Table of ContentsRISK FACTORS
Investing in our Common Stocksecurities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information incorporated by reference intoincluded in this prospectus as well as the risk factors included in Item 1A. “Risk Factors” in our Annual Report on Form 1010-K-K for the year ended April30, 20222023 incorporated by reference into this prospectus, before making a decision to invest in our Securities. Our business, results of operations, financial condition and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of the following risks actually occur, our business, platform, reputation, brand, results of operations, financial condition and prospects could be materially and adversely affected. In such event, the market price of our Securities could decline, and you could lose all or part of your investment.
Risks Related to Our Financial Condition and Capital Requirements
There is substantial doubt about our ability to continue as a going concern.
Our independent registered public accounting firm has issued an opinion on our audited financial statements incorporated by reference into this Offeringregistration statement that contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern because we have experienced recurring losses, negative cash flows from operations, and limited capital resources. These events and conditions indicate that a material uncertainty exists that may cast significant doubt on our ability to continue as a going concern. The perception that we may not be able to continue as a going concern may have a material adverse effect on our share price and our ability to raise new capital (whether it is through the issuance of equity or debt securities or otherwise), enter into critical contractual relations with third parties and otherwise execute our business objectives. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.
If we are unable to continue as a going concern, we may have to liquidate our assets, and the Ownership ofvalues we receive for our Common Stockassets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.
We have been notified by The Nasdaq Stock Market LLC of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our Common Stock could be delisted from Nasdaq.
Our Common Stock and IPO Warrants are currently listed on Nasdaq. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements.
On December 21, 2022, we received notice from the Listing Qualifications Staff of Nasdaq indicating that we were not in compliance with the Minimum Stockholders’ Equity Requirement, because our stockholders’ equity of $1,082,676 as reported in our Quarterly Report on Form 1010-Q-Q for the period ended October 31, 2022 was below the required minimum of $2.5 million, and because, as of October 31, 2022, we did not meet the alternative compliance standards, relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
On February 3, 2023, we submitted to Nasdaq a plan to regain compliance with the Minimum Stockholders’ Equity Requirement. On February 8, 2023, Nasdaq notified us that they have granted us an extension of up to 180 calendar days from December 21, 2022, or through June 19, 2023, to regain compliance. IfOn June 20, 2023, we failreceived a delist determination letter from Nasdaq advising us that Nasdaq determined that we did not meet the terms of the extension by the June 19, 2023 deadline.
On June 27, 2023, we submitted a hearing request to evidence compliancethe Panel to appeal the delisting determination. In response to our request for a hearing, on June 27, 2023, we received a letter from Nasdaq stating that its delisting action has been stayed, pending a final decision by the Panel and a hearing will be held on August 17, 2023.
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On August 2, 2023, we received a letter from the Staff of Nasdaq indicating that, based upon filingthe closing bid price of our periodic reportCommon Stock for the year ending Aprillast 30 2023consecutive business days, we no longer met the requirement to maintain the Minimum Bid Price Requirement. In accordance with Nasdaq listing rules, we have until January 29, 2024 to regain compliance with the SEC and Nasdaq,Minimum Bid Price Requirement. In the event we do not regain compliance during this period, we may be eligible to seek an additional 180 calendar day compliance period if we meet the Nasdaq continued listing requirement for market value of publicly held shares and all other initial listing standards, with the exception of the Minimum Bid Price Requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period.
The Company attended an August 17, 2023 hearing before the Panel, and requested the continued listing of its securities on the Nasdaq Capital Market pending its return to compliance with the Minimum Stockholder’s Equity Requirement and Minimum Bid Price Requirement.
On August 28, 2023, the Company received a decision from the Panel granting the Company’s request for continued listing on the Nasdaq Capital Market, subject to delisting. If Nasdaq determinesthe Company demonstrating compliance with the Minimum Stockholders’ Equity Requirement on or before November 21, 2023, and certain other conditions. In addition, the Company has until January 29, 2024, to delist our Common Stock, we will havedemonstrate compliance with the right to appeal to a Nasdaq hearings panel.Minimum Bid Price Requirement.
There can be no assurances that we will be able to regain compliance with the Minimum Stockholders’ Equity Requirement and the Minimum Bid Price Requirement, or if we do regain compliance with the Minimum Stockholders’ Equity Requirement and the Minimum Bid Price Requirement, that we will be able to continue to comply with all applicable Nasdaq listing requirements in the future. If we are unable to maintain compliance with these Nasdaq requirements, our Common Stock and IPO Warrants will be delisted from Nasdaq.
In the event that our Common Stock isand IPO Warrants are delisted from Nasdaq, as a result of our failure to comply with the Minimum Stockholders’ Equity Requirement or the Minimum Bid Price Requirement, or due to our failure to continue to comply with any other requirement for continued listing on Nasdaq, and is not eligible for listing on another exchange, trading in the shares of our Common Stock could be conducted in the overover-the-counter-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our Common Stock, and it would likely be more difficult to obtain coverage by securities analysts and the news media, which could cause
This is a best efforts offering, no minimum amount of Securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans.
The placement agent has agreed to use its reasonable best efforts to solicit offers to purchase the Securities being offered in this offering. The placement agent has no obligation to buy any of the Securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the Securities. There is no required minimum number of Securities or amount of proceeds that must be sold as a condition to completion of this offering. Because there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth above. We may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to fund for our operations as described in the “Use of Proceeds” section herein. Thus, we may not raise the amount of capital we believe is required for our operations in the short term and may need to raise additional funds, which may not be available or available on terms acceptable to us.
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If you purchase our securities being sold in this offering, you will experience immediate and substantial dilution in the net tangible book value of your shares. In addition, we may issue additional equity or convertible debt securities in the future, which may result in additional dilution to investors.
The price per share of our Common Stock being offered in this offering may be higher than the net tangible book value per share of the outstanding shares of our Common Stock prior to this offering. Assuming the sale of all Securities offered hereby, based on an assumed public offering price of $0.42 per share, the closing sale price of our Common Stock on the Nasdaq Capital Market on October 10, 2023, for aggregate net proceeds of approximately $7.1 million, and after deducting commissions and estimated offering expenses payable by us, new investors in this offering will incur immediate dilution of $0.16 per share. For a more detailed discussion of the foregoing, see the section entitled “Dilution” below. To the extent outstanding preferred stock or convertible notes are converted or outstanding stock options or warrants (including placement agent warrants) are exercised, there will be further dilution to new investors.
Future sales of a substantial number of shares of our Common Stock by our existing shareholders in addition to the shares offered by this prospectus could cause our stock price to decline.
As of March 23,October 10, 2023, there were 9,739,93110,970,980 shares of our Common Stock outstanding. In addition, as of March 23,October 10, 2023 there were 375,671380,440 shares of Series C Preferred Stock outstanding that, as of such date, were convertible into 1,636,646 shares of Common Stock, a convertible note which could convert into 5,200 shares of Series C Preferred Stock (which could then convert into 22,654 shares of Common Stock), and warrants (including the Bridge Warrants) and options exercisable for 4,368,785 shares of our Common Stock. All of the1,865,452 shares of Common Stock and IPO Warrants sold in the IPO became eligibleoptions and warrants exercisable for sale immediately upon issuance in the IPO.5,426,210 shares of our Common Stock. Additional shares will be eligible for sale in the public market upon expiration of the remaining unexpired locklock-up-up agreements entered into in connection with the IPO. Subject to any applicable locklock-up-up agreements, pursuant to Rule 144 under the Securities Act as in effect on the date hereof, or Rule 144, a person who holds restricted shares of Common Stock (assuming there are any restricted shares) and is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least six months, would be entitled to sell an unlimited number of shares of our Common Stock, provided current public information about us is available. In addition, under Rule 144, a person who holds restricted shares in us and is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned these restricted shares for at least one year, would be entitled to sell an unlimited number of shares without regard to whether current public information about us is available. It is conceivable that following the holding period, many shareholders may wish to sell some or all of their shares. If our shareholders or the holder of our placement agent warrants upon the exercise of such warrants sell substantial amounts of our Common Stock in the public market at the same time, the market price of our Common Stock could decrease significantly due to an imbalance in the supply and demand of our Common Stock. Even if they do not actually sell the Common Stock, the perception in the public market that our shareholders or the holder of our placement agent warrants upon the exercise of such warrants might sell significant Common Stock could also depress the market price of our Common Stock.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they publish negative reports regarding our business or our securities, our share price and trading volume could decline.
The trading market for the Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding the Common Stock, or provide more favorable relative recommendations about our competitors, the price of our Common Stock would likely decline. If any analyst who may cover us were to cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our Common Stock or trading volume to decline.
Management has broad discretion as to the use of proceeds we may receive from the sale of Purchase Shares to Lincoln Park.
Our management has broad discretion in the allocation of proceeds we may receive from the sale of Purchase Shares to Lincoln Park and could use such proceeds for purposes other than those contemplated at the date of this prospectus. Our shareholders may not agree with the manner in which our management chooses to allocate and spend such proceeds.
We will need additional capital beyond the capital raised from the sale of Purchase Shares to Lincoln Park,in this offering, and the sale of additional shares of the Common Stock or equity or debt securities could result in additional dilution to our shareholders.
