F-1: NLS Pharmaceutics Files F-1 for $25M Equity Facility, Merger with Kadimastem

NLS Pharmaceutics has filed an F-1 registration statement for the resale of up to 5 million common shares by Alpha Capital Anstalt, tied to a $25 million equity facility, and detailed its pending merger with Kadimastem Ltd.

Summary

• NLS Pharmaceutics Ltd. (NLSP) is registering up to 5,000,000 common shares for resale by Alpha Capital Anstalt, a Liechtenstein Anstalt, under a Common Share Purchase Agreement (committed equity facility) for up to $25.0 million.
• NLS will not receive proceeds from Alpha's resale of shares, but may receive up to $25.0 million in aggregate gross proceeds from sales of its common shares to Alpha Capital Anstalt under the Purchase Agreement.
• The purchase price for shares sold to Alpha Capital Anstalt will be 95% of the lesser of the lowest sale price or the volume-weighted average price (VWAP) on the purchase date.
• NLS entered into an Agreement and Plan of Merger with Kadimastem Ltd. on November 4, 2024, under which Kadimastem will become a wholly-owned subsidiary of NLS.
• The initial target share split post-merger was Kadimastem shareholders holding approximately 85% and NLS shareholders approximately 15% on a fully diluted basis.
• Based on NLS's financing transactions from October 2024 through June 2025 (approximately $6.7 million) and an additional $2.5 million expected prior to closing, the estimated post-merger split is Kadimastem shareholders holding approximately 83% and NLS shareholders approximately 17%.
• Kadimastem reported a capital deficiency of $7,996 thousand, an accumulated deficit of $76,530 thousand, and negative working capital of $8,119 thousand as of December 31, 2024.
• Kadimastem incurred a loss of $7,178 thousand and had negative cash flows from operating activities of $705 thousand for the year ended December 31, 2024.
• NLS's pro forma cash and cash equivalents are estimated at $12,297,677 as of December 31, 2024, assuming the full utilization of the $25.0 million equity line of credit.
• The merger closing is subject to various conditions, including shareholder approvals, Nasdaq listing approval for the combined company, NLS having at least $600,000 in gross funds, and Kadimastem having at least $3,500,000 in gross funds (subject to adjustment).

Sentiment

Score: 5

Explanation: The filing presents a mixed outlook. While NLS has secured significant financing and is progressing with a strategic merger, Kadimastem's severe financial distress and going concern issues introduce substantial risk and uncertainty. The potential for dilution from future share sales also tempers enthusiasm.

Positives

• Secured a committed equity facility of up to $25.0 million with Alpha Capital Anstalt, providing a potential source of future funding.
• Successfully raised approximately $6.7 million in financing transactions from October 2024 through June 2025, with an additional $2.5 million expected prior to the merger closing.
• The merger with Kadimastem Ltd. is progressing, with approvals from the District Court in Lod, the TASE, and the Israel Securities Authority already obtained.
• NLS Pharmaceutics is a clinical-stage biopharmaceutical company focused on innovative therapies for rare and complex CNS disorders, indicating potential for high-impact medical solutions.
• Kadimastem's collaboration agreement with Pluri Inc. for clinical manufacturing supports the development of ASTRORX and ISLETRX products, marking a milestone in product development.

Negatives

• Kadimastem Ltd. has suffered recurring losses, negative cash flows from operations, a deficiency in equity, an accumulated deficit, and a working capital deficiency, raising substantial doubt about its ability to continue as a going concern.
• The actual amount of proceeds NLS will receive from the Alpha Capital Anstalt agreement is uncertain and depends on market conditions and NLS's discretion, potentially resulting in less than the full $25.0 million commitment.
• The resale of a significant number of shares by Alpha Capital Anstalt, or the perception of such sales, could cause the market price of NLS common shares to decline and be highly volatile.
• NLS will require additional financing beyond the Alpha Capital Anstalt agreement to fully implement its business plan.
• The merger agreement includes a termination fee of $10,000,000 plus NLS operating and transaction expenses payable to Kadimastem if NLS terminates to pursue a superior proposal.

