Aspire Capital Partners

How equity lines of credit can destabilize small-cap stock prices

Aspire Capital Partners, LLC occupies a specialized niche among investment firms that finance capital-intensive companies. Along with Lincoln Park Capital, LLC, Aspire accounts for over 90% of the equity lines of credit extended to small-cap issuers in the U.S. Both Aspire and Lincoln Park are based in Chicago, and both were founded by former principals of Fusion Capital Partners, LLC, which specialized in equity lines of credit before the firm shut down in 2012. Like Fusion, Aspire and Lincoln Park invest heavily in biotech startups, which need frequent capital infusions.

Despite the name, an equity line of credit has nothing to do with debt. Like a revolving line of credit, an equity line can be tapped on demand. For example, under an agreement Aspire signed in February 2020, Marker Therapeutics, Inc. (NASDAQ: MRKR) can order Aspire to purchase up to 100,000 of Marker’s newly issued shares on any trading day over a 30-month period. Aspire agreed to buy up to $30,000,000 of Marker’s shares through such purchases during the term of the agreement.

The shares that an investor buys from an issuer through an equity line of credit are priced at a discount to the market price. The discount is often based on an average price over several consecutive days or on the volume-weighted average price (VWAP) on the date of purchase. Such discount methods can be susceptible to manipulation. For example, if the price is determined after the investor receives a purchase notice from the issuer, the investor may sell a large number of the issuer’s shares to decrease the average price and increase the investor’s potential profits. (We are not accusing Aspire of such practices.)

Although the issuer determines the timing of the investor’s purchases, the investor has broad discretion over the timing of its sales. Most equity-line-of-credit agreements include registration rights that allow the investor to sell shares immediately after buying them, although the investor has no obligation to do so. The total number of shares an investor can sell per day is usually limited to a percentage of the stock’s daily trading volume.

Linking the selling limit to daily volume may smooth the negative effect of the investor’s sales on the stock’s price. But make no mistake: if a company issues thousands of shares per day, and the buyer steadily sells them over several days, the increased supply of shares on the market will depress the stock’s price. For specific examples, see our case studies of individual stocks below.

iBio, Inc. (NYSE: IBIO)

iBio, Inc. was formed in 2008 through a spin-off from Integrated BioPharma, Inc. The company owns a proprietary system for developing pharmaceutical products. Historically, iBio has earned most of its revenue by providing its system to other companies. The most annual revenue it has ever earned was $2,018,000 in the 12 months ended Jun. 30, 2019. The company has never earned a profit and has an accumulated deficit of $166,082,000.

On Aug. 25, 2014, Aspire agreed to buy up to $10,000,000 of shares from iBio over 24 months. On any trading day when the stock closed above $4.40, iBio could direct Aspire to purchase up to 150,000 shares per trading day. The price of the shares was the lesser of (1) the lowest price of the stock on the purchase date or (2) the average of the three lowest closing prices on the ten trading days before the purchase date. In addition, iBio agreed to register up to 23,418,172 shares for resale by Aspire as soon as the SEC declared the registration effective.

On Sep. 19, 2014—31 days before the registration was effective—Aspire bought 1,136,354 shares for $500,000, and iBio issued 681,818 additional shares to Aspire as a commitment fee. iBio filed the registration statement for Aspire’s shares on Oct. 6, 2014. Over the next five trading days, iBio’s stock price rose 185% to a new 52-week high of $24.50 on average daily volume of 1,395,990 shares, which was 53 times the 52-week average. On Oct. 17, 2014, the SEC declared the registration effective, and the stock price rose an additional 31% to a new 52-week high of $32.10 on volume of 6,066,140 shares. Over the subsequent eight trading days, during which Aspire was authorized for the first time to sell its 1,818,172 shares, the stock price fell 70% to $9.50 on average daily volume of 1,665,141 shares.

We are in no way accusing Aspire of market manipulation or of violating any laws or regulations. Nor are we privy to Aspire’s undisclosed purchases or sales of iBio’s stock. We are simply noting that iBio’s stock price rose and fell by extraordinary amounts during, respectively, the five days before, and the eight days after, the SEC declared the registration statement effective.

Intec Pharma Ltd. (NASDAQ: NTEC)

Intec Pharma Ltd. was founded in Israel in 2000 and went public on the Tel Aviv Stock Exchange in 2010. The company completed its first stock offering in the U.S. in 2015 and listed its shares on the Nasdaq shortly afterward.

Intec’s flagship product is its Accordion Pill drug delivery system, which is the basis for two lines of business: delivering other companies’ drugs and delivering drugs that Intec develops in-house. The latter is potentially more profitable than the former, although Intec has never earned a profit. As of Dec. 31, 2020, the company had an accumulated deficit of $203,551,000.

Intec has spent the past 12 years developing its lead drug candidate, Accordion Pill Carbidopa/Levodopa (AP-CDLD), for the treatment of Parkinson’s disease symptoms. The company hit a roadblock in Jul. 2019 when AP-CDLD failed to meet its target endpoints in Phase III clinical trials. Intec’s stock nosedived to $11 per share after having soared to $182 per share only five months earlier (on a 1-for-20 reverse-split-adjusted basis).

By Sep. 1, 2019, Intec had approximately seven months of cash left. The company began selling newly issued shares through an at-the-market (ATM) offering it had registered in Mar. 2019. As it continued selling shares throughout Sep. 2019, its stock price rose from $14.45 per share to $26.00 per share over 11 trading days on average daily volume that was more than four times the 52-week average. By the end of the month, the company had sold 1,716,679 shares for net proceeds of $2,000,000, and the stock price had fallen back to $14.58.

On Dec. 2, 2019, with six months of cash left, Intec signed an equity line of credit agreement with Aspire for $10,000,000 over 30 months. The pricing of the shares was the same as that of iBio: the lesser of (1) the lowest price of the stock on the purchase date or (2) the average of the three lowest closing prices on the ten trading days before the purchase date.

But Intec never drew drown the equity line. On Feb. 3, 2020, after having sold 138,795 additional shares through its ATM offering, Intec completed an underwritten offering of 764,000 shares, 48,500 pre-funded warrants, and 812,500 warrants for net proceeds of $5,700,000.

Within days of completing the offering, Sabby Management, LLC, Armistice Capital, LLC, and Intracoastal Capital, LLC each reported owning 5% or more of Intec’s ordinary shares outstanding. Concurrent with the offering, Intec’s stock price dropped from $10.32 per share on Jan. 29, 2020 to $5.90 per share on Feb. 3, 2020.

On May 6, 2020, Intec completed a registered direct offering of 814,598 shares and a private placement of 407,299 warrants for net proceeds of $4,500,000. Within days, CVI Investments, Inc. and Armistice Capital, LLC reported owning 7.2% and 5.0%, respectively, of Intec’s ordinary shares outstanding.

