This
prospectus relates to the resale by the selling security holder of (i) up to 1,482,639 shares of our common stock, $0.01 par value
per share, issuable to the selling security holder upon conversion of principal and interest under our Senior Secured Convertible
Notes, issued on August 16, 2017, in the aggregate principal amount of $10,300,000 (the “Convertible Notes”), (ii)
1,234,677 shares of common stock received by the selling security holder upon partial exercise of a warrant (the “Warrant”)
that was also issued on August 16, 2017 and (iii) 325,714 shares of common stock that may be issued to the selling security holder
if the selling security holder exercises the remainder of the Warrant.
We
are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of shares by the selling
security holder.
Summary
of Our Transactions with the Selling Security Holder
August
2017 Sale of Senior Secured Convertible Notes
Through this prospectus,
the selling security holder is offering to sell up to 3,043,030 shares of our common stock comprised of (i) 1,482,639 shares of
common stock that the selling security holder may acquire through the conversion of principal and interest we may owe pursuant
to Senior Secured Convertible Notes (the “Convertible Notes”) purchased by the selling security holder on August 16,
2017 (ii) 1,234,677 shares of common stock that the selling security holder acquired through the cashless exercise of the warrant
issued to the selling security holder in connection with the sale of the Convertible Notes and (iii) an additional 325,714 shares
of common stock underlying the warrant. The Convertible Notes include an Initial Series A Note in the principal amount of $1,250,000,
an Additional Series A Note in the principal amount of $8,800,000 and a Series B Note in the principal amount of $250,000. The
Initial Series A Note does not bear interest; the Additional Series A Note and the Series B Note accrue interest at the rate of
6%. The Convertible Notes are due and payable on April 16, 2018.
The
selling security holder paid for the Convertible Notes by giving us $220,000 in cash and a promissory note in the amount of $8,800,000
(the “Investor Note”). If not prepaid, the Investor Note must be paid on April 16, 2018. If the selling security holder
converts any of the principal of the Additional Series A Note, it must prepay the Investor Note in an amount equal to the amount
of principal converted. If we meet certain requirements, we may require the selling security holder to prepay some or all of the
Investor Note. As of the date of this prospectus, the selling security holder prepaid the entire Investor Note.
Pursuant
to the terms of the Convertible Notes, the selling security holder may convert the principal, accrued interest and late charges
(if any) into shares of our common stock. The conversion price of the Initial Series A Note and the Additional Series A Note is
$4.00 per share while the conversion price of the Series B Note is $3.00 per share. However, the selling security holder may also
convert the principal, accrued interest and late charges at the Alternate Conversion Prices, as defined in the Convertible Notes.
In certain instances, the Alternate Conversion Prices could be lower than the conversion prices.
As
part of this transaction, we and our subsidiaries entered into Security and Pledge Agreements and our subsidiaries provided guarantees
to the selling security holder. On October 23, 2017 we and the selling security holder entered into a Third Amendment and Exchange
Agreement pursuant to which all of the security interests in our assets were released and the Security and Pledge Agreements and
the guarantees were terminated.
More
detailed information about the Convertible Notes can be found under the heading “Sale of Senior Secured Convertible Notes”
on page 5 of this prospectus.
Prior Issuances of Senior Secured
Convertible Notes and Other Capital Raising Transactions
We
have entered into transactions similar to this transaction with the selling security holder in the past.
On
September 7, 2016 we issued senior secured convertible promissory notes to the selling security holder in the principal amount
of $4,301,075 for consideration consisting of a cash payment by the selling security holder in the amount of $1,000,000 together
with an investor note payable by the selling security holder in the principal amount of $3,000,000, which was prepaid prior to
the maturity date. We paid these notes in full by issuing 887,707 shares of our common stock and making a cash payment of interest
in the amount of $1,660.
On
December 2, 2016 we issued senior secured convertible promissory notes to the selling security holder in the amount of $6,720,000
for consideration consisting of a cash payment by the selling security holder in the amount of $1,100,000 together with an investor
note payable by the selling security holder in the principal amount of $4,900,000, which was prepaid prior to the maturity date.
As of September 19, 2017, we had paid all but $10,000 in principal amount of the notes by issuing to the selling security holder
1,926,431 shares of our common stock and paying to the selling security holder a total of $126,557 in interest in cash. On September
20, 2017, the selling security holder exchanged the $10,000 of unpaid principal amount under the notes for a new senior convertible
note issued by us in an initial aggregate principal amount of $697,000 (the “Exchange Note”). The selling security
holder converted the Exchange Note into 232,334 shares of our common stock on October 2, 2017.
On
February 8, 2017 we issued senior secured convertible promissory notes to the selling security holder in the amount of $5,681,818
for consideration consisting of an investor note payable by the selling security holder to us in the principal amount of $5,000,000,
which was prepaid prior to the maturity date. We paid these notes in full by issuing 1,852,886 shares of our common stock and
paying $125,190 of interest in cash.
On
August 27, 2017, we entered into a letter agreement with the selling security holder pursuant to which the selling security holder
agreed to immediately convert $2,500,000 of the notes issued on February 8, 2017 at a price of $3.00 per share. In exchange for
the conversion, we agreed that the selling security holder would have the right, until December 31, 2017, to elect to exchange
up to 841,250 shares of our common stock for one or more senior secured convertible promissory notes, which would be due to be
repaid within 45 days of the selling security holder’s election. Pursuant to the formula set forth in the letter agreement,
if the selling security holder elected to exchange all 841,250 shares of common stock, we would be required to issue secured convertible
promissory notes in an aggregate amount of $2,500,000 (the “Exchange Right”). On October 13, 2017 we received a notice
from the selling security holder that it was exchanging 100,000 shares of our common stock for a secured convertible promissory
note in the amount of $300,000. On October 23, 2017 we entered into an agreement with the selling security holder pursuant to
which the selling security holder exchanged the $300,000 secured convertible promissory note into shares of our common stock and
terminated the Exchange Right, among other things.
On
September 19, 2017, we entered into an agreement with the selling security holder pursuant to which we received $2,500,000 in
gross proceeds from the prepayment of notes issued by the selling security holder on December 2, 2016 and August 16, 2017. We
also exercised our right under the notes we issued to the selling security holder on December 2, 2016 to require the selling security
holder to convert $890,000 in principal amount, together with accrued interest, into 445,367 shares of our common stock. Pursuant
to the agreement, we agreed to exchange the $10,000 in principal amount remaining outstanding under the notes issued on December
2, 2016 for the Exchange Note. The selling security holder waived (i) its right to receive additional shares of our common stock
as a True-Up, as defined in the notes issued on December 2, 2016, (ii) any restriction on our offer, sale or issuance of common
stock or securities convertible into common stock in one or more private securities offerings so long as the securities offered
have a purchase price of at least $3.00 per share, and (iii) any restriction on filing one or more registration statement with
the SEC for the resale of shares issued or issuable in the private securities offerings.
On November 7, 2017,
the selling security holder participated in an offering of our senior bridge convertible notes by purchasing, pursuant to the
terms of a securities purchase agreement (the “November Securities Purchase Agreement”), a Series A Senior Bridge
Convertible Note in the principal amount of $2,760,291 and a Series B Senior Secured Bridge Convertible Note in the principal
amount of $52,445,521 (the “November 2017 Notes”).
Sale
of Senior Secured Convertible Notes
The
Convertible Notes
On August 16, 2017
(the “Closing Date”), pursuant to a Securities Purchase Agreement (the “August Securities Purchase Agreement”)
that we entered into on August 15, 2017 (the “Subscription Date”) with an institutional investor (the “Investor”
and also referred to in this prospectus as the “selling security holder”), we sold and issued Senior Secured Convertible
Notes to the Investor which included a Series A Note in the principal amount of $1,250,000 (the “Initial Series A Note”),
(ii) a second Series A Note in the principal amount of $8,800,000 (the “Additional Series A Note”, collectively with
the Initial Series A Note, the “Series A Notes”), and (iii) a Series B Note in the principal amount of $250,000 for
an aggregate principal amount of $10,300,000 (collectively, the “Convertible Notes”) and (iv) a warrant (the “Warrant”)
for the purchase, initially, of 1,892,972 shares of our common stock. (The number of shares of common stock subject to the Warrant
was subsequently increased, in accordance with the anti-dilution provisions of the Warrant, to 2,050,720 shares of common stock.)
In exchange for the Convertible Notes and the Warrant, we received (y) a cash payment of $220,000, and (z) a secured promissory
note payable by the Investor to us (the “Investor Note”) in the principal amount of $8,800,000 (collectively, the
“Note Financing”). Furthermore, immediately prior to the closing of the Note Financing, the Investor prepaid (i) $5,000,000
of that certain promissory note issued by the Investor to us (the “February Investor Note”) as payment of the purchase
price for the senior secured convertible notes (the “February 2017 Notes”) we issued to the Investor pursuant to a
Securities Purchase Agreement dated February 7, 2017 and (ii) $230,000 of that certain promissory note issued by the Investor
to us (the “December Investor Note”) as payment of the purchase price for the secured convertible notes (the “December
2016 Notes”) we issued to the Investor pursuant to a Securities Purchase Agreement dated December 1, 2016. In consideration
of the prepayment, we agreed that the Series B Note, upon issuance, constitutes a Variable Price Security (as defined in the February
2017 Notes and the December 2016 Notes) and, from and after the closing, any holder of a February 2017 Note shall have the right
to substitute the Alternate Conversion Price as defined in the Series B Note for the conversion price in the February 2017 Notes,
and any holder of a December 2016 Note shall have the right to substitute the Alternate Conversion Price as defined in the Series
B Note for the conversion price in the December 2016 Notes. We used a portion of the net proceeds from the sale of the Convertible
Notes and the Warrant and the prepayment under the February Investor Note and the December Investor Note to pay $5,000,000 in
cash to MoviePass upon signing the MoviePass SPA for which we received a convertible note issued to us by MoviePass. Any further
proceeds from the Note Financing have been or will be used (i) to pay up to $10,000,000 to MoviePass pursuant to a subordinated
convertible promissory note to be issued by us to MoviePass upon the closing of the transactions contemplated by the MoviePass
SPA and (ii) for general corporate purposes. Unless earlier converted or redeemed, the Convertible Notes mature 8 months from
the Closing Date.
