As filed with the Securities and Exchange Commission on January 24, 2019

 

Registration No. 333-228031​

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

AMENDMENT NO. 2 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

PRECISION THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware   3842   33-1007393
(State or other jurisdiction of incorporation or
organization)
  (Primary Standard Industrial Classification Code
Number)
  (I.R.S. Employer Identification
Number)

 

2915 Commers Drive, Suite 900

Eagan, Minnesota 55121
(651) 389-4800
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

 

Bob Myers

Chief Financial Officer

Precision Therapeutics Inc.

2915 Commers Drive, Suite 900

Eagan, Minnesota 55121

(651) 389-4800

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

Copies of all correspondence to:

 

Martin R. Rosenbaum, Esq.

Maslon LLP

3300 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 55402

(612)-672-8326

Gerald J. Vardzel, Jr.
President
Helomics Holding Corporation
91 43rd Street

Pittsburgh, PA 15201
(412) 432-1508

Ralph V. De Martino, Esq.
Schiff Hardin LLP
901 K Street NW, Suite 700

Washington, DC 20001
(202) 724-6848

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions under the merger agreement described herein.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of  “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
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 7(a)(2)(B) of the Securities Act. ☐

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13c-4(i) (Cross-Border Issuer Tender Offer)
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
________________________

 

CALCULATION OF REGISTRATION FEE

 

 

 

Title of each class of securities to be registered Amount to be
Registered (1)
Proposed
maximum offering
price per unit
Proposed
maximum aggregate
offering price
Amount of
registration fee(7)(8)
Common Stock, $0.01 par value 7,500,000(2) $0.89 $6,637,500 $809.01
Common Stock, $0.01 par value 23,020,463(3) $1.00   $23,020,463  $2,790.08
Common Stock, $0.01 par value 600,000(4) $0.01 $6,000 $0.73
Series D Convertible Preferred Stock, $0.01 par value 3,500,000      (6)
Warrants to purchase common stock 14,842,130(5)      (6)

 

(1)Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), this registration statement also covers additional shares that may be issued as a result of stock splits, stock dividends or similar transactions.

 

(2)Represents the maximum number of shares of the Registrant’s common stock estimated to be issuable in connection with the merger transaction described herein, based on: (1) 4,000,000 shares to be issued in connection with the Merger (as defined herein), and (2) up to 3,500,000 shares of common stock issuable upon conversion of the series D preferred stock.

 

(3)Represents up to (1) 8,778,333 shares to be issued in exchange for the principal and interest balance of outstanding promissory notes of Helomics Holding Corporation at an exchange price of $1.00 per share in the Exchange Offer described herein and (2) up to 14,242,130 shares subject to warrants of the Registrant at an exercise price of $1.00 per share to be issued in exchange for outstanding warrants to purchase common stock of Helomics Holding Corporation in the Exchange Offer described herein. Pursuant to Rule 457, the fee is based upon the price paid upon exchange or exercise of the securities.

 

(4)Represents shares issuable upon exercise of warrants of the Registrant at an exercise price of $0.01 per share. Pursuant to Rule 457, the fee is based upon the price to be paid upon exercise of the securities.

 

(5)Warrants of the Registrant to be issued in exchange for outstanding warrants to purchase common stock of Helomics Holding Corporation.

 

(6)Pursuant to Rule 457(i) no additional fee due. Fee has been calculated on the common stock to be issued upon conversion.

 

(7)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) of the Securities Act. Helomics Holding Corporation is a private company and no market exists for its securities.

 

(8)   Previously paid.

 

This Registration Statement shall hereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933.

 

 

 

 

 

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The information in this proxy statement/prospectus/information statement is not complete and may be changed. Precision Therapeutics Inc. may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated January 24, 2019

 

 

 

PROPOSED MERGER AND SPECIAL MEETING

 

YOUR VOTE IS VERY IMPORTANT

 

 

 

To the Stockholders of Precision Therapeutics Inc.:

 

Attached are proxy materials for the Special Meeting, at which the stockholders will consider, among other proposals, approval of an Amended and Restated Agreement and Plan of Merger, dated as of October 26, 2018 among Precision Therapeutics Inc. (“Precision”), Helomics Acquisition, Inc. (“Merger Sub”), a wholly owned subsidiary of Precision, and Helomics Holding Corporation (“Helomics”) (the “Merger Agreement”). Under the Merger Agreement, Helomics will merge with and into Merger Sub, with Merger Sub, to be renamed Helomics Holding Corporation, surviving as a wholly-owned subsidiary of Precision (the “Merger”). Precision and Helomics believe that the Merger will enable both companies to enhance potential value for stockholders, and that both Precision and Helomics will benefit from the Merger.

 

In connection with the Merger, Precision is offering the following offer (“Exchange Offer”) to holders of certain promissory notes of Helomics that were issued to investors (the “Helomics Notes Payable”) and accompanying warrants to purchase Helomics common stock (the “Helomics Warrants”): the exchange of (a) one share of Common Stock, par value $0.01 (“Common Stock”), of Precision, for each $1.00 of principal and accrued and unpaid interest, calculated as of the Effective Time, outstanding of the tendered Helomics Notes Payable held by each holder as of the effective time of the Merger, and (b) a warrant to purchase shares of Common Stock at an exercise price of $1.00 per share (a “Precision Warrant”) for each of the Helomics Warrants held by such holders, at a ratio of 0.6 Precision Warrants for each 1.0 Helomics Warrant.

 

At the effective time of the Merger, each issued and outstanding share of Helomics common stock will be converted into the right to receive a proportionate share of 4,000,000 shares of Precision Common Stock and 3,500,000 shares of Precision Series D convertible preferred stock, par value $0.01, in addition to the 1.1 million shares of Precision Common Stock previously issued to Helomics as consideration for Precision’s prior acquisition of a twenty percent ownership interest in Helomics. If all of Helomics’ $8.8 million in outstanding promissory notes and all of Helomics’ outstanding warrants are exchanged in connection with the Exchange Offer, Precision will issue: (1) approximately 8.8 million additional shares of Common Stock at $1.00 per share based on principal and assumed accrued interest, (2) 14,245,130 warrants to purchase Precision Common Stock at an exercise price of $1.00 per share and (3) 597,000 warrants to purchase Precision Common Stock at an exercise price of $0.01 per share.

 

Each share of Precision Common Stock and preferred stock issued and outstanding at the effective time of the Merger will remain issued and outstanding and not be affected by the Merger. Warrants and options to purchase Common Stock that are unexercised immediately prior to the effective time of the Merger also will remain outstanding and unaffected by the Merger.

 

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Based on the current capitalization of Precision and Helomics, and assuming all of the $8.8 million in outstanding Helomics Notes and all of the outstanding Helomics Warrants are exchanged as described above, immediately after the Merger and the Note Exchange, the former Helomics security holders will own approximately 48.5% of the issued and outstanding shares of Common Stock and Precision stockholders will own approximately 51.5% of the issued and outstanding shares of Common Stock. As a result of the Warrant Exchange, the former holders of Helomics Warrants will hold warrants that would represent 35.6% of the outstanding shares of Common Stock if exercised. As a result of the total Warrant Exchange pre-merger Precision would own 33% of the outstanding shares, historic Helomics shareholders would own 31% of the outstanding shares, and the former noteholders would own 36% of the outstanding shares.

 

Shares of Common Stock are currently listed on The NASDAQ Capital Market (“NASDAQ”) under the symbol “AIPT.” On January 23, 2019, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Common Stock as reported on the NASDAQ was $0.92 per share.

 

A special meeting of stockholders, at which a quorum must be present for the transaction of business (the “Special Meeting”), will be held at the offices of Precision’s counsel, Maslon LLP, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 at 9:30 a.m., local time, on March 13, 2019, unless postponed or adjourned to a later date. At the Special Meeting, Precision will ask its stockholders to, among other things:

 

1.                  Consider and vote upon a proposal to approve the Amended and Restated Agreement and Plan of Merger, dated as of October 26, 2018, by and among Precision, Merger Sub and Helomics, a copy of which is attached to this proxy statement/prospectus/information statement as Annex A, and the transactions contemplated thereby, including (i) the Merger and the issuance of shares of Precision’s Common Stock and Series D convertible preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement and (ii) the issuance of shares of Precision common stock and Precision warrants to the holders of Helomics notes and warrants pursuant to the Exchange Offer as described herein;

 

2.                   Consider and vote upon a proposal to approve an amendment to Precision’s Certificate of Incorporation to increase the number of authorized shares of Common Stock from 50,000,000 to 100,000,000;

 

3.                   Consider and vote upon a proposal to approve (a) an amendment to Precision’s Certificate of Incorporation and (b) an amendment to Precision’s Amended and Restated Bylaws to establish a classified Board of Directors.

 

4.                   Consider and vote upon a proposal to approve amendments to Precision’s Amended and Restated 2012 Stock Incentive Plan to (i) increase the reserve of shares of Common Stock authorized for issuance thereunder to 10,000,000, (ii) increase certain thresholds for limitations on grants, and (iii) re-approve the performance goals thereunder;

 

5.                   Adjourn the Special Meeting, if necessary, assuming a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4; and

 

6.                   Transact such other business as may properly come before Precision’s stockholders at the Special Meeting or any adjournment or postponement thereof.

 

​These foregoing items are referred to herein as the “Precision Proposals.”

 

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission (the “SEC”), and pursuant to the conditions of the Merger Agreement, the holders of a majority of Helomics’ issued and outstanding common stock, on an as-converted to common stock basis, must execute an action by written consent (the “Helomics Stockholder Consent”), adopting the Merger Agreement, thereby approving the Merger and related transactions. No meeting of Helomics’ stockholders to adopt the Merger Agreement and approve the Merger and related transactions will be held.

 

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After careful consideration, the Precision Board of Directors (the “Board”) has (i) determined that the transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Precision and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby and (iii) determined to recommend, upon the terms and subject to the Merger conditions set forth in the Merger Agreement, that its stockholders vote to adopt or approve, as applicable, the Merger Agreement and, therefore, approve the Merger and the Exchange Offer and the transactions contemplated therein. In sum, the Board recommends that Precision’s stockholders vote “FOR” the proposals described in this proxy statement/prospectus/information statement.

 

More information about Precision, Helomics and the Merger is contained in this proxy statement/prospectus/information statement. Precision urges you to read the accompanying proxy statement prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE [_____].

 

Precision is excited about the opportunities the Merger brings to Precision’s stockholders, and thanks you for your consideration and continued support.

 

  Carl Schwartz
   
  Chief Executive Officer
   
  Precision Therapeutics Inc.

 

 

Neither the Securities and Exchange Commission, nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

 

The accompanying proxy statement/prospectus/information statement is dated February 13, 2019, and is first being mailed to Precision stockholders on or about February 13, 2019.

 

 

 

 

 

 

 

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PRECISION THERAPEUTICS INC.
2915 Commers Drive, Suite 900

 

Eagan, Minnesota 55121

 

Telephone: (651) 389-4800

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

To Be Held On March 13, 2019

 

 

Dear Stockholder:

 

 

On behalf of the Board of Directors of Precision Therapeutics Inc., a Delaware corporation (“Precision”), Precision is pleased to deliver this proxy statement/prospectus/information statement for, among other things, the proposed merger between Precision and Helomics Holding Corporation, a Delaware corporation (“Helomics”), pursuant to which Helomics will merge with and into Helomics Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of Precision (“Merger Sub”), with Merger Sub to be renamed Helomics Holding Corporation and surviving as a wholly-owned subsidiary of Precision (the “Merger”). A Special Meeting of stockholders of Precision, at which a quorum must be present for the transaction of business (the “Special Meeting”), will be held on March 13, 2019, at 9:30 a.m., local time, at the offices of Precision’s counsel, Maslon LLP, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402, for the following purposes:

 

  1. To consider and vote upon a proposal to approve the Amended and Restated Agreement and Plan of Merger, dated as of October 26, 2018, by and among Precision, Merger Sub and Helomics, a copy of which is attached to this proxy statement/prospectus/information statement as Annex A (the “Merger Agreement”), and the transactions contemplated thereby, including (i) the Merger and the issuance of shares of Precision’s common stock and Series D convertible preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement and (ii) the issuance of shares of Precision common stock and Precision warrants to the holders of Helomics notes and warrants pursuant to the Exchange Offer as described in this proxy statement/prospectus/information statement;

 

  2. To consider and vote upon a proposal to approve an amendment to Precision’s Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000;

 

  3. To consider and vote upon a proposal to approve (a) an amendment to Precision’s Certificate of Incorporation and (b) an amendment to Precision’s Amended and Restated Bylaws to establish a classified Board of Directors.

 

  4. To consider and vote upon a proposal to approve amendments to Precision’s Amended and Restated 2012 Stock Incentive Plan to (i) increase the reserve of shares of common stock authorized for issuance thereunder to 10,000,000 (ii) increase certain thresholds for limitations on grants, and (iii) re-approve the performance goals thereunder;

 

  5. To adjourn the Special Meeting, if necessary, assuming a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4; and

 

  6. To transact such other business as may properly come before Precision’s stockholders at the Special Meeting or any adjournment or postponement thereof.

 

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Record Date

 

The Precision Board of Directors (the “Precision Board”) has fixed February 5, 2019 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. Only holders of record of shares of Precision common stock at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting. At the close of business on the record date, Precision had [________] shares of common stock issued and outstanding and entitled to vote.

 

Your vote is important. The approval of Proposal No. 1 is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal No. 1.

 

Even if you plan to attend the Special Meeting in person, Precision requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Special Meeting if you are unable to attend. You may change or revoke your proxy at any time before it is voted at the Special Meeting.

 

THE Precision BOARD HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS FAIR TO, IN THE BEST INTERESTS OF, AND ADVISABLE TO Precision AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE Precision BOARD RECOMMENDS THAT Precision STOCKHOLDERS VOTE “FOR” EACH OF THE Precision PROPOSALS.

 

By Order of the Board of Directors,

   
  Sincerely,
   
  /s/ Carl Schwartz
   
  Carl Schwartz
  Chief Executive Officer

 

 

Eagan, Minnesota

 

March 13, 2019

 

 

 

 

 

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The information in this proxy statement/prospectus/information statement is not complete and may be changed. Precision Therapeutics Inc. may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated January 24, 2019

 

OFFER TO EXCHANGE SECURITIES OF PRECISION THERAPEUTICS INC.

FOR

OUTSTANDING NOTES AND WARRANTS OF HELOMICS HOLDING CORPORATION

 

THIS EXCHANGE OFFER EXPIRES AT MIDNIGHT, EASTERN TIME, ON March 13, 2019, UNLESS AND UNTIL PRECISION THERAPEUTICS, INC., A DELAWARE CORPORATION (“PRECISION”), IN ITS SOLE DISCRETION, EXTENDS SUCH EXCHANGE OFFER, IN WHICH CASE, THE EXPIRATION DATE OF SUCH EXCHANGE OFFER SHALL BE THE LATEST TIME AND DATE AT WHICH THE EXCHANGE OFFER, AS EXTENDED, EXPIRES (AS APPLICABLE, THE “EXPIRATION DATE”).

 

Reference is hereby made to that certain Amended and Restated Agreement and Plan of Merger, dated October 26, 2018, pursuant to which Helomics Holding Corporation, a Delaware corporation (“Helomics”) has agreed to merge with and into a wholly owned subsidiary of Precision, subject to the terms and conditions in such agreement (the “Merger”).

 

In connection with the Merger, Precision is offering the following offer (“Exchange Offer”) to holders of certain promissory notes of Helomics that were issued to investors (the “Helomics Notes Payable”) and accompanying warrants to purchase Helomics common stock (the “Helomics Warrants”): the exchange of (a) one share of Common Stock, par value $0.01 (“Common Stock”), of Precision, for each $1.00 of principal and accrued and unpaid interest outstanding, calculated as of the effective time of the Merger (the “Effective Time”), of the tendered Helomics Notes Payable held by each holder as of the Effective Time, and (b) a warrant to purchase shares of Common Stock at an exercise price of $1.00 per share (a “Precision Warrant”) for each of the Helomics Warrants held by such holders, at a ratio of 0.6 Precision Warrants for each 1.0 Helomics Warrant. See “General Terms of Exchange Offer.” Consummation of the Merger is conditioned upon holders of at least 75% of the outstanding balance of the Helomics Notes Payable exchanging their Helomics Notes Payable for Common Stock of Precision pursuant to the terms of the Exchange Offer.

 

The Common Stock of Precision is listed on The NASDAQ Capital Market under symbol “AIPT.” The last reported per share price for the Common Stock of Precision was $0.92, as quoted on The NASDAQ Capital Market on January 23, 2019, the last trading day before the date of this proxy statement/prospectus/information statement.

 

INVESTING IN PRECISION SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE [__] OF THIS PROSPECTUS FOR A DISCUSSION OF INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES DESCRIBED IN THIS PROSPECTUS.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF PRECISION’S COMMON STOCK OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

The date of this Information Statement is February 13, 2019.

 

 

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PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT

 

REFERENCES TO ADDITIONAL INFORMATION

 

 

This proxy statement/prospectus/information statement incorporates important business and financial information about Precision that is not included in or delivered with this document. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the Chief Financial Officer of Precision Therapeutics Inc., 2915 Commers Drive, Suite 900, Eagan, Minnesota 55121 or by calling (651) 389-4800.

 

To ensure timely delivery of these documents, any request should be made no later than March 1, 2019 to receive them before the Special Meeting.

 

For additional details about where you can find information about Precision, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

 

 

 

 

 

 

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TABLE OF CONTENTS

 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS 15
PROSPECTUS SUMMARY 22
The Companies 22
The Merger 24
Reasons for the Merger 25
Interests of Certain Directors, Officers and Affiliates of Precision and Helomics 27
Management Following the Merger 27
The Exchange Offer  
Material U.S. Federal Income Tax Consequences of the Merger 30
NASDAQ Listing 30
Anticipated Accounting Treatment 31
Comparison of Stockholder Rights 31
Risk Factors 31
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND DATA 39
Selected Historical Consolidated Financial Data of Precision 39
Selected Historical Consolidated Financial Data of Helomics 42
Selected Unaudited Pro Forma Condensed Combined Financial Data of Precision and Helomics 43
Comparative Historical and Unaudited Pro Forma Per Share Data 46
MARKET PRICE AND DIVIDEND INFORMATION 48
RISK FACTORS 49
Risks Related to the Merger 49
Risks Related to Ownership of Precision Common Stock Following the Merger  
Risks Related to the Precision Business 54
Risks Related to Helomics’ Business 60
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS 73
THE SPECIAL MEETING OF PRECISION STOCKHOLDERS 74
Date, Time and Place 74
Purposes of the Special Meeting 74
Recommendation of Precision’s Board of Directors 75

 

 

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Record Date and Voting Power 82
Voting and Revocation of Proxies 82
Required Vote 84
Solicitation of Proxies 84
Other Matters 84
Householding of Proxy Materials 85
THE MERGER 86
Background of the Merger 86
Precision Reasons for the Merger 88
Helomics Reasons for the Merger 90
Interests of the Precision Directors and Executive Officers in the Merger 91
Employment Contacts, Termination of Employment and Change-In-Control Arrangements  
Named Executive Officer Compensation  
Precision Ownership Interests  
Treatment of Precision Stock Options  
Outstanding Equity Awards at Fiscal Year-End  
Director Compensation  
Indemnification and Insurance for Precision’s Officers and Directors  
Interests of Helomics’ Directors and Executive Officers in the Merger 91
Helomics Ownership Interests 91
Management Following the Merger 92
Employment Agreements 92
Indemnification and Insurance for Helomics’ Officers and Directors 92
Other Limitations on Liability and Indemnification 92
Form of the Merger 92
Merger Consideration 92
Convertible Notes  
Convertible Preferred Stock 92
Stock Options and Warrants 93
Effective Time of the Merger 93
Regulatory Approvals 93

 

 

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Tax Treatment of the Merger 93
Material U.S. Federal Income Tax Consequences of the Merger 93
Anticipated Accounting Treatment 96
NASDAQ Listing 96
THE MERGER AGREEMENT 97
Structure 97
Completion and Effectiveness of the Merger 97
Merger Consideration 97
Helomics Notes and Warrants 97
Precision Common Stock  
Procedures for Exchanging Helomics Stock Certificates 98
Fractional Shares 98
Representations and Warranties 98
Access and Investigation; Conduct of Business Pending the Merger 100
Non-Solicitation 101
Registration Statement, Prospectus, Information Statement 102
Disclosure Documents  
Meeting of Precision Stockholders and Written Consent of Helomics’ Stockholders 102
Regulatory Approvals 103
Indemnification and Insurance 103
Additional Agreements  
NASDAQ Listing 103
Stock Restrictions  
Conditions to the Completion of the Merger 103
Termination of the Merger Agreement 107
Amendment 107
Directors and Officers of Precision Following the Merger  
GENERAL TERMS OF THE EXCHANGE OFFER 108
Purpose of the Exchange Offer 108
Terms of the Exchange Offer 108
Market and Trading Information 108
[Other Captions]  
Material U.S. Federal Income Tax Consequences of Exchange Offer 116
Depository and Exchange Agent 119
PRECISION BUSINESS 120
HELOMICS BUSINESS 137
PRECISION MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 146

 

 

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HELOMICS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 157
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT THE MARKET RISK OF HELOMICS  
MANAGEMENT FOLLOWING THE MERGER 162
Executive Officers and Directors 162
Executive Compensation of Precision 162
Executive Compensation of Helomics 168
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 170
Precision Transactions 170
Helomics Transactions 170
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION  
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2018  
Unaudited Pro Forma Condensed Combined Statement of Operations — Nine Months Ended September 30, 2018  
Unaudited Pro Forma Condensed Combined Statement of Operations — Year Ended December 31, 2017  
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
DESCRIPTION OF PRECISION CAPITAL STOCK 171
COMPARISON OF RIGHTS OF HOLDERS OF PRECISION CAPITAL STOCK AND HELOMICS CAPITAL STOCK 174
PRINCIPAL STOCKHOLDERS OF PRECISION 181
PRINCIPAL STOCKHOLDERS OF HELOMICS 183
LEGAL MATTERS 185
EXPERTS 185
WHERE YOU CAN FIND MORE INFORMATION 186
TRADEMARK NOTICE  
OTHER MATTERS 187
INDEX TO Precision CONSOLIDATED FINANCIAL STATEMENTS  
INDEX TO HELOMICS CONSOLIDATED FINANCIAL STATEMENTS  

 

 

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TABLE OF CONTENTS

 

ANNEX A – AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
ANNEX B – PROXY FOR PRECISION SPECIAL MEETING
ANNEX C – FORM LETTER OF TRANSMITTAL
ANNEX D – FORM OF CERTIFICATE OF AMENDMENT TO PRECISION’S CERTIFICATE OF INCORPORATION
ANNEX E – [RESERVED]
ANNEX F – FORM OF FIRST AMENDMENT TO AMENDED AND RESTATED BYLAWS OF PRECISION (AS IF PROPOSAL NO. 3 IS APPROVED)
ANNEX G – FORM OF AMENDED AND RESTATED 2012 STOCK INCENTIVE PLAN OF PRECISION (AS IF PROPOSAL NO. 4 IS APPROVED)
ANNEX H – FORM OF WARRANT OF PRECISION
ANNEX I – FORM OF CERTIFICATE OF DESIGNATION OF SERIES D CONVERTIBLE PREFERRED STOCK OF PRECISION

 

 

 

 

 

 

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QUESTIONS AND ANSWERS

 

The following section provides answers to frequently asked questions about the Merger, the Special Meeting and the Exchange Offer. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Questions and Answers Regarding the Merger

 

Q:         What is the Merger?