Although the proceeds of the sale of shares of our Common Stock to Lincoln Park, if any, and the net proceeds from our IPO and the sale of Purchase Shares to Lincoln Parkthis offering are anticipated to be sufficient to achieve FDA clearance, which would allow us to market the MyoVista in the U.S.,United States, there is no assurance that this would be the case and further funding may be required. We will need to raise additional
USE OF PROCEEDSWe have never paid cash dividends on our Common Stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have neither declared nor paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. Therefore, you should not rely on an investment in Common Stock as a source for any future dividend income. Our Board of Directors has complete discretion as to when or whether to distribute dividends. Even if our Board of Directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our Board of Directors.
Risks Related to Our License Agreements with Mount Sinai
We may not ultimately receive anythe Licenses from Mount Sinai since the issuance of the Licenses is subject to the Company raising at least $5,000,000 in gross proceeds from one or more financings prior to December 31, 2023, and further, at least $10,000,000 in gross proceeds from one or more financings raised prior to June 30, 2024.
The issuance of the saleLicenses from Mount Sinai is subject to a condition which mandates that we raise a minimum of $5,000,000 in gross proceeds from a financing or a series of financings between the period of August 1, 2023 and prior to December 31, 2023. Moreover, even if the $5,000,000 threshold is met, we must raise an aggregate of $10,000,000 prior to June 30, 2024 (inclusive of the $5,000,000), otherwise Mount Sinai may terminate the
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License Agreements. Failure to meet one or both of the financing thresholds within the stipulated time frames may result in the denial of the Licenses being issued and termination of our License Agreements with Mount Sinai. This condition presents a significant risk to our business, as our ability to meet the fundraising target may be influenced by various factors, including market conditions, investor sentiment, and economic uncertainties. If we are unable to secure the necessary capital within the specified timeframe, we may be unable to obtain the Licenses, which could materially impact our ability to operate and generate revenue, potentially leading to a loss of business opportunities and financial harm to our company and shareholders.
As a result of the Mount Sinai Transaction, our shareholders will suffer immediate and substantial dilution.
Because of the issuance of shares of Common Stock, common stock warrants and pre-funded warrants to Mount Sinai, our stockholders may experience significant dilution of their ownership interests. Furthermore, if the License Agreements are terminated by Lincoln ParkMount Sinai after we have satisfied the Financing Requirement but ultimately fail to meet the Additional Financing Requirement, Mount Sinai will have the right to retain the securities issued or issuable to them under the Securities Purchase Agreement at its own discretion, which represent 15% of the then-issued and outstanding shares of our Common Stock. For a further description of the dilution that investors in this offering.offering will experience, see “Dilution.”
We are highly dependent on the Licenses, the termination of which may prevent us from commercializing our products, and which imposes significant obligations on us.
We are highly dependent on the intellectual property licensed from Mount Sinai, pursuant to which we aim to incorporate the licensed technology for use and development in our MyoVista products. Other products or services we may develop also may rely on the same technology. In the event that we fail to use no less than commercially reasonable efforts to develop and commercialize the licensed products in their respective field of use as soon as reasonably practicable, and we do not cure such breach within the applicable time period, Mount Sinai could terminate the Licenses. Any termination of the Licenses resulting in the loss of the licensed rights would prevent us from marketing and selling our anticipated MyoVista products and any other products or services we may develop based on such underlying licensed technology. Any termination of the exclusivity of the license, in those cases where applicable, could damage our competitive position within the marketplace.
Furthermore, the License Agreements impose significant obligations on us. We will be required to pay Mount Sinai royalties in low-single digit percentages of annual net sales of licensed products sold by the Company and a share of any sublicense revenue received by the Company from sublicensees of the licensed products as well as achieve the milestones prescribed by the License Agreements and Securities Purchase Agreement.
Our future financial performance will depend in part on the successful integration, improvement and software updates from the Mount Sinai algorithms.
Our future financial performance will depend in part on our ability to influence, anticipate, identify and respond to changing consumer preferences and needs and the technologies relating to the care and treatment of heart disease. We can provide no assurances that the Mount Sinai algorithms and products will be successfully integrated, achieve significant commercial success and gain meaningful market share. We may receive upnot correctly anticipate or identify trends in consumer preferences or needs or may identify them later than competitors do. In addition, difficulties in manufacturing or in obtaining regulatory approvals due to $15,000,000integrating the Mount Sinai algorithms or providing a cloud-based environment to host the algorithms may delay or prohibit our algorithm-based product offerings from completing the development process. Further, we may not be able to develop improvements and software updates to our “EKG” product at a cost that allows us to meet our goals for profitability. Service costs relating to our product may be greater than anticipated and we may be required to devote significant resources to address any quality issues associated with our product.
Failure to successfully introduce, improve or update our products on a cost-effective basis, or delays in aggregate gross proceeds under the Purchase Agreement from any sales we make to Lincoln Park from time to time pursuantcustomer decisions related to the Purchase Agreement afterevaluation of our products could cause us to lose market acceptance and could materially adversely affect our business, financial condition and results of operations.
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Our future success depends on our ability to develop, receive regulatory clearance or approval for, and introduce the datealgorithms underlying the Mount Sinai Licenses to the market in a timely manner. If we do not obtain and maintain the regulatory registrations and clearances for the algorithms, we will be unable to market and sell the MyoVista utilizing the Licenses in the United States, Europe or other regions.
In the United States, before we can market a new medical device, or a new use of, new claim for or significant modification to, an existing product, we must first receive either approval of a Premarket Approval Application, or PMA, clearance under Section 510(k), or be granted a De Novo classification, in accordance with the Federal Food, Drug, and Cosmetic Act, or the FDCA. For additional information on the PMA or the De Novo classification processes, see “Business — FDA and Other Government Regulation.”
The FDA can delay, limit or deny clearance or approval of a medical device for many reasons, including:
• we may not be able to demonstrate to the FDA’s satisfaction that the algorithms underlying the Mount Sinai Licenses are safe and effective for its intended use;
• the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required; and
• the manufacturing process or facilities we use or contract to use may not meet applicable requirements.
Sales of our device outside of the United States and the EEA are also subject to foreign regulatory requirements that vary widely from country to country. Approval procedures vary among countries and can involve additional testing. Complying with foreign regulatory requirements, including obtaining registrations, clearances or approvals, can be expensive and time-consuming, and we may not receive regulatory clearances or approvals in each country in which we plan to market our device, or we may be unable to do so on a timely basis. If we modify our device, we may need to apply for additional regulatory clearances or approvals before we are permitted to sell the modified device. In addition, we may not continue to meet the quality and safety standards required to maintain the authorizations that we have received. If we are unable to maintain our authorizations in a particular country, we will no longer be able to sell the applicable device in that country.
Regulatory clearance or approval by the FDA does not ensure registration, statementclearance or approval by regulatory authorities in other countries, and registration, clearance or approval by one or more foreign regulatory authorities does not ensure registration, clearance or approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining registration or regulatory clearance or approval in one country may have a negative effect on the regulatory process in others.
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Table of which this prospectus is a part is declared effective. The grossContents
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of sharesthe Securities offered in this offering will be approximately $7.1 million (assuming the sale of all Securities offered hereby, based on an assumed public offering price of $0.42 per share, the closing sale price of our Common Stock to Lincoln Park pursuanton the Nasdaq Capital Market on October 10, 2023, and after deducting placement agent fees and estimated offering expenses payable by us). However, because this is a best efforts offering and there is no minimum offering amount required as a condition to the Purchase Agreement will be upclosing of this offering, the actual offering amount, the placement agent’s fees and net proceeds to $15,000,000 over an approximately 36-month period, assuming that such salesus are not limited bypresently determinable and may be substantially less than the Exchange Cap andmaximum amounts set forth on the cover page of this prospectus. In addition, we sellmay receive proceeds from the full amount of Common Stock that we have the right, but not the obligation, to sell to Lincoln Park under the Purchase Agreement, and before other estimated fees and expenses. We may sell fewer than allexercise of the shares permitted to be sold pursuantplacement agent warrants, to the Purchase Agreement, in which case our offeringextent such placement agent warrants are exercised for cash, but we will not receive any proceeds will be less. Because we are not obligated to issue or sellfrom any sale of the shares of our Common Stock underunderlying the Purchase Agreement, other than the Initial Commitment Shares (from which we will receive no proceeds), the actual total offering amount and proceeds to us, if any, are not determinable at this time. There can be no assurance that we will receive any proceeds under or fully utilize the Purchase Agreement. See “Plan of Distribution” elsewhere in this prospectus for more information.placement agent warrants.
As of the date of this prospectus, we cannot predict with certainty all the uses for the net proceeds if any, we may receive fromto be received upon the salecompletion of Purchase Shares to Lincoln Park under the Purchase Agreement.this offering. We currently intend to use suchthe net proceeds if any, in conjunction with the remaining proceeds from our IPO and proceeds received from the cash exercises of Bridge Warrants, (i)this offering for costs directly related to achievingobtaining FDA clearance for the MyoVista device including costsand our AI-based ECG algorithms, for relevant Company personnel, associated device testing, validation and R&D, and completing the pivotal clinical validation study, (ii) for working capital and general corporate purposes until we can obtain FDA approval, (iii) to pay accrued and unpaid interest to one lender (John Q. Adams, Sr., a former director of the Company) under the $1M Loan and Security Agreement on or before September 30, 2023, which is estimated to be $77,000 as of such date, and (iv) with respect to the remainder, if any, for working capital and general corporate purposes, including personnel costs, capital expenditures, interest and debt repayments and the costs of operating as a public company. The promissory note issued to John Q. Adams, Sr. pursuant toOur debt that may be repaid from the $1M Loan and Security Agreement, as amended through the datenet proceeds of this prospectus (the “Adams Note”), matures on March 31, 2024 and the promissory issuedoffering consists of up to Front Range Ventures, LLC, or FRV, pursuant to the $1M Loan and Security Agreement, as amended through the datea maximum of this prospectus (the “FRV Note”), matures on September 30, 2024. At January 31, 2023, the aggregate principal balance outstanding under the Adams Note and the FRV Note was $1.0 million and the interest rate under each promissory note was 12% per annum. FRV is a beneficial owner of more than five percent (5%) of the combined voting power of our outstanding capital stock and Mr. Adams is a former director of the Company.
