Ocean Biomedical, Inc.: Form 10-Q for the period ended Sep 30, 2022

General Information

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q.

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited consolidated financial statements included above under “Part I – Financial Information” – “Item 1. Financial Statements”.

Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

The market data and certain other statistical information used throughout this Report are based on independent industry publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosures contained in this Report, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this Report, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under, and incorporated by reference in, the section entitled “Risk Factors” of this Report. These and other factors could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors as they relate to Aesther Healthcare Acquisition Corp., is also based on our good faith estimates.

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” and “Aesther”, refer specifically to Aesther Healthcare Acquisition Corp. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:

• “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
• “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and
• “Securities Act” refers to the Securities Act of 1933, as amended.

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Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

• Company Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A.
• Liquidity and Capital Resources. An analysis of changes in our balance sheet and cash flows and discussion of our financial condition.
• Results of Operations. An analysis of our financial results for the nine months ended September 30, 2022.
• Critical Accounting Policies. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

Company Overview

We are a blank check company incorporated in June 2021 as a Delaware corporation whose business purpose is to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to as our initial business combination. As described in greater detail in Note 1 – Organization and Business Operations to the notes to the unaudited financial statements included herein under Part I, Item 1 (the “Footnotes”), on August 31, 2022, we entered into a Merger Agreement which contemplates us acquiring Ocean Biomedical, Inc.

Notwithstanding our current pending Merger Agreement, in the event that such Merger Agreement is not consummated for any reason in the future, we may pursue an initial business combination opportunity in any business, industry, sector or geographical location.

Liquidity and Capital Resources

At September 30, 2022, we had cash of $472,105 and a working capital deficit of $1,491,561.

The Company’s liquidity needs up to September 30, 2022 were satisfied through the proceeds of $25,000 from the sale of the Founder Shares (see Note 5 – Related Party Transactions to the Footnotes), a loan of $190,101 under an unsecured and noninterest bearing promissory note obtained from our Sponsor, which was repaid following our Initial Public Offering (see Note 5 – Related Party Transactions to the Footnotes), and from the net proceeds from the consummation of the Initial Public Offering and the Private Placement held outside of the trust account (“Trust Account”) located in the United States at JPMorgan Chase Bank, N.A. with Continental Stock Transfer & Trust Company acting as trustee.

As of September 30, 2022, the Company had cash equivalents in the Trust Account of $108,528,979. The Company intends to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less deferred underwriting commissions) to complete its initial Business Combination (i.e., the Merger Agreement). On September 22, 2022 $122,450 was distributed for payment of Franchise Tax to the State of Delaware, per the trust agreement.

Until the consummation of a Business Combination (which we currently anticipate will be the Merger Agreement), we have used, and will be using, the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination. We will need to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties. The Company’s Sponsor, officers and directors may, but are not obligated to, loan the Company funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs (“Working Capital Loans”). To date, there were no amounts outstanding under any Working Capital Loan. Separately, the Company received $1,050,000 from the Sponsor Extension Loan (see Note 5 – Related Party Transactions), which the Company deposited into the Trust Account to extend the Business Combination Period from September 16, 2022 to December 16, 2022. The loan does not accrue interest and will either be repaid upon the closing of the initial Business Combination, or forgiven if the initial Business Combination does not close.

Accordingly, we may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of another potential transaction, in the event the transactions contemplated by the Merger Agreement are not consummated, and reducing overhead expenses.

Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of the Merger Agreement (or if the Merger Agreement is terminated, another Business Combination), or one year from this filing. Over this time period, the Company will be using the funds held outside of the Trust Account for paying existing accounts payable and accrued liabilities, for consummating the Business Combination. The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating the business. However, if the Company’s estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate the business prior to the initial Business Combination. Moreover, the Company may need to obtain additional financing either to complete the initial Business Combination (i.e., the Merger), or further extend the date that the initial Business Combination is required to be completed by, for an additional three months from December 16, 2022 to March 16, 2023, which will require that we borrow an additional $1,050,000 from the Sponsor or its affiliates, which amounts will not accrue interest, will be payable upon completion of the initial Business Combination, or forgiven if the initial Business Combination is not completed, or to redeem a significant number of our public shares upon completion of the initial Business Combination, in which case the Company may issue additional securities or incur debt in connection with such initial Business Combination.