The
Initial Series A Note does not accrue interest unless an Event of Default, as defined in the Convertible Notes, occurs and is
not cured. The Additional Series A Note and the Series B Note bear interest at a rate of 6% per annum, subject to an increase
to 12% during the first 30 days following the occurrence and continuance of an Event of Default, as defined in the Convertible
Notes, and to 18% thereafter. Interest on the Additional Series A Note and the Series B Note will be payable in arrears commencing
on October 1, 2017 and on the first Trading Day, as defined in the Convertible Notes, of each calendar quarter thereafter and,
so long as no Equity Conditions Failure, as defined in the Convertible Notes, exists, may be paid in shares of our common stock,
at our option. Interest on the Convertible Notes is computed on the basis of a 360-day year and twelve 30-day months.
The
Investor may, at any time, elect to convert the Convertible Notes into shares of the Company’s common stock at the Conversion
Price, subject to certain beneficial ownership limitations, provided that the conversion under the Additional Series A Note may
not commence until no December 2016 Notes, February 2017 Notes, the Series B Note or the Initial Series A Note remain outstanding.
The Conversion Price is $4.00 under the Series A Notes and $3.00 under the Series B Note. The Conversion Price of the Convertible
Notes is subject to proportionate adjustment for stock splits, dividends and combinations. The Company may, at any time during
the term of the Convertible Notes, with the prior written consent of the Investor, reduce the then current Conversion Price of
each of the Convertible Notes to any amount equal to or greater than the Floor Price and for any period of time deemed appropriate
by the Company’s Board of Directors. The Floor Price means $4.00 for the Series A Notes. However, for the limited purpose
of making interest payments in shares of common stock during the existence of a Price Failure or a Volume Failure, as defined
in the Convertible Notes, the Floor Price of the Series A Notes may be adjusted to $0.50 to the extent the Company chooses to
pay interest with shares of its common stock. The Floor Price means, for the Series B Notes, (i) during the period commencing
on the Closing Date through and including the Adjustment Date, $3.00 or (ii) from and after the Adjustment Date, $0.50. The Adjustment
Date is defined as the period beginning on the Closing Date through and including October 5, 2017. The Company and the Investor
may agree to reduce the Floor Price of the Convertible Notes.
The
Investor also will have the right to convert the Convertible Notes into shares of our common stock at the Alternate Conversion
Price, subject to certain beneficial ownership limitations. The Alternate Conversion Price is defined as the lowest of:
(1)
(i) the Conversion Price of $4.00, and (ii) the Floor Price then in effect, for the Initial Series A Note;
(2)
(i) the Conversion Price of $4.00, and (ii) the greater of (I) the Floor Price then in effect and (II) 85% of the quotient of
(x) the sum of the volume weighted average price, or VWAP, of our common stock for each of the five consecutive Trading Days ending
and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable conversion notice, divided
by (y) 5, for the Additional Series A Note;
(3)
(i) the Conversion Price of $3.00, and (ii) during the period commencing on the Closing Date through the Adjustment Date, the
greater of (A) the Floor Price of $3.00 and (B) 85% of the lowest VWAP of any Trading Day during the twenty consecutive Trading
Day period ending and including the applicable Alternate Conversion Date, and (iii) after the Adjustment Date, the greater of
(I) the Floor Price of $0.50 and (II) 85% of the quotient of (x) the sum of the VWAP of our common stock for each of the five
consecutive Trading Days ending and including the applicable Alternate Conversion Date, divided by (y) 5, for the Series B Note.
If
and to the extent the Investor elects to convert (i) the Series A Notes and (ii) during the period commencing from the Closing
Date through and including the Adjustment Date (the “Initial Period”), the Series B Note, the Investor will elect
to convert (i) the Series A Notes and (ii) during the Initial Period, the Series B Note, at their respective applicable Conversion
Prices ($4.00 per share for the Series A Note and $3.00 per share for the Series B Note, which are the same as the respective
Alternate Conversion Prices of the Series A Notes and, during the Initial Period, the Series B Note).
We
expect that, if and to the extent the Investor elects to convert the Series B Note after the Adjustment Date, the Investor will
elect to convert the Series B Note at the applicable Alternate Conversion Price if 85% of the preceding 5-Trading-Day average
VWAP of our common stock is less than the Conversion Price ($3.00 per share for the Series B Note) unless the Company has, with
the consent of the Investor, reduced the Conversion Price to a price lower than the applicable Alternate Conversion Price, whereas
we expect that the Investor will convert the Series B Note after the Adjustment Date at the Conversion Price if 85% of the preceding
5-Trading-Day average VWAP of our common stock is equal to or greater than the Conversion Price. Accordingly, in the case of voluntary
conversion of the Series B Note by the Investor, in effect, the Conversion Price serves as the ceiling price and the applicable
Alternate Conversion Price serves as the floor price at which the Series B Note will be converted after the Adjustment Date.
If
the Equity Conditions are satisfied, we may require the Investor to convert all or any part of the Convertible Notes, up to the
Maximum Mandatory Share Amount and the Maximum Mandatory Conversion Amount (each, a “Mandatory Conversion”). If on
the fifth Trading Day immediately following a Mandatory Conversion Date and on each fifth Trading Day thereafter through and including
the fifteenth Trading Day immediately following such Mandatory Conversion Date (each, a “True-Up Date”), the True-Up
Price is less than the applicable Mandatory Conversion Price, we must deliver to the Investor an additional number of shares of
our common stock equal to the difference between the number of shares of our common stock delivered to the Investor as a result
of the Mandatory Conversion and the number of shares determined by dividing the principal, interest and late charges converted
by the True-Up Price. The “True-Up Price” is defined as 85% of the lowest VWAP of our common stock on the Trading
Day with the lowest VWAP during the 15 consecutive Trading Days following the Mandatory Conversion.
“Mandatory
Conversion Date” means the third Trading Day following our delivery of a Mandatory Conversion Notice.
“Mandatory
Conversion Price” means, with respect to any Mandatory Conversion that price which shall be the lowest of (i) the applicable
Conversion Price as in effect on the applicable Mandatory Conversion Date, and (ii) 80% of the sum of (A) the VWAP of our common
stock for each of the 3 Trading Days with the lowest VWAP of our common stock during the 20 consecutive Trading Day period ending
on and including the Trading Day immediately prior to the applicable Mandatory Conversion Date divided by (B) 3.
“Maximum
Mandatory Share Amount” with respect to any Mandatory Conversion Date means 100% of the quotient of (x) the sum of the composite
aggregate daily share trading volume of our common stock for each Trading Day during the 5 Trading Day period ending and including
the Trading Day immediately prior to the applicable Mandatory Conversion Notice Date, divided by (y) 5.
“Maximum
Mandatory Conversion Amount” with respect to any Mandatory Conversion Date means the difference of (x) $500,000 less (y)
the sum of each Conversion Amount converted under the applicable Convertible Note during the 5 Trading Day period ending and including
the applicable Mandatory Conversion Date.
Provided
there has been no Equity Conditions Failure, the Company has a right to redeem all, but not less than all, of the amounts remaining
unpaid under a Convertible Note. The Company may exercise this right under the Initial Series A Note so long as no December 2016
Notes, February 2017 Notes or the Series B Note remain outstanding, the Company may exercise this right under the Additional Series
A Note so long as no December 2016 Notes, February 2017 Notes, the Series B Note or the Initial Series A Note remain outstanding,
and the Company may exercise this right under the Series B Note so long as no December 2016 Notes or February 2017 Notes remain
outstanding. (The December 2016 Notes and the February 2017 Notes are no longer outstanding.) The redemption right permits the
Company to redeem all of the Conversion Amount then remaining under a Convertible Note in cash at a price equal to 115% of the
Conversion Amount being redeemed. Additionally, any Restricted Principal may be offset and reduced on a dollar for dollar basis
by the surrender for cancellation of the portion of the Investor Note equal to the amount of Restricted Principal included in
the Company’s redemption under the Additional Series A Note. Restricted Principal is defined in the Series A Additional
Note as, initially, $8,800,000, which amount is subject to certain reductions as described in the Series A Additional Note. As
of the date of this prospectus, all of the principal is unrestricted.
Under
the terms of a Registration Rights Agreement, we are required to register for resale the shares of common stock that are issuable
upon conversion of the Convertible Notes or upon exercise of the Warrant, additional shares that could be used as payment of monthly
interest plus an additional number of shares so that the total number of shares of common stock registered equals 125% of (i)
the sum of the maximum number of shares issuable upon conversion of the Convertible Notes and (ii) the sum of the maximum number
of shares issuable upon exercise of the Warrant. The Registration Rights Agreement requires us to file the registration statement
within 30 days after the Closing Date and to have the registration statement declared effective 90 days after the Closing Date
(or 120 days after the Closing Date if the registration statement is subject to review by the SEC). Pursuant to the terms of the
Registration Rights Agreement, we and the Investor have agreed to reduce the number of shares we are registering so that the number
of shares does not exceed one-third of our public float. Also, on November 16, 2017 the Investor agreed to extend the date on
which the registration statement was required to be declared effective to December 31, 2017.
The
Registration Rights Agreement provides for the payment of liquidated damages of 1.5% of the product of (x) the number of shares
of common stock required by the Registration Rights Agreement to be included in the registration statement and (y) the Closing
Sale Price, as defined in the Registration Rights Agreement, as of the Trading Day immediately prior to the date a Registration
Delay Payment, defined as the failure to file the registration statement in the time required, the failure to have the registration
statement declared effective in the time required, the failure to maintain the effectiveness of the registration statement or
the failure to keep current public information in the marketplace.
We
are required to keep the registration statement effective (and the prospectus contained therein available for use) pursuant to
Rule 415 for resales on a delayed or continuous basis at then-prevailing market prices at all times until the earlier of (i) the
date as of which the Investor may sell all of the common stock issuable pursuant thereto without restriction pursuant to Rule
144 or (ii) the date on which all of the common stock covered by the registration statement shall have been sold.
The
Investor Note
The
Investor Note will be payable in full by the Investor on April 16, 2018, which is eight months from the Closing Date. The Investor’s
obligation to pay the Investor Note is secured by $8,800,000, in the aggregate, in cash, cash equivalents, any Group of Ten (“G10”)
currency and any notes or other securities issued by any G10 country belonging to the Investor and provides for full recourse
against the Investor. The Company will receive a payment of principal and interest upon each voluntary or mandatory prepayment
of the Investor Note. On or after August 31, 2017 (or earlier if the Company permits), the Investor may, at its option and at
any time, voluntarily prepay the Investor Note, in whole or in part. The Investor Note is also subject to mandatory prepayment,
in whole or in part, upon the occurrence of one or more of the following mandatory prepayment events:
(1)
Mandatory Prepayment upon Conversion of Convertible Notes – At any time (i) if we receive a conversion notice from the Investor
in which all, or any part of the Convertible Notes to be converted included any Restricted Principal and (ii) the Investor
receives a confirmation from our transfer agent that it has been irrevocably instructed by us to deliver to the Investor the shares
of our common stock to be issued pursuant to the conversion notice.
