UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 1, 2020

 

SONNET BIOTHERAPEUTICS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   001-35570   20-2932652

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

 

100 Overlook Center, Suite 102

Princeton, New Jersey 08540

 

(Address of principal executive offices)

Registrant’s telephone number, including area code: (609) 375-2227

 

Chanticleer Holdings, Inc.

7621 Little Avenue, Suite 414

Charlotte, North Carolina 28226

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.0001 Par Value   SONN  

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

 

 

     

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

The information set forth under Item 2.01 of this Current Report on Form 8-K with respect to the GEM Agreement (as defined in Item 2.01 of this report) is incorporated by reference into this Item 1.01.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

Completion of Merger

 

On April 1, 2020, Sonnet BioTherapeutics Holdings, Inc., formerly known as Chanticleer Holdings, Inc. (the “Company”), completed its business combination with Sonnet BioTherapeutics, Inc., a New Jersey corporation (“Sonnet Sub”), in accordance with the terms of the Agreement and Plan of Merger, dated as of October 10, 2019 (the “Merger Agreement”), by and among the Company, Sonnet Sub and Biosub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of February 7, 2020 (the “First Amendment”) (the Merger Agreement, as amended by the First Amendment, the “Amended Merger Agreement”), pursuant to which Merger Sub merged with and into Sonnet Sub, with Sonnet Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with, and immediately prior to the completion of, the Merger, the Company effected a reverse stock split of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at a ratio of 1-for-26 (the “Reverse Stock Split”). Immediately after completion of the Merger, the Company changed its name to “Sonnet BioTherapeutics Holdings, Inc.,” focused on advancing Sonnet Sub’s pipeline of oncology candidates and the strategic expansion of Sonnet Sub’s technology platform into other human diseases. Additionally, as part of the transaction, on April 1, 2020, the Company spun-off its restaurant operations into a newly-created wholly-owned subsidiary, Amergent Hospitality Group, Inc. (the “Spin-Off Entity” or “Amergent”), the equity of which was distributed out to the stockholders of the Company as of the close of business on March 26, 2020.

 

     

 

 

Under the terms of the Amended Merger Agreement, the Company issued shares of Common Stock to Sonnet Sub’s stockholders. The Company also assumed all outstanding and unexercised warrants to purchase shares of Sonnet Sub’s common stock, and in connection with the Merger they were converted into warrants (the “Converted Warrants”) to purchase Common Stock, with the number of shares subject to such warrants, and the exercise price, being appropriately adjusted to reflect the Exchange Ratio (as defined below). As a result, immediately following the Merger, there were outstanding Converted Warrants to purchase an aggregate of approximately 106,000 shares of Common Stock, all with terms of three years from their respective dates of issuance, between October 2019 and February 2020, and with an exercise price of $29.32 per share.

 

Immediately after the Merger, there were approximately 9.2 million shares of Common Stock outstanding (including 1.1 million Converted Additional Shares (as defined in Item 8.01 of this report) being held in escrow). Under the terms of the Merger Agreement, the former stockholders and warrant holders of Sonnet Sub (including the Investors, as defined in Item 8.01 of this report) owned, or held rights to acquire, in the aggregate approximately 92% of the fully-diluted Common Stock, which for these purposes is defined as the outstanding Common Stock, plus outstanding warrants of the Company (the “Fully-Diluted Common Stock”), with the Company’s stockholders and warrant holders immediately prior to the Merger owning, or holding rights to acquire, approximately 6% of the Fully-Diluted Common Stock, and at the closing of the Merger, the Company issued to the Spin-Off Entity a warrant (the “Spin-Off Entity Warrant”) to purchase 186,161 shares of Common Stock, which is approximately 2% of the number of shares of issued and outstanding Common Stock immediately after the effective time of the Merger (the “Effective Time”). The number of shares of Common Stock issued to Sonnet Sub’s stockholders for each share of Sonnet Sub’s common stock outstanding immediately prior to the Merger (or becoming issuable under a Converted Warrant) was calculated using an exchange ratio (the “Exchange Ratio”) of approximately 0.106572 shares of Common Stock for each share of Sonnet Sub common stock. The Exchange Ratio was derived by dividing the Fully-Diluted Common Stock of the Company of approximately 571,000 (post-split) immediately prior to the Merger by the 6% Company allocation set forth above, multiplying such quotient by the 92% Sonnet Sub allocation, and then dividing the result by the Fully-Diluted Common Stock of Sonnet Sub of approximately 82.2 million immediately prior to the Merger (which amount includes the Sonnet Sub common stock issued in the Pre-Merger Financing (as defined in Item 8.01 of this report) and to Relief Holding (as defined below), in each case prior to the Merger).

 

The Spin-Off Entity Warrant is a five-year warrant, has an exercise price of $0.01 per share and is not exercisable for 180 days following the Effective Time. The shares of Common Stock issued to the former stockholders of Sonnet Sub (including the Investors), and the shares of Common Stock issuable upon the exercise of Converted Warrants, were registered with the Securities and Exchange Commission (the “SEC”) on a Registration Statement on Form S-4 (Reg. No. 333-235301), as amended (the “Registration Statement”).

 

The Common Stock listed on the Nasdaq Capital Market, previously trading through the close of business on April 1, 2020 under the ticker symbol “BURG,” commenced trading on the Nasdaq Capital Market, on a post-Reverse Stock Split basis, under the ticker symbol “SONN” on April 2, 2020. The Common Stock has a new CUSIP number, 83548R105.

 

The foregoing description of the Amended Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement that was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 11, 2019 and the full text of the First Amendment that was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2020, each of which is incorporated herein by reference.

 

The foregoing description of the Converted Warrants does not purport to be complete and is qualified in its entirety by reference to the complete text of the Form of Converted Warrant, which will be filed as an exhibit with the Company’s quarterly report on Form 10-Q for the quarter ending March 31, 2020.

 

Closing of Relief Transaction

 

In connection with and prior to the Merger and as previously announced, on April 1, 2020, Sonnet Sub completed its acquisition of the global development rights for Atexakin Alfa (low dose formulation of Interleukin-6, IL-6, now “SON-080”) from Relief Therapeutics Holding SA (“Relief Holding”) through its acquisition of Relief Holding’s wholly-owned subsidiary, Relief Therapeutics SA (“Relief”), in exchange for the issuance to Relief Holding of shares of Sonnet Sub common stock that converted into an aggregate of 757,933 shares of Common Stock in the Merger.

 

Spin-Off of Restaurant Operations

 

In connection with the Merger, on April 1, 2020, the Company completed the spin-off through the contribution and transfer (the “Contribution”) to Amergent of all of the assets and liabilities relating to the Company’s restaurant business conducted prior to the Merger. Previously, on March 16, 2020, the Company’s Board of Directors (the “Board”) declared a dividend with respect to the shares of Common Stock outstanding at the close of business on March 26, 2020 of one share of the Amergent common stock for each outstanding share of Common Stock. Such dividend, which together with the Contribution is referred to as the “Spin-Off,” was paid on April 1, 2020.

 

 
 

 

GEM Agreement

 

In connection with the Merger, the Company assumed the rights and obligations under the GEM Agreement (as defined below).

 

Sonnet Sub (as defined below) entered into a Common Stock Purchase Agreement with GEM Global Yield Fund LLC SCS (“GEM”) on August 6, 2019 (the “Purchase Agreement”). The Purchase Agreement was amended on September 25, 2019 by an Amendment to Common Stock Purchase Agreement (the “2019 GEM Amendment”), and subsequently amended again on February 7, 2020 (the “2020 GEM Amendment” and, together with the Purchase Agreement and the 2019 GEM Amendment, the “GEM Agreement”). Pursuant to the GEM Agreement, GEM has agreed to purchase up to $20,000,000 (the “Aggregate Limit”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) over a three-year period commencing on the date the Purchase Agreement was executed (the “Investment Period”); provided that during any period when the Company’s public float is less than $75,000,000, the Aggregate Limit will instead be equal to one-third of the amount of the Company’s public float over any consecutive 12-month period. Under the GEM Agreement, during the Investment Period, the Company may, by delivering a Draw Down Notice (as defined in the GEM Agreement) direct GEM to purchase shares of Common Stock in an amount up to 400% of the average daily trading volume for the ten (10) trading days immediately preceding the date the Draw Down Notice is delivered. GEM is not obligated to purchase any shares Common Stock which would result in GEM beneficially owning, directly or indirectly, at the time of the proposed issuance, more than 4.99% of the shares of Common Stock issued and outstanding. GEM will pay a purchase price per share equal to 90% of the average market closing price of the Common Stock during the ten consecutive trading days commencing with the first trading day on which a Draw Down Notice is delivered (the “Draw Down Pricing Period”).

 

GEM represented to the Company, among other things, that it was an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act), and the Company will rely upon an exemption from registration contained in Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder when issuing shares of Common Stock under the GEM Agreement. The Company has agreed to file a Registration Statement with the Securities and Exchange Commission (the “SEC”) to register the shares of Common Stock to be issued to GEM pursuant to the GEM Agreement. The GEM Agreement contains customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the GEM Agreement at any time, at no cost or penalty. Unless the Company informs GEM of an event resulting in a Materially Adverse Effect or Material Change in Ownership (all defined in the GEM Agreement) GEM does not have the right to terminate the GEM Agreement.

 

The foregoing descriptions of the Purchase Agreement, the 2019 GEM Amendment and the 2020 GEM Amendment do not purport to be complete and are qualified in their entirety by reference to the complete text of the Purchase Agreement, the 2019 GEM Amendment and the 2020 GEM Amendment, respectively, which are filed herewith as Exhibits 10.1, 10.2 and 10.3, respectively, and incorporated herein by reference.

 

Item 3.02 Unregistered Sales of Equity Securities

 

The information set forth under “Completion of Merger” in Item 2.01 of this Current Report on Form 8-K with respect to the Spin-Off Entity Warrant is incorporated by reference into this Item 3.02.

 

     

 

 

The Spin-Off Entity Warrant has not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and is instead being issued pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and Rule 506(b) promulgated thereunder.

 

The foregoing description of the Spin-Off Entity Warrant does not purport to be complete and is qualified in its entirety by reference to the complete text of the Spin-Off Entity Warrant, which is filed herewith as Exhibit 4.1, and incorporated herein by reference.

 

Item 3.03 Material Modification to Rights of Security Holders

 

As previously disclosed, at a special meeting of the Company’s stockholders held on March 18, 2020 (the “Special Meeting”), in addition to approving the issuance of Common Stock pursuant to the Merger, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation (the “Certificate of Incorporation”) to effect the Reverse Stock Split and approved an amendment to the Certificate of Incorporation to increase the total number of authorized shares of Common Stock to 125,000,000 shares (the “Authorized Share Increase”).

 

In addition, the Company’s Board of Directors (the “Board”) authorized an amendment to the Certificate of Incorporation to change the corporate name of the Company from “Chanticleer Holdings, Inc.” to “Sonnet BioTherapeutics Holdings, Inc.” (the “Name Change”).

 

Reverse Stock Split

 

On April 1, 2020, immediately prior to the Merger, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split. As of the opening of the Nasdaq Capital Market on April 2, 2020, the Common Stock began trading on a Reverse Stock Split-adjusted basis. All share numbers in this Form 8-K have been adjusted to reflect the Reverse Stock Split. As a result of the Reverse Stock Split, the number of issued and outstanding shares of Common Stock immediately prior to the Reverse Stock Split was reduced into a smaller number of shares, such that every 26 shares of Common Stock held by a stockholder of the Company immediately prior to the Reverse Stock Split were combined and reclassified into one share of Common Stock after the Reverse Stock Split. All outstanding and unexercised warrants to purchase shares of Common Stock otherwise remain in effect pursuant to their terms, subject to adjustment to account for the Reverse Stock Split. Immediately following the Reverse Stock Split, there were approximately 549,000 shares of Common Stock outstanding prior to the Merger. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares instead are entitled to receive cash in lieu of their fractional shares.

 

The Reverse Stock Split had no effect on the par value of the Common Stock, or the rights and privileges of the holders of Common Stock or preferred stock, and did not affect any stockholder’s percentage ownership interest in the Company, except to the extent that it resulted in any stockholders owning a fractional share. As approved by the Company’s stockholders, the Reverse Stock Split made no corresponding adjustment with respect to the Company’s authorized capital stock.

 

The foregoing description of the Reverse Stock Split does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment to the Certificate of Incorporation that effected the Reverse Stock Split, which is filed herewith as Exhibit 3.1, and incorporated herein by reference.

 

Authorized Share Increase

 

On April 1, 2020, immediately prior to the Merger, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Authorized Share Increase.

 

The Authorized Share Increase has no immediate dilutive effect on the proportionate voting power or other rights of the Company’s existing stockholders. The Board has no current plan to issue shares from the additional authorized shares provided by the Authorized Share Increase, other than pursuant to the GEM Agreement, pursuant to outstanding securities exercisable or convertible into Common Stock or pursuant to the Pre-Merger Financing (as defined below). However, any future issuance of additional authorized shares of Common Stock may, among other things, dilute the earnings per share of the Common Stock and the equity and voting rights of those holding Common Stock at the time the additional shares are issued. Additionally, this potential dilutive effect may cause a reduction in the market price of the Common Stock.

 

The foregoing description of the Authorized Share Increase does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment to the Certificate of Incorporation that effected the Authorized Share Increase, which is filed herewith as Exhibit 3.2, and incorporated herein by reference.

 

     

 

 

Name Change

 

On April 1, 2020, in connection with the Merger, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Name Change, which changed the Company’s name from “Chanticleer Holdings, Inc.” to “Sonnet BioTherapeutics Holdings, Inc.” The Name Change did not alter the voting powers or relative rights of the Common Stock.

 

On April 2, 2020, the trading symbol on the Nasdaq Capital Market for the Common Stock was changed from “BURG” to “SONN” solely to reflect the Name Change.

 

The foregoing description of the Name Change does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment to the Certificate of Incorporation that effected the Name Change, which is filed herewith as Exhibit 3.3, and incorporated herein by reference.

 

Item 5.01 Changes in Control of Registrant

 

The information set forth under “Completion of Merger” in Item 2.01 of this Current Report on Form 8-K is incorporated by reference into this Item 5.01.

 

In accordance with the Amended Merger Agreement, on April 1, 2020, at the Effective Time, each of the directors of the Company resigned from the Board. Following such resignations and effective as of the Effective Time, the following individuals, all of whom were directors of Sonnet Sub prior to the Merger, were appointed to the Board: Pankaj Mohan Ph.D. (chairman), Albert Dyrness, Nailesh Bhatt, Raghu Rao and Donald Griffith, CPA, whose terms expire at the Company’s next annual meeting of stockholders.

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Resignations of Executive Officers and Directors

 

In accordance with the Amended Merger Agreement, on April 1, 2020, at the Effective Time, (i) Michael D. Pruitt resigned as Chief Executive Officer, Fredrick L. Glick resigned as President and Patrick Harkleroad resigned as Chief Financial Officer, and (ii) Michael D. Pruitt, Keith J. Johnson, Neil G. Kiefer, Russell J. Page, Frederick L. Glick and J. Eric Wagoner resigned from the Board and any respective committee of the Board to which they belonged, which resignations were not the result of any disagreements with the Company relating to the Company’s operations, policies or practices.

 

Appointment of Certain Officers

 

In accordance with the Amended Merger Agreement, on April 1, 2020, the Board appointed the following officers of the Company, effective at the Effective Time: Pankaj Mohan, Ph.D., as Chairman, President and Chief Executive Officer, John H. Cross III as Chief Financial Officer, Treasurer and Secretary, John K. Cini, Ph.D. as Chief Scientific Officer, Terence Rugg, M.D. as Chief Medical Officer and Susan Dexter as Chief Technical Officer.