From May 6 to Jun. 4, 2020, Intec’s stock price doubled from $4.20 to $8.39 per share on average daily volume that was five times the 52-week average. Then on Jun. 5, 2020, the company registered 8,145,976 shares for resale by CVI Investments, Armistice Capital, Intracoastal Capital, and Anson Investments Master Fund LP.

On Aug. 10, 2020, Aspire finally got a piece of Intec’s ever-growing pie. In a registered direct offering, Intec sold 356,250 newly issued shares to Aspire for $7.02 per share, which was a 13% discount to the closing price. In addition, Intec sold and issued to Aspire pre-funded warrants to purchase 356,250 shares at $6.82 per share. Each warrant was immediately exercisable at $0.20 per share. Intec’s total net proceeds were $4,600,000.

From Aug. 10 through Oct. 30, 2020, Intec’s stock price fell from $8.08 per share to $2.29 per share, which includes a 1-for-20 reverse share split that went into effect on Oct. 30, 2020. By Dec. 31, 2020, Aspire had exercised all of its pre-funded warrants, and CVI Investments owned only 95,000 shares of Intec, or 38% of the shares it had purchased in May 2020 (on a reverse-split-adjusted basis).

On Mar. 15, 2021, Intec announced its intention to execute a reverse merger with privately held Decoy Biosystems, Inc. and dispose of its Accordion Pill business. The merger is expected to close in the third quarter of 2021.

The Rest

To provide a comprehensive view of Aspire’s investments over time, we calculated the annualized rate of return on all investments the firm has made since 2010. The calculations are not intended to represent Aspire’s actual returns. We don’t know the precise timing, prices, and quantities of purchases and sales the firm executed under various equity lines of credit. Rather, these calculations show what tends to happen over the long term to stocks in which Aspire invests.

Over the ten-and-a-half-year period from Sep. 2010 through Mar. 2021, Aspire’s average annualized rate of return is -4%, which is poor but not disastrous. But the average is distorted by a few large outliers that are less than two years old. Specifically, the 733% and 151% annualized rates of return on Curis, Inc. (NASDAQ: CRIS) and Sorrento Therapeutics, Inc. (NASDAQ: SRNE), respectively, are anomalous. Aspire’s investments often increase in the first year before the firm resells large quantities of shares it has acquired through an equity line of credit.

Excluding investments Aspire made after 2019 reduces its average annualized rate of return to -24%. Excluding investments it made after 2016 reduces the average to -31%. The more dilutive stock offerings an issuer sells over time, and the more shares investors unload, the harder it gets to drive up the issuer’s stock price.

We advise investors to exercise caution if they see that Aspire has invested in a company they are researching. Look carefully for equity lines of credit, which could gradually dilute existing investors’ holdings and stealthily depress the company’s stock price. If you have traded or invested in securities owned by Aspire, please share your experience with us and your fellow investors.

Alpha Capital Anstalt

A Liechtenstein hedge fund with a penchant for dilution

Alpha Capital Anstalt has earned a reputation as one of the world’s most prolific and ruthless investors in cash-starved small-cap companies. Its stock-in-trade are bridge loans and private investments in public equity (PIPE) on terms that are highly unfavorable to desperate issuers. Its favorite instruments are convertible promissory notes, convertible preferred shares, and warrants with anti-dilution provisions and registration rights. As long as issuers remain solvent and honor their agreements, Alpha’s investments typically generate handsome returns for the firm while diluting previous investors, increasing a stock’s float, and putting downward pressure on a stock’s price.

Alpha is also active in the court system. The firm regularly sues small companies that fail to repay loans or issue shares on demand. Since 2007, Alpha has been a plaintiff or appellant in 51 cases in U.S. District Court, 13 cases in U.S. Bankruptcy Court, and 19 cases in New York Supreme Court. In 2018, the firm was one of 20 defendants that the U.S. Securities and Exchange Commission sued in SEC vs. Honig et alfor allegedly participating in a five-year pump-and-dump scheme that generated over $27 million in profits. Without admitting or denying the allegations, Alpha consented to a permanent injunction and paid $908,259 in disgorgement, interest, and penalties.

This article is in no way accusing Alpha of violating any laws, regulations, duties, or contractual obligations (excluding matters that have been settled with the SEC). We are simply highlighting how this firm finds itself repeatedly involved with publicly traded companies that exhibit highly unusual yet somewhat predictable share price behavior.

Little is publicly known about the inner workings of Alpha. The firm is headquartered in Vaduz, Liechtenstein, which some governments have described as a secretive tax haven. According to a 19-year-old SEC filing, Alpha was owned in 2002 by an Austrian bank named Bank fur Arbeit und Wirtschaft AG (BAWAG) and a private family trust named Leguas Stiftung. BAWAG made headlines in 2005 for its role in the collapse of Refco, a commodities broker in New York whose chairman and CEO allegedly hid $430 million in bad debts from the firm’s auditor and investors. Concurrent with the Refco scandal, BAWAG merged with the Österreichische Postsparkasse (P.S.K.) to form the Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse AG, or BAWAG P.S.K.

Leguas Stiftung is the family trust of Martin Schlaff, a billionaire Austrian businessman and one of BAWAG’s wealthiest customers. According to a report published in Haaretz, Schlaff obtained his fortune before the fall of the USSR through connections with the East German government and its secret police force, the Stasi. From 2000 to 2010, a business partner of Schlaff named Solomon Obstfeld ran a firm in New York named LH Financial Services, Inc., which managed Alpha’s investments in the U.S. and continues to manage them currently. In June 2010, Obstfeld was found dead in “an apparent suicide or murder” after a dispute over control of a Brooklyn condo project, according to The New York Daily News.

To demonstrate the effects of Alpha’s investments, we will examine the publicly traded companies in which Alpha has held an interest greater than 5.00% since 2011. We will compare the closing price of each stock on February 12, 2021 with the closing price on the date that Alpha first reported its position in each stock on SEC Forms SC 13G or SC 13D. But first, we will look closely at two companies, Oblong, Inc. (NYSE: OBLG) and Cancer Genetics, Inc. (NASDAQ: CGIX), whose stock prices exhibited questionable increases after each company received recent investments from Alpha. Then we’ll look at Safe-T Group Ltd. (NASDAQ: SFET), whose ADS price has plummeted since it received an investment from Alpha in 2018. By comparing these companies, we’ll see how the dilutive effects of Alpha’s investments play out over time.

Oblong, Inc. (OBLG)

Oblong, Inc. is based in Denver, CO and makes online collaboration software that enables remote work. The company was formed as a privately held Delaware corporation in 2006 and went public in Oct. 2019 through a reverse merger with a shell corporation listed on the Nasdaq.