 

A:          Precision Therapeutics Inc. (“Precision”), Helomics Acquisition, Inc. (“Merger Sub”), a wholly-owned subsidiary of Precision, and Helomics Holding Corporation (“Helomics”), have entered into an Amended and Restated Agreement and Plan of Merger, dated October 26, 2018 (the “Merger Agreement”). The Merger Agreement contains the terms and conditions of the proposed business combination of Precision and Helomics. Under the Merger Agreement, Helomics will merge with and into Merger Sub, with Merger Sub, to be renamed Helomics Holding Corporation, surviving as a wholly-owned subsidiary of Precision (the “Surviving Corporation”). This transaction is referred to as the “Merger.” From and after the effective time of the Merger, all of the rights, privileges and authority of Helomics and Merger Sub shall vest in the Surviving Corporation; all of the assets and property of Helomics and Merger Sub and every interest therein shall be vested in the Surviving Corporation; and all debts and obligations of Helomics and Merger Sub shall be vested in the Surviving Corporation.

 

At the effective time of the Merger, each issued and outstanding share of Helomics common stock will be converted into the right to receive a proportionate share of 4,000,000 shares of Precision common stock and 3,500,000 shares of Precision Series D convertible preferred stock, in addition to the 1.1 million shares of Precision common stock previously issued to Helomics for Precision’s initial twenty percent ownership interest in Helomics. On the effective date hereof, Precision is making an offer (the “Exchange Offer”) to holders of certain promissory notes of Helomics (the “Helomics Notes” or “Helomics Notes Payable”) and accompanying warrants to purchase Helomics common stock (the “Helomics Warrants”), under which Precision will exchange shares of Common Stock and a warrant to purchase shares of Common Stock for each of the Helomics Notes and Warrants tendered by such holders (the “Warrant Exchange”). See “General Terms of Exchange Offer” and “Description of Common Stock and Precision Warrants Included in the Exchange Offer.” If all of the $8.8 million in outstanding Helomics Notes and all of the outstanding Helomics Warrants are so exchanged, Precision will issue: (1) 8.8 million additional shares of Common Stock (exchanged at $1.00 per share based on principal and accrued interest on the Helomics Notes), (2) 14,245,130 warrants to purchase shares of Common Stock at an exercise price of $1.00 per share and (3) 597,000 warrants to purchase shares of Common Stock at an exercise price of $0.01 per share.

 

The Merger is conditioned on at least 75% of Helomics’ $8.8 million in outstanding promissory notes being exchanged for additional shares of Common Stock at $1.00 per share. Prior to signing the Merger Agreement, Precision and Helomics obtained agreements in principle from the holders of the Helomics Notes indicating that they intend to exchange more than 80% of the $8.8 million in debt outstanding for shares of Precision common stock at $1.00 per share pursuant to the Note Exchange.

 

Each share of Precision common stock and preferred stock issued and outstanding at the time of the Merger will remain issued and outstanding and those shares will be unaffected by the Merger. Precision warrants and options that are unexercised immediately prior to the effective time of the Merger also will remain outstanding and unaffected by the Merger.

 

Q:         What will happen if the Merger does not close?

 

A:         If, for any reason, the Merger does not close, the Merger Agreement will be of no further force and effect, except that the parties will still have certain indemnification obligations, and the confidentiality agreement signed in connection with the Merger Agreement will remain in full force and effect.

 

​Q:         Why are the two companies proposing to merge?

 

A:         Following the Merger, Precision and Helomics believe that the Merger will result in a company with multiple lines of businesses, one of which operates in the emerging precision oncology market. Precision and Helomics believe that the combined company will have the following potential advantages: (i) a diversified business model; (ii) greater working capital; (iii) an experienced management team; and (iv) access to additional sources of capital.

 

​Q:         What is required to consummate the Merger?

 

A:         For a more complete description of the closing conditions under the Merger Agreement, you are urged to read the section titled “The Merger Agreement — Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement. These conditions include: (1) Precision stockholders approving Precision Proposal Nos. 1-3 at the Special Meeting; (2) the holders of a majority of Helomics’ issued and outstanding common stock, on an as-converted to common stock basis, executing an action by written consent (the “Helomics Stockholder Consent”), adopting the Merger Agreement and thereby approving the Merger and related transactions; and (3) certain representations and warranties made by both Precision and Helomics in the Merger Agreement being accurate as of the date of the Merger Agreement and as of the closing date of the Merger.

 

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Q:         What will Helomics security holders receive in the Merger?

 

A:         At the effective time of the Merger, each share of Helomics common stock will be converted into the right to receive a proportionate share of 4,000,000 shares of Precision common stock and 3,500,000 shares of Precision Series D convertible preferred stock, in addition to the 1.1 million shares of Precision Common Stock previously issued to Helomics as consideration for Precision’s prior acquisition of a twenty percent ownership interest in Helomics. Concurrently with the Merger, Precision is making the Exchange Offer. In addition, all or a significant portion of 23,741,883 warrants to purchase Helomics common stock at an exercise price of $1.00 per share will be exchanged for warrants to purchase Precision common stock at $1.00 per share, at a ratio of 0.6 Precision warrants for each Helomics warrant, and 995,000 of the existing Helomics warrants at an exercise price of $0.01 per share will be exchanged for warrants to purchase Precision common stock at $.01 per share, also at a ratio of 0.6 Precision warrants for each Helomics warrant. If all of Helomics’ $8.8 million in outstanding promissory notes and all of Helomics’ outstanding warrants are so exchanged, Precision will issue: (1) 8.8 million additional shares of common stock at $1.00 per share, (2) 14,245,130 warrants to purchase Precision common stock at an exercise price of $1.00 per share and (3) 597,000 warrants to purchase Precision common stock at an exercise price of $0.01 per share.

 

Based on the current capitalization of Precision and Helomics, and assuming all of the $8.8 million in outstanding Helomics Notes and all of the outstanding Helomics Warrants are exchanged as described above, immediately after the Merger and the Note Exchange, the former Helomics security holders will own approximately 48.5% of the issued and outstanding shares of Common Stock and Precision stockholders will own approximately 51.5% of the issued and outstanding shares of Common Stock. As a result of the Warrant Exchange, the former holders of Helomics Warrants will hold warrants that would represent 35.6% of the outstanding shares of Common Stock if exercised. As a result of the total Warrant Exchange pre-merger Precision would own 33% of the outstanding shares, historic Helomics shareholders would own 31% of the outstanding shares, and the former noteholders would own 36% of the outstanding shares.

 

The Precision Series D convertible preferred stock will be a newly created series of preferred stock which will not be entitled to vote on the election of directors or most other matters presented to stockholders. Each share of convertible preferred stock is subject to automatic conversion, whereby each such share converts automatically on a 1:1 basis into a share of Precision Common Stock upon the earlier of (i) the consummation of any fundamental transaction (e.g., a consolidation or merger, the sale or lease of all or substantially all of the assets of Precision or the purchase, tender or exchange offer of more than 50% of the outstanding shares of voting stock of Precision) or (ii) the one-year anniversary of the issuance date. The automatic conversion of Series D Convertible Preferred Stock is subject to certain beneficial ownership limitations, such that Precision will not affect any conversion of shares of Series D Convertible Preferred Stock into shares of Precision Common Stock to the extent that, after giving effect to such conversion, the holder of shares of Series D Convertible Preferred Stock, together with such holder’s affiliates, would beneficially own in excess of 4.99% of the number of shares of Precision Common Stock outstanding immediately after giving effect to the issuance of such conversion shares upon conversion by the applicable holder. With respect to the payment of dividends and distribution of assets upon liquidation or dissolution or winding up of Precision, whether voluntary or involuntary, the Series D Convertible Preferred Stock shall rank equal to Precision Common Stock on an as-converted basis.

 

For a more complete description of what Helomics security holders will receive in the Merger, please see the sections titled “Market Price and Dividend Information” and “The Merger Agreement — Merger Consideration” in this proxy statement/prospectus/information statement.

 

Q:         Who will be the directors of Precision following the Merger?

 

A:         Currently, the Precision Board consists of six members: Thomas J. McGoldrick, Andrew P. Reding, Carl Schwartz, Timothy A. Krochuk, J. Melville Engle and Richard L. Gabriel. Shortly after the Merger, the Precision Board is expected to consist of seven directors, of which one will be designated by Helomics. Helomics intends to designate Gerald J. Vardzel, Jr. to serve as a director.

 

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​Q:         Who will be the executive officers of Precision immediately following the Merger?

 

A:         The executive management team of Precision is not expected to change as a result of the Merger, and currently includes:

 

  Name   Title  
  Carl Schwartz   Chief Executive Officer  
  Bob Myers   Chief Financial Officer  

 

Q:         What are the material U.S. federal income tax consequences of the Merger to Helomics stockholders?

 

A:         Each of Precision and Helomics intends the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). In general, and subject to the qualifications and limitations set forth in the section titled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger,” if the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the material tax consequences to U.S. Holders of Helomics common stock will be as follows:

 

·a Helomics stockholder will not recognize gain or loss upon the exchange of Helomics common stock for Precision common stock pursuant to the Merger;

 

·a Helomics stockholder’s aggregate tax basis for the shares of Precision common stock received in the Merger will equal the stockholder’s aggregate tax basis in the shares of Helomics common stock surrendered in the Merger; and

 

·the holding period of the shares of Precision common stock received by a Helomics stockholder in the Merger will include the holding period of the shares of Helomics common stock surrendered in exchange therefor.

 

​    Tax matters are very complicated, and the tax consequences of the Merger to a particular Helomics stockholder will depend on such stockholder’s particular circumstances. Accordingly, you are strongly urged to consult your personal tax advisor for a full understanding of the tax consequences of the Merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws. For more information, please see the section titled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page [_____].

 

Q:         Why am I receiving this proxy statement/prospectus/information statement?

 

A:         You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of Precision as of the applicable record date, and you are entitled, as applicable, to vote at the Special Meeting to approve the matters set forth above. This document serves as:

 

1.a proxy statement of Precision used to solicit proxies for the Special Meeting to vote on the matters set forth above;

 

2.a prospectus of Precision used to offer shares of Precision common stock and preferred stock in exchange for shares of Helomics common stock in the Merger and issuable upon exercise of outstanding Helomics warrants; and

 

3.an information statement of Helomics used to solicit the Helomics Stockholder Consent of its stockholders for approval of matters relating to the Merger.

 

Q:As a Precision stockholder, how does the Precision Board recommend that I vote regarding the Merger?

 

A:After careful consideration, the Precision Board recommends that Precision stockholders vote “FOR” Proposal No. 1 to approve the Merger Agreement, and the transactions contemplated thereby, including the Merger and the issuance of shares of Precision’s common stock and preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement.

 

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Q:What risks should I consider in deciding whether to vote in favor of the Merger?

 

A:You should carefully review the section of this proxy statement/prospectus/information statement titled “Risk Factors” beginning on page [___], which sets forth certain risks and uncertainties related to the Merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Precision and Helomics, as an independent company, is subject.

 

 

Questions and Answers Regarding the Precision Special Meeting

 

Q:What matters are being considered at the Special Meeting?

 

A: The Precision Proposals are as follows:

 

  1. To consider and vote upon a proposal to approve the Amended and Restated Agreement and Plan of Merger, dated as of October 26, 2018, by and among Precision, Merger Sub and Helomics, a copy of which is attached to this proxy statement/prospectus/information statement as Annex A (the “Merger Agreement”), and the transactions contemplated thereby, including the Merger and the issuance of shares of Precision’s common stock and Series D convertible preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement;

 

  2. To consider and vote upon a proposal to approve an amendment to Precision’s Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000;

 

  3. To consider and vote upon a proposal to approve (a) an amendment to Precision’s Certificate of Incorporation and (b) an amendment to Precision’s Amended and Restated Bylaws to establish a classified Board of Directors.

 

  4. To consider and vote upon a proposal to approve amendments to Precision’s Amended and Restated 2012 Stock Incentive Plan to (i) increase the reserve of shares of common stock authorized for issuance thereunder to 10,000,000, (ii) increase certain thresholds for limitations on grants, and (iii) re-approve the performance goals thereunder;

 

  5. To adjourn the Special Meeting, if necessary, assuming a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4; and

 

Q:What constitutes a quorum, and what votes are required to approve matters being considered at the Special Meeting?

 

A: A quorum of Precision stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the outstanding shares are present at the Special Meeting in person or by proxy. On the record date, there were [_________] shares outstanding and entitled to vote. Thus, the holders of [_________] shares must be present in person or represented by proxy at the Special Meeting to have a quorum. Abstentions and broker non-votes will be counted towards a quorum. If there is no quorum, the holders of a majority of shares present at the meeting in person or represented by proxy, or the chairman of the meeting, may adjourn the meeting to another time.

 

The affirmative vote of the holders of a majority of the shares of Precision common stock having voting power present in person or represented by proxy at the Special Meeting, assuming a quorum is present, is required for approval of the Precision Proposals. The Merger cannot be consummated without the approval of Precision Proposal Nos. 1, 2 and 3.

 

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Votes will be counted by the inspector of election appointed for the meeting, who will separately count votes “For” and “Against” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal and will have the same effect as “Against” votes.

 

The adoption of the Merger Agreement and the approval of the Merger and related transactions by the stockholders of Helomics require the affirmative votes of the holders of a majority of the outstanding Helomics common stock, voting together as one class.

 

In addition to the requirement of obtaining such stockholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 

For a more complete description of the closing conditions under the Merger Agreement, you are urged to read the section titled “The Merger Agreement — Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement.

 

Q:As a Precision stockholder, how does the Precision Board recommend that I vote?

 

A: After careful consideration, the Precision Board recommends that Precision stockholders vote:

 

  1. “FOR” Proposal No. 1 to approve the Merger Agreement, and the transactions contemplated thereby, including the Merger and the issuance of shares of Precision’s common stock and preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement;

 

  2. “FOR” Proposal No. 2 to approve an amendment to Precision’s Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000;

 

  3. “FOR” Proposal No. 3 to approve amendments to Precision’s Certificate of Incorporation and Amended and Restated Bylaws to establish a classified Board of Directors.

 

  4. “FOR” Proposal No. 4 to approve amendments to Precision’s Amended and Restated 2012 Stock Incentive Plan to (i) increase the reserve of shares of common stock authorized for issuance thereunder to 10,000,000, and (ii) increase certain thresholds for limitations on grants.

 

  5. “FOR” Proposal No. 5 to adjourn the Special Meeting, if necessary, assuming a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

 

Q:Who can vote at the Special Meeting?

 

A: Only Precision stockholders of record at the close of business on the Record Date, February 5, 2019, will be entitled to vote at the Special Meeting. As of January 23, 2019, there were 14,169,873 shares of Precision Common Stock outstanding and entitled to vote.

 

If, at the close of business on the Record Date, your shares of Precision common stock were registered directly in your name with Precision’s transfer agent, Corporate Stock Transfer, Inc., then you are a Precision stockholder of record. As a Precision stockholder of record, you may vote in person at the Special Meeting or vote by proxy. Whether or not you plan to attend the Special Meeting, please vote as soon as possible by completing and returning the enclosed proxy card or vote by proxy over the telephone or on the internet as instructed below to ensure your vote is counted.

 

If, at the close of business on the Record Date, your shares of Precision common stock were not held in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker or other agent how to vote the shares in your account. You are also invited to attend the Special Meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you request and obtain a valid proxy from your broker or other agent.

 

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Q:How many votes do I have?

 

A:On each matter to be voted upon, you have one vote for each share of Precision common stock you own as of the Record Date.

 

Q:What are “broker non-votes”?

 

A:

Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. All of the proposals are matters considered non-routine by the New York Stock Exchange, and therefore, there may be broker non-votes on these proposals.

 

Q:How can I find out the results of the voting at the Special Meeting?

 

A:Precision will disclose final voting results in a Current Report on Form 8-K that will be filed with the SEC within four business days after the Special Meeting. If final voting results are unavailable at that time, then Precision intends to file a Current Report on Form 8-K to disclose preliminary voting results and file an amended Current Report on Form 8-K within four business days after the date the final voting results are available.

 

Q:When do you expect the Merger to be consummated?

 

A:

The Merger is anticipated to occur in the first quarter of 2019 after the Special Meeting; however, the exact timing cannot be predicted. For more information, please see the section titled “The Merger Agreement — Conditions to the Completion of the Merger” in this proxy statement/prospectus/​information statement.

 

Q:What do I need to do now?

 

A:Precision urges you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the Merger affects you.

 

​If you are a Precision stockholder of record, you may provide your proxy instructions in one of four different ways. First, you can attend the Special Meeting in person and Precision will provide you with a ballot when you arrive at the meeting. Second, you can mail your signed proxy card in the enclosed return envelope. Third, you can provide your proxy instructions via telephone by following the instructions on your proxy card. Fourth, you can provide your proxy instructions via the Internet by following the instructions on your proxy card. If you hold your shares in “street name” (as described below), you may provide your proxy instructions via telephone or the internet by following the instructions on your vote instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Special Meeting of Precision stockholders.

 

Q:What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:If you are a Precision stockholder, the failure to return your proxy card or otherwise provide proxy instructions have the same effect as voting against Precision Proposal Nos. 1-5. Also, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting.

 

Q:May I vote in person at the Special Meeting?

 

A:If your shares of Precision common stock are registered directly in your name with Precision’s transfer agent, you are considered the stockholder of record with respect to those shares and the proxy materials and proxy card are being sent directly to you by Precision. If you are a Precision stockholder of record, you may attend the Special Meeting and vote your shares in person. Even if you plan to attend the Special Meeting in person, Precision requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Special Meeting if you are unable to attend.

 

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If your shares of Precision common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the Special Meeting. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Special Meeting unless you obtain a legal proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

 

Q:When and where is the Special Meeting of Precision stockholders being held?

 

A:The Special Meeting will be held at the offices of Precision’s counsel, Maslon LLP, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 at 9:30 a.m., local time, on March 13, 2019. Subject to space availability, all Precision stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis.

 

Q:If my Precision shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Precision common stock on matters requiring discretionary authority without instructions from you. If you do not give instructions to your broker, your broker can vote your Precision shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of the New York Stock Exchange on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the Precision shares will be treated as broker non-votes. It is anticipated that all of the Precision Proposals will be non-discretionary items. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q:May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:Precision stockholders of record may change their vote at any time before their proxy is voted at the Special Meeting in one of three ways. First, a stockholder of record of Precision can send a written notice to the Secretary of Precision stating that it would like to revoke its proxy. Second, a stockholder of record of Precision can submit new proxy instructions either on a new proxy card or via the Internet. Third, a stockholder of record of Precision can attend the Special Meeting and vote in person. Attendance alone will not revoke a proxy. If a Precision stockholder who owns Precision shares in “street name” has instructed a broker to vote its shares of Precision common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:Who can help answer my questions?

 

A:If you are a Precision stockholder and would like additional copies of this proxy statement/prospectus/information statement without charge or if you have questions about the Merger, including the procedures for voting your shares, you should contact:

 

 

Bob Myers

Chief Financial Officer

Precision Therapeutics Inc.

2915 Commers Drive, Suite 900

Eagan, Minnesota 55121

(651) 389-4800

 

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PROSPECTUS SUMMARY

 

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all the information that is important to you. To better understand the Merger, the proposals being considered at the Special Meeting and the Helomics stockholder actions that are the subject of the Helomics Stockholder Consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement and the other annexes to which you are referred herein. For more information, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

 

 

The Companies

Precision Therapeutics, Inc.

2915 Commers Drive, Suite 900

Eagan, MN 55121

(651) 389-4800

 

Precision (NASDAQ: AIPT) is a healthcare company that provides personalized medicine solution and medical devices in two main areas: (1) precision medicine, which aims to apply artificial intelligence to personalized medicine and drug discovery; and (2) the Company has developed an environmentally safe system for the collection and disposal of infectious fluids that result from surgical procedures and post-operative care. The Company also makes ongoing sales of proprietary cleaning fluid and filters to users of its systems. The Company’s precision medicine services – designed to use artificial intelligence and a comprehensive disease database to improve the effectiveness of cancer therapy – were launched with the Company’s prior investment in Helomics. In addition, the Company has formed a wholly-owned subsidiary, TumorGenesis Inc., to develop the next generation, patient derived tumor models for precision cancer therapy and drug development.

 

Recent Developments. Effective September 28, 2018, November 30, 2018 and January 8, 2019, Precision completed private offerings of securities. See “Precision Management’s Discussion And Analysis Of Financial Condition and Results Of Operations – Recent Developments.”

 

Helomics Holding Corporation

91 43rd Street

Pittsburgh, PA

(412) 432-1508

 

Helomics® is a personalized medicine company that harnesses the patient’s own tumor to provide actionable insights to help guide oncologist’s treatment decisions. Helomics has a valuable asset in the form of unique platform that interrogates the patient’s living tumor using a set of genomic and functional tests that determine how the tumor responds to drugs. This tumor profile is then compared with an extensive in-house knowledgebase of over 150,000 cancer cases to help individualize treatment. This functional approach offers more powerful insights for precision medicine compared to just knowing gene variations of the tumor, which are often not actionable with currently approved drugs or drugs in trials.

