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FOR
the Reverse Stock Split Proposal (see Proposal 1); and
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FOR
the Adjournment Proposal (see Proposal 2).
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Q:
Who can vote at the Special Meeting?
A:
Our Board has set January 16, 2019 as the record date (the “record date”) for the Special Meeting. All stockholders
who own voting securities at the close of business on the record date may attend and vote at the Special Meeting. For each share
of common stock held as of the record date, the holder is entitled to one vote on each proposal to be voted on. For each share
of Preferred Stock held as of the record date, the holder will be entitled to 3,205 votes on each proposal to be voted on. However,
the number of votes that a holder of Preferred Stock will be entitled to cast on any matter to be voted upon, when aggregated
with any of our other voting securities held by such holder, cannot exceed 19.9% of the number of shares of common stock that
we had outstanding as of June 21, 2018 immediately prior to the issuance of the Preferred Stock.
As
of the record date, 2,001,541,260 shares of our common stock were outstanding and 20,500 shares of Preferred Stock were outstanding.
The share amounts in this proxy statement have been adjusted to reflect the 1-share-for-250 shares reverse stock split of our
common stock effective on July 24, 2018. Stockholders do not have the right to cumulate votes. Shares held as of the record date
include shares that you hold directly in your name as the stockholder of record and those shares held for you, as a beneficial
owner, through a bank, broker or other nominee.
Q:
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
A:
Many of our stockholders hold their shares through a bank, broker or other nominee rather than directly in their own names. As
summarized below, there are some distinctions between shares held of record and those owned beneficially.
Stockholders
of Record
If
your shares are registered in your name with our transfer agent, Computershare, you are considered the stockholder of record with
respect to those shares and the proxy materials have been sent directly to you. As the stockholder of record, you have the right
to grant your proxy to the Company’s representatives or to vote in person at the Special Meeting.
Beneficial
Owners
If
your shares are held by a bank, in a brokerage account or by another nominee, you are considered the beneficial owner of the shares.
In this instance, your bank, broker or other nominee is considered, with respect to those shares, the stockholder of record and
they will have forwarded the proxy materials to you. As the beneficial owner, you have the right to direct your bank, broker or
other nominee on how to vote and you are also invited to attend the Special Meeting. However, since you are not the stockholder
of record, you may not vote these shares in person at the Special Meeting unless you request a proxy from the bank, broker or
other nominee giving you the right to vote the shares at the Special Meeting. We sometimes refer to stockholders who hold their
shares through a bank, broker or other nominee as “beneficial owners.”
Q:
How many votes does the Company need to hold the Special Meeting?
A:
According to our bylaws, the holders of (i) a majority of the voting power of the outstanding shares of our common stock and a
majority of the outstanding shares of our Preferred Stock, voting together as a single class, (ii) a majority of the outstanding
shares of our common stock, and (iii) a majority of the outstanding shares of our Preferred Stock, in each case, entitled to vote
at a meeting of stockholders must be present in person or represented at the Special Meeting by proxy in order for the Company
to hold the meeting and conduct business. This is called a quorum. Shares for which abstentions or broker “non-votes”
occur are counted as present for the purpose of determining the presence of a quorum. A broker non-vote occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting
power with respect to that item and has not received instructions from the beneficial owner.
Shares
are counted as present at the meeting or represented at the meeting by proxy if you are present at the meeting or if you have
properly submitted a proxy card or your duly authorized proxy otherwise attends the meeting in person.
Q:
What is the voting requirement to approve each of the proposals?
A:
The requirements to approve each of the proposals are set forth below.
Proposal
1: Reverse Stock Split Proposal
. The affirmative vote of the holders of (i) a majority of the voting power of our outstanding
shares of common stock and the Preferred Stock, voting together as a single class, and (ii) a majority of the outstanding shares
of Preferred Stock, voting separately as a single class, in each case, entitled to vote at a meeting of stockholders at which
a quorum is present, will be required for approval of this proposal.
Proposal
2: Adjournment Proposal
. The affirmative vote of the holders of a majority in voting power of the shares of our common
stock and Preferred Stock, voting together as a single class, that voted for or against or expressly abstained with respect to
this proposal at a meeting of stockholders at which a quorum is present, will be required for approval of this proposal.
Q:
If I vote against the proposals, do I have appraisal or dissenter’s rights?
A:
No, Delaware law does not provide for appraisal or dissenter’s rights in connection with the proposals to be voted on at
the Special Meeting.
Q:
Who counts the votes?
A:
Votes cast by proxy or in person at the Special Meeting will be tabulated and certificated by the inspector of elections who will
also determine whether or not a quorum is present. A representative of Computershare will serve as the inspector of elections.