(2)
Mandatory Prepayment upon Mandatory Prepayment Notices – We may require the Investor to prepay the Investor Note by delivering
a mandatory prepayment notice to the Investor, subject to (i) the satisfaction of certain Equity Conditions, and (ii) the Investor’s
receipt of a valid written notice by us electing to effect a mandatory conversion of Restricted Principal not in excess of the
Maximum Mandatory Share Amount or the Maximum Mandatory Conversion Amount (each as defined above).
The
Investor Note also contains certain optional offset rights in favor of us and the Investor which, if exercised, would reduce the
amount outstanding under the Convertible Notes and the Investor Note by the same amount and, accordingly, the cash proceeds we
receive from the Investor pursuant to the Note Financing. These offset rights are triggered by specific occurrences that could
jeopardize the Investor’s investment and include the following:
Investor
Optional Offset – The Investor may, on or after September 30, 2017, if an Equity Conditions Failure, as defined in the Convertible
Notes, exists, satisfy any principal and related accrued and unpaid interest owed under the Investor Note in full by cancelling
an equal amount of principal amount under the Additional Series A Note.
Event
of Default and Bankruptcy Event of Default Offsets – The Investor may, at any time on or after the occurrence of any Event
of Default under the Additional Series A Note, but prior to the date of cure thereof, at its sole discretion, satisfy all, or
any part, of any principal and related accrued and unpaid interest owed under the Investor Note in full by cancelling an equal
amount of principal under the Additional Series A Note. Furthermore, in the event of a Bankruptcy Event of Default, as defined
in the Convertible Notes, all of the principal and related accrued and unpaid interest of the Investor Note will be automatically
satisfied in full by the deemed automatic surrender and concurrent cancellation of the outstanding obligations under the Additional
Series A Note equal to the portion of principal being satisfied.
Automatic
Offset Upon Prohibited Transfers of the Additional Series A Note – If for any reason the Additional Series A Note or any
interest therein is pledged, assigned or transferred to any person other than the Company without the prior written consent of
the Investor, including by contract, operation of law, court order or otherwise, then, (i) all of the outstanding principal of
the Investor Note will be automatically deemed satisfied in full, (ii) 75% of the remaining Restricted Principal will be automatically
cancelled (with the remaining 25% of the Restricted Principal of the Additional Series A Note automatically becoming unrestricted
principal thereunder), and (iii) the Investor Note will be deemed to be paid in full and will be null and void.
Upon any of the foregoing offsets, any accrued and unpaid interest under the Investor Note shall be automatically cancelled
with respect to the portion of the principal of the Investor Note being offset.
The Investor Note also includes an offset right in favor of the Company. The Company, if it so chooses, is entitled to
reduce the principal amount of the Investor Note, and any accrued but unpaid interest, by any cash amount then due and payable
by the Company to the Investor under the Additional Series A Note. This offset right allows the Company to satisfy any redemption
amount or any other cash obligations then due and payable under the Additional Series A Note.
On September 20, 2017 the Investor prepaid $1,830,000 of
the Investor Note and on October 5, 2017 the Investor prepaid the remaining $6,970,000 of the Investor Note. Therefore, as of
November 27, 2017, $9,020,000 is the amount of unpaid unrestricted principal amount of the Convertible Notes that we owe to
the selling security holder.
The
Investor Warrant
In
addition to the Convertible Notes, we issued a 5-year Warrant to the Investor on the Closing Date for the purchase of 1,892,972
shares of our common stock (the “Warrant Shares”), at an exercise price of $3.25 per share, subject to adjustment
provided under the Warrant. If, after the six-month anniversary of the issuance date of the Warrant, there is no effective registration
statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Investor, then the Warrant
may also be exercised, in whole or in part, by means of a “cashless exercise.” The Warrant may not be exercised if,
after giving effect to the exercise the Investor, together with its Attribution Parties (as defined in the Warrant), would beneficially
own in excess of 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance
of the Warrant Shares. At the Investor’s option, the ownership limitation blocker may be raised or lowered to any other
percentage not in excess of 9.99%, as applicable, except that any raise will only be effective upon 61-days’ prior notice
to us. On November 16, 2017, the Company agreed to permit the Investor to exercise the Warrant on a cashless basis. The Investor
exercised the Warrant on a cashless basis on November 16, 2017, purchasing 1,715,006 shares of our common stock. As a result of
the cashless exercise, we issued to the Investor 1,234,677 shares of our common stock.
On or after the
Subscription Date, if we issue or sell common stock, or convertible securities or options issuable or exchangeable into our common
stock (a “New Issuance”), under which such common stock is sold for a consideration per share less than the exercise
price then in effect, the exercise price of the Warrant will be adjusted to the New Issuance price in accordance with the formulas
provided in the Warrant. Upon any adjustment to the exercise price, the number of Warrant Shares that may be purchased upon exercise
of the Warrant will be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable
for the adjusted number of Warrant Shares will be the same as the aggregate exercise price in effect immediately prior to such
adjustment. As a result of these provisions, following the Company’s issuance on September 19, 2017 of a convertible promissory
note having a conversion price of $3.00 per share, the number of shares subject to the Warrant was increased to 2,050,720 shares
and the exercise price was decreased to $3.00 per share. Following the Investor’s cashless exercise and purchase of 1,715,006
shares of common stock, the number of shares subject to the Warrant was reduced to 335,714 shares.
The Warrant, as
issued, includes a provision that would allow the Investor, if we sell Variable Price Securities (as defined in the Warrant) after
the Subscription Date, to substitute the Variable Price (as defined in the Warrant) for the exercise price under the Warrant.
On November 21, 2017, in conjunction with the execution of a Fourth Amendment and Exchange Agreement between us and the Investor,
we exchanged a portion of the Warrant representing 10,000 shares of common stock with a new warrant for the purchase of 10,000
shares of common stock (the “Exchange Warrant”). Pursuant to the Fourth Amendment and Exchange Agreement we received
various waivers from the Investor including, but not limited to, (i) a waiver of the Investor’s right to substitute the
Variable Price of the Exchange Warrant for the Conversion Price of the Convertible Notes (ii) a waiver of the Investor’s
right to substitute the Variable Price of the Exchange Warrant for the exercise price of the Warrant and (iii) a waiver of any
right the Investor has pursuant to the terms of the Warrant to adjust the exercise price and the number of shares subject to the
Warrant as a result of the issuance of the Exchange Warrant or any shares of common stock issued upon the exercise of the Exchange
Warrant. For more information about the Fourth Amendment and Exchange Agreement, see the section of this prospectus titled “Other
Information.”
The
above does not purport to be a complete description of the Note Financing and is qualified in its entirety by reference to the
full text of the documents which are attached as exhibits 4.3, 4.4 and 10.10 through 10.13 to our Current Report on Form 8-K filed
with the Commission on August 15, 2017 and exhibit 4.3 to our Current Report on Form 8-K filed with the Commission on August 22,
2017, and which are incorporated by reference herein. Capitalized terms not defined herein shall have the meanings set forth in
the Convertible Notes.
Potential
Profit from Conversion of the Convertible Notes at the Option of the Selling Security Holder
The
following table sets forth the potential profit to be realized upon conversion by the selling security holder of the Convertible
Notes based on the Conversion Price on the Closing Date and the closing price of our common stock on the Closing Date:
|
Per share market price as of August 16, 2017
|
|
$
|
2.55
|
|
|
Per share Conversion Price as of August 16, 2017 (Initial Series A Note)
|
|
$
|
4.00
|
|
|
Per share Conversion Price as of August 16, 2017 (Additional Series A Note)
|
|
$
|
4.00
|
|
|
Per share Conversion Price as of August 16, 2017 (Series B Note)
|
|
$
|
3.00
|
|
|
Total shares underlying Convertible Notes based on the Conversion Prices
|
|
|
2,687,168
|
*
|
|
Aggregate market value of underlying shares based on per share market price as of August 16, 2017
|
|
$
|
6,852,279
|
|
|
Aggregate Conversion Price of underlying shares
|
|
$
|
10,662,004
|
*
|
|
Aggregate cash purchase price for the Convertible Notes
|
|
$
|
9,020,000
|
|
|
Total premium to market price of underlying shares
|
|
|
None
|
**
|
*Based
on the principal amount of $1,250,000 of the Initial Series A Note and the principal amount of $8,800,000 of the Additional Series
A Note (both converted at $4.00 per share) and the principal amount of $250,000 of the Series B Note (converted at $3.00 per share).
This figure also includes interest in the amount of $362,000 accrued on the Additional Series A Note and the Series B Note at
the rate of 6% for a period of 8 months. No interest accrues on the principal amount of the Initial Series A Note unless an Event
of Default occurs and is not cured.
**Based
on the per share market price as of August 16, 2017.
Alternate
Right of Conversion: Number of Shares Issuable in Satisfaction of the Convertible Notes Based on Various Assumed Alternate Conversion
Prices
The
Conversion Price is designated in the Initial Series A Note and the Additional Series A Note as $4.00 and in the Series B Note
as $3.00, therefore the number of shares of common stock that could be issued upon the conversion of principal and interest under
the Convertible Notes will not change based on the market price of our common stock prior to each installment date. We have computed
the number of shares of common stock that could be issued upon conversion of the principal and interest under the Series A Notes
to be 2,600,500 (assuming there is no Price Failure or Volume Failure to trigger the application of a $0.50 conversion price for
the Interest Shares) and the number of shares of common stock that could be issued upon conversion of the principal and interest
under the Series B Note to be 86,668.