In October and December 2020, Oblong completed private placements that generated proceeds of $2,973,000 and $5,000,000, respectively. The company sold discounted common shares and two-year warrants exercisable at $4.08 per share and $5.49 per share, respectively, in each offering. After Oblong registered the shares sold in the offerings (including shares underlying warrants), the company’s total common shares outstanding increased by 44%, diluting the holdings of previous shareholders. Alpha owned 870,000 of the common shares that were registered after the offerings (including shares underlying warrants), which represented 9.8% of Oblong’s total common shares outstanding.

As of January 21, 2021, Alpha still owned 386,939 common shares of Oblong, or 4.99% of the company’s total common shares outstanding, which did not include shares underlying warrants that Alpha had not yet exercised. After Oblong completed the December 2020 offering, its stock price fell as much as 34% before recovering slightly. The price could continue to decline as shareholders exercise in-the-money warrants and sell shares.

In addition, Oblong’s capitalization table contains a potential ticking time bomb in the form of convertible preferred stock. As of December 31, 2020, the company had issued three separate series of preferred stock, which threaten to further dilute common stockholders upon conversion (see Table 1).

Table 1: Oblong Preferred Stock

Cancer Genetics, Inc. (CGIX)

Cancer Genetics, Inc. is a shadow of its former self. Until July 2019, the company developed and sold oncology testing products. After going public at $10 per share in 2013, its stock price nearly doubled before falling below the IPO price in 2014. In 2016, the company completed two private placements. Alpha participated in the financings and bought five-year warrants exercisable at $2.25 per common share.

But Cancer Genetics took on extensive leverage, incurred significant expenses, and made multiple acquisitions until it had to liquidate nearly all its assets in 2019 and execute a 1-for-30 reverse stock split to maintain its Nasdaq listing. Currently, the company’s only remaining business is an Australian subsidiary named vivoPharm Pty. Ltd., which provides contract research services for drug discovery and development programs.

To salvage some value for its shareholders, Cancer Genetics announced in August 2020 that it planned to execute a reverse merger with StemoniX, Inc., which is a privately held company in Minnesota that develops human organ cells for use in drug safety studies. Cancer Genetics’ shareholders will retain 22% ownership of the post-merger entity, severely diluting their holdings. If Cancer Genetics’ net cash balance falls below $1,750,000 within 10 days before the merger closes, the shareholders’ ownership percentage could decrease to less than 22% in proportion to the shortfall. As a condition of the merger, StemoniX agreed to raise $10,000,000 in a private placement before the merger is consummated, which will cause additional dilution.

As of September 30, 2020, Cancer Genetics had $1,133,000 in cash and a quarterly burn rate of $1,032,333. The company had to raise capital to fund its operations until the merger closed. Moreover, the cash position of the post-merger entity is not likely to improve. StemoniX has a history of losses and is expected to have approximately $500,000 in cash immediately before the merger. Therefore, the post-merger entity will have to raise capital through dilutive stock offerings, debt, or licensing arrangements.

On October 28, 2020, Cancer Genetics sold 1,363,637 shares of common stock at $2.20 per share in a public offering. Alpha bought 227,272 common shares, or 5.87% of the company’s total common shares outstanding. The stock closed at $3.40 per share on the day of the offering. The following day, the price fell 38% on volume that was 10.7 times the 30-day average before closing at $2.28 per share. By the end of December, Alpha’s remaining position in Cancer Genetics consisted of only 85 common shares. The firm had dumped 227,187 shares within two months, during which Cancer Genetics’ stock price had never closed higher than $2.95 per share.

Alpha has not publicly disclosed any additional investment in Cancer Genetics since the October 2020 offering. But Cancer Genetics has continued to sell stock. On February 1, 2021, the company completed a private placement in which it sold 2,758,624 shares of common stock and five-year warrants to purchase an additional 2,758,624 shares of common stock at $3.50 per share. Gross proceeds from the placement were approximately $10,000,000. On the following day, the company registered the shares and warrant shares for resale. Among the selling shareholders were some familiar names from the world of toxic lending and investing, including Intracoastal Capital, LLC and CVI Investments, Inc.

In addition, StemoniX sold preferred stock in a private placement for $2,000,000 on January 28, 2021. As a condition of the merger, the company is obligated to sell even more preferred stock, which will be converted into Cancer Genetics common stock at the closing of the merger and will dilute the holdings of historical shareholders of Cancer Genetics and StemoniX proportionately.

Furthermore, an existing investor of StemoniX agreed to purchase an additional $3,000,000 of convertible notes and warrants to purchase StemoniX common stock. The warrants will be exchanged in the merger for warrants to purchase shares of Cancer Genetics common stock, which will cause additional dilution.

Several Cancer Genetics shareholders are unhappy at the prospect of their ownership percentage decreasing by 78%. As of February 12, 2021, they had filed at least eight lawsuits in U.S. District Court alleging that the company omitted material information from the registration statement it filed on October 16, 2020 in relation to the merger. Specifically, the shareholders claim that the registration statement fails to disclose the terms and valuations that other potential merger candidates proposed to Cancer Genetics during the process that led to the merger agreement with StemoniX. The cases are currently pending and may be consolidated.

Safe-T Group Ltd. (SFET)

Safe-T Group Ltd. is an Israeli company that develops data security software. It went public in January 2016 through a reverse merger with a shell corporation listed on the Tel Aviv Stock Exchange. In August 2018, the company completed an offering of American Depositary Shares and warrants, and its ADSs began trading on the Nasdaq. Five months before the offering, Safe-T Group had just $1,609,000 in cash and an annual burn rate of approximately $5,559,000. In 2017, the company had lost $5,313,000 on revenues of $1,096,000. Its auditor had expressed doubt about its ability to continue as a going concern.

Two months before the August 2018 offering, Safe-T Group had completed a $2,769,000 private placement of discounted shares and warrants that had increased the company’s total ordinary shares outstanding by 40%, diluting the holdings of all previous shareholders--except those who had participated in an earlier private placement. Their holdings were protected by an anti-dilution provision, which was triggered by the June 2018 private placement, causing Safe-T Group to issue 416,456 additional ordinary shares and warrants to purchase 12,893 additional ordinary shares.

After the August 2018 offering, Alpha owned 8.43% of Safe-T Group’s outstanding ordinary shares and 4.99% of its ADSs, each of which represented 40 ordinary shares. In addition, Alpha owned warrants to purchase 441,760 additional ADSs. In total, Alpha had acquired approximately 23.7% of the securities issued in the August 2018 offering. Because the securities had come with registration rights and no lock-up provisions, Alpha was free to begin selling the shares and ADSs and exercising the warrants after the offering.

The effects of the highly dilutive offering on the price of Safe-T Group’s ADSs quickly became apparent. From September 4, 2018 through December 31, 2018, the price per ADS dropped 75% to $59.40. The price continued to fall in 2019, especially after Safe-T Group issued $6,000,000 of 8% convertible debentures to Alpha and other lenders to finance the acquisition of NetNut Ltd. In November 2019, cash-starved Safe-T Group issued an additional $500,000 of 8% convertible debentures to Alpha and other lenders. By then, the company’s ADSs had dropped below $6.00 per share. They have never recovered.

