of the
Delaware General Corporation Law permits a corporation to provide
in its certificate of incorporation that a director of the
corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (1) for any breach of the
director’s duty of loyalty to the corporation or its
stockholders, (2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (3)
for unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions, or (4) for any transaction from
which the director derived an improper personal benefit. The
registrant’s amended and restated certificate of
incorporation will provide for such limitation of
liability.
Our amended and restated certificate of incorporation to be in
effect upon the completion of this offering shall provide for
indemnification of our directors and officers to the maximum extent
permitted by the Delaware General Corporation Law, and our amended
and restated bylaws to be in effect upon the completion of this
offering shall provide for indemnification of our directors,
officers, Advisory Board members (if any) and employees to the
maximum extent permitted by the Delaware General Corporation
Law.
Further, prior to the completion of this offering, we expect to
enter into indemnification agreements with each of our directors
and executive officers that may be broader than the specific
indemnification provisions contained in the Delaware General
Corporation Law. We expect these indemnification agreements will
require us, among other things, to indemnify our directors and
executive officers against liabilities that may arise by reason of
their status or service. We expect these indemnification agreements
will also require us to advance all expenses incurred by the
directors and executive officers in investigating or defending any
such action, suit, or proceeding. We believe that these agreements
will be necessary to attract and retain qualified individuals to
serve as our directors and executive officers.
We have obtained insurance policies under which, subject to the
limitations of the policies, coverage is provided to our directors
and officers against loss arising from claims made by reason of
breach of fiduciary duty or other wrongful acts as a director or
officer, including claims relating to public securities matters,
and to us with respect to payments that may be made by us to these
directors and officers pursuant to our indemnification obligations
or otherwise as a matter of law.
II-1
ITEM 15. RECENT SALES OF
UNREGISTERED SECURITIES.
As of January 16, 2015, we
effectuated a 15-1 reverse split of our shares, meaning that 15 of
our shares held prior to the reverse split equals one share held
after the reverse split. If, as a result of the split, any
stockholder would be entitled to receive a fraction of a share, in
order to avoid issuing fractional shares we will instead provide
that stockholder with an additional whole share. All references to
the number of shares, options, warrants and other common stock
equivalents, price per share and weighted-average number of shares
of common stock outstanding presented in this prospectus
retroactively reflect the effectuation of the 15-1 reverse split
dated January 16, 2015, including as set forth in this section
below, unless otherwise stated or unless the context otherwise
indicates.
During the period from January 1, 2012 to the filing of this
Registration Statement, the registrant has made the following sales
of unregistered securities:
During April 2012, the Company issued 103,467 shares of its common
stock to three U.S. accredited investors and one U.S.
non-accredited investor, at a per share price of $1.88, pursuant to
a private placement subscription offering, for total cash proceeds
of $194,000.
From July 2012 to October 2012, the Company issued 79,556 shares of
its common stock to three U.S. accredited investors and five U.S.
non-accredited investors, at a per share price of $2.25, pursuant
to a private placement subscription offering, for total cash
proceeds of $179,000.
From October 2012 to November 2012, the Company issued 240,000
shares of its common stock to nine U.S. accredited investors and
four U.S. non-accredited investors, at a per share price of $1.50,
pursuant to a private placement subscription offering, for total
cash proceeds of $360,000.
During December 2012, the
Company issued 66,669 shares of its Common Stock to three U.S.
accredited investors at a per share price of $2.25, pursuant to a
private placement subscription offering, for total cash proceeds of
$150,005.
From December 2012 to January 2013, the Company issued 83,333
shares of its common stock to nine U.S. accredited investors and
six U.S. non-accredited investors, at a per share price of $3.00,
pursuant to a private placement subscription offering, for total
cash proceeds of $250,000.
From December 2012 to January 2013, the Company issued 11,458
shares of its common stock to three U.S. accredited investors and
five U.S. non-accredited investors, at a per share price of $4.80,
pursuant to a private placement subscription offering, for total
cash proceeds of $55,000.
From May 2013 to January 2014, the Company issued 437,867 shares of
its common stock to 25 U.S. accredited investors, five U.S.
non-accredited investors, and two non-U.S. non-accredited investors
at a per share price of $3.75, pursuant to a private placement
subscription offering, for total cash proceeds of $1,642,000.
On October 4, 2013 at the option of the holder, a two-year
unsecured convertible promissory note dated November 3, 2011 was
converted into 179,500 common shares of the Company. The note was
for a principal amount of $250,000 plus simple interest at a rate
of 4.0%. The note, in the amount of its principal face amount plus
interest of $19,250, was converted into common shares of the
Company at a share price of $1.50.
From February 2014 to April 2014, the Company issued 164,583 shares
of its common stock to 17 U.S. accredited investors, at a per share
price of $4.80, pursuant to a private placement subscription
offering, for total cash proceeds of $790,000.