 

Helomics’ business model consists of three complementary pillars, all of which are currently revenue-generating and have growth strategies in place. Helomics’ initial pillar is the Precision Oncology Insights business, which involves comprehensive tumor profiling, using the power of Artificial Intelligence and the D-CHIP (Digital Clinical Health Insights Platform), to generate a personalized oncology roadmap that provides additional context to help the patient’s oncologist personalize treatment. Helomics’ second pillar offers boutique CRO (Contract Research Organization) services to Pharma, Diagnostic and Biopharma companies through its HelomicsDiscover program. HelomicsDiscover leverages Helomics’ TruTumor™, patient-derived tumor models coupled to a wide range of multi-omics assays (genomics, proteomics and biochemical), and a proprietary bioinformatics platform (D-CHIP) to help drive the discovery of the next generation of precision cancer therapies, providing a range of solutions from target/biomarker discovery through drug screening and clinical studies, to companion diagnostics.

 

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Helomics’ third pillar, the D-CHIP_AI powered bioinformatics platform is a repository of genomic and drug response profiles from over 150,000 anonymized clinical tests, performed on the patient’s own tumor. Unlike databases that just contain genomic information, the Helomics D-CHIP knowledgebase is unique in linking together genomic data and phenotype data, i.e., how the tumor responds to drugs. This allows researchers to understand how various mutations impact tumor function which is of great value for the development of new precision therapies, companion diagnostics, biomarkers and help design better targeted trials. D-CHIP is offered on a subscription or per project basis to Pharma, Diagnostic and BioPharma companies.

 

Helomics is focusing its precision medicine approach on six specific cancers (ovarian, breast, pancreatic, colon, lung and brain cancer), and Helomics’ objective is to be the world leader in artificial intelligence driven precision medicine for those six cancers, providing actionable data that can facilitate the development of precision therapies.

 

Helomics Acquisition, Inc.

2915 Commers Drive, Suite 900

Eagan, MN 55121

(651) 389-4800

 

Helomics Acquisition, Inc. is a wholly-owned subsidiary of Precision and was formed solely for purposes of the Merger.

 

 

 

 

  

 

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The Merger

(see page [__])

If the Merger is completed, Helomics will merge with and into Merger Sub, with Merger Sub, to be renamed Helomics Holding Corporation, surviving as a wholly-owned subsidiary of Precision and succeeding to all rights, assets and liabilities of Helomics.

 

At the effective time of the Merger (the “Effective Time”), each share of Helomics common stock will be converted into the right to receive a proportionate share of 4,000,000 shares of Precision common stock and 3,500,000 shares of Precision Series D convertible preferred stock (collectively, “Merger Shares”), in addition to the 1.1 million shares of Precision Common Stock previously issued to Helomics as consideration for Precision’s prior acquisition of a twenty percent ownership interest in Helomics. As a condition to receiving their Merger Shares, the holders of Helomics common stock who receive Merger Shares as a result of the Merger shall agree (i) not to sell or otherwise transfer the Merger Shares for 90 days after the Effective Time, and (ii) with respect to any holders (or groups of affiliated holders) who receive at least 200,000 Merger Shares, thereafter not to sell in any three month period shares representing more than one percent (1%) of the outstanding common stock of Precision; provided, that all of such restrictions will lapse one year after the Effective Time.

 

The Merger is conditioned on at least 75% of Helomics’ $8.8 million in outstanding promissory notes being exchanged for additional shares of Precision common stock at $1.00 per share. In addition, all or a significant portion of 24,737,667 Helomics warrants will be exchanged for warrants to purchase Precision common stock, at a ratio of 0.6 Precision warrants for each Helomics warrant. 995,000 of the existing Helomics warrants have an exercise price of $0.01 per share, while the rest are exercisable at a price of $1.00 per share, and the parties contemplate they will convert into Precision warrants on those same terms.

 

Each share of Precision common stock and preferred stock issued and outstanding at the time of the Merger will remain issued and outstanding and those shares will be unaffected by the Merger. Precision warrants and options that are unexercised immediately prior to the effective time of the Merger also will remain outstanding and unaffected by the Merger.

 

The Merger will be completed as promptly as practicable after all the conditions to completion of the Merger are satisfied or waived, including the approval of the stockholders of Precision and Helomics. Precision and Helomics are working to complete the Merger as quickly as practicable. However, Precision and Helomics cannot predict the exact timing of the completion of the Merger because it is subject to various conditions.

 

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Terms of Series D convertible preferred stock issuable in the Merger (see page [__]) The Precision Series D convertible preferred stock will be a newly created series of preferred stock which will not be entitled to vote on the election of directors or most other matters presented to stockholders. Each share of convertible preferred stock is subject to automatic conversion, whereby each such share converts automatically on a 1:1 basis into a share of Precision Common Stock upon the earlier of (i) the consummation of any fundamental transaction (e.g., a consolidation or merger, the sale or lease of all or substantially all of the assets of Precision or the purchase, tender or exchange offer of more than 50% of the outstanding shares of voting stock of Precision) or (ii) the one-year anniversary of the issuance date. The automatic conversion of Series D Convertible Preferred Stock is subject to certain beneficial ownership limitations, such that Precision will not affect any conversion of shares of Series D Convertible Preferred Stock into shares of Precision Common Stock to the extent that, after giving effect to such conversion, the holder of shares of Series D Convertible Preferred Stock, together with such holder’s affiliates, would beneficially own in excess of 4.99% of the number of shares of Precision Common Stock outstanding immediately after giving effect to the issuance of such conversion shares upon conversion by the applicable holder. With respect to the payment of dividends and distribution of assets upon liquidation or dissolution or winding up of Precision, whether voluntary or involuntary, the Series D Convertible Preferred Stock shall rank equal to Precision Common Stock on an as-converted basis.
Reasons for the Merger (see page [__])

Following the Merger, Precision and Helomics believe that the Merger will result in a company with multiple lines of businesses, one of which operates in the emerging precision oncology market. Specifically, the Merger will provide Precision with full access to Helomics’ suite of Artificial Intelligence (AI), precision diagnostic and integrated CRO capabilities, which improve patient care and advance the development of innovative clinical products and technologies for the treatment of cancers. Helomics’ management team is to remain in their respective leadership positions at Helomics after the Merger and will manage Precision’s existing TumorGenesis operations. TumorGenesis is will operate as a wholly-owned subsidiary of Helomics, allowing it to leverage Helomics’ complementary offering in the precision oncology market and to benefit from operational synergies. TumorGenesis will collaborate with Helomics to test PDx tumors in the Helomics facility. The TumorGenesis PDx model is initially being developed for three cancers, Multiple Myeloma, Triple-Negative Breast cancer (TNBC) and Ovarian cancers, all of which have a high unmet need for new and effective treatments that are tailored to patients’ unique tumor profiles.

 

Precision and Helomics believe that the combined company will also have the following potential advantages: (i) a diversified business model; (ii) greater working capital; (iii) an experienced management team; and (iv) access to additional sources of capital.

Each of the Precision Board and the Helomics Board also considered other reasons for the Merger, as described herein.

 

For example, the Precision Board considered, among other things:

 

1.       that Helomics operates in a rapidly expanding market, which the Precision Board believes will create the opportunity for significant growth in future revenues and earnings;

 

2.       that Helomics’ proprietary portfolio of intellectual property provides Helomics with competitive advantages over its competitors;

 

 

 

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3.       that Helomics’ investments in research and development in the past 10 years, and particularly in the past year with respect to artificial intelligence analysis (D-CHIP™), provides Helomics with an advantage over its competitors. The competitive advantage of Helomics lies within its extensive actionable big data repository, derived from its ability to work on living patient derived tumor cells, and its D-CHIP platform. The company’s proprietary TruTumor patient-derived tumor model provides Helomics with the ability to work with actual live tumor cells (not modified cell lines) to study the unique biology of a patient’s tumor in order to understand how a patient’s cancer cells grow and respond to treatments. Helomics believes that this functional approach that looks at how the genotype and the phenotype of the patient’s tumor interact, provides richer information to guide therapy decisions rather than just measuring the genotype (genomics) of the tumor as is common with its competitors;

 

4.       that the addition of Helomics’ business to Precision represents Precision’s first major expansion into the business of application of artificial intelligence to personalized medicine and drug discovery, which the Precision Board has identified as a major business opportunity;

 

5.       that the addition of Helomics’ business will create a platform to expand into the artificial intelligence business and will enhance Precision’s ability to make further complementary acquisitions of companies and technology;

 

6.       the strategic alternatives of Precision to the Merger, including (a) potential transactions that could have resulted from discussions that Precision management conducted with other potential merger partners and/or (b) potential transactions into different business frontiers, which the Precision Board identified as inferior markets to explore;

 

7.       the consequences of current market conditions, Precision’s current liquidity position, its stock price and the likelihood that the resulting circumstances of Precision would not change for the benefit of the Precision stockholders in the foreseeable future on a stand-alone basis;

 

8.       ​the risks of continuing to operate Precision on a stand-alone basis, including the need to continue to support its STREAMWAY business with the capital that would be available from investors if Precision’s business was limited to that business; and

 

 

9.       the terms and conditions of the Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including, without limitation:

 

a.       the number of shares of Precision common stock and preferred stock to be issued in the Merger, and the expected relative percentage ownership of Precision stockholders and Helomics stockholders immediately following the completion of the Merger;

 

b.       the fact that 860,000 shares out of the Merger Consideration are to be held in escrow to satisfy potential future indemnification obligations of Helomics; and

 

c.        agreements in principle received from the holders of more than 80% of the outstanding Helomics notes and warrants to accept Precision common stock in exchange for their Helomics notes and Precision warrants in exchange for their Helomics warrants.

 

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In addition, the Helomics Board approved the Merger based on a number of factors, including the following:

 

1.       The strategic alternatives to the Merger, including potential transactions that could have resulted from discussions that Helomics’ management conducted with other potential merger partners;

 

2.       The ability to optimize the growth of its Artificial Intelligence based precision medicine business by virtue of its being part of a post-Merger organization that is able to access the public securities markets;

 

3.       Helomics’ existing precision medicine technology and business offers a rapid path for the combined entity to become a leader in precision medicine for both cancer care and the development of new therapies particularly in conjunction with Precision’s TumorGenesis entity;

 

4.       The quality of the Precision Board of Directors and management team.

 

5.       The consequences of Helomics’ current liquidity position, and anticipated cash needs prior to its achieving a breakeven operation;

 

6.       The liquidity provided to the holders of Helomics’ equity securities as a result of the merger;

 

7.       The risks of continuing to operate Helomics on a stand-alone basis, including the need to continue to support the capital requirements of its business if Helomics’ business continued to be operated on a stand-alone basis;

 

The terms and conditions of the Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks

 

Interests of Certain Directors, Officers and Affiliates of Helomics

(see pages [__] and [__])

In considering the recommendation of the Helomics Board with respect to consenting to the adoption of the Merger Agreement and the approval of the Merger and related transactions, Helomics stockholders should be aware that certain members of the Helomics Board and executive officers of Helomics have interests in the Merger that may be different from, or in addition to, interests they have as Helomics stockholders. Gerald Vardzel, the President of Helomics and a number of people associated with Dawson James Securities Inc., Robert D. Keyser, Jr., Richard Aulicino and R. Douglas Armstrong are members of the Helomics Board of Directors and/or material shareholders of Helomics. Those individuals negotiated for the purchase of Helomics in December 2016. Following such acquisition, Helomics engaged Dawson James Securities to act as the placement agent for multiple private offerings conducted by Helomics. All of the funding provided to Helomics from those private placements was provided by Dawson James Securities’ customers.

 

Management Following the Merger

(see page [__])

The executive management team of Precision is not expected to change as a result of the Merger, and currently includes:

 

Name                                                   Title                                   

Carl Schwartz                                      Chief Executive Officer

Bob Myers                                           Chief Financial Officer

 

 

 

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Overview of the Merger Agreement – Merger Consideration

(see page [__])

At the effective time of the Merger (the “Effective Time”), each share of Helomics common stock will be converted into the right to receive a proportionate share of 4,000,000 shares of Precision common stock and 3,500,000 shares of Precision Series D convertible preferred stock (collectively, “Merger Shares”), in addition to the 1.1 million shares of Precision Common Stock previously issued to Helomics as consideration for Precision’s prior acquisition of a twenty percent ownership interest in Helomics. As a condition to receiving their Merger Shares, the holders of Helomics common stock who receive Merger Shares as a result of the Merger must agree (i) not to sell or otherwise transfer the Merger Shares for 90 days after the Effective Time, and (ii) with respect to any holders (or groups of affiliated holders) who receive at least 200,000 Merger Shares, thereafter not to sell in any three month period shares representing more than one percent of the outstanding common stock of Precision; provided, however, that all of such restrictions will lapse one year after the Effective Time.
 
 
 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Conditions to the Completion of the Merger

(see page [__])

Consummation of the Merger is subject to various closing conditions set forth in the Merger Agreement, including the following:

 

1.       The Merger is conditioned on at least 75% of Helomics’ $8.8 million in outstanding promissory notes being exchanged for additional shares of Precision common stock at $1.00 per share.

 

2.       Certain representations and warranties made by both Precision and Helomics must be accurate as of the date of the Merger Agreement and as of the closing date of the Merger.

 

3.       Neither Precision nor Helomics, and their respective subsidiaries, shall have experienced any change, event, circumstance or development, which by itself or in the aggregate, has had or would reasonably be expected to have a material adverse effect on its business, financial condition, results of operations or prospects;

 

4.       ​The Precision stockholders must have approved Precision Proposal Nos. 1-3;

 

5.       ​The Helomics stockholders must have approved the Merger and have adopted the Merger Agreement;

 

6.       There must be no shares of Helomics common stock held by a holder who did not consent to the adoption of the Merger Agreement or otherwise vote in favor of adoption of the Merger Agreement and exercised his, her or its statutory appraisal rights;

 

7.       The NASDAQ Capital Market (“NASDAQ”) must have approved the Merger and the related transactions, as well as have approved the listing of shares of Precision common stock being issued in the Merger;

 

8.       ​The SEC must have declared effective the registration statement on Form S-4 of which this proxy statement/prospectus/information statement is a part and no stop order suspending the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus/information statement is a part shall have been issued and remain pending;

 

9.       Precision shall have filed amendments to its Certificate of Incorporation effectuating Proposal Nos. 2 and 3; and

 

10.    Precision shall have filed the Certificate of Designation creating the Series D convertible preferred stock being issued in the Merger, the form of which is attached hereto as Annex I.

 

Non-Solicitation

(see page [__])

The Merger Agreement contains provisions prohibiting Helomics from seeking a competing transaction. Under these “non-solicitation” provisions, Helomics has agreed that neither it nor its subsidiaries, nor any of their respective officers, employees, directors, and financial advisors will directly or indirectly:

 

1.       Solicit, initiate, knowingly encourage or knowingly facilitate the making, submission or announcement of any acquisition proposal with respect to Helomics or any of its subsidiaries or inquire about an acquisition proposal;

 

2.       Furnish any information regarding Helomics or any of its subsidiaries to any person in connection with or in response to an acquisition proposal with respect to Helomics or any of its subsidiaries or in connection with an acquisition inquiry with respect to Helomics or any of its subsidiaries;

 

 

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3.       Engage in discussions or negotiations with any person relating to any acquisition proposal with respect to Helomics or any of its subsidiaries or relating to any acquisition inquiry with respect to Helomics or any of its subsidiaries;

 

4.       Approve, endorse or recommend (1) any acquisition proposal with respect to Helomics or any of its subsidiaries, (2) an acquisition inquiry related to Helomics or any of its subsidiaries (3) Helomics or any of its subsidiaries or any person or group becoming the beneficial owner of more than 5% of the equity securities of Helomics or any of its subsidiaries; or

 

5.       Enter into any letter of intent or similar document or any contract (other than a confidentiality agreement) contemplating or otherwise relating to any acquisition transaction with respect to Helomics or any of its subsidiaries.

 

Termination of the Merger Agreement

(see page [__])

Either Precision or Helomics or both can terminate the Merger Agreement under certain circumstances, which would prevent the Merger from being consummated.
Regulatory Approvals (see page [__]) Precision must comply with applicable federal and state securities laws and the rules and regulations of NASDAQ in connection with the issuance of shares of Precision common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement on Form S-4 of which this proxy statement/prospectus/information statement is a part has not become effective.

Material U.S. Federal Income Tax Consequences of the Merger

(see page [__])

Each of Precision and Helomics intends the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. In general, and subject to the qualifications and limitations set forth in the section titled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger,” if the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the material tax consequences to U.S. Holders of Helomics common stock will be as follows:

 

1.       a Helomics stockholder will not recognize gain or loss upon the exchange of Helomics common stock for Precision common stock and preferred stock pursuant to the Merger;

 

2.       a Helomics stockholder’s aggregate tax basis for the shares of Precision common stock and preferred stock received in the Merger will equal the stockholder’s aggregate tax basis in the shares of Helomics common stock surrendered in the Merger; and;

 

3.       the holding period of the shares of Precision common stock and preferred stock received by a Helomics stockholder in the Merger will include the holding period of the shares of Helomics common stock surrendered in exchange therefor.

 

Tax matters are very complicated, and the tax consequences of the Merger to a particular Helomics stockholder will depend on such stockholder’s circumstances. Accordingly, you are strongly urged to consult your tax advisor for a full understanding of the tax consequences of the Merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws.

NASDAQ Listing

(see page [__])

Precision intends to take all steps necessary to cause the shares of Precision common stock issuable in the Merger (directly or upon the exercise of any Precision option or warrant, or in accordance with any Conversion and Exchange Agreement), to be listed on NASDAQ.

 

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Anticipated Accounting Treatment

(see page [__])

Precision’s management has determined that Precision will be the accounting acquirer in the Merger based on the detailed analysis of the relevant GAAP guidance. Consequently, Precision will apply acquisition accounting to the assets acquired and liabilities assumed of Helomics upon consummation of the Merger. Upon consummation of the Merger, the historical financial statements will reflect only the operations and financial condition of Precision.

Comparison of Stockholder Rights

(see page [__])

Both Precision and Helomics are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the Delaware General Corporation Law (“DGCL”). If the Merger is completed, Helomics stockholders will become stockholders of Precision, and their rights will be governed by the DGCL, Precision’s Amended and Restated Bylaws (the “Precision Bylaws”) and Precision’s Certificate of Incorporation (as amended to date, the “Precision Charter”). The rights of Precision stockholders contained in the Precision Charter and the Precision Bylaws differ from the rights of Helomics stockholders under the Helomics Certificate of Incorporation (the “Helomics Charter”) and bylaws (the “Helomics Bylaws”), as more fully described under the section titled “Comparison of Rights of Holders of Precision Capital Stock and Helomics Capital Stock” in this proxy statement/prospectus/information statement.

Risk Factors

(see page [__])

Both Precision and Helomics are subject to various risks associated with their businesses and their industries. In addition, the Merger, including the possibility that the Merger may not be completed, poses a number of risks to each company and its respective stockholders, including the following risks:

 

1.       The Merger Consideration is not adjustable based on the market price of Precision common stock so the Merger Consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.

 

2.       If the conditions to the Merger are not met, the Merger may not occur.

 

3.       The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

 

4.       Precision stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

5.       During the pendency of the Merger, Helomics may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

 

6.       Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

 

7.       Because the lack of a public market for Helomics’ capital stock makes it difficult to evaluate the fairness of the Merger, the stockholders of Helomics may receive consideration (a) in the Merger and/or (b) the Exchange Offer that is less than the fair market value of Helomics’ capital stock and/or Precision may pay more than the fair market value of Helomics’ capital stock.

 

8.       Each of Precision (before and after the Merger) and Helomics will incur substantial transaction-related costs relating to the Merger.

 

 

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9.       Precision’s ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of the Code and may be subject to further limitation because of prior or future offerings of Precision’s stock or other transactions.

 

10.    Precision will incur significant increased costs as a result of the completion of the Merger.

 

11.    The Merger may fail to qualify as a reorganization for U.S. federal income tax purposes, resulting in recognition of taxable gain or loss by Helomics stockholders in respect of their Helomics capital stock.

 

12.    The market price of Precision common stock following the Merger may decline as a result of the Merger.

 

13.    The price of Precision common stock may be volatile and fluctuate substantially, which could result in substantial losses for Precision stockholders.

 

14.    Precision’ failure to meet the continued listing requirements of NASDAQ after the Merger could result in a delisting of its common stock.

 

15.    Future sales of Precision common stock, or the perception that future sales may occur, may cause the market price of its common stock to decline, even if its business is doing well.

 

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” in this proxy statement/prospectus/information statement. Precision and Helomics both encourage you to read and consider all these risks carefully.

 

 

 

 

 

 

 

 

 

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SUMMARY OF THE EXCHANGE OFFER

 

Exchange Offer

(see page [__])

Precision is offering to exchange Helomics Notes Payable (as defined herein) and Helomics Warrants (as defined herein) tendered by holders on or prior to the Expiration Date (as defined herein), upon the terms and conditions described in this prospectus and the related Letter of Transmittal and as permitted under the terms of the Exchange Offer. Subject to the satisfaction or waiver of all conditions to the Exchange Offer, Helomics Notes Payable and Helomics Warrants that are validly tendered and not validly withdrawn will be accepted for exchange in accordance with the terms of the Exchange Offer.

 

For purposes of this summary, (a) “Effective Time” means the effective time at which the Merger occurs, (b) ”Helomics” means Helomics Holding Corporation, a Delaware corporation, (c) ”Helomics Notes Payable” means all outstanding secured and unsecured debt obligations owed by Helomics to a tendering holder, whether represented by a promissory note or otherwise, and (d) ”Helomics Warrant” means each outstanding warrant to acquire equity securities of Helomics, (e) ”Note Formula” means all of the outstanding principal and accrued and unpaid interest on a Helomics Note Payable, calculated as of the Effective Time, divided by $1.00 per share of Common Stock of Precision, (f) ”Precision Warrant” means each outstanding warrant to acquire equity securities of Precision, and (g) ”Warrant Formula” means 0.6 multiplied by all Helomics Warrants held by a tendering holder.

Purpose of the Exchange Offer

(see page [__])

Helomics and Precision intend to effect a merger of a wholly-owned subsidiary of Precision with and into Helomics. The purposes of the Exchange Offer is to accommodate the Merger and provide consideration in connection with the Merger to holders of Helomics Notes Payable and Helomics Warrants. See “General Terms of the Exchange Offer.”

Exchange Ratio

(see page [__])

For each Helomics Note Payable tendered by a holder, Precision will issue Common Stock of Precision to be determined by applying the Note Formula.

 

Example: Prior to the Expiration Date, a holder of a Helomics Note Payable with $5,500 in outstanding principal and accrued and unpaid interest as of the Effective Time that tenders such note in the Exchange Offer is entitled to receive 5,500 shares of Common Stock of Precision after the Effective Time.