Q:
What happens if I do not cast a vote?
A:
If you are a stockholder of record and you do not cast your vote, no votes will be cast on your behalf on any of the proposals
at the Special Meeting. If you submit a signed proxy card with no further instructions, the shares represented by that proxy card
will be voted as recommended by our Board in favor of the two proposals.
If
you are a beneficial owner, your broker may vote on Proposal 1 and Proposal 2, which are considered by the NYSE to be “routine”
matters.
Q:
How can I vote my shares in person at the Special Meeting?
A:
Shares held directly in your name as the stockholder of record may be voted in person at the Special Meeting. If you choose to
vote in person, please bring proof of identification to the Special Meeting. Even if you plan to attend the Special Meeting, we
recommend that you vote your shares in advance as described below so that your vote will be counted if you later decide not to
attend the Special Meeting. If you are a beneficial owner of shares, you must request and receive in advance of the Special Meeting
a legal proxy from your bank, broker or other nominee in order to vote in person at the Special Meeting.
Q:
How can I vote my shares in advance, without attending the Special Meeting?
A:
Whether you hold shares directly as the stockholder of record or you are a beneficial owner, you may direct how your shares are
voted without attending the Special Meeting. If you are a stockholder of record, you may vote as follows:
Vote
by Internet.
You can vote via the internet at www.investorvote.com/HMNY or you may scan the QR code with your smartphone
and, once you are at the website, follow the online instructions. You will need information from your proxy card to vote via the
internet. Internet voting is available 24 hours a day. Proxies submitted by the internet must be received by 11:59 p.m. Eastern
time on the day before the Special Meeting.
Vote
by Telephone.
You can vote by telephone by calling the toll-free telephone number 1-800-652-VOTE (8683). You will need
your proxy card to vote by telephone. Telephone voting is available 24 hours a day. Proxies submitted by telephone must be received
by 11:59 p.m. Eastern time on the day before the Special Meeting.
Vote
by Mail.
You can vote by marking, dating and signing your name exactly as it appears on the proxy card you received,
and returning it in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior
to the closing of the polls at the Special Meeting.
If
your shares are held in the name of a bank, broker or other nominee, you should have received this proxy statement and voting
instructions, which include the following, from your bank, broker or other nominee:
Vote
by Internet.
You can vote via the internet by following the instructions on the Voting Instruction Form provided to you.
Once there, follow the online instructions. Internet voting is available 24 hours a day.
Vote
by Telephone.
You can vote by telephone by calling the number provided on your Voting Instruction Form. Telephone voting
is available 24 hours a day.
Vote
by Mail.
You can vote by marking, dating and signing your name exactly as it appears on the Voting Instruction Form,
and returning it in the postage-paid envelope provided. Please promptly mail your Voting Instruction Form to ensure that it is
received prior to the closing of the polls at the Special Meeting.
If
you vote by any of the methods discussed above, you will be designating Theodore Farnsworth, our Chief Executive Officer, and/or
Stuart Benson, our Chief Financial Officer, as your proxies. They may act together or individually on your behalf, and will have
the authority to appoint a substitute to act as proxy. Submitting a proxy will not affect your right to attend the Special Meeting
and vote in person.
Q:
How may my bank, broker or other nominee vote my shares if I fail to provide timely directions?
A:
Banks, brokers and other nominees holding shares of common stock in street name for their customers are generally required to
vote such shares in the manner directed by their customers. In the absence of timely directions from you, your broker will have
discretion to vote your shares on “routine” matters. Therefore, your broker may vote your shares on Proposal 1 and
Proposal 2, which are considered by the NYSE to be “routine” matters, in the absence of timely directions from you.
Q:
How can I change or revoke my vote?
A:
Subject to any rules your bank, broker or other nominee may have, you may change your proxy instructions at any time before your
proxy is voted at the Special Meeting.
Stockholders
of record.
If you are a stockholder of record, you may change your vote by (1) filing with our Corporate Secretary, prior
to your shares being voted at the Special Meeting, a written notice of revocation or a duly executed proxy card, in either case
dated later than the prior proxy relating to the same shares, or (2) attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not, by itself, revoke a proxy). Any written notice of revocation or subsequent proxy card
must be received by our Corporate Secretary prior to the taking of the vote at the Special Meeting. Such written notice of revocation
or subsequent proxy card should be hand delivered to our Corporate Secretary at the Special Meeting or should be sent so as to
be delivered, prior to the date of the Special Meeting, to our principal executive office, Empire State Building, 350 Fifth Avenue,
Suite 7520, New York, New York 10118, Attention: Stuart Benson, Secretary.
Beneficial
owners.