In March 2014, the Company issued 208,333 shares of its common
stock to one investor at a per share price of $4.80, pursuant to a
private placement offering, for total cash proceeds of
$1,000,000.
In April 2014, the Company issued 104,167 shares of its common
stock to one investor, at a per share price of $4.80, pursuant to a
private placement offering, for total cash proceeds of
$500,000.
On October 14, 2014, the Company issued $2,760,000 convertible
promissory notes to 17 accredited investors; the notes are
initially convertible into shares of the Company’s common
stock at a conversion price of $5.10 per share; provided however,
that all notes not previously converted shall convert immediately
after the closing of this offering into the securities issued in
this offering at a price equal to $5.10 per unit.
On October 14, 2014, the Company issued $25,000 convertible
promissory notes to one non-U.S. Investor; the notes are
convertible at the same price as those issued to the U.S. Investors
on October 14, 2014 and contain the same conversion terms.
II-2
In April 2015, the Company issued $2,100,000 convertible promissory
notes to three accredited investors; the notes are initially
convertible into shares of the Company’s common stock at a
conversion price of $5.10 per share; provided however, that all
notes not previously converted shall convert immediately after the
closing of this offering into the securities issued in this
offering at a price equal to $5.10 per unit.
On
July 21, 2015, we issued two promissory notes, each in the principal amount of $100,000, to two individual investors with whom
we have had relationships predating this IPO. Interest on each note accrues at the rate of 3% per annum. Upon the occurrence of
an event of default that has not been cured for 30 days, the interest rate shall automatically increase to 15% per annum. Each
note is due in September 2015. The notes may be prepaid in part or in full prior to the maturity date, without penalty. In connection
with the issuance of these notes, we issued a warrant to each investor. Each warrant is exercisable for 50,000 shares of our common
stock at an exercise price of $8.00 per share. The warrant may be exercised at any time from the date of issuance until three
years thereafter.
The sales of the securities described above were exempt from
registration under the Securities Act in reliance on one or more of
Section 3(a)(9) of the Securities Act, Regulation D under the
Securities Act and Regulation S under the Securities Act. All
securities sold contained a restrictive legend on the share
certificate stating that the securities have not been registered
under the Securities Act and setting forth or referring to the
applicable restrictions on transferability and sale.
ITEM 16.
EXHIBITS.
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1.1
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*
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Form of Selling Agent Agreement
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3.1
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*
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Second Amended and Restated Certificate of
Incorporation filed with the Delaware Secretary of State on May 29,
2015
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3.2
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*
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Bylaws
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4.1
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*
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Specimen Private Placement Convertible
Note
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4.2
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*
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Form of Warrant Agreement
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4.3
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*
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Specimen Warrant
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4.4
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*
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Specimen Selling Agent Warrant
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5.1
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*
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Opinion of Ellenoff Grossman & Schole
LLP
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10.1
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*
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License Agreement between The Regents of the
University of California and Olfactor Laboratories, Inc., dated as
of January 29, 2010
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10.2
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*
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First Amendment to License Agreement between The
Regents of the University of California and Olfactor Laboratories,
Inc. dated December 16, 2010
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10.3
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*
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Second Amendment to License Agreement between
The Regents of the University of California and Olfactor
Laboratories, Inc. dated February 16, 2012
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10.4
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*
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Third Amendment to License Agreement between The
Regents of the University of California and Olfactor Laboratories,
Inc. dated September 10, 2012
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10.5
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*
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Fourth Amendment to License Agreement between
The Regents of the University of California and Olfactor
Laboratories, Inc. dated March 17, 2015
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10.6
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*
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License Agreement between The Regents of the
University of California and Nano Engineered Applications, Inc.