 

For Helomics Warrants tendered by a holder, Precision will issue Precision Warrants in an amount determined by applying the Warrant Formula.

 

Example: Prior to the Expiration Date, a holder of 1,000 Helomics Warrants that tenders such warrants in the Exchange Offer is entitled to receive Precision Warrants to purchase 600 shares of Common Stock of Precision upon exercise (subject to further adjustments for stock splits, etc.)

 

Example: Prior to the Expiration Date, a holder of (a) a Helomics Note Payable with $3,000 in outstanding principal and accrued and unpaid interest as of the Effective Time, and (b) 600 Helomics Warrants that tenders such note and warrants in the Exchange Offer is entitled to receive after the Effective Time (y) 3,000 shares of Common Stock of Precision and (z) Precision Warrants to purchase 360 shares of Common Stock of Precision upon exercise (subject to further adjustments for stock splits, etc.)

 

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Market Value for Precision Securities

(see page [__])

Common Stock of Precision is traded on The NASDAQ Capital Market under the symbol “AIPT.” The last reported per share price for the Common Stock of Precision was $0.92, as quoted on The NASDAQ Capital Market on January 23, 2019. See “General Terms of the Exchange Offer – Market and Trading Information.”

 

The Precision Warrants are not listed for trading on any market.

Restrictions on Transfer (see page [__]) As a condition to receiving Common Stock of Precision, the tendering holder of Helomics Notes Payable shall agree (a) not to sell or otherwise transfer the Common Stock of Precision received in the Exchange Offer for 90 days after the Effective Time, and (b) with respect to any holders (or groups of affiliated holders) who receive at least 200,000 shares of Common Stock of Precision in the Exchange Offer, thereafter not to sell in any three month period shares representing more than 1% of the outstanding Common Stock of Precision; provided, that all of such restrictions will lapse one year after the Effective Time.

Terms of Precision Warrants

(see Annex H)

Attached as Annex H is the form of Precision Warrant to be issued to all tendering holders of Helomics Warrants in this Exchange Offer.  For a comparison of the Helomics Warrants and the Precision Warrants, see “Differences between the Helomics Warrants and the Precision Warrants” below.

Expiration Date of Exchange Offer

(see page [__])

The Exchange Offer will expire on the Expiration Date, which is at midnight, Eastern Time, on March 13, 2019, unless extended by Precision at its sole discretion (“Expiration Date”).

Settlement Date

(see page [__])

The settlement date of the Exchange Offer will occur promptly after the Effective Time, at which time Precision will issue the Common Stock and Precision Warrants in exchange for all Helomics Notes Payable and Helomics Warrants properly tendered for exchange in this Exchange Offer.

 

 

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Procedure for Participating in the Exchange Offer

(see page [__])

In all cases, the issuance of Common Stock of Precision and/or Precision Warrants, as applicable, will be made only after timely receipt by the Exchange Agent of the Helomics Notes Payable and/or Helomics Warrants, as applicable, the Letter of Transmittal properly completed and duly executed, along with any required signature guarantees, and all other documents required by the Letter of Transmittal.

 

By signing or agreeing to be bound by the Letter of Transmittal and all other documents required thereby, you will represent to Precision that, among other things:

 

§  you own all right, title and interest in and to the Helomics Notes Payable and Helomics Warrants tendered;

 

§ you have no arrangement or understanding with any person to participate in the distribution of the Common Stock of Precision or Precision Warrants;

 

§ if you are not a broker-dealer, you are not engaged in and do not intend to be engaged in the distribution of the Common Stock of Precision or Precision Warrants; and

 

§ if you are a broker-dealer, that you will receive the Common Stock of Precision and/or Precision Warrants for your own account in exchange for Helomics Notes Payable and/or Helomics Warrants that were required as a result of market-making activities or other trading activities and that you will deliver a prospectus in connection with any resale of the Common Stock of Precision and/or Precision Warrants.

 

Please do not send Letters of Transmittal to Precision or Helomics. Letters of Transmittal should be sent to the Exchange Agent only, at its office as indicated under “General Terms of the Exchange Offer – Depositary and Exchange Agent” in this prospectus and in the Letter of Transmittal. The Exchange Agent can answer your questions regarding how to tender your Helomics Notes Payable and Helomics Warrants.

Procedures for Tendering Helomics Notes Payable or Helomics Warrants Through a Custodian

(see page [__])

If you are a beneficial owner of Helomics Notes Payable and/or Helomics Warrants, but the holder of such Helomics Notes Payable and/or Helomics Warrants is a custodial entity such as a bank, broker, dealer, trust company or other nominee, and you seek to tender your Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer, you must provide appropriate instructions to such holder of Helomics Notes Payable and/or Helomics Warrants with respect to such Helomics Notes Payable and/or Helomics Warrants. You should keep in mind that your intermediary may require you to take action with respect to the Exchange Offer a number of days before the Expiration Date in order for such entity to tender Helomics Notes Payable and/or Helomics Warrants on your behalf prior to the expiration of the Exchange Offer in accordance with the terms of the Exchange Offer.

Withdrawal of Tenders

(see page [__])

Your right to tender any Helomics Notes Payable or Helomics Warrants will expire at the Expiration Date. You can withdraw the tender of your Helomics Notes Payable and/or Helomics Warrants, as applicable, in connection with the Exchange Offer at any time before the Expiration Date.

 

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Acceptance of Common Stock of Precision and Delivery of Helomics Notes Payable

(see page [__])

Precision will accept any and all outstanding Helomics Notes Payable that are properly tendered in this Exchange Offer on or before midnight, Eastern Time, on the Expiration Date, if all the conditions to the completion of this Exchange Offer are satisfied or waived. Precision will deliver Common Stock of Precision to you promptly after the Expiration Date and acceptance of your Helomics Notes Payable. See “General Terms of the Exchange Offer.”

Return of Helomics Notes Payable

(see page [__])

If Precision does not accept any Helomics Notes Payable tendered in the Exchange Offer for any reason described in the terms and conditions of the Exchange Offer or if any Helomics Notes Payable tendered are withdrawn pursuant to the terms of the Exchange Offer, Precision will return such Helomics Notes Payable without expense to the holder.

Acceptance of Precision Warrants and Delivery of Helomics Warrants

(see page [__])

Precision will accept any and all outstanding Helomics Warrants that are properly tendered in this Exchange Offer on or before midnight, Eastern Time, on the Expiration Date, if all the conditions to the completion of this Exchange Offer are satisfied or waived. Precision will deliver Precision Warrants to you promptly after the Expiration Date and acceptance of your Helomics Warrants in exchange for Precision Warrants. See “General Terms of the Exchange Offer.”

Return of Helomics Warrants

(see page [__])

If Precision does not accept any Helomics Warrants tendered in the Exchange Offer for any reason described in the terms and conditions of the Exchange Offer or if any Helomics Warrants tendered are withdrawn pursuant to the terms of the Exchange Offer, Precision will return such Helomics Warrants without expense to the holder.

Conditions to the Exchange Offer

(see page [__])

The Exchange Offer is subject to the conditions discussed under “General Terms of the Exchange Offer – Conditions to the Exchange Offer,” including that the registration statement, of which this prospectus forms a part, shall have become effective under the Securities Act and not be subject to a stop order, and no proceedings for that purpose shall have been instituted or be pending or, to Precision’s knowledge, be contemplated or threatened by the SEC. Precision also will not be required, reserves the right, to waive any of the conditions to this Exchange Offer, other than the condition relating to the effectiveness of the registration statement of which this prospectus forms a part and such registration statement not being subject to a stop order or any proceedings for that purpose. Precision has the right, in its sole discretion, to terminate or withdraw the Exchange Offer if any of the conditions described in this prospectus are not satisfied or waived, which such conditions include the consummation of the Merger. See “General Terms of the Exchange Offer – Conditions to the Exchange Offer.”

Extensions; Waivers and Amendments; Termination

(see page [__])

Subject to applicable law, Precision reserves the right to (a) extend the Exchange Offer, (b) waive any and all conditions to or amend the Exchange Offer in any respect (except as to the condition that the registration statement, of which this prospectus forms a part, having become effective under the Securities Act and such registration statement not being subject to a stop order or any proceedings for that purpose, which such condition Precision cannot waive); or (c) terminate the Exchange Offer. Any extension, waiver, amendment or termination will be followed as promptly as practicable by a public announcement thereof, such announcement, in the case of an extension, to be issued no later than 9:00 a.m. Eastern Time, on the next business day after the last previously scheduled Expiration Date. See “General Terms of the Exchange Offer – Conditions to the Exchange Offer.”

 

36

 

 

Differences between the Helomics Warrants and the Precision Warrants

(see page [__])

Some terms of the Precision Warrants are materially different to the terms of the Helomics warrants, including, but not limited to, each of the following terms:

 

1.                   The Precision Warrants require the payment of cash to exercise such warrants, and no “cashless” exercise provisions are included in such warrants unless there is no effective registration statement covering the exercise of the Precision Warrants or the resale of the shares that may be purchased thereunder. Cashless exercise provisions are currently set forth in the Helomics Warrants.

 

2.                   Upon a “fundamental transaction,” the Precision Warrants will continue to exist and be converted into a right to receive alternative consideration upon exercise. The Helomics Warrants provide each holder an option to tender the Helomics Warrants to Helomics upon a fundamental transaction in exchange for cash in an amount equal to the Black Scholes value of the warrant, and if such holder does not so tender, the Helomics Warrant will continue to exist and be converted into a right to receive alternative consideration upon exercise.

 

3.                   The Precision Warrants entitle the holders of the Precision Warrants to participate in any distributions to holders of Precision common stock as though the Precision Warrant were exercised in full in advance of the record date of the distribution. The Helomics Warrants have no such provision.

 

4.                   The Precision Warrants contain a beneficial ownership limitation, which prohibits a holder from obtaining greater than 4.99% (or at the holder’s election, 9.99%) of the outstanding Precision Common Stock immediately after the exercise of the warrant. The Helomics Warrants contain no such limitation.

 

5.                   The Helomics Warrants provide its holders antidilution protection to adjust the number of shares subject to the warrants and the exercise price based on any subdivisions or splits of its common stock, and “full ratchet” protection to reduce the exercise price at any time any common stock is issued for an issuance price less than the current exercise price (subject to certain exceptions). The Precision Warrants contain antidilution protection to adjust the number of shares subject to the warrants and the exercise price based on any subdivisions or splits of its common stock, but no full ratchet protection.

 

The form of Precision warrants to be issued to holders of Helomics warrants as of the Effective Time is attached as Annex H. Holders of such Helomics warrants are encouraged to review the form of warrant.

 

Depositary and Exchange Agent

(see page [__])

Corporate Stock Transfer, Inc. is serving as the Depositary and Exchange Agent in connection with the Exchange Offer. All documents to be delivered to the Exchange Agent should be addressed to: Corporate Stock Transfer, Inc., 3200 Cherry Creek South Drive, Suite 430, Denver, Colorado 80209.

United States Federal Income Tax Considerations

(see page [__])

Precision recommends that you consult with your own tax advisors with regard to the possibility of any federal, state, local or other tax consequences of the Exchange Offer. See “GENERAL TERMS OF THE EXCHANGE OFFER – Material United States Federal Income Tax Consequences of the Exchange Offer” for a discussion of the material U.S. Federal Income Tax Consequences of participating in the Exchange Offer.

 

37

 

 

Registration

(see page [__])

The Common Stock of Precision, Precision Warrants and the Common Stock of Precision received upon exercise of such Precision Warrants will be registered pursuant to the registration statement, of which this prospectus forms a part, at the time the Common Stock of Precision or Precision Warrants, as applicable, are issued.

Use of Proceeds

(see page [__])

Precision will not receive any cash proceeds from the issuance of Common Stock of Precision or Precision Warrants. All proceeds received on account of the exercise of the Precision Warrants will be used to fund the general working capital of Precision and Helomics.

Risk Factors

(see page [__])

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider carefully before investing pursuant to the terms of this prospectus.

 

 

 

 

 

 

 

 

 

38

 

 

SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION AND DATA

 

The following tables present summary historical financial data for Precision and Helomics, summary unaudited pro forma condensed combined financial data for Precision and Helomics and comparative historical and unaudited pro forma per share data for Precision and Helomics.

 

Selected Historical Consolidated Financial Data of Precision

 

The selected consolidated statements of operations data for the years ended December 31, 2013 through 2017 and the selected consolidated balance sheet data as of December 31, 2013 through 2017 are derived from Precision’s audited consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement or in Precision’s periodic filings with the SEC. The selected statements of operations data for the nine months ended September 30, 2018 and 2017 and the selected balance sheet data as of September 30, 2018 are derived from Precision’s unaudited interim financial statements included elsewhere in this proxy statement/prospectus/information statement. Precision’s unaudited interim financial statements have been prepared in accordance with the generally accepted accounting principles of the United States (GAAP) on the same basis as its audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair presentation of those unaudited interim consolidated financial statements. Precision’s historical results are not necessarily indicative of the results that may be expected in any future period and the results for the nine months ended September 30, 2018 are not necessarily indicative of results to be expected for the full year ending December 31, 2018 or any other period.

 

The selected historical consolidated financial data below should be read in conjunction with the sections titled “Precision Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors — Risks Related to Precision” and Precision’s consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement.

 

 

 

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39

 

 

 

Selected Historical Financial Data of Precision

 

 

Selected Historical Financial Data of Precision Therapeutics Inc.

 

   Years Ended December 31,  Nine Months
Ended September 30,
   2017  2016  2015  2014  2013  2018  2017
                   
Revenue  $654,836   $456,495   $654,354   $951,559   $468,125   $1,100,108   $434,523 
Cost of goods sold   148,045    181,620    303,982    385,323    189,707    309,320    87,709 
Gross margin   506,791    274,875    350,372    566,236    278,418    790,788    346,814 
Expenses                                   
General and administrative expenses   6,041,485    5,174,799    3,399,339    4,882,549    7,530,037    2,708,274    3,968,493 
Operations expenses   1,207,724    1,158,117    846,687    972,830    1,096,969    1,390,434    575,467 
Sales and marketing expenses   1,004,175    467,970    503,989    1,178,305    578,793    1,726,087    680,396 
Interest expense   —      3    390,887    377,719    636,503    —      —   
Loss (gain) on valuation of equity-linked financial instruments   —      —      —      (11,599)   (157,580)   —      —   
Total expense   8,253,384    6,800,889    5,140,902    7,399,804    9,684,722    5,824,795    5,224,356 
Loss on equity method investment   —      —      —      —      —      (1,606,294)   —   
Net loss available to common shareholders   (7,746,593)   (6,526,014)   (4,790,530)   (6,833,568)   (9,406,304)   (6,640,301)   (4,877,542)
Other comprehensive gain                                   
Unrealized gain from marketable securities   —      1,501    —      —      —      —      —   
Comprehensive (loss)  $(7,746,593)  $(6,524,513)  $(4,790,530)  $(6,833,568)  $(9,406,304)  $(6,640,301)  $(4,877,542)
Loss per common share - basic and diluted  $(1.22)  $(2.31)  $(1.23)  $(2.29)  $(4.64)  $(0.55)  $(0.78)
                                    
Weighted average shares used in computation - basic and diluted   6,362,989    2,823,345    3,880,828    2,990,471    2,026,115    12,178,285    6,283,567 

 

 

Note: The Company has considered all relevant changes in accounting literature effective in the periods presented herein there were no material changes necessitating retrospective adoption that would require the results presented to be materially modified.

 

40

 

 

   At December 31,  At September 30,
   2017  2016  2015  2014  2013  2018
                   
Balance Sheet Data:                              
Cash and cash equivalents  $766,189   $1,764,090   $4,856,232   $16,384   $101,953   $209,891 
Certificates of deposits  $244,971   $100,000   $—     $—     $—     $—   
Marketable securities  $—     $284,329   $—     $—     $—     $—   
Accounts receivable  $137,499   $38,919   $38,283   $57,549   $97,245   $238,598 
Loan Receivable – Bridge Loan  $—     $—     $—     $—     $—     $1,815,000 
Notes receivable  $1,737,512   $—     $—     $—     $—     $1,298,242 
Intangibles, net  $95,356   $97,867   $94,987   $73,183   $53,355   $973,127 
Total assets  $3,624,254   $2,807,546   $5,632,419   $900,977   $593,426   $5,415,699 
Total liabilities  $932,340   $1,883,864   $1,519,708   $6,417,204   $3,811,880   $2,389,132 
Convertible preferred stock  $7,271   $792   $18,950   $206   $—     $792 
Common stock  $69,432   $45,644   $2,080   $30,927   $29,325   $133,983 
Additional paid-in capital  $57,380,256   $47,894,196   $44,584,118   $30,093,745   $25,449,636   $64,297,137 
Accumulated deficit  $(54,765,045)  $(47,018,451)  $40,492,437)  $(35,641,105)  $(28,697,415)  $(61,405,345)
Total stockholders' equity (deficit)  $2,691,914   $923,682   $4,112,711   $(5,516,227)  $(3,218,454)  $3,026,567 

 

 

 

 

 

 

41

 

 

Selected Historical Financial Data of Helomics

 

The selected statements of operations data for the nine months ended September 30, 2018 and the year ended December 31, 2017 and the period ended December 31, 2016 and the selected balance sheet data as of September 30, 2018 and December 31, 2017 and 2016 are derived from Helomics’ audited financial statements included elsewhere in this proxy statement/prospectus/information statement. The period ended December 31, 2016 represents the period from inception, December 7, 2016. Helomics’ unaudited interim financial statements have been prepared in accordance with GAAP on the same basis as its audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair presentation of those unaudited interim financial statements. Helomics’ historical results are not necessarily indicative of the results that may be expected in any future period.

 

The selected historical financial data below should be read in conjunction with the sections titled “Helomics Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors — Risks Related to Helomics’ Financial Condition and Capital Requirements” and Helomics’ financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement.

 

    Year Ended December 31,     Period from Inception December 7, 2016 through     Nine Months Ended September
    2017     December 31, 2016     2018
Revenue   $ 1,578,995     $ 105,805     $ 425,065  
Cost of goods sold     323,742       98,391       156,475  
Gross margin     1,255,253       7,414       268,590  
Expenses                        
General & administrative expense     3,854,926       490,048       2,681,618  
Operations expense     3,402,550       416,463       1,435,601  
Sales & marketing expense     8,500       —         204  
Total expense     7,265,976       906,511       4,117,423  
Net loss on operations     (6,010,723 )     (899,097 )     (3,848,833 )
Gain on bargain purchase price     —         2,619,376       —    
Gain on settlement of note     215,516       —         —    
Interest expense     —         —         (3,449,104 )
Other income     —         —         198,597  
Unrealized loss on derivative instrument     (1,153,998 )     —         —    
Net (loss) income   $ (6,949,205 )   $ 1,720,279     $ (7,099,340 )
Other comprehensive income (loss):                        
Unrealized gain on equity investments     —         —         121,000  
                         
Comprehensive income (loss)   $ (6,949,205 )   $ 1,720,279     $ (6,978,340 )
                         
Balance Sheet Data:                        
Cash and cash equivalents   $ 45,016     $ 394,468     $ 19,834  
Accounts receivable     424,299       326,883       342,967  
Total assets     3,090,808       5,174,524       3,242,092  
Total liabilities     8,308,524       3,443,035       10,186,158  
Preferred stock     —         —         2,500  
Common stock     10,000       10,000       10,833  
Additional paid-in capital     1,210       1,210       5,249,867  
Retain earnings/(accumulated deficit)     (5,228,926 )     1,720,279       (12,328,266 )
Accumulated other comprehensive income    

-

     

-

     

121,000

 
Total stockholders’ equity (deficit)     (5,217,716 )     1,731,489       (6,944,066 )

 

 

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42

 

 

Selected Unaudited Pro Forma Condensed Combined Financial Data of Precision and Helomics

 

The following selected unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under GAAP and gives effect to the Merger among Precision Therapeutics Inc. (“Precision”), Helomics Acquisition, Inc. (“Merger Sub”), a wholly-owned subsidiary of Precision, and Helomics Holding Corporation (“Helomics”). Under the Merger Agreement, Helomics will merge with and into Merger Sub, with Merger Sub to be renamed Helomics Holding Corporation and surviving as a wholly-owned subsidiary of Precision (the “Merger”). Precision and Helomics believe that the Merger will enable both companies to enhance potential value for stockholders, and that both Precision and Helomics will benefit from the Merger. At the effective time of the Merger, each share of Helomics common stock will be converted into the right to receive a proportionate share of 4.0 million shares of Precision common stock and 3.5 million shares of Precision Series D Convertible Preferred Stock, in addition to the 1.1 million shares of Precision common stock already issued to Helomics for Precision’s initial twenty percent ownership interest in Helomics. On the date hereof, Precision is making an offer (the “Exchange Offer”) to holders of certain promissory notes of Helomics that were issued to investors (the “Helomics Notes” or “Helomics Notes Payable”) and accompanying warrants to purchase Helomics common stock (the “Helomics Warrants”), under which Precision will exchange shares of Common Stock, par value $0.01 (“Common Stock”), of Precision for the tendered Helomics Notes Payable and a warrant to purchase shares of Precision Common Stock for each of the Helomics Warrants held by such holders. See “General Terms of Exchange Offer” and “Description of Common Stock and Precision Warrants Included in the Exchange Offer.” If all of Helomics’ $8.8 million in outstanding promissory notes and all of Helomics’ outstanding warrants are so exchanged, Precision will issue: (1) 8.8 million additional shares of Common Stock at $1.00 per share, (2) 14,245,130 warrants to purchase Precision common stock at an exercise price of $1.00 per share and (3) 597,000 warrants to purchase Precision common stock at an exercise price of $0.01 per share. The pro forma condensed combined financial statements are for the year ended December 31, 2017 and for the nine-month period ended September 30, 2018. The unaudited pro forma condensed combined balance sheet as of September 30, 2018 shows the combined financial position of Precision and Helomics as if the merger of the two companies had occurred on September 30, 2018. The unaudited pro forma condensed combined statements of operations for the fiscal year ended December 31, 2017 and the nine-month period ended September 30, 2018 reflect the merger as if it had occurred on January 1, 2017, the beginning of the earliest period presented. The pro forma statements will be accounted for with Precision being deemed the acquiring company for the Merger under ASC 805 whereby Precision has been concluded to be the accounting acquirer and the predecessor. The unaudited pro forma condensed combined financial statements presented do not purport to represent what the results of operations or financial position of the Company would have been had the transaction occurred on the dates noted above, or to project the results of operations or financial position of the Company for any future periods. In the opinion of management, all necessary adjustments to the unaudited pro forma financial information have been made.