If you are a beneficial owner of shares, you may change your vote (1) by submitting new voting instructions to
your bank, broker or other nominee, or (2) if you have obtained, from the bank, broker or other nominee who holds your shares,
a legal proxy giving you the right to vote the shares, by attending the Special Meeting and voting in person. Your bank, broker
or other nominee can provide you with instructions on how to change your vote.
In
addition, a stockholder of record or a beneficial owner who has voted via the internet or by telephone may also change his, her
or its vote by making a subsequent and timely internet or telephone vote prior to the date of the Special Meeting.
Q:
Where can I find the voting results of the Special Meeting?
A:
We will announce the preliminary voting results at the Special Meeting. We will also report the final results in a Current Report
on Form 8-K to be filed with the Securities and Exchange Commission (the “Commission” or “SEC”) within
four business days after the date of the Special Meeting.
Q:
Who are the proxies and what do they do?
A:
Our Board designated Theodore Farnsworth and Stuart Benson as proxies, as indicated on the proxy card. When you, as a stockholder
of record, provide voting instructions in the proxy card, the named proxies vote your shares in accordance with the instructions
as indicated on the proxy card. If you are a stockholder of record and submit a signed proxy card, but do not indicate your voting
instructions, the named proxies will vote as recommended by our Board in favor of the three proposals. If the Special Meeting
is adjourned, the named proxies can vote the shares on the new Special Meeting date as well, subject to such limitations as set
forth in our bylaws.
Q:
How are proxies solicited for the Special Meeting?
A: Our Board is soliciting proxies for use at the Special Meeting.
All expenses associated with this solicitation will be borne by us. We will reimburse brokers or other nominees for reasonable
expenses that they incur in sending our proxy materials to you if a bank, broker or other nominee holds shares of our common stock
on your behalf. In addition, our directors and employees may also solicit proxies in person, by telephone, or by other means of
communication. Our directors and employees will not be paid any additional compensation for soliciting proxies. We have retained
the services of [Alliance Advisors] to assist in the solicitation of proxies at a cost of approximately [$8,500], plus reimbursement
of certain expenses.
Q:
I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional
set of the proxy materials?
A:
We have adopted a procedure called “householding” which the Commission has approved. Under this procedure, we deliver
one set of proxy materials to multiple stockholders who share the same address unless we have received contrary instructions from
one or more of the stockholders. This procedure reduces our printing costs, mailing costs, and fees. Stockholders who participate
in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, we will deliver
promptly our proxy materials to any stockholder at a shared address to which we delivered a single copy of any of these materials.
To receive a separate copy, or, if a stockholder is receiving multiple copies, to request that we send only a single copy of our
proxy materials, such stockholder may contact our Corporate Secretary, in writing, at Empire State Building, 350 Fifth Avenue,
Suite 7520, New York, New York 10118, Attention: Stuart Benson, Corporate Secretary, or through telephone at (212)-979-8228.
Beneficial
owners may contact their bank, broker or other nominee to request information about householding.
Q:
What should I do if I receive more than one set of proxy materials?
A:
If you receive more than one set of proxy materials, it is because your shares are registered in more than one name or brokerage
account. Please follow the voting instructions on each proxy card or Voting Instruction Form you receive to ensure that all of
your shares are voted.
Q:
Who can attend the Special Meeting?
A:
Only stockholders of record as of the record date for the Special Meeting, holders of valid proxies from stockholders of record
as of the record date for the Special Meeting and our invited guests will be admitted to the Special Meeting. If you are a stockholder
of record as of the record date for the Special Meeting, to gain admittance to the Special Meeting, you must bring a form of personal
identification to the Special Meeting, which such proof of identification will be verified against our list of stockholders of
record as of the record date for the Special Meeting. If a bank, broker or other nominee holds your shares and you plan to attend
the Special Meeting, you will need to obtain a valid proxy from the record holder of your shares in order to gain admittance to
the Special Meeting.
In order to streamline the process for admission
at the Special Meeting and ensure that we have enough seats for those attending the Special Meeting, you must register no less
than five days in advance of the Special Meeting (i.e., on or before February [__], 2019) via email at investor@hmny.com or at
the following address:
Attention:
Stuart Benson
Helios and Matheson Analytics Inc.
Empire State Building, 350 Fifth Avenue
New York, New York 10118
No
cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the meeting.
