F-1: NLS Pharmaceutics to Merge with Kadimastem in Reverse Triangular Merger

NLS Pharmaceutics and Kadimastem have entered into a binding term sheet for a reverse triangular merger, pending due diligence and regulatory approvals.

Summary

• NLS Pharmaceutics Ltd. and Kadimastem Ltd. have signed a binding term sheet for a reverse triangular merger.
• Kadimastem will become a wholly-owned subsidiary of NLS Pharmaceutics, which will be the surviving entity.
• NLS Pharmaceutics' existing operations, assets, and liabilities will be transferred out of NLS before the merger, excluding the Nasdaq platform and certain R&D assets.
• NLS Pharmaceutics shareholders will receive contingent value rights (CVRs) entitling them to proceeds from the sale of the Legacy Business.
• The sale of the Legacy Business should take place within 12 months from the closing of the Transaction.
• Kadimastem shareholders will own 85% of the surviving entity's common stock, while NLS Pharmaceutics shareholders will own 15% on a fully diluted basis.
• Kadimastem will have a minimum of $3.5 million in cash at closing, and NLS Pharmaceutics will have a minimum of $0.6 million.
• The merger is subject to customary closing conditions, including regulatory and shareholder approvals, and Nasdaq listing approval.
• The parties aim to structure the transaction in a tax-efficient manner.
• Each party agrees to an exclusivity period of 45 days to finalize the agreement, which may be extended by mutual consent.
• The term sheet may be terminated if the transaction is not completed by November 1, 2024, or if Nasdaq compliance is not reached by October 14, 2024.
• A registration statement on Form F-1 was filed with the SEC on August 27, 2024, relating to the resale of up to 3,277,750 common shares issuable upon exercise of warrants.
• The company will receive cash proceeds equal to the total exercise price of warrants that are exercised for cash, of approximately $786,660, based on an exercise price of $0.24 per share if all of the warrants are exercised.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The merger provides potential benefits but also carries risks and dilution for NLS Pharmaceutics shareholders. The deal's success depends on execution and market conditions.

Positives

• The merger provides NLS Pharmaceutics shareholders with potential upside through CVRs linked to the Legacy Business sale.
• Kadimastem's cash position of at least $3.5 million at closing provides financial stability to the merged entity.
• The transaction aims to be tax-efficient for both parties.
• The surviving entity will benefit from the expertise and assets of both companies.
• Kadimastem will fund up to $200,000 of the cost of D&O Run Off insurance for NLSP officers and directors following the closing of the Transaction.

Negatives

• NLS Pharmaceutics shareholders will own only 15% of the surviving entity, representing significant dilution.
• The sale of the Legacy Business is subject to market conditions and may not yield the expected value.
• The merger is subject to various closing conditions, including regulatory and shareholder approvals, which may not be obtained.
• If NLSP is unable to remove all debts by the Closing, Kadimastem shall not be obligated to proceed with closing of the Transaction.
• If Nasdaq compliant is not reach by October 14 or thereafter, Kadimastem shall not be obligated to proceed with closing of the Transaction.

Risks

• The merger may not be completed due to various factors, including failure to satisfy closing conditions.
• Integrating the two companies may present challenges and lead to unforeseen costs.
• The value of the CVRs is uncertain and depends on the successful sale of the Legacy Business.
• The company's ability to continue as a going concern is subject to substantial doubt.
• The company may face difficulties in maintaining Nasdaq listing compliance.
• The company's ability to successfully complete mergers and acquisitions, including the transaction contemplated by our recent binding term sheet with Kadimastem is subject to significant risks and uncertainties.
• A failure to complete this transaction could negatively impact our liquidity.
• Acquisitions may also require significant capital investment, potentially resulting in increased debt or shareholder dilution.
• Managements focus may be diverted from other business priorities, potentially affecting overall company performance.
• The failure to successfully integrate businesses or achieve the anticipated synergies and benefits could negatively impact our business, financial condition, and results of operations.

Future Outlook

The companies intend to complete the merger by November 1, 2024, pending regulatory and shareholder approvals. The surviving entity will focus on advancing the combined pipeline and leveraging synergies.

Management Comments

• Alexander Zwyer will be recommended by the Board to be a board member as Swiss citizen.

Industry Context

The merger reflects a trend of consolidation in the biopharmaceutical industry, where companies seek to expand their pipelines and capabilities through strategic combinations. This deal allows NLS Pharmaceutics to potentially leverage Kadimastem's assets and expertise, while providing Kadimastem with a Nasdaq listing.

Comparison to Industry Standards

• Reverse triangular mergers are a common structure in the pharmaceutical industry to facilitate acquisitions while preserving the target company's contracts and licenses.
• The equity split of 85/15 is within the typical range for similar transactions, reflecting the relative valuations of the two companies.
• Comparable companies in the CNS space, such as Sage Therapeutics and Axsome Therapeutics, have also pursued strategic collaborations and acquisitions to expand their product portfolios.
• The cash requirements at closing are standard for ensuring the financial stability of the merged entity.

Management Changes

Stakeholder Impact

• Shareholders of NLS Pharmaceutics will experience dilution but may benefit from the potential upside of the merged entity and CVRs.
• Employees of both companies may face uncertainty during the integration process.
• Customers and partners of both companies may see changes in product offerings and business relationships.

Next Steps

• Completion of due diligence by both parties.
• Negotiation and execution of definitive agreements.
• Obtaining regulatory and shareholder approvals.
• Nasdaq listing approval for the surviving entity.
• Transfer of Legacy Business assets and liabilities.
• Sale of the Legacy Business within 12 months of closing.

Key Dates

Keywords

merger, acquisition, Kadimastem, NLS Pharmaceutics, reverse triangular merger, CVR, Nasdaq, Legacy Business, shareholders, due diligence, registration statement, warrants