 

Precision calculated the purchase price of Helomics using the $0.82 closing price per share from January 15, 2019 and multiplying it by the total of 7.5 million shares valuing the purchase price of the transaction at $6,150,000. The unaudited pro forma condensed combined financial information should be read in conjunction with:

 

§the accompanying notes to the unaudited condensed combined pro forma financial statements;

 

  § the separate historical consolidated financial statements of Precision as of and for the period ended September 30, 2018, and fiscal year ended December 31, 2017; and for the period ended September 30, 2018 and fiscal year ended December 31, 2017 for Helomics included in this proxy statement/prospectus.

 

 

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43

 

 

Unaudited Pro Forma Condensed Combined Statements of
Operations Data

 

    For the Year
Ended December
31, 2017
    For the
Nine Months Ended
September 30, 2018
 
             
Revenue   $ 2,233,831     $ 1,525,173  
Cost of goods sold     471,787       465,795  
Gross margin     1,762,044       1,059,378  
Expenses                
General and administrative expenses     10,443,980       5,389,892  
Operations expenses     4,610,274       2,826,035  
Sales and marketing expenses     1,012,675       1,726,291  
Total expense     16,066,929       9,942,218  
                 
Loss from operations     (14,304,885 )     (8,882,840 )
Interest expense     —         3,449,104  
Other income     —         198,597  
Gain on settlement of note     215,516       —    
Loss on derivative instrument     (1,153,998 )     —    
Net loss available to common shareholders   $ (15,243,367 )   $ (12,133,347 )
Net loss   $ (15,243,367 )     (12,133,347 )
Loss per common share - basic and diluted   $ (0.84 )   $ (0.51 )

 

 

44

 

 

Unaudited Pro Forma Condensed Combined
Balance Sheet Data

 

    As of September 30, 2018  
ASSETS        
Current Assets:        
Cash and cash equivalents   $ 229,725  
Accounts receivable     581,565  
Loan receivable – bridge loan     1,815,000  
Inventories     296,831  
Prepaid expense and other assets     431,293  
Total Current Assets     3,354,414  
Notes receivable     1,134,774  
Fixed assets, net     1,701,726  
Intangibles, net     1,137,409  
Goodwill     16,215,177  
Total Assets   $ 23,543,500  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable   $ 2,316,426  
Notes payable – bridge loan net of discount of $1,293,047     1,004,680  
Accrued expenses     1,769,556  
Derivative liability     645,008  
Capital leases     21,032  
Deferred revenue     15,306  
Total Current Liabilities     5,772,008  
Total Liabilities     5,772,008  
Stockholders’ Equity:        
Series B convertible preferred stock, $0.01 par value, 20,000,000 authorized, 79,246 outstanding     792  
Series D convertible preferred stock, $0.01 par value, 3,500,000 authorized and outstanding     35,000  
Common stock, $0.01 par value, 50,000,000 authorized, 26,198,300 outstanding     261,983  
Additional paid-in capital    

81,215,618

 
Accumulated deficit     (63,741,901 )
Total Stockholders’ Equity     17,771,492  
Total Liabilities and Stockholders’ Equity   $

23,543,500

 

 

 

45

 

 

Comparative Historical and Unaudited Pro Forma Per Share Data

 

The information below reflects the historical net loss and book value per share of Precision common stock and the historical net loss and book value per share of Helomics common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the Merger of Precision with Helomics on a pro forma basis.

 

You should read the tables below in conjunction with the audited and unaudited consolidated financial statements of Precision included in this proxy statement/prospectus/information statement and the audited and unaudited consolidated financial statements of Helomics included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.

 

 

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46

 

 

Comparative Historical and Unaudited Pro Forma Per Share Data

 

Helomics and Precision

 

    For the Nine Months
ended September 30, 2018
    For the Year Ended
December 31, 2017
 
Loss per common share - basic and diluted   $ (0.51 )   $ (0.84 )
Book value per share   $ 0.74     $ (0.14 )

 

Precision

 

   For the Nine Months
ended September 30, 2018
   For the Year Ended
December 31, 2017
 
Loss per common share - basic and diluted  $(0.55)  $(1.22)
Book value per share  $0.23   $0.39 

 

Helomics

 

 

   For the Nine Months   For the Year
   ended September 30, 2018  ended December 31, 2017
Loss per common share – basic and diluted  $NA    NA 
Book value per share  $NA    NA 

 

 

 

 

 

 

47

 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

Precision common stock is currently listed on The NASDAQ Capital Market (“NASDAQ”) under the symbol “AIPT”. The following table presents, for the periods indicated, the range of high and low per share sales prices for Precision common stock as reported on NASDAQ for each of the periods set forth below. Helomics is a private company and its common stock is not publicly traded.

 

Precision Common Stock

 

 

Quarter Ended  High Sale Price   Low Sale Price 
March 31, 2019 (through January 23, 2019)  $

1.10

   $

0.60

 
December 31, 2018  $1.08   $0.60 
September 30, 2018  $1.58   $0.95 
June 30, 2018  $1.37   $0.81 
March 31, 2018  $1.47   $0.83 
           
December 31, 2017  $2.50   $0.99 
September 30, 2017  $2.13   $1.20 
June 30, 2017  $2.59   $1.31 
March 31, 2017  $3.45   $1.75 
           
December 31, 2016  $6.05   $1.52 
September 30, 2016  $6.75   $2.00 
June 30, 2016  $7.25   $2.53 
March 31, 2016  $96.50   $4.13 

 

 

The closing price of Precision common stock on July 3, 2018, the last trading day prior to the public announcement of the execution of the Merger Agreement, was $1.51 per share and the closing price of Precision common stock on January 23, 2019 was $0.92 per share, in each case as reported on NASDAQ.

 

Because the market price of Precision common stock is subject to fluctuation, the market value of the shares of Precision common stock that Helomics stockholders will be entitled to receive in the Merger may increase or decrease.

 

As of the close of business on the record date, February 5, 2019, Precision had [137] holders of record of its common stock. For detailed information regarding the beneficial ownership of some Precision stockholders and Helomics stockholders, see the section titled “Principal Stockholders of Precision” beginning on page [____] and the section titled “Principal Stockholders of Helomics” beginning on page [____] of this proxy statement/prospectus/ information statement.

 

 

Dividends

 

Precision has never paid or declared any cash dividends on its common stock and does not anticipate paying cash dividends on its common stock for the foreseeable future. Notwithstanding the foregoing, any determination to pay cash dividends subsequent to the Merger will be at the discretion of Precision’s then-current Board of Directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors deemed relevant by Precision’s then-current Board of Directors.

 

Helomics has never paid or declared any cash dividends on its common or preferred stock. If the Merger does not occur, Helomics does not anticipate paying any cash dividends on its common or preferred stock in the foreseeable future, and Helomics intends to retain all available funds and any future earnings to fund the development and expansion of its business. Any future determination to pay dividends will be at the discretion of Helomics’ Board of Directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors Helomics’ then-current Board of Directors deems relevant.

 

48

 

 

RISK FACTORS

 

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Precision because these risks may also affect the combined company— these risks can be found in Precision’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement. Please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

 

RISKS RELATED TO THE MERGER

 

Precision may not complete the Merger, which could negatively impact Precision’s stock price and future operations.

 

If the Merger is not completed for any reason, including approval of the listing of the common stock by NASDAQ, Precision and Helomics may each be subjected to a number of material risks. The price of Precision common stock may decline to the extent that the current market price of the Precision’s common stock reflects a market assumption that the Merger will be completed. Some costs related to the Merger, such as legal, accounting, filing, printing and mailing, must be paid and expended even if the Merger is not completed. In addition, if the Merger is not completed and the Precision’s Board of Directors determines to seek another merger or business combination, there can be no assurance that the Board of Directors will be able to find a partner willing to agree to more attractive terms than those which have been negotiated for in the Merger.

 

The Merger Consideration is not adjustable based on the market price of Precision common stock so the consideration received (a) in connection with the Merger at the Closing of the Merger and/or (b) in connection with the Exchange Offer may have a greater or lesser value than at the time the Merger Agreement was signed.

 

Changes in the market price of Precision common stock before the completion of the Merger will not affect the number of shares Helomics security holders will be entitled to receive pursuant to the Merger Agreement (the “Merger Consideration”) and/or the Exchange Offer. Therefore, if, before the completion of the Merger, the market price of Precision common stock declines from the market price on the date of the Merger Agreement, then Helomics security holders could receive consideration with substantially lower value in connection with the Merger, the Exchange Offer or both. Similarly, if before the completion of the Merger, the market price of Precision common stock increases from the market price on the date of the Merger Agreement, then Helomics security holders could receive consideration with substantially more value for their shares of Helomics capital stock than the parties had anticipated.

 

If the conditions to the Merger are not met, the Merger may not occur.

 

Even if the Merger is approved by the stockholders of both Precision and Helomics, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement — Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement. Neither Precision nor Helomics can assure you that all the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or may be delayed, and Precision and Helomics each may lose some or all the intended benefits of the Merger.

 

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

 

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In general, either Precision or Helomics can refuse to complete the Merger if there is a material adverse change affecting the other party between October 26, 2018, the date of the Merger Agreement, and the closing of the Merger. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on Precision or Helomics, including:

 

1.conditions generally affecting the industries in which Helomics or Precision participates or the U.S. or global economy as a whole, to the extent that such conditions do not have a disproportionate impact on Precision or Helomics and their respective subsidiaries, taken as a whole, as compared to other industry participants;

 

2.general conditions in the financial markets, and any changes therein (including any changes arising out of acts of terrorism, war, weather conditions or other force majeure events), to the extent that such conditions do not have a disproportionate impact on Precision or Helomics and their respective subsidiaries, taken as a whole, as compared to other industry participants; and

 

3.​any change in accounting requirements or principles or any change in applicable legal requirements.

 

​If material adverse changes occur and Precision and Helomics still complete the Merger, the stock price of the combined company may suffer. This in turn may reduce the value of the Merger and/or the Exchange Offer to the stockholders of Precision, Helomics or both.

 

The Merger may not occur if either Precision or Helomics or both is not satisfied with the results of due diligence.

 

Both (a) Precision’s satisfaction with the results of its due diligence regarding Helomics and its subsidiary entities and (b) Helomics’ satisfaction with the results of its due diligence regarding Precision are conditions that must be satisfied or waived to complete the Merger. Neither Precision nor Helomics can assure you that these conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or may be delayed, and Precision and Helomics each may lose some or all the intended benefits of the Merger.

 

Precision stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

If the combined organization is unable to realize the full strategic and financial benefits currently anticipated from the Merger, Precision stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined organization is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.

 

Prior to the Merger, each of Helomics and Precision is obligated pursuant to the Merger Agreement to conduct their respective business and operations in the ordinary course and in accordance in all material respects with past practices, which could limit favorable opportunities available to Helomics and/or Precision, which could adversely affect their respective businesses.

 

Covenants in the Merger Agreement requires each of Helomics and Precision to conduct their respective business and operations in the ordinary course, which may impede the ability of each of Helomics and Precision to enter into other transactions that are not in the ordinary course of business, pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a relative disadvantage to their competitors during that period.

 

Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

 

The terms of the Merger Agreement prohibit Helomics from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

 

Because the lack of a public market for Helomics’ capital stock makes it difficult to evaluate the fairness of the Merger, the stockholders of Helomics may receive consideration (a) in the Merger and/or (b) the Exchange Offer that is less than the fair market value of Helomics’ capital stock and/or Precision may pay more than the fair market value of Helomics’ capital stock.

 

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The outstanding capital stock of Helomics is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Helomics’ capital stock. Because the percentage of Precision equity to be issued to Helomics stockholders was determined based on negotiations between the parties, it is possible that the value of the Precision common stock to be received by Helomics stockholders will be less than the fair market value of Helomics’ capital stock, or Precision may pay more than the aggregate fair market value for Helomics’ capital stock.

 

Costs associated with the Merger are difficult to estimate, may be higher than expected, and may harm the financial results of the combined company.

 

Both Precision and Helomics will incur substantial direct transaction costs associated with the Merger and additional costs associated with consolidation and integration of operations. If the total costs of the Merger exceed estimates, or the benefits of the Merger do not exceed the total costs of the Merger, Precision’s consolidated financial results could be adversely affected.

 

The Merger may result in disruption of Precision and Helomics’ existing businesses, distraction of their management and diversion of other resources.

 

The integration of Precision’s and Helomics’ operations may divert management time and resources from the main businesses of both companies. After the Merger, management will likely be required to spend significant time integrating Precision’s and Helomics’ operations. This diversion of time and resources could cause the combined business to suffer.

 

Any delay in completion of the Merger may significantly reduce the benefits expected to be obtained from the Merger.

 

The Merger is subject to approval of Helomics’ shareholders, and subject to a number of other conditions beyond the control of Precision and Helomics that may prevent, delay or otherwise materially adversely affect its completion. Precision and Helomics cannot predict whether or when these other conditions will be satisfied. Any delay in completing the Merger may significantly reduce the synergies and other benefits that Precision and Helomics expect to achieve if they successfully complete the Merger within the expected timeframe and integrate their respective businesses.

 

The market price of Precision’s common stock may decline as a result of the Merger.

 

The market price of Precision’s common stock may decline as a result of the Merger if the integration of Precision’s and Helomics’ businesses is unsuccessful or if the costs of implementing the integration are greater than expected. The market price also may decline if Precision does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts, or shareholders, or if the effect of the Merger on Precision’s financial results is not consistent with the expectations of financial or industry analysts, or shareholders.

 

Each of Precision, Helomics and the combined company will incur substantial transaction-related costs relating to the Merger.

 

Precision and Helomics have incurred, and expect to continue to incur, significant non-recurring transaction-related costs associated with completing the Merger and combining the two companies. These fees and costs have been, and will continue to be, substantial. Through [October 5, 2018], Precision and Helomics together have incurred $700,000 in expenses related to completing the Merger and they estimate they will incur additional Merger related expenses of  $300,000 before consummation of the Merger. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, severance and benefit costs, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the operations of Precision and Helomics, which may be higher than expected and could have a material adverse effect on the combined company’s financial condition and operating results.

 

Precision’s ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code and may be subject to further limitation because of prior or future offerings of Precision’s stock or other transactions.

 

Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended (the “Code”) contain rules that limit the ability of a company that undergoes an ownership change, which is generally an increase in the ownership percentage of certain stockholders in the stock of a company by more than 50% over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change, as defined by Section 382 of the Code, occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long-term tax-exempt rate and the value of the company’s stock immediately before the ownership change. The Merger will result in such an ownership change. As a result, Precision will not be able to use its pre-Merger losses or credit carryovers or certain built-in losses to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383 of the Code, which may result in the expiration of a portion of Precision’s tax attributes before utilization.

 

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Precision will incur significant increased costs as a result of the completion of the Merger.

 

Following completion of the merger, Precision’s operating expenses are likely to increase significantly as Helomics continues to develop and grow its business. These increases are most likely to be in the areas of sales and marketing, compensation and research and product development. There also may be increases in legal, accounting, insurance and compliance costs. As a result, the combined company is expected to report operating losses until Helomics can significantly increase its revenues. This may have a material adverse impact on the market price of Precision common stock following the Merger. Additionally, the integration of the operations of Precision and Helomics may result in unanticipated costs, which may be higher than expected and could have a material adverse effect on the combined company’s financial condition and operating results.

 

The Merger may fail to qualify as a reorganization for U.S. federal income tax purposes, resulting in recognition of taxable gain or loss by Helomics stockholders in respect of their Helomics capital stock.

 

Precision and Helomics intend for the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, as described in the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” in this proxy statement/prospectus/information statement. In the event that the Merger does not qualify as a reorganization, the Merger would result in taxable gain or loss for each Helomics stockholder, with the amount of such gain or loss determined by the amount that each Helomics stockholder’s adjusted tax basis in the Helomics capital stock surrendered is less or more than the fair market value of the Precision common stock received in exchange therefor. Each holder of Helomics capital stock is urged to consult with his, her or its own tax advisor with respect to the tax consequences of the Merger.

 

The combined company will not be able to continue operating without additional financing.

 

Both Precision and Helomics have been operating at a loss. In order to continue operating and remain a going concern, the combined company will need to obtain additional financing, either through borrowings, public offerings, private offerings, or some type of business combination (e.g., merger, buyout, etc.), and there can be no assurance that it will be successful in such pursuits with terms satisfactory to management and Precision’s board of directors. In the past, both companies have actively pursued a variety of funding sources including private offerings and have consummated certain transactions in order to address their respective capital requirements. Precision recently completed a private offering of securities and loaned a portion of the proceeds to Helomics. See “Precision Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments.” However, the combined company anticipates the need for additional capital beyond the recent offering and may not be able to acquire such additional funding. Accordingly, if the combined company is unable to generate adequate cash from operations, and if it is unable to find sources of funding, it may be necessary for it to sell one or more lines of business or all or a portion of its assets, enter into a business combination, reduce or eliminate operations, liquidate assets, or seek relief through a filing under the U.S. Bankruptcy Code. These possibilities, to the extent available, may be on terms that result in significant dilution to the combined company’s existing shareholders or that result in its existing shareholders losing all of their investment in the combined company.

 

Precision may fail to realize the anticipated benefits of the Merger.

 

The success of the Merger will depend, in part, on Precision’s ability to realize the anticipated growth opportunities and synergies from combining Precision and Helomics. The integration of Precision and Helomics will be a time consuming and expensive process and may disrupt their operations if it is not completed in a timely and efficient manner. In addition, Precision may not achieve anticipated synergies or other benefits of the Merger. Following the Merger, Precision and Helomics must operate as a combined organization utilizing common information and communication systems, operating procedures, financial controls and human resources practices. The combined company may encounter the following integration difficulties, resulting in costs and delays:

 

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·failure to successfully manage relationships with customers and other important relationships;

 

·failure of customers to continue using the services of the combined company;

 

·difficulties in successfully integrating the management teams and employees of Precision and Helomics;

 

·challenges encountered in manager larger operations;

 

·losses of key employees;

 

·failure to manage the growth and growth strategies of Precision and Helomics;

 

·diversion of the attention of management from other ongoing business concerns;

 

·incompatibility of technologies and systems;

 

·impairment charges incurred to write down the carrying amount of intangible assets generated as a result of the Merger; and

 

·incompatibility of business cultures.

 

If the combined company’s operations after the Merger do not meet the expectations of existing or prospective customers of Precision and Helomics, then these customers and prospective customers may cease doing business with the combined company altogether, which would harm its results of operations, financial condition and business prospects. If the management team is not able to develop strategies and implement a business plan that successfully addresses these difficulties, Precision may not realize the anticipated benefits of the Merger.

 

 

 

 

 

 

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RISKS RELATING TO THE PRECISION BUSINESS

 

Precision will require additional financing to finance operating expenses and fulfill its business plan. Such financing will be dilutive. Precision’s independent public accounting firm has indicated in their audit opinion, contained in Precision’s financial statements, that they have substantial doubt about Precision’s ability to remain a going concern.

 

Precision has not achieved profitability and anticipates that it will continue to incur net losses at least through the remainder of 2018. Precision had revenues of $655,000 in 2017, but Precision had negative operating cash flows of $4.5 million. In January 2017, Precision received proceeds of $3.9 million because of its public offering. In November 2017, Precision received proceeds of $1.3 million because of its private placement. Precision’s cash and cash equivalents balance was $0.8 million as of December 31, 2017, and its accounts payable and accrued expenses were an aggregate $0.9 million. Precision is currently incurring negative operating cash flows of approximately $452,000 per month. Although Precision is attempting to curtail its expenses, there is no guarantee that Precision will be able to reduce these expenses significantly, and expenses for some periods may be higher as Precision prepares its products for broader sales, increases its sales efforts and maintains adequate inventories.

 

On January 9, 2018, Precision received net proceeds of $2.5 million because of an S-3 public offering. Subsequently, in connection the underwriter exercised for an aggregate of 215,247 shares of common stock, the over-allotment option; Precision received additional net proceeds of $188,000 on February 20, 2018. Precision’s cash and cash equivalents balance on January 31, 2018 was approximately $2.8 million.

 

Precision recently completed a private offering of securities and loaned a portion of the proceeds to Helomics. The proceeds from these investments will provide capital to Precision and Helomics. For more information about the investment transaction, see “Precision Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments.”

 

In addition to the recent private offering, Precision may require additional funding to finance operating expenses and to invest in its sales organization and new product development and to enter the international marketplace. Precision will attempt to raise these funds through equity or debt financing, alternative offerings or other means. If Precision is successful in securing adequate funding it plans to make significant capital or equipment investments, and it will also continue to make human resource additions over the next 12 months. Such additional financing will be dilutive to existing stockholders, and there is no assurance that such financing will be available upon acceptable terms. If such financing or adequate funds from operations are not available, Precision will be forced to limit Precision’s business activities, which will have a material adverse effect on Precision’s results of operations and financial condition.

 

Because of the above factors, Precision’s independent registered public accounting firm has indicated in their audit opinion, contained in Precision’s financial statements included in this proxy statement/prospectus/information statement, that they have serious doubts about Precision’s ability to continue as a going concern. The financial statements have been prepared assuming Precision will continue as a going concern. See “Precision Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

 

In connection with developing Precision’s CRO business, Precision has committed and will continue to commit significant capital to investments in early stage companies, all of which may be lost and which may require it to raise significant additional capital, and Precision’s entering into new lines of business will result in significant diversion of management resources, all of which may result in failure of Precision’s business.

 

Precision has committed significant capital and management resources to developing its CRO business and other new business areas, and Precision intends to continue to devote significant and management resources to new businesses. In 2017, Precision provided $668,000 in financing to Helomics, of which $500,000 in principal amount has been converted into an equity interest in Helomics and $168,000 in principal amount is subject to secured notes that remain outstanding. In connection with its private offering, in 2018, Precision loaned to Helomics an additional $907,500 in exchange for an additional secured promissory note. See “Precision Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments.” In December 2018 and January 2019 Precision loaned to Helomics an additional $235,000 that addends to the original promissory note. In addition, in August 2017, Precision entered into a merger agreement with CytoBioscience, which was subsequently terminated in November 2017. From July 2017 through November 2017, Precision advanced $1,070,000 to CytoBioscience in the form of secured notes, which are still outstanding. CytoBioscience has indicated in its most recent Form 10-Q filings that they have defaulted on the note; CytoBioscience is seven months in arrears on interest payments. Precision has issued a Demand Notice to CytoBioscience and filed a complaint to recover the debt. The companies are negotiating repayment terms. It is likely that Precision will make further investments and advances in other businesses as it develops its CRO business and other business models. There can be no assurance that any of the outstanding balances of these existing promissory notes or future advances will be repaid. Further, there is no assurance that Precision’s equity investments in new businesses will result in significant value for Precision. Therefore, Precision could invest significant capital in other business enterprises with no certainty when or whether Precision will realize a return on these investments. Investments in cash will deplete Precision’s capital resources, meaning that Precision will be required to raise significant amounts of new capital. There is no assurance that Precision will be successful in raising sufficient capital, and the terms of any such financing will be dilutive to its stockholders. Precision may also acquire technologies or companies by issuing stock or other equity securities rather than or in addition to payment of cash, which may have the result of diluting the investment of its stockholders. Further, the energy and resources of Precision’s officers and personnel are being substantially diverted to these new lines of business, which are unproven. If these businesses are unsuccessful or require too great of a financial investment to be profitable, Precision’s business may fail regardless of the level of success of Precision’s STREAMWAY business.