Returns

To provide a comprehensive view of Alpha’s investments over time, we calculated the annualized rate of return on all investments the firm has made since 2007. We included stocks that have fallen to zero to avoid survivorship bias. To be clear, these calculations are not intended to represent Alpha’s actual returns. We don’t know exactly when the firm exited its investments or whether it did so profitably. Rather, these calculations show what tends to happen over several years to stocks in which Alpha invests.

At first glance, the 348% average annualized rate of return over the 14-year period looks impressive. But on closer inspection, the average is inflated by large outliers that are less than a year old. In particular, the 13,595% annualized rate of return on Artelo Biosciences, Inc. (NASDAQ: ARTL) is anomalous. Alpha’s investments often increase in the first year before the firm and its co-investors convert debt, exercise warrants, and flood the market with shares.

Excluding investments after 2018 creates a very different picture. The average annualized rate of return falls to -51%. The farther back in time we go, the worse the returns appear. Excluding investments after 2015 yields an average annualized rate of return of -60%. Excluding investments after 2012 decreases the rate to -78%.

Companies that raise capital by selling dilutive instruments often enter a multi-year death spiral. With the specter of unexercised warrants and unconverted debt hanging over them, it’s hard for them to attract interest in public offerings. When they inevitably need more capital, they must return to the same toxic lenders and investors and sell more dilutive instruments on even less favorable terms than before. Over several years, a company’s balance sheet and stock price can deteriorate beyond the point of no return. Several such companies appear on our list of Alpha’s investments.

We advise investors to exercise caution if they see that Alpha has invested in a company they are researching. Look carefully for outstanding warrants, convertible promissory notes, convertible debentures, and convertible preferred stock, all of which could quickly expand a company’s float, dilute investors’ holdings, and depress the company’s stock price. If you have traded or invested in securities owned by Alpha, please contact us to share your experience with fellow investors.


This article was prepared in collaboration with our friends at Utopia Capital Research.


Masters of Dilution (Part 2)

Enveric Biosciences, Inc. (ENVB) Is Issuing Shares Faster than It's Developing Drugs

Yesterday: Part 1 — The Israeli Connection

Back to the Well

That's what happened in May 2010. First, Rayat and his associates amended the company's by-laws to divide the board of directors into three classes. Shareholders could elect only one class per year, and the directors in each class would serve for three years.³⁰ By staggering the directors' terms, Rayat ensured that other shareholders could not elect enough directors in any one year to take control of the board.

Next, in a PIPE facilitated by Palladium, HepaLife sold 9,400,000 units of common stock and warrants for $1,175,000, or $0.125 per unit. Among the buyers were Honig's GRQ Consultants and Stefansky's firm, Harborview.³¹

Simultaneous with the PIPE, HepaLife acquired a company named AquaMed Technologies, Inc., in which Harborview and Honig held sizeable positions. The acquisition required approval from a majority of HepaLife's shareholders. So, Honig, Rayat, and an associate named Ranjit Bhogal pooled their shares--which comprised just over half of HepaLife's total shares outstanding--and signed a stockholder voting agreement. Without votes from any other shareholders, they approved the acquisition.³²

The terms of the acquisition were partial to AquaMed's owners. Each of Honig's preferred shares of AquaMed converted into 100 common shares of HepaLife, giving Honig 11% of HepaLife's total shares outstanding. Unlike other owners of AquaMed's preferred shares, Honig got the right to sell his HepaLife shares immediately after the deal closed.³³

Harborview made out even better. Each of its preferred shares of AquaMed converted into 400 common shares of HepaLife. After the acquisition, Harborview and its two principals owned 49.9% of the company. In addition, Harborview got three out of four seats on the board. The staggered terms Rayat had put in place cemented Harborview's control.

AquaMed made gels that could be placed on adhesive bandages to treat wounds. Healthcare investors were excited about the wound care market and were bidding up stocks that addressed it, such as MiMedx Group (NASDAQ: MDXG). In late 2010, HepaLife changed its name to Alliqua, Inc. and formed a subsidiary focused on wound care.

Shortly afterward, Palladium facilitated a $1 million private placement for the company. The sole investor was Frost Gamma Investments Trust³⁴, which was controlled by an entrepreneur in Miami named Phillip Frost, M.D. Frost was an associate of Honig and, like Honig, was a defendant in the SEC's 2018 pump-and-dump lawsuit. Without admitting or denying the allegations, Frost consented to a permanent injunction and paid $5,523,388 in disgorgement, interest, and penalties.³⁵

In 2005, Frost had sold his generic drug manufacturer Ivax Corp. to an Israeli company named Teva Pharmaceutical Industries Ltd. for $7.4 billion.³⁶ Afterward, Frost served as vice chairman of Teva from 2006 to 2010 and as chairman from 2010 to 2015. In Aug. 2020, the U.S. Dept. of Justice indicted Teva's U.S. subsidiary for conspiring to fix prices, rig bids, and allocate customers for generic drugs since at least May 2013.³⁷

Since 2017, Teva and its current and former directors and officers have been named as defendants in at least 20 securities lawsuits in U.S. federal court, including four class actions. The cases have been consolidated, and the outcome is pending.³⁸ One of the defendants is Allan Oberman, who was President and CEO of Teva Americas Generics from 2012 to 2014. Later, he served as CEO of Concordia International Corp., which, like Teva, ran into legal problems with generic drug pricing.³⁹

In 2019, Oberman was appointed chairman of Jay Pharma. He resigned seven months later after expressing concern about the company's difficulty in obtaining director's and officer's insurance at a reasonable price.⁴⁰ It's not clear why insurers demanded a high premium. They usually do so when they detect high risk.

Past Is Prologue

The merger of Jay Pharma and Ameri was risky from the start. At the end of 2019, neither company had enough cash to last until the merger was completed.⁴¹ The problem was reminiscent of HepaLife in 2008, and so was the solution.