We received approximately $5.2 million in net proceeds from our IPO after deducting the underwriting discount and commission and other IPO expenses payable by the Company of approximately $1.2 million. As of March 23, 2023, we had used approximately $4.6 million of the loan evidenced by the MSW Note, which repayment amount will depend on the actual amount of our drawdown under such loan. As of October 10, 2023, we have drawn approximately $0.5 million under the MSW Note, which note bears no interest, matures on December 31, 2023 and may be repaid at any time in whole or in part without fees or penalty. We have not allocated specific amounts of net proceeds from the IPO.for any of these purposes.
Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our global marketing and sales efforts, our development efforts and the overall economic environment.
Therefore, our management will retain broad discretion over the use of the proceeds from this offering. We may ultimately use the proceeds for different purposes than what we currently intend. Pending any ultimate use of any portion of the proceeds from this offering, if the anticipated proceeds will not be sufficient to fund all the proposed purposes, our management will determine the order of priority for using the proceeds, as well as the amount and sources of other funds needed.
DILUTION
The salepro forma as adjusted basis, by approximately $0.9 million, after deducting placement agent fees and estimated offering expenses payable by us, and assuming the number of shares of Common Stock to Lincoln Park pursuant tobe offered in this offering as set forth on the Purchase Agreement will have a dilutive impact oncover page of this prospectus remains the same.
An increase (decrease) of 1.0 million shares of Common Stock offered by us, assuming the assumed public offering price of $0.42 per share of our shareholders. In addition, the lower theCommon Stock (the closing sale price of our Common Stock is aton the time we exercise our rightNasdaq Capital Market on October 10, 2023) remains the same, would increase (decrease) cash and cash equivalents, additional paid in capital, and total stockholders’ equity on a pro forma basis, by approximately $0.4 million.
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DILUTION
If you invest in this offering, your interest will be diluted immediately to sell shares to Lincoln Park, the moreextent of the difference between the public offering price per share of Common Stock and the pro forma as adjusted net tangible book value per share after this offering. Historical net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of our Common Stock we will issue to raise our desired amountoutstanding. The amounts set forth below in this Dilution section are as of proceeds from the sale, and the greater the dilution to our existing shareholders.
The price that Lincoln Park will pay for our Common Stock to be resold pursuant to this prospectus will depend upon the timing of sales and will fluctuate based on the trading price of Common Stock.July 31, 2023, unless otherwise indicated.
The historical net tangible book value (deficit)deficit of our Common Stock was approximately $(0.2)$0.5 million, or $(0.03)($0.05) per share as of JanuaryJuly 31, 2023. Historical net tangible book value (deficit)deficit per share represents the amount of our total tangible assets less our total liabilities, divided by 8,349,859,10,670,980, the total number of shares of Common Stock issued and outstanding on JanuaryJuly 31, 2023.
TheOur pro forma historical net tangible book valuedeficit was approximately $1.0$1.7 million, at Januaryor $0.12 per shares as of July 31, 2023. Pro forma historical net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the total number of shares of Common Stock outstanding at JanuaryJuly 31, 2023, after giving effect to the (i) the issuance of 1,172,304 sharesan aggregate of Common Stock and the Remaining Pre-Funded Bridge Warrant to purchase 150,000300,000 shares of Common Stock pursuant to the Bridge Warrant exercises; andLincoln Park Purchase Agreement in August 2023; (ii) the draw of $0.5 million on the MSW Note; (iii) the issuance of 117,768warrants to purchase up to 1,000,000 shares of Common Stock pursuantin lieu of a facility fee; (iv) the issuance of warrants to purchase up to 200,000 shares of Common Stock as consideration for extension of the conversion$1M Loan and Security agreement and (v) the expected issuance of Series C Preferred Stock.3,331,691 shares of Common Stock, pre-funded warrants to purchase 775,070 shares of Common Stock, and warrants to purchase 914,148 shares of Common Stock to Mount Sinai following the Offering.
After giving effect to (i) the sale of 3,837,500 Purchase Shares to Lincoln Park pursuant toall of the Purchase Agreement and assuming gross proceeds of approximately $3.9 million from the sale of shares to Lincoln Park pursuant to the Purchase Agreement (basedSecurities offered by us in this offering based on an assumed public offering price of $1.02$0.42 per share the(the closing sale price of our Common Stock on Thethe Nasdaq Capital Market on March 23,October 10, 2023), which assumes shareholder approval of such issuances of sharesafter deducting commissions and no application of the Exchange Cap, (ii) the issuance of 162,500 shares of Common Stock to Lincoln Park as Commitment Shares and (iii) deducting estimated offering expenses of $95,000 payable by us, and assuming no exercise of any placement agent warrants, our pro forma as adjusted historical net tangible book value as of JanuaryJuly 31, 2023 would have been approximately $4.9$8.8 million or $0.36$0.26 per share. ThisBased on an assumed public offering price for this offering of $0.42 per share of Common Stock (the closing sale price of our Common Stock on the Nasdaq Capital Market on October 10, 2023), this represents an immediate increase in net tangible book value of $0.39$0.31 per share to existing shareholders and an immediate dilution in net tangible book value of $0.66$0.16 per share to purchasers in this offering, as illustrated by the table below. Dilution for this purpose represents the difference between the price per share of Common Stock paid by purchasers in this offering and pro forma net tangible book value per share of Common Stock immediately after the completion of this offering.
Public offering price per share of Common Stock | | | | | | $ | 0.42 |
Historical net tangible book deficit per share of Common Stock at July 31, 2023 | | $ | (0.05 | ) | | | |
Change in net tangible book value per share as of July 31, 2023, after giving effect to the pro forma transactions | | $ | 0.17 | | | | |
Change in net tangible book value per share as of July 31, 2023, after giving effect to the offering attributable to new investors | | $ | 0.15 | | | | |
Pro forma as adjusted net tangible book value per share as of July 31, 2023 | | | | | | $ | 0.26 |
Dilution per share of Common Stock to new investors in this offering | | | | | | $ | 0.16 |
The dilution information set forth in the table above is illustrative only and will be adjusted based on the actual offering price and other terms of this offering determined at pricing.
A $0.05 increase in the assumed public offering price of $0.42 per share of our Common Stock (the closing sale price of our Common Stock on the Nasdaq Capital Market on October 10, 2023), would increase our as adjusted net tangible book value after giving effect to this offering by approximately $1.0 million and the dilution per share to new investors.investors in this offering by $0.02 per share, after deducting placement agent fees and estimated offering expenses payable by us, and assuming the number of shares of Common Stock to be offered in this offering as set forth on the cover page of this prospectus remains the same.
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A $0.05 decrease in the assumed public offering price of $0.42 per share of our Common Stock (the closing sale price of our Common Stock on the Nasdaq Capital Market on October 10, 2023), would decrease our as adjusted net tangible book value after giving effect to this offering by approximately $1.0 million and the dilution per share to new investors in this offering by $0.02 per share, after deducting placement agent fees and estimated offering expenses payable by us, and assuming the number of shares of Common Stock to be offered in this offering as set forth on the cover page of this prospectus remains the same.
We may also increase or decrease the number of shares of Common Stock that we are offering. An increase of 1.0 million shares of Common Stock offered by us, assuming the assumed public offering price of $0.42 per share of our Common Stock (the closing sale price of our Common Stock on the Nasdaq Capital Market on October 10, 2023), would increase our as adjusted net tangible book value after giving effect to this offering by approximately $0.4 million and the dilution per share to new investors in this offering by $0.01 per share, after deducting placement agent fees and estimated offering expenses payable by us, and assuming the number of shares of Common Stock to be offered in this offering as set forth on the cover page of this prospectus remains the same.
A decrease of 1.0 million shares of Common Stock offered by us, assuming the assumed public offering price of $0.42 per share of our Common Stock (the closing sale price of our Common Stock on the Nasdaq Capital Market on October 10, 2023) would decrease our as adjusted net tangible book value after giving effect to this offering by approximately $0.4 million and the dilution per share to new investors in this offering by $0.01 per share, after deducting placement agent fees and estimated offering expenses payable by us, and assuming the number of shares of Common Stock to be offered in this offering as set forth on the cover page of this prospectus remains the same.