However,
the definition of “Alternate Conversion Price” varies in the Initial Series A Note, the Additional Series A Note and
the Series B Note. In the Initial Series A Note, Alternate Conversion Price means the price that is the lower of (i) the applicable
Conversion Price then in effect and the Floor Price then in effect. In the Additional Series A Note, the Alternate Conversion
Price means the price that is the lower of (i) the applicable Conversion Price then in effect and (ii) the greater of (I) the
Floor Price then in effect and (II) 85% of the quotient of (x) the sum of the VWAP of the common stock for each of the 5 consecutive
Trading Days ending and including the Trading Day immediately preceding the delivery of the Conversion Notice, divided by (y)
5. For purposes of the Series B Note, the Alternate Conversion Price means the lowest of (i) the Conversion Price then in effect,
(ii) during the period commencing on the Closing Date through and including the Adjustment Date of October 5, 2017, the greater
of (A) the Floor Price then in effect and (B) 85% of the lowest VWAP of any Trading Day during the 20 consecutive Trading Day
period ending and including the applicable Alternate Conversion Date, and (iii) after the Adjustment Date, the greater of (I)
the Floor Price then in effect and (II) 85% of the quotient of (x) the sum of the VWAP of the Company’s common stock for
each of the 5 consecutive Trading Days ending and including the applicable Alternate Conversion Date, divided by (y) 5.
For
purposes of the Series A Notes, the Floor Price means $4.00 (unless adjusted for the payment of interest with shares of common
stock during the existence of a Price Failure or a Volume Failure when the Floor Price may be reset to $0.50). For purposes of
the Series B Note, the Floor Price means (i) during the period commencing on the Closing Date through and including the Adjustment
Date, $3.00 or (ii) from and after the Adjustment Date, $0.50.
The
following table reflects changes in the number of shares of common stock that could be issued upon conversion of the principal
and interest using the Alternate Conversion Price under the Additional Series A Note, assuming, that (i) the Alternate Conversion
Price for the shares to be issued in payment of both the principal amount and the accrued interest is $4.00 and (ii) the Alternate
Conversion Price for the shares to be issued in payment of the principal amount is $4.00 and the Alternate Conversion Price of
the shares to be issued for the payment of interest is $0.50 due to a Price Failure or a Volume Failure.
Additional Series A Note: Possible Number of Shares to be Issued Upon the Conversion of Principal and
Interest Using the Alternate Conversion Price
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
No Price Failure or Volume Failure
|
|
|
2,200,000
|
(1)
|
|
|
88,000
|
|
|
|
2,288,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the existence of a Price Failure or a Volume Failure
|
|
|
2,200,000
|
(1)
|
|
|
704,000
|
|
|
|
2,904,000
|
|
(1)
Based on the principal amount of $8,800,000 and interest in the amount of $352,000 accrued at the rate of 6% on the entire principal
amount over a period of 8 months.
The
following table reflects changes in the number of shares of common stock that could be issued upon conversion of the principal
and interest using the Alternate Conversion Price (assuming the Floor Price applies as the Alternate Conversion Price) under the
Series B Note, assuming, that (i) the conversion occurred during the period commencing on the Closing Date through and including
the Adjustment Date or (ii) the conversion occurred from and after the Adjustment Date.
Series B Note: Possible Number of Shares to be Issued Upon the Conversion of Principal and Interest Using the
Alternate Conversion Price
|
|
|
Principal
|
|
|
Interest
|
|
|
Total
|
|
|
Conversion during the period commencing on the Closing Date through and including the Adjustment Date
|
|
|
83,334
|
(1)
|
|
|
3,334
|
|
|
|
86,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion following the Adjustment Date
|
|
|
500,000
|
(1)
|
|
|
20,000
|
|
|
|
520,000
|
|
(1)
Based on the principal amount of $250,000 and interest in the amount of $10,000 accrued at the rate of 6% on the entire principal
amount over a period of 8 months.
Payments
to Selling Security Holder
In
connection with the Convertible Notes, we are or may be required to make the following payments to the selling security holder:
Initial
Series A Note:
|
Maximum Interest
Payments
|
|
|
Maximum Event of
Default Redemption
|
|
|
|
Maximum Change of
Control Redemption
|
|
|
|
Maximum
Registration Penalties
|
|
|
|
At Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0(1)
|
|
$
|
1,742,188
|
(2)
|
|
$
|
1,562,500
|
(3)
|
|
$
|
209,181
|
(4)
|
|
$
|
1,250,000
|
(5)
|
(1)
Assumes there is no occurrence of an Event of Default during the term of the Initial Series A Note.
(2)
Represents the cash amount that would be payable by us if we were required to redeem the Initial Series A Note as a result of
an Event of Default assuming that the Event of Default occurs on the date the Initial Series A Note is issued, interest accrues
at the default interest rate over the entire term of the Initial Series A Note and the selling security holder requires us to
redeem the entire principal and interest amount. The Redemption Premium is defined as 125%. The default interest rate is 12% during
the first 30 days following the occurrence and continuance of an Event of Default and 18% thereafter. The Initial Series A Note
accrues interest upon the occurrence of an Event of Default.
(3)
Represents the cash amount that would be payable by us if we were required to redeem the Initial Series A Note as a result of
a change of control assuming that the change of control occurs on the date the Initial Series A Note is issued. The Change of
Control Premium is defined as 125%.
(4)
Represents the maximum monetary penalties that would be payable if we failed to timely file, obtain a declaration of effectiveness
or maintain the effectiveness with respect to the registration statement required under the Registration Rights Agreement we signed
in conjunction with the Note Financing. Assumes that (a) the monetary penalties accrue on September 15, 2017 (30 days after the
Closing Date), (b) the monetary penalties continue to accrue for a period of 7 months, until April 16, 2018, and (c) the monetary
penalties will not be paid until April 16, 2018. For purposes of this calculation, we have used $2.55, the market price of the
common stock on the Closing Date. This figure does not include an additional $633,566 of monetary penalties that would also accrue
under the Registration Rights Agreement relating to the Warrant Shares.
(5)
The term of the Initial Series A Note is 8 months. This number represents the maximum amount payable in cash at maturity and assumes
there is no redemption due to an Event of Default or change of control.
Additional
Series A Note:
Maximum Interest
Payments
|
|
|
Maximum Event of
Default Redemption
|
|
|
Maximum Change of
Control Redemption
|
|
|
Maximum
Registration Penalties
|
|
|
At Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
352,000
|
(1)
|
|
$
|
12,265,000
|
(2)
|
|
$
|
10,067,200
|
(3)
|
|
$
|
1,531,530
|
(4)
|
|
$
|
9,152,000
|
(5)
|
(1)
Represents the maximum amount of interest payable by us to the selling security holder under the Additional Series A Note assuming
(a) that all installment payments of interest thereunder are timely made (beginning with the first installment payment due on
October 1, 2017) and that no installment payments are accelerated or deferred, (b) that no payments of interest will be made prior
to the first installment date, (c) that the Additional Series A Note is not otherwise converted prior to the maturity date, (d)
that interest is paid in cash and (e) that no Event of Default thereunder occurs.
(2)
Represents the cash amount that would be payable by us if we were required to redeem the Additional Series A Note as a result
of an Event of Default assuming that the Event of Default occurs on the date the Additional Series A Note is issued, interest
accrues at the default interest rate over the entire term of the Additional Series A Note and the selling security holder requires
us to redeem the entire principal and interest amount. The Redemption Premium is defined as 125%. The default interest rate is
12% during the first 30 days following the occurrence and continuance of an Event of Default and 18% thereafter.
(3)
Represents the cash amount that would be payable by us if we were required to redeem the Additional Series A Note as a result
of a change of control assuming that the change of control occurs on the date the Additional Series A Note is issued. The Change
of Control Premium is defined as 110%.
(4)
Represents the maximum monetary penalties and interest that would be payable if we failed to timely file, obtain a declaration
of effectiveness or maintain the effectiveness with respect to the registration statement required under the Registration Rights
Agreement we signed in conjunction with the Note Financing. Assumes that (a) the monetary penalties accrue on September 15, 2017
(30 days after the Closing Date), (b) the monetary penalties continue to accrue for a period of 7 months, until April 16, 2018,
and (c) the monetary penalties will not be paid until April 16, 2018. For purposes of this calculation, we have used $2.55, the
market price of the common stock on the Closing Date. This figure does not include an additional $633,566 of monetary penalties
that would also accrue under the Registration Rights Agreement relating to the Warrant Shares.
(5)
The term of the Additional Series A Note is 8 months. This number represents the maximum amount payable in cash at maturity and
assumes there is no redemption due to an Event of Default or change of control and that the Investor Note in the amount of $8,800,000
is fully paid by the selling security holder to the Company prior to the time of maturity. The Investor Note has been fully paid
as of the date of this prospectus.
Series
B Note
Maximum Interest
Payments
|
|
|
Maximum Event of
Default Redemption
|
|
|
Maximum Change of
Control Redemption
|
|
|
Maximum
Registration Penalties
|
|
|
At Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,000
|
(1)
|
|
$
|
348,438
|
(2)
|
|
$
|
325,000
|
(3)
|
|
$
|
58,016
|
(4)
|
|
$
|
260,000
|
(5)
|
(1)
Represents the maximum amount of interest payable by us to the selling security holder under the Series B Note assuming (a) that
all installment payments of interest thereunder are timely made (beginning with the first installment payment due on October 1,
2017) and that no installment payments are accelerated or deferred, (b) that no payments of interest will be made prior to the
first installment date, (c) that the Series B Note is not otherwise converted prior to the maturity date, (d) that interest is
paid in cash and (e) that no Event of Default thereunder occurs.
(2)
Represents the cash amount that would be payable by us if we were required to redeem the Series B Note as a result of an Event
of Default assuming that the Event of Default occurs on the date the Series B Note is issued, interest accrues at the default
interest rate over the entire term of the Series B Note and the selling security holder requires us to redeem the entire principal
and interest amount. The Redemption Premium is defined as 125%. The default interest rate is 12% during the first 30 days following
the occurrence and continuance of an Event of Default and 18% thereafter.
(3)
Represents the cash amount that would be payable by us if we were required to redeem the Series B Note as a result of a change
of control assuming that the change of control occurs on the date the Series B Note is issued. The Change of Control Premium is
defined as 125%.
(4)
Represents the maximum monetary penalties and interest that would be payable if we failed to timely file, obtain a declaration
of effectiveness or maintain the effectiveness with respect to the registration statement required under the Registration Rights
Agreement we signed in conjunction with the Note Financing. Assumes that (a) the monetary penalties accrue on September 15, 2017
(30 days after the Closing Date), (b) the monetary penalties continue to accrue for a period of 7 months, until April 16, 2018,
and (c) the monetary penalties will not be paid until April 16, 2018. For purposes of this calculation, we have used $2.55, the
market price of the common stock on the Closing Date. This figure does not include an additional $633,566 of monetary penalties
that would also accrue under the Registration Rights Agreement relating to the Warrant Shares.