In January 2020, Jay Pharma agreed to two transactions with Alpha Capital. The first was a bridge loan for $1,500,000 at 7% interest in exchange for a note that, right before the merger, would convert into 1,700,458 common shares of Jay Pharma and warrants to purchase an additional 1,700,458 common shares at $1.07 per share. The $1,500,000 was supposed to last Jay Pharma until the merger closed in July 2020.⁴²

Ameri had made a similar deal with Alpha in November 2019. It had borrowed $1,500,000 in exchange for a note. When Ameri was unable to repay the loan in May 2020, Alpha agreed to extend the maturity date for six months--in exchange for a warrant to buy up to 646,094 common shares of Ameri at $0.001 per share.⁴³

By August 2020, the merger had been delayed. Jay Pharma borrowed an additional $500,000 from Alpha in exchange for sweetened terms on its convertible note. Instead of 1,700,458 common shares, the note would convert into 2,522,005 common shares and warrants to purchase 2,378,543 additional common shares at $1.01 per share.⁴⁴

In addition to the bridge loan, Jay Pharma had entered into a stock purchase agreement with Alpha. Simultaneous with the conversion of the note, Alpha would invest $3,500,000 in Jay Pharma in exchange for 3,567,815 common shares and warrants to buy an additional 3,567,815 common shares at $1.07 per share. After the merger, Alpha would exchange its Jay Pharma shares and warrants for, respectively, preferred stock convertible into 3,033,944 common shares of Enveric and warrants to buy an additional 3,033,944 common shares of Enveric at $1.19 per share.⁴⁵

But Alpha wanted even more. So, while it negotiated the bridge loan and investment with Jay Pharma, it made a side deal with Tikkun Pharma, Inc., which was another startup that had sublicensed Tikun Olam's intellectual property from TO Pharmaceuticals. Tikkun Pharma assigned to Jay Pharma its rights to skin care treatments and formulations for developing drugs for graft versus host disease (GVHD). In exchange, Jay Pharma issued 10,360,007 common shares to Tikkun Pharma, which sold 7,774,463 of the shares to Alpha for a nominal price of $10.⁴⁶

For its largesse, Tikkun Pharma would get to convert its remaining 2,585,544 common shares of Jay Pharma into 2,198,656 common shares of Enveric. Alpha would get to convert its 7,774,463 common shares of Jay Pharma into 6,611,129 preferred shares, which were convertible into 6,611,129 common shares of Enveric.

When the merger was completed and Alpha had converted and exercised all its preferred shares and warrants, it stood to own more than 30% of Enveric's common shares outstanding.⁴⁷ Ameri would have to issue 43,362,755 common shares to Jay Pharma's shareholders, including Alpha and Tikkun Pharma.⁴⁸ The issuance would leave Ameri's shareholders owning only 13% of the issued and outstanding equity in Enveric, severely diluting their voting power.

But the dilution didn't end there. On Jan. 12, 2021--two weeks after the merger closed--Enveric agreed to register for resale 1,791,923 common shares issuable upon exercise of Alpha's warrants. Once registered, the shares won't be subject to any lock-up agreement, and Alpha can begin selling them at will. Alpha agreed not to sell more than 10% of the daily trading volume of common stock on the Nasdaq on any given day--unless Enveric's stock price closes above $5.29 for five consecutive days, in which case all bets are off.⁴⁹

On Jan. 13, 2021, Enveric sold 1,610,679 common shares at $4.50 per share and 610,679 pre-funded warrants at $4.49 per warrant with an exercise price of $0.01. In a concurrent private placement, the company sold five-year warrants to purchase 1,666,019 common shares at $4.95 per share, which were exercisable immediately upon issuance. In the prospectus, Enveric warned that anyone who bought the common shares at $4.50 per share would experience immediate dilution of $3.42 per share.⁵⁰

Since debuting at $4.15 on Jan. 5, 2021, shares of Enveric have dropped 8% to close at $3.83 on Jan. 27, 2021. That's 15% below the offering price of the shares sold on Jan. 13, 2021. After the offering, the company's total common shares outstanding increased 19% from 11,595,109 to 13,816,467.⁵¹

As an early-stage biotech startup, Enveric won't generate enough cash flow to fund its operations for years, if ever. To develop its products, it will have to issue more stock. That's okay if the company's valuation increases at a faster rate than its total shares outstanding. But Enveric is obligated to issue 7,839,844 additional shares upon conversion of preferred stock and exercise of warrants and options.⁵² With so many shares coming to market, the company will have to create extraordinary value for its shareholders to gain meaningful returns.

Endnotes

30. "Hepalife Technologies, Inc. Form 8-K/A." EDGAR. Securities and Exchange Commission, May 7, 2010, www.sec.gov/Archives/edgar/data/0001054274/000119380510001430/e607008_8ka-hepalife.htm.

31. "Hepalife Technologies, Inc. Form 8-K." EDGAR. Securities and Exchange Commission, May 11, 2010, www.sec.gov/Archives/edgar/data/0001054274/000119380510001380/e606965_8k-hepalife.htm.

32. "Hepalife Technologies, Inc. Form 8-K Ex. 9.1." EDGAR. Securities and Exchange Commission, May 11, 2010, www.sec.gov/Archives/edgar/data/0001054274/000119380510001380/e606965_ex9-1.htm.

33. "Hepalife Technologies, Inc. Form 8-K Ex. 2.1." EDGAR. Securities and Exchange Commission, May 11, 2010, www.sec.gov/Archives/edgar/data/0001054274/000119380510001380/e606965_ex2-1.htm.

34. "Hepalife Technologies, Inc. Form 8-K Ex. 99.1." EDGAR. Securities and Exchange Commission, Mar. 2, 2011, www.sec.gov/Archives/edgar/data/0001054274/000135448811000715/hplf_ex991.htm.

35. United States District Court, Southern District of New York. Securities and Exchange Commission v. Barry C. Honig et al. Jan. 10, 2019, cdn.theactivist.news/wp-content/uploads/2021/01/25053138/Final-Judgment-and-Consent-Phillip-Frost-2019-0110.pdf.

36. "Teva Pharmaceutical Industries Ltd. Form 6-K." EDGAR. Securities and Exchange Commission, Jul. 25, 2005, www.sec.gov/Archives/edgar/data/0000818686/000081868605000077/tevaivax250705.htm.

37. United States District Court, Eastern District of Pennsylvania. United States of America v. Teva Pharmaceuticals USA, Inc. et al. Aug. 25, 2020, www.justice.gov/atr/case-document/file/1316996/download.

38. United States District Court, District of Connecticut. Ontario Teachers’ Pension Plan Board et al v. Teva Pharmaceutical Industries Ltd. et al. Sep. 11, 2017, securities.stanford.edu/filings-documents/1059/TPIL00_02/2017411_r01k_17CV00558.pdf.

39. "Concordia International: An In-Depth Look Into AMCo's Drug Price Gouging." Seeking Alpha. Oct. 4, 2016, seekingalpha.com/article/4009942-concordia-international-in-depth-look-amcos-drug-price-gouging.

40. "Ameri Holdings, Inc. Form S-4." EDGAR. Securities and Exchange Commission, May 27, 2020, www.sec.gov/Archives/edgar/data/0000890821/000149315220009947/forms-4.htm.

41. "Enveric Biosciences, Inc. Form 8-K/A Ex. 99.1." EDGAR. Securities and Exchange Commission, Jan. 11, 2021, www.sec.gov/Archives/edgar/data/0000890821/000149315221000698/ex99-1.htm.

"Ameri Holdings, Inc. Form 10-K." EDGAR. Securities and Exchange Commission, Dec. 31, 2019, www.sec.gov/Archives/edgar/data/0000890821/000114036120006825/form10k.htm.

