Note 11 - Subsequent Events

6 Months Ended

Jun. 30, 2024

11.

Subsequent Events

On August 12, 2024, the board of directors of the Company (other than Peter H. Kamin and Darius Nevin, each a director of the Company, who were not in attendance and had recused themselves from the meeting) (the “Board”), upon the recommendation of a transaction committee of the Board consisting of independent directors, unanimously approved a transaction whereby the Company would effect a reverse/forward stock split of the Company’s common stock, par value $0.005 per share (the “Common Stock”), in conjunction with terminating the Company’s public company reporting obligations and delisting the Common Stock from the Nasdaq Capital Market (the “Transaction”), subject to obtaining the requisite approval of the Company’s stockholders at the Company’s 2024 Annual Meeting of Stockholders (the “Annual Meeting”), which is currently expected to occur in the fall of 2024.

Specifically, the participating members of the Board recommended and approved a transaction whereby the Company would effect a reverse stock split of the Common Stock at a ratio between 1-for-4,000 and 1-for-6,000 (the “Reverse Stock Split”), followed immediately by a forward stock split of the Common Stock (the “Forward Stock Split,” and together with the Reverse Stock Split, the “Stock Split”). Stockholders owning fewer shares of Common Stock than the Reverse Stock Split ratio denominator at the effective time of the Reverse Stock Split would receive $2.35 in cash, without interest, for each share of Common Stock held by them at the effective time of the Reverse Stock Split, and thereafter they would no longer be stockholders of the Company. Stockholders owning more shares of Common Stock than the Reverse Stock Split ratio denominator at the effective time of the Reverse Stock Split (“Continuing Stockholders”) would not be entitled to receive any cash for their fractional share interests resulting from the Reverse Stock Split, if any. The Forward Stock Split, which would immediately follow the Reverse Stock Split, would reconvert whole shares and fractional share interests held by the Continuing Stockholders back into the same number of shares of the Common Stock held by such Continuing Stockholders immediately before the effective time of the Reverse Stock Split. As a result of the Forward Stock Split, the total number of shares of Common Stock held by a Continuing Stockholder would not change as a result of the Reverse Stock Split. The Company estimates that, based on a mid-point Reverse Stock Split ratio of 1-for-5,000, approximately 1.2 million shares of Common Stock (or approximately 21% of the Common Stock currently outstanding) would be cashed out in the Transaction and the aggregate cost to the Company of the Transaction would be approximately $2.8 million, plus transaction expenses, which are estimated to be approximately $700,000. The Company expects to fund such costs using the proceeds from the Stock Sale (defined below) and cash-on-hand.

On August 12, 2024, in connection with the Transaction, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with 3K Limited Partnership, a Delaware limited partnership (“3K”), Peter H. Kamin, a natural person in his individual capacity (“Mr. Kamin”), the Peter H. Kamin Revocable Trust dated February 2003 (the “2003 Trust”), the Peter H. Kamin Children’s Trust dated March 1997 (the “1997 Trust”), the Peter H. Kamin GST Trust (the “GST”) and the Peter H. Kamin Family Foundation (the “Foundation”). 3K, Mr. Kamin, the 2003 Trust, the 1997 Trust, the GST and the Foundation (together, the “Investors”). Pursuant to the Purchase Agreement, the Investors have agreed to purchase, subject to the terms and conditions thereof, up to 1,595,744 shares (the “Shares”) of the Company’s Common Stock, at a purchase price of $2.35 per share, for an aggregate purchase price of up to $3,750,000 (the “Stock Sale”). The Company intends to use the proceeds from the Stock Sale to purchase fractional shares of Common Stock resulting from the proposed Reverse Stock Split and for working capital and general corporate purposes. Prior to the closing of the Stock Sale (the “Closing Date”), the Company will determine the number of Shares to be issued (not to exceed 1,595,744 shares) so as to provide the Company with (i) proceeds sufficient to purchase the fractional shares of Common Stock resulting from the proposed Reverse Stock Split and (ii) an additional $500,000 designated for working capital and general corporate purposes. The consummation of the Stock Sale is subject to the satisfaction of customary closing conditions, including receiving the requisite approval by the Company’s stockholders of (i) the terms and conditions of the Purchase Agreement and the proposed Reverse Stock Split and (ii) the filing of a certificate of amendment to the Company’s amended and restated certificate of incorporation to effect the Reverse Stock Split on the basis of the final split ratio, which final split ratio will be determined by the Board prior to the closing. In addition, under the terms of the Purchase Agreement, in connection with each annual or special meeting of stockholders of the Company occurring after the Closing Date at which directors of the Company are to be elected, (i) the Company shall include two individuals designated by 3K and satisfying certain eligibility criteria (each, a “3K Director Nominee”) as nominees for election to the Company’s board of directors (the “Board”) in its proxy materials and (ii) the Board shall recommend to the stockholders of the Company the election of such 3K Director Nominees to the Board in the same manner as it recommends the election of the Company’s other director nominees. Additionally, pursuant to the terms of the Purchase Agreement, from and after the Closing Date, the Company shall not, without 3K’s prior written consent, increase the size of the Board to more than five directors. In the event the Company’s stockholders are permitted to elect directors by action by written consent pursuant to the Company’s bylaws and applicable law, the foregoing provisions shall be applied mutatis mutandis in connection with any such action. The Company has also granted the Investors certain indemnification rights with respect to the transactions contemplated by the Purchase Agreement. The Shares will be issued and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws.

The Company is taking these steps to avoid the substantial cost and expense of being a public reporting company and to focus the Company's resources on enhancing long-term stockholder value. The Company anticipates savings exceeding $900,000 on an annual basis as a result of the Transaction.

The Board has determined the Transaction is in the best interests of all of the Company’s stockholders. The Company currently realizes none of the traditional benefits of public company status, yet incurs all of the significant annual expenses and indirect costs associated with being a public company. Without its public company status, the Company would have an ongoing cost structure befitting its current and foreseeable scale of operations and its management would be able to have an increased focus on core operations.

Subject to the filing of the Company’s proxy statement relating to the Transaction and stockholder approval thereof, it is anticipated that the Transaction would become effective after the Annual Meeting. Subject to receiving such stockholder approval, as soon as practicable after the meeting, the Company expects to terminate the registration of its Common Stock with the SEC and de-list its Common Stock from the Nasdaq Capital Market. As a result, at such time, (i) the Company would cease to file annual, quarterly, current, and other reports and documents with the SEC, and stockholders would cease to receive annual reports and proxy statements, and (ii) the Company’s Common Stock would no longer be listed on the Nasdaq Capital Market.

The Board may abandon the proposed transaction and terminate the Purchase Agreement at any time prior to the filing and effectiveness of the applicable amendments to the Company’s certificate of incorporation, even after stockholder approval.

The Company has evaluated subsequent events through the date the financial statements were released.

PSYCHEMEDICS CORP 10-Q