Item 8.01 Other Events
In the prospectus supplement to the Registration Statement to be filed with the Commission in connection with the Registered Offering, the Company intends to include the following disclosure under the heading “Risk Factors” regarding certain additional risk factors that could affect its business, financial condition, operating results and cash flows, which should be read in connection with the existing disclosure on risk factors made in the Company’s most recently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q and other filings made with the Commission:
As a result of Edward D. Bagley’s significant share ownership position in the Company, he is able to influence corporate matters.
Based solely on filings by Edward D. Bagley under Regulation 13D and Section 16 of the Exchange Act, Mr. Bagley beneficially owns approximately 44.7% of our outstanding shares of common stock. Pursuant to the Note Purchase Agreement, dated December 8, 2019, by and between Mr. Bagley and the Company, Mr. Bagley also has a security interest in substantially all of the assets of the Company as well as certain observer rights with respect to meetings of our board of directors. In addition, Mr. Bagley’s daughter, Lisa Higley, is a member of our board of directors. Based on Mr. Bagley’s significant share ownership, as well as his security interests in substantially all of our assets, Mr. Bagley will be able to significantly influence who serves on our board of directors and the outcome of matters required to be submitted to our stockholders for approval, including, without limitation, decisions relating to the outcome of any proposed merger or consolidation of our company and Mr. Bagley’s significant interest in us may discourage third parties from seeking to acquire control of us, which may adversely affect the market price of our common stock. In addition, based solely on filings by other members of Mr. Bagley’s family and their family trusts under Regulation 13D and Section 16 of the Exchange Act, such family members and their family trusts collectively beneficially own an additional 22.5% of our outstanding shares of common stock, however, Mr. Bagley asserts he does not have control over and disclaims beneficial ownership of such shares. Mr. Bagley’s interests and the interests of his family and their family trusts may not be consistent with those of our other stockholders, including investors who purchase shares in this offering.
Management will have broad discretion as to the use of the proceeds from this offering, and we may not use the proceeds in ways that increase the value of your investment.
Our management will have broad discretion to use the net proceeds we receive from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. We have not designated any portion of the net proceeds from this offering to be used for any particular purpose other than for general corporate purposes and working capital. Our management could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our common stock.
You will experience immediate dilution in the net tangible book value per share of the common stock you purchase.
As of June 30, 2020, the net tangible book value of our common stock was $23.6 million, or $1.42 per share. Because the price per share being offered is substantially higher than the net tangible book value per share of our common stock, there will be an immediate increase in pro forma as adjusted net tangible book value per share to our existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share to investors participating in this offering.
We may require additional financing after completion of this offering which may not be available to us on acceptable terms or at all.
As of June 30, 2020, we had approximately $2.1 million of cash and cash equivalents. After our receipt of the net proceeds from this offering, we anticipate having sufficient cash on hand, cash from future operations and cash from the sale of marketable securities to fund our operations for the next twelve months, however there can be no assurance that efforts to enforce our patents will be successful or that our marketing and sales efforts will progress as anticipated or that our cash generated from operations will be as expected.
If we are unsuccessful in completing this offering, management is uncertain that our current and anticipated cash on hand, cash from future operations and cash from the sale of marketable securities would be sufficient to support currently forecasted operations through at least the next twelve months, and we may need additional debt or equity financing in the next twelve months to execute our business plan and to be able to continue as a going concern. If in the future, we fail to satisfy the continued listing standards of NASDAQ, we may not be able to sell shares of our common stock. Accordingly, if additional debt or equity financings are needed, market conditions may limit our ability to raise capital on favorable terms, or at all, and the terms of any public or private offerings of debt or equity securities likely would be significantly dilutive to existing shareholders.
We cannot guarantee that we would be able to obtain any such additional debt or equity financing on commercially reasonable terms or at all. If we fail to obtain the necessary financing in this offering or in future debt or equity financing when needed, we may not be able to execute our business plan, which would have a material adverse effect on our growth strategy and our results of operations and financial condition as well as our overall ability to continue as a going concern. Management also believes that, if necessary, it can implement plans in the short term to conserve existing cash should additional financing activities be delayed.
Investors in this offering may suffer additional dilution as a result of future financing transactions.
If we issue additional common stock, or securities convertible into or exchangeable or exercisable for common stock, our stockholders, including investors who purchase shares of common stock in this offering, may experience additional dilution. We may not be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders.
The issuance of additional common stock may negatively impact the trading price of our common stock.
We have issued equity securities in the past, will issue equity securities in this offering and may continue to issue equity securities to finance our activities in the future. In addition, outstanding options and warrants to purchase our common stock may be exercised, outstanding secured convertible notes may be converted to shares of our common stock, and additional options and warrants may be issued, resulting in the issuance of additional shares of common stock. The issuance by us of additional shares of common stock, including the shares of common stock issued by us in this offering, would result in dilution to our stockholders, and even the perception that such an issuance may occur could have a negative impact on the trading price of our common stock.
The market price of our common stock is volatile, and the value of your investment could decline significantly.
The trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results, our financial situation, announcements of technological innovations or new products by us or our competitors, our ability or inability to continue the listing of our common stock on a national securities exchange, our ability or inability to raise the additional capital we may need and the terms on which we raise it, and general market and economic conditions, some of which are beyond our control. These broad market fluctuations may lower the market price of our common stock and affect the volume of trading in our stock. If the market price of our common stock after this offering does not exceed the offering price, you may not realize any return on your investment and may lose some or all of your investment.
Because we do not intend to pay dividends on our common stock, stockholders will benefit from an investment in our stock only if it appreciates in value.
We currently intend to retain all future earnings, if any, for use in the operations and expansion of the business. As a result, we do not anticipate paying cash dividends in the foreseeable future. Any future determination as to the declaration and payment of cash dividends will be at the discretion of our board of directors and will depend on factors the board of directors deems relevant, including among others, our results of operations, financial condition and cash requirements, business prospects, and the terms of our secured convertible notes and other financing arrangements. Accordingly, realization of a gain on stockholders’ investments will depend on the appreciation of the price of our stock. There is no guarantee that our stock will appreciate in value.