We cannot provide any assurance that such new financing will be available to us on commercially acceptable terms, if at all.

Pursuant to the Company’s certificate of incorporation, as amended, if the Company anticipates that it will not be able to consummate a Business Combination (e.g., the currently pending Merger) within 12 months from the closing date of the Initial Public Offering, the Company can, by resolution of the Company’s board if requested by the Sponsor, extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a total of up to 18 months to complete a Business Combination), subject to the Sponsor depositing additional funds into the Trust Account. On September 15, 2022, the Company deposited $1,050,000 into the Trust Account and extended the period of time to consummate an initial Business Combination by three months from September 16, 2022 to December 16, 2022. The $1,050,000 deposited into the Trust Account for the first of two three-month extensions was funded by proceeds from the loan provided by the Sponsor to the Company on September 15, 2022 (See Note 5 – Related Party Transactions). In order to further extend the time available for the Company to consummate its initial Business Combination, the Sponsor or its affiliates or designees, upon five days advance notice prior to the applicable deadline, must deposit into the Trust Account for the second three-month extension, $1,050,000 ($0.10 per share) on or prior to the date of the applicable deadline. Any such payments would be made in the form of a loan. Any such loans will be non-interest bearing and payable upon the consummation of the Company’s initial Business Combination. If the Company completes an initial Business Combination, it would repay such loaned amounts out of the proceeds of the Trust Account released to it. If the Company does not complete a Business Combination, we will not repay such loans. Furthermore, the letter agreement with the Company’s initial stockholders contains a provision pursuant to which the Sponsor has agreed to waive its right to be repaid for such loans out of the funds held in the Trust Account in the event that the Company does not complete a Business Combination. In the event that the Company receives notice from the Sponsor five days prior to the applicable deadline of its wish for the Company to effect a further extension, the Company intends to issue a press release announcing such intention at least three days prior to the applicable deadline. In addition, the Company intends to issue a press release the day after the applicable deadline announcing whether or not the funds had been timely deposited. The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete its initial Business Combination. The public stockholders will not be afforded an opportunity to vote on the extension of time to consummate an initial Business Combination from 15 months to 18 months described above or redeem their shares in connection with such extension.

Results of Operations

Our entire activity from inception to our Initial Public Offering was in preparation for our Initial Public Offering, and since our Initial Public Offering, our activity has been limited to the search for a prospective initial Business Combination. We will not generate any operating revenues until the closing and completion of our initial Business Combination (which we currently anticipate will be the Merger), at the earliest.

For the nine months ended September 30, 2022, we had a net operating loss of $1,867,461 which was from formation, offering and operating costs and was offset by $498,981 in interest income. Total net loss was $1,368,480.

Commitments and Contractual Obligations

Registration Rights

The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any (and any shares of common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares), are entitled to certain registration rights pursuant to a registration rights agreement. These holders will be entitled to certain demand and “piggy-back” registration rights. We will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement

The underwriter was entitled to an underwriting discount of $0.10 per Unit, or $1,050,000 in the aggregate (reflecting the partial exercise by the underwriter of its over-allotment option), paid at the closing of the Initial Public Offering. $3,150,000 in the aggregate (reflecting the partial exercise by the underwriter of its over-allotment option), will be payable to the underwriter for deferred underwriting commissions upon the completion of the Business Combination. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes an initial Business Combination, subject to the terms of the underwriting agreement.

Off-Balance Sheet Arrangements

We had no outstanding off-balance sheet arrangements as of September 30, 2022.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

JOBS Act

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Additionally, subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we plan to rely on rules which allow us to, among other things, delay the required (i) provision of an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provision of all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board (PCAOB) regarding mandatory audit rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclosure of certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.

Recently Issued Accounting Standards

For more information on recently issued accounting standards, see “Note 2— Significant Accounting Policies”, to the Notes to Consolidated Financial Statements included herein under “Part I – Item 1. Financial Statements”.