PROPOSAL
1
TO
APPROVE AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION, AS AMENDED, TO EFFECT A REVERSE SPLIT OF THE COMPANY’S
COMMON STOCK
(the
Reverse Split Proposal)
The
Board has unanimously adopted a resolution authorizing, approving, declaring advisable and recommending to the Company’s
stockholders for their approval an amendment to the Company’s Certificate of Incorporation to effect a reverse split of
the outstanding and treasury shares of the Company’s common stock in a ratio of 1 share-for-2 shares up to a ratio of 1
share-for-500 shares (the “Reverse Split Amendment”), which ratio will be selected by the Board following stockholder
approval and prior to the time of filing of a Certificate of Amendment with the Delaware Secretary of State and set forth in a
public announcement. The Company previously sought stockholder approval of an amendment similar to the Reverse Split Amendment,
as described in the proxy materials filed with the Commission on September 26, 2018, but such approval was not obtained and the
proposed reverse stock split was not effected. The Company now resubmits the proposal for the reasons described below. The form
of Reverse Split Amendment is attached to this proxy statement as Annex A.
The
Board believes that a reverse stock split is necessary to regain compliance with Nasdaq’s minimum $1.00 bid price requirement,
as described below.
If Proposal 1 is approved at the Special Meeting,
the Company may issue the shares of common stock that would become available for issuance upon completion of any reverse split
(i) pursuant to future securities offering transactions, (ii) pursuant to future acquisition transactions involving payment of
consideration in equity securities of the Company, (iii) other general corporate purposes, and (iv) as of January 16, 2019, upon
conversion or exercise of securities of the Company that are convertible into or exercisable for common stock, as described below:
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10,440 shares of common stock available and
reserved for issuance pursuant to the Helios and Matheson Analytics Inc. 2014 Equity Incentive Plan;
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29,364 shares of common stock that may be issued
upon the exercise of warrants by Palladium Capital Advisors LLC;
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10,201 shares of common stock issuable upon
the exercise of warrants issued to Oath Inc. upon the closing of the acquisition of Moviefone assets in April 2018;
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2,000 shares of common stock reserved for issuance
to Helios and Matheson Information Technology Ltd. in exchange for entering into prior lockup agreements and a new 12-month
lockup agreement;
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18,545 shares of common stock reserved for issuance
to various officers and consultants;
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16,000 shares of common stock issuable to MoviePass
Inc. (“MoviePass”) upon receipt of stockholder approval and conversion of the convertible promissory note in the
principal amount of $12 million that we issued to MoviePass upon the closing of the Securities Purchase Agreement, dated August
15, 2017, between the Company and MoviePass;
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1,000,000,002 shares of common stock issuable
upon the conversion of the Series C Warrants, Series D Warrants and Series E Warrants issued by the Company on January 16,
2019 (the “January 2019 Warrants”);
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26,666,667 shares of common stock issuable upon
the conversion of certain warrants issued to the placement agent in connection with the January 2019 Warrants; and
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50,886 shares of common stock issuable upon
the exercise of other warrants issued in public offerings.
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If
the Board determines to implement the Reverse Split Amendment, the Company would communicate to the public, prior to the effective
time of the Reverse Split Amendment, additional details regarding the Reverse Split Amendment (including the final reverse split
ratio, as determined by the Board). The Board reserves the right to elect not to proceed with the Reverse Split Amendment if it
determines, in its sole discretion, that the Reverse Split Amendment is no longer in the best interests of the Company or its
stockholders.
In
determining which reverse split amendment to implement, if any, following receipt of stockholder approval of this Proposal 1,
the Board may consider, among other things, various factors, such as:
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the historical trading price and trading volume
of our common stock;
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the then-prevailing trading price and trading
volume of our common stock and the expected impact of the Reverse Split on the trading market for our common stock in the
short- and long-term;
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the Company’s ability to continue its
listing on the Nasdaq Capital Market;
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which reverse split amendment would result in
the least administrative cost to us; and
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prevailing general market and economic conditions.
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The
failure of stockholders to approve this Proposal 1 could prevent the Company from regaining compliance with Nasdaq’s $1.00
minimum bid price requirement (the “Minimum Bid Price Requirement”), unless the market price of our common stock increases
above the Minimum Bid Price Requirement without a reverse split for at least 10 consecutive trading days (or at least 20 consecutive
trading days if required by Nasdaq in its discretion). If Nasdaq delists our common stock, then our common stock would likely
become traded on the over the counter market maintained by OTC Markets Group Inc. (the “OTC”), which does not have
the substantial corporate governance or quantitative listing requirements for continued trading that Nasdaq has. In that event,
interest in our common stock may decline and certain institutions may not have the ability to trade in our common stock, all of
which could have a material adverse effect on the liquidity or trading volume of our common stock. If our common stock becomes
significantly less liquid due to delisting from Nasdaq, our shareholders may not have the ability to liquidate their investments
in our common stock as and when desired and we believe our access to capital would become significantly diminished as a result.