(5)
The term of the Series B Note is 8 months. This number represents the maximum amount payable in cash at maturity and assumes there
is no redemption due to an Event of Default or change of control.
Net
Proceeds from Private Offering of Convertible Notes
The
following table sets forth the gross proceeds received from the private offering of the Convertible Notes and calculates the net
proceeds thereof after deduction of the anticipated payments pursuant to the Convertible Notes and related documents. The gross
and net proceeds are presented to reflect the full payment of the Investor Note, thereby turning the $8,800,000 of Restricted
Principal under the Additional Series A Note into unrestricted principal that may be converted into shares of common stock or
that is otherwise payable to the Investor upon maturity of the Additional Series A Note. The net proceeds do not include the payment
of any contingent payments, such as liquidated damages or repayment premiums in the case of an Event of Default or a change of
control. The net proceeds assumes that all interest and principal will be paid in cash and that all interest payments are timely
made (beginning with the first interest payment on October 1, 2017), notwithstanding that we may pay (and are expected to pay)
interest and principal in shares of our common stock under specified circumstances. The interest amount reflected below assumes
that all installment payments are made when due without any Event of Default, and the table assumes that none of the Convertible
Notes are converted prior to maturity. Based on the foregoing assumptions, the net proceeds represent approximately 86.7% of the
gross proceeds.
|
Gross proceeds
|
|
$
|
9,020,000
|
(1)
|
|
Approximate aggregate interest payments
|
|
$
|
362,000
|
|
|
Approximate transaction costs paid in cash
|
|
$
|
135,000
|
|
|
Placement agent fee
|
|
$
|
721,600
|
(2)
|
|
Net proceeds
|
|
$
|
7,801,400
|
|
(1)
Includes a cash payment of $220,000 plus the Investor Note in the amount of $8,800,000.
(2)
Fees are paid to the placement agent as and when the Company receives a cash payment from the Investor for the Series B Note or
under the Investor Note. This number does not include the value of warrants issuable to the placement agent as partial payment
for the placement agent services.
Comparison
of Issuer Proceeds to Potential Investor Profit
The
following table summarizes the potential proceeds we will receive pursuant to the Convertible Notes. The gross and net proceeds
reflect the full payment of the Investor Note, thereby turning the Restricted Principal of $8,800,000 under the Additional Series
A Note into unrestricted principal that may be converted into shares of common stock or that is otherwise payable to the selling
security holder upon maturity of the Additional Series A Note. For purposes of this table, we have assumed that the Convertible
Notes will be held by the selling security holder through the maturity date and converted at the Alternate Conversion Price floor
of $4.00 per share for the Series A Notes and $3.00 per share for the Series B Note.
|
Amount of Convertible Notes issued to the selling security holder
|
|
$
|
10,300,000
|
|
|
Total gross proceeds paid or payable to us (1)
|
|
$
|
9,020,000
|
|
|
Payments that have been made or may be required to be made by us until maturity (2)
|
|
$
|
362,000
|
|
|
Net proceeds to us assuming maximum payments made by us (without deduction for transaction costs) (3)
|
|
$
|
8,658,000
|
|
|
Total possible profit to the selling security holder (4)
|
|
$
|
2,004,000
|
|
|
Percentage of profit over gross proceeds (5)
|
|
|
22.2
|
%
|
(1)
Gross proceeds paid to us under the Investor Note in the principal amount of $8,800,000 issued to us as payment for the Convertible
Notes together with $220,000 in cash paid to us by the selling security holder at the closing.
(2)
Total possible payments (excluding repayment of principal) payable by us to the selling security holder assuming the Convertible
Notes remain outstanding until the maturity date and that interest is paid in cash. Assumes that no liquidated damages are incurred
and that no redemption premium on the Convertible Notes will be applicable.
(3)
Total net proceeds to us calculated by subtracting the amount in line 3 from the amount in line 2.
(4)
This number represents the total possible profit to the selling security holder if all principal and accrued interest through
maturity of the Convertible Notes are repaid in full in cash in the event the Investor does not elect to convert the Convertible
Notes into common stock.
(5)
Percentage of the total possible profit to the selling security holder as calculated in line 5 compared to the maximum gross proceeds
paid by the Investor as disclosed in line 2.
Other
Information
As
of the date of this prospectus, we do not believe that we will have the financial ability to make all payments on the Convertible
Notes in cash when due. Accordingly, we intend, as of the date of this prospectus, to make such payments in shares of our common
stock to the greatest extent possible.
The selling security
holder has advised us that it may enter into short sales in the ordinary course of its business of investing and trading securities.
The selling security holder has agreed in the August Securities Purchase Agreement that, so long as the selling security holder
holds any Convertible Note, during certain periods designated in the August Securities Purchase Agreement the selling security
holder will not maintain a “short position” in our common stock.
Except
as described below, we have not had any material relationships or arrangements with the selling security holder, its affiliates,
or any person with whom the selling security holder has a contractual relationship regarding the Note Financing (or any predecessors
of those persons).
On
September 7, 2016 we sold Senior Secured Convertible Notes (the “September 2016 Notes”) to the selling security holder
in the principal amount of $4,301,075 for consideration consisting of a cash payment by the selling security holder in the amount
of $1,000,000 together with a secured promissory note payable by the selling security holder in the principal amount of $3,000,000.
As of January 24, 2017, the September 2016 Notes were satisfied in full by the conversion of $4,301,075 in principal and $47,499
in accrued interest into an aggregate of 887,707 shares of our common stock and the payment in cash of $1,660 in interest. We
received $4,000,000 in gross proceeds from the sale of the September 2016 Notes. The selling security holder paid $1,000,000 in
cash on September 7, 2016 and made the following prepayments in accordance with the terms of the $3,000,000 promissory note: $1,000,000
on October 25, 2016; $1,100,000 on November 16, 2016; and $900,000 on December 2, 2016.
On
December 2, 2016 we sold Senior Secured Convertible Notes (the “December 2016 Notes”) to the selling security holder
in the amount of $6,720,000, consisting of an initial note in the amount of $1,820,000 and an additional note in the amount of
$4,900,000, for consideration consisting of a cash payment by the selling security holder in the amount of $1,100,000 together
with a secured promissory note payable by the selling security holder in the principal amount of $4,900,000 (the “December
2016 Investor Note”). As of September 20, 2017, the December 2016 Notes were satisfied in full by the conversion of $6,710,000
in principal and $56,188.26 in accrued interest into an aggregate of 1,926,431 shares of our common stock, the payment in cash
of $126,557 in interest, and the exchange of the remaining $10,000 in unpaid principal amount for the Exchange Note. Aside from
the $1,100,000 payment made in cash on December 2, 2016, the selling security holder made the following prepayments of the December
2016 Investor Note: on February 8, 2017 the selling security holder made a prepayment of $3,000,000; on May 23, 2017 the selling
security holder made a prepayment of $1,000,000; on August 16, 2017 the selling security holder made a prepayment of $230,000;
and September 20, 2017 the selling security holder made a prepayment of $670,000.
On
February 8, 2017 we sold Senior Secured Convertible Notes (the “February 2017 Notes”) to the selling security holder
in the amount of $5,681,818, consisting of an initial note in the principal amount of $681,818 and an additional note (the “February
Additional Note”) in the principal amount of $5,000,000, for consideration consisting of a secured promissory note payable
by the selling security holder to the Company in the principal amount of $5,000,000 (the “February 2017 Investor Note”).
As of August 28, 2017, the February 2017 Notes were satisfied in full by the conversion of $5,681,818 in principal and $48,773
in accrued interest into an aggregate of 1,852,886 shares of our common stock and the payment in cash of $125,190 in interest.
On
August 27, 2017, we entered into a letter agreement (the “Letter Agreement”) with the selling security holder, pursuant
to which the selling security holder agreed to deliver to us a conversion notice effecting the immediate conversion of $2,500,000
representing all of the unconverted principal under the February Additional Note, together with all interest accrued thereon,
at the alternate conversion price of $3.00 per share (collectively the “February Note Conversion Amount”).
In
consideration of the conversion of the February Additional Note, we agreed that the selling security holder would have the right,
at any time from the date of the Letter Agreement and until December 31, 2017, to effect an exchange (each such exchange a “Share
Exchange”) of the number of shares of common stock in an aggregate number with respect to all Share Exchanges not to exceed
841,250 shares, for one or more senior secured convertible promissory notes in the form of the February Additional Note (but replacing
the maturity date thereunder with the date that is 45 days following delivery date of an exchange notice to us and removing any
restrictions on conversion while the senior secured convertible notes issued to the selling security holder on December 2, 2016
remain outstanding) (each such new senior secured convertible note a “New Note”). The selling security holder would
have the right to substitute the alternate conversion price of the New Note with the alternate conversion price of the Series
B Note. Any New Note, if issued, would be in a principal amount equal to the product of the February Note Conversion Amount multiplied
by a fraction, the numerator of which would be the number of the aggregate shares being tendered for exchange and the denominator
of which would be 841,250. When we received an exchange notice, the selling security holder would be deemed to automatically and
immediately own the applicable New Note, which would be immediately eligible for conversion and the shares of common stock tendered
for exchange would be cancelled automatically and immediately. On October 13, 2017, the selling security holder exercised its
right to exchange 100,000 shares of our common stock into a New Note in the principal amount of $300,000.
On
September 19, 2017, we and the selling security holder entered into an agreement pursuant to which we agreed that:
|
|
●
|
we
would effect a Mandatory Conversion (as defined in the December 2016 Notes) of $890,000 in principal amount of the December
2016 Notes, which conversion was effective as of September 18, 2017;
|
|
|
|
|
|
|
●
|
the
selling security holder would prepay the remaining balance of the December 2016 Investor Note, in the amount of $670,000;
and
|
|
|
|
|
|
|
●
|
the
selling security holder would prepay $1,830,000 of the Investor Note issued on August 16, 2017.
|
In
conjunction with the Mandatory Conversion of the December 2016 Notes, we issued to the selling security holder, on September 20,
2017, 445,367 shares of our common stock.