42. "Ameri Holdings, Inc. Form S-4." EDGAR. Securities and Exchange Commission, May 27, 2020, www.sec.gov/Archives/edgar/data/0000890821/000149315220009947/forms-4.htm.

43. "Ameri Holdings, Inc. Form 8-K." EDGAR. Securities and Exchange Commission, May 6, 2020, www.sec.gov/Archives/edgar/data/0000890821/000114036120010802/form8k.htm.

44. "Ameri Holdings, Inc. Form 424B3." EDGAR. Securities and Exchange Commission, Nov. 13, 2020, www.sec.gov/Archives/edgar/data/0000890821/000149315220021278/form424b3.htm#pk_001.

45. Ibid.

46. Ibid.

47. Ibid.

48. "Ameri Holdings, Inc. Form 8-K." EDGAR. Securities and Exchange Commission, Dec. 23, 2020, www.sec.gov/Archives/edgar/data/0000890821/000149315220024265/form8-k.htm.

49. "Enveric Biosciences, Inc. Form 424B5." EDGAR. Securities and Exchange Commission, Jan. 13, 2021, www.sec.gov/Archives/edgar/data/0000890821/000149315221000974/form424b5.htm.

50. Ibid.

51. Ibid.

52. Ibid.

Masters of Dilution

Enveric Biosciences, Inc. (ENVB) Is Issuing Shares Faster than It's Developing Drugs

During the quiet week between Christmas and New Year's Eve of 2020, two little-known companies completed a reverse merger that attracted little attention. The acquirer, Ameri Holdings, Inc. (NASDAQ: AMRH), was an obscure tech company in Alpharetta, Ga. The acquiree, Jay Pharma, Inc., was a privately held startup developing cannabis-based pharmaceuticals in Toronto.

The transaction was typical of reverse mergers. Ameri transferred its assets to a newly formed private company, leaving behind a Nasdaq-listed shell. Jay Pharma took up residence in the empty vessel and changed its name to Enveric Biosciences, Inc. (NASDAQ: ENVB). After a one-to-four reverse split, the company's shares debuted at $4.15 a piece. Just like that, a boring tech stock was transformed into a sexy cannabis stock.

The Nasdaq newcomer brought along some baggage. Before the merger, Enveric's predecessors had issued a smorgasbord of dilutive securities, including warrants to purchase 1,791,923 shares of common stock at $0.01 per share.¹ Although the purchaser of the warrants agreed to limit the number of newly acquired shares it sold per day, a steady stream of sales would nevertheless put downward pressure on Enveric's stock price.

Enveric had sold the warrants to a hedge fund in the tax haven of Lichtenstein named Alpha Capital Anstalt. In 2018, Alpha was one of ten defendants the U.S. Securities and Exchange Commission charged with coordinating a highly profitable pump-and-dump scheme involving three microcap stocks.² Without admitting or denying the allegations, Alpha consented to a permanent injunction and paid $908,259 in disgorgement, interest, and penalties.³

There's no evidence that Enveric is involved in a pump-and-dump scheme or any other violations of securities laws. Selling securities to an investor that has been accused of manipulating stock prices is not illegal. But it is risky, and it's not the only risk associated with this stock.

The Israeli Connection

Jay Pharma was formed in 2018 to develop cancer drugs from cannabis strains owned by an Israeli company named Tikun Olam Ltd. In 2012, Tikun Olam gained notoriety for cultivating a strain that was high in Cannabidiol (CBD) and low in Tetrahydrocannabinol (THC), making it potentially useful for creating pharmaceuticals that have medical benefits without psychoactive effects. Other companies have developed similar strains.

Jay Pharma sublicensed the rights to Tikun Olam's intellectual property from an entity in New York named TO Pharmaceuticals USA, LLC, which was formed in 2015 by Tikun Olam's founder, Ytzchak "Tzachi" Cohen, and a group of co-investors. The sublicense includes exclusive rights to use Tikun Olam's strains and pending patents for cancer-related applications.⁴ In exchange, Jay Pharma issued $652,624 worth of common stock to TO Pharmaceuticals and agreed to issue up to $500,000 worth of common stock to the entity in each future financing.⁵

The long-term value of Tikun Olam's intellectual property to Enveric is uncertain, particularly in the U.S. market. Since 2015, Cohen has submitted nine patent applications to the U.S. Patent and Trademark Office for three of Tikun Olam's strains.⁶ The USPTO has rejected at least one key claim in each application and has assigned an "abandoned" status to eight of the applications after receiving no response from the applicant.⁷ A recurring problem has been failure to account for the parentage of the plants.

Tikun Olam went through a difficult period in its home country shortly after Jay Pharma was founded. In 2018, Israel's Ministry of Health temporarily shut down one of the company's indoor cannabis farms, claiming that it found contamination and forbidden pesticides at the site.⁸ The following year, a district court in Jerusalem ordered Cohen to sell his ownership of Tikun Olam's Israeli operations.

According to Israeli media, the Israel Police told the district court that Cohen was not permitted to own more than 5% of an Israeli cannabis company because of his alleged links to organized crime.⁹ The police have not publicly disclosed any specific allegations or filed charges against Cohen. Israeli cannabis company Cannbit Pharmaceuticals Ltd. (TASE: CNBT) acquired Tikun Olam's Israeli business in 2019 for $26,500,000 in cash and stock and an additional $18,000,000 if the company achieves revenue goals.¹⁰

Neither Tikun Olam nor TO Pharmaceuticals controls Enveric, which has an independent board and management. The company's chairman and CEO, David Johnson, joined Enveric after the reverse merger closed. His resume includes stints at Bristol Myers Squibb, Inc. and ConvaTec, Inc.¹¹ Most recently, he was CEO at Alliqua, Inc. until a debt-fueled acquisition spree ended with the company defaulting on a loan covenant and selling off assets.¹²

In 2018, Alliqua planned to spin off a subsidiary as an independent, Nasdaq-listed company, which was going to execute a reverse merger with TO Pharmaceuticals.¹³ Johnson was slated to serve as CEO of the surviving entity, which was going to be named TO Pharma, LLC. But the deal was canceled after the would-be spinoff company did not meet Nasdaq's listing standards.¹⁴

Johnson was tapped for the CEO job at TO Pharma--and later at Enveric--by David Stefansky, who runs a small merchant bank in New York named Bezalel Partners.¹⁵ Stefansky was an early investor in Jay Pharma.¹⁶ Previously, he had co-founded a private equity firm in New York named HarborView Advisors, LLC, which was an early investor in Alliqua.¹⁷

HarborView belonged to an informal network of investors that included Alpha Capital and several other defendants in the SEC's 2018 pump-and-dump lawsuit.¹⁸ At the center of the network was a stock promoter in Boca Raton, Fla. named Barry Honig, who had a knack for extracting cheap stock from cash-starved microcap companies. A case in point is the company that eventually became Alliqua.