Risks

• Inability to predict the actual number of shares NLS will sell under the Purchase Agreement or the actual gross proceeds, which could be substantially less than the $25.0 million total commitment.
• Future sales and issuances of common shares or other securities might result in significant dilution for existing shareholders and could cause the share price to decline.
• The need for additional financing to sustain operations; without it, NLS may not be able to continue operations.
• Management will have broad discretion over the use of proceeds from the Purchase Agreement, and uses may not improve financial condition or market value.
• The consummation of the merger with Kadimastem is subject to numerous conditions and may be substantially delayed or not occur at all, including due to failure to obtain shareholder approval.
• Kadimastem's ability to continue as a going concern is in substantial doubt due to recurring losses, negative cash flows, and a deficiency in equity.
• The outcome of any known and unknown litigation and regulatory proceedings could materially affect NLS's business.
• Enforceability of civil liabilities against NLS or its non-U.S. resident directors/management in U.S. courts may be difficult due to Swiss incorporation and asset location.

Future Outlook

NLS Pharmaceutics expects to use any proceeds from the Alpha Capital Anstalt agreement for working capital, general corporate purposes, and pursuing strategic opportunities, including expanding its pipeline and investments. The company aims to advance its lead compound mazindol for narcolepsy and ADHD and believes its dual mechanism of action will benefit other rare CNS disorders. The merger with Kadimastem is anticipated to strengthen the combined entity's equity and support product development, including clinical trials. Kadimastem's ability to continue operations depends on future fundraising.

Management Comments

• "We expect to use the proceeds from any sales under the Purchase Agreement for working capital and general corporate purposes."
• "The Company does not anticipate revenues in the foreseeable future, and therefore, it does not recognize a liability component, and the grant is recorded under profit and loss as an offset from the Company's research and development expenses." (Kadimastem management regarding IIA grants)
• "The Company does not have the ability to assess the full impact of the [Swords of Iron War] on the scope of its business and its operating results." (Kadimastem management)

Industry Context

The biopharmaceutical industry, particularly in CNS disorders and regenerative medicine, is characterized by high R&D costs, long development cycles, and significant unmet medical needs. NLS's strategy of developing new chemical entities from known molecules and redefining previously approved ones aims to streamline clinical development and lower risk. The merger with Kadimastem, a company focused on ALS and diabetes, represents a diversification into regenerative medicine, potentially broadening the combined entity's therapeutic pipeline and market reach. The ongoing need for substantial capital raises is typical for clinical-stage biopharmaceutical companies.

Comparison to Industry Standards

• Kadimastem's recurring losses and going concern warning are common for early-stage biopharmaceutical companies with no commercialized products, similar to many small-cap biotech firms focused on R&D.
• The committed equity facility with Alpha Capital Anstalt is a common financing mechanism for publicly traded small-cap companies, providing flexible access to capital without immediate dilution, comparable to similar agreements seen with other development-stage biotechs.
• The estimated post-merger ownership split (Kadimastem shareholders ~83%, NLS shareholders ~17%) suggests Kadimastem's assets or pipeline are perceived to contribute significantly more value to the combined entity than NLS's pre-merger assets, which is a specific outcome of this particular merger negotiation rather than an industry standard.
• The 95% purchase price for shares sold to Alpha Capital Anstalt (95% of the lesser of lowest sale price or VWAP) is a typical discount offered in such equity line agreements, reflecting the liquidity and flexibility provided to the issuer.

Management Changes

Corporate Governance

Related Party Transactions

• NLS entered into a short-term loan agreement with Ronald Hafner (Chairman of the Board of Directors) for CHF 500,000 on September 28, 2023, bearing 10% interest, maturing November 30, 2023.
• NLS entered into bridge loan agreements with certain existing shareholders, including Ronald Hafner, Felix Grisard, Jürgen Bauer, and Maria Nayvalt, for CHF 875,000 (approx. $1,000,000) on November 15, 2023, bearing 10% interest, maturing June 30, 2024.
• Addendums to NLS's short-term and bridge loan agreements extended maturity dates to December 31, 2024, and then to June 30, 2025.
• NLS converted claims of related party debt holders totaling $2,788,650 into 493,986 Common Shares on October 10, 2024.
• Kadimastem received a convertible loan from Alpha Capital Anstalt Fund and Mr. Julian Ruggieri (a significant shareholder) for up to $1.7 million in October 2023, bearing 10% annual interest.
• Mr. Julian Ruggieri converted $500,000 principal and $60,479 accrued interest from his convertible loan into 279,952 ordinary shares and 349,940 warrants of Kadimastem on April 14, 2025.
• Kadimastem approved a loan agreement with Prof. Michel Revel (Chief Scientific Officer, significant shareholder, and director) for NIS 1 million (approx. $269 thousand) on April 22, 2025, which is interest-free, unsecured, and convertible into shares.
• Kadimastem recognized a benefit to the interested party transactions capital reserve from Prof. Revel's guarantee for a bank loan, totaling $28 thousand, $53 thousand, and $47 thousand net in 2024, 2023, and 2022, respectively.
• Kadimastem recognized a benefit to the interested party transactions capital reserve from Prof. Revel's interest-free loans, totaling $118 thousand and $129 thousand net in 2024 and 2023, respectively.
• Kadimastem reported theoretical wages of $130 thousand in 2024 and 2023, and $143 thousand in 2022, for services provided by an interested party for no consideration.
• Kadimastem's transactions with key management personnel included research and development expenses of $254 thousand (2024), $298 thousand (2023), $417 thousand (2022) and general and administrative expenses of $634 thousand (2024), $760 thousand (2023), $1,247 thousand (2022).
• Kadimastem's compensation and benefits to related parties and interested parties (including directors not employed by the company) amounted to $491 thousand in 2024, $231 thousand in 2023, and $421 thousand in 2022.