dated as of March 31, 2010
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10.7
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*
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First Amendment to License Agreement between The
Regents of the University of California and Nano Engineered
Applications, Inc. dated December 14, 2010
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10.8
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*
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Second Amendment to License Agreement between
The Regents of the University of California and Nano Engineered
Applications, Inc. dated April 21, 2011
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10.9
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*
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Third Amendment to License Agreement between The
Regents of the University of California and Nano Engineered
Applications, Inc. dated February 29, 2012
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10.10
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*
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Third Amendment to License Agreement between The
Regents of the University of California and Nano Engineered
Applications, Inc. dated June 3, 2013
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10.11
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*
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Fifth Amendment to License Agreement between The
Regents of the University of California and Nano Engineered
Applications, Inc. dated September 1, 2014
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10.12
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*
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License Agreement between The Regents of the
University of California and Breathing Technologies, Inc. dated as
of October 21, 2013
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10.13
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*
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License Agreement between The Regents of the
University of California and Breathing Technologies, Inc. dated as
of May 19, 2014
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II-3
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10.14
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*
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First Amendment to License Agreement between The
Regents of the University of California and Breathing Technologies,
Inc. dated as of August 8, 2014
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10.15
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*
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License Agreement between The Regents of the
University of California and Innovation Economy Corporation dated
as of November 3, 2014 (UCLA 2014-299 “Head Pain
Management”)
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10.16
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*
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License Agreement between The Regents of the
University of California and Innovation Economy Corporation dated
as of November 3, 2014 (UCLA 2014-781 “Sleep
Disorders”)
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10.17
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*
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Management Services Agreement between the
Company and Olfactor Laboratories, Inc. dated April 1,
2012
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10.18
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*
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Management Services Agreement between the
Company and Nano Engineered Applications, Inc. dated January 1,
2013
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10.19
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*
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Amended and Restated Long-Term Incentive
Compensation Plan
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10.20
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*
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2015 Equity Incentive Plan
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10.21
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*
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Exclusive License Agreement between YuYu Pharma,
Inc. and Olfactor Laboratories, Inc. dated as of March 19,
2014
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10.22
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*
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Form of Indemnity Agreement
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10.23
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*
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Olfactor Laboratories Inc. Long-Term Incentive
Compensation Plan
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10.24
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*
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Form of Closing Escrow Agreement by and among
the Company, the Selling Agent and Wilmington Trust, N.A.
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10.25
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*
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Termination of Option and Compensation Agreement
dated May 1, 2015.
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14
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*
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Code of Ethics
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21
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*
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List of Subsidiaries
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23.1
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Consent of Marcum LLP, independent registered
public accounting firm
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23.2
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*
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Consent of Ellenoff Grossman & Schole LLP
(included in Exhibit 5.1)
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99.1
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*
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Audit Committee Charter
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99.2
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*
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Compensation Committee Charter
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99.3
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*
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Nominating and Corporate Governance Committee
Charter
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99.4
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*
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Consent of Vernon Hall
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99.5
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*
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Consent of George Reyes
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ITEM 17.
UNDERTAKINGS.
(a)
The
undersigned Registrant hereby undertakes:
1.
To file,
during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i.
To include
any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
ii.
To reflect
in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement;
iii.
To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
2.
That, for
the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment 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-4
3.
To remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
4.
That, for
the purpose of determining liability under the Securities Act of
1933 to any purchaser:
i.
each
prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included
in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
5.
That,
for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant
undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such
purchaser:
i.
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
ii.
Any free
writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
iii.
The portion
of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or
its securities provided by or on behalf of the undersigned
registrant; and
iv.
Any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(b)
The
undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery
to each purchaser.
(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.
(d)
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 Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling
person 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.
II-5
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Riverside, State of California, on August 6, 2015.
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INNOVATION ECONOMY
CORPORATION
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/s/ Amro
Albanna
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By: Amro Albanna
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Title: Chair of the Board of Directors and
Chief Executive Officer
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POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Amro Albanna such
person’s true and lawful attorney-in-fact, with full power of
substitution and re-substitution for such person and in such
person’s name, place and stead, in any and all capacities, to
sign any and all amendments, including post-effective amendments,
to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with
the SEC, hereby ratifying and confirming all that said
attorney-in-fact or his substitute, each acting alone, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities and on the dates indicated.
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/s/
Amro Albanna
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Chair
of the Board of Directors, Sole Director and
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August
6, 2015
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By:
Amro Albanna
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Chief
Executive Officer (Principal Executive Officer)
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/s/
Albert Cervantes
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Chief
Financial Officer (Principal Financial Officer
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August
6, 2015
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By:
Albert Cervantes
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and
Principal Accounting Officer)
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II-6
EXHIBIT INDEX
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23.1
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Consent of Marcum LLP, independent registered
public accounting firm
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II-7
Exhibit 23.1
Independent Registered Public Accounting Firm’s Consent
We consent to the inclusion in this Registration Statement of Innovation Economy Corporation on Post-Effective Amendment
No. 2 to Form S-1 (File No. 333-203238) of our report dated April 3, 2015, except for Note 8a and Note 14, as to which the
date is May 12, 2015, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern,
with respect to our audits of the consolidated financial statements of Innovation Economy Corporation as of December 31, 2014
and 2013 and for the years ended December 31, 2014 and 2013, which report appears in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to our Firm under the heading “Experts” in such Prospectus.
/s/ Marcum LLP
Marcum LLP
New York, NY
August 6, 2015
INNOVATION ECONOMY CORP (NASDAQ:MYIE)
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부터 2월(2) 2025 으로 3월(3) 2025
INNOVATION ECONOMY CORP (NASDAQ:MYIE)
과거 데이터 주식 차트
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