PIPE Dreams

Alliqua began as a company in Boston named HepaLife Technologies, Inc., which was developing an artificial liver system. In 2008, HepaLife's majority shareholder was a stock promoter in Vancouver, B.C. named Harmel Rayat, who frequently co-invested with Honig.¹⁹

In 2000, Rayat had consented to a permanent injunction and paid a $20,000 fine after the SEC charged him with failing to disclose that he was paid to publish promotional statements about 18 stocks.²⁰ In 2003, he consented to a cease-and-desist order from the SEC, which charged him with selling unregistered shares he received for promoting a penny stock.²¹ In both cases, Rayat neither admitted nor denied the allegations.

HepaLife was typical of the names in which Rayat and Honig trafficked. In 2007, the company spent more on advertising and investor relations than it spent on research and development.²² By March 2008, it had no revenues, less than $154,000 in cash, and a burn rate of $386,000 per quarter. Its auditor had expressed doubts about its ability to continue as a going concern.²³

Teetering on the brink of insolvency, HepaLife raised capital in May 2008 through a type of offering called a private investment in public equity (PIPE).²⁴ In a PIPE, accredited investors buy securities from a publicly traded company in a private transaction. The price per security is usually less than the quoted price for the issuer's securities in the public market.

The placement agent for HepaLife's PIPE was an investment bank in Venice, Fla. named Palladium Capital Advisors, LLC, which frequently worked with Honig and his associates.²⁵ Four investors in the PIPE were later defendants in the SEC's 2018 lawsuit: Alpha Capital, Michael Brauser, Melechdavid, Inc., and GRQ Consultants, Inc., which was controlled by Honig.²⁶

The terms of the PIPE were stacked in favor of the investors, who paid $4,530,800, or $0.425 per share, for 12% of the company. The purchase agreement included a provision called a "full ratchet," which is usually reserved for distressed investments. For 12 months after the PIPE, if HepaLife sold shares for less than $0.425 a piece, the company would have to issue enough shares to the PIPE investors to restore the value of their investment to $4,530,800 and return their ownership percentage to 12%.²⁷

What's more, for each share the PIPE investors bought, they received a two-year warrant to buy an additional share for $0.55. The warrants, too, were protected by a 12-month full ratchet in case HepaLife issued more warrants with an exercise price below $0.55.²⁸ HepaLife was required to register the PIPE investors' shares for resale--including the shares issuable upon exercise of the warrants--within 12 months of the deal closing.²⁹

Imagine you were an investor who wanted to buy HepaLife stock after the PIPE. For a year, if you bought newly issued shares from the company for less than $0.425 per share, HepaLife would immediately issue additional shares that would reduce your ownership percentage. When the PIPE investors exercised their warrants, the company would issue even more shares, further diluting your stake. When the PIPE investors sold their shares, the glut of HepaLife stock on the market would likely decrease the value of your holdings.

With so many risks, few investors would buy HepaLife stock in a public offering after the PIPE. Therefore, when HepaLife needed more cash, it would have few alternatives than to return to the private market.

Tomorrow: Part 2 — Back to the Well

Endnotes

1. "Enveric Biosciences, Inc. Form 424B5." EDGAR. Securities and Exchange Commission, Jan. 13, 2021, www.sec.gov/Archives/edgar/data/890821/000149315221000974/form424b5.htm.

2. United States District Court, Southern District of New York. Securities and Exchange Commission v. Barry C. Honig et al. Sep. 7, 2018, www.sec.gov/litigation/complaints/2018/comp-pr2018-182.pdf.

3. United States District Court, Southern District of New York. Securities and Exchange Commission v. Barry C. Honig et al. Feb. 16, 2019, cdn.theactivist.news/wp-content/uploads/2021/01/22212427/Final-Judgment-Consent-Alpha-Capital-Anstalt-2019-0206.pdf.

4. "Aquamed Technologies, Inc. Form S-4 Ex. 10.12." EDGAR. Securities and Exchange Commission, Jan. 9, 2019, www.sec.gov/Archives/edgar/data/0001468929/000114420419001167/tv509486_ex10-12.htm.

5. "Ameri Holdings, Inc. Form S-4." EDGAR. Securities and Exchange Commission, Nov. 10, 2020, www.sec.gov/Archives/edgar/data/890821/000149315220020869/forms-4a.htm.

6. Cohen, Ytzchak, et al., inventors. Cannabis plant named 'Avidekel.' Mar. 10, 2016. U.S. Patent Application 14/757,039. USPTO Patent Application Full-Text and Image Database, appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv.html&r=3&f=G&l=50&d=PG01&p=1&S1=20160073566&OS=20160073566&RS=20160073566.

... Cannabis plant named 'Erez.' Mar. 10, 2016. U.S. Patent Application 14/757,040. USPTO Patent Application Full-Text and Image Database, appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-bool.html&r=3&f=G&l=50&co1=AND&d=PG01&s1=20160073567&OS=20160073567&RS=20160073567.

... Cannabis plant named 'Midnight.' Mar. 10, 2016. U.S. Patent Application 14/757,041. USPTO Patent Application Full-Text and Image Database, appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv.html&r=3&f=G&l=50&d=PG01&p=1&S1=20160073568&OS=20160073568&RS=20160073568.

7. United States Patent and Trademark Office. Non-Final Rejection. Dec. 29, 2016. U.S. Patent Application 14/757,039. USPTO Public Patent Application Information Retrieval, portal.uspto.gov/pair/view/BrowsePdfServlet?objectId=IXAIRRD7RXEAPX0&lang=DINO.

... Abandonment. Sep. 5, 2017. U.S. Patent Application 14/757,039. USPTO Public Patent Application Information Retrieval, portal.uspto.gov/pair/view/BrowsePdfServlet?objectId=J77N4RE8RXEAPX1&lang=DINO.

... Final Rejection. May 16, 2018. U.S. Patent Application 14/757,040. USPTO Public Patent Application Information Retrieval, portal.uspto.gov/pair/view/BrowsePdfServlet?objectId=JH68GGO5RXEAPX0&lang=DINO.

... Abandonment. Dec. 17, 2018. U.S. Patent Application 14/757,040. USPTO Public Patent Application Information Retrieval, portal.uspto.gov/pair/view/BrowsePdfServlet?objectId=JPMSE8O4RXEAPX2&lang=DINO.

... Non-Final Rejection. Jan. 12, 2017. U.S. Patent Application 14/757,041. USPTO Public Patent Application Information Retrieval, portal.uspto.gov/pair/view/BrowsePdfServlet?objectId=JPMSE8O4RXEAPX2&lang=DINO.

... Abandonment. Oct. 5, 2017. U.S. Patent Application 14/757,041. USPTO Public Patent Application Information Retrieval, portal.uspto.gov/pair/view/BrowsePdfServlet?objectId=J8BP94EMRXEAPX2&lang=DINO.