Also, due to certain state securities (blue sky) law requirements which apply to securities that are not listed on an exchange,
our ability to consummate future public offerings would be materially limited, and could require that the Company undertake private
placements on terms that are significantly less favorable than the terms of a public offering.
Reasons
for the Reverse Split
To
maintain our Nasdaq Listing.
On
June 21, 2018, we received a deficiency letter from the Nasdaq Listing Qualifications Department (the “Staff”) notifying
us that the bid price of our common stock had closed below the required $1.00 per share for 30 consecutive trading days, and,
accordingly, that we did not comply with the Minimum Bid Price Requirement. On December 19, 2018, we received a written notice
from the Staff that we had not regained compliance with Rule 5550(a)(2) and are not eligible for a second 180-day period because
the Staff determined that we would not be able to cure the deficiency. The notice indicated that, while we met all the quantitative
requirements, the Staff’s determination is based on the low price of our common stock, the significant issuances of common
stock over the past year from in our at-the-market offering pursuant to an Equity Distribution Agreement and the conversion of
future priced securities (primarily the Senior Secured Convertible Notes we issued on November 7, 2017 and January 23, 2018),
our stated need to issue additional shares to fund our operations, the failure of the July 2018 Reverse Stock Split, as defined
below, to result in compliance with the Minimum Bid Price Requirement, and our inability to obtain approval for a proposed reverse
stock split at a special meeting in November 2018. As a result, Nasdaq has determined that unless we timely request an appeal
of such determination before the Nasdaq Hearings Panel (the “Panel”), our common stock would be delisted from the
Nasdaq Capital Market and suspended at the opening of business on December 28, 2018, and a Form 25-NSE would be filed with the
Securities and Exchange Commission, which would remove our securities from listing and registration on the Nasdaq Capital Market.
We appealed the Staff’s determination and requested a hearing before the Panel to seek continued listing, which is currently
scheduled for January 31, 2019. At or prior to the hearing, we intend to present our plans to the Staff to regain compliance with
the Minimum Bid Price Requirement and request an extension of time so that our Board of Directors and management can effect a
reverse stock split at a time that is in the best interests of our stockholders. There can be no assurance that we will
be successful in our appeal at the hearing before the Panel. If we are not successful at the hearing and are not granted the 180-day
period to cure the deficiency, our stock will be delisted.
We
believe that a reverse stock split could increase the market price of our common stock sufficient to satisfy the Minimum Bid Price
Requirement in the near term, though we cannot provide any assurance that a reverse stock split will have that effect. In July
2018, we effected a 1-for-250 reverse split of our common stock (the “July 2018 Reverse Stock Split”), which had the
initial effect of increasing the market price of our common stock to approximately $22.50 per share. However, in less than five
trading days after the July 2018 Reverse Stock Split, the closing bid price of our common stock declined to less than $1.00, and
we were not able to regain compliance with the Minimum Bid Price Requirement. As of January 16, 2019, the closing price of our
common stock was $.0139. As a result, we continue to be out of compliance with the Minimum Bid Price Requirement.
The
Board has weighed the potential harm to the Company and its stockholders resulting from a Nasdaq delisting against the potential
harm to the Company and its stockholders from another significant reverse stock split, including the risks described below under
“Certain Risks Associated with a Reverse Split”. Although MoviePass recently has implemented significant cost cutting
measures and has modified its subscription plans, which have had an immediate and materially positive effect in reducing the Company’s
monthly cash deficit, the Company believes it will continue to need to raise capital to fund MoviePass until MoviePass becomes
cash flow positive or profitable (of which there is no assurance). If the Company is unable to maintain its Nasdaq listing, its
access to capital will become further limited and it may not have sufficient capital to enable MoviePass to continue its operations
or become cash flow positive or profitable. Therefore, the Board has concluded that the potential harm to the Company and its
stockholders resulting from a Nasdaq delisting outweighs the potential harm to the Company and its stockholders from another significant
reverse stock split.
To
potentially improve the liquidity of our common stock.
A
reverse split could allow a broader range of institutions to invest in our common stock (namely, funds that are prohibited from
buying stocks whose price is below a certain threshold), potentially increasing trading volume and liquidity of our common stock
and potentially decreasing the volatility of our common stock if institutions become long-term holders of our common stock. A
reverse split could help increase analyst and broker interest in our common stock as their policies can discourage them from following
or recommending companies with low stock prices. Because of the trading volatility often associated with low-priced stocks, many
brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in
low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those
policies and practices may make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally,
because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions
on higher-priced stocks, a low average price per share of common stock can result in individual stockholders paying transaction
costs representing a higher percentage of their total share value than would be the case if the share price were higher.