On July 6, 2022, the Company entered into a common stock purchase agreement (the “Initial White Lion Purchase Agreement”) and related registration rights agreement (the “White Lion RRA”) with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”). Pursuant to the Initial White Lion Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time, up to $50,000,000 in aggregate gross purchase price of newly issued shares of the Company’s Class A common stock, par value $0.0001 per share (the “Pre-Merger Common Stock”), or, following the Closing of the Merger, newly issued shares of the Company’s common stock, par value $0.0001 per share (together with the Pre-Merger Common Stock, the “Common Stock”), subject to certain limitations and conditions set forth in the Initial White Lion Purchase Agreement.

In consideration for the commitments of White Lion under the Initial White Lion Purchase Agreement, the Company has agreed that it will issue to White Lion shares of Common Stock having a value of $500,000 based on the volume-weighted average price of the common stock prior to the time of issuance, which is expected to occur following the Closing, and to include such shares in the registration statement it will file pursuant to the White Lion RRA.

We claim an exemption from registration for the transactions described above pursuant to Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act, since the foregoing did not involve a public offering, the recipient took the securities for investment and not resale, we took appropriate measures to restrict transfer, and the recipient was an “accredited investor”. The securities are subject to transfer restrictions, and the certificates evidencing the securities will contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

On September 7, 2022, the Company entered into a common stock purchase agreement (the “White Lion Purchase Agreement”) and related registration rights agreement (the “White Lion RRA”) with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”). Pursuant to the White Lion Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time, up to $75,000,000 in aggregate gross purchase price of newly issued shares of the Company’s Class A common stock, par value $0.0001 per share (the “Pre-Merger Common Stock”), or, following the Closing of the Merger, newly issued shares of the Company’s common stock, par value $0.0001 per share (together with the Pre-Merger Common Stock, the “Common Stock”), subject to certain limitations and conditions set forth in the White Lion Purchase Agreement.

In consideration for the commitments of White Lion under the White Lion Purchase Agreement, the Company has agreed that it will issue to White Lion shares of Common Stock having a value of $750,000 based on the volume-weighted average price of the common stock prior to the time of issuance, which is expected to occur following the closing of the Merger, and to include such shares in the registration statement it will file pursuant to the White Lion RRA.

We claim an exemption from registration for the transactions described above pursuant to Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act, since the foregoing did not involve a public offering, the recipient took the securities for investment and not resale, we took appropriate measures to restrict transfer, and the recipient was an “accredited investor”. The securities are subject to transfer restrictions, and the certificates evidencing the securities will contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom. The securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal accounting/financial officer), Mr. Ajjarapu and Mr. Doss, respectively, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of September 30, 2022, the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level.

Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting that occurred during the three months ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The significant factors known to us that could materially adversely affect our business, financial condition, or operating results are described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on January 31, 2022 and below. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors previously disclosed in our 2021 Annual Report on Form 10-K, which are incorporated by reference herein, except as disclosed below.

Risks Relating to our Proposed Business Combination

There will be risks associated with the proposed Merger with Ocean Biomedical, Inc.

There will be risks associated with the proposed Merger with Ocean Biomedical, Inc., which we will discuss more fully in the Definitive Proxy Statement on Schedule 14A that we expect to file in connection with effectuating our Merger with Ocean Biomedical, Inc. and mail to stockholders. Any of these risks could result in a material adverse effect on our results of operations, financial condition, business or prospects.

Risks Relating to the OTC Equity Prepaid Forward Transaction and Forward Share Purchase Agreement

Following the initial Business Combination, we may be required to purchase up to $40,000,000 of shares of common stock and 4,000,000 shares of common stock pursuant to forward share purchase agreements, thereby reducing cash available to us for other purposes and may have to pay certain break fees if the Merger is terminated.