The following table illustrates this dilutionsummarizes, on a pro forma as adjusted basis as of July 31, 2023, the differences between the number of shares of Common Stock acquired from us, the total amount paid and the average price per share basis:paid by the existing holders of our Common Stock and by investors in this offering, based upon the assumed public offering price of $0.42 per share of Common Stock (the closing sale price of our Common Stock on the Nasdaq Capital Market on October 10, 2023).
| | | | |
Assumed offering price per share | | $ | 1.02 | |
Historical net tangible book deficit per share of Common Stock at January 31, 2023 | | $ | (0.03 | ) |
As adjusted net tangible book value per share as of January 31, 2023, after giving effect to the pro forma transactions | | $ | 0.11 | |
As adjusted net tangible book value per share as of January 31, 2023, after giving effect to the offering attributable to new investors | | $ | 0.36 | |
Dilution per share of Common Stock to new investors in this offering | | $ | 0.66 | |
| | Shares | | Total Consideration | | Average Price
Per Share |
Number | | Percent | | Amount | | Percent | |
Existing shareholders | | 14,302,674 | | 43 | % | | 6,007,123 | | 43 | % | | $ | 0.42 |
New investors | | 19,047,619 | | 57 | % | | 8,000,000 | | 57 | % | | $ | 0.42 |
Total | | 33,350,293 | | 100 | % | | 14,007,123 | | 100 | % | | | |
The table above excludes the followingnumber of shares of Common Stock owned by existing shareholders is based on 10,670,980 shares of Common Stock issued and outstanding as of JanuaryJuly 31, 2023:2023. This number of shares of Common Stock assumes no exercise of any placement agent warrants issued pursuant to this offering, and excludes:
1,624,015• 1,728,710 shares of Common Stock issuable upon conversion of the Series C Preferred Stock (including 20,677 shares issuable upon conversion of the shares of Series C Preferred Stock issuable upon conversion of the $130K Note) on an actual basis and 1,659,300 shares of Common Stock issuable upon conversion of the Series C Preferred Stock (including 22,654 shares issuable upon conversion of the shares of Series C Preferred Stock issuable upon conversion of the $130K Note) on a pro forma basis.Stock. See “Description of Securities—Our Securities — Preferred Stock” for additional information;
832,195• 1,634,907 shares of Common Stock issuable upon the exercise of stock options issued to directors, employees and consultants of the Company, of which 395,679 were vested360,857 have vested;
• 2,500,000 shares of Common Stock pursuant to our 2023 Plan that are reserved for future issuance to employees, directors and consultants, of which 931,500 shares of our Common Stock are underlying outstanding awards under the 2023 Plan as of such date;
SELLING SHAREHOLDER
This prospectus relates to the possible resale by the selling shareholder, Lincoln Park, of shares of Common Stock that may be issued to Lincoln Park pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant to the provisions of the Registration Rights Agreement, which we entered into with Lincoln Park on March 10, 2023, concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln Park of the shares that may be issued to Lincoln Park under the Purchase Agreement.
Lincoln Park, as the selling shareholder, may from time to time offer and sell pursuant to this prospectus any or all of the shares of Common Stock that we may sell to Lincoln Park under the Purchase Agreement. The selling shareholder may sell some, all, or none of its shares. We do not know how long the selling shareholder will hold the shares before selling them, and we currently have no agreements, arrangements, or understandings with the selling shareholder regarding the sale of any of the shares.
The following table provides, as of March 23, 2023, information regarding the selling shareholder and the shares of Common Stock that it may offer and sell from time to time under this prospectus. The percentage of beneficial ownership in the table below is based on 9,739,93133,350,293 shares of our Common Stock assumed to be outstanding after the closing of this offering, after giving effect to the sale of all 19,047,619 shares of Common Stock outstandingoffered pursuant to this prospectus (based on an assumed public offering price of $0.42 per share, the closing sale price of our Common Stock on the dateNasdaq Capital Market on October 10, 2023), assuming the number of shares of Common Stock offered by us, as set forth on the cover of this prospectus, remains the same, no exercise of any placement agent warrants, and excludes exercise of all unvested options; and assuming the offering is completed and the required financing conditions of at least a $5.0 million raise are met pursuant to the Securities Purchase Agreement, the issuance of 3,331,694 shares of Common Stock, 775,070 pre-funded warrants to purchase Common Stock, and 914,148 warrants to purchase Common Stock to Mount Sinai. The calculations set forth in the table below include shares issuable pursuant to antidilution provisions set forth in the Series C Preferred Stock, which would be triggered as a result of this offering. See “— Antidilution Provisions” discussed elsewhere in this prospectus.
| | Beneficial Ownership |
| | | Number of Shares(1) | | Percentages(2) |
Name of Beneficial Owner | | Common
Stock
Prior to
Offering | | Common
Stock
After
Offering | | Series C
Preferred
Stock | | Common
Stock
Prior to
Offering | | Common
Stock
After
Offering | | Series C
Preferred
Stock | | Combined
Voting
Power
Prior to
Offering(3) | | Combined
Voting
Power
After
Offering(3) |
Holder of 5% or more of each class of our securities: | | | | | | | | | | | | | | | | | | | | | |
Front Range Ventures, LLC(4) | | 1,122,584 | | 1,849,917 | | 148,213 | | 9.5 | % | | 5.3 | % | | 39.0 | % | | 8.2 | % | | 4.8 | % |
John H. Matthews(5) | | 1,222,795 | | 2,116,758 | | — | | 9.9 | % | | 6.1 | % | | — | | | 8.7 | % | | 5.5 | % |
Lary Snodgrass(6) | | 386,444 | | 529,934 | | 29,240 | | 3.5 | % | | 1.6 | % | | 7.7 | % | | 3.0 | % | | 1.4 | % |
Paul Buchanan(7) | | 348,637 | | 449,723 | | 20,599 | | 3.1 | % | | 1.3 | % | | 5.4 | % | | 2.7 | % | | 1.2 | % |
Mount Sinai(8) | | — | | 5,020,912 | | — | | — | | | 9.9 | % | | — | | | 0 | % | | 9.0 | % |
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| | Beneficial Ownership |
| | | Number of Shares(1) | | Percentages(2) |
Name of Beneficial Owner | | Common Stock Prior to Offering | | Common Stock After Offering | | Series C Preferred Stock | | Common Stock Prior to Offering | | Common Stock After Offering | | Series C Preferred Stock | | Combined Voting Power Prior to Offering(3) | | Combined Voting Power After Offering(3) |
Directors and executive officers: | | | | | | | | | | | | | | | | | | | | | |
Andrew Simpson, President, CEO and Chairman(9) | | 569,530 | | 599,548 | | 6,117 | | 5.1 | % | | 1.8 | % | | 1.6 | % | | 4.4 | % | | 1.6 | % |
Mark Hilz, COO & Secretary(10) | | 558,707 | | 568,914 | | 2,080 | | 5.0 | % | | 1.7 | % | | * | | | 4.3 | % | | 1.5 | % |
Danielle Watson, CFO & Treasurer(11) | | 7,197 | | 7,197 | | — | | * | | | * | | | * | | | * | | | * | |
Bruce Bent, Director(12) | | 16,032 | | 16,032 | | — | | * | | | * | | | * | | | * | | | * | |
Brian Szymczak, Director(13) | | 41,763 | | 43,726 | | 400 | | * | | | * | | | * | | | * | | | * | |
David R. Wells, Director(14) | | 12,500 | | 12,500 | | — | | — | | | * | | | * | | | * | | | * | |
All directors and executive officers as a group (6 persons): | | 1,205,729 | | 1,247,917 | | 8,597 | | 10.9 | % | | 3.7 | % | | 2.3 | % | | 9.3 | % | | 3.3 | % |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions or series of transactions since the beginning of Fiscal 2022 through the date hereof to which we were or will be a party, in which:
• The amount involved in the transaction exceeds, or will exceed, the lesser of $120,000 or one percent of the average of our total assets for the last two completed fiscal years; and
• in which any of our executive officers, directors or holders of five percent or more of any class of our capital stock, including their immediate family members or affiliated entities, had or will have a direct or indirect material interest.
For additional information regarding compensation arrangements for our named executive officers and directors, see “Executive Compensation.”
Related Party Transactions
$130K Note
On August 12, 2019, we entered into the $130K Note with FRV for an aggregate amount not to exceed $130,000. FRV is a beneficial owner of more than five percent of the combined voting power of our outstanding capital stock and is entitled to appoint a member of our Board of Directors. On April 28, 2023, FRV converted the $130K Note into 5,200 shares of our Series C Preferred Stock. For more information regarding the $130K Note and other indebtedness of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Description of Indebtedness — $130K Note” and our financial statements and related notes for the fiscal year ended April 30, 2023, which are included elsewhere in this prospectus includingforms a part.
$1.5M Notes
In December 2020, we issued a series of secured convertible promissory notes, which we refer to as the 100,000 Initial Commitment Shares$1.5M Notes, in the amount of $1.5 million as set forth below. The notes had an original maturity of July 31, 2022 and were subsequently amended on November 2, 2021, extending maturity to October 31, 2022.
In November 2021, in consideration for the extension of the maturity date of the $1.5M Notes from July 31, 2022 to October 31, 2022, we have alreadyissued warrants, that we refer to as the $1.5M Lender Warrants, to purchase an aggregate of 4,545 shares of our Common Stock.
The entire amount of the $1.5M Notes converted upon the IPO into 909,071 shares of Common Stock at a conversion price of $1.65. In accordance with their terms, no interest was payable as the notes converted prior to maturity.
