DEF 14C: Company Secures Shareholder Approvals for Capital Raises and Reverse Stock Split to Maintain Listing

A majority shareholder has approved multiple equity issuances and a reverse stock split to ensure compliance with NYSE American listing requirements and facilitate ongoing capital raising efforts.

Summary

• The company's majority shareholder, by written consent on June 23, 2025, approved nine corporate actions, primarily related to the issuance of Class A Common Stock.
• These approvals are necessary to comply with NYSE American LLC Company Guide Sections 711 and 713, which require shareholder approval for certain large equity issuances (over 20% of outstanding shares) and equity compensation arrangements.
• Approved issuances include shares from conversions of Series A, B, C, and D Cumulative Redeemable Preferred Stock, convertible promissory notes, inducement shares, rights under an Exchange Agreement with Smithline Family Trust II, and shares for finders agreements with J.H. Darbie & Co., Inc.
• A total of 3,400 shares of Series A Preferred Stock were sold for aggregate gross proceeds of $3,350,000, with an additional non-public offering of up to 2,500 shares for $2,500,000 approved.
• Approximately $494,000 in convertible notes were issued to ClearThink Capital Partners, LLC, $171,500 to LGH Investments, LLC, $302,500 to Lucas Ventures, LLC, $253,000 to IG Holdings, Inc., $396,000 to 1800 Diagonal Lending LLC, and $497,000 to Silverback Capital Corporation.
• The Exchange Agreement with Smithline Family Trust II was amended to increase the number of post-split shares from 1,308,751 to 5,151,721, with approximately $384,297 remaining outstanding.
• 3,457.5 shares of Series B Preferred Stock were issued from the automatic exchange of Senior PIK Notes, with 3,245 shares currently outstanding.
• Sales of Series C Preferred Stock totaled $232,500 (255 shares), with 573.75 shares currently outstanding.
• 1,311.70 shares of Series D Preferred Stock were issued to Mitchell Silberberg & Knupp LLP for legal services, and 3,000 shares were issued to KR8 AI Inc. in satisfaction of a $3,000,000 debt.
• 40,000 shares of Class A Common Stock were approved for issuance to director Bret Barnes as part of his independent director agreement.
• A reverse stock split at a ratio of 1:1.99 was approved, to be effected anytime before November 6, 2025, at the Board's discretion.
• As of June 23, 2025, there were 20,143,846 shares of Common Stock outstanding; the reverse split will reduce this to approximately 10,071,923 shares.
• The estimated post-split price per share, based on the June 23, 2025 closing price of $0.20, would be $0.40.

Sentiment

Score: 2

Explanation: The company is undertaking significant dilutive capital raises and a reverse stock split to avoid delisting, indicating severe financial distress and a challenging outlook for common shareholders. The need for continuous capital and the unfavorable terms of recent financings suggest a weak financial position.

Negatives

• The company is undertaking a reverse stock split (1:1.99) primarily to increase its per-share market price and avoid delisting from NYSE American, indicating a struggle to maintain minimum price requirements.
• Extensive issuance of common stock from conversions of various preferred stock series and convertible notes will result in significant dilution for existing common stockholders, affecting both voting power and economic rights.
• Many convertible notes were issued with original issuance discounts and one-time interest charges, suggesting less favorable financing terms.
• The conversion terms for some notes and preferred shares allow conversion at a discount to the market price (e.g., 90% of VWAP, 75% of lowest trading price upon default), further contributing to potential dilution at low valuations.
• The company has a history of multiple reverse stock splits, with a cumulative ratio of 1:100 since November 6, 2023, and the current 1:1.99 split is the maximum allowable before triggering immediate suspension and delisting procedures by NYSE American.
• The company explicitly states it will continue to require additional capital in the near future to fund operations, indicating ongoing financial challenges and potential for further dilution.

Risks

• Failure to maintain NYSE American listing due to continued low stock price, which could adversely affect liquidity and marketability of common stock.
• Significant dilution of existing common stockholders' voting power and economic rights due to the large volume of shares being issued from conversions of preferred stock and convertible notes.
• The reverse stock split may not result in a proportionate increase in market price or a permanent increase, potentially leading to a reduced company valuation.
• Increased transaction costs for stockholders holding less than a round lot (100 shares) after the reverse split.
• Potential for increased trading volatility often associated with low-priced stocks, discouraging institutional investment and broker interest.
• The company's reliance on convertible debt and preferred stock issuances, often at discounted prices, suggests ongoing financial strain and a need for capital that may not be available on more favorable terms.
• The 'Most Favored Nation' clause in Series C Preferred Stock offering could obligate the company to provide more favorable terms to existing Series C holders if future securities are issued on better terms.

Future Outlook

The company anticipates that the approved corporate actions, particularly the reverse stock split, are necessary to maintain its listing on NYSE American and improve marketability and liquidity of its common stock. It expects the reverse split to increase the per share market price, potentially attracting a broader range of institutional investors and increasing analyst/broker interest. The company also foresees the need for additional capital in the near future to fund operations and intends to issue additional shares for future financings and employee benefit programs, subject to Board discretion and NYSE American rules. However, there is no assurance that the reverse split will achieve the desired effects or that the market price will increase proportionately or remain elevated.