We have entered into an OTC Equity Prepaid Forward Transaction (Backstock Agreement) and Meteora Backstock Agreement (the “Backstock Agreements”), with each of Vellar and Meteora. Pursuant to the Backstop Agreement, Vellar has agreed to support the Merger by purchasing shares of AHAC Class A common stock in the open market for up to $40,000,000, including from other AHAC stockholders that elected to redeem and subsequently revoked their prior elections to redeem their shares, following the expiration of the Company’s redemption offer. AHAC has agreed to purchase those shares from Vellar on a forward basis. The purchase price payable by the Company will include a prepayment in the amount of the redemption price per share. The Backstop Agreement matures on the earlier to occur of (a) 3 years after the closing of the Merger Agreement or (b) the date specified by Vellar in a written notice delivered at Vellar’s discretion if the VWAP of AHAC’s shares during 20 out of 30 consecutive trading days is less than $3 per share. At maturity, any remaining shares subject to the forward transaction will be finally purchased by AHAC at maturity for an additional $2.50 per share. During the term of the Backstop Agreement, Vellar may elect to sell some or all of the shares subject to the forward transaction after which those shares will no longer be subject to the Backstop Agreement, and in such event Vellar will repay the Company with a portion of the sale proceeds. Pursuant to the Meteora Backstop Agreement, Meteora has agreed to purchase up to 4,000,000 shares of AHAC Class A common stock in the open market at prices no higher than the redemption price, including from other AHAC stockholders that elected to redeem and subsequently revoked their prior elections to redeem their shares, following the expiration of AHAC’s redemption offer. AHAC has agreed to purchase those shares from Meteora on a forward basis. The purchase price payable by AHAC will be escrowed in the amount of the redemption price per share. The Meteora Backstop Agreement matures 3 years after the closing of the Merger. The maturity date may be accelerated by Meteora if (i) the shares of Class A common stock are delisted from a qualified exchange, (ii) the Meteora Backstop Agreement is terminated for any reason after the closing of the Transaction, or (iii) the volume weighted average price of the shares during 20 out of 30 consecutive trading days is less than $3 per share. At maturity, any remaining shares subject to the forward transaction will be finally purchased by AHAC at maturity for an additional $2.50 per share. During the term of the forward transaction, Meteora may elect to sell some or all of the shares subject to the forward transaction to third parties, after which those shares will no longer be subject to the forward transaction, and in such event Meteora will repay AHAC with a portion of the sale proceeds.

Amounts required to be paid to Vellar and Meteora pursuant to the Backstop Agreements will reduce the cash available to us for other purposes following the closing of the Merger.

Separately, if the Backstop Agreement is terminated after the Merger fails to close, except due to regulatory items or a material breach by Vellar, AHAC will be obligated to pay a break-up fee equal to $1 million and certain fees and expenses. If the forward transaction is terminated, except due to a material breach by Meteora, AHAC will be obligated to pay the counterparty a break-up fee equal to $1 million and certain fees and expenses. The payment of such amounts may have a material adverse effect on our operations and/or our ability to locate an alternative Business Combination.

Risks Relating to the White Lion Purchase Agreement

Our existing stockholders may experience significant dilution from the sale of our common stock pursuant to the White Lion Purchase Agreement.

The sale of our common stock to White Lion in accordance with the White Lion Purchase Agreement may have a dilutive impact on our stockholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our right to require White Lion to purchase shares of our common stock, the more shares of our common stock we will have to issue to White Lion in order to exercise our right under the White Lion Purchase Agreement. If our stock price decreases, then our existing stockholders would experience greater dilution for any given dollar amount raised through the offering.

The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

The issuance of shares pursuant to the White Lion Purchase Agreement may have a significant dilutive effect.

Depending on the number of shares we issue pursuant to the White Lion Purchase Agreement, it could have a significant dilutive effect upon our existing stockholders. Although the number of shares that we may issue pursuant to the White Lion Purchase Agreement will vary based on our stock price (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our stockholders, based on different potential future stock prices, if the full amount of the White Lion Purchase Agreement is realized. Dilution is based upon common stock sold White Lion and the stock price discounted to White Lion’s purchase price of 93% of the volume weighted average trading price (“VWAP”) during the pricing period, subject to a threshold of 90% of the opening price of the Company’s common stock on the date a notice is provided to White Lion. The number of shares sold pursuant to any such notice may not exceed (i) $2,000,000, divided by the closing price of common stock on Nasdaq preceding the notice date and (ii) a number of shares of common stock equal to the average daily trading volume multiplied by 67%.