 

Pankaj Mohan, Ph.D. (55) is the Company’s Chairman, President and Chief Executive Officer. Dr. Mohan founded Sonnet Sub in 2015 and has since served as a member of its board of directors. Dr. Mohan became the Chairman in June of 2018 and the Chief Executive Officer in January of 2019. From January 2011 to June 2018, he served as the President, Chief Executive Officer and Chairman of Oncobiologics, Inc. (Now Outlook Therapeutics, Inc. Nasdaq: OTLK), a Company that he founded in 2011. Previously, Dr. Mohan served as head of Business Operations and Portfolio Management of Biologics Process and Product Development at Bristol-Myers Squibb Company and as a Director of Bioprocess Engineering at Genentech, Inc. Prior to that, Dr. Mohan served as a senior manager at Eli Lilly and Company. From May 1993 to April 1996, Dr. Mohan served as Assistant Professor (Lecturer/Fellow) at the Advanced Centre for Biochemical Engineering, University College London, London, United Kingdom. Dr. Mohan received a Ph.D. in Biochemical Engineering from the School of Chemical Engineering, University of Birmingham, Birmingham, United Kingdom, a masters in Financial Management from Middlesex University Business School, London, United Kingdom, an Executive Management Program (AMP) from Fuqua School of Business at Duke University and a Bachelor of Chemical Engineering from the Indian Institute of Technology in Roorkee, India. He is also an author of an industry reference book on bioprocess operations (McGraw Hill).

 

John H. Cross III (49) joined Sonnet Sub in May 2019 and has since served as its Chief Financial Officer and Chief Business Officer. Prior to Sonnet Sub, Mr. Cross was a Managing Director with Chardan Capital’s healthcare investment banking team from November 2015 to March 2019, where he focused on biopharmaceuticals. Prior to that, from May 2014 to June 2015, Mr. Cross served as a Director with Alere Financial Partners and from May 2011 to October 2013 as a Senior Analyst at Balyasny Asset Management. He launched his career in finance in 1999 as an associate analyst covering biotechnology on the healthcare equity research team at Hambrecht & Quist. Mr. Cross earned an M.P.H. from the Yale University School of Medicine and a B.S. in psychology from Washington & Lee University.

 

     

 

 

John K. Cini, Ph.D. (67) co-founded Sonnet Sub in 2015 and has since served as its Chief Scientific Officer, where he oversees and directs the company’s discovery and development programs. His role includes the oversight of the selection process of cancer and immune oncology targets and proof-of-concept testing. Prior to joining Sonnet Sub, he was Vice President of Discovery and Development Sciences at Oncobiologics, Inc. from January 2011 to April 2015. He has successfully advanced more than 20 novel monoclonal antibody products from discovery to IND. He is the holder of several novel product and formulation patents and applications. He has been directly involved in several successful novel biologics through early discovery research into development and manufacturing through clinical trials and commercialization. Previous positions include Executive Director at Mederex (acquired by Bristol-Myers Squibb in 2010), lead discovery scientific roles at Johnson & Johnson (Ethicon, OrthoBioTech & Pharmaceutical Research), and Bayer. Dr. Cini’s therapeutic areas of expertise in system biology include oncology, immune oncology, inflammation, osteoporosis, wound healing, surgical adhesion and cellular aging. Dr. Cini has a PhD in Biochemistry from University of North Texas.

 

Terence Rugg, MBChB, MMed(RT)(Natal) FFRad(T)(SA) (60) has served as Sonnet Sub’s Chief Medical Officer, in a part-time consulting role, since October 2018. He is an internationally respected oncologist with over 30 years’ experience in the development of oncology drugs at both large and small pharma companies and has been involved in the development of more 30 compounds including at least 12 different classes of anti-cancer drugs. Prior to joining Sonnet Sub, Dr. Rugg served as Vice President, BioOncology Medical Affairs at Genentech from September 2009 to March 2014. Prior to Genentech, he was Chief Medical Officer and VP-Development for SGX Pharmaceuticals from August 2006 to October 2008, Vice President and Head of US Oncology/Medical Affairs for Sanofi-Aventis from 2004 to 2006, and prior to the Sanofi acquisition of Aventis, he served as Head of Oncology, Global Medical Affairs at Aventis from 2002 to 2004. He has also held various positions at Eli Lilly and Company, Zeneca Pharmaceuticals, Ilex Oncology and British Biotech. In recent years, he has served as an independent consultant to the pharmaceutical industry. Dr. Rugg earned his medical degree from Godfrey Huggins School of Medicine from the University of Rhodesia. He is a Licentiate of the Royal Colleges of Medicine and Surgery, of Edinburgh and Glasgow and earned a Master of Medicine in Clinical Oncology and Radiotherapy at the University of Natal, South Africa. Finally, he has been admitted as a Fellow of the Faculty of Radiation Therapy of the College of Medicine of South Africa.

 

Susan Dexter (64) has served as Sonnet Sub’s Chief Technical Officer since May 2019, as a contract consultant. On April 1, 2020, she became a full-time employee of the Company upon the closing of the Merger. She comes to the Company with more than twenty-five years in biotechnology science, manufacturing and business development having been directly involved in three start-up companies, and multiple M&A activities. Her expertise in CMC for biologics process development ranges from cell line development, process development through commercial manufacturing. In her role as Managing Director at Latham Biopharm Group from September 2008 to present, Susan runs the Product Development service offering, managing the activities and disciplines related to pre-animal toxicology, pre-clinical tox study and CMC-related activities including IND filings, Quality oversight of cGMP activities and other related CMC supply chain activities. She came to LBG from Xcellerex, Inc., a CDMO and developer of single use technology for bioprocessing. She was Chief Business Officer at Xcellerex from April 2004 to September 2008. Prior to Xcellerex, from July 1998 to April 2004, she was VP of Business Development at The Dow Chemical Company’s CDMO, an acquisition of Collaborative BioAlliance, facilitated by Susan in 2000; and Assoc. Director of Business Development, at Celltech Biologics, purchased by Lonza Biologics, a biologics CDMO. She was at Celltech/Lonza from 1986 to July 1998. Ms. Dexter holds a double major with Honors in Immunology and Marketing from American University, Washington, D.C., and certifications from Harvard University in ‘Negotiations for Lawyers’ and ‘Finance for Non-financial Managers’. She was also Professor Emeritus at University College, London, Department of Bioengineering, teaching a credited course lecture and workshop in “Project managing biologics facility”, to graduate, Ph.D. and post-graduate professionals, from 1999 to 2006.

 

Appointment of Directors

 

In accordance with the Amended Merger Agreement, on April 1, 2020, effective at the effective time of the Merger, the following individuals were appointed to the Board as directors, in addition to Dr. Mohan:

 

Albert Dyrness (57) has served on Sonnet Sub’s board of directors since October 2019. Mr. Dyrness is a recognized biopharmaceutical industry expert bio-process engineering with expertise in upstream, downstream, and fill/finish processes. Since July 2019, Mr. Dyrness has been the Managing Director of ADVENT Engineering Services, Inc., a Trinity Consultants Company, which serves as its life-sciences division. In 1988, Mr. Dyrness Co-Founded ADVENT Engineering Services, Inc., an engineering consulting firm serving the energy and life sciences industries. Starting with only 4 employees in the San Francisco Bay Area, ADVENT has grown to a staff of over 130 engineers with offices in Toronto, Canada, Singapore, Raleigh, North Carolina, Portland Oregon, Boston, Massachusetts, Irvine and San Ramon, California. In 2016, Mr. Dyrness became President and Chief Technical Officer of ADVENT and guided the company to a merger with Trinity Consultants, a 700-person engineering consulting firm in 2017. He also served as a member of the board of directors of Oncobiologics, Inc. (Now Outlook Therapeutics, Inc. Nasdaq: OTLK) from December 2015 to September 2017. In 1986, Mr. Dyrness graduated from the Massachusetts Institute of Technology where he studied mechanical engineering and entrepreneurism.

 

Nailesh Bhatt (47) has served on Sonnet Sub’s board of directors since July 2018. Since January 2018, Mr. Bhatt has been the Chief Executive Officer and a Board Member of VGYAAN Pharmaceuticals LLC, a company focused on developing and commercializing clinically critical drugs. Prior to that, Mr. Bhatt Founded Proximare in November 2001 and is its Managing Director. Proximare is a strategic advisory firm focused exclusively on the pharmaceutical industry. He also serves as Board Member of Azurity Pharmaceuticals, Inc. since April 2018. In June 2015, Mr. Bhatt founded Proximare Lifesciences Fund. Mr. Bhatt pursued Bachelor of Arts at Boston University with major in Biology.

 

     

 

 

Raghu Rao (57) has served on Sonnet Sub’s board of directors since November 2019. Mr. Rao is a serial entrepreneur, strategic business advisor and angel investor. Mr. Rao has founded, scaled and had successful exits with several high-technology companies. In his 33-year career, Mr. Rao has advised clients on the strategy and roll-out of high-profile projects, such as USA.gov, TSA Screening Gateway, Cancer.gov and other eGovernment initiatives. As the Vistage Princeton Chair, from July 2012 to March 2017, Mr. Rao ran three high-performing peer advisory boards for middle-market CEOs and business leaders of several companies. As the Chairman & President of InfoZen from August 1995 to July 2008, Mr. Rao managed a high volume of U.S. Federal Government contracts. Mr. Rao is a 20-year Charter Member of The Indus Entrepreneurs (TiE.org) and a 5-year patron of the Indiaspora. He has held board positions at several companies including Cellix BioSciences (Jan 2016 - Jan 2017), Paper Battery Company (Jan 2009 - Dec 2018), Kovid Group (Feb 2016 - Oct 2017), WizNucleus (Jun 2010 - present) and InfoZen (Aug 1995 - Jul 2008). Mr. Rao is active in social entrepreneurship and community service. He co-founded the Hindu Jewish Coalition in December 2012 and Forum for Religious Freedom in March 2007 to preserve religious diversity worldwide. He has held non-profit board positions at the Infinity Foundation (New Jersey), Arsha Vidya Gurukulam (Pennsylvania) and the Family Services Agency (Maryland). Mr. Rao has an MBA in Finance from George Washington University (Dec 1991), an M.S. in Computer Science from Virginia Tech (Dec 1986), and a B.Tech. in Electrical Engineering from Indian Institute of Technology, Madras (June 1984).

 

Donald Griffith, CPA (71) has served on Sonnet Sub’s board of directors since its inception in April 2015, and was Chairman of the Sonnet Sub board from April 2015 to June 2018. Mr. Griffith has served as Sonnet Sub’s Financial Controller since January 1, 2019. Prior to being the Financial Controller, he served as Sonnet Sub’s Chief Executive Officer and Chief Financial Officer from April 2015 to December 2016. Before that, Mr. Griffith was the Chief Financial Officer, Director and Secretary of Oncobiologics Inc. (Now Outlook Therapeutics Nasdaq: OTLK) from 2011 to 2018. Mr. Griffith has over 40 years’ experience in finance and accounting and is the founder and Partner of Stolz & Griffith, LLC, a New Jersey accounting firm.

 

Board Committees

 

Effective as of the Effective Time, the Company’s audit committee was comprised of Mr. Rao, Mr. Dyrness and Mr. Bhatt (chairman), the Company’s compensation committee was comprised of Mr. Rao (chairman) and Mr. Dyrness, and the Company’s nominating committee was comprised of Mr. Rao, Mr. Dyrness (chairman) and Mr. Bhatt.

 

Director Compensation

 

In connection with the Merger, the Board approved a new director compensation policy for its non-employee directors. Other than reimbursement for reasonable expenses incurred in connection with attending board and committee meetings, this policy provides for the following cash compensation:

 

● each non-employee director is entitled to receive an annual fee from us of $35,000;

 

● the chair of our audit committee will receive an annual fee from us of $15,000;

 

● the chair of our compensation committee will receive an annual fee from us of $10,000;

 

● the chair of our nominating and corporate governance committee will receive an annual fee from us of $8,000; and

 

● each non-chairperson member of the audit committee, the compensation committee and the nominating and corporate governance committee will receive annual fees from us of $7,500, $5,000 and $4,000, respectively.

 

Each non-employee director that joins the Board receives an initial option grant to purchase 0.080% of the Company’s fully-diluted outstanding Common Stock at the Effective Time, which shall vest 33% per year over three years, the first vesting date to occur on the one-year anniversary of the grant date. Each non-employee director also receives an annual option grant to purchase 0.040% of the Company’s fully-diluted outstanding Common Stock at the Effective Time, which shall vest 100% upon the earlier of the one-year anniversary of the grant date or the next annual stockholder meeting. Upon a change in control, as defined in the Company’s equity incentive plan, 100% of the shares underlying these options shall become vested and exercisable immediately prior to such change in control.

 

     

 

 

Sonnet Sub entered into an employment agreement with Mr. Griffith on January 1, 2019, setting forth the terms of his employment as Financial Controller. Pursuant to the employment agreement, Mr. Griffith is entitled to, among other things, (i) an annual prorated gross base salary of $150,000 and (ii) eligibility for a target bonus equal 25% of gross salary earned. The employment agreement has no specific term and constitutes an at-will employment.

 

Agreements with Certain Executive Officers

 

Sonnet Sub entered into an employment agreement with Dr. Mohan on December 31, 2018 (the “Mohan Agreement”), setting forth the terms of his employment as Chief Executive Officer, which agreement was assumed by the Company at the Effective Time. Pursuant to the employment agreement, Dr. Mohan is entitled to, among other things, (i) an annual gross base salary of $490,000 and (ii) eligibility for a bonus equal to 2.5% of gross revenue received by the Company from a strategic transaction. The employment agreement shall terminate in accordance with its terms. Pursuant to Dr. Mohan’s employment agreement, if he is terminated without “Cause” or for “Good Reason” within 2 months prior to or within 12 months following a “Change in Control”, he is entitled to (i) his base salary for 18 months, (ii) a bonus equal to his performance bonus for the year in which the termination occurs, divided by 12, and then multiplied by 18, and (iii) if he timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 18 months following the termination date, (b) the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date he becomes ineligible for COBRA continuation coverage. If Dr. Mohan is terminated without “Cause” or for “Good Reason” not coincident with a “Change in Control”, he is entitled to (i) his base salary for 18 months, (ii) any performance bonus for the performance year in which his termination occurs, and (iii) if he timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 18 months following the termination date, (b) the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date he becomes ineligible for COBRA continuation coverage.

 

Sonnet Sub entered into an employment agreement with Dr. Cini on January 10, 2020 (the “Cini Agreement”), setting forth the terms of his employment as Chief Scientific Officer, which agreement was assumed by the Company at the Effective Time. Pursuant to the employment agreement, Dr. Cini is entitled to, among other things, (i) an annual gross base salary of $370,000 and (ii) eligibility for a bonus equal to 0.5% of gross revenue received by the Company from a strategic transaction. The employment agreement shall terminate in accordance with its terms. Pursuant to Dr. Cini’s employment agreement, if he is terminated without “Cause” or for “Good Reason” within 2 months prior to or within 12 months following a “Change in Control”, he is entitled to (i) his base salary for 12 months and (ii) if he timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 18 months following the termination date, (b) the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date he becomes ineligible for COBRA continuation coverage. If Dr. Cini is terminated without “Cause” or for “Good Reason” not coincident with a “Change in Control”, he is entitled to (i) his base salary for 9 months and (ii) if he timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 12 months following the termination date, (b) the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date he becomes ineligible for COBRA continuation coverage.

 

Sonnet Sub entered into an employment agreement with Mr. Cross on January 10, 2020 (the “Cross Agreement”), setting forth the terms of his employment as Chief Financial Officer, which agreement was assumed by the Company at the Effective Time. Pursuant to the employment agreement, Mr. Cross is entitled to, among other things, (i) an annual gross base salary of $365,000 and (ii) eligibility for a performance-based cash bonus of up to 40% of the base salary, as determined by the board. The employment agreement shall terminate in accordance with its terms. Pursuant to Mr. Cross’s employment agreement, if he is terminated without “Cause” or for “Good Reason” within 2 months prior to or within 12 months following a “Change in Control”, he is entitled to (i) his base salary for 12 months, (ii) any performance bonus for the performance year in which his termination occurs, and (iii) if he timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 18 months following the termination date, (b) the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date he becomes ineligible for COBRA continuation coverage. If Mr. Cross is terminated without “Cause” or for “Good Reason” not coincident with a “Change in Control”, he is entitled to (i) his base salary for 9 months, (ii) any performance bonus for the performance year in which his termination occurs, and (iii) if he timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 12 months following the termination date, (b) the date he becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date he becomes ineligible for COBRA continuation coverage.