Pursuant
to this agreement, the selling security holder waived:
|
|
●
|
any and all rights
to receive any additional shares of our common stock as a True-Up, as defined in the December 2016 Notes;
|
|
|
|
|
|
|
●
|
any restriction
(excluding any participation rights) on our offer, sale or issuance of shares of common stock and/or securities convertible
into common stock in one or more private securities offerings, so long as the securities offered have a purchase price of
at least $3.00 per share of common stock (each a “Permitted PIPE”); and
|
|
|
|
|
|
|
●
|
any restriction
on our filing one or more registration statements with the SEC for the resale of any shares of common stock issued or issuable
in connection with any Permitted PIPE or Convertible Securities (as defined in the August Securities Purchase Agreement) issued in any Permitted PIPE solely to the extent that all shares of common stock issued upon resale of
all Convertible Securities held by the holder are either (x) concurrently registered for resale on such registration statement,
(y) registered for resale pursuant to one or more prior and effective registration statement(s) that at such time is (or are)
available for use by the holder or (z) eligible to be resold by the holder pursuant to Rule 144.
|
On
October 5, 2017, we received a cash payment of $6,970,000 from the selling security holder pursuant to the Investor Note issued
on August 16, 2017. A portion of these loan proceeds were used to fund the Additional Loan to MoviePass. In exchange for this
prepayment of the Investor Note, we agreed to (a) waive our right to effect a private placement or to exercise any new offering
right prior to November 15, 2017, and (b) waive any right to complete an offering of our securities (except for certain excluded
securities), other than certain private placements for up to $3,000,000 in gross proceeds, during the period commencing on November
15, 2017 through the later of (x) December 15, 2017 and (y) 30 calendar days after the earlier to occur of (I) the first date
on which the registration statement of which this prospectus is a part is declared effective by the SEC or (II) the first date
on which all of such registrable securities are eligible to be resold by the selling security holder pursuant to Rule 144.
On
October 23, 2017, we and the selling security holder entered into an agreement for the purpose of exchanging the New Note, as
earlier defined, for 947,218 shares of common stock and rights to receive 552,782 additional shares of common stock (collectively,
the “Exchange Securities”), subject to a 9.9% beneficial ownership limitation and limitations under Nasdaq Listing
Rule 5635(d).
In
exchange for the Exchange Securities, the selling security holder agreed to, among other things:
(i)
terminate the selling security holder’s right to receive any further New Notes, which would have had a principal amount
up to $2.2 million and a $0.50 conversion price floor if issued;
(ii)
(A) release all security interests held by the selling security holder in our assets and those of our subsidiaries, including
Zone Technologies, Inc. and its proprietary RedZone Map product and our interest in MoviePass,
(B) terminate each security agreement between the Company and the selling security holder, and (C) authorize us to file amendments
to all UCC Financing Statements for the purpose of terminating the selling security holder’s security interests in our assets
and those of our subsidiaries, including RedZone and our interest in MoviePass;
(iii)
permit us to obtain non-convertible senior secured debt financing from a qualified bank in an amount not less than $20 million
and not more than $100 million while the Convertible Notes remain outstanding;
(iv)
defer our obligation to pay any interest under the Convertible Notes until the earlier to occur of (x) each conversion of the
Convertible Notes, solely with respect to the portion of interest included in the applicable conversion amount, (y) each redemption
of the Convertible Notes, solely with respect to the portion of interest included in the applicable redemption amount, and (z)
the maturity date of the Convertible Notes; and
(v)
waive any and all Events of Default (as defined in the Convertible Notes) prior to October 23, 2017.
On November 21,
2017 (the “Exchange Date”), the Company and the selling security holder entered into a Fourth Amendment and Exchange
Agreement (the “Fourth Exchange Agreement”) for the purpose of, among other things:
(i) exchanging
the Warrant for the purchase of 10,000 Warrant Shares for the Exchange Warrant; and
(ii) amending the
Convertible Notes and the November 2017 Notes to obtain the right to amend the MoviePass SPA, in order to issue to MoviePass upon
the closing of the transactions contemplated by the MoviePass SPA, in lieu of shares of common stock, one or more promissory notes
convertible into or exchangeable for up to an aggregate of 4,000,001 shares of common stock subject to obtaining approval of our
stockholders as required by Listing Rule 5635 of The Nasdaq Stock Market, (collectively, the “Modified MP Transaction”)
and (ii) to obtain a waiver such that neither the Modified MP Transaction nor any other transactions contemplated by the MoviePass
SPA (as may be amended to effect the Modified MP Transaction) or the MoviePass Option Agreement will be deemed to be a Fundamental
Transaction (as defined in the November 2017 Notes and the Convertible Notes) or a transaction that would trigger a redemption
of the Warrant pursuant to Section 4(c)(i) of the Warrant. Pursuant to the Fourth Exchange Agreement, the selling security holder
also:
(A) waived
any right that the holders of the November 2017 Notes may have to adjust the conversion price (as defined in the November 2017
Notes) as a result of the issuance of the Exchange Warrant or any of the shares issued pursuant to the Exchange Warrant (the “Exchange
Warrant Shares”);
(B) waived
any right that the holders of the Warrant may have to adjust the exercise price and the number of Warrant Shares as a result of
the issuance of the Exchange Warrant or any of the Exchange Warrant Shares;
(C) waived
the selling security holder’s right to substitute the Variable Price (as defined in the Convertible Notes) of the Exchange
Warrant for the Conversion Price (as defined in the Convertible Notes) and to waive the selling security holder’s right
to substitute the Variable Price (as defined in the Warrant) of the Exchange Warrant for the exercise price of the Warrant;
(D) waived
any prohibition that may exist under any provision of the Transaction Documents (as defined in the August Securities Purchase
Agreement) and the Transaction Documents (as defined in the November Securities Purchase Agreement) with respect to the issuance
of the Exchange Warrant and any of the Exchange Warrant Shares and with respect to any cash payments that we may make pursuant
to the Exchange Warrant;
(E) amended
the definition of Permitted Indebtedness set forth in the Convertible Notes and the November 2017 Notes to include the Exchange
Warrant, to the extent the Exchange Warrant is deemed to constitute Indebtedness (as defined in the Convertible Notes and the
November 2017 Notes); and
(F) effective
as of the 5th trading day after the registration statement of which this prospectus is a part is declared effective, the August
Securities Purchase Agreement, the Convertible Notes, the November Securities Purchase Agreement and the November 2017 Notes will
be amended and restated, automatically without any further action on the part of the Company or the selling security holder required,
to intentionally omit or to delete the provisions (i) prohibiting the filing of additional registration statements by us and (ii)
prohibiting the issuance of additional securities by us without the consent of the selling security holder.
On November 22,
2017, we entered into a commercial guaranty (the “Guaranty”) in favor of PayPal, Inc. (“PayPal”) pursuant
to which we agreed to guarantee the payment obligations of MoviePass to PayPal under a payment services agreement by and between
PayPal and MoviePass. In accordance with the terms of the Guaranty, PayPal can enforce the Guaranty against us even when PayPal
has not exhausted its remedies against anyone else obligated to pay MoviePass’ payment obligations or against any collateral
securing such obligations. We may terminate the Guaranty on 180 days written notice provided, however, that the Guaranty will
continue in full force until all of MoviePass’ payment obligations incurred or contracted before and during such 180 day
period have been fully paid.
Absent a waiver
by requisite Holders of the Convertible Notes and the November 2017 Notes (collectively, the “Issued Notes”), the
securities purchase agreements pursuant to which the Issued Notes were purchased and the Issued Notes would restrict us from entering
into the Guaranty (the “Indebtedness Restriction”).
On November 22,
2017, each of the Holders entered into a separate waiver agreement with us pursuant to which, in consideration of the issuance
by us to the Holders of an aggregate of 275,003 unregistered shares of common stock allocated among the Holders on a pro rata
basis (or, at each Holder’s election, rights to acquire such Holder’s pro rata portion of that number of shares of
common stock) (collectively, the “Waiver Shares”), the Holders waived the Indebtedness Restriction and certain ancillary
restrictions related to the issuance of the Waiver Shares.
Corporate
Information
Our
executive offices are located at The Empire State Building, 350 Fifth Avenue, New York, New York 10118, and our telephone number
is (212) 979-8228. Additional information about us is available on our website at www.hmny.com. The information contained on or
that may be obtained from our website is not, and shall not be deemed to be, a part of this prospectus. Our common stock, par
value $0.01 per share, is currently traded on The Nasdaq Capital Market under the ticker symbol “HMNY”.
For
a description of our business, financial condition, results of operations and other important information regarding us, we refer
you to our filings with the SEC incorporated by reference in this prospectus. For instructions on how to find copies of these
documents, see “
Where You Can Find More Information
.”
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Please see the risk factors set forth in Part I, Item 1A of our most recent
Annual Report on Form 10-K and in Part II, Item 1A of our Quarterly Reports on Form 10-Q and other filings we make with the SEC,
which are incorporated by reference into this prospectus. Before making an investment decision, you should carefully consider
these risks as well as other information we include or incorporate by reference in this prospectus. The risks and uncertainties
we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial may also affect our business operations. These risks could materially affect our business, results of operations
or financial condition and cause the value of our securities to decline.
Risks
Related to this Offering and our Common Stock
The
sale of a substantial amount of our common stock in the public market by the selling security holder has adversely affected, and
could continue to adversely affect, the prevailing market price of our common stock.
Prior to the sale
of the September 2016 Notes, we had 2,330,438 shares of common stock issued and outstanding and on September 6, 2016 the closing
price of our common stock was $9.46 per share. As of November 27, 2017, we had 12,442,131 shares of common stock issued and
outstanding and the closing sale price of our common stock on that date was $14.50. Pursuant to the resale registration statement
on Form S-3 (file number 333-213775) declared effective by the SEC on October 24, 2016, we initially registered 1,432,410 shares
of common stock for the selling security holder in connection with the sale of the September 2016 Notes. We subsequently deregistered
544,703 shares of common stock from that registration statement after satisfying the September 2016 Notes in full by issuing 887,707
shares of common stock and payment in cash of $1,660 in interest. The selling security holder has sold all 887,707 shares that
it received upon conversion of the September 2016 Notes.
We
registered 3,926,293 shares of our common stock on Form S-3 (file number 333-215313) in connection with the sale of the December
2016 Notes, which registration statement was declared effective by the SEC on January 13, 2017. We subsequently deregistered 1,999,862
shares of common stock from that registration statement after satisfying the December 2016 Notes in full by issuing 1,926,431
shares of our common stock, paying to the selling security holder a total of $126,557 in interest in cash and issuing the Exchange
Note. The selling security holder has sold all 1,926,431 shares that it received upon conversion of the December 2016 Notes.