The following table summarizes purchases of the $1.5M Notes by related parties of our Company and the number of shares of our Common Stock issuable upon exercise of $1.5M Lender Warrants issued to Lincoln Parkrelated parties of our Company in consideration of the extension of the maturity of the $1.5M Notes:
Related Party | | Amount of
Principal
$1.5M
Notes | | Shares of
Common Stock
Issued upon Conversion of
$1.5M
Notes(3) | | $1.5M
Lender
Warrants |
John H. Matthews(1) | | $ | 515,500 | | 312,424 | | 1,562 |
Brian Szymczak | | $ | 10,000 | | 6,060 | | 30 |
Andrew Simpson | | $ | 10,000 | | 6,060 | | 30 |
Mark Hilz | | $ | 10,000 | | 6,060 | | 30 |
Lary Snodgrass(2) | | $ | 100,000 | | 60,606 | | 304 |
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All such purchases of the $1.5M Notes by, and issuances of the $1.5M Lender Warrants to, related parties of the Company were made on the same basis as the purchases made by, and issuances made to, unrelated purchasers.
For more information regarding the $1.5M Notes and our other indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Description of Indebtedness — $1.5M Notes” and our financial statements and related notes for the fiscal year ended April 30, 2023, which are included elsewhere in this prospectus.
$1M Loan and Security Agreement
Beginning in April 2020, we entered into a loan and security agreement, which we refer to as the $1M Loan and Security Agreement, with FRV, a beneficial owner of more than five percent of the combined voting power of our outstanding capital stock, and John Q. Adams, Sr. (a former director of our Company).
In November 2021, in consideration for an extension of the maturity date of the $1M Loan and Security Agreement from September 30, 2021 to September 30, 2022, we issued warrants, that we refer to as the $1M Lender Warrants, to purchase an aggregate of 15,152 shares of Common Stock to FRV and Mr. Adams. The $1M Loan and Security Agreement was further amended in May 2022 to extend the maturity date to September 30, 2023. In connection with this amendment, we agreed to pay all accrued and unpaid interest owed to Mr. Adams prior to September 30, 2022. In June 2022, we paid approximately $126,000 in accrued interest to Mr. Adams.
The $1M Loan and Security Agreement was further amended on January 24, 2023 to (i) extend the maturity date of the promissory note issued to FRV pursuant to the Purchase Agreement. $1M Loan and Security Agreement to September 30, 2024, on which date the principal amount and all accrued interest thereon will be due and payable, and (ii) amend the dates on which principal and accrued interest is due under the JQA Note, such that interest accrued since June 28, 2022 will be due and payable on September 30, 2023, and the principal amount together with all accrued interest after September 30, 2023 will be due and payable on March 31, 2024.
The $1M Loan and Security Agreement was further amended on September 29, 2023 to amend the dates on which principal and accrued interest is due under the JQA Note, such that interest accrued since June 28, 2022 will be due and payable on December 31, 2023, and the principal amount together with all accrued interest after December 31, 2023 will be due and payable on March 31, 2024. As consideration for an extension of the JQA interest maturity date, we issued warrants, that we refer to as the $1M Lender Warrants, to purchase an aggregate of 200,000 shares of Common Stock to FRV and Mr. Adams.
For more information regarding the $1M Loan and Security Agreement and our other indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Description of Indebtedness —$1M Loan and Security Agreement” and our financial statements and related notes for the fiscal year ended April 30, 2023, which are included elsewhere in this prospectus.
2021 Bridge Financing
In connection with the sale of our Senior Subordinated Convertible Loan Notes (the “Bridge Notes”) and associated warrants (the “Bridge Warrants”) in December 2021 (the “2021 Bridge Financing”), the related parties listed below purchased Bridge Notes and received Bridge Warrants. All such purchases were made on the same basis as the purchases made by unrelated purchasers.
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The following table is preparedsets forth the names of such related parties and amount of the Bridge Notes and Bridge Warrants purchased:
Related Party | | Principal
Amount of
Bridge
Notes | | Shares of
Common Stock Issued upon
Conversion of
Bridge
Notes (3) | | Warrants to
Purchase the
Following
Number of
Shares |
Lary Snodgrass(1) | | $ | 222,222 | | 79,987 | | 79,987 |
John H. Matthews(2) | | $ | 555,556 | | 197,641 | | 197,641 |
In February 2023, the Bridge Warrants above were exercised and we issued 79,897 shares of our Common Stock to Mr. Snodgrass and 47,641 shares of our Common Stock and 150,000 Pre-Funded Bridge Warrants to Matthews Holdings Southwest, Inc. at an exercise price of $1.00 per share. The Pre-Funded Bridge Warrants have an exercise price of $0.0001 per share.
MSW Note
On September 7, 2023, we entered into the MSW Note with Matthews Southwest Holdings, Inc. The MSW Note provides for an unsecured drawdown loan of up to $1,000,000, drawn in installments consisting of (i) $250,000 on or prior to September 8, 2023, (ii) $250,000 on or prior to September 20, 2023, and (iii) further drawdowns of up to $500,000 in such amounts and such times to be mutually agreed upon between the Company and Lender.
In consideration of the MSW Note, the Company shall pay a facility fee to the Lender as follows:
• Warrants to acquire 500,000 shares of Common Stock, $0.001 par value per share exercisable at $1.00 per share, which shall be issued to the Lender upon the completion of the first drawdown;
• Warrants to acquire 500,000 shares of Common Stock, $0.001 par value per share exercisable at $1.25 per share, which shall be issued to the Lender upon the completion of the first drawdown and 250,000 of such Warrants shall be issued to the Lender pro-rata based on information suppliedfurther drawdowns up to us$500,000; and
• Warrants to acquire up to 500,000 shares of Common Stock, exercisable at $1.50 per share, of which 250,000 of such Warrants shall be issued to the Lender upon the completion of the first drawdown and 250,000 of such Warrants to be issued to the Lender pro-rata based on further drawdowns up to $500,000.
The MSW Note bears no interest, except upon an event of default, at which time, interest accrues at a rate of 12% per annum. The MSW Note matures on December 31, 2023 and may be repaid at any time in whole or in part without fees or penalty.
John H. Matthews, the controlling shareholder of Matthews Southwest Holdings, Inc., is a beneficial owner of more than 5% of the Company’s outstanding Common Stock.
As of October 10, 2023, we have drawn approximately $0.5 million under the MSW Note and issued 1,000,000 Warrants to purchase Common Stock in lieu of a facility fee.
Registration Rights Agreement
In connection with the 2021 Bridge Financing, we entered into the Registration Rights Agreement with the purchasers of the Bridge Notes pursuant to which we agreed to file a resale registration statement, no later than September 12, 2022, with respect to the shares of our Common Stock issuable upon conversion of the Bridge Notes, exercise of the Bridge Warrants or resulting from anti-dilution provisions in the Bridge Notes, the Bridge Warrants and the pre-funded warrants or any securities issued or the issuable upon any stock split, dividend or other distribution, recapitalization or similar event, collectively referred to as the Registrable Securities. Such registration statement was filed with the SEC on September 12, 2022 and declared effective by the sellingSEC on October 7, 2022.
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Short-term $500K Unsecured Note
On August 12, 2021, we issued a note, for the amount of $500,000 to Matthews Southwest Holdings, Inc., a beneficial owner owning more than 5% of our Common Stock. The maturity date of this note, as amended, was November 30, 2021. This note has been repaid and there are no further obligations owed by the Company. In connection with the issuance of this note, we also issued 10,101 shares of Common Stock to Matthews Southwest Holdings, Inc.
Kyngstone Agreement
Andrew Simpson, the Chairman and CEO of the Company, is the sole and controlling shareholder of Kyngstone Limited, or Kyngstone, a company incorporated in the United Kingdom. Kyngstone provided advisory services to the Company pursuant to an Agreement dated June 25, 2013 between the Company and reflects its holdingsKyngstone. During Fiscal 2022, the Company incurred $87,500 in fees to Kyngstone. No fees were incurred during Fiscal 2023.
Agreements with Front Range Ventures
Pursuant to the FRV Side Letter, FRV has the right to designate a director of our Company, which right has not been exercised as of March 23, 2023. Neither Lincoln Park northe date of this prospectus.
Policy Related to Related Party Transactions
Our Board of Directors has adopted a formal, written related party transactions policy setting forth our policies and procedures for the review, approval, or ratification of “related party transactions.” For these purposes, a “related party” is (i) any of its affiliates has held a positionperson who is or office,was an executive officer, director, or had any other material relationship, with us or anydirector nominee of our predecessorsCompany at any time since the beginning of our last fiscal year, (ii) a person who is or affiliates. Beneficial ownershipwas an immediate family member of an executive officer, director, director nominee at any time since the beginning of our last fiscal year, (iii) any person who, at the time of the occurrence or existence of the transaction, is determinedthe beneficial
owner of more than 5% of any class of our voting securities, (iv) any person who, at the time of the occurrence or existence of the transaction, is an immediate family member of a shareholder owning more than 5% of any class of our voting securities or (v) any entity that, at the time of the occurrence or existence of the transaction, is a an entity in which a director of our Company is a partner, shareholder or executive officer or otherwise over which such director has influence or control. This policy applies to any transaction between us and a related party other than the following:
• Transactions available to all employees generally; and
• Transactions, which when aggregated with the amount of all similar transactions, involve less than $5,000.
Any related party transaction subject to this policy may only be consummated or may continue only if the Audit Committee approves or ratifies such transaction in accordance with Section 13(d)the guidelines set forth in the policy and if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the transaction is approved by the disinterested members of the Exchange ActBoard of Directors. In addition, if the transaction involves compensation, the compensation must have been approved by the Compensation Committee.