 

On April 1, 2020, the Company entered into an employment agreement with Ms. Dexter (the “Dexter Agreement”), setting forth the terms of her employment as Chief Technical Officer. Pursuant to the employment agreement, Ms. Dexter is entitled to, among other things, (i) an annual gross base salary of $310,000 and (ii) eligibility for a performance-based cash bonus of up to 35% of the base salary, as determined by the board. The employment agreement shall terminate in accordance with its terms. Pursuant to Ms. Dexter’s employment agreement, if she is terminated without “Cause” or for “Good Reason” within 2 months prior to or within 12 months following a “Change in Control”, she is entitled to (i) her base salary for 12 months, (ii) any performance bonus for the performance year in which her termination occurs, and (iii) if she timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 18 months following the termination date, (b) the date she becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date she becomes ineligible for COBRA continuation coverage. If Ms. Dexter is terminated without “Cause” or for “Good Reason” not coincident with a “Change in Control”, she is entitled to (i) his base salary for 9 months, (ii) any performance bonus for the performance year in which her termination occurs, and (iii) if she timely continued coverage under COBRA, payment for COBRA premiums necessary to continue coverage until the earliest of (a) 12 months following the termination date, (b) the date she becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment, or (c) the date she becomes ineligible for COBRA continuation coverage.

 

     

 

 

The foregoing descriptions of the Mohan Agreement, the Cini Agreement, the Cross Agreement and the Dexter Agreement do not purport to be complete and are qualified in their entirety by reference to the complete text of the Mohan Agreement, the Cini Agreement and the Cross Agreement, respectively, which are filed herewith as Exhibits 10.4, 10.5, 10.6 and 10.7, respectively, and incorporated herein by reference.

 

Related-Party Transactions

 

The following is a summary of transactions since October 1, 2018 and all currently proposed transactions, to which the Company has been a participant, in which:

 

● the amounts exceeded or will exceed the lesser of $120,000 or one percent of the average of the company’s total assets at year-end for the last two completed fiscal years; and

 

● any of its current directors, executive officers or holders of more than 5% of the respective capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

Note Payable

 

In December 2016, Sonnet Sub issued an unsecured convertible promissory note to Princeton Kanaw LLC (the “Lender”) in exchange for cash proceeds of $1,000,000. The note had an original term of 330 days, which was subsequently extended until December 2018 and bore interest at a rate of 12% per year. The note was convertible into Sonnet Sub common stock at $1.00 per share, but also included a contingent beneficial conversion feature such that if Sonnet Sub were to issue shares of its common stock at an amount less than $1.00 per share then the conversion price would be reduced to the lower conversion price per share. During fiscal 2018, Sonnet Sub issued shares of its common stock at $0.80 per share to investors, and therefore Sonnet Sub recorded a beneficial conversion feature related to the reduction in conversion price of $250,000 as a debt discount. The beneficial conversion feature represented the difference between the estimated fair value of Sonnet Sub’s common stock at the original debt issuance date and the adjusted conversion price. In December 2018, the promissory note was converted into 1,250,000 shares of Sonnet Sub common stock. Sonnet Sub recognized interest expense of $116,233 and $283,767 during the years ended September 30, 2019 and 2018, of which $86,233 and $163,767 related to the amortization of the debt discount, respectively.

 

In March 2017, Sonnet Sub issued an additional unsecured convertible promissory note to the Lender in exchange for cash proceeds of $400,000. The note was guaranteed by the Dr. Mohan, the Company’s Chairman, President and Chief Executive Officer. The note had an original term of 330 days, which was subsequently extended until December 2018 and bore interest at a rate of 18% per year. As of September 30, 2018, the outstanding balance of the note was $390,000. Sonnet Sub recognized interest expense of $44,136 and $71,250 during the years ended September 30, 2019 and 2018, respectively. Sonnet Sub repaid the remaining outstanding principal balance in December 2018.

 

Other Related Party Notes

 

During the years ended September 30, 2019 and 2018, Sonnet Sub issued other unsecured notes payable to various related parties, including Dr. Mohan, Donald J. Griffith, and John K. Cini, resulting in cash proceeds of $338,493 and $184,300, respectively. These notes are payable on demand and payments of $274,554 and $71,040 were made during the year ended September 30, 2019 and 2018, respectively. The interest on these notes was de minimis during each of those fiscal years.

 

In December 2018, Sonnet Sub issued 275,000 shares of its common stock to settle $220,000 of related party notes.

 

The total amount of related party notes outstanding was $217,380 and $573,441 at September 30, 2019 and 2018, respectively.

 

Sonnet BioTherapeutics Holdings, Inc. 2020 Omnibus Equity Incentive Plan

 

On April 1, 2020, Sonnet BioTherapeutics Holdings, Inc. 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) became effective. The Company’s stockholders approved the 2020 Plan at the Special Meeting, and reserved a total of 653,846 shares of Common Stock for issuance thereunder. The general purpose of the 2020 Plan is to provide a means whereby eligible employees, officers, non-employee directors, consultants, advisors and other individual service providers may develop a sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to us, thereby advancing our interests and the interests of stockholders of the Company. The 2020 Incentive Plan provides for options to purchase shares of common stock, stock appreciation rights restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards. Employees, officers, directors, consultants, advisors and other individual service providers of our Company and our subsidiaries who, in the opinion of the Compensation Committee, are in a position to contribute to our success, or any person who is determined by the Compensation Committee to be a prospective employee, officer, director, consultant, advisor or other individual service provider of the Company or any subsidiary will be eligible for granted under the 2020 Plan.

 

     

 

 

The terms and conditions of the 2020 Plan are described in the section entitled “Chanticleer Proposal No. 4 (Plan Proposal): To Approve the Sonnet BioTherapeutics Holdings, Inc. 2020 Omnibus Equity Incentive Plan and to Authorize for Issuance 17,000,000 Shares of Common Stock Thereunder” in the Company’s prospectus/definitive proxy statement filed with the SEC on February 11, 2020 (the “Proxy Statement/Prospectus”). The foregoing description of the 2020 Plan and the information incorporated by reference in the preceding sentence does not purport to be complete and is qualified in its entirety by the terms and conditions of the 2020 Plan, which is incorporated by reference to this Current Report on Form 8-K as Exhibit 10.8 and is incorporated herein by reference.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

 

The information set forth in Item 3.03 of this Current Report on Form 8-K is incorporated by reference into this Item 5.03.

 

The Company’s current fiscal year end is December 31 of each year. The Company intends to consider changing its fiscal year end to Sonnet Sub’s fiscal year end of September 30.

 

Item 8.01 Other Events.

 

Business Update

 

As a result of the Merger and the Spin-Off, the Company is a clinical-stage biopharmaceutical company with a proprietary technology for developing novel biologic medicines we refer to as FHAB™ (Fully Human Albumin Binding). FHAB utilizes a fully human single chain antibody fragment (scFv) linked to either one or two therapeutic molecules capable of affecting single- or bi-specific mechanisms of action. The FHAB construct contains a domain that is designed to bind to and “hitch hike” on human serum albumin (HSA) for transport to tumors and sites of inflammation. This design potentiates drug accumulation in target tissues and extension of the duration of therapeutic activity in the body. FHAB development candidates are produced in a mammalian cell culture, which enables glycosylation, thereby reducing the risk of immunogenicity. Our pipeline includes cytokine-based immuno-oncology products and we believe our FHAB technology is well suited for future drug development across a range of human disease areas, including autoimmune, inflammatory, and hematological conditions. 

 

Our current internal pipeline development activities are focused on cytokines, a class of cell signaling peptides that, among other important functions, serve as immunomodulatory agents with potent anti-cancer properties. Working both independently and synergistically, specific cytokines – interleukins - have shown the ability to modulate the activation and maturation of immune cells that fight cancer. However, because they do not preferentially accumulate at tumor sites and are quickly eliminated from the body, the conventional approach to achieving a treatment effect with cytokine therapy typically requires the administration of high and frequent doses. This results in low therapeutic efficacy accompanied by the potential for systemic toxicity, which poses challenges to the therapeutic application of this class of drugs in the cancer setting. We believe our FHAB technology offers a potential solution to this problem based on an in vivo study in a mouse melanoma model where FHAB significantly improved efficacy versus interleukin by itself due to targeted tumor accumulation and an enhanced therapeutic half-life. 

 

We have a pipeline of therapeutic compounds focused on oncology indications of high unmet medical need. 

 

● SON-080, our lead product candidate, is a fully human version of low dose Interleukin-6 (IL-6) that has successfully completed Phase I clinical trials and, during 2020, we expect to advance to a pilot efficacy Phase II study in patients with chemotherapy-induced peripheral neuropathy (CIPN), a common side effect of antineoplastic cancer regimens. We will also explore the development of low-dose IL-6 in diabetic peripheral neuropathy (DPN) through our SON-081 program, which will include a Phase Ib clinical trial as a next step. 

 

● SON-1010 (IL12- FHAB), our most advanced FHAB-derived compound, utilizes a fully human version of Interleukin-12 (IL-12) linked to FHAB. This compound is being developed for undisclosed solid tumor indications and is expected to enter a Phase I clinical trial in late 2020 or early 2021.

 

● SON-1210 (IL15- FHAB-IL12), our first bi-specific construct, combines FHAB with IL-12 and fully human Interleukin-15 (IL-15). This compound is also being developed for undisclosed solid tumor indications and is expected to enter a Phase I clinical trial in 2021.

 

In our discovery pipeline, we are investigating:

 

● SON-2014 (GMcSF- FHAB-IL18), a bi-specific combination of Granulocyte-Macrophage Colony Stimulating Factor (GM-CSF) and Interleukin-18 (IL-18) for undisclosed cancers; and 

 

● SON-3015 (anti-IL6- FHAB-anti-TGFβ), a bi-specific combination of anti-IL6 and anti-Tumor Growth Factor Beta for tumor and bone metastases.

 

 

 

 

Sonnet Sub Private Placement Transaction

 

On April 1, 2020, the Company and Sonnet Sub completed a previously announced private placement transaction with certain accredited investors for an aggregate purchase price of approximately $19.0 million (comprised of (I) a $4 million credit from Sonnet Sub and the Company to Chardan Capital Markets, LLC (“Chardan”), in lieu of certain transaction fees otherwise owed to Chardan, and (II) $15 million in cash from the other Investors (as defined below), subject to the offset amount described below) whereby, among other things, Sonnet Sub issued to the Investors shares of Sonnet Sub common stock immediately prior to the Merger (the “Pre-Merger Financing”), pursuant to the Securities Purchase Agreement (the “Financing Purchase Agreement”), made and entered into as February 7, 2020, by and among the Company, Sonnet Sub and the institutional investors party thereto (the “Investors”).

 

At the closing of the Pre-Merger Financing, (i) Sonnet Sub issued and sold to the Investors shares of Sonnet Sub’s common stock (the “Initial Shares” and, as converted pursuant to the Exchange Ratio in the Merger into the right to receive approximately 1,076,000 shares of Common Stock, the “Converted Initial Shares”), and (ii) Sonnet Sub deposited additional shares of Sonnet Sub’s common stock (as converted pursuant to the Exchange Ratio in the Merger into the right to receive approximately 1,076,000 shares of Common Stock, the “Converted Additional Shares”) into escrow for the benefit of the Investors if 85% of the average of the three lowest volume-weighted average trading prices of a share of Common Stock as quoted on the Nasdaq Capital Market during the first ten trading days immediately following the closing date of the Pre-Merger Financing is lower than the effective price per share paid by the Investors for the Converted Initial Shares, which was approximately $17.66 per share.

 

In addition, under the Financing Purchase Agreement the Company has agreed to issue on the tenth trading day following the consummation of the Merger (i) Series A Warrants to purchase Common Stock (the “Series A Warrants”) and (ii) Series B Warrants to purchase Common Stock (the “Series B Warrants” and, together with the Series A Warrants, the “Investor Warrants”).

 

The terms and conditions of the Pre-Merger Financing, including the Investor Warrants, are described in the section entitled “Agreements Related to the Merger—Pre-Merger Financing” in the Proxy Statement/Prospectus. The form of the Investor Warrants is incorporated by reference to this Current Report on Form 8-K as Exhibit 4.2 and is incorporated herein by reference.

 

Redemption of Series 1 Preferred Units

 

In connection with and prior to the Merger, all outstanding Series 1 Preferred Units, comprised of shares of the Company’s 9% Redeemable Series 1 Preferred Stock and warrants to purchase Common Stock, were redeemed and extinguished for their cash redemption price of $13.50 per unit.

 

Settlement of 8% Debentures

 

In connection with and prior to the Merger and Spin-Off, pursuant to an agreement among Amergent, Oz Rey LLC, a Texas limited liability company, the Company and certain other purchasers, the Company was released from all of its obligations under its 8% non-convertible secured debentures issued in May 2017, and the debentures were cancelled. In exchange, Amergent (i) issued 10% convertible secured debentures in an aggregate principal amount of $4,000,000 to the purchasers under the agreement, (ii) issued warrants to purchase common stock of Amergent to certain of the purchasers, and (iii) remitted payment of $2,000,000 plus reimbursement of certain expenses to the purchasers.

 

Exchange and Cancellation of Series 2 Preferred Stock

 

In connection with the Merger, all outstanding shares of the Company’s Series 2 Convertible Preferred Stock were automatically cancelled and exchanged for substantially similar shares of preferred stock in Amergent.

 

     

 

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired

 

Sonnet Sub’s unaudited interim financial statements for the three months ended December 31, 2019, and the notes related thereto, filed herewith and attached hereto as Exhibit 99.2, are incorporated herein by reference.

 

Sonnet Sub’s audited financial statements for the years ended September 30, 2019, and the notes related thereto, filed herewith and attached hereto as Exhibit 99.3, are incorporated herein by reference.

 

Relief Therapeutics Holding SA’s audited financial statements for the years ended December 31, 2019, and the notes related thereto, filed herewith and attached hereto as Exhibit 99.4, are incorporated herein by reference.

 

(b) Pro Forma Financial Information

 

The Company’s unaudited pro forma condensed consolidated financial statements for the year ended December 31, 2019 and the notes related thereto, filed herewith and attached hereto as Exhibit 99.5, are incorporated herein by reference.

 

The Company’s unaudited pro forma condensed consolidated financial statements for the three months ended December 31, 2019 and for the year ended September 30, 2019, and the notes related thereto, filed herewith and attached hereto as Exhibit 99.6, are incorporated herein by reference.

 

(d) Exhibits.

 

Exhibit No.   Exhibit
     
2.1   Agreement and Plan of Merger, dated October 10, 2019, by and among the Company, Sonnet Sub. and Merger Sub (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed on October 11, 2019, and incorporated herein by reference)
     
2.2   Amendment No. 1 to Agreement and Plan of Merger, dated February 7, 2020, by and among the Company, Sonnet Sub and Merger Sub (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed on February 7, 2020, and incorporated herein by reference)
     
3.1   Amendment to Certificate of Incorporation of the Company related to the Reverse Stock Split
     
3.2   Amendment to Certificate of Incorporation of the Company related to the Authorized Share Increase
     
3.3   Amendment to Certificate of Incorporation of the Company related to the Name Change
     
4.1   Spin-Off Entity Warrant, dated April 1, 2020
     
4.2   Form of Series A/B Warrants (incorporated by reference to Exhibit 4.16 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 7, 2020)
     
10.1   Common Stock Purchase Agreement, between GEM Global Yield Fund LLC SCS and Sonnet BioTherapeutics, Inc., dated August 6, 2019 (incorporated by reference to Exhibit 10.54 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 7, 2020)
     
10.2   Amendment to Common Stock Purchase Agreement, between GEM Global Yield Fund LLC SCS and Sonnet BioTherapeutics, Inc., dated September 25, 2019 (incorporated by reference to Exhibit 10.55 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 7, 2020)
     
10.3   Side Letter and Amendment No. 2 to Common Stock Purchase Agreement, between GEM Global Yield Fund LLC SCS, Sonnet BioTherapeutics, Inc. and Chanticleer Holdings, Inc., dated February 7, 2020 (incorporated by reference to Exhibit 10.60 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 7, 2020)
     
10.4   Employment Agreement, between Pankaj Mohan and Sonnet BioTherapeutics, Inc., dated December 31, 2018 (incorporated by reference to Exhibit 10.56 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 7, 2020)
     
10.5   Employment Agreement, between John Cini and Sonnet BioTherapeutics, Inc., dated January 10, 2020 (incorporated by reference to Exhibit 10.58 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 7, 2020)
     
10.6   Employment Agreement, between Jay Cross and Sonnet BioTherapeutics, Inc., dated January 10, 2020 (incorporated by reference to Exhibit 10.57 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 7, 2020)
     
10.7   Employment Agreement, between Susan Dexter and the Company, dated April 1, 2020
     
10.8   Sonnet BioTherapeutics Holdings, Inc. 2020 Omnibus Equity Incentive Plan (incorporated by reference from Annex D to the Company’s prospectus/definitive proxy statement as filed on February 11, 2020, and incorporated herein by reference)
     
23.1   Consent of KPMG, Independent Registered Public Accounting Firm
     
23.2   Consent of Mazars SA, Independent Public Accounting Firm
     
99.1   Press Release dated April 1, 2020
     
99.2   The unaudited interim financial statements of Sonnet Sub for the three months ended December 31, 2019, and the notes related thereto.
     