We
registered 3,332,075 shares of our common stock on Form S-3 (file number 333-216569) in connection with the sale of the February
2017 Notes, which registration statement was declared effective by the SEC on April 26, 2017. We subsequently deregistered 1,479,189
shares of common stock from that registration statement after satisfying the February 2017 Notes in full by issuing 1,852,886
shares of our common stock and paying to the selling security holder a total of $125,190 in interest in cash. The selling security
holder has sold all 1,852,886 shares it received upon conversion of the February 2017 Notes.
Assuming
the registration statement of which this prospectus is a part is declared effective by the SEC, any shares registered for resale
by and issued to the selling security holder will be generally available for immediate resale. Our stock price may decline due
to the selling security holder’s sales of a substantial number of shares of our common stock in the public market, or the
perception that such sales might occur. Sales by the selling security holder could adversely affect the market price of our common
stock.
We issued a total of $100,000,000
in convertible promissory notes on November 7, 2017. If all of the principal, interest and Make-Whole Amounts (as defined in the
convertible promissory notes) is converted into shares of our common stock, the ownership of our stockholders will be substantially
diluted.
On November 7,
2017 we issued convertible promissory notes in the aggregate principal amount of $100,000,000 in exchange for an aggregate cash
payment of $5,000,000 and a promissory note from each investor (the “investor notes”) totaling in the aggregate $95,000,000.
Assuming that the investor notes are paid in full, we will owe to the investors a total of $120,000,000, including principal,
interest and Make-Whole Amounts. The investors may convert the amount we owe into shares of our common stock at a price of $12.06
per share. If the investors converted the entire $120,000,000 into shares of our common stock, we would be required to issue to
the investors, on a pro-rata basis, a total of 9,950,249 shares of our common stock. This amount of shares represents almost 80%
of the number of shares we had outstanding on November 27, 2017. If we issue all of these shares, the ownership of our current
stockholders will be substantially diluted.
The sale of shares issued to
the investors in the November 7, 2017 offering of convertible promissory notes could have a material adverse effect on the market
price of our common stock.
While the shares
of common stock we issue to the investors in the November 7, 2017 offering of convertible promissory notes are not required to
be registered, they may be sold pursuant to Rule 144 six months from that date, assuming that we meet the public information requirement
of Rule 144. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur,
could have a material adverse effect the price of our common stock and could impair our ability to raise capital through the sale
of additional shares.
There
currently is no market for MoviePass’ common stock and a market for such securities may not develop, which could adversely
affect the liquidity and value of such securities.
Upon
completion of the acquisition of MoviePass, we will own a majority of its outstanding equity, consisting of common stock. There
currently is no market for the MoviePass common stock. However, MoviePass plans to apply for listing of its common stock on the
Nasdaq Stock Market or the New York Stock Exchange in 2018. There can be no assurance that the MoviePass common stock will become
listed. If the MoviePass common stock does become listed, an active trading market for such securities may not develop in the
near term, if at all, or if it does develop, it may not be sustained. If an active trading market for the MoviePass common stock
does develop, the market for such securities may be subject to price and volume volatility. In that case, or if MoviePass does
not become listed, we may be unable to liquidate our investment in the MoviePass common stock at a time of our choosing. If we
are unable to liquidate our investment in MoviePass at a time of our choosing, our financial position and the value of our common
stock may be materially and adversely affected.
We
have incurred and will continue to incur significant transaction costs in connection with the MoviePass transaction.
We
have incurred significant costs in connection with the MoviePass SPA and expect to incur additional expenses in connection with
closing the transaction, including legal, accounting, financial consulting, and related fees. We may also incur fees and
costs related to formulating integration plans. We may be unable to realize financial benefits with the acquisition that would
allow us, over time, to offset the costs incurred in connection with the acquisition.
The
price of our common stock has been volatile, and the market price of our common stock may decrease.
The per share price
of our common stock has been volatile. Since January 1, 2017, the per share closing price of our common stock has been as low
as $2.23 on May 16, 2017 and as high as $32.90 on October 11, 2017. Market prices for securities of technology companies have
historically been particularly volatile. The factors that may cause the market price of our common stock to fluctuate include,
but are not limited to:
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progress,
or lack of progress, in developing and commercializing Zone’s RedZone Map technology;
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our
ability to recruit and retain qualified IT personnel;
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our
ability to derive financial benefits from our investment in MoviePass;
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changes
in the perception of investors and securities analysts regarding the risks to our business or the condition of our business;
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changes
in our relationships with key clients;
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changes
in the market valuation or earnings of our competitors or companies viewed as similar to us;
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changes
in key personnel;
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changes
in our capital structure, such as future issuances of securities or the incurrence of debt;
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the
granting or exercise of employee stock options or other equity awards;
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general
market and economic conditions.
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In
addition, the equity markets have experienced significant price and volume fluctuations that have affected the market prices for
the securities of technology companies for a number of reasons, including reasons that may be unrelated to our business or operating
performance. These broad market fluctuations may result in a material decline in the market price of our common stock and you
may not be able to sell your shares at prices you deem acceptable. In the past, following periods of volatility in the equity
markets, securities class action lawsuits have been instituted against public companies. Such litigation, if instituted against
us, could result in substantial cost and the diversion of management attention.
While we are no longer a controlled
company, Helios and Matheson Information Technology Ltd. and Theodore Farnsworth, our two largest stockholders (the “Principal
Stockholders”), together own approximately 26.6% of our issued and outstanding voting securities. This concentration of
stock ownership gives them substantial influence over us and could delay or prevent a change in corporate control.
As the holders of approximately 26.6% of our common stock,
the Principal Stockholders may substantially influence the outcome of matters submitted to our stockholders for approval, including
the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, the Principal
Stockholders have significant influence over our management and affairs, particularly Mr. Farnsworth, who is our Chief Executive
Officer and the Chairperson of our Board of Directors. This concentration of ownership might harm the market price of our common
stock by:
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delaying,
deferring or preventing a change in control;
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impeding
a merger, consolidation, takeover or other business combination involving us; or
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discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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Our
ongoing investment in new technology is inherently risky, and could disrupt our business.
To
remain competitive and grow we must continue to invest in new products and technologies and explore strategic investments. There
is no assurance that these investment endeavors will be successful or that the products and technologies developed by these investments
will be well received by the users. As our competitors use or develop new technologies, competitive pressures may force us to
invest in developing or implementing new technologies at a substantial cost. We cannot be certain that we will be able to develop
or implement technologies on a timely basis or at a cost that is acceptable to us. If we fail to develop or implement new technologies
in a cost-effective manner, our operations and financial condition may be adversely affected.
USE
OF PROCEEDS
We
will not receive any of the proceeds from the sale of the offered shares by the selling security holder. Furthermore, we will
not receive proceeds from the cashless exercise of the Warrant. If the selling security holder were to exercise the remaining
325,714 shares underlying the Warrant, we could receive $977,142 in proceeds from the exercise. If we were to receive proceeds
from the exercise of the remaining shares underlying the Warrant, we would use the funds for general corporate purposes.
SELLING
SECURITY HOLDER
The shares of common
stock being offered by the selling security holder are those issuable to the selling security holder upon conversion of the Convertible
Notes, the shares of common stock issued to the selling security holder following the cashless exercise of the Warrant and an
additional 325,714 shares underlying the Warrant. We are registering the shares of common stock in order to permit the selling
security holder to offer the shares for resale from time to time. Except for the purchase of the September 2016 Notes, the December
2016 Notes, the February 2017 Notes and the sale, on November 7, 2017, of senior convertible bridge notes in which the selling
security holder participated, the selling security holder has not had any material relationship with us within the past three
years.
The
table below lists information regarding the beneficial ownership (as determined under Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder) of the shares of common stock held by the selling security
holder.
The
second column lists the number of shares of common stock beneficially owned by the selling security holder as of November 27,
2017, based on the ownership of shares of common stock that could be issued assuming conversion of the principal and interest
of the Convertible Notes and the shares of common stock that have been issued as a result of the selling security holder’s
exercise of the Warrant, but taking account of any limitations on conversion set forth therein.
The
third column lists the shares of common stock being offered by this prospectus by the selling security holder and does not take
into account any limitations on conversion of the Convertible Notes or exercise of the Warrant set forth therein.
In accordance with
the terms of the Registration Rights Agreement we entered into with the selling security holder, we are required to register 9,281,318
shares of our common stock, which represents 125% of the common stock that may be issued to the selling security holder upon the
conversion of the Convertible Notes (including interest on the Convertible Notes through the eighth month anniversary of the date
of issuance) and exercise of the Warrant. The number of shares of common stock to be registered was computed using 50% of the
conversion price designated in the Convertible Notes. This prospectus generally covers the resale of, as of any given date, 1,482,639
shares of the common stock we are required to register for conversion of the Convertible Notes, 1,234,677 shares of common stock
the selling security holder obtained through the cashless exercise of the Warrant and 325,714 Warrant Shares. In accordance with
the Registration Rights Agreement, the Company intends to register the remaining shares of common stock required to be registered
for resale by the selling security holder. Because the Mandatory Conversion Price of the Convertible Notes may differ from the
Conversion Price in effect on such given date, the number of shares that will actually be issued may be more or less than the
number of shares that will be registered.
The
fourth column assumes the sale of all of the shares offered by the selling security holder pursuant to this prospectus.
Under
the terms of the Convertible Notes and the Warrant, the selling security holder may not convert the Convertible Notes or exercise
the Warrant to the extent (but only to the extent) the selling security holder or any of its affiliates would beneficially own
a number of shares of our common stock which would exceed (i) 9.99% of the outstanding shares of our common stock or (ii) the
selling security holder’s pro rata portion of the aggregate number of shares of common stock which we may issue upon conversion
of the Convertible Notes or exercise of the Warrant, as appropriate, or otherwise pursuant to the terms of the Convertible Notes
or the Warrant without breaching our obligations under the rules or regulations of The Nasdaq Stock Market. The number of shares
in the second column reflects these limitations. The selling security holder may sell all, some or none of its shares in this
offering. See “Plan of Distribution.”
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Name of Selling Security Holder
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Number
of
Shares
of Common
Stock
Owned Prior
to
Offering
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Maximum
Number of
Shares
of Common
Stock
to be Sold
Pursuant to
this
Prospectus
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Number
of
Shares
of Common
Stock
of Owned After
Offering
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Hudson Bay Master Fund Ltd (1)
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974,093
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(2)
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3,043,030
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(1) Hudson Bay Capital Management, L.P.,
the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities. Sander Gerber is
the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management, L.P. Each of Hudson
Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities.
