DEFA14A: Alzamend Neuro Seeks Stockholder Approval for $6 Million Securities Issuance to Ault Lending

Alzamend Neuro is adjourning its annual meeting to seek stockholder approval for the issuance of common stock related to a $6 million securities purchase agreement with Ault Lending, aimed at meeting Nasdaq listing requirements and funding clinical trials.

Summary

• Alzamend Neuro is holding an adjourned Annual Meeting on May 13, 2024, to seek stockholder approval for Proposal 3.
• Proposal 3 concerns the issuance of additional shares of common stock upon the conversion of Series B preferred stock and the exercise of warrants to purchase common stock, totaling up to $6 million, to Ault Lending, LLC.
• The company previously held its Annual Meeting on April 30, 2024, where Proposals 1, 2, and 4 were approved, but Proposal 3 was adjourned.
• The issuance is related to a Securities Purchase Agreement (SPA) dated January 31, 2024, with Ault Lending.
• Stockholder approval is required to comply with Nasdaq Listing Rule 5635, as the potential issuance exceeds 19.99% of the outstanding common stock and could result in a change of control.
• Ault Lending has the right to purchase up to $2 million of SPA Securities on or before March 31, 2024, and the right to purchase up to $4 million of SPA Securities after March 31, 2024 but on or before March 31, 2025.
• On the Execution Date, the Company sold 1,220 shares of Series B Convertible Preferred Stock and Series B Warrants to purchase 1,220,000 shares of Common Stock to Ault Lending, for a total purchase price of $1.22 million.
• The company needs to raise significant cash financing to conduct its planned clinical trials and operations, and needs to increase its stockholders equity for purposes of Nasdaq continued listing requirements.
• If Ault Lending purchases the full amount of the SPA Securities, Ault Lending would beneficially own in excess of 64% of the outstanding shares of our Common Stock as of the Execution Date (ignoring any limitations on conversion and/or exercise).

Sentiment

Score: 5

Explanation: The document is neutral in tone, as it primarily presents facts and seeks stockholder approval for a proposed transaction. While the transaction could provide needed funding, it also carries risks of dilution and potential market price depression.

Positives

• The transaction with Ault Lending could provide necessary funding for clinical trials and operations.
• Approval of the proposal would help the company meet Nasdaq continued listing requirements.
• The company has already secured $1.22 million from Ault Lending through the initial sale of Series B Convertible Preferred Stock and Series B Warrants.

Negatives

• The issuance of shares to Ault Lending will dilute existing stockholders' ownership and voting power.
• The potential sale of a large number of shares by Ault Lending could depress the market price of the company's common stock.
• If Ault Lending purchases the full amount of the SPA Securities, Ault Lending would beneficially own in excess of 64% of the outstanding shares of our Common Stock as of the Execution Date (ignoring any limitations on conversion and/or exercise).

Risks

• Failure to obtain stockholder approval could jeopardize the funding from Ault Lending.
• Alternative methods of raising cash may be under less favorable terms than those offered by Ault Lending.
• The company's ability to raise additional capital through public sales of common stock may be impaired due to the potential sale of shares by Ault Lending.

Future Outlook

The company anticipates needing to seek alternative methods of raising cash if it is unable to obtain funding from Ault Lending, which are likely to be under far less favorable terms.

Management Comments

• The Board unanimously recommends that the stockholders vote FOR the approval of the Series B Proposal.

Industry Context

Many small biotech companies rely on financing agreements like this to fund operations and clinical trials, especially when they are pre-revenue or have limited revenue streams. These agreements often involve issuing equity or convertible securities, which can be dilutive to existing shareholders but are sometimes the only available option for raising capital.

Comparison to Industry Standards

• Similar financing structures are common among small-cap biotech companies, such as Cassava Sciences and Anavex Life Sciences, which have also utilized equity financing to fund their research and development activities.
• The terms of the SPA, including the conversion price and warrant exercise price, appear to be within the typical range for such agreements in the biotech industry.
• The potential dilution of existing shareholders is a common concern in these types of transactions, and companies often try to balance the need for capital with the impact on their shareholders.

Related Party Transactions

• Ault Lending is an affiliate of the Company.

Stakeholder Impact

• Existing stockholders will experience dilution of their ownership and voting power.
• The market price of the company's common stock could be affected by the potential sale of shares by Ault Lending.
• The company's ability to fund clinical trials and operations could be impacted by the outcome of the vote on Proposal 3.

Next Steps

• Stockholders need to vote on Proposal 3 at the Adjourned Annual Meeting on May 13, 2024.
• The company will proceed with the issuance of shares to Ault Lending if stockholder approval is obtained.
• The company will use the funds raised to conduct planned clinical trials and operations.

Key Dates

Keywords

Alzamend Neuro, Ault Lending, Series B Preferred Stock, Common Stock, Stockholder Approval, Nasdaq Listing Rule, Securities Purchase Agreement, Dilution, Financing, Warrants