99.3   Sonnet BioTherapeutics, Inc. audited condensed financial statements for the years ended September 30, 2019 and 2018, and the notes related thereto.
     
99.4   Relief Therapeutics Holding SA’s audited condensed financial statements for the years ended December 31, 2019, and the notes related thereto.
     
99.5   The Unaudited pro forma condensed consolidated financial statements for
     
99.6   The Unaudited pro forma condensed consolidated financial statements for the year ended December 31, 2019, and the notes related thereto.

 

     

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Sonnet BioTherapeutics Holdings, Inc.
  a Delaware corporation
  (Registrant)
   
Date: April 2, 2020 By: /s/ Pankaj Mohan, Ph.D.
  Name: Pankaj Mohan, Ph.D.
  Title: Chief Executive Officer
 

 

     

 

 

Exhibit 3.1

 

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

CHANTICLEER HOLDINGS, INC.

 

Chanticleer Holdings, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Company”),

 

DOES HEREBY CERTIFY:

 

FIRST: The name of Company is Chanticleer Holdings, Inc.

 

SECOND: The Board of Directors of the Company, acting in accordance with the provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Certificate of Incorporation as follows:

 

The Certificate of Incorporation of the Company shall be amended by adding the following paragraphs immediately following the second paragraph of Article Fourth:

 

Contingent and effective upon the filing of this Certificate of Amendment to the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware (the “Effective Time”), each twenty-six (26) shares of common stock issued and outstanding prior to the Effective Time shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of common stock (the “Reverse Split”). No fractional share shall be issued in connection with the foregoing combination of the shares pursuant to the Reverse Split. The Company will pay in cash the fair value of such fractional shares, without interest and as determined in good faith by the Board of Directors of the Company when those entitled to receive such fractional shares are determined.

 

The Reverse Split shall occur automatically without any further action by the holders of common stock, and whether or not the certificates representing such shares of common stock have been surrendered to the Company; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of common stock issuable as a result of the Reverse Split unless the existing certificates evidencing the applicable shares of common stock prior to the Reverse Split are either delivered to the Company, or the holder notifies the Company that such certificates have been lost, stolen or destroyed, and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates.”

 

THIRD: Thereafter pursuant to a resolution of the Board of Directors, this Certificate of Amendment was submitted to the stockholders of the Company for their approval, and was duly adopted at a Special Meeting of Stockholders held on March 18, 2020, in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

[Signature Page Follows]

 

     
     

 

IN WITNESS WHEREOF, the undersigned, being a duly elected officer of the Corporation, has executed this Certificate of Amendment to the Certificate of Incorporation and affirms the statements herein contained on this 1st day of April, 2020.

 

  CHANTICLEER HOLDINGS, INC.
          
  By:  
  Name: Michael D. Pruitt
  Title: Chief Executive Officer

 

  -2-  

 

 

 

Exhibit 3.2

 

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

CHANTICLEER HOLDINGS, INC.

 

Chanticleer Holdings, Inc., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify that:

 

  1. The Certificate of Incorporation of the Corporation is hereby amended by deleting the first paragraph of Article Fourth thereof in its entirety and inserting the following in lieu thereof:

 

“FOURTH: The total number of shares of common stock which the Corporation is authorized to issue is 125,000,000, at a par value of $.0001 per share, and the total number of shares of preferred stock which the Corporation is authorized to issue is 5,000,000, at a par value of $.0001 per share.”

 

  2. The foregoing amendment was duly adopted in accordance with the provisions of Sections 242, 141 (by written consent of the board of directors), and 211 (at a special meeting of the stockholders) of the General Corporation Law of the State of Delaware.
     
  3. The effective date of this Certificate of Amendment is April 1, 2020.

 

[Signature Page Follows]

 

     
     

 

IN WITNESS WHEREOF, the undersigned, being a duly elected officer of the Corporation, has executed this Certificate of Amendment to the Certificate of Incorporation and affirms the statements herein contained on this 1st day of April, 2020.

 

  CHANTICLEER HOLDINGS, INC.
        
  By:  
  Name: Michael D. Pruitt
  Title: Chief Executive Officer

 

  -2-  

 

 

 

Exhibit 3.3

 

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

CHANTICLEER HOLDINGS, INC.

 

Chanticleer Holdings, Inc., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify that:

 

FIRST: That the name of this Corporation is Chanticleer Holdings, Inc. The Certificate of Incorporation of this Corporation was originally filed with the office of the Secretary of State of the State of Delaware on October 21, 1999 under the name Tulvine Systems, Inc. The name of this Corporation was changed to Chanticleer Holdings, Inc. by the Certificate of Merger filed with the office of the Secretary of State of the State of Delaware on May 2, 2005.

 

SECOND: The Board of Directors of the Corporation, acting in accordance with the provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware (the “DGCL”), adopted resolutions amending its Certificate of Incorporation as follows:

 

RESOLVED, that Article I of the Certificate of Incorporation be amended and restated in its entirety as follows:

 

“The name of this corporation is: Sonnet BioTherapeutics Holdings, Inc.”

 

THIRD: This Certificate of Amendment was duly adopted in accordance with Sections 141 and 242 of the DGCL.

 

FOURTH: Other than as set forth in this Certificate of Amendment, the Certificate of Incorporation shall remain in full force and effect, without modification, amendment or change.

 

[Signature Page Follows]

 

     
     

 

IN WITNESS WHEREOF, the undersigned, being a duly elected officer of the Corporation, has executed this Certificate of Amendment to the Certificate of Incorporation and affirms the statements herein contained on this 1st day of April, 2020

 

  CHANTICLEER HOLDINGS, INC.
     
  By:  
  Name: Michael D. Pruitt
  Title: Chief Executive Officer

 

  -2-  

 

 

 

Exhibit 4.1

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

SONNET BIOTHERAPEUTICS HOLDINGS, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.: Spin-Off Entity Warrant 1

Number of Shares of Common Stock: 186,161

Date of Issuance: April 1, 2020 (“Issuance Date”)

Initial Exercise Date: September 28, 2020

 

Sonnet BioTherapeutics Holdings, Inc., a company organized under the laws of Delaware (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Amergent Hospitality Group, Inc., the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, at any time on or after the date set forth above (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on April 1, 2025 (the “Expiration Date”) but not thereafter 186,161 fully paid non-assessable shares of Common Stock (as defined below), subject to adjustment as provided herein (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, this “Warrant”), shall have the meanings set forth in Section 12. This Warrant is being issued pursuant to that certain that certain Agreement and Plan of Merger, dated as of October 10, 2019.

 

 
 

 

1. EXERCISE OF WARRANT.

 

(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on or after the Initial Exercise Date and on or before the Expiation Date, in whole or in part (but not as to fractional shares), by delivery (whether via facsimile, electronic mail or otherwise) of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. Within one (1) Trading Day following the delivery of the Exercise Notice, the Holder shall make payment to the Company of an amount equal to the Exercise Price in effect on the date of such exercise multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash by wire transfer of immediately available funds (a “Cash Exercise”) or, if the provisions of Section 1(d) are applicable, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder, nor shall any ink-original signature or medallion guarantee (or other type of guarantee or notarization) with respect to any Exercise Notice be required, provided, that in the event of an exercise of this Warrant for all Warrant Shares then issuable hereunder, this Warrant is surrendered to the Company by the second (2nd) Trading Day following the date on which the Company has received each of the Exercise Notice and, if this Warrant is being exercise pursuant to a Cash Exercise, the Aggregate Exercise Price. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the third (3rd) Trading Day following the date on which the Holder has delivered the applicable Exercise Notice, the Company shall transmit by facsimile or electronic mail an acknowledgment of confirmation of receipt of the Exercise Notice, in the form attached to the Exercise Notice, to the Holder and the Company’s transfer agent (the “Transfer Agent”). So long as the Holder delivers the Aggregate Exercise Price (or notice of a Cashless Exercise) on or prior to the first (1st) Trading Day following the date on which the Exercise Notice has been delivered to the Company, then on or prior to the fifth (5th) Trading Day (the “Share Delivery Date”), the Company shall (X) if the Warrant Shares have been registered for resale under the Securities Act of 1933, and provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit / Withdrawal At Custodian system, or (Y) if the Warrant Shares have not been registered for resale under the Securities Act of 1933 or the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any, including without limitation for same day processing. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record and beneficial owner of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be, provided that the Holder delivers the Aggregate Exercise Price (or notice of a Cashless Exercise) within one (1) Trading Day of delivery of the Exercise Notice. If this Warrant is physically delivered to the Company in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than five (5) Trading Days after any exercise and at its own expense, issue and deliver to the Holder (or its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares issuable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but rather the number of Warrant Shares to be issued shall be rounded to the nearest whole number. The Company shall pay any and all transfer, stamp, issuance and similar taxes, costs and expenses (including, without limitation, fees and expenses of the Transfer Agent) which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant, provided, however, that the Company shall not be required to pay any tax which may be payable based on the income of the Holder or in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an affiliate thereof. The Holder shall be responsible for any tax which may be payable based on the income of the Holder or in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an affiliate thereof. The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination; provided, however, that the Company shall not be required to deliver Warrant Shares with respect to an exercise prior to the Holder’s delivery of the Aggregate Exercise Price (or notice of a Cashless Exercise) with respect to such exercise.

 

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(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.01 per share, subject to adjustment as provided herein.

 

(c) Cashless Exercise. Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

  Net Number = (A x B) – (A x C)  
    B  

 

For purposes of the foregoing formula:

 

  A= the total number of shares with respect to which this Warrant is then being exercised.
     
  B= as applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the Bid Price of the Common Stock as of the time of the Holder’s execution of the applicable Exercise Notice if such Exercise Notice is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 1(a) hereof, or (iii) the Closing Sale Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of “regular trading hours” on such Trading Day.
     
  C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

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If Warrant Shares are issued in such a cashless exercise, the Company acknowledges and agrees that in accordance with Section 3(a)(9) of the Securities Act of 1933, as amended, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 1(d).

 

(d) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 11.

 

(e) Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued shares of Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the shares of Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

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2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES

 

The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a) Adjustment Upon Subdivision or Combination of Common Stock. If the Company at any time while this Warrant is outstanding subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time while this Warrant is outstanding combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(b) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section 2 above, if, at any time while this Warrant is outstanding, the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, options, evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution.

 

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time while this Warrant is outstanding the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issuance or sale of such Purchase Rights.

 

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(b) Fundamental Transaction. The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 4(b), including agreements to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, which is exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction). Upon the consummation of each Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for the Company (so that from and after the date of the applicable Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Notwithstanding the foregoing, and without limiting Section 1(f) hereof, the Holder may elect, at its sole option, by delivery of written notice to the Company to waive this Section 4(b) to permit the Fundamental Transaction without the assumption of this Warrant.

 

5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.

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6. REISSUANCE OF WARRANTS.

 

(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. The acceptance of the new Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the new Warrant that the Holder has in respect of this Warrant.

 

(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form (but without the obligation to post a bond) and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender, provided, however, that the Company shall not be required to issue Warrants for fractional shares of Common Stock hereunder.

 

(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

 

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7. NOTICES. Whenever notice is required to be given under this Warrant, including, without limitation, an Exercise Notice, unless otherwise provided herein, such notice shall be given in writing, (i) if delivered (a) from within the domestic United States, by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, electronic mail or by facsimile or (b) from outside the United States, by International Federal Express, electronic mail or facsimile, and (ii) will be deemed given (A) if delivered by first-class registered or certified mail domestic, three (3) Trading Days after so mailed, (B) if delivered by nationally recognized overnight carrier, one (1) Trading Day after so mailed, (C) if delivered by International Federal Express, two (2) Trading Days after so mailed and (D) at the time of transmission, if delivered by electronic mail to the email address specified in this Section 8 prior to 5:00 p.m. (New York time) on a Trading Day, (E) the next Trading Day after the date of transmission, if delivered by electronic mail to each of the email address specified in this Section 8 on a day that is not a Trading Day or later than 5:00 p.m. (New York time) on any Trading Day and (E) if delivered by facsimile, upon electronic confirmation of receipt of such facsimile, and will be delivered and addressed as follows:

 

  (i) if to the Company, to:

 

Sonnet BioTherapeutics Holdings, Inc.

100 Overlook Center, Second Floor,

Princeton, New Jersey, 08540-7814

 

  (ii) if to the Holder, at such address or other contact information delivered by the Holder to Company or as is on the books and records of the Company.

 

The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) reasonably promptly upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to holders of any class of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation; provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the time of exercise specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.

 

8. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

 

9. GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

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10. TRANSFER. This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged or assigned without the consent of the Company.

 

11. SEVERABILITY; CONSTRUCTION; HEADINGS. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

 

12. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

 

(a) “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

(b) “Bid Price” means, for any security as of the particular time of determination, the bid price for such security on the Principal Market as reported by Bloomberg as of such time of determination, or, if the Principal Market is not the principal securities exchange or trading market for such security, the bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg as of such time of determination, or if the foregoing does not apply, the bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg as of such time of determination, or, if no bid price is reported for such security by Bloomberg as of such time of determination, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC) as of such time of determination. If the Bid Price cannot be calculated for a security as of the particular time of determination on any of the foregoing bases, the Bid Price of such security as of such time of determination shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 11. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

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(c) “Bloomberg” means Bloomberg Financial Markets.

 

(d) “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(e) “Closing Sale Price” means, for any security as of any date, the last closing trade price for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price then the last trade price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last trade price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 11. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

 

(f) “Common Stock” means (i) the Company’s Common Stock, par value $0.001 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

 

(g) “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

 

(h) “Eligible Market” means The NASDAQ Capital Market, the NYSE American LLC, The NASDAQ Global Select Market, The NASDAQ Global Market or The New York Stock Exchange, Inc.

 

-10-
 

 

(i) “Fundamental Transaction” means (A) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its shares of Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its shares of Common Stock, (B) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock not held by all such Subject Entities as of the Issuance Date calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other stockholders of the Company to surrender their Common Stock without approval of the stockholders of the Company or (C) directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.

 

-11-
 

 

(j) “Group” means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.

 

(k) “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

(l) “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person, including such entity whose common stock or equivalent equity security is quoted or listed on an Eligible Market (or, if so elected by the Holder, any other market, exchange or quotation system), or, if there is more than one such Person or such entity, the Person or such entity designated by the Holder or in the absence of such designation, such Person or entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(m) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(n) “Principal Market” means (i) the Nasdaq Capital Market, or (ii) if the Nasdaq Capital Market is not the principal trading market for the Common Stock, then the principal securities exchange or securities market on which the Common Stock is then traded.

 

(o) “Subject Entity” means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.

 

(p) “Successor Entity” means one or more Person or Persons (or, if so elected by the Holder, the Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or one or more Person or Persons (or, if so elected by the Holder, the Company or the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(q) “Trading Day” means any day on which the Common Stock is traded on the Principal Market.

 

[Signature Page Follows]

 

-12-
 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

  SONNET BIOTHERAPEUTICS HOLDINGS, INC.  
   
  By:                                   
  Name:   
  Title:  

 

-13-
 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK

 

SONNET BIOTHERAPEUTICS HOLDINGS, INC.