Management Comments

• "The Company determined that these actions and approvals are necessary because of the small market capitalization of the Company, and while certain transactions may not need the approvals described, it is possible that certain transactions, including separate transactions that may be aggregated by NYSE American, will have a right to receive Class A Common Stock in excess of 20% of the issued and outstanding number of shares at the time the transaction was entered into."
• "Our Board strongly believes that the Reverse Split is necessary to maintain our listing on NYSE American."
• "Management and the Board have considered the potential harm to us and our stockholders should NYSE American delist our Common Stock."
• "The Board believes that the increased market price of our Common Stock expected as a result of implementing the Reverse Split could improve the marketability and liquidity of our Common Stock and other securities and will encourage interest and trading in our Common Stock."
• "Our Board does not intend for this transaction to be the first step in a series of plans or proposals to effect a going private transaction within the meaning of Rule 13e-3 of the Exchange Act."
• "We will continue to require additional capital in the near future to fund our operations."
• "The Board does not intend to issue any Common Stock or securities convertible into Common Stock except on terms that the Board deems to be in the best interests of us and our stockholders."

Industry Context

The company's actions reflect a common challenge for small-cap companies listed on major exchanges like NYSE American, particularly those with low stock prices. Maintaining listing compliance is critical for liquidity and investor access. The reliance on convertible debt and preferred stock, often with discounts and inducement shares, is typical for companies facing capital constraints and seeking financing when traditional equity offerings are less viable. The need for a reverse stock split to avoid delisting is a defensive measure seen across various industries for companies struggling with market valuation and investor confidence.

Comparison to Industry Standards

• The company's current stock price consistently below $0.30, necessitating a reverse split to meet NYSE American's $0.10 minimum bid price requirement (Section 1003(f)(v)), indicates performance significantly below typical exchange listing standards and many industry peers.
• The cumulative reverse stock split ratio of 1:100 since November 6, 2023, and the proposed 1:1.99 split, approaching the NYSE American threshold of 1:200 over two years for immediate delisting (Section 1003(f)(vi)), suggests a pattern of severe stock price depreciation not commonly observed among stable, growing companies.
• The frequent issuance of convertible notes and preferred stock with original issuance discounts, one-time interest charges, and conversion prices at a discount to market (e.g., 90% of VWAP) is characteristic of distressed financing, often seen in companies with limited access to conventional capital markets, unlike well-capitalized industry leaders.
• The significant dilution from these issuances, requiring majority shareholder approval to exceed 20% of outstanding common stock (NYSE American Section 713), is a red flag for common shareholders, contrasting with companies that can raise capital with minimal dilution or at premium valuations.
• The company's need for ongoing capital to fund operations, despite multiple recent financings, suggests a burn rate or lack of profitability that is not sustainable compared to industry benchmarks for financially healthy entities.

Management Changes

Corporate Governance

Related Party Transactions

• Mark White, a director and former Interim Chief Executive Officer, controls KR8 AI Inc., which received 3,000 shares of Series D Preferred Stock in full satisfaction of approximately $3,000,000 owed under a Master Software and Services Agreement.
• Rennova Health, Inc. (RHI), where Seamus Lagan (CEO, Interim CFO, Director) and Trevor Langley (Director) are executives/directors, owns 4,150 shares of Series A Preferred Stock.
• RHI entered into Voting Agreements and Irrevocable Proxies with Sabby Volatility Warrant Master Fund, Ltd., Sabby Healthcare Master Fund, Ltd., and Chris Diamantis, granting RHI sole and absolute discretion to vote their shares, resulting in a combined voting percentage of approximately 82%.

Stakeholder Impact

• Shareholders: Will experience significant dilution from the conversion of preferred stock and convertible notes into common stock. The reverse stock split will reduce the number of shares held but is intended to maintain listing and potentially improve liquidity and marketability. Fractional shares will be rounded up.
• Employees/Directors: Bret Barnes, a director, will receive 40,000 shares of Class A Common Stock as part of his compensation. Equity incentive plans will be proportionately adjusted for the reverse split.
• Creditors/Noteholders: Convertible noteholders and preferred stockholders will convert their holdings into common stock, potentially reducing the company's debt and preferred obligations, but increasing the common share count.
• NYSE American: The approved actions aim to ensure compliance with NYSE American listing standards (Sections 711 and 713) and the minimum bid price requirement, preventing delisting.

Next Steps

• The approved corporate actions will become effective 20 days from the date of mailing of the Definitive Information Statement (July 7, 2025).
• The Board of Directors will determine the exact effective date for the 1:1.99 reverse stock split, anytime before November 6, 2025.
• The company will file a Certificate of Amendment to its Certificate of Incorporation to effect the proposed Reverse Split.
• The company will continue to require additional capital in the near future to fund operations and may seek to issue additional shares of Common Stock in connection with future financings, employee and director benefit programs, and other corporate activities.

Key Dates

Recommendation

Keywords

Reverse Stock Split, SEC Filing, DEF 14C, NYSE American Listing, Shareholder Approval, Equity Issuance, Convertible Notes, Preferred Stock Conversion, Dilution, Capital Raise, Corporate Governance, Financial Reporting