White Lion will pay less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.

Our common stock to be issued under the White Lion Purchase Agreement will be purchased at a seven percent (7%) discount, or ninety-three percent (95%) of the lowest daily VWAP of the common stock during the two-trading day period prior to the Closing Date. However, if during such two-trading day period the trading price of the common stock falls below a price (the “Threshold Price”) equal to 90.0% of the opening trading price of the common stock on Nasdaq on the notice date, then the number of shares to be purchased by White Lion pursuant to such notice will be reduced proportionately based on the portion of the two-trading day period that has elapsed, and the purchase price will equal 95.0% of the Threshold Price. White Lion has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If White Lion sells the shares, the price of our common stock could decrease. If our stock price decreases, White Lion may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.

Moreover, there is an inverse relationship between the market price of our common stock and the number of shares of our common stock that may be sold pursuant to the White Lion Purchase Agreement. That is, the lower the market price, the more shares of our common stock that may be sold under the White Lion Purchase Agreement. Accordingly, if the market price of our common stock decreases (whether such decrease is due to sales by White Lion in the market or otherwise) and, in turn, the purchase price of our common stock sold to White Lion under the White Lion Purchase Agreement decreases, this could allow White Lion to receive greater numbers of shares of our common stock pursuant to sales under the White Lion Purchase Agreement. Although the number of shares of our common stock that our existing stockholders own will not decrease, the common stock owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such sales to White Lion. Depending on market liquidity at the time, the sale of a substantial number of shares of our common stock to White Lion at a discount to the then-prevailing market price for our common stock under the White Lion Purchase Agreement, and the resale of such shares by White Lion into the public market, or the perception that such sales may occur, could cause the trading price of our common stock to decline, result in substantial dilution to existing stockholders and make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

We may not have access to the full amount under the White Lion Purchase Agreement.

Our ability to draw down funds and sell shares under the White Lion Purchase Agreement with White Lion requires that a registration statement be filed and declared effective and continue to be effective to register the shares of common stock issuable pursuant to such White Lion Purchase Agreement and our ability to sell shares issuable under the investment with White Lion is subject to our ability to prepare and file one or more registration statements registering the resale of these shares. These registration statements may be subject to review and comment by the staff of the SEC and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these registration statements cannot be assured. The effectiveness of these registration statements is a condition precedent to our ability to sell the shares of our common stock to White Lion under the White Lion Purchase Agreement. Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the White Lion Purchase Agreement to be declared effective by the SEC in a timely manner, we may not be able to sell the shares unless certain other conditions are met. For example, we might have to increase the number of our authorized shares in order to issue the shares to White Lion. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to sell any common stock under the White Lion Purchase Agreement is subject to a number of conditions, there is no guarantee that we will be able to sell any common stock equal to a portion or all of the proceeds of $75,000,000 under the White Lion Purchase Agreement.

Your ownership interest may be diluted and the value of our common stock may decline by our exercising our right to sell common stock to White Lion through a private sale pursuant to the White Lion Purchase Agreement.

Pursuant to the White Lion Purchase Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to White Lion at a discounted price. Because the price of our common stock in a private sale is lower than the prevailing market price of our common stock, to the extent that this right is exercised, your ownership interest may be diluted.

Certain restrictions on the extent of sales and the delivery of advance notices may have little, if any, effect on the adverse impact of our issuance of shares in connection with the White Lion Purchase Agreement, and as such, White Lion may sell a large number of shares, resulting in substantial dilution to the value of the shares of common stock held by existing stockholders.

White Lion has agreed, subject to certain exceptions listed in the White Lion Purchase Agreement, to refrain from holding an amount of shares which would result in White Lion or its affiliates owning more than 4.99% of the then-outstanding shares of our common stock at any one time. These restrictions, however, do not prevent White Lion from selling shares of our common stock received in connection with a private sale, and then receiving additional shares of our common stock in connection with a subsequent private sale. In this way, White Lion could sell more than 4.99% of the outstanding common stock in a relatively short time frame while never holding more than 4.99% at one time. This limitation may also be increased to up to 9.99% with not less than 61 days prior written notice from White Lion.