 

The undersigned holder hereby exercises the right to purchase                  shares of Common Stock (“Warrant Shares”) of Sonnet BioTherapeutics Holdings, Inc., a company organized under the laws of Delaware (the “Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:

 

a “Cash Exercise” with respect to                   Warrant Shares; and/or

 

a “Cashless

 

Exercise” with respect to                   Warrant Shares.

 

2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $                to the Company in accordance with the terms of the Warrant.

 

3. Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant.

 

4. Representations and Warranties. By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended) permitted to be owned under Section 1(f) of this Warrant to which this notice relates.

 

Date:                  ,   

 

   
Name of Registered Holder  
   
By:                    
Name:     
Title    

 

-14-
 

 

ACKNOWLEDGEMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs Securities Transfer Corporation to issue the above indicated number of shares of Common Stock on or prior to the applicable Share Delivery Date.

 

  SONNET BIOTHERAPEUTICS HOLDINGS, INC.
   
  By:                                
  Name:   
  Title:  

 

-15-

 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

The Board of Directors

Sonnet BioTherapeutics, Inc.:

 

We consent to the incorporation by reference in the registration statements (No. 333-214319 and No. 333-230857) on Form S-1, registration statements (No. 333-226107, No. 333-220336, and No. 333-237354) on Form S-3, and registration statement (No. 333-193742) on Form S-8 of Chanticleer Holdings, Inc. of our report dated November 27, 2019, with respect to the balance sheets of Sonnet BioTherapeutics, Inc. as of September 30, 2019 and 2018, the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes, which report appears in the Form 8-K of Chanticleer Holdings, Inc. dated April 2, 2020.

 

Our report dated November 27, 2019 contains an explanatory paragraph that states that Sonnet BioTherapeutics, Inc. has incurred recurring losses and negative cash flows from operations from inception, has a stockholders’ deficit of $2,845,487 as of September 30, 2019, and will require substantial additional financing to continue to fund its research and development activities that raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ KPMG LLP

 

Philadelphia, Pennsylvania

April 2, 2020

 

     

 

 

 

Exhibit 23.2

 

Consent Of Independent Public Accounting Firm

 

We hereby consent to the incorporation by reference in the Registration Statements on (i) Form S-1 (File Nos. 333-214319, 333-230857), (ii) Form S-3 (File Nos. 333-226107, 333-220336, 333-237354), and (iii) Form S-8 (File No. 333-193742) of our report dated March, 20, 2020, on the financial statements of Relief Therapeutics SA as of December 31, 2019 and 2018 and for the years then ended, which appears in this Current Report on Form 8-K of Sonnet Biotherapeutics Holdings, Inc. (to be filed on April 2, 2020). Our report on the financial statements of Relief Therapeutics SA includes an explanatory paragraph about the existence of substantial doubt concerning its ability to continue as a going concern.

 

/s/ Mazars SA    
     
/s/ Franck Paucod   /s/ Vincent Pichard
Franck Paucod   Vincent Pichard
Swiss CPA   US CPA

 

Geneva

April 2, 2020

 

     

 

 

 

Exhibit 99.1

 

Sonnet BioTherapeutics Holdings Announces Merger Closing

 

- Trading under “SONN” on the Nasdaq Capital Market to begin April 2, 2020

- Closed $19 million financing

 

PRINCEON, N.J., April 1, 2020 (GLOBE NEWSWIRE) – Sonnet BioTherapuetics Holdings, Inc., (Nasdaq: SONN), formerly known as Chanticleer Holdings, Inc., (the “Company”), a biopharmaceutical company developing innovative, targeted biologic drugs with enhanced single or bispecific mechanisms of action, today announced that its merger with Sonnet BioTherapeutics, Inc. (“Sonnet”) closed April 1, 2020. The combined company will operate under the name Sonnet BioTherapeutics Holdings, Inc., and its shares will commence trading on the Nasdaq Capital Market on April 2, 2020, under the ticker symbol “SONN”.

 

Pursuant to the merger, all of Sonnet’s outstanding shares of common stock and securities convertible into or exercisable for Sonnet’s common stock were converted into the Company’s common stock and securities convertible into or exercisable for the Company’s common stock. As a result of the merger, approximately 9,202,000 shares of the Company were outstanding as of April 1, 2020, after taking into account the previously announced 26-for-1 reverse stock split that became effective on April 1, 2020. Sonnet will operate as a wholly-owned subsidiary of the Company.

 

Immediately prior to the merger, Sonnet completed a private placement financing resulting in gross proceeds of $19 million under the terms of the securities purchase agreement previously announced in February 2020. In addition, immediately prior to the merger, Sonnet completed its acquisition of the global development rights for Atexakin Alfa (low dose formulation of Interleukin-6, IL-6, now “SON-080”) from Relief Therapeutics SA (“Relief”), through the issuance of shares of Sonnet common stock that converted into an aggregate of 757,933 shares of Company common stock in the merger. The Company will pursue the clinical development of SON-080 for the treatment of Peripheral Neuropathies focusing primarily on Chemotherapy-Induced Peripheral Neuropathy (CIPN).

 

In addition, in connection with the merger, the Company completed the spin-off of its restaurant operations to Amergent Hospitality Group, Inc. on April 1, 2020.

 

Pankaj Mohan, Ph.D., the Company’s Chief Executive Officer and the founder of Sonnet commented, “The closing of the merger transaction signifies an important milestone for Sonnet. We are excited about the funding that we have secured through respected institutional biotech investors which we believe will enable us to advance our pipeline and clinical programs.”

 

John Cini, Ph.D., the Company’s Chief Scientific Officer and a co-founder of Sonnet, added, “We are now at a point where we can advance the execution of our platform, which we believe can generate a new wave of immune therapeutics for cancer indications, with the potential to expand to other disease areas. We believe our proprietary platform is distinguished by its ability to target drug delivery to the area of therapeutic need while also providing higher residence time in the body. Together, we believe these features have the potential to enable therapeutics to treat cancer and other diseases in a way that provides high efficacy with low toxicity.”

 

     
 

 

A Current Report on Form 8-K containing more detailed information regarding the merger transaction and the Company’s financing will be filed with the Securities and Exchange Commission.

 

About Sonnet BioTherapeutics Holdings, Inc.

 

Founded in 2011, Sonnet is an oncology-focused biotechnology company with a proprietary platform for innovating biologic drugs of single or bispecific action. Known as FHAB™ (Fully Human Albumin Binding), the technology utilizes a fully human single chain antibody fragment (scFv) that binds to and "hitch-hikes" on human serum albumin (HSA) for transport to target tissues. FHAB™ is the foundation of a modular, plug-and-play construct for potentiating a range of large molecule therapeutic classes, including cytokines, peptides, antibodies and vaccines.

 

Forward-Looking Statements

 

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and Private Securities Litigation Reform Act, as amended, including those relating to the Company’s product development, clinical and regulatory timelines, market opportunity, competitive position, possible or assumed future results of operations, business strategies, potential growth opportunities and other statements that are predictive in nature. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s current beliefs and assumptions.

 

These statements may be identified by the use of forward-looking expressions, including, but not limited to, “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “potential, “predict,” “project,” “should,” “would” and similar expressions and the negatives of those terms. These statements relate to future events or our financial performance and involve known and unknown risks, uncertainties, and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include those set forth in the Company’s filings with the Securities and Exchange Commission. Prospective investors are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Sonnet Biotherapeutics Investor Contact

 

Alan Lada

Solebury Trout

617-221-8006

alada@soleburytrout.com

 

     

 

Exhibit 99.2

 

SONNET BIOTHERAPEUTICS, INC.

 

INDEX TO UNAUDITED INTERIM FINANCIAL STATEMENTS

 

    Page
     
Balance Sheets   1
Statements of Operations   2
Statements of Changes in Stockholders’ Deficit   3
Statements of Cash Flows   4
Notes to Interim Financial Statements   5

 

     
 

 

Sonnet Biotherapeutics, Inc.

Balance Sheets

(unaudited)

 

    December 31, 2019     September 30, 2019  
Assets                
Current assets:                
Cash   $ 889,493     $ 35,653  
Prepaid expenses other current assets     19,484       4,101  
Total current assets     908,977       39,754  
Property and equipment     48,414        
Total assets   $ 957,391     $ 39,754  
Liabilities and stockholders’ deficit                
Current liabilities:                
Related-party notes   $ 919     $ 217,380  
Accounts payable     3,207,287       1,842,996  
Accrued expenses     148,696       824,865  
Total liabilities     3,356,902       2,885,241  
Commitments (note 7)                
Stockholders’ deficit:                
Preferred stock; no par value: 10,000,000 shares authorized; no shares issued or outstanding            
Common stock; no par value: 100,000,000 shares authorized; 53,339,250 and 52,055,250 issued and outstanding at December 31, 2019 and September 30, 2019, respectively     12,509,685       9,594,655  
Accumulated deficit     (14,909,196 )     (12,440,142 )
Total stockholders’ deficit     (2,399,511 )     (2,845,487 )
Total liabilities and stockholders’ deficit   $ 957,391     $ 39,754  

 

See accompanying notes to unaudited interim financial statements.

 

  1  
 

 

Sonnet BioTherapeutics, Inc.

Statements of Operations

(unaudited)

 

    Three Months Ended December 31,  
    2019     2018  
Operating expenses:                
Research and development   $ 1,408,148     $ 57,985  
General and administrative     1,060,906       98,064  
Loss from operations     (2,469,054 )     (156,049 )
                 
Interest expense           (135,998 )
Net loss   $ (2,469,054 )   $ (292,047 )
Per share information:                
Net loss per share of common stock, basic and diluted   $ (0.05 )   $ (0.01 )
Weighted average shares outstanding, basic and diluted     52,470,467       48,029,364  

 

See accompanying notes to unaudited interim financial statements.

 

  2  
 

 

Sonnet BioTherapeutics, Inc.

Statements of Changes in Stockholders’ Deficit

(unaudited)

 

    Common stock    

Accumulated

     
    Shares     Amount     deficit     Total  
Balance at September 30, 2019     52,055,250     $ 9,594,655     $ (12,440,142 )   $ (2,845,487 )
Sale of common stock, net of issuance cost     1,204,000       2,715,030             2,715,030  
Issuance of common stock to settle related-party notes     80,000       200,000             200,000  
Net loss                 (2,469,054 )     (2,469,054 )
Balance at December 31, 2019     53,339,250     $ 12,509,685     $ (14,909,196 )   $ (2,399,511 )

 

    Common stock    

Accumulated

     
    Shares     Amount     deficit     Total  
Balance at September 30, 2018     47,104,500     $ 5,177,655     $ (7,568,931 )   $ (2,391,276 )
Sale of common stock, net of issuance cost     812,500       629,000             629,000  
Conversion of convertible promissory notes into common stock     1,250,000       1,000,000             1,000,000  
Issuance of common stock to settle related-party notes     275,000       220,000             220,000  
Net loss                 (292,047 )     (292,047 )
Balance at December 31, 2018     49,442,000     $ 7,026,655     $ (7,860,978 )   $ (834,323 )

 

See accompanying notes to unaudited interim financial statements.

 

  3  
 

 

Sonnet BioTherapeutics, Inc.

Statements of Cash Flows

(unaudited)

 

    Three Months Ended December 31,  
    2019     2018  
Cash flows from operating activities:                
Net loss   $ (2,469,054 )   $ (292,047 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Noncash interest           86,233  
Change in operating assets and liabilities:                
Prepaid expenses and other current assets     (15,383 )     (7,547 )
Accounts payable     1,337,625       (99,653 )
Accrued expenses     (661,169 )     2,742  
Net cash used in operating activities     (1,807,981 )     (310,272 )
Cash flows from investing activities:                
Purchases of property and equipment     (21,748 )      
Net cash used in investing activities     (21,748 )      
Cash flows from financing activities:                
Proceeds from the issuance of common stock, net of issuance costs     2,700,030       629,000  
Proceeds received from related-party notes     30,000       2,000  
Repayments of related-party notes     (46,461 )     (280,554 )
Net cash provided by financing activities     2,683,569       350,446  
                 
Net increase in cash     853,840       40,174  
Cash, beginning of period     35,653       5,419  
Cash, end of period   $ 889,493     $ 45,593  
Supplemental disclosure of non-cash investing and financing activities:                
Conversion of convertible promissory note into common stock   $     $ 1,000,000  
Issuance of common stock to settle related-party notes   $ 200,000     $ 220,000  
Additions to property and equipment in accounts payable   $ 26,666     $  

 

See accompanying notes to unaudited interim financial statements.

 

  4  
 

 

Sonnet BioTherapeutics, Inc.

Notes to Unaudited Interim Financial Statements

 

(1) Nature of Business and Liquidity

 

Sonnet BioTherapeutics, Inc. (the Company or Sonnet) was incorporated as a New Jersey corporation on April 6, 2015. The Company is a clinical stage, oncology-focused biotechnology company with a proprietary platform for innovating biologic medicines of single- or bi-specific action. Known as FHAB™ (Fully Human Albumin Binding), the technology utilizes a fully human single chain antibody fragment (scFv) that binds to and “hitch-hikes” on human serum albumin (HSA) for transport to target tissues. The Company’s pipeline of therapeutic compounds for oncology indications of high unmet medical need includes lead candidate, SON-080, a fully human version of low dose Interleukin-6 (IL-6) that has successfully completed Phase I clinical trials and will advance to a pilot efficacy study in patients with chemotherapy-induced peripheral neuropathy (CIPN) during 2020.

 

The Company has incurred recurring losses and negative cash flows from operations activities since inception and it expects to generate losses from operations for the foreseeable future primarily due to research and development costs for its potential product candidates. As of December 31, 2019, the Company had cash of $889,493 and stockholders deficit of $2,399,511. The Company believes its cash at December 31, 2019 and the aggregate net proceeds of $8,855,000 received through April 1 2020 (see Note 8), are sufficient to fund the Company’s projected operations into the third quarter of fiscal 2021.

 

The Company will require additional capital in the future through equity or debt financings, partnerships, collaborations, or other sources to carry out the Company’s planned development activities. If additional capital is not secured when required, the Company may need to delay or curtail its operations until such funding is received. Various internal and external factors will affect whether and when the Company’s product candidates become approved for marketing and successful commercialization. The regulatory approval and market acceptance of the Company’s products candidates, length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the approval process will materially affect the Company’s financial condition and future operations.

 

Operations since inception have consisted primarily of organizing the Company, securing financing, developing its technologies through performing research and development and conducting preclinical studies. The Company faces risks associated with companies whose products are in development. These risks include the need for additional financing to complete its research and development, achieving its research and development objectives, defending its intellectual property rights, recruiting and retaining skilled personnel, and dependence on key members of management.

 

(2) Summary of Significant Accounting Policies

 

(a) Basis of presentation

 

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”). In the opinion of management, the accompanying unaudited interim financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the unaudited interim financial statements) considered necessary to present fairly the Company’s financial position as of December 31, 2019, its results of operations and cash flows for the three months ended December 31, 2019 and 2018. The unaudited interim financial statements presented herein do not contain the required disclosures under GAAP for annual financial statements and should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended September 30, 2019.

 

  5  
 

 

Sonnet BioTherapeutics, Inc.

Notes to Unaudited Interim Financial Statements

 

(b) Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

 

(c) Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of the asset. Expenditures for repairs and maintenance that do not extend the estimated useful life or improve an asset are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts, and any resulting gain or loss is included in the statement of operations and comprehensive loss. As of December 31, 2019, the plant property and equipment balance was comprised of leasehold improvements associated with the Princeton office lease discussed in Note 7. These improvements were not placed in service as of December 31, 2019.

 

(d) Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date, or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The standard is effective for the Company beginning October 1, 2020, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its related disclosures.

 

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurements, which changes the fair value measurement disclosure requirements of ASC 820. The goal of the ASU is to improve the effectiveness of ASC 820’s disclosure requirements. The standard is applicable to public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years. The Company is currently evaluating the potential impact of the adoption of this standard on its related disclosures.

 

  6  
 

 

Sonnet BioTherapeutics, Inc.