If the Reverse Split Proposal is approved and
the Board believes that effecting the reverse split is in the best interests of the Company and its stockholders, the Board may
effect the reverse split regardless of whether the Company prevails at the Panel hearing and regardless of whether the Company’s
stock is delisted from Nasdaq, for purposes of enhancing the liquidity of the Company’s common stock on the over-the-counter
market and to facilitate capital raising if the Company becomes traded on the over-the-counter market.
Certain
Risks Associated with a Reverse Split
There
can be no assurance that the reverse split will increase the market price of the common stock and have the desired effect of maintaining
compliance with the Minimum Bid Price Requirement. The Board believes that a reverse split has the potential to increase the market
price of the common stock so that the Company may be able to satisfy the Minimum Bid Price Requirement. However, the long- and
near-term effect of the reverse split upon the market price of the common stock cannot be predicted with any certainty. The July
2018 Reverse Split did not enable the Company to regain compliance with the Minimum Bid Price Requirement, and the history of
similar reverse stock splits for companies in like circumstances is varied, particularly since investors may view a reverse stock
split negatively.
Moreover,
the total market capitalization of the common stock after the reverse split may be lower than the total market capitalization
before the reverse split. On the trading day immediately before the July 2018 Reverse Stock Split, our market capitalization was
$37.9 million, with 421,299,736 shares of common stock outstanding. Immediately after giving effect to the July 2018 Reverse Stock
Split, we had 1,750,979 shares issued and outstanding. As of the record date, our market capitalization was $27.8 million, notwithstanding
that we had 2,001,541,260 shares outstanding as of the record date.
To
regain compliance with the Minimum Bid Price Requirement, we effected the July 2018 Reverse Stock Split of our common stock at
a ratio of 1 share-for-250 shares. However, since the effectiveness of the July 2018 Reverse Stock Split, the per share market
price of our common stock has fallen below $1.00 and as of January 16, 2019, the closing price of our common stock was $0.01394.
As a result, we are not in compliance with the Minimum Bid Price Requirement. There can be no assurance that another reverse stock
split will increase the market price of the common stock so that the Company may be able to maintain compliance with the Minimum
Bid Price Requirement.
Further, following any reverse stock split,
we will have additional shares available to issue upon conversion or exercise of securities of the Company that are convertible
into or exercisable for common stock. In addition, we will continue to require significant proceeds from sales of our debt or equity
securities to fund our operations for the near future, which will cause further dilution to stockholders. The issuance of a substantial
amount of shares of common stock or securities convertible into or exercisable for common stock in the future could cause downward
pressure on the price of our common stock and there is no assurance that the market price for the common stock will remain at a
level sufficient to satisfy the Minimum Bid Price Requirement.
Even
if another reverse stock split enables us to regain compliance with the Minimum Bid Price Requirement, the Company may be delisted
due to other Nasdaq listing criteria deficiencies, including the failure to maintain the minimum required market value of listed
shares equal to at least $35 million and the failure to have at least three independent directors on the audit committee of the
Board and a majority of independent directors on the Board. Further, the reverse split may not result in a per share price that
would attract brokers and investors who do not trade in lower priced stocks.
Moreover,
Nasdaq may delist our common stock if it concludes that delisting is in the public interest. For example, if we engage in further
dilutive issuances of our common stock in an amount deemed unacceptable by Nasdaq, or Nasdaq concludes that such dilutive issuances
in an unacceptable amount are likely to occur, Nasdaq may conclude that delisting our common stock is in the public interest.
Nasdaq has the authority to delist our common stock for such public interest concerns.
Impact
of a Reverse Split If Implemented
A
reverse split would affect all of our common stockholders uniformly and would not affect any stockholder’s percentage ownership
interests or proportionate voting power. The other principal effects of the reverse split will be that:
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the number of issued and outstanding shares
of common stock will be reduced proportionately based on the final reverse split ratio, as determined by the Board;
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based on the final reverse split ratio, the
per share exercise price of all outstanding options and warrants will be increased proportionately and the number of shares
of common stock issuable upon the exercise of all outstanding options and warrants will be reduced proportionately;
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the number of shares reserved for issuance and
any maximum number of shares with respect to which equity awards may be granted to any participant under the Company’s
2014 Equity Incentive Plan will be reduced proportionately based on the final reverse split ratio; and
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the number of shares of our authorized common
stock that are unissued and not reserved for future issuance will increase.
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Although
the number of outstanding shares of common stock would decrease following the Reverse Split Amendment, the Board does not intend
for a reverse split to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the
Exchange Act.