Stakeholder Impact

• **Shareholders (NLS)**: Potential for significant dilution from the committed equity facility and future capital raises. The merger with Kadimastem will significantly alter ownership structure, with Kadimastem shareholders holding a majority (estimated 83%) of the combined entity. The value of their investment is subject to the success of the combined company's pipeline and market acceptance.
• **Shareholders (Kadimastem)**: Will become majority owners of a Nasdaq-listed company, providing potential for increased liquidity and market exposure. Their investment is subject to the successful integration and performance of the combined entity.
• **Employees (NLS)**: Most NLS officers and board members will resign post-merger, indicating significant changes in leadership and potential for organizational restructuring. Mr. Konofal will remain part-time, and Mr. Zwyer will remain on the board for one year.
• **Employees (Kadimastem)**: Kadimastem's executive officers and board members will assume leadership roles in the combined NLS entity, suggesting continuity and expanded responsibilities.
• **Creditors (NLS & Kadimastem)**: The merger and associated financing activities aim to strengthen the combined company's financial position, potentially improving the security of outstanding debts. However, Kadimastem's going concern issues highlight existing risks for its creditors.
• **Customers/Patients**: The combined entity aims to develop innovative therapies for CNS disorders, ALS, and diabetes, potentially offering new treatment options for patients with unmet medical needs.
• **Alpha Capital Anstalt**: As the selling shareholder in the equity facility, Alpha stands to profit from the resale of NLS shares. As a convertible loan provider to Kadimastem, Alpha's investment is tied to the success of the merger and Kadimastem's future performance.

Next Steps

• NLS to file a further amendment to the registration statement to declare its effective date.
• NLS to sell common shares to Alpha Capital Anstalt under the Purchase Agreement from time-to-time, at its sole discretion, over an approximately 36-month commitment period.
• NLS and Kadimastem to continue working jointly with regulatory bodies (SEC, Nasdaq) to obtain all necessary approvals for the merger transaction.
• NLS to convene a meeting of its shareholders to approve the merger transaction as soon as possible.
• NLS to effectuate a reverse stock split of Common Shares to satisfy Nasdaq initial listing requirements for the combined company following the Merger.
• NLS to make all necessary preparations for the sale of Legacy Assets and appoint a Legacy Sub-Committee within 90 days after the merger closing.
• The Legacy Sub-Committee to use best commercial efforts to consummate the Legacy Sale within 12 months following the merger closing.
• NLS to obtain a run-off prepaid directors and officers liability insurance policy for its current and former officers and directors, effective as of the merger closing.

Key Dates

Recommendation

The filing presents a complex scenario. The committed equity facility provides NLS with a potential source of capital, and the merger with Kadimastem offers strategic diversification into regenerative medicine. However, Kadimastem's severe financial distress, including recurring losses and a going concern warning, introduces substantial risk to the combined entity. The significant change in ownership structure post-merger, with Kadimastem shareholders holding a majority, also creates uncertainty regarding future strategic direction. While there's potential for growth if the merger is successful and the pipeline advances, the immediate financial challenges and execution risks warrant a cautious 'hold' recommendation. Investors should monitor the merger's completion, integration progress, and the financial performance of the combined company closely.

Keywords

Biopharmaceutical, CNS disorders, Narcolepsy, ADHD, Mazindol, Quilience, Nolazol, Merger, Kadimastem, Equity facility, SEC filing, F-1, Alpha Capital Anstalt, Dilution, Going concern, Nasdaq listing, Clinical-stage, Regenerative medicine, ALS, Diabetes