Notes to Unaudited Interim Financial Statements

 

(3) Accrued Expenses

 

Accrued expenses consisted of the following:

 

    December 31, 2019     September 30, 2019  
Compensation and benefits   $ 22,319     $ 166,951  
Professional fees     126,378       657,914  
    $ 148,697     $ 824,865  

 

(4) Debt

 

Related party notes

 

During the three months ended December 31, 2019 and 2018, the Company issued unsecured notes payable to various related parties resulting in cash proceeds of $30,000 and $2,000, respectively. These notes are payable on demand and payments of $46,461 and $280,554 were made during the three months ended December 31, 2019 and 2018, respectively. The interest on these notes was de minimis during each of those periods.

 

In October 2019 and December 2018, the Company issued 80,000 and 275,000 shares of common stock to settle $200,000 and $220,000 of related party notes, respectively.

 

The total amount of related party notes outstanding was $919 and $217,380 at December 31, 2019 and September 30, 2019, respectively.

 

(5) Stockholders’ Deficit

 

Common stock

 

During the three months ended December 31, 2019, the Company sold 12,040 equity units to investors for net proceeds of $2,715,030. Each unit was comprised of 100 shares of common stock and 50 warrants to purchase shares of the Company’s common stock with an exercise price of $3.125. As of December 31, 2019, the Company had 722,000 warrants outstanding which expire three years from the date the Company’s stock is listed for trading on a stock exchange and each warrant has an exercise price of $3.125.

 

During the three months ended December 31, 2018, the Company sold 812,500 shares of common stock to investors for net proceeds of $629,000.

 

(6) Related Party Transactions

 

During the three months ended December 31, 2019 and 2018, the Company entered into various debt agreements with several officers of the Company. The terms of the debt and related components are further described in more detail in Note 4.

 

  7  
 

 

Sonnet BioTherapeutics, Inc.

Notes to Unaudited Interim Financial Statements

 

(7) Commitments

 

(a) Legal Proceedings

 

From time to time, the Company is a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of its business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

 

(b) Employment Agreements

 

The Company has entered into employment contracts with its officers and certain employees that provide for severance and continuation of benefits in the event of termination of employment either by the Company without cause or by the employee for good reason, both as defined in the contract. In addition, in the event of termination of employment following a change in control, as defined, either by the Company without cause or by the employee for good reason, any unvested portion of the employee’s initial stock option grant becomes immediately vested. Through December 31, 2019 no stock options have been granted.

 

(c) Operating Leases

 

The Company leases office space under various operating leases with terms of one year or less and expiring through May 2020. Rent expense related to the Company’s operating leases was $24,702 for the three months ended December 31, 2019. Rent expense was de minimis for the three months ended December 31, 2018.

 

In December 2019, the Company entered into a 36 month lease for office space in Princeton, New Jersey, which commences in February 2020. Monthly minimum lease payments are initially $7,909 for the first 12 months, $8,068 for the next 12 months, and $8,229 for the last 12 months.

 

(8) Subsequent Events

 

The Company has evaluated subsequent events from the balance sheet date through April 1, 2020, the date at which the interim financial statements were available to be issued, and there are no other items requiring disclosure except for the following:

 

Sale of Common Stock

 

During the three months ended March 31, 2020, the Company sold 5,420 units of equity to investors for net proceeds of $1,355,000. Each unit was comprised of 100 shares of common stock and 50 warrants to purchase shares of common stock at an exercise price of $3.125 per share and for a period of three years from the date the Company’s stock is listed for trading on a stock exchange.

 

Relief Therapeutics SA

 

In August 2019, the Company executed a Share Exchange Agreement with Relief Therapeutics SA (“Relief”), in which the Company will acquire the outstanding shares of Relief by issuing 7,111,947 shares of the Company’s common stock. The Company will assume the development of Relief’s asset, atexakin alfa, together with its proprietary experimental drugs. The acquisition of relief closed on April 1, 2020.

 

  8  
 

 

Sonnet BioTherapeutics, Inc.

Notes to Unaudited Interim Financial Statements

 

Merger with Sonnet BioTherapeutics Holdings, Inc.

 

On October 10, 2019, Sonnet BioTherapeutics Holdings, Inc. (formerly known as Chanticleer Holdings, Inc.) (“Sonnet Holdings”), its wholly owned subsidiary, Biosub Inc., and the Company entered into a Merger Agreement, as amended on February 7, 2020, pursuant to which Biosub Inc. will merge with and into the Company, with the Company continuing as a wholly-owned subsidiary of Sonnet Holdings and the surviving corporation of the merger. The merger closed on April 1, 2020.

 

In connection with the transactions contemplated by the merger, on February 7, 2020, the Company and Sonnet Holdings entered into a securities purchase agreement, with certain accredited investors (the “Investors”) pursuant to which, among other things, the Company agreed to issue to the Investors shares of the Company’s common stock immediately prior to the merger and Sonnet Holdings agreed to issue to the Investors warrants to purchase shares of Sonnet Holdings common stock on the tenth trading day following the consummation of the merger in a private placement transaction for an aggregate purchase price of approximately $19.0 million (which amount is comprised of (x) a $4.0 million credit to Chardan Capital Markets, LLC (“Chardan”), in lieu of certain transaction fees otherwise owed to Chardan by the Company, and (y) $15.0 million in cash from the other Investors). From the $15 million of cash received, $6.0 million was paid to Sonnet Holdings at the time of close (and transferred to a then-wholly-owned subsidiary which was spun-out from Sonnet Holdings along with Sonnet Holdings’ restaurant business at the time of the merger) and approximately $1.5 million transaction costs were paid, resulting in net cash proceeds of $7.5 million.

 

The Company entered into a common stock purchase agreement with GEM Global Yield Fund LLC SCS (“GEM”) on August 6, 2019, as amended on September 25, 2019 and January 31, 2020, (the “GEM Agreement”). Pursuant to the GEM Agreement, GEM agreed to purchase up to $20.0 million (“Aggregate Limit”) of the Company’s common stock over a three-year period commencing on the date the original agreement was executed; provided that during any period when the Company’s public float is less than $75.0 million, the Aggregate Limit will instead be equal to one-third of the amount of the Company’s public float over any consecutive 12-month period. No common stock has been issued to date under the GEM Agreement.

 

Coronavirus Pandemic

 

On March 10, 2020, the World Health Organization characterized the novel COVID-19 virus as a global pandemic. There is significant uncertainty as to the likely effects of this disease which may, among other things, materially impact the Company’s planned clinical trials. This pandemic or outbreak could result in difficulty securing clinical trial site locations, CROs, and/or trial monitors and other critical vendors and consultants supporting the trial. In addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact the Company’s ability to enroll patients. These situations, or others associated with Covid-19, could cause delays in the Company’s clinical trial plans and could increase expected costs, all of which could have a material adverse effect on the Company’s business and its financial condition. At the current time, the Company is unable to quantify the potential effects of this pandemic on its future operations.

 

  9  

 

Exhibit 99.3

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

Sonnet BioTherapeutics, Inc.:

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Sonnet BioTherapeutics, Inc. (the Company) as of September 30, 2019 and 2018, the related statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses and negative cash flows from operations since inception, has a stockholders’ deficit of $2,845,487 as of September 30, 2019, and will require substantial additional financing to continue to fund its research and development activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KPMG LLP

 

We have served as the Company’s auditors since 2015.

 

Philadelphia, Pennsylvania

November 27, 2019

 

     
 

 

Sonnet Biotherapeutics, Inc.

 

Balance Sheets

 

    September 30,  
    2019     2018  
Assets                
Current assets:                
Cash   $ 35,653     $ 5,419  
Prepaid expenses and other current assets     4,101        
Total current assets and total assets   $ 39,754     $ 5,419  
Liabilities and stockholders’ deficit                
Current liabilities:                
Related-party convertible promissory notes   $     $ 1,303,767  
Related-party notes     217,380       573,441  
Accounts payable     1,842,996       453,429  
Accrued expenses     824,865       66,058  
Total liabilities     2,885,241       2,396,695  
Contingencies and commitments (note 9)                
Stockholders’ deficit:                
Preferred stock; no par value: 10,000,000 shares authorized; no
shares issued or outstanding
           
Common stock; no par value: 100,000,000 shares authorized; 52,055,250 and 47,104,500 issued and outstanding at September 30, 2019 and 2018, respectively     9,594,655       5,177,655  
Accumulated deficit     (12,440,142 )     (7,568,931 )
Total stockholders’ deficit     (2,845,487 )     (2,391,276 )
Total liabilities and stockholders’ deficit   $ 39,754     $ 5,419  

 

See accompanying notes to financial statements.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Statements of Operations

 

    Year ended September 30,  
    2019     2018  
Operating expenses:                
Research and development   $ 2,199,297     $ 154,717  
General and administrative     2,509,041       363,877  
Loss from operations     (4,708,338 )     (518,594 )
                 
Interest expense     (162,873 )     (381,676 )
Net loss   $ (4,871,211 )   $ (900,270 )
Per share information:                
Net loss per share of common stock   $ (0.10 )   $ (0.02 )
Weighted average shares outstanding     50,216,305       46,939,089  

 

See accompanying notes to financial statements.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Statements of Stockholders’ Deficit

 

    Common stock     Accumulated      
    Shares     Amount     deficit     Total  
Balance at October 1, 2017     46,842,000     $ 4,717,655     $ (6,668,661 )   $ (1,951,006 )
Sale of common stock     262,500       210,000             210,000  
Beneficial conversion feature recorded in connection with down round protection of convertible promissory note           250,000             250,000  
Net loss                 (900,270 )     (900,270 )
Balance at September 30, 2018     47,104,500       5,177,655       (7,568,931 )     (2,391,276 )
Sale of common stock, net of issuance costs     3,253,750       2,767,000             2,767,000  
Conversion of convertible promissory note
into common stock
    1,525,000       1,220,000             1,220,000  
Issuance of common stock for consulting services     172,000       430,000             430,000  
Net loss                 (4,871,211 )     (4,871,211 )
Balance at September 30, 2019     52,055,250     $ 9,594,655     $ (12,440,142 )   $ (2,845,487 )

 

See accompanying notes to financial statements.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Statements of Cash Flows

 

    Years Ended December 31,  
    2019     2018  
Cash flows from operating activities:                
Net loss   $ (4,871,211 )   $ (900,270 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Common stock issued for consulting services     430,000        
Amortization of debt discount related to beneficial conversion feature     86,233       163,767  
Change in operating assets and liabilities:                
Prepaid expenses and other current assets     (4,101 )     7,930  
Accounts payable     1,389,567       43,517  
Accrued expenses and other liabilities     743,807       13,000  
Net cash used in operating activities     (2,225,705 )     (672,056 )
Cash flows from investing activities:                
Proceeds from sale of property and equipment           118,011  
Net cash provided by investing activities           118,011  
Cash flows from financing activities:                
Proceeds from the issuance of common stock, net of issuance costs     2,782,000       210,000  
Payment of principal of convertible promissory notes     (390,000 )     (10,000 )
Proceeds from the issuance of related-party notes     338,493       384,300  
Payments of related-party notes     (474,554 )     (71,040 )
Net cash provided by financing activities     2,255,939       513,260  
Net increase (decrease) in cash     30,234       (40,785 )
Cash, beginning of year     5,419       46,204  
Cash, end of year   $ 35,653     $ 5,419  
Supplemental disclosure of cash flow information:                
Cash paid during the year for interest   $ 99,890     $ 210,659  
Supplemental disclosure of non-cash financing activities                
Conversion of convertible promissory note into common stock   $ 1,000,000     $  
Issuance of common stock to settle related-party notes   $ 220,000     $  
Common stock issuance costs in accrued expenses   $ 15,000     $  
Beneficial conversion feature in connection with convertible promissory note   $     $ 250,000  

 

See accompanying notes to financial statements.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Notes to Financial Statements

 

(1) Nature of Business and Liquidity

 

Sonnet BioTherapeutics, Inc. (the Company or Sonnet) was incorporated as a New Jersey corporation on April 6, 2015. The Company is a clinical stage, oncology-focused biotechnology company with a proprietary platform for innovating biologic medicines of single- or bi-specific action. Known as FHAB™ (Fully Human Albumin Binding), the technology utilizes a fully human single chain antibody fragment (scFv) that binds to and “hitch-hikes” on human serum albumin (HSA) for transport to target tissues. The Company’s pipeline of therapeutic compounds for oncology indications of high unmet medical need includes lead candidate, SON-080, a fully human version of low dose Interleukin-6 (IL-6) that has successfully completed Phase I clinical trials and will advance to a pilot efficacy study in patients with chemotherapy-induced peripheral neuropathy (CIPN) during 2020.

 

From May 2011 to April 6, 2015, the Company operated as a division of Oncobiologics, Inc. (Oncobiologics). On April 6, 2015, the Board of Directors of Oncobiologics spun-off certain assets into Sonnet and concurrently distributed all of its shares in Sonnet on a pro rata basis to Oncobiologics’s stockholders.

 

The Company has incurred recurring losses and negative cash flows from operations since inception and has a stockholders’ deficit of $2,845,487 as of September 30, 2019. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenue from partnering arrangements or products currently in development. Management believes that the Company’s cash as of September 30, 2019, along with the receipt of $550,000 in fiscal 2020 (note 11), will fund the Company’s projected operations into the second half of calendar 2020. Substantial additional financing will be needed by the Company to fund its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management is currently evaluating different strategies to obtain the required funding for future operations. These strategies may include, but are not limited to, private placements of equity and/or debt, payments from potential strategic research and development partners, licensing, and/or marketing arrangements. There is no assurance that such financing will be available at all, or when needed.

 

Operations since inception have consisted primarily of organizing the Company, securing financing, developing its technologies through performing research and conducting preclinical studies. The Company faces risks associated with companies whose products are in development. These risks include the need for additional financing to complete its research and development, achieving its research and development objectives, defending its intellectual property rights, recruiting and retaining skilled personnel, and dependence on key members of management.

 

(2) Summary of Significant Accounting Policies

 

(a) Basis of presentation

 

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Notes to Financial Statements

 

(b) Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

 

(c) Fair Value of Financial Instruments

 

Management believes that the carrying amounts of the Company’s financial instruments, including accounts payable, approximate fair value due to the short-term nature of those instruments. The carrying amounts of the Company’s capital lease obligations approximate their fair value based on interest rates available on similar borrowings. Due to the related-party relationships of the Company’s debt (note 4), it is impractical to determine the fair value of the debt.

 

(d) Property and Equipment

 

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives. The costs of maintenance and repairs are expensed as incurred. Improvements and betterments that add new functionality or extend the useful life of the asset are capitalized.

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset. In September 2017, the Company ceased use of its research and development equipment due to the termination of employment of its research and development employees and transition into a virtual company environment. The Company sold certain property and equipment, including capital leases, and the remaining property and equipment was scrapped. During the year ended September 30, 2018, the Company received cash proceeds of $118,011 in the connection with the sale of certain property and equipment, property and equipment under capital leases was assigned to Oncobiologics (note 3), and the remaining property and equipment was scrapped. No depreciation was recognized in 2019 or 2018.

 

(e) Research and Development Expenses

 

Research and development expenses include all direct and indirect costs associated with the development of the Company’s biopharmaceutical products. These expenses include personnel costs, consulting fees, and payments to third parties for research, development, and manufacturing services. These costs are charged to expense as incurred.

 

(f) Income Taxes

 

The Company uses the asset-and-liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on its income tax return if such a position is more likely than not to be sustained.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Notes to Financial Statements

 

(g) Debt Issuance Costs

 

Debt issuance costs incurred in connection with debt are amortized to interest expense over the term of the respective financing arrangement. Debt issuance costs, net of related amortization, are deducted from the carrying value of the related debt.

 

(h) Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date, or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The standard is effective for the Company beginning October 1, 2020, with early adoption permitted. Unless the Company signs a long-term lease in the future, the adoption is not expected to have a material impact on the Company’s financial statements and related disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which provides specific guidance related to eight cash flow classification issues. The pronouncement is effective for interim and annual periods beginning after December 31, 2018, with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

 

In August 2018, the FASB issued ASU 2018-03, Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurements, which changes the fair value measurement disclosure requirements of ASC 820. The goal of the ASU is to improve the effectiveness of ASC 820’s disclosure requirements. The standard is applicable to public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years. The Company is currently evaluating the potential impact of the adoption of this standard on its related disclosures.