 

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Precision’s limited operating history makes evaluation of its business difficult.

 

Precision was formed on April 23, 2002 and to date has generated only moderate revenue year by year. Precision’s ability to implement a successful business plan remains unproven and no assurance can be given that it will ever generate sufficient revenues to sustain its business. Precision has a limited operating history which makes it difficult to evaluate its performance. You must consider Precision’s prospects in light of these risks and the expenses, technical obstacles, difficulties, market penetration rate and delays frequently encountered in connection with the development of new businesses. These factors include uncertainty as to whether Precision will be able to:

 

·be successful in uncertain markets;

 

·respond effectively to competitive pressures;

 

·successfully address intellectual property issues of others;

 

·protect and expand Precision’s intellectual property rights; and

 

·continue to develop and upgrade Precision’s products.

 

STREAMWAY Business Risk Factors

 

Precision’s business is dependent upon proprietary intellectual property rights, which if it is unable to protect, could have a material adverse effect on its business.

 

Precision relies on a combination of patent, trade secret and other intellectual property rights and measures to protect its intellectual property. Precision currently owns and may in the future own or license additional patent rights or trade secrets in the U.S., with non-provisional patents elsewhere in the world that cover certain of Precision’s products. Precision relies on patent laws and other intellectual property laws, nondisclosure and other contractual provisions and technical measures to protect its products and intangible assets. These intellectual property rights are important to Precision’s ongoing operations and no assurance can be given that any measure Precision implements will be sufficient to protect its intellectual property rights. Also, with respect to Precision’s trade secrets and proprietary know-how, Precision cannot be certain that the confidentiality agreements entered into with employees will not be breached, or that Precision will have adequate remedies for any breach. Precision may lose the protection afforded by these rights through patent expirations, legal challenges or governmental action. If Precision cannot protect its rights, Precision may lose its competitive advantage if these patents were found to be invalid in the jurisdictions in which Precision sells or plans to sell its products. The loss of Precision’s intellectual property rights could have a material adverse effect on its business.

 

If Precision becomes subject to intellectual property actions, this could hinder its ability to deliver its products and services and its business could be negatively impacted.

 

Precision may be subject to legal or regulatory actions alleging intellectual property infringement or similar claims against Precision. Companies may apply for or be awarded patents or have other intellectual property rights covering aspects of Precision’s technologies or businesses. Moreover, if it is determined that Precision’s products infringe on the intellectual property rights of third parties, Precision may be prevented from marketing its products. While Precision is currently not subject to any material intellectual property litigation, any future litigation alleging intellectual property infringement could be costly, particularly in light of its limited resources. Similarly, if Precision determines that third parties are infringing on its patents or other intellectual property rights, Precision’s limited resources may prevent it from litigating or otherwise taking actions to enforce its rights. Any such litigation or inability to enforce Precision’s rights could require Precision to change its business practices, hinder or prevent its ability to deliver its products and services, and result in a negative impact to Precision’s business. Expansion of Precision’s business via product line enhancements or new product lines to drive increased growth in current or new markets may be inhibited by the intellectual property rights of Precision’s competitors and/or suppliers. Precision’s inability to successfully mitigate those factors may significantly reduce its market opportunity and subsequent growth.

 

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Precision faces significant competition, including competition from companies with considerably greater resources than Precision, and if Precision is unable to compete effectively with these companies, its market share may decline, and its business could be harmed.

 

Precision’s industry is highly competitive with numerous competitors ranging from well-established manufacturers to innovative start-ups. A number of Precision’s competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution resources than Precision does. Their greater capabilities in these areas may enable them to compete more effectively on the basis of price and production and more quickly develop new products and technologies.

 

Precision’s competitors include Cardinal Health, Inc., a medical manufacturer and distributor, and Stryker Instruments, a wholly owned subsidiary of Stryker Corporation, which has a leading position in Precision’s market. Both of these competitors are substantially larger than Precision and are better capitalized than Precision.

 

Companies with significantly greater resources than Precision may be able to reverse engineer Precision’s products and/or circumvent its intellectual property position. Such action, if successful, would greatly reduce Precision’s competitive advantage in the marketplace.

 

Precision believes that its ability to compete successfully depends on a number of factors, including its technical innovations of unlimited suction and unlimited capacity capabilities, its innovative and advanced research and development capabilities, strength of its intellectual property rights, sales and distribution channels and advanced manufacturing capabilities. Precision plans to employ these and other elements as it develops its products and technologies, but there are many other factors beyond its control. Precision may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand its development and marketing of new products, which could adversely impact the trading price of the shares of Precision’s common stock.

 

Precision’s business is subject to intense governmental regulation and scrutiny, both in the U.S. and abroad.

 

The production, marketing, and research and development of Precision’s product is subject to extensive regulation and review by the FDA and other governmental authorities both in the United States and abroad. In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling, and record keeping. If Precision does not comply with applicable regulatory requirements, violations could result in warning letters, non-approvals, suspensions of regulatory approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution.

 

Periodically, legislative or regulatory proposals are introduced that could alter the review and approval process relating to medical products. It is possible that the FDA will issue additional regulations further restricting the sale of Precision’s present or proposed products. Any change in legislation or regulations that govern the review and approval process relating to Precision’s current and future products could make it more difficult and costly to obtain approval for new products, or to produce, market, and distribute existing products.

 

If Precision’s products are not accepted by its potential customers, it is unlikely that Precision will ever become profitable.

 

The medical industry has historically used a variety of technologies for fluid waste management. Compared to these conventional technologies, Precision’s technology is relatively new, and the number of companies using its technology is limited. The commercial success of Precision’s product will depend upon the widespread adoption of Precision’s technology as a preferred method by hospitals and surgical centers. In order to be successful, Precision’s product must meet the technical and cost requirements for these facilities. Market acceptance will depend on many factors, including:

 

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·the willingness and ability of customers to adopt new technologies;

 

·Precision’s ability to convince prospective strategic partners and customers that its technology is an attractive alternative to conventional methods used by the medical industry;

 

·Precision’s ability to select and execute agreements with effective distributors to market and sell Precision’s product; and

 

·Precision’s ability to assure customer use of the Skyline proprietary cleaning solution and in-line filter.

 

Because of these and other factors, Precision’s products may not gain market acceptance or become the industry standard for the health care industry. The failure of such companies to purchase Precision’s products would have a material adverse effect on Precision’s business, results of operations and financial condition.

 

If demand for Precision’s products are unexpectedly high, there is no assurance that there will not be supply interruptions or delays.

 

Precision is currently manufacturing the STREAMWAY System, following GMP compliance regulations of the FDA, at its own facility and anticipates the capability of producing the STREAMWAY System in sufficient quantities for future near-term sales. Precision has contracted with a manufacturing company that can manufacture products at higher volumes. However, if demand for Precision’s product is unexpectedly high, there is no assurance that Precision or its manufacturing partners will be able to produce the product in sufficiently high quantity to satisfy demands. Any supply interruptions or inadequate supply would have a material adverse effect on Precision’s results of operations.

 

Precision is dependent on a few key executive officers for its success. Precision’s inability to retain those officers would impede its business plan and growth strategies, which would have a negative impact on its business and the value of an investment.

 

Precision’s success depends on the skills, experience and performance of key members of its management team. Precision heavily depends on its management team: Carl Schwartz, Precision’s Chief Executive Officer, and Bob Myers, Precision’s Chief Financial Officer. Precision has entered into employment agreements with the CEO and the CFO of the senior management team and it may expand the relatively small number of executives in its company. Were Precision to lose one or more of these key individuals, Precision would be forced to expend significant time and money in the pursuit of a replacement, which could result in both a delay in the implementation of Precision’s business plan and the diversion of its limited working capital. Precision can give you no assurance that it can find satisfactory replacements for these key individuals at all, or on terms that are not unduly expensive or burdensome to Precision.

 

Precision’s success is dependent on its ability to attract and retain technical personnel, sales and marketing personnel, and other skilled management.

 

Precision’s success depends to a significant degree on its ability to attract, retain and motivate highly skilled and qualified personnel. Failure to attract and retain necessary technical, sales and marketing personnel and skilled management could adversely affect its business. If Precision fails to attract, train and retain sufficient numbers of these highly-qualified people, its prospects, business, financial condition and results of operations will be materially and adversely affected.

 

Costs incurred because Precision is a public company may affect its profitability.

 

As a public company, Precision incurs significant legal, accounting, and other expenses, and it is subject to the SEC’s rules and regulations relating to public disclosure that generally involve a substantial expenditure of financial resources.  In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, requires changes in corporate governance practices of public companies.  Full compliance with such rules and regulations requires significant legal and financial compliance costs and makes some activities more time-consuming and costly, which may negatively impact its financial results.  To the extent Precision’s earnings suffer as a result of the financial impact of its SEC reporting or compliance costs, its ability to develop an active trading market for its securities could be harmed.

 

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Limitations on director and officer liability and indemnification of Precision’s officers and directors by it may discourage stockholders from bringing suit against a director.

 

Precision’s certificate of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to Precision or its stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on Precision’s behalf against a director. In addition, Precision’s certificate of incorporation and bylaws may provide for mandatory indemnification of directors and officers to the fullest extent permitted by governing state law

 

Precision does not expect to pay dividends for the foreseeable future, and it may never pay dividends; investors must rely on stock appreciation for any return on investment in Precision’s common stock.

 

Precision currently intends to retain any future earnings to support the development and expansion of its business and does not anticipate paying cash dividends in the foreseeable future. Precision’s payment of any future dividends will be at the discretion of its Board of Directors after taking into account various factors, including but not limited to, Precision’s financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that Precision may be a party to at the time. In addition, Precision’s ability to pay dividends on its common stock may be limited by state law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize certain returns on their investment. As a result, investors must rely on stock appreciation and a liquid trading market for any return on investment in Precision’s common stock.

 

Shares eligible for future sale may adversely affect the market.

 

From time to time, certain stockholders may be eligible to sell some or all of their shares of Precision common stock pursuant to Rule 144, promulgated under the Securities Act subject to certain limitations. In general, pursuant to Rule 144 as in effect as of the date of this proxy statement/prospectus/information statement, a stockholder (or stockholders whose shares are aggregated) who has satisfied the applicable holding period and is not deemed to have been one of Precision’s affiliates at the time of sale, or at any time during the three months preceding a sale, may sell their shares of Precision common stock. Any substantial sale, or cumulative sales, of Precision common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market price of Precision’s securities.

 

Precision expects volatility in the price of its common stock, which may subject it to securities litigation.

 

If established, the market for Precision common stock may be characterized by significant price volatility when compared to seasoned issuers, and Precision expects that its share price will be more volatile than a seasoned issuer for the indefinite future. In addition, there is no assurance that the price of Precision common stock will not be volatile. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. Precision may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

 

The Precision Board of Directors’ ability to issue undesignated preferred stock and the existence of anti-takeover provisions may depress the value of its common stock.

 

Precision’s authorized capital includes 20 million shares of preferred stock. Of this amount, 18,950 shares have been designated as Series B Convertible Preferred Stock, 1,213,819 shares have been designated as Series C Preferred Stock, 3,500,000 shares will be designated as Series D Preferred Stock in connection with the Merger, and the remaining authorized shares are undesignated preferred stock. Precision’s Board of Directors has the power to issue any or all of the shares of undesignated preferred stock, including the authority to establish one or more series and to fix the powers, preferences, rights and limitations of such class or series, without seeking stockholder approval. Further, as a Delaware corporation, Precision is subject to provisions of the Delaware General Corporation Law regarding “business combinations.” Precision may, in the future, consider adopting additional anti-takeover measures. The authority of Precision’s Board of Directors to issue undesignated stock and the anti-takeover provisions of Delaware law, as well as any future anti-takeover measures adopted by Precision, may, in certain circumstances, delay, deter or prevent takeover attempts and other changes in control of Precision not approved by Precision’s Board of Directors. As a result, Precision’s stockholders may lose opportunities to dispose of their shares at favorable prices generally available in takeover attempts or that may be available under a merger proposal and the market price, voting and other rights of the holders of common stock may also be affected.

 

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Future sales and issuances of Precision common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of Precision’s stockholders and could cause its share price to fall.

 

Precision also expects that significant additional capital will be needed in the future to continue its planned operations. To the extent that Precision raises additional capital by issuing equity securities, its stockholders may experience substantial dilution. Precision may sell common stock, convertible securities, or other equity securities in one or more transactions at prices and in a manner, it determines from time to time. If Precision sells common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to Precision’s existing stockholders, and new investors could gain rights superior to its existing stockholders. In addition, in the past, Precision has issued warrants to acquire shares of common stock. To the extent these warrants are ultimately exercised, you will sustain further dilution.

 

Acquisitions involve risks that could result in adverse changes to operating results, cash flows and liquidity.

 

Precision intends to make strategic acquisitions in addition to the Merger. However, Precision may not be able to identify suitable acquisition opportunities or may be unable to obtain the consent of Precision’s stockholders and therefore, may not be able to complete such acquisitions. Precision may pay for acquisitions with its common stock or with convertible securities, which may dilute your investment in its common stock, or it may decide to pursue acquisitions that investors may not agree with. In connection with most of Precision’s acquisitions, Precision also agreed to substantial earn-out arrangements. To the extent it defers the payment of the purchase price for any acquisition through a cash earn-out arrangement, it will reduce cash flows in subsequent periods. In addition, acquisitions may expose Precision to operational challenges and risks, including:

 

·the ability to profitably manage acquired businesses or successfully integrate the operations of acquired

 

·businesses, as well as the acquired business’s financial reporting and accounting control systems into its existing platforms;

 

·​increased indebtedness and contingent purchase price obligations associated with an acquisition;

 

·​the ability to fund cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties;

 

·​the availability of funding sufficient to meet increased capital needs;

 

·​diversion of management’s time and attention from existing operations; and

 

·​the ability to retain or hire qualified personnel required for expanded operations.

 

Completing acquisitions may require significant management time and financial resources because Precision may need to assimilate widely dispersed operations with distinct corporate cultures. In addition, acquired companies may have liabilities that it failed, or were unable, to discover in the course of performing due diligence investigations. Precision cannot assure you that the indemnification granted by sellers of acquired companies will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with businesses or properties it assumes upon consummation of an acquisition. Precision may learn additional information about its acquired businesses that could have a material adverse effect on Precision, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on its business. Failure to successfully manage the operational challenges and risks associated with, or resulting from, acquisitions could adversely affect Precision’s results of operations, cash flows and liquidity. Borrowings or issuances of convertible securities associated with these acquisitions may also result in higher levels of indebtedness, which could adversely impact Precision’s ability to service its debt within the scheduled repayment terms.

 

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RISKS RELATED TO HELOMICS

 

Helomics molecular diagnostics business has limited revenue, and Helomics expects to incur net losses for the foreseeable future and Helomics may never achieve or sustain profitability.

 

The revenue generated from Helomics’ molecular diagnostics business was $425,065, for the nine months ended September 30, 2018 and for the same fiscal period, Helomics’ molecular diagnostics business had operating losses of approximately $3.8 million. Although Helomics expects the revenue generated from Helomics’ molecular diagnostics business to grow in the future, there can be no assurance that Helomics will achieve revenue sufficient to offset expenses. Additionally, Helomics is engaged in activities to expand and diversify its revenue base. Helomics expects that a significant portion of Helomics revenue will come from certain service efforts being offered to pharmaceutical, diagnostic and biotech companies as well as academic institutions. Helomics’ business may never achieve or sustain profitability, and Helomics’ failure to achieve and sustain profitability in the future could have a material adverse effect on Helomics’ business, financial condition and results of operations.

 

Helomics has a limited operating history as a molecular diagnostics company, which may make it difficult to evaluate the success of Helomics’ business to date and to assess Helomics’ future viability.

 

Helomics has a limited operating history as a molecular diagnostics company, which may make it difficult to evaluate the success of Helomics’ business to date and to assess its future viability.

 

If one or more significant payors stops providing reimbursement or decreases the amount of reimbursement for Helomics’ molecular diagnostic tests, Helomics’ revenue could decline.

 

Although Helomics has entered into contracts with certain third-party payors which establish in-network allowable rates of reimbursement for its molecular diagnostic tests, payors may suspend or discontinue reimbursement at any time, may require or increase co-payments from patients, or may reduce the reimbursement rates paid to Helomics. Any such actions could have a negative effect on Helomics’ revenue.

 

If payors do not provide reimbursement, rescind or modify their reimbursement policies or delay payments for Helomics’ tests, or if Helomics is unable to successfully negotiate additional reimbursement contracts, Helomics’ commercial success could be compromised.

 

Physicians may generally not order Helomics’ tests unless payors reimburse a substantial portion of the test price. There is uncertainty concerning third-party reimbursement of any test incorporating new molecular diagnostic technology. Reimbursement by a payor may depend on a number of factors, including a payor’s determination that tests such as Helomics’ molecular diagnostic tests are: (a) not experimental or investigational; (b) pre-authorized and appropriate for the patient; (c) cost-effective; (d) supported by peer-reviewed publications; and (e) included in clinical practice guidelines. Since each payor makes its own decision as to whether to establish a policy or enter into a contract to reimburse Helomics’ tests, seeking these approvals is a time-consuming and costly process. Also, payor consolidation is underway and creates uncertainty as to whether coverage and contracts with existing payors will remain in effect. Finally, commercial payors may tie their allowable rates to Medicare rates, and should Medicare reduce their rates, Helomics may be negatively impacted. If Helomics fails to establish broad adoption of and reimbursement for its molecular diagnostic tests, or if Helomics is unable to maintain existing reimbursement from payors, its ability to generate revenue could be harmed and this could have a material adverse effect on Helomics’ business, financial condition and results of operations.

 

Helomics may experience limits on its revenue if physicians decide not to order its molecular diagnostic tests.

 

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If Helomics is unable to create or maintain demand for its molecular diagnostic tests in sufficient volume, it may not become profitable. To generate demand, Helomics will need to continue to educate physicians and the medical community on the value and benefits of its molecular diagnostic tests in order to change clinical practices through published papers, presentations at scientific conferences and one-on-one education by Helomics’ internal sales force. In addition, Helomics’ ability to obtain and maintain adequate reimbursement from third-party payors will be critical to generating revenue. In many cases, practice guidelines in the United States have recommended therapies or surgery to determine if a patient’s condition is malignant or benign. Accordingly, physicians may be reluctant to order a diagnostic test that may suggest surgery is unnecessary. In addition, Helomics’ molecular diagnostic tests are performed at Helomics’ laboratories rather than by a pathologist in a local laboratory, so pathologists may be reluctant to support Helomics’ molecular diagnostic tests. In addition, guidelines for the diagnosis and treatment of thyroid nodules may change to recommend another type of treatment protocol, and these changes may result in medical practitioners deciding not to use Helomics’ molecular diagnostic tests. These facts may make physicians reluctant to convert to using Helomics’ molecular diagnostic tests, which could limit Helomics’ ability to generate revenue and achieve profitability which could have a material adverse effect on its business, financial condition and results of operations.

 

Helomics may experience limits on its revenue if patients decide not to use its molecular diagnostic tests.

 

Some patients may decide not to use Helomics’ molecular diagnostic tests due to price, all or part of which may be payable directly by the patient if the patient’s insurer denies reimbursement in full or in part. Many insurers seek to shift more of the cost of healthcare to patients in the form of higher co-payments or premiums. In addition, the current economic environment in the United States has and may continue to result in the loss of healthcare coverage. Implementation of provisions of the Patient Protection and Affordable Care Act, or PPACA (also known as the Affordable Care Act) also resulted in the loss of health insurance, and increases in premiums and reductions in coverage, for some patients. These events may result in patients delaying or forgoing medical checkups or treatment due to their inability to pay for Helomics’ test, which could have an adverse effect on Helomics’ revenue.

 

If Helomics’ sales efforts are less successful than anticipated, its business expansion plans, including its service offerings, could suffer and its ability to generate revenues could be diminished. In addition, Helomics has limited history selling its molecular diagnostics tests on a direct basis and Helomics’ limited history makes forecasting difficult.

 

If Helomics’ sales efforts are not successful, or new additions to its sales initiatives fail to gain traction among customers, Helomics may not be able to increase market awareness and sales of its molecular diagnostic tests or its service offerings. If Helomics fails to establish its molecular diagnostic tests in the marketplace, it could have a negative effect on its ability to sell subsequent molecular diagnostic tests and hinder the desired expansion of its business. Helomics has limited historical experience forecasting the direct sales of its molecular diagnostics products and service offerings. Helomics’ ability to produce product quantities that meet customer demand is dependent upon its ability to forecast accurately and plan production and processing accordingly.

 

Helomics relies on sole suppliers for some of the materials used in its molecular diagnostic tests, and it may not be able to find replacements or transition to alternative suppliers in a timely manner.

 

Helomics relies on sole suppliers for certain materials that it uses to perform its molecular diagnostic tests. Helomics also purchases reagents used in its molecular diagnostic tests from sole-source suppliers. While Helomics has developed alternate sourcing strategies for these materials and vendors, Helomics cannot be certain whether these strategies will be effective or the alternative sources will be available in a timely manner. If these suppliers can no longer provide Helomics with the materials it needs to perform its molecular diagnostic tests, if the materials do not meet its quality specifications, or if it cannot obtain acceptable substitute materials, an interruption in molecular diagnostic test processing could occur. Any such interruption may directly impact Helomics’ revenue and cause it to incur higher costs.

 

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Helomics may experience problems in scaling its operations, or delays or reagent and supply shortages that could limit the growth of its revenue.