(2) The Convertible Notes and the Warrant include a beneficial ownership limitation
of 9.99% of the shares of common stock outstanding immediately after giving effect to any conversion of the Convertible Notes
or exercise of the Warrant. As of November 27, 2017 we had 12,442,131 shares of common stock outstanding. The number of shares
reported in this column reflects the beneficial ownership limitation of 9.99% as it relates to (i) the aggregate principal amount
of the Convertible Notes ($10,300,000) plus accrued interest at 6% per annum for 8 months ($370,000) that could be converted into
2,687,168 shares of common stock at the conversion prices of $4.00 under the Series A Notes and $3.00 under the Series B Note,
(ii) 1,234,677 Warrant Shares issued to the selling security holder on November 21, 2017 from the cashless exercise of the Warrant
and 325,714 Warrant Shares underlying the Warrant, (iii) 10,000 shares underlying the Exchange Warrant and (iv) the principal
amount together with the interest accrued under the senior convertible bridge notes purchased by the selling security holder on
November 7, 2017 that could be converted, at the stated conversion price of $12.06, into 5,493,116 shares of common stock.
PLAN
OF DISTRIBUTION
We
are registering the shares of common stock issuable upon conversion of the Convertible Notes and the Warrant to permit the resale
of these shares of common stock by the holder of the Convertible Notes and Warrant from time to time after the date of this prospectus.
We will not receive any of the proceeds from the sale by the selling security holder of the shares of common stock. We will bear
all fees and expenses incident to our obligation to register the shares of common stock.
The
selling security holder may sell all or a portion of the shares of common stock held by it and offered hereby from time to time
directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters
or broker-dealers, the selling security holder will be responsible for underwriting discounts or commissions or agent’s
commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at
the time of the sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions, pursuant to one or more of the following methods:
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on
any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
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in
the over-the-counter market;
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in
transactions otherwise than on these exchanges or systems or in the over-the-counter market;
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through
the writing or settlement of options, whether such options are listed on an options exchange or otherwise;
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ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
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an
exchange distribution in accordance with the rules of the applicable exchange;
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privately
negotiated transactions;
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short
sales made after the date the registration statement is declared effective by the SEC;
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broker-dealers
may agree with a selling security holder to sell a specified number of such shares at a stipulated price per share;
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a
combination of any such methods of sale; and
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any
other method permitted pursuant to applicable law.
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The
selling security holder may also sell shares of common stock under Rule 144 promulgated under the Securities Act, if available,
rather than under this prospectus. In addition, the selling security holder may transfer the shares of common stock by other means
not described in this prospectus. If the selling security holder effects such transactions by selling shares of common stock to
or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the
form of discounts, concessions or commissions from the selling security holder or commissions from purchasers of the shares of
common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions
as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved).
In connection with sales of the shares of common stock or otherwise, the selling security holder may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions
they assume. The selling security holder may also sell shares of common stock short and deliver shares of common stock covered
by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling
security holder may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
The
selling security holder may pledge or grant a security interest in some or all of the Convertible Notes or the Warrant or shares
of common stock owned by it and, if it defaults in the performance of the secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of selling security
holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.
The selling security holder also may transfer and donate the shares of common stock in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
To
the extent required by the Securities Act and the rules and regulations thereunder, the selling security holder and any broker-dealer
participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed
to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of common
stock is made, a prospectus supplement, if required, will be distributed, which will set forth the aggregate amount of shares
of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the selling security holder and any discounts, commissions
or concessions allowed or re-allowed or paid to broker-dealers.
Under
the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed
brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered
or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There
can be no assurance that the selling security holder will sell any or all of the shares of common stock registered pursuant to
the registration statement, of which this prospectus forms a part.
The
selling security holder and any other person participating in such distribution will be subject to applicable provisions of the
Exchange Act, and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M
of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling security
holder and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person
engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of
common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of common stock.
We
will pay all expenses of the registration of the shares of common stock pursuant to the Registration Rights Agreement, estimated
to be $60,000, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state
securities or “blue sky” laws; provided, however, the selling security holder will pay all underwriting discounts
and selling commissions, if any.
We
will indemnify the selling security holder against liabilities, including some liabilities under the Securities Act, in accordance
with the Registration Rights Agreement or the selling security holder will be entitled to contribution. We may be indemnified
by the selling security holder against civil liabilities, including liabilities under the Securities Act that may arise from any
written information furnished to us by the selling security holder specifically for use in this prospectus, in accordance with
the related Registration Rights Agreement or we may be entitled to contribution.
Once
sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable
in the hands of persons other than our affiliates.
LEGAL
MATTERS
The
validity of the issuance of the securities offered hereby will be passed upon for us by Mitchell Silberberg & Knupp LLP, 11377
W. Olympic Boulevard, Los Angeles, California.
EXPERTS
Rosenberg
Rich Baker Berman & Company, independent registered public accounting firm, has audited our consolidated financial statements
included in our Annual Report on Form 10-K for the years ended December 31, 2016 and 2015, as set forth in their report, which
is incorporated by reference in this prospectus and elsewhere in the registration statement in which this prospectus is included.
Our consolidated financial statements for the years ended December 31, 2016 and 2015 are incorporated by reference in reliance
on Rosenberg Rich Baker Berman & Company’s report, given on their authority as experts in accounting and auditing.
The balance
sheet of Zone Technologies, Inc. as of December 31, 2015, and the related statements of operations, stockholders’
deficit, and cash flows for the period then ended, have been audited by EisnerAmper LLP, independent registered public
accounting firm, as stated in their report which is incorporated by reference from the Company’s Form 8-K/A, Amendment
No. 1, filed with the Securities and Exchange Commission on September 20, 2016, which report includes an explanatory
paragraph about the existence of substantial doubt concerning Zone Technologies, Inc.’s ability to continue as a going
concern. Such financial statements have been incorporated herein by reference in reliance on the report of such firm given
upon their authority as experts in accounting and auditing.
The
balance sheets of MoviePass Inc. as of December 31, 2016 and 2015, and the related statements of operations, stockholders’
equity, and cash flows for each of the years then ended, have been audited by EisnerAmper LLP, independent registered public accounting
firm, as stated in their report which is incorporated by reference from the Company’s Form 8-K filed with the Securities
and Exchange Commission on November 30, 2017 which report includes an explanatory paragraph about the existence of substantial
doubt concerning MoviePass Inc.’s ability to continue as a going concern. Such financial statements have been incorporated
herein by reference in reliance on the report of such firm given upon their authority as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed with the SEC a registration statement on Form S-3 under the Securities Act, with respect to the securities covered
by this prospectus. This prospectus, which is a part of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to us
and the securities covered by this prospectus, please see the registration statement and the exhibits filed with the registration
statement. A copy of the registration statement and the exhibits filed with the registration statement may be inspected without
charge at the Public Reference Room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information about the operation of the Public Reference Room. The SEC also maintains
an Internet website that contains reports, proxy and information statements and other information regarding registrants that file
electronically with the SEC. The address of the website is http://www.sec.gov.
We
are subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, we file periodic
reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information are
available for inspection and copying at the Public Reference Room and website of the SEC referred to above. We maintain a website
at http://www.hmny.com. You may access our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and amendments to those reports filed pursuant to Sections 13(a) or 15(d) of the Exchange Act with the SEC
free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished
to, the SEC. Our website and the information contained on that site, or connected to that site, are not incorporated into and
are not a part of this prospectus.
INFORMATION
INCORPORATED BY REFERENCE
The
SEC and applicable law permits us to “incorporate by reference” into this prospectus information that we have or may
in the future file with or furnish to the SEC. This means that we can disclose important information by referring you to those
documents. You should read carefully the information incorporated herein by reference because it is an important part of this
prospectus. We hereby incorporate by reference the following documents into this prospectus:
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our
Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC on April 14, 2017;
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our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017, as
filed with the SEC on May 19, 2017, August 11, 2017 and November 14, 2017;
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our Current Reports on Form 8-K filed with the SEC on January 4, 2017, January 17, 2017, January 23, 2017 (other
than the portions of the filing that were furnished rather than filed), February 7, 2017, February 10, 2017, March 14, 2017, May
23, 2017 (other than the portions of the filing that were furnished rather than filed), June 5, 2017 (other than the portions of
the filing that were furnished rather than filed), July 13, 2017, August 15, 2017 (other than the portions of the filing that were
furnished rather than filed), August 18, 2017, August 22, 2017, August 28, 2017, September 7, 2017, September 14, 2017, September
20, 2017, October 5, 2017, October 11, 2017 (other than the portions of the filing that were furnished rather than filed), October
17, 2017, October 23, 2017, October 24, 2017; October 31, 2017, November 6, 2017, November 13, 2017, November 17, 2017, November
20, 2017, November 22, 2017, November 24, 2017, November 30, 2017 and December 1, 2017;
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the
description of our common stock included in our Current Report on Form 8-K filed with the SEC on July 12, 2016;
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the
financial statements of Zone Technologies, Inc. for the period ended December 31, 2015 and the interim period ended June 30,
2016 included in our Current Report on Form 8-K/A filed with the SEC on September 20, 2016;
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the
financial statements of MoviePass Inc. for the year ended December 31, 2016 and the interim
period ended September 30, 2017 included in our Current Report on Form 8-K filed with
the SEC on November 30, 2017; and
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unaudited
pro forma combined financial statements of the Company and MoviePass Inc. included in
our Current Report on Form 8-K filed with the SEC on November 30, 2017.
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Additionally,
all documents filed by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (other than any portions of
filings that are furnished rather than filed pursuant to Items 2.02 and 7.01 of a Current Report on Form 8-K), after the date
of this prospectus and before the termination or completion of this offering (including all such documents filed with the SEC
after the date of the initial registration statement and prior to the effectiveness of the registration statement) shall be deemed
to be incorporated by reference into this prospectus from the respective dates of filing of such documents. Any information that
we subsequently file with the SEC that is incorporated by reference as described above will automatically update and supersede
any previous information that is part of this prospectus.
Upon
written or oral request we will provide you, without charge, a copy of any or all of the documents incorporated by reference,
other than exhibits to those documents unless the exhibits are specifically incorporated by reference in the documents. Please
send requests to Helios and Matheson Analytics Inc., Attn: Chief Financial Officer, The Empire State Building, 350 Fifth Avenue,
New York, New York 10118, telephone number is (212) 979-8228.
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