Business Context and Reporting Period
This Form 8-K is filed by Imprimis Pharmaceuticals, Inc. (not Harrow, Inc.) with a report date of May 15, 2018, covering events occurring between September 28, 2017, and May 11, 2018. The filing details a strategic spin-off of the Company's ophthalmic formulations business into a previously wholly-owned subsidiary, Surface Pharmaceuticals, Inc. ("Surface"), and Surface's subsequent Series A financing.
Key Financial Metrics and Transactions
- Series A Financing: Surface raised approximately $15,000,000 in initial proceeds, with an additional $5,000,000 expected within 90 days, totaling up to $20,000,000.
- Share Price: Series A Preferred Stock was issued at $3.30 per share.
- Ownership Stake: Imprimis retains 3,500,000 shares of Surface common stock, representing approximately 30% of Surface's equity and voting interests post-financing.
- Reimbursement: Imprimis will be reimbursed for cash advances on Surface-related expenses totaling over $100,000.
- Revenue Model: Imprimis will receive royalties of 4% to 6% of net sales of Surface products while patents are outstanding.
- Milestone Payments: Surface must pay Imprimis $50,000 upon initial patent issuance for each product.
Material Changes
The primary material change is the transition of Surface from a wholly-owned subsidiary to an independent entity with external equity financing. Imprimis has divested operational control of the ophthalmic formulations business while retaining a significant minority stake and a revenue stream via royalties and milestones. Additionally, Imprimis's CFO, Andrew R. Boll, resigned from the Surface board of directors concurrent with the financing closing.
Guidance, Outlook, and Risks
- Related Party Transactions: Significant related party risks exist. Imprimis's CEO (Mark L. Baum) and Board Member (Dr. Richard Lindstrom) serve as directors of Surface. Dr. Lindstrom also receives a 3% royalty on net sales and is a principal of Flying L Partners, an affiliate of the funding investor.
- Consulting Agreements: Several Imprimis employees, including executive leadership, have entered into consulting agreements with Surface.
- Conversion Rights: The Series A Preferred Stock has mandatory conversion requirements into Surface common stock upon an underwritten IPO or similar transaction.
- Liquidity Preference: The Series A Stock holds liquidation preference over all other equity interests in Surface.
Investor Verification Checklist
- Verify the final closing amount of the Series A Round (initial $15M vs. potential $20M total).
- Review the full text of the Asset Purchase and License Agreements (Exhibits 10.1 and 10.2) for detailed royalty triggers and termination clauses.
- Assess the valuation implications of the $3.30 per share price for Surface's Series A Stock.
- Confirm the extent of ongoing financial and operational dependencies between Imprimis and Surface through the new consulting agreements.
- Monitor the status of the $50,000 milestone payments tied to patent issuances.