 

If Helomics encounters difficulties in scaling its operations as a result of, among other things, quality control and quality assurance issues and availability of reagents and raw material supplies, it will likely experience reduced sales of its molecular diagnostic tests, increased repair or re-engineering costs, and defects and increased expenses due to switching to alternate suppliers, any of which would reduce Helomics’ revenues and gross margins. Although Helomics attempts to match its capabilities to estimates of marketplace demand, to the extent demand materially varies from Helomics’ estimates, Helomics may experience constraints in its operations and delivery capacity, which could adversely impact revenue in a given fiscal period. Should Helomics’ need for raw materials and reagents used in its molecular diagnostic tests fluctuate, Helomics could incur additional costs associated with either expediting or postponing delivery of those materials or reagents.

 

If Helomics’ is unable to support demand for its molecular diagnostic tests or any of its future tests or solutions, Helomics’ business could suffer.

 

As demand for Helomics’ molecular diagnostic tests grow, Helomics will need to continue to scale its testing capacity and processing technology, expand customer service, billing and systems processes and enhance its internal quality assurance program. Helomics will also need additional certified laboratory scientists and other scientific and technical personnel to process higher volumes of its molecular diagnostic tests. Helomics cannot guarantee that increases in scale, related improvements and quality assurance will be implemented successfully or that appropriate personnel will be available. Failure to implement necessary procedures, transition to new processes or hire the necessary personnel could result in higher costs of processing tests or inability to meet demand. There can be no assurance that Helomics will be able to perform its testing on a timely basis at a level consistent with demand, or that Helomics’ efforts to scale its operations will not negatively affect the quality of test results. If Helomics encounters difficulty meeting market demand or quality standards, its reputation could be harmed, and its future prospects and business could suffer, causing a material adverse effect on Helomics’ business, financial condition and results of operations.

 

If Helomics is unable to compete successfully, Helomics may be unable to increase or sustain its revenue or achieve profitability.

 

Helomics competes with physicians and the medical community who use traditional diagnostic methods. In many cases, practice guidelines in the United States have recommended therapies or surgery to determine if a patient’s condition is malignant or benign. As a result, Helomics believes that it will need to continue to educate physicians and the medical community on the value and benefits of its molecular diagnostic tests in order to change clinical practices. In addition, Helomics faces competition from other companies that offer diagnostic tests. It is also possible that Helomics faces future competition from laboratory-developed tests, or LDTs, developed by commercial laboratories such as Quest and/or other diagnostic companies developing new molecular diagnostic tests or technologies. Furthermore, Helomics may be subject to competition as a result of the new, unforeseen technologies that can be developed by Helomics’ competitors in its diagnostic tests space.

 

To compete successfully Helomics must be able to demonstrate, among other things, that its molecular diagnostic test results are accurate and cost effective, and Helomics must secure a meaningful level of reimbursement for its tests. Many of Helomics’ potential competitors have stronger brand recognition and greater financial capabilities than Helomics does. Others may develop a test with a lower price than Helomics’ that could be viewed by physicians and payors as functionally equivalent to Helomics’ molecular diagnostic tests or offer a test at prices designed to promote market penetration, which could force Helomics to lower the price of its molecular diagnostic tests and affect its ability to achieve and maintain profitability. If Helomics is unable to compete successfully against current and future competitors, it may be unable to increase market acceptance of its molecular diagnostic tests and overall sales, which could prevent Helomics from increasing its revenue or achieving profitability and cause the market price of its common stock to decline. As Helomics adds new molecular diagnostic tests and services, it will face many of these same competitive risks for these new molecular diagnostic tests and services.

 

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Developing new molecular diagnostic tests involves a lengthy and complex process, and Helomics may not be able to commercialize on a timely basis, or at all, other molecular diagnostic tests Helomics is developing. Developing new molecular diagnostic tests and solutions will require Helomics to devote considerable resources to research and development. Helomics may face challenges obtaining sufficient numbers of samples to validate a newly acquired or developed molecular diagnostic test. In order to develop and commercialize new molecular diagnostic tests, Helomics needs to:

 

·expend significant funds to conduct substantial research and development;

 

·conduct successful analytical and clinical studies;

 

·scale Helomics’ laboratory processes to accommodate new molecular diagnostic tests; and

 

·build the commercial infrastructure to market and sell new molecular diagnostic tests.

 

Typically, few research and development projects result in commercial products, and success in early clinical studies often is not replicated in later studies. At any point, Helomics may abandon development of a molecular diagnostic test or Helomics may be required to expend considerable resources repeating clinical studies, which would adversely affect the timing for generating revenue from such test. If a clinical validation study fails to demonstrate the prospectively defined endpoints of the study or if Helomics fails to sufficiently demonstrate analytical validity, Helomics might choose to abandon the development of the molecular diagnostic test, which could harm its business. In addition, competitors may develop and commercialize new competing molecular diagnostic tests faster than Helomics or at a lower cost, which could have a material adverse effect on Helomics’ business, financial condition and results of operations.

 

If Helomics is unable to develop or acquire molecular diagnostic tests to keep pace with rapid technological, medical and scientific change, its operating results and competitive position could be affected.

 

Recently, there have been numerous advances in technologies relating to diagnostics, particularly diagnostics that are based on genomic information. These advances require Helomics to continuously develop its technology and to work to develop new solutions to keep pace with evolving standards of care. Helomics’ solutions could become obsolete unless it continually innovates and expands its product offerings to include new clinical applications. If Helomics is unable to develop or acquire new molecular diagnostic tests or to demonstrate the applicability of its molecular diagnostic tests for other diseases, Helomics’ sales could decline and its competitive position could be harmed.

 

If the United States Food and Drug Administration (“FDA”) begins to enforce regulation of Helomics’ molecular diagnostic tests, Helomics could incur substantial costs and delays associated with trying to obtain pre-market clearance or approval and costs associated with complying with post-market requirements.

 

Clinical laboratory tests like Helomics’ molecular diagnostic tests are regulated under CLIA as well as by applicable state laws. Most Laboratory Developed Tests (“LDTs”) are currently not subject to the FDA’s, regulation (although reagents, instruments, software or components provided by third parties and used to perform LDTs may be subject to regulation). In October 2014, the FDA issued two draft guidance documents: “Framework for Regulatory Oversight of Laboratory Developed Tests”, which provides an overview of how the FDA would regulate LDTs through a risk-based approach, and “FDA Notification and Medical Device Reporting for Laboratory Developed Tests”, which provides guidance on how the FDA intends to collect information on existing LDTs, including adverse event reports. On January 13, 2017, the FDA also issued a discussion paper on LDTs. Pursuant to the Framework for Regulatory Oversight draft guidance, LDT manufacturers would be subject to medical device registration, listing, and adverse event reporting requirements. The risk-based classification considers the LDT’s intended use, technological characteristics, and the risk to patients if the LDT were to fail. The FDA has indicated in its guidance that screening devices for malignant cancers are LDTs of higher concern to the FDA and for which enforcement of pre-market and post-market review requirements would likely commence before other LDT types.

 

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Pursuant to the Framework for Regulatory Oversight draft guidance, LDT manufacturers would be required to either submit a pre-market application and receive the FDA’s approval before an LDT may be marketed or submit a pre-market notification in advance of marketing. These requirements would be phased in, starting with higher risk LDTs, following the issuance of the FDA’s final guidance on this topic, which the FDA has identified as a priority. The draft guidance provides that LDTs that are already marketed at the time the final guidance is issued would not be withdrawn from the market during the FDA’s review process. There is no timeframe within which the FDA must issue its final guidance, but issuance of this final guidance has been identified among a list of the FDA’s priorities for 2016. As of the date of the filing of this proxy statement/prospectus/information statement, the FDA has not issued its final guidance. How the final guidance would affect Helomics’ business is not yet known. Helomics cannot provide any assurance that the FDA regulation will not be required in the future for its tests, whether through additional guidance or regulations issued by the FDA, new enforcement policies adopted by the FDA or new legislation enacted by Congress. It is possible that legislation will be enacted into law, regulations could be promulgated, or guidance could be issued by the FDA which may result in increased regulatory burdens for Helomics to continue to offer its molecular diagnostic tests or to develop and introduce new tests. Helomics cannot predict the timing or content of future legislation enacted, regulations promulgated, or guidance issued regarding LDTs, or how it will affect Helomics’ business.

 

If pre-market review is required by the FDA or if Helomics decides to voluntarily pursue the FDA’s pre-market review of Helomics’ tests, there can be no assurance that Helomics’ molecular diagnostic tests or any tests Helomics may develop or acquire in the future will be cleared or approved on a timely basis, if at all, nor can there be assurance that labeling claims will be consistent with Helomics’ current claims or adequate to support continued adoption of and reimbursement for its tests. If pre-market review is required, Helomics’ business could be negatively impacted as a result of commercial delay that may be caused by the new requirements. The cost of conducting clinical trials and otherwise developing data and information to support pre-market applications may be significant. If Helomics is required to submit applications for its currently-marketed tests, Helomics may be required to conduct additional studies, which may be time-consuming and costly and could result in Helomics’ currently-marketed tests being withdrawn from the market. If Helomics’ tests are allowed to remain on the market but there is uncertainty in the marketplace about its tests, if Helomics is required by the FDA to label them investigational, or if labeling claims the FDA allows Helomics to make are limited, orders may decline, and reimbursement may be adversely affected. Continued compliance with the FDA’s regulations would increase the cost of conducting Helomics’ business, and subject Helomics to heightened regulation by the FDA and penalties for failure to comply with these requirements. Helomics cannot predict the timing or form of any such guidance or regulation, or the potential effect on Helomics’ existing molecular diagnostic tests or Helomics’ tests in development, or the potential impact of such guidance or regulation on Helomics’ business, financial condition and results of operations.

 

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If Helomics fails to comply with Federal, State and foreign laboratory licensing requirements, Helomics could lose the ability to perform its tests or experience disruptions to Helomics’ business.

 

Helomics is subject to Clinical Laboratory Improvement Amendments (“CLIA”), a Federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. CLIA regulations mandate specific standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management and quality assurance. CLIA certification is also required in order for Helomics to be eligible to bill Federal and State healthcare programs, as well as many private third-party payors, for its molecular diagnostic tests. To renew these certifications, Helomics is subject to survey and inspection every two years. Moreover, CLIA inspectors may make random inspections of Helomics’ clinical reference laboratories. Helomics is also required to maintain State licenses to conduct testing in its Pittsburgh, Pennsylvania laboratories. Pennsylvania laws require that Helomics maintain a license and establish standards for the day-to-day operation of Helomics’ clinical reference laboratory in Pittsburgh, Pennsylvania. In addition, Helomics’ Pittsburgh and New Haven laboratories are required to be licensed on a test-specific basis by certain other states. If Helomics were unable to obtain or lose its CLIA certificate or State licenses for its laboratories, whether as a result of revocation, suspension or limitation, Helomics would no longer be able to perform its molecular diagnostic tests, which could have a material adverse effect on Helomics’ business, financial condition and results of operations. If Helomics were to lose its licenses issued by the States in which Helomics is required to hold licenses, Helomics would not be able to test specimens from those States. New molecular diagnostic tests Helomics may develop may be subject to new approvals by governmental bodies, and Helomics may not be able to offer its new molecular diagnostic tests to patients in such jurisdictions until such approvals are received.

 

Complying with numerous statutes and regulations pertaining to Helomics’ molecular diagnostics business is an expensive and time-consuming process, and any failure to comply could result in substantial penalties.

 

Helomics is subject to regulation by both the Federal government and the States in which Helomics conducts its molecular diagnostics business, including:

 

·The Food, Drug and Cosmetic Act, as supplemented by various other statutes;

 

·The Prescription Drug Marketing Act of 1987, the amendments thereto, and the regulations promulgated thereunder and contained in 21 C.F.R. Parts 203 and 205, or the PDMA;

 

·CLIA and State licensing requirements;

 

·Manufacturing and promotion laws;

 

·Medicare billing and payment regulations applicable to clinical laboratories;

 

·The Federal Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a Federal healthcare program;

 

·The Federal Stark physician self-referral law (and state equivalents), which prohibits a physician from making a referral for certain designated health services covered by the Medicare program, including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services, unless the financial relationship falls within an applicable exception to the prohibition;

 

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·The Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which established comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions, and amendments made in 2013 to HIPAA under the Health Information Technology for Economic and Clinical Health Act, which strengthen and expand HIPAA privacy and security compliance requirements, increase penalties for violators, extend enforcement authority to state attorneys general, and impose requirements for breach notification;

 

·The Federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies;

 

·The Federal False Claims Act, which imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government;

 

·Other Federal and State fraud and abuse laws, prohibitions on self-referral, fee-splitting restrictions, prohibitions on the provision of products at no or discounted cost to induce physician or patient adoption, and false claims acts, which may extend to services reimbursable by any third-party payor, including private insurers;

 

·The prohibition on reassignment of Medicare claims, which, subject to certain exceptions, precludes the reassignment of Medicare claims to any other party;

 

·The rules regarding billing for diagnostic tests reimbursable by the Medicare program, which prohibit a physician or other supplier from marking up the price of the technical component or professional component of a diagnostic test ordered by the physician or other supplier and supervised or performed by a physician who does not “share a practice” with the billing physician or supplier; and

 

·State laws that prohibit other specified practices related to billing such as billing physicians for testing that they order, waiving coinsurance, co-payments, deductibles, and other amounts owed by patients, and billing a State Medicaid program at a price that is higher than what is charged to other payors.

 

Helomics has implemented policies and procedures designed to comply with these laws and regulations. Helomics periodically conducts internal reviews of its compliance with these laws. Helomics’ compliance is also subject to governmental review. The growth of Helomics’ business may increase the potential of violating these laws, regulations or Helomics’ internal policies and procedures. The risk of Helomics being found in violation of these or other laws and regulations is further increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Violations of Federal or State regulations may incur investigation or enforcement action by the FDA, Department of Justice, State agencies, or other legal authorities, and may result in substantial civil, criminal, or other sanctions. Any action brought against Helomics for violation of these or other laws or regulations, even if Helomics successfully defend against it, could cause Helomics to incur significant legal expenses and divert Helomics’ managements’ attention from the operation of its business. If Helomics’ operations are found to be in violation of any of these laws and regulations, Helomics may be subject to civil and criminal penalties, damages and fines, Helomics could be required to refund payments received by it, Helomics could face possible exclusion from Medicare, Medicaid and other Federal or State healthcare programs and Helomics could even be required to cease its operations. Any of the foregoing consequences could have a material adverse effect on Helomics’ business, financial condition and results of operations.

 

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If Helomics uses hazardous materials in a manner that causes contamination or injury, Helomics could be liable for resulting damages.

 

Helomics is subject to Federal, State and local laws, rules and regulations governing the use, discharge, storage, handling and disposal of biological material, chemicals and waste. Helomics cannot eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, Helomics could be held liable for any resulting damages, remediation costs and any related penalties or fines, and any liability could exceed Helomics’ resources or any applicable insurance coverage Helomics may have. The cost of compliance with these laws and regulations may become significant, and Helomics’ failure to comply may result in substantial fines or other consequences, and either could have a significant impact on Helomics’ operating results.

 

Security breaches, loss of data and other disruptions to Helomics or its third-party service providers could compromise sensitive information related to Helomics’ business or prevent Helomics from accessing critical information and expose it to liability, which could adversely affect Helomics’ business and reputation.

 

Helomics’ business requires that Helomics and its third-party service providers collect and store sensitive data, including legally protected health information, personally identifiable information about patients, credit card information, and Helomics’ proprietary business and financial information. Helomics faces a number of risks relative to Helomics’ protection of, and Helomics’ service providers’ protection of, this critical information, including loss of access, inappropriate disclosure and inappropriate access, as well as risks associated with Helomics’ ability to identify and audit such events. The secure processing, storage, maintenance and transmission of this critical information are vital to Helomics’ operations and business strategy, and Helomics devotes significant resources to protecting such information. Although Helomics takes measures to protect sensitive information from unauthorized access or disclosure, Helomics’ information technology and infrastructure may be vulnerable to attacks by hackers or viruses or otherwise breached due to employee error, malfeasance or other activities. While Helomics has not experienced any such attack or breach, if such event would occur and cause interruptions in Helomics’ operations, Helomics’ networks would be compromised and the information Helomics stores on those networks could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Unauthorized access, loss or dissemination could disrupt Helomics’ operations, including Helomics’ ability to process tests, provide test results, bill payors or patients, process claims, provide customer assistance services, conduct research and development activities, collect, process and prepare company financial information, provide information about Helomics’ solution and other patient and physician education and outreach efforts, manage the administrative aspects of Helomics’ business and damage Helomics’ reputation, any of which could adversely affect Helomics’ business. In addition, the interpretation and application of consumer, health-related and data protection laws in the United States are often uncertain, contradictory and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with Helomics’ practices. Complying with these various laws could cause Helomics to incur substantial costs or require Helomics to change its business practices, systems and compliance procedures in a manner adverse to Helomics’ business.

 

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If Helomics is sued for product liability or errors and omissions liability, Helomics could face substantial liabilities that exceed its resources.

 

The marketing, sale and use of Helomics’ molecular diagnostic tests could lead to product liability claims if someone were to allege that the molecular diagnostic test failed to perform as it was designed. Helomics may also be subject to liability for errors in the results Helomics provides to physicians or for a misunderstanding of, or inappropriate reliance upon, the information Helomics provides. A product liability or errors and omissions liability claim could result in substantial damages and be costly and time consuming for Helomics to defend. Although Helomics maintains product liability and errors and omissions insurance, Helomics cannot be certain that its insurance would fully protect it from the financial impact of defending against these types of claims or any judgments, fines or settlement costs arising out of such claims. Any product liability or errors and omissions liability claim brought against Helomics, with or without merit, could increase its insurance rates or prevent it from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause injury to Helomics’ reputation or cause Helomics to suspend sales of its products and solutions. The occurrence of any of these events could have a material adverse effect on Helomics’ business, financial condition and results of operations.

 

Billing for Helomics’ diagnostic solutions is complex, and Helomics must dedicate substantial time and resources to the billing process to be paid for its molecular diagnostic tests.

 

Billing for clinical laboratory testing services is complex, time consuming and expensive. Depending on the billing arrangement and applicable law, Helomics bills various payors, including Medicare, insurance companies and patients, all of which have different billing requirements. To the extent laws or contracts require Helomics to bill patient co-payments or co-insurance, Helomics must also comply with these requirements. Helomics may also face increased risk in its collection efforts, including write-offs of doubtful accounts and long collection cycles, which could have a material adverse effect on Helomics’ business, results of operations and financial condition. Among others, the following factors make the billing process complex:

 

·differences between the list price for Helomics’ molecular diagnostic tests and the reimbursement rates of payors;

 

·compliance with complex Federal and State regulations related to billing Medicare;

 

·disputes among payors as to which party is responsible for payment;

 

·differences in coverage among payors and the effect of patient co-payments or co-insurance;

 

·differences in information and billing requirements among payors;

 

·incorrect or missing billing information; and

 

·the resources required to manage the billing and claims appeals process.

 

As Helomics introduces new molecular diagnostic tests, Helomics will need to add new codes to Helomics’ billing process as well as Helomics’ financial reporting systems. Failure or delays in effecting these changes in external billing and internal systems and processes could negatively affect Helomics’ revenue and cash flow. Additionally, Helomics’ billing activities require it to implement compliance procedures and oversight, train and monitor its employees, challenge coverage and payment denials, assist patients in appealing claims, and undertake internal audits to evaluate compliance with applicable laws and regulations as well as internal compliance policies and procedures. Payors also conduct external audits to evaluate payments, which add further complexity to the billing process. These billing complexities, and the related uncertainty in obtaining payment for Helomics’ diagnostic solution, could negatively affect Helomics’ revenue and cash flow, Helomics’ ability to achieve profitability, and the consistency and comparability of Helomics’ results of operations.

 

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Helomics relies on a third-party to process and transmit claims to payors, and any delay in either could have an adverse effect on Helomics’ revenue.

 

Helomics relies on a third-party provider to provide overall processing of claims and to transmit the actual claims to payors based on the specific payor billing format. If claims for Helomics’ molecular diagnostic tests are not submitted to payors on a timely basis, or if Helomics is required to switch to a different provider to handle claim submissions, Helomics may experience delays in its ability to process these claims and receipt of payments from payors, which could have a material adverse effect on Helomics’ business, financial condition and results of operations.

 

Enacted healthcare reform legislation may increase Helomics’ costs, impair Helomics’ ability to adjust its pricing to match any such increased costs, and therefore could materially and adversely affect its business, financial condition and results of operations.

 

PPACA entails sweeping healthcare reforms with staggered effective dates from 2010 through 2018, although certain of these effective dates have been delayed by action of the current administration. While some guidance has been issued under PPACA over the past several years, many provisions in PPACA require the issuance of additional guidance from the U.S. Department of Labor, the Internal Revenue Service, the U.S. Department of Health & Human Services, and State governments.  This reform includes, but is not limited to: the implementation of a small business tax credit; required changes in the design of Helomics’ healthcare policy including providing insurance coverage to part-time workers working on average thirty (30) or more hours per week; “grandfathering” provisions for existing policies; “pay or play” requirements; a “Cadillac plan” excise tax; and specifically required “essential benefits,” that must be included in “qualified plans,” which benefits include coverage for laboratory tests.

 

Effective January 1, 2014, each State was required to participate in the PPACA marketplace and make health insurance coverage available for purchase by eligible individuals through a website. While these websites were subject to significant administrative issues leading up to their inception dates (and, in some cases, thereafter), it is currently estimated that in excess of 11 million individuals nationwide had enrolled in health insurance coverage through these exchanges as of the end of 2015. It is unclear, however, how many of these individuals are becoming insured after previously not having health insurance coverage, versus maintaining their plans purchased on the exchanges in 2014 or switching from other health insurance plans.

 

PPACA also requires “Applicable Manufacturers” to disclose to the Secretary of the Department of Health & Human Services drug sample distributions and certain payments or transfers of value to covered recipients (physicians and teaching hospitals) on an annual basis. “Applicable Manufacturers” and “Applicable Group Purchasing Organizations” must also disclose certain physician ownership or investment interests. The data submitted will ultimately be made available on a public website. Based upon the structure of Helomics’ relationship with its clients, Helomics may be included in the definition of “Applicable Manufacturer” for purposes of the disclosure requirements or may provide services that include the transfer of drug samples and/or other items of value to covered recipients. As such, Helomics may be required to disclose or provide information that is subject to disclosure. There may be certain risks and penalties associated with the failure to properly make such disclosures, including but not limited to the specific civil liabilities set forth in PPACA, which allows for a maximum civil monetary penalty per “Applicable Manufacturer” of $1,150,000 per year. There may be additional risks and claims made by third parties derived from an improper disclosure that are difficult to ascertain at this time.