8. Weinreb, Gali. "Health Ministry temporarily closes Tikun Olam cannabis farm." Globes, Nov. 4, 2018, en.globes.co.il/en/article-health-ministry-temporarily-closes-tikun-olam-cannabis-farm-1001259127.

9. ... "Leading Israeli cannabis companies bid for Tikun Olam." Globes, Sep. 15, 2019, en.globes.co.il/en/article-leading-israeli-cannabis-cos-bid-for-tikun-olam-1001300691.

10. ... "Tikun Olam valuation slashed in Cannbit deal." Globes, Nov. 25, 2019, en.globes.co.il/en/article-tikun-olam-valuation-slashed-in-cannbit-deal-1001308467.

11. "David Johnson." LinkedIn, www.linkedin.com/in/david-johnson-235b0224/. Accessed Jan. 24, 2021.

12. "Alliqua BioMedical, Inc. Form 10-Q." EDGAR. Securities and Exchange Commission, Mar. 31, 2018, www.sec.gov/Archives/edgar/data/0001054274/000114420418028208/tv493254_10q.htm.

13. "Alliqua BioMedical, Inc. Form 8-K Ex. 2.1." EDGAR. Securities and Exchange Commission, Nov. 27, 2018, www.sec.gov/Archives/edgar/data/0001054274/000114420418062043/tv508028_ex2-1.htm.

14. "Adynxx, Inc. Form 8-K." EDGAR. Securities and Exchange Commission, Jun. 11, 2019, www.sec.gov/Archives/edgar/data/0001054274/000143774919012178/adyn20190614_8k.htm.

15. "Aquamed Technologies, Inc. Form S-1/A." EDGAR. Securities and Exchange Commission, Apr. 19, 2019, www.sec.gov/Archives/edgar/data/0001468929/000114420419020424/tv517173-s1a.htm.

"Enveric Biosciences, Inc. Form 8-K Ex. 10-1." EDGAR. Securities and Exchange Commission, Jan. 6, 2021, www.sec.gov/Archives/edgar/data/890821/000149315221000336/ex10-1.htm.

16. "AMERI Holdings, Inc. Form S-4." EDGAR. Securities and Exchange Commission, May 27, 2020, www.sec.gov/Archives/edgar/data/890821/000149315220009947/forms-4.htm.

17. "Hepalife Technologies, Inc. Schedule 14A." EDGAR. Securities and Exchange Commission, Nov. 15, 2010, www.sec.gov/Archives/edgar/data/0001054274/000119380510002807/e607716_def14a-hepalife.htm.

18. "Silverstar Holdings Ltd. Form S-3." EDGAR. Securities and Exchange Commission, May 16, 2008, www.sec.gov/Archives/edgar/data/0001003390/000091068008000406/s3-05142008.htm.

"Towerstream Corp. Amendment No. 3 to Form SB-2." EDGAR. Securities and Exchange Commission, Jun. 5, 2007, www.sec.gov/Archives/edgar/data/0001349437/000095013607003962/file1.htm.

"China Armco Metals, Inc. Form S-1." EDGAR. Securities and Exchange Commission, Sep. 10, 2008, www.sec.gov/Archives/edgar/data/0001410711/000121390008001761/fs1_ea3chinaarmco.htm.

19. "Hepalife Technologies, Inc. Form S-1." EDGAR. Securities and Exchange Commission, Jul. 8, 2009, www.sec.gov/Archives/edgar/data/0001054274/000105427409000007/s-1revised.htm.

"Octillion Corp. Form S-1." EDGAR. Securities and Exchange Commission, Mar. 12, 2008, www.sec.gov/Archives/edgar/data/0001071840/000107184008000011/octillionforms1edgarversion.htm.

"Phytomedical Technologies, Inc. Form 424B3." EDGAR. Securities and Exchange Commission, Dec. 4, 2007, www.sec.gov/Archives/edgar/data/0001002422/000100242207000029/f071201pytoformsb2edgarversi.htm.

20. United States District Court, District of Arizona. Securities and Exchange Commission v. EquityAlert.Com, Inc. et al. Aug. 8, 2000, www.sec.gov/litigation/litreleases/lr16662.htm.

21. Securities and Exchange Commission Administrative Proceeding. In the Matter of EquityAlert.com, Inc. et al. Oct. 23, 2003, www.sec.gov/litigation/admin/33-8306.htm.

22. "Hepalife Technologies, Inc. Form 10-K." EDGAR. Securities and Exchange Commission, Dec. 31, 2007, www.sec.gov/Archives/edgar/data/0001054274/000105427408000009/hplf200710kfve.htm.

23. "Hepalife Technologies, Inc. Form 10-Q." EDGAR. Securities and Exchange Commission, Mar. 31, 2008, www.sec.gov/Archives/edgar/data/0001054274/000105427408000010/hplfq12008edgarversion.htm.

24. "Hepalife Technologies, Inc. Form 8-K." EDGAR. Securities and Exchange Commission, May 23, 2008, www.sec.gov/Archives/edgar/data/1054274/000105427408000012/hepalife8kmay2008pp.htm.

25. "Purple Beverage Company, Inc. Form S-1." EDGAR. Securities and Exchange Commission, May 2, 2008, www.sec.gov/Archives/edgar/data/0001178513/000114420408025862/v112516_s1.htm.

"Towerstream Corp. Form SB-2." EDGAR. Securities and Exchange Commission, Mar. 19, 2007, www.sec.gov/Archives/edgar/data/0001349437/000095013607001737/file1.htm.

"International Energy, Inc. Form S-1." EDGAR. Securities and Exchange Commission, Jun. 20, 2008, www.sec.gov/Archives/edgar/data/0001081074/000108107408000016/ieniforms1ev.htm.

26. "Hepalife Technologies, Inc. Form S-1." EDGAR. Securities and Exchange Commission, Jul. 8, 2009, www.sec.gov/Archives/edgar/data/0001054274/000105427409000007/s-1revised.htm.

27. "Hepalife Technologies, Inc. Form 8-K Ex. 10.1." EDGAR. Securities and Exchange Commission, May 23, 2008, www.sec.gov/Archives/edgar/data/1054274/000105427408000012/hplfsubscriptionagreement080.htm.

28. "Hepalife Technologies, Inc. Form 8-K Ex. 10.2." EDGAR. Securities and Exchange Commission, May 23, 2008, www.sec.gov/Archives/edgar/data/1054274/000105427408000012/hplfseriescformofwarrant0805.htm.

29. "Hepalife Technologies, Inc. Form 8-K Ex. 10.3." EDGAR. Securities and Exchange Commission, May 23, 2008, www.sec.gov/Archives/edgar/data/1054274/000105427408000012/hplfregistrationrightsagreem.htm.

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