The
following table reflects the number of shares of common stock that would be outstanding as a result of the effectiveness of the
Reverse Split Amendment and the approximate percentage reduction in the number of outstanding shares based on 2,001,541,260 shares
of common stock issued and outstanding as of January 16, 2019. As of January 16, 2019 we had 2,998,458,740 shares of common stock
available for issuance. The following table also shows the shares that would be available for issuance if the Reverse Split Amendment
is effected.
Proposed
Reverse Split Ratio
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Approximate
Percentage Reduction
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Approximate
Shares of Common Stock to be Outstanding After the Reverse Split
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Shares
of Common Stock Available for Issuance After the Reverse Split
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1-for-2
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50%
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1,000,770,630
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3,999,229,370
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1-for-100
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99%
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20,015,413
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4,979,984,587
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1-for-200
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100%
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10,007,706
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4,989,992,294
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1-for-300
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100%
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6,671,804
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4,993,328,196
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1-for-400
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100%
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5,003,853
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4,994,996,147
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1-for-500
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100%
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4,003,083
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4,995,996,917
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Effect
of Reverse Split and Potential Anti-Takeover Effect
Management
does not anticipate that our financial condition, the percentage ownership of common stock by management, the number of our stockholders,
or any aspect of our business will materially change as a result of the Reverse Split Amendment. Because the Reverse Split Amendment
will apply to all issued and outstanding shares of common stock and outstanding rights to purchase common stock or to convert
other securities into common stock, the proposed Reverse Split Amendment will not alter the relative rights and preferences of
existing stockholders. However, the number of shares of common stock outstanding will be decreased, while the number of authorized
but unissued shares will be increased.
Management
does not currently plan to use the increase in our authorized but unissued shares that will result from the Reverse Split Amendment
to make it more difficult or to discourage a future merger, tender offer or proxy contest or the removal of incumbent management.
This Proposal 1 is not the result of management’s knowledge of an effort to accumulate our securities or to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise.
Summarized
in the following paragraphs are provisions included in our Certificate of Incorporation, as amended, and our bylaws that may have
the effect of discouraging, delaying or preventing a change in control or an unsolicited acquisition proposal that a stockholder
might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares
held by our stockholders.
Effects
of authorized but unissued common stock and blank check preferred stock.
One of the effects of the existence of authorized
but unissued common stock and undesignated preferred stock may be to enable our Board to make more difficult or to discourage
an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby to protect
the continuity of management. If the Board were to determine that a takeover proposal was not in our best interest, such shares
could be issued by the Board without stockholder approval in one or more transactions that might prevent or render more difficult
or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent
stockholder group, by putting a substantial voting block in institutional or other hands that might undertake to support the position
of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.
In
addition, our Certificate of Incorporation grants our Board broad power to establish the rights and preferences of authorized
and unissued shares of additional series of preferred stock. The creation and issuance of one or more additional series of preferred
stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance
also may adversely affect the rights and powers, including voting rights, of those holders and may have the effect of delaying,
deterring or preventing a change in control of the Company.
Cumulative
Voting.
Our Certificate of Incorporation does not provide for cumulative voting in the election of directors which would allow
holders of less than a majority of the voting stock to elect some directors.
Vacancies.
Section 223 of the Delaware General Corporation Law and our bylaws provide that all vacancies, including newly created directorships,
may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum.
Special
Meeting of Stockholders.
A special meeting of stockholders may be called by our Board or the Chairman of our Board and must
be called by our Secretary at the request in writing of holders of record of a majority of our outstanding capital stock entitled
to vote. The requirement that a majority of our outstanding capital stock is required to call a special meeting means that small
stockholders will not have the power to call a special meeting to, for example, elect new directors.
Fractional
Shares
If
the reverse stock split ratio determined to be implemented by the Board, if any, will result in fractional shares, the Company
will not issue fractional shares. Instead the Company will, at the discretion of the Board, determine (i) whether to effect an
issuance of shares to holders that would otherwise be entitled to a fractional share such that any fractional shares will be rounded
up to the nearest whole number or (ii) whether the Company will pay cash in an amount equal to the fair value of the fractions.
Procedure
for Effecting Reverse Stock Split
If
the Board decides to implement a reverse split, the reverse split will become effective on the date the Reverse Split Amendment
is filed with the Secretary of State of the State of Delaware. The time of such filing, if any, will be determined by the Board
in its sole discretion. Beginning on the effective time of the Reverse Split Amendment, each certificate representing pre-reverse
split shares of common stock will be deemed for all corporate purposes to evidence ownership of post-reverse split shares of common
stock.
Certain
U.S. Federal Income Tax Consequences of the Reverse Stock Split
The
following discussion is a general summary of certain U.S. federal income tax consequences of the reverse split that may be relevant
to U.S. Holders (as defined below) of our common stock, but does not purport to be a complete analysis of all potential tax effects.