Our Audit Committee will analyze the following factors, in addition to any other factors the members of the Audit Committee deem appropriate, in determining whether to approve a related-person transaction:
• The benefits to our Company;
• The impact on a director’s independence in the event the related party is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer or otherwise over which such director has influence or control;
• The availability of other sources for comparable products or services;
• The terms of the related party transaction; andRule 13d-3 thereunder.
| | | | | | | | | | | | | | | | |
Selling Shareholder | | Shares of
Common
Stock
Beneficially
Owned Before
this Offering | | | Percentage of
Outstanding
Shares of
Common
Stock
Beneficially
Owned Before
this Offering | | | Shares of
Common
Stock to be
Sold in this
Offering | | | Percentage of
Outstanding
Shares of
Common
Stock
Beneficially
Owned After
this Offering | |
Lincoln Park Capital Fund, LLC(1) | | | 217,000 | (2) | | | 2.2 | % | | | 4,000,000 | (3) | | | 0 | %(4) |
(1) | Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the shares of Common Stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares being offered under the prospectus in connection with the transactions contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer.
|
(2) | Represents (i) 100,000 Initial Commitment Shares issued to Lincoln Park on March 13, 2023 as a fee for its commitment to purchase shares under the Purchase Agreement, all of which are covered by the registration statement that includes this prospectus and (ii) 117,000 shares of Common Stock issuable upon exercise of IPO Warrants acquired by Lincoln Park in a transaction unrelated to the transactions contemplated by the Purchase Agreement, at an exercise price of $4.25, which warrants expire on June 15, 2027. We have excluded from the number of shares beneficially owned by Lincoln Park prior to the offering all of the shares of Common Stock that Lincoln Park may be required to purchase on or after the date of this prospectus pursuant to the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the registration statement of which this prospectus is a part becoming and remaining effective. Furthermore, under the terms of the Purchase Agreement, issuances and sales of our shares of Common Stock to Lincoln Park are subject to certain limitations on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Limitation. See the description under the heading “Lincoln Park Transaction” for more information about the Purchase Agreement.
|
PLANDESCRIPTION OF DISTRIBUTIONTHE SECURITIES WE ARE OFFERING
An aggregateCommon Stock
The material terms of our Common Stock are described under the caption “Description of Our Securities” in this prospectus.
Placement Agent Warrants
We have agreed to issue to the placement agent or its designees the placement agent warrants to purchase up to 4,000,000 shares of Common Stock may be offered by this prospectus by Lincoln Park pursuant to the Purchase Agreement. The shares of Common Stock may be sold or distributed from time to time by Lincoln Park directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed.
The salea number of shares of Common Stock offered by this prospectus could be effected in one or moreequal to 4.0% of the following methods:
ordinary brokers’ transactions;
transactions involving cross or block trades;
through brokers, dealers, or underwriters who may act solely as agents;
“at the market” into an existing market for theaggregate number of shares of our Common Stock;
Stock sold in other ways not involving market makers or established business markets, including direct salesthis offering, at an exercise price equal to purchasers or sales effected through agents;
in privately negotiated transactions; or
any combination110% of the foregoing.
In order to comply with the securities lawspublic offering price per share of certain states, if applicable, the shares ofour Common Stock mayto be sold only through registered or licensed brokers or dealers. In addition, in certain states,this offering. Please see the sharesdescription of Common Stock may not be sold unless they have been registered or qualified for salethe placement agent warrants below in the state or an exemption from the state’s registration or qualification requirementsection captioned “Plan of Distribution — Placement Agent Warrants.”
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF COMMON STOCK
The following is available and complied with.
Lincoln Park is an “underwriter” within the meaning of Section 2(a)(11)a summary of the Securities Act.
Lincoln Park has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any,material U.S. federal income tax consequences of the acquisition, ownership and disposition of the shares of Common Stock (which we sometimes refer to as our “securities” and holders thereof as “holders”), but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed or subject to differing interpretations, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those set forth below. We have not sought and will not seek any ruling from the U.S. Internal Revenue Service (the “IRS”) with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.
This summary also does not address the tax considerations arising under the laws of any U.S. state or local or any non-U.S. jurisdiction, estate or gift tax, the 3.8% Medicare tax on net investment income or any alternative minimum tax consequences. In addition, this discussion does not address tax considerations applicable to a holder’s particular circumstances or to a holder that may be subject to special tax rules, including, without limitation:
• banks, insurance companies or other financial institutions;
• tax-exempt or government organizations;
• brokers or dealers in securities or currencies;
• traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
• persons that own, or are deemed to own, more than five percent of our capital stock;
• certain U.S. expatriates, citizens or former long-term residents of the United States;
• persons who hold our shares of Common Stock or Warrants as a position in a hedging transaction, “straddle,” “conversion transaction,” synthetic security, other integrated investment, or other risk reduction transaction;
• persons who do not hold our Common Stock or Warrants as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes);
• persons deemed to sell our Common Stock or Warrants under the constructive sale provisions of the Code;
• pension plans;
• partnerships, or other entities or arrangements treated as partnerships for U.S. federal income tax purposes, or investors in any such entities;
• persons for whom our stock constitutes “qualified small business stock” within the meaning of Section 1202 of the Code;
• integral parts or controlled entities of foreign sovereigns;
• controlled foreign corporations;
• passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; or
• persons that acquire our Common Stock or Warrants as compensation for services.
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In addition, if a partnership, including any entity or arrangement classified as a partnership for U.S. federal income tax purposes, holds our securities, the tax treatment of a partner generally will depend on the status of the partner, the activities of the partnership, and certain determinations made at the partner level. Accordingly, partnerships that hold our securities, and partners in such partnerships, should consult their tax advisors regarding the U.S. federal income tax consequences to them of the purchase, ownership, and disposition of our securities.
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our securities arising under the U.S. federal estate or gift tax rules or under the laws of any U.S. state or local or any non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
Definition of a U.S. Holder
For purposes of this summary, a “U.S. Holder” is any beneficial owner of our securities that is a “U.S. person,” and is not a partnership, or an entity treated as a partnership or disregarded from its owner, each for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following: (a) a citizen or individual resident of the United States, (b) a corporation (or other entity or arrangement treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (c) an estate whose income is subject to United States federal income tax regardless of its source, or (d) a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust or (ii) that has otherwise elected to be treated as a United States person under the Code.
For purposes of this summary, a “Non-U.S. Holder” is any beneficial owner of our securities that is not a U.S. Holder or a partnership, or other entity treated as a partnership or disregarded from its owner, each for U.S. federal income tax purposes.
Tax Consequences to U.S. Holders
Distributions on Common Stock
As discussed above under “Dividend Policy,” we do not currently expect to make distributions on our Common Stock. In the event that we do make distributions of cash or other property, distributions paid on Common Stock, other than certain pro rata distributions of Common Stock, will be treated as a dividend to the extent paid out of our current or accumulated earnings and profits and will be includible in income by the U.S. Holder and taxable as ordinary income when received. If a distribution exceeds our current and accumulated earnings and profits, the excess will be first treated as a tax-free return of the U.S. Holder’s investment, up to the U.S. Holder’s tax basis in the Common Stock. Any remaining excess will be treated as a capital gain. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be eligible for taxation as “qualified dividend income” and therefore may be taxable at rates applicable to long-term capital gains. U.S. Holders should consult their tax advisers regarding the availability of the reduced tax rate on dividends in their particular circumstances. Dividends received by a corporate U.S. Holder will be eligible for the dividends-received deduction if the U.S. Holder meets certain holding period and other applicable requirements.
Sale or Other Disposition of Common Stock
For U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of Common Stock will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the Common Stock for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the Common Stock disposed of and the amount realized on the disposition. Long-term capital gains recognized by non-corporate U.S. Holders will be subject to reduced tax rates. The deductibility of capital losses is subject to limitations.
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FOR NON-U.S. HOLDERS
The following is a general discussion of the material U.S. federal income tax considerations applicable to non-U.S. holders (as defined herein) with respect to their ownership and disposition of our securities issued pursuant to this offering. All prospective non-U.S. holders of our securities should consult their tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our securities. In general, a non-U.S. holder means a beneficial owner of our Common Stock (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not, for U.S. federal income tax purposes:
• an individual who is a citizen or resident of the United States;
• a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia;
• an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
• a trust if (1) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all of the trust’s substantial decisions or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.
This discussion is based on current provisions of the Code, existing U.S. Treasury Regulations promulgated thereunder, published administrative pronouncements and rulings of the IRS and judicial decisions, all as in effect as of the date of this prospectus. These authorities are subject to change and to differing interpretation, possibly with retroactive effect. Any change or differing interpretation could alter the tax consequences to non-U.S. holders described in this prospectus.
We assume in this discussion that a non-U.S. holder holds shares of our securities as a capital asset within the meaning of Section 1221 of the Code (generally, for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holder’s individual circumstances, nor does it address any alternative minimum, Medicare contribution, estate or gift tax consequences, or any aspects of U.S. state, local or non-U.S. taxes. This discussion also does not consider any specific facts or circumstances that may purchase from usapply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, such as holders that own, or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below), corporations that accumulate earnings to avoid U.S. federal income tax, tax-exempt organizations, banks, financial institutions, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-qualified retirement plans, holders who hold or receive our Common Stock pursuant to the Purchase Agreement.exercise of employee stock options or otherwise as compensation, holders holding our Common Stock as part of a hedge, straddle or other risk reduction strategy, conversion transaction or other integrated investment, holders deemed to sell our Common Stock under the constructive sale provisions of the Code, controlled foreign corporations, passive foreign investment companies and certain former U.S. citizens or former long-term residents.