 

(3) Capital Lease Obligations

 

In October 2015 and April 2017, the Company entered into capital leases to finance the purchase of laboratory equipment. The leases were accounted for as capital lease obligations due to their bargain purchase options at the end of their respective lease terms. In September 2017, the Company ceased use of its property and equipment. In 2018, the Company sold and scrapped all of its property and equipment including the assignment of its outstanding capital lease obligations of $187,040 to Oncobiologics. No interest expense was recognized in 2019 related to capital leases. The Company recognized interest expense related to its capital leases of $18,659 for the year ended September 30, 2018.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Notes to Financial Statements

 

(4) Debt

 

Convertible promissory notes

 

The components of current convertible debt outstanding were as follows:

 

    September 30,  
    2018  
Convertible promissory notes   $ 1,390,000  
Less unamortized debt discount     (86,233 )
Total   $ 1,303,767  

 

In December 2016, the Company issued an unsecured convertible promissory note to Princeton Kanaw LLC (Lender) in exchange for cash proceeds of $1,000,000. The note had an original term of 330 days, which was subsequently extended until December 2018 and bore interest at a rate of 12% per year. The note was convertible into common stock at $1.00 per share, but also included a contingent beneficial conversion feature such that if the Company were to issue shares of common stock at an amount less than $1.00 per share then the conversion price would be reduced to the lower conversion price per share. During fiscal 2018, the Company issued shares of common stock at $0.80 per share to investors (note 6) and therefore, the Company recorded a beneficial conversion feature related to the reduction in conversion price of $250,000 as a debt discount. The beneficial conversion feature represented the difference between the estimated fair value of the Company’s common stock at the original debt issuance date and the adjusted conversion price. In December 2018, the promissory note was converted into 1,250,000 shares of common stock. The Company recognized interest expense of $116,233 and $283,767 during the years ended September 30, 2019 and 2018, of which $86,233 and $163,767 related to the amortization of the debt discount, respectively.

 

In March 2017, the Company issued an additional unsecured convertible promissory note to the Lender in exchange for cash proceeds of $400,000. The note was guaranteed by the Company’s CEO who is also a significant shareholder of the Company. The note had an original term of 330 days, which was subsequently extended until December 2018 and bore interest at a rate of 18% per year. The Company repaid the remaining outstanding principal balance in December 2018. As of September 30, 2018, the outstanding balance of the note was $390,000. The Company recognized interest expense of $44,136 and $71,250 during the years ended September 30, 2019 and 2018, respectively.

 

Other related party notes

 

In February 2018, the Company issued a $200,000 unsecured promissory note to a related party in exchange for cash proceeds of $200,000. The promissory note is collateralized by a first security lien on all of the assets of the Company. The promissory note had an original maturity date of August 2, 2018 and bore interest at a rate of 6% per year. As of September 30, 2018, the promissory note had an outstanding principal balance of $200,000. During the year ended September 30, 2019, the note was repaid. During the years ended September 31, 2019 and 2018, the Company recognized interest expense of $2,504 and $8,000, respectively.

 

During the years ended September 30, 2019 and 2018, the Company issued other unsecured notes payable to various related parties resulting in cash proceeds of $338,493 and $184,300, respectively. These notes are payable on demand and payments of $274,554 and $71,040 were made during the year ended September 30, 2019 and 2018, respectively. The interest on these notes was de minimis during each of those fiscal years.

 

In December 2018, the Company issued 275,000 shares of common stock to settle $220,000 of related party notes.

 

The total amount of related party notes outstanding was $217,380 and $573,441 at September 30, 2019 and 2018, respectively.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Notes to Financial Statements

 

(5) Accrued Expenses

 

Accrued expenses consisted of the following:

 

    September 30,  
    2019     2018  
Compensation and related benefits   $ 166,951     $ 31,260  
Interest           23,250  
Professional fees     657,914       11,548  
    $ 824,865     $ 66,058  

 

(6) Stockholders’ Deficit

 

Common stock

 

During the years ended September 30, 2019 and 2018, the Company sold 3,253,750 and 262,500 shares of common stock to investors for net proceeds of $2,767,000 and $210,000, respectively. During the year ended September 30, 2019, the Company issued 172,000 shares of common stock for consulting services and recognized an expense for the estimated fair value of the shares issued of $430,000 in the accompanying statement of operations.

 

Common stock warrants

 

During the year ended September 30, 2019, the Company issued 80,000 warrants to purchase shares of the Company’s common stock with an exercise price of $3.125. As of September 30, 2019 the Company had 80,000 warrants outstanding which expire three years from the date the Company’s stock is listed for trading on a stock exchange.

 

(7) Income Taxes

 

As of September 30, 2019, the Company has $12,293,271 and $12,097,865 of Federal and New Jersey net operating losses, respectively, that will begin to expire in 2035. As of September 30, 2019, the Company has Federal and New Jersey research and development tax credit carryforwards of $182,231 and $112,476 to reduce future tax liabilities, which will begin to expire in 2032 and 2023, respectively. Realization of the deferred tax asset is contingent on future taxable income and based upon the level of historical losses, management has concluded that the deferred tax asset does not meet the more-likely-than-not threshold for realizability. Accordingly, a full valuation allowance continues to be recorded against the Company’s deferred tax assets as of September 30, 2019 and 2018. The valuation allowance increased by $1,393,487 during the year ended September 30, 2019 and decreased by $510,567 during the year ended September 30, 2018.

 

When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more-likely-than-not be realized. The determination as to whether the tax benefit will more-likely-than-not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes interest and penalties accrued on any unrecognized tax benefits within the provision for income taxes in its consolidated statements of operations. No unrecognized tax benefits have been recorded.

 

In December 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. The corporate tax rate decreased from 34% to 21% effective for tax years beginning after December 31, 2017. For the years ended September 30, 2019 and 2018, the federal tax rate was 21.0% and 24.3%, respectively.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Notes to Financial Statements

 

The tax effects of the temporary differences that gave rise to deferred taxes were as follows:

 

    September 30,  
    2019     2018  
Deferred tax assets:                
Net operating loss carryforwards   $ 3,441,745     $ 2,097,363  
Research and development credit carryforward     294,707       294,707  
Other           2,399  
Gross deferred tax assets     3,736,452       2,394,469  
Less: valuation allowance     (3,736,452 )     (2,342,965 )
            51,504  
Deferred tax liability:                
Fixed assets           (27,264 )
Basis difference due to beneficial conversion feature           (24,240 )
Net deferred tax assets   $     $  

 

The Company recorded no income tax expense or benefit for the years ended September 30, 2019 and 2018. A reconciliation of income tax (expense) benefit at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows:

 

    Year ended September 30,  
    2019     2018  
U.S. federal statutory rate     (21.0 )%     (24.3 )%
State taxes, net of federal benefit     (7.2 )     (6.8 )
Change in tax rates           87.8  
Change in valuation allowance     28.6       (56.7 )
Other     (0.4 )      
Effective income tax rate     %     %

 

(8) Employee Benefit Plans

 

The Company sponsors a 401(k) defined-contribution plan (the Plan) covering all employees. Under the Plan, participating employees may defer up to the Internal Revenue Service’s annual contribution limit. The Company at its discretion may match each employee’s contributions up to 3% of their gross salary. No matching contributions were made for the year ended September 30, 2019. The Company contribution was $594 for the year ended September 30, 2018.

 

     
 

 

Sonnet BioTherapeutics, Inc.

 

Notes to Financial Statements

 

(9) Contingencies and Commitments

 

(a) Legal Proceedings

 

From time to time, the Company is a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of its business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

 

(b) Employment Agreements

 

The Company has entered into employment contracts with its officers and certain employees that provide for severance and continuation of benefits in the event of termination of employment either by the Company without cause or by the employee for good reason, both as defined in the contract. In addition, in the event of termination of employment following a change in control, as defined, either by the Company without cause or by the employee for good reason, any unvested portion of the employee’s initial stock option grant becomes immediately vested. Through September 30, 2019 no stock options have been granted.

 

(c) Operating Leases

 

The Company leases office space under various operating leases with terms of one year or less and expiring through May 2020. Rent expense related to the Company’s operating leases were $60,263 and $57,557 for the years ended September 30, 2019 and 2018, respectively.

 

(d) Relief Therapeutics SA

 

In August 2019, the Company executed a Share Exchange Agreement with Relief Therapeutics SA (“Relief”), in which the Company will acquire the outstanding shares of Relief by issuing 7,111,947 shares of the Company’s common stock. The Company will assume the development of Relief’s asset, atexakin alfa, together with its proprietary experimental drugs. The closing is expected to occur immediately prior the Company becoming a publicly traded corporation and subject to certain customary closing conditions.

 

(10) Related Party Transactions

 

In fiscal 2019 and 2018, the Company entered into various debt agreements with several officers of the Company. The terms of the debt and related components are further described in more detail in note 4.

 

(11) Subsequent Events

 

The Company has evaluated subsequent events from the balance sheet date through November 27, 2019, the date at which the financial statements were available to be issued, and there are no other items requiring disclosure except for the following:

 

During fiscal 2020, the Company sold 220,000 shares of common stock to investors at $2.50 per share for proceeds of $550,000 and issued 100,000 shares of common stock to settle $250,000 of related party notes with a stockholder. In addition, the Company issued 160,000 warrants to purchase shares of the Company’s common stock with an exercise price of $3.125 which expires three years from the date the Company’s stock is listed for trading on a stock exchange.

 

     

 

 

Exhibit 99.4

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

Exhibit 99.5

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Sonnet BioTherapeutics, Inc. (“Sonnet Sub”) and Chanticleer Holdings, Inc. (“Chanticleer”) entered into an Agreement and Plan of Merger dated October 10, 2019 (the “Merger Agreement”), by and among the Company, Sonnet Sub and Biosub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 entered into as of February 7, 2020 (the “First Amendment”) (the Merger Agreement, as amended by the First Amendment, the “Amended Merger Agreement”) as approved on March 18, 2019, pursuant to which Merger Sub merged with and into Sonnet Sub, with Sonnet Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”).

 

Following shareholder approval on March 18, 2018, but prior to the Merger, Sonnet Sub consummated a reverse stock split of its issued and outstanding common stock (the “Common Stock”) in a ratio of 1 for 26. All pro forma numbers and per share amounts of Common Stock have been retroactively restated to reflect the reverse split. On April 1, 2020, in connection with the Merger, the Company changed its name from Chanticleer Holdings, Inc. to Sonnet BioTherapeutics Holdings, Inc.

 

The following selected unaudited pro forma condensed combined financial data gives effect to (i) Sonnet’s acquisition of Relief, (ii) the reverse recapitalization discussed below, (iii) the Pre-Merger Financing, and (iv) proceeds from Sonnet Sub’s Pre-Closing Private Placement Transactions (collectively, the “Pro Forma Events”).

 

The merger is accounted for as a reverse recapitalization under U.S. GAAP because Chanticleer had nominal operations and assets at the time of the Merger. Sonnet was determined to be the accounting acquirer based upon the terms of the merger and other factors including: (i) Sonnet Stockholders own approximately 92% of the Fully Diluted Common Stock (ii) Sonnet Sub hold all of the board seats of the combined company and (iii) Sonnet Sub’s management will hold all key positions in the management of the combined company.

 

The unaudited pro forma condensed combined balance sheet data assume that the Pro Forma Events took place on December 31, 2019 and combines the Sonnet Sub, Relief and Chanticleer historical balance sheets at December 31, 2019. The unaudited pro forma condensed combined statements of operations data assume that the Pro Forma Events took place as of October 1, 2018, and combines the historical results of Sonnet Sub for the year ended September 30, 2019 and the historical results of, Relief and Chanticleer for year ended December 31, 2019. The historical financial statements of Sonnet are provided in Exhibits 99.2 and 99.3. The historical financial statements of Relief are provided in Exhibit 99.4. The historical financial statements of Chanticleer are included in the Chanticleer report 10-K filed with the SEC on March 19, 2020. These financial statements have been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.

 

 
 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Relief reports on a calendar year and has a different year end than Sonnet.

 

A twelve-month statement of operations for the period ended September 30, 2019 was derived as follows:

 

Relief unaudited statement of operations for the nine months ended September 30, 2019

 

Plus Relief audited statement of operations for the year ended December 31, 2018

 

Less Relief unaudited statement of operations for the nine months ended September 30, 2018

 

A three-month statement of operations for the period ended December 31, 2019 was derived as follows:

 

Relief audited statement of operations for the year ended December 31, 2019

 

Less Relief unaudited statement of operations for the nine months ended September 30, 2019

 

The unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed combined financial statements and pro forma adjustments have been prepared based on preliminary estimates of fair value of assets acquired and liabilities assumed. A final determination of these estimated fair values will be based on the actual net tangible assets of Relief that exist as of the date of completion of the transaction. Differences between these preliminary estimates and the final fair value of assets and liabilities acquired may occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined organization’s future results of operations and financial position.

 

The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the acquisition. The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had the recapitalization have occurred and Sonnet been a combined organization during the specified period. The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with the separate Sonnet, Relief and Chanticleer historical financial statements.

 

 
 

 

Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2019

(In thousands)

 

    Sonnet BioTherapeutics, Inc.     Relief Therapeutics SA     Pro Forma Adjustments     Notes   Pro Forma Sonnet BioTherapeutics, Inc.     Reverse Recapitalization     Notes   Pro Forma Combined  
Assets                                                        
Current assets:                                                        
Cash and cash equivalents   $ 889     $ 9     $ 1,355     A   $ 2,253     $ 9,000     E   $ 11,253  
Related party receivable           1,027                 1,027                 1,027  
Prepaid expenses and other current assets     20       27                 47                 47  
Total current assets     909       1,063       1,355           3,327       9,000           12,327  
Property and equipment   $ 48     $                 48     $           48  
Total assets   $ 957     $ 1,063     $ 1,355         $ 3,375     $ 9,000         $ 12,375  
Liabilities and stockholders’ equity (deficit)                                                        
Current liabilities:                                                        
Related-party notes   $ 1     $     $         $ 1     $         $ 1  
Accounts payable     3,207       56       (56 )   D     3,207                 3,207  
Other accrued expenses     148       142                 290       1,042     F     1,332  
Related party payable           14                 14                 14  
Total current liabilities     3,356       212       (56 )         3,512       1,042           4,554  
Defined benefit obligation           138       (138 )   C                      
Total liabilities     3,356       350       (194 )         3,512       1,042           4,554  
Stockholders’ equity (deficit):                                                        
Common stock     12,510       212       16,980     A,B     29,702       (29,701 )   G     1  
Additional paid-in capital           607       (607 )   B           42,701     G     42,701  
Accumulated deficit     (14,909 )     (106 )     (14,824 )   B     (29,839 )     (5,042 )   G     (34,881 )
Total stockholders’ equity (deficit)     (2,399 )     713       1,549           (137 )     7,958           7,821  
Total liabilities and stockholders’ equity   $ 957     $ 1,063     $ 1,355         $ 3,375     $ 9,000         $ 12,375  

 

 
 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended December 31, 2019

(In thousands, except share and per share data)

 

    Sonnet BioTherapeutics, Inc.     Relief Therapeutics SA     Pro Forma Adjustments     Notes   Pro Forma Combined  
Costs and expenses:                                    
Research and development   $ 1,408     $ 10     $         $ 1,418  
Selling, general and administrative     1,061       112       (231 )   H     942  
Total costs and expenses     2,469       122       (231 )         2,360  
Loss from operations     (2,469 )     (122 )     231           (2,360 )
Other income (expense)           133                 133  
Total other income (expenses)           133                 133  
(Loss) income before taxes     (2,469 )     11       231           (2,227 )
Income tax expense           (10 )               (10 )
Net (loss) income   $ (2,469 )   $ 1     $ 231         $ (2,237 )
                                     
Net loss per share, basic and diluted   $ (1.22 )                       $ (0.25 )
Weighted average common shares outstanding, basic and diluted     2,018,095                     J,K     9,105,218  

 

 
 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended September 30, 2019

(In thousands, except share and per share data)

 

    Sonnet BioTherapeutics, Inc.     Relief Therapeutics SA     Pro Forma Adjustments     Notes   Pro Forma Combined  
Costs and expenses:                                    
Research and development   $ 2,199     $ 68     $         $ 2,267  
Selling, general and administrative     2,509       81       (177 )   H     2,413  
Depreciation and amortization           3       (3 )   I      
Total costs and expenses     4,708       152       (180 )         4,680  
Loss from operations     (4,708 )     (152 )     180           (4,680 )
Interest expense     (163 )                     (163 )
Other income (expense)           1,379                 1,379  
Total other income (expenses)     (163 )     1,379                 1,216  
Net loss   $ (4,871 )   $ 1,227     $ 180         $ (3,464 )
                                     
Net loss per share, basic and diluted   $ (2.52 )                       $ (0.38 )
Weighted average common shares outstanding, basic and diluted     1,931,396                     J,K     9,001,825  

 

 
 

 

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

 

(1) Description of Transactions

 

Merger

 

Sonnet BioTherapeutics, Inc. (“Sonnet Sub”) and Chanticleer Holdings, Inc. (“Chanticleer”) entered into an Agreement and Plan of Merger dated October 10, 2019 (the “Merger Agreement”), by and among the Company, Sonnet Sub and Biosub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of February 7, 2020 (the “First Amendment”) (the Merger Agreement, as amended by the First Amendment, the “Amended Merger Agreement”) as approved on March 18, 2019, pursuant to which Merger Sub merged with and into Sonnet Sub, with Sonnet Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”).