The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax
laws are not discussed. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury
regulations promulgated thereunder (the “Treasury Regulations”), judicial decisions, and published rulings and administrative
pronouncements of the U.S. Internal Revenue Service (“IRS”), in each case in effect as of the date hereof. These authorities
may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively
in a manner that could adversely affect a holder of our common stock. We have not sought and will not seek an opinion of counsel
or any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take
a contrary position to that discussed below regarding the tax consequences of the reverse split.
This
discussion is limited to holders that hold our common stock as “capital assets” within the meaning of Section 1221
of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income tax
consequences relevant to such holders’ particular circumstances, including the impact of the tax on net investment income
imposed by Section 1411 of the Code. In addition, it does not address consequences relevant to holders subject to particular rules,
including, without limitation:
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persons that are
not U.S. Holders (as defined below);
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persons subject
to the alternative minimum tax;
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U.S. Holders (as
defined below) whose functional currency is not the U.S. dollar;
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persons holding
our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other
integrated investment;
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banks, insurance
companies or other financial institutions;
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real estate investment
trusts or regulated investment companies;
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brokers, dealers
or traders in securities;
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S corporations,
partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors
therein);
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tax-exempt organizations
or governmental organizations;
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persons deemed to
sell our common stock under the constructive sale provisions of the Code;
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persons who hold
or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; and
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tax-qualified
retirement plans.
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If
an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner
in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made
at the partner level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult
their tax advisors regarding the U.S. federal income tax consequences to them.
THIS
DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. HOLDERS OF OUR COMMON STOCK SHOULD CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY
TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER
THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For
purposes of the discussion below, a “U.S. Holder” is a beneficial owner of shares of our common stock that for U.S.
federal income tax purposes is or is treated as: (1) an individual who is a citizen or resident of the United States; (2) a corporation
created or organized under the laws of the United States, any state thereof, or the District of Columbia; (3) an estate the income
of which is subject to U.S. federal income tax regardless of its source; or (4) a trust that (a) is subject to the primary supervision
of a U.S. court and the control of one of more “United States persons” (within the meaning of Section 7701(a)(30)
of the Code), or (b) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
A
reverse split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder
generally should not recognize gain or loss upon the reverse split, except with respect to cash received in lieu of a fractional
share of our common stock. A U.S. Holder’s aggregate tax basis in the shares of our common stock received pursuant to the
reverse split should equal the aggregate tax basis of the shares of our common stock surrendered (excluding any portion of such
basis that is allocated to any fractional share of our common stock), and such U.S. Holder’s holding period in the shares
of our common stock received should include the holding period in the shares of our common stock surrendered. Treasury Regulations
provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered to the shares
of our common stock received pursuant to the reverse split. Holders of shares of our common stock acquired on different dates
and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such
shares.
Information
Reporting and Backup Withholding.
A U.S. Holder (other than corporations and certain other exempt recipients) may be subject
to information reporting and backup withholding when such holder receives cash in lieu of a fractional share of our common stock
pursuant to the reverse split. A U.S. Holder will be subject to backup withholding if such holder is not otherwise exempt and
such holder does not provide its taxpayer identification number in the manner required or otherwise fails to comply with applicable
backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules
may be refunded or allowed as a credit against the U.S. Holder’s federal income tax liability, if any, provided the required
information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding their qualification for an
exemption from backup withholding and the procedures for obtaining such an exemption.
Vote
required to pass Proposal 1
Proposal
1 will be approved if a quorum is present at the Special Meeting and the holders of (i) a majority of the voting power of the
outstanding shares of common stock and any Preferred Stock, voting together as a single class, voted “for” such approval
and (ii) a majority of the voting power of the outstanding shares of Preferred Stock, voting separately as a single class, vote
“for” such approval. Abstentions will have the effect of a vote against Proposal 1. As this Proposal 1 is a “routine”
matter, we do not expect any broker non-votes. If you are a beneficial owner, your broker may vote on Proposal 1. If Proposal
1 is approved and the Board decides to implement the Reverse Split Amendment, the Reverse Split Amendment will become effective
on the date that the Reverse Split Amendment is filed with the Secretary of State of the State of Delaware, which time, if at
all, will be determined by the Board in its sole discretion. The Board reserves the right at any time before the effective time
of the Reverse Split Amendment, notwithstanding approval of Proposal 1 by the Company’s stockholders, to abandon the proposed
amendment without further action by the stockholders. If Proposal 1 is not approved, the Reverse Split Amendment will not be filed
with the Secretary of State of the State of Delaware.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE REVERSE SPLIT AMENDMENT.