In addition, this discussion does not address the tax treatment of partnerships (or entities or arrangements that are treated as partnerships for U.S. federal income tax purposes) or persons that hold our securities through such partnerships. If a partnership, including any entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds our securities, the U.S. federal income tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Such salespartners and partnerships should consult their tax advisors regarding the tax consequences of the purchase, ownership and disposition of our securities.
There can be no assurance that a court or the IRS will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling with respect to the U.S. federal income tax consequences to a non-U.S. holder of the purchase, ownership or disposition of our securities.
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Distributions
As discussed in the section entitled “Dividend Policy,” we do not anticipate paying any dividends on our Common Stock in the foreseeable future. If we make distributions on our Common Stock or on the Warrants (as described above under “Constructive Dividends on Warrants”), those payments will constitute dividends for U.S. federal income tax purposes to the extent we have current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce a Non-U.S. Holder’s basis in our Common Stock or the Warrants, as applicable, but not below zero. Any excess will be made at pricestreated as capital gain and at terms then prevailingwill be treated as described below under “Gain on Sale or at prices relatedOther Disposition of Common Stock or Warrants.” Any such distributions would be subject to the then current market price. Eachdiscussions below regarding back-up withholding and the Foreign Account Tax Compliance Act, or FATCA.
Subject to the discussion below on effectively connected income, any dividend paid to a Non-U.S. Holder generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such unaffiliated broker-dealerlower rate as may be specified by an applicable income tax treaty. To receive a reduced treaty rate, a Non-U.S. Holder must provide us or our agent with an IRS Form W-8BEN, IRS Form W-8 BEN-E or another appropriate version of IRS Form W-8 (or a successor form), which must be updated periodically, and which, in each case, must certify qualification for the reduced rate. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
Dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States and that are not eligible for relief from U.S. (net basis) income tax under an applicable income tax treaty generally are exempt from the (gross basis) withholding tax described above. To obtain this exemption from withholding tax, the Non-U.S. Holder must provide the applicable withholding agent with an IRS Form W-8ECI or successor form or other applicable IRS Form W-8 certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States. Such effectively connected dividends, if not eligible for relief under a tax treaty, would not be subject to a withholding tax, but would be taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits and if, in addition, the Non-U.S. Holder is a corporation, may also be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty).
If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may be able to obtain a refund of any excess amounts withheld if you timely file an appropriate claim for refund with the IRS.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS in connection with distributions on our Common Stock or constructive dividends on the Warrants, and the proceeds of a sale or other disposition of the Common Stock or the Warrants. A non-exempt U.S. Holder may be subject to U.S. backup withholding on these payments if it fails to provide its taxpayer identification number to the withholding agent and comply with certification procedures or otherwise establish an exemption from backup withholding.
A Non-U.S. Holder may be subject to U.S. information reporting and backup withholding on these payments unless the Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person (within the meaning of the Code). The certification requirements generally will be satisfied if the Non-U.S. Holder provides the applicable withholding agent with a statement on the applicable IRS Form W-8BEN or IRS Form W-8BEN-E (or suitable substitute or successor form), together with all appropriate attachments, signed under penalties of perjury, stating, among other things, that such Non-U.S. Holder is not a U.S. Person. Applicable Treasury Regulations provide alternative methods for satisfying this requirement. In addition, the amount of distributions on common stock or constructive dividends on common stock paid to a Non-U.S. Holder, and the amount of any U.S. federal tax withheld therefrom, must be reported annually to the IRS and the holder. This information may be made available by the IRS under the provisions of an applicable tax treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides.
Payment of the proceeds of the sale or other disposition of the Common Stock or the Warrants to or through a non-U.S. office of a U.S. broker or of a non-U.S. broker with certain specified U.S. connections generally will be subject to information reporting requirements, but not backup withholding, unless the Non-U.S. Holder certifies
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under penalties of perjury that it is not a U.S. person or, an exemption otherwise applies. Payments of the proceeds of a sale or other disposition of the Common Stock or the Warrants to or through a U.S. office of a broker generally will be subject to information reporting and backup withholding, unless the Non-U.S. Holder certifies under penalties of perjury that it is not a U.S. person or otherwise establishes an exemption.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment generally will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that the required information is timely furnished to the IRS.
Foreign Account Tax Compliance Act
FATCA imposes withholding tax on certain types of payments made to foreign financial institutions and certain other non-U.S. entities. The legislation imposes a 30% withholding tax on dividends on, or, subject to the discussion of certain proposed Treasury Regulations below, gross proceeds from the sale or other disposition of, our Common Stock or the Warrants paid to a “foreign financial institution” or to certain “non-financial foreign entities” (each as defined in the Code), unless (i) the foreign financial institution undertakes certain diligence and reporting obligations, (ii) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (i) above, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. If the country in which a payee is resident has entered into an “intergovernmental agreement” with the United States regarding FATCA, that agreement may permit the payee to report to that country rather than to the U.S. Department of the Treasury. The U.S. Treasury recently released proposed Treasury Regulations which, if finalized in their present form, would eliminate the federal withholding tax of 30% applicable to the gross proceeds of a sale or other disposition of our Common Stock or the Warrants. In its preamble to such proposed Treasury Regulations, the U.S. Treasury stated that taxpayers may generally rely on the proposed regulations until final regulations are issued. Prospective investors should consult their own tax advisors regarding the possible impact of these rules on their investment in our Common Stock or the Warrants, and the possible impact of these rules on the entities through which they hold our Common Stock or the Warrants, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of this 30% withholding tax under FATCA.
THE PRECEDING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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PLAN OF DISTRIBUTION
Maxim Group LLC is acting as our exclusive placement agent to solicit offers to purchase the securities offered by this prospectus. We and the placement agent intend to enter into a placement agency agreement with respect to the shares of Common Stock being offered hereby. The placement agent is not purchasing or selling any securities, nor is it required to arrange for the purchase and sale of any specific number or dollar amount of securities, other than to use its “reasonable best efforts” to arrange for the sale of the securities by us. Therefore, we may not sell the entire amount of securities being offered. There is no minimum amount of proceeds that is a condition to closing of this offering. We will enter into one or more securities purchase agreements directly with the investors, at each investor’s option, who purchase our securities in this offering. Investors who do not enter into a securities purchase agreement shall rely solely on this prospectus in connection with the purchase of our securities in this offering. The placement agent may engage one or more subagents or selected dealers in connection with this offering.
The placement agency agreement will provide that the placement agent’s obligations are subject to conditions contained in the placement agency agreement and the securities purchase agreement, as applicable.
We will deliver the shares of Common Stock being issued to the investors upon receipt of investor funds for the purchase of the shares of Common Stock offered pursuant to this prospectus. We anticipate the initial delivery of the shares of Common Stock being offered pursuant to this prospectus on or about , 2023.
Placement Agent Fees and Expenses
Upon each closing, we will pay the placement agent a cash transaction fee equal to 7.0% of the aggregate gross cash proceeds to us from the sale of the Securities in the offering. Pursuant to the placement agency agreement, we will agree to reimburse the placement agent for its expenses payable by us, in an aggregate amount not to exceed $100,000 in the event of a closing of this offering, and up to $50,000 in the event that there is not a closing of this offering.
The following table shows the public offering price, placement agent fees and proceeds, before expenses, to us.
| | Per Share of
Common Stock | | Total |
Public offering price | | $ | | | $ | |
Placement agent fees (7.0%) | | $ | | | $ | |
Proceeds, before expenses, to us | | $ | | | $ | |
We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the placement agent fees, will be approximately $ , all of which are payable by us. This figure includes, among other things, the placement agent’s fees and expenses (including the legal fees, costs and expenses for the placement agent’s legal counsel), based on the maximum amount incurred by the placement agent, for which we may be responsible for.
Indemnification
We have agreed to indemnify the placement agent against certain liabilities, including liabilities under the Securities Act, and liabilities arising from breaches of representations and warranties contained in the placement agent agreement and to contribute to payments that the placement agent may be required to make for these liabilities.
Placement Agent Warrants
We have also agreed to issue to the placement agent (or its permitted assignees) placement agent warrants to purchase a number of shares of Common Stock equal to 4.0% of the shares of Common Stock sold in this offering (the shares of Common Stock issuable upon exercise of placement agent warrants, the “placement agent warrant shares”), which placement agent warrants will be exercisable, in whole or in part, commencing on the six-month anniversary of the date of this prospectus and will expire five years from date of this prospectus, at an exercise price equal to 110% of the public offering price of the shares of Common Stock sold in this offering. The placement agent warrants and the placement agent warrant shares are also being registered on the registration statement of which this prospectus forms a part. The placement agent warrants provide for unlimited “piggyback” registration rights at our
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expense with respect to the underlying shares of Common Stock, for a period of five years from the commencement of this offering. The placement agent warrants and the placement agent warrant shares will be deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110I(1) of FINRA. The placement agent (or permitted assignees under the Rule) may not sell, transfer, assign, pledge or hypothecate the placement agent warrants or the placement agent warrant shares, nor will they engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the placement agent warrants or the placement agent warrant shares for a period of 180 days from the commencement of sales of this offering, except to any FINRA member participating in the offering, their officers or partners, associated persons or affiliates. The placement agent warrants will provide for adjustment in the number and price of such placement agent warrants and the placement agent warrant shares to prevent dilution in the event of a forward or reverse stock split, stock dividend or similar recapitalization.