 

In connection with, and immediately prior to the completion of, the Merger, the Company effected a reverse stock split of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at a ratio of 1-for-26 (the “Reverse Stock Split”). Immediately after completion of the Merger, the Company changed its name to “Sonnet BioTherapeutics Holdings, Inc.,” focused on advancing Sonnet Sub’s pipeline of oncology candidates and the strategic expansion of Sonnet Sub’s technology platform into other human diseases. Additionally, as part of the transaction, on April 1, 2020, the Company spun-off its restaurant operations into a newly-created wholly-owned subsidiary, Amergent Hospitality Group, Inc. (the “Spin-Off Entity” or “Amergent”), the equity of which was distributed out to the stockholders of the Company as of the close of business on March 26, 2020.

 

Under the terms of the Amended Merger Agreement, the Company issued shares of Common Stock to Sonnet Sub’s stockholders at an exchange ratio (the “Exchange Ratio”) of approximately 0.106572 shares of Common Stock, after taking into account the Reverse Stock Split (2.770872 prior to the reverse split), for each share of Sonnet Sub’s common stock outstanding immediately prior to the Merger. The Company also assumed all outstanding and unexercised warrants to purchase shares of Sonnet Sub’s common stock, and in connection with the Merger they were converted into warrants (the “Converted Warrants”) to purchase Common Stock, with the number of shares subject to such warrants, and the exercise price, being appropriately adjusted to reflect the Exchange Ratio. As a result, immediately following the Merger, there were outstanding Converted Warrants to purchase an aggregate of approximately 106,000 shares of Common Stock, all with terms of three years from their respective dates of issuance, between October 2019 and February 2020, and with an exercise price of $29.32 per share.

 

Immediately following the Merger, former stockholders and warrant holders of Sonnet Sub own, or hold rights to acquire, in aggregate, approximately 92% of the Fully Diluted Common Stock and the Company’s stockholders and warrant holders immediately prior to the Merger own or hold the right to own approximately 6% of the Fully-Diluted Common Stock and the Spin-Off Entity holds a warrant to purchase 2% of the the number of shares of issued and outstanding Common Stock. The Spin-Off Entity warrant holders cannot exercise the warrant until 180 days after the closing date.

 

Pre-Merger Financing

 

On February 7, 2020, Sonnet and Chanticleer entered into a securities purchase agreement (the “Securities Purchase Agreement”), with certain accredited investors (the “Investors”) pursuant to which, among other things, Sonnet Sub agreed to issue to the Investors shares of Sonnet Common Stock immediately prior to the merger and Chanticleer agreed to issue to the Investors warrants to purchase shares of Chanticleer Common Stock on the tenth trading day following the consummation of the merger in a private placement transaction for an aggregate purchase price of approximately $19 million which is comprised of a $4 million credit to Chardan Capital Markets, LLC (“Chardan”), in lieu of certain transaction fees otherwise owed to Chardan by Sonnet Sub, and $15 million in cash from the other Investors.

 

 
 

 

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

 

Acquisition of Relief

 

In connection with and prior to the Merger, on April 1, 2020, Sonnet Sub completed its acquisition of the global development rights for Atexakin Alfa from Relief Therapeutics Holding SA (“Relief Holding”) through its acquisition of Relief Holding’s wholly-owned subsidiary, Relief Therapeutics SA (“Relief”), in exchange for the issuance to Relief Holding of shares of Sonnet Sub common stock that converted into an aggregate of 757,935 shares of Common Stock in the Merger.

 

The Share Exchange Agreement with Relief is accounted for as an asset acquisition as substantially all of the fair value of the gross assets acquired is concentrated Relief’s atexakin alfa asset. The closing occurred immediately prior to the Merger.

 

(2) Basis of Presentation

 

The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC. The unaudited pro forma condensed combined balance sheet as of December 31, 2019 is presented as if the Pro Forma Events had been completed on December 31, 2019. The unaudited pro forma condensed combined statement of operations for the year ended September 30, 2019 and three months ended December 31, 2019 assumes that the Pro Forma Events occurred on October 1,

 

The historical financial information of Relief was prepared in accordance with IFRS and presented in Swiss francs. The historical financial information was translated from Swiss francs to U.S. dollars using an average exchange rate of 1.00 CHF to $1.01 for the twelve months ended September 30, 2019 and the three months ended December 31, 2019. The spot exchange rate of 1.00 CHF to $1.02 as of December 31, 2019. There were no adjustments to convert Reliefs financial information from IFRS to U.S. GAAP.

 

 
 

 

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

 

For accounting purposes, Sonnet is considered to be the acquiring company and the merger will be accounted for as a reverse recapitalization of Chanticleer by Sonnet because on the merger date, Chanticleer will have nominal assets and operations as a result of the Disposition.

 

Under reverse recapitalization accounting, the assets and liabilities, if any, of Chanticleer would be recorded, as of the completion of the merger, at their book value because of the short-term nature of the instruments. No goodwill or intangible assets will be recognized and any excess consideration transferred over the value of the net assets, if any, of Chanticleer following determination of the actual purchase consideration for Chanticleer will be reflected as a reduction to equity. Consequently, the combined financial statements of Sonnet reflect the operations of Sonnet, the acquirer for accounting purposes, together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of Chanticleer, the legal acquirer, and a recapitalization of the equity of the accounting acquirer. The historical financial statements of Chanticleer are included in the Chanticleer report 10-K filed with the SEC on March 19, 2020 have been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.

 

To the extent there are significant changes to the business following completion of the merger, the assumptions and estimates set forth in the unaudited pro forma condensed combined financial statements could change significantly. Accordingly, the pro forma adjustments are subject to further adjustments as additional information becomes available and as additional analyses are conducted following the completion of the merger. There can be no assurances that these additional analyses will not result in material changes to the estimates of fair value.

 

(3) Pro Forma Adjustments
   
A. Reflects $1.4 million in proceeds from Pre-Closing Private Placement Transactions.
   
B. Reflects accounting for the acquisition of Relief as an asset acquisition and expensing the fair value allocated to the atexakin program as in-process research and development since Sonnet Sub determined the asset has no alternative future use without further development and regulatory approval.
   
C. Reflects elimination of Swiss pension not assumed from the Relief acquisition.
   
D. Reflects the settlement of IP maintenance fees in connection with the acquisition of Relief.
   
E. Reflects (i) $15.0 million in proceeds from the Pre-Merger Financing, and (ii) $(6) million payment of Payoff Amount upon consummation of the Merger.
   
F. Reflects accrued expenses as result of the Disposition and accrual of transaction costs in connection with the Merger.

 

 
 

 

Notes to the Unaudited Pro Forma Condensed Combined Financial Statements

 

G. To record (i) sale of Sonnet Sub common stock, in connection with the Pre-Merger Financing, (ii) issuance of common stock and warrants including the conversion of Series 2 Preferred Stock issued pursuant to the Bridge Financing to Chanticleer and disbursement of Payoff Amount in connection with the reverse recapitalization, (iii) transaction costs associated with the Merger, (iv) issuance of common stock to financial adviser upon consummation of the Merger and (v) Exchange Ratio adjustment to Sonnet Sub’s common stock outstanding.

 

    Common Stock     Additional Paid-In    

Accumulated

other Comprehensive

    Accumulated     Total
Stockholders’
 
(amounts in thousands)   Shares     Amount     Capital     Income     Deficit     Equity  
Sale of common stock in connection with Pre-Merger Financing     611,978       2       14,998                   15,000  
Issuance of common stock and warrants to Chanticleer including the conversion of Series 2 Preferred Stock issued pursuant to the Bridge Financing and disbursement of Payoff Amount in connection with the reverse recapitalization     549,721             (6,000 )                 (6,000 )
To record transaction costs                             (1,042 )     (1,042 )
Issuance of common stock to financial adviser upon consummation of Merger     163,194             4,000             (4,000 )      
Exchange ratio adjustment to Sonnet Sub’s common stock outstanding     5,854,369       (29,703 )     29,703                    
Pro forma adjustment     7,179,262     $ (29,701 )   $ 42,701     $     $ (5,042 )   $ 7,958  

 

H. Reflects elimination of transaction costs recorded in historical period that will not have a continuing impact on the pro forma statement of operations.
   
I. Reflects elimination of the historical Relief depreciation expense in the historical period that will not have a continuing impact on the pro forma statement of operations.
   
J. The pro forma combined basic and diluted earnings per share have been adjusted to reflect the pro forma net loss for the three months ended December 31, 2019 and the year ended September 30, 2019. In addition, the number of shares used in calculating the pro forma combined basic and diluted net loss per share has been adjusted to reflect the estimated total number of shares of common stock of the combined company that would be outstanding as of the acquisition of Relief. The following table sets forth the calculation of the pro forma weighted average number of common shares outstanding – basic and diluted prior to the application of the exchange ratio.

 

    Three Months Ended
December 31, 2019
    Year Ended
September 30, 2019
 
Historical Sonnet Sub weighted average shares outstanding     2,018,095       1,931,396  
Shares issued to Relief shareholders upon consummation of acquisition     273,536       273,536  
Pro forma weighted average shares outstanding     2,291,631       2,204,932  

 

K. The pro forma combined basic and diluted net loss per share have been adjusted to reflect the pro forma net loss the three months ended December 31, 2019 and the year ended September 30, 2019. In addition, the number of shares used in calculating the pro forma combined basic and diluted net loss per share has been adjusted to reflect the estimated total number of shares of common stock of the combined company that would be outstanding as of the closing of the merger. The following table sets forth the calculation of the pro forma weighted average number of common shares outstanding – basic and diluted.

 

    Three Months Ended
December 31, 2019
    Year Months Ended
September 30, 2019
 
Effect of applying the 2.77088 exchange ratio to historical reverse-splitt effected Sonnet Sub’s weighted average shares outstanding     5,591,893       5,351,662  
Shares issued to Relief shareholders upon consummation of acquisition     757,935       757,935  
Shares issued in connection with Pre-Merger Financing     1,695,717       1,695,717  
Shares issued in connection with Pre-Closing Private Placement Transactions     57,762       194,600  
Shares issued to Chanticleer shareholders upon consummation of Merger     549,720       549,720  
Shares issued to financial adviser upon consummation of Merger     452,191       452,191  
Pro forma weighted average shares outstanding     9,105,218       9,001,825  

 

 

 

 

Exhibit 99.6

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Sonnet BioTherapeutics, Inc. (“Sonnet Sub”) and Chanticleer Holdings, Inc. (“Chanticleer”) entered into an Agreement and Plan of Merger dated October 10, 2019 (the “Merger Agreement”), by and among the Company, Sonnet Sub and Biosub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 entered into as of February 7, 2020 (the “First Amendment”) (the Merger Agreement, as amended by the First Amendment, the “Amended Merger Agreement”) as approved on March 18, 2019, pursuant to which Merger Sub merged with and into Sonnet Sub, with Sonnet Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”).

 

Following shareholder approval on March 18, 2018, but prior to the Merger, Sonnet Sub consummated a reverse stock split of its issued and outstanding common stock (the “Common Stock”) in a ratio of 1 for 26. All pro forma numbers and per share amounts of Common Stock have been retroactively restated to reflect the reverse split. On April 1, 2020, in connection with the Merger, the Company changed its name from Chanticleer Holdings, Inc. to Sonnet BioTherapeutics Holdings, Inc.

 

The following selected unaudited pro forma condensed combined financial data gives effect to (i) the Merger, (ii) the Pre-Merger Financing, (iii) proceeds from Sonnet’s Pre-Closing Private Placement Transactions, (iv) Sonnet’s acquisition of Relief, and (v) the Disposition (collectively, the “Pro Forma Events”).

 

The merger is accounted for as a reverse recapitalization under U.S. GAAP because Chanticleer had nominal operatioThe merger is accounted for as a reverse recapitalization under U.S. GAAP because Chanticleer had nominal operations and assets at the time of the Merger. Sonnet was determined to be the accounting acquirer based upon the terms of the merger and other factors including: (i) Sonnet Stockholders own approximately 92% of the Fully Diluted Common Stock (ii) Sonnet Sub hold all of the board seats of the combined company and (iii) Sonnet Sub’s management will hold all key positions in the management of the combined company.

 

The Chanticleer and Sonnet unaudited pro forma condensed combined balance sheet data assume that the Pro Forma Events took place on December 31, 2019 and combines the Chanticleer and Sonnet historical balance sheets at December 31, 2019. The Chanticleer and Sonnet unaudited pro forma condensed combined statements of operations data assume that the Pro Forma Events took place as of January 1, 2019, and combines the historical results of Chanticleer for the year ended December 31, 2019, of Sonnet for the year ended September 30, 2019 . The historical financial statements of Sonnet are provided in Exhibits 99.2 and 99.3. The historical financial statements of Relief are provided in Exhibits 99.4. These financial statements have been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.

 

Chanticleer and Sonnet have different fiscal year ends. As Chanticleer’s fiscal year ended December 31 is within 93 days of Sonnet’s fiscal year ended September 30, pro forma condensed combined statement of operations for the year ended December 31, 2019 includes Sonnet’s operating results for its respective fiscal year ended September 30, 2019 as permitted by Rule 11-02 of Regulation S-X. Immediately following the completion of the Merger, the continuing reporting entity will have a fiscal year ended September 30.

 

The unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed combined financial statements and pro forma adjustments have been prepared based on preliminary estimates of fair value of assets acquired and liabilities assumed as of the date of completion of the transaction. Differences between these preliminary estimates and the final fair value of assets and liabilities acquired may occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined organization’s future results of operations and financial position.

 

The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the acquisition. The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Chanticleer and Sonnet been a combined organization during the specified period. The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with the separate Sonnet, Relief and Chanticleer historical financial statements.

 

     
 

 

Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2019

(In thousands)

 

    Sonnet BioTherapeutics, Inc.     Relief Therapeutics SA     Pro Forma Adjustments     Notes   Pro Forma Sonnet BioTherapeutics, Inc.     Chanticleer Holdings, Inc.     Pro Forma Adjustments     Notes   Pro Forma Combined  
Assets                                                                
Current assets:                                                                
Cash and cash equivalents   $ 889     $ 9     $ 1,355     A   $ 2,253     $ 501     $ 8,499     E   $ 11,253  
Accounts receivable                                 132       (132 )   F      
Related party receivable           1,027                 1,027                       1,027  
Inventories                                 287       (287 )   F      
Prepaid expenses and other current assets     20       27                 47       250       (250 )   F     47  
Assets held for sale, net                                                  
Total current assets     909       1,063       1,355           3,327       1,170       7,830           12,327  
Property and equipment   $ 48     $     $         $ 48     $ 5,630     $ (5,630 )   F   $ 48  
Operating lease assets                                 11,668       (11,668 )   F      
Goodwill                                 8,568       (8,568 )   F      
Intangible assets, net                                 3,657       (3,657 )   F      
Investments                                 381       (381 )   F      
Deposits and other assets                                 309       (309 )   F      
Assets of discontinued operations                                 149       (149 )   F      
Total assets   $ 957     $ 1,063     $ 1,355         $ 3,375     $ 31,532     $