Regulation M
The placement agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profit realized on the resale of the securities sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Lincoln ParkAs an underwriter, the placement agent would 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 our securities by the placement agent acting as principal. Under these rules and regulations, the placement agent (i) may not engage in any stabilization activity in connection with our securities and (ii) may not 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, until it has informed us that each such broker-dealer will receive commissions from Lincoln Park that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or agents participatingcompleted its participation in the distributiondistribution.
Determination of Offering Price
The actual public offering price of the shares of Common Stock as agents may receive compensationwe are offering will be determined by negotiations between us, the placement agent and the investors in the formoffering; among the factors considered in determining such public offering price are our historical performance and capital structure, prevailing market conditions, and overall assessment of commissions, discounts,our business.
Electronic Distribution
A prospectus in electronic format may be made available on a website maintained by the placement agent. In connection with the offering, the placement agent or concessions from Lincoln Park and/or purchasersselected dealers may distribute prospectuses electronically. No forms of electronic prospectus other than prospectuses that are printable as Adobe® PDF will be used in connection with this offering.
Other than the prospectus in electronic format, the information on the placement agent’s website and any information contained in any other website maintained by the placement agent is not part of the sharesprospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the placement agent in its capacity as placement agent and should not be relied upon by investors.
Lock-Up Agreements and Trading Restrictions
We have agreed with the placement agent not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any securities or file any registration statement or amendment or supplement thereto, other than this prospectus or filing a registration statement on Form S-8 in connection with any equity incentive plan, for a period from the date of this prospectus until seventy-five (75) days from the final closing date without the prior written consent of the placement agent. Our officers and directors have agreed to a “lock-up” from the date of this prospectus to six (6) months from the final closing that they beneficially own, including the issuance of Common Stock for whomupon the broker-dealers may act as agent. The compensation paid to a particular broker-dealerexercise of currently outstanding convertible securities and options and options which may be less thanissued. This means that, for a period of six (6) months following the final closing date, such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the placement agent.
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The placement agent has no present intention to waive or shorten the lock-up period; however, the terms of the lock-up agreements may be waived at its discretion. In determining whether to waive the terms of the lockup agreements, the placement agent may base its decision on its assessment of the relative strengths of the securities markets and companies similar to ours in general, and the trading pattern of, and demand for, our securities in general.
Listing
Our Common Stock is listed on the Nasdaq Stock Market under the symbol “HSCS”.
Other Relationships
The placement agent and its affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. In the course of its businesses, the placement agent and its affiliates may actively trade our securities or loans for its own account or for the accounts of customers, and, accordingly, the placement agent and its affiliates may at any time hold long or short positions in such securities or loans.
Except for services provided in connection with this offering, and except as set forth in this section, the placement agent has not provided any investment banking or other financial services during the 180-day period preceding the date of this prospectus and we do not expect to retain the placement agent to perform any investment banking or other financial services for at least 90 days after the date of this prospectus.
Selling Restrictions
Notice to Investors in Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in excessa transaction not subject to, the prospectus requirements of customary commissions. Neither we nor Lincoln Park can presently estimateapplicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus supplement (including any amendment thereto) contains a misrepresentation, provided that the amountremedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of compensationthe purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (“NI 33-105”), the placement agent is not required to comply with the disclosure requirements of NI 33-105 regarding underwriters’ conflicts of interest in connection with this offering.
Notice to Investors in the United Kingdom
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any agent will receive. We knowsuch securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
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(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;
(c) by the underwriter to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or
(d) in any other shareholder, broker, dealer,circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of these securities shall result in a requirement for the publication by the issuer or the underwriter or agent relatingof a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer to the sale or distributionpublic” in relation to any of the sharessecurities in any Relevant Member State means the communication in any form and by any means of Common Stock offered by this prospectus. Atsufficient information on the time a particularterms of the offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from Lincoln Park,such securities to be offered so as to enable an investor to decide to purchase any such securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression” Prospectus Directive” means Directive 2003/71/EC and includes any other required information.relevant implementing measure in each Relevant Member State.
WeThe placement agent has represented, warranted and agreed that:
(a) it has only communicated or caused to be communicated and will payonly communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the expenses incident to the registration, offering, and salemeaning of section 21 of the shares of Common Stock to Lincoln Park. We have agreed to indemnify Lincoln ParkFinancial Services and certain other persons against certain liabilitiesMarkets Act 2000 (the “FSMA”)) received by it in connection with the offeringissue or sale of sharesany of Common Stock offered hereby, including liabilities arising under the Securities Actsecurities in circumstances in which section 21(1) of the FSMA does not apply to the issuer; and
(b) it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or ifotherwise involving the United Kingdom.
Notice to Investors in the European Economic Area
In particular, this document does not constitute an approved prospectus in accordance with the European Commission’s Regulation on Prospectuses no. 809/2004 and no such indemnityprospectus is unavailable, to contribute amounts required to be paidprepared and approved in respectconnection with this offering. Accordingly, in relation to each Member State of such
the closing sale price of our Common Stock on Nasdaq on the applicable Accelerated Purchase date.
Additional Accelerated Purchases
We may also direct Lincoln Park on any business day on which an Accelerated Purchase has been completed and all of the shares to be purchased thereunder have been delivered to Lincoln Park in accordance with the Purchase Agreement, to purchase an additional amount of our Common Stock, which we refer to as an Additional Accelerated Purchase, as described in the Purchase Agreement.
In the case of Regular Purchases, Accelerated Purchases and Additional Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price.
The Purchase Agreement prohibits us from directing Lincoln Park to purchase any shares of our Common Stock if those shares, when aggregated with all other shares of Common Stock then beneficially owned by Lincoln Parkfirst addendum (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 thereunder), would result in Lincoln Park and its affiliates beneficially owning more than the Beneficial Ownership Limitation.
Pursuant to the terms of the Purchase Agreement, on March 13, 2023, we issued 100,000 Initial Commitment Shares to Lincoln Park as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement.
Under applicable rules of Nasdaq, in no event may we issue or sell to Lincoln Park under the Purchase Agreement shares of our Common Stock, including the Commitment Shares, in excess of 1,927,022 shares, which is equal to 19.99% of the shares of our Common Stock outstanding immediately prior to the execution of the Purchase Agreement, or the Exchange Cap, unless (i) we obtain shareholder approval to issue shares of our Common Stock in excess of the Exchange Cap or (ii) the average price of all shares of Common Stock issued to Lincoln Park under the Purchase Agreement equals or exceeds $1.16 per share (which represents the official closing price of our Common Stock on Nasdaq the day of signing of the Purchase Agreement), such that the transactions contemplated by the Purchase Agreement are exempt from the Exchange Cap limitation under applicable Nasdaq rules. In any event, the Purchase Agreement specifically provides that we may not issue or sell any shares of our Common Stock under the Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the Nasdaq.
Sales under the Purchase Agreement may commence only after certain conditions have been satisfied, which date is referred to herein as the Commencement Date, which conditions include that this Registration Statement, asit may be amended from time to time, shall have been declared effectivethe “Addendum”) to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals”, each as defined in the Addendum, collectively referred to as qualified investors (in each case purchasing for their own account or, where permitted under the Securities Act, deliveryAddendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors will be required to Lincoln Park of a prospectus coveringsubmit written confirmation that they fall within the shares of our Common Stock issued or sold by us to Lincoln Park under the Purchase Agreement, approval for listing on the Nasdaqscope of the shares of our Common Stock issued or sold by us to Lincoln Park under the Purchase Agreement, the issuanceAddendum, are aware of the Initial Commitment Sharesmeaning of same and agree to Lincoln Park under the Purchase Agreement,it.
Notice to Investors in Switzerland
The securities may not be publicly offered in Switzerland and the receipt by Lincoln Park of a customary opinion of counsel and other certificates and closing documents. The Purchase Agreement may be terminated by us at any time, at our sole discretion, without any cost or penalty, however, the Commitment Shares will not be returnedlisted on the SIX Swiss Exchange (the “SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to us. Therethe disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, or the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). Accordingly, no public distribution, offering or advertising, as defined in CISA, its implementing ordinances and notices, and no distribution to any non-qualified investor, as defined in CISA, its implementing ordinances and notices, shall be undertaken in or from Switzerland, and the investor protection afforded to acquirers of interests in collective investment schemes under CISA does not extend to acquirers of securities.
Notice to Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, in relation to the offering.
This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”) and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the securities may only be made to persons (the Exempt Investors) who are no limitations on use“sophisticated investors” (within the meaning of proceeds, financialsection 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or business covenants, restrictions on future financings (other than restrictions on our abilityotherwise pursuant to enter into additional “equity line”one or similar transactions whereby an investormore exemptions contained in section 708 of the Corporations Act so that it is irrevocably boundlawful to purchaseoffer the securities over awithout disclosure to investors under Chapter 6D of the Corporations Act.
The securities applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of time from us at a price based on the market price of our Common Stock at the time of such purchase), rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. We may deliver Purchase Notices under the Purchase Agreement, subject to market conditions, and in light of our capital needs from time to time and under the limitations contained in the Purchase Agreement. Any proceeds that we receive under the Purchase Agreement may be used for any corporate purpose at our sole discretion.