 

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While PPACA may increase the number of patients who have insurance coverage, its cost containment measures could also adversely affect reimbursement for any of Helomics’ molecular diagnostic tests. Cost control initiatives also could decrease the price that Helomics’ receives for any molecular diagnostic tests Helomics may develop in the future. If Helomics’ molecular diagnostic tests are not considered cost-effective or if Helomics is unable to generate adequate third-party reimbursement for the users of its molecular diagnostic tests, then Helomics may be unable to maintain revenue streams sufficient to realize its targeted return on investment for its molecular diagnostic tests.

 

Helomics is currently unable to determine the long-term, direct or indirect impact of such legislation on its business. Since the effect of many of the provisions of PPACA may not be determinable for a number of years, Helomics does not expect PPACA to have a material adverse impact on its near term results of operations.  However, healthcare reform as mandated and implemented under PPACA and any future Federal or State mandated healthcare reform could materially and adversely affect its business, financial condition and operations by increasing Helomics’ operating costs, including its costs of providing health insurance to Helomics’ employees, decreasing Helomics’ revenue, impeding Helomics’ ability to attract and retain customers, requiring changes to Helomics’ business model, or causing Helomics to lose certain current competitive advantages.

 

Changes in governmental regulation could negatively impact Helomics’ business operations and increase its costs.

 

The pharmaceutical, biotechnology and healthcare industries are subject to a high degree of governmental regulation.  Significant changes in these regulations affecting Helomics’ business could result in the imposition of additional restrictions on Helomics’ business, additional costs to Helomics in providing Helomics’ molecular diagnostic tests to its customers or otherwise negatively impact Helomics’ business operations.  Changes in governmental regulations mandating price controls and limitations on patient access to Helomics’ products could also reduce, eliminate or otherwise negatively impact Helomics’ sales.

 

If Helomics does not increase its revenues and successfully manage the size of its operations, Helomics’ business, financial condition and results of operations could be materially and adversely affected.

 

The majority of Helomics’ operating expenses are personnel-related costs such as employee compensation and benefits, reagents and disposable supplies as well as the cost of infrastructure to support Helomics’ operations, including facility space and equipment.  Helomics continuously reviews its personnel to determine whether it are fully utilizing their services.   If Helomics is unable to achieve revenue growth in the future or fail to adjust its cost infrastructure to the appropriate level to support its revenues, Helomics’ business, financial condition and results of operations could be materially and adversely affected.

 

If Helomics research and development (R&D) efforts for its TruTumor and D-CHIP artificial intelligence platform (AI) take longer than expected the commercial revenues from the service offerings that use these platforms could also be delayed.

 

Helomics CRO business offers various services to pharma, diagnostics and biotech companies. These services use its TruTumor Patient derived tumor platform and its D-CHIP AI platform. These platforms are the subject of active R&D to further improve and validate them for commercial use in order to help Helomics’ clients in their drug discovery, biomarker and clinical trial activities. Helomics could face delays in this R&D, for example; Helomics may not be able to secure access to and approval to use clinical data from academic hospital partners required to validate the D-CHIP platform in a timely manner; clinical testing volume (number of specimens coming to Helomics for testing) may not grow sufficiently to drive data generation for D-CHIP as well as further development of the TruTumor platform; patient consent to use the patient’s data and tumor material for R&D may not be sufficient to support Helomics R&D; Helomics may not be able to attract and retain the appropriately qualified staff to perform the necessary R&D. Helomics has a limited operating history with the CRO and Informatics business which makes it difficult to forecast the revenue of these business units. While Helomics is committed to the buildout of both the CRO and D-CHIP services for the long term, the company cannot predict at this time, with any certainty, the future viability of either business unit.

 

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If Helomics’ information technology and communications systems fail or Helomics experiences a significant interruption in its operation, its reputation, business and results of operations could be materially and adversely affected.

 

The efficient operation of Helomics’ business is dependent on Helomics’ information technology and communications systems.  The failure of these systems to operate as anticipated could disrupt its business and result in decreased revenue and increased overhead costs.  In addition, Helomics does not have complete redundancy for all of its systems and its disaster recovery planning cannot account for all eventualities.  Helomics’ information technology and communications systems, including the information technology systems and services that are maintained by third party vendors, are vulnerable to damage or interruption from natural disasters, fire, terrorist attacks, malicious attacks by computer viruses or hackers, power loss or failure of computer systems, Internet, telecommunications or data networks.  If these systems or services become unavailable or suffer a security breach, Helomics may expend significant resources to address these problems, and Helomics’ reputation, business and results of operations could be materially and adversely affected.

 

If Helomics is unable to protect its intellectual property effectively, Helomics’ business would be harmed.

 

Helomics relies on patent protection as well as trademark, trade secret and other intellectual property rights protection and contractual restrictions to protect Helomics’ proprietary technology. If Helomics’ fails to protect its intellectual property, third parties may be able to compete more effectively against it and Helomics may incur substantial litigation costs in its attempts to recover or restrict use of its intellectual property. While Helomics applies for patents covering its products and technologies and uses thereof, Helomics may fail to apply for patents on important products and technologies in a timely fashion or at all, or Helomics may fail to apply for patents in relevant jurisdictions. Others could seek to design around Helomics’ current or future patented technologies. Helomics may not be successful in defending any challenges made against Helomics’ patents or patent applications. Any successful third-party challenge to Helomics’ patents could result in the unenforceability or invalidity of such patents and increased competition to Helomics’ business. The outcome of patent litigation can be uncertain and any attempt by Helomics to enforce its patent rights against others may not be successful, or, if successful, may take substantial time and result in substantial cost, and may divert Helomics’ efforts and attention from other aspects of its business.

 

Monitoring unauthorized disclosure is difficult, and Helomics does not know whether the steps Helomics has taken to prevent such disclosure are, or will be, adequate. If Helomics were to enforce a claim that a third-party had illegally obtained and was using its trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. Further, competitors could willfully infringe Helomics’ intellectual property rights, design around its protected technology or develop their own competitive technologies that arguably fall outside of Helomics’ intellectual property rights. Others may independently develop similar or alternative products and technologies or replicate any of Helomics’ products and technologies. If Helomics’ intellectual property does not adequately protect it against competitors’ products and methods, Helomics’ competitive position could be adversely affected, as could Helomics’ business and the results of its operations. To the extent Helomics’ intellectual property offers inadequate protection, or is found to be invalid or unenforceable, Helomics would be exposed to a greater risk of competition. If Helomics’ intellectual property does not provide adequate coverage of its competitors’ products, Helomics’ competitive position could be adversely affected, as could its overall business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

 

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Helomics may be involved in litigation related to intellectual property, which could be time-intensive and costly and may adversely affect its business, operating results or financial condition.

 

Helomics may receive notices of claims of direct or indirect infringement or misappropriation or misuse of other parties’ proprietary rights from time to time and some of these claims may lead to litigation. Helomics cannot assume that it will prevail in such actions, or that other actions alleging misappropriation or misuse by Helomics of third-party trade secrets, infringement by Helomics of third-party patents and trademarks or other rights, or the validity of Helomics’ patents, trademarks or other rights, will not be asserted or prosecuted against it. Helomics might not have been the first to make the inventions covered by each of Helomics’ pending patent applications and Helomics might not have been the first to file patent applications for these inventions. No assurance can be given that other patent applications will not have priority over Helomics’ patent applications. If third parties bring these proceedings against Helomics’ patents, Helomics could incur significant costs and experience management distraction. Litigation may be necessary for Helomics to enforce its patents and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to Helomics, and Helomics might not be able to obtain licenses to technology that it requires on acceptable terms or at all. In addition, if Helomics resorts to legal proceedings to enforce its intellectual property rights or to determine the validity, scope and coverage of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if Helomics were to prevail. Any litigation that may be necessary in the future could result in substantial costs and diversion of resources and could have a material adverse effect on Helomics’ business, financial condition and operating results.

 

In the event of a successful claim of infringement against Helomics, Helomics may be required to pay damages and ongoing royalties, and obtain one or more licenses from third parties, or be prohibited from selling its products. Helomics may not be able to obtain these licenses on acceptable terms, if at all. Helomics could incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect Helomics’ financial results. In addition, Helomics’ agreements with some of its customers, suppliers or other entities with whom Helomics’ does business require it to defend or indemnify these parties to the extent they become involved in infringement claims, including the types of claims described above. If Helomics is required or agrees to defend or indemnify third parties in connection with any infringement claims, Helomics could incur significant costs and expenses that could have a material adverse effect on Helomics’ business, financial condition, and results of operations.

 

 

 

 

 

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

 

This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements relating to Precision, Helomics and the Merger. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Helomics and Precision cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management of Precision or Helomics for future operations of the combined company, the risk that the conditions to the Closing are not satisfied, including the failure to timely or at all obtain stockholder approval for the Merger; uncertainties as to the timing of the consummation of the Merger and the ability of each of Precision and Helomics to consummate the Merger; risks related to Precision’s ability to correctly estimate its operating expenses and its expenses associated with the Merger; risks related to the changes in market price of the Precision common stock; competitive responses to the Merger; unexpected costs, charges or expenses resulting from the Merger; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the Merger; and legislative, regulatory, political and economic developments. The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere.

 

For a discussion of the factors that may cause Precision, Helomics or the combined company’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Precision and Helomics to complete the Merger and the effect of the Merger on the business of Precision, Helomics and the combined company, see “Risk Factors” beginning on page [__].

 

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Precision. See “Where You Can Find More Information” beginning on page [___]. There can be no assurance that the Merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the Merger will be realized.

 

If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of Precision, Helomics or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. Precision and Helomics do not undertake any obligation (and expressly disclaim any such obligation to) to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF PRECISION STOCKHOLDERS

 

Date, Time and Place

 

A Special Meeting will be held on March 13, 2019, at the offices of Precision’s counsel, Maslon LLP, 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402 commencing at 9:30 a.m. local time. Precision is delivering this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by the Precision Board of Directors (the “Precision Board”) for use at the Special Meeting and any adjournments or postponements of the Special Meeting. This proxy statement/prospectus/information statement is first being furnished to the Precision stockholders on or about February 13, 2019.

 

Purposes of the Special Meeting

 

The purposes of the Special Meeting are:

 

  1. To consider and vote upon a proposal to approve the Amended and Restated Agreement and Plan of Merger, dated as of October 26, 2018, by and among Precision, Merger Sub and Helomics, a copy of which is attached to this proxy statement/prospectus/information statement as Annex A (the “Merger Agreement”), and the transactions contemplated thereby, including the Merger and the issuance of shares of Precision’s common stock and Series D convertible preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement;

 

  2. To consider and vote upon a proposal to approve an amendment to Precision’s Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000;

 

  3. To consider and vote upon a proposal to approve (a) an amendment to Precision’s Certificate of Incorporation and (b) an amendment to Precision’s Amended and Restated Bylaws to establish a classified Board of Directors.

 

  4. To consider and vote upon a proposal to approve amendments to Precision’s Amended and Restated 2012 Stock Incentive Plan to (i) increase the reserve of shares of common stock authorized for issuance thereunder to 10,000,000, (ii) increase certain thresholds for limitations on grants, and (iii) re-approve the performance goals thereunder;

 

  5. To adjourn the Special Meeting, if necessary, assuming a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4; and

 

  6. To transact such other business as may properly come before Precision’s stockholders at the Special Meeting or any adjournment or postponement thereof.

 

​The Merger cannot be consummated without the approval of Precision Proposal No. 1. In addition, pursuant to the Merger Agreement, the approvals of Proposals No. 4 and 5 are conditions to consummation of the Merger.

 

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Proposal No. 1: APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY

 

The Precision Board has determined that the transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Precision and Precision stockholders and has approved and declared advisable the Merger Agreement and such transactions, including (1) the issuance of shares of Precision common stock and Series D convertible preferred stock to the Helomics stockholders pursuant to the terms of the Merger Agreement and (2) the issuance of shares of Precision common stock and Precision warrants to the holders of Helomics notes and warrants pursuant to the Exchange Offer. The terms of the Merger Agreement and other aspects of the Merger and of the Exchange Offer are described in detail elsewhere in this proxy statement/prospectus/information statement. The Precision Board recommends that Precision stockholders vote “FOR” Proposal No. 1 to approve the Merger Agreement and the transactions contemplated thereby, including the Exchange Offer.

 

In order to be approved, Precision Proposal No. 1 must be approved by a majority of shares of capital stock of Precision present in person or represented by proxy at the Special Meeting and entitled to vote. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes.

 

THE PrecIsion Board UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THIS PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.

 

PROPOSAL NO. 2: Approval of an amendment to Precision’s certificate of incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000.

 

Precision’s Board has approved a proposal to amend Precision’s Certificate of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 100,000,000. The form of certificate of amendment to increase Precision’s authorized share capital is attached as Annex D to this proxy statement/prospectus/information statement.

 

Precision’s authorized capital stock currently consists of 50,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, of which 2,300,000 are authorized as Series B Convertible Preferred Stock, par value $0.01 per share.

 

As of January 23, 2019, 14,169,873 shares of common stock are outstanding, 79,246 shares of preferred stock are outstanding, 3,995,861 shares of common stock are reserved under Precision’s Amended and Restated 2012 Stock Incentive Plan, 4,368,831 shares of common stock are reserved for issuance upon exercise of outstanding warrants, and 69,088 shares of common stock are reserved for issuance in connection with previous private placements, and 5,071,433 shares of common stock are reserved for issuance in connection with the conversion of outstanding convertible promissory notes. This leaves only 22,324,914 shares of common stock (45% of the total authorized shares of common stock) available for future issuances. In connection with equity financings in the near future, additional shares of common stock, preferred stock, warrants or other equity securities may be issued, making it necessary to increase the authorized shares.

 

Assuming the approval of the Merger Agreement and the acceptance of the Exchange Offer by the holders of all outstanding Helomics Notes and Warrants, Precision would issue 4,000,000 shares of its Common Stock and 3,500,000 shares of its Series D convertible preferred stock in the Merger and up to an estimated 8.8 million additional shares of its Common Stock in exchange for the outstanding Helomics Notes (based on accrued interest through December 31, 2018); and Precision would reserve approximately 14.8 million shares of its Common Stock for issuance under Precision Warrants to be issued in exchange for Helomics Warrants. Therefore, the completion of the Merger and the Exchange Offer would result in the issuance or reservation of up to an additional 29.6 million shares of Common Stock, which would exceed Precision’s existing reserve by approximately 7.3 million shares.

 

In addition to being necessary to accommodate the Merger Agreement and Exchange Offer, increasing the number of shares authorized will enable Precision to have sufficient shares for its anticipated equity financings, future equity offerings, other strategic acquisition opportunities, the continued issuance of equity awards under Precision’s Amended and Restated 2012 Stock Incentive Plan to recruit and retain key employees, and for other general corporate purposes. From time to time, Precision evaluates and engages in discussions relating to possible opportunities for raising additional capital or entering into other transactions that may involve the issuance of additional shares of capital stock. Precision presently has no obligations to issue additional capital stock other than as described above. For a description of the recent investment by certain investors, see “Precision Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments.”

 

The increased authorized capital stock will provide the Precision Board with the ability to approve the issuance of additional shares of capital stock, and securities that are convertible or exercisable into shares of such capital stock, without further vote of the stockholders, except as required under applicable law. The number of shares to be issued in any particular transaction and the price and other terms on which such shares will be issued will be determined solely by the Precision Board. Under Precision’s Certificate of Incorporation, its stockholders do not have preemptive rights with respect to Precision’s common stock or preferred stock. Thus, should the Precision Board elect to issue additional shares, existing stockholders would not have any preferential rights to purchase any shares. In addition, under Precision’s Certificate of Incorporation, the Precision Board has the authority to approve the rights and preferences of classes or series of preferred stock without stockholder approval.

 

The proposed amendment to Precision’s Certificate of Incorporation is not being recommended in response to any specific effort of which the Precision Board is aware to obtain control of Precision, and the Precision Board does not intend or view the proposed increase in authorized common stock as an anti-takeover measure. However, the ability of the Precision Board to authorize the issuance of the additional shares of common stock that would be available if the proposed amendment is approved and adopted could have the effect of discouraging or preventing a hostile takeover. Further, the increased authorized capital stock may have the effect of permitting Precision’s current management, including the current Precision Board, to retain its position, and place it in a better position to resist changes that stockholders may wish to make if they are dissatisfied with the conduct of Precision’s business. In the case of preferred stock, under certain circumstances, it may have the effect of delaying or preventing a change of control of Precision by increasing the number of outstanding shares entitled to vote and by increasing the number of votes required to approve a change of control of Precision.

 

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In order to be approved, Precision Proposal No. 2 must be approved by a majority of shares of capital stock of Precision present in person or represented by proxy at the Special Meeting and entitled to vote. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes.

 

THE PrecIsion Board UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THIS PROPOSAL TO APPROVE THE AMENDMENT TO PRECISION’S CERTIFICATE OF INCORPORATION TO INCREASE precision’S AUTHORIZED SHARE CAPITAL.

 

PROPOSAL NO. 3: Approval of an amendment to Precision’s certificate of incorporation and an amendment to precision’s amended and restated bylaws to ESTABLISH A CLASSIFIED BOARD OF DIRECTORS.

 

The Precision Board proposes an amendment to each of Precision’s Certificate of Incorporation and Amended and Restated Bylaws (“Precision Bylaws”) to establish a classified Board of Directors. The Precision Board has adopted a resolution authorizing the amendments to the Certificate of Incorporation and the Precision Bylaws, subject to approval of the proposal by Precision’s stockholders. The form of certificate of amendment to establish a classified Board of Directors is attached as Annex D to this proxy statement/prospectus/information statement. The form of amendment to the Precision Bylaws to establish a classified Board of Directors is attached as Annex F to this proxy statement/prospectus/information statement.

 

The Precision Bylaws and Precision’s Certificate of Incorporation currently provide for the annual election of a single class of directors. Delaware law permits provisions in a company’s certificate of incorporation and/or bylaws approved by stockholders that provide for a classified board. Under a classified board structure, directors are divided into equal, or nearly equal, classes and are elected to staggered terms. A classified board structure is sometimes referred to as a “staggered board” structure. A typical class structure provides for three classes of directors and, once fully implemented, one class of directors is elected annually to a three-year term. A classified board structure helps maintain continuity on the Precision Board. By classifying the Precision Board, Precision ensures that it always has a group of directors with experience on the Precision Board and familiarity with Precision’s operations. In addition, hostile acquirers have more difficulty in gaining control of a company with a classified board, since control of the board cannot be obtained in a single proxy contest. The Precision Board believes that the continuity of service that a classified board structure provides is in the best interests of Precision and its stockholders at this time.

 

If approved by the stockholders, the amendments to Precision’s Certificate of Incorporation and the Precision Bylaws would provide for the division of the members of Precision’s Board into three classes, with each class consisting of two directors. At the Special Meeting, (i) the first class would be elected for a one-year term, expiring in 2019, (ii) the second class would be elected for a two-year term, expiring in 2020, and (iii) the third class would be elected for a three-year term, expiring in 2021. Beginning with the 2019 annual meeting of the Precision stockholders, the class of directors up for election or reelection would be elected to three-year terms. If this Proposal No. 3 is approved by the stockholders, the directors of the Company will be divided into classes as follows:

 

CLASS I

(term expiring in 2019)

CLASS II

(term expiring in 2020)

CLASS III

(term expiring in 2021)

Tim Krochuk

Tom McGoldrick

Andy Reding

J. Melville Engle

Dr. Carl Schwartz

Richard Gabriel

 

Under this Proposal No. 3, Precision is seeking stockholder approval of an amendment to the Precision Bylaws, in addition to the amendment to the Certificate of Incorporation. As a result, any further amendment to Precision’s Certificate of Incorporation by the stockholders to change the classified board structure in the future would also require approval by the Precision Board.

 

In order to be approved, Proposal No. 3 must be approved by a majority of shares of capital stock of Precision present in person or represented by proxy at the Special Meeting and entitled to vote. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. If so approved by the Precision stockholders, Precision will execute and deliver a Certificate of Amendment to the Delaware Secretary of State that would become effective upon filing. However, the Precision Board reserves the right to abandon the filing of the amendment related to the establishment of a classified Precision Board, even if such amendment has been approved by the Precision stockholders. By voting in favor of the amendment described in this Proposal No. 3, the Precision stockholders will also be expressly authorizing the Precision Board to determine not to proceed with the implementation of this amendment if it should so decide.

 

THE PrecIsion Board UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THIS PROPOSAL TO APPROVE THE AMENDMENTs TO PRECISION’S CERTIFICATE OF INCORPORATION and amended and restated bylaws TO ESTABLISH A CLASSIFIED BOARD OF DIRECTORS.

 

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Proposal No. 4: Approval of amendments to Precision’s Amended and Restated 2012 Stock Incentive Plan to (i) increase the reserve of shares of common stock authorized for issuance thereunder to 10,000,000 and (ii) increase certain thresholds for limitations on grants.

 

Background

 

Precision’s Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) was approved by Precision’s stockholders in September 2012, with a share reserve of 12,940 shares (adjusted for reverse stock splits in 2015 and 2016). In April 2013, the stockholders approved an increase in the reserve to 26,667 shares, and in September 2013 the stockholders approved an increase in the reserve to 53,333 shares. Most recently (in December 2017), the stockholders approved an increase in the reserve to 5,000,000 shares.

 

In Proposal No. 4, Precision is requesting stockholder approval of amendments to the 2012 Plan recently approved by the Precision Board to: (1) increase the share reserve under the 2012 Plan by an aggregate 5 million shares and (2) increase in certain thresholds for limitations on grants under the 2012 Plan (together, the “Amendments”). Currently, options to purchase 3,448,885 shares of common stock are subject to outstanding stock options under the 2012 Plan. In determining the amount of the increase in the 2012 Plan, the Precision Board took into account its intention to grant further equity awards to current and future executive officers and key employees and directors of Precision. Moreover, Precision is obligated under the Merger Agreement to grant 900,000 stock options to key personnel of Helomics in connection with the Merger.

 

In order to be approved, Proposal No. 4 must be approved by a majority of shares of capital stock of Precision present in person or represented by proxy at the Special Meeting and entitled to vote. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes.

 

The Board believes that approval of Proposal No. 4 is in the best interests of Precision and its stockholders because the availability of an adequate number of shares reserved for issuance under the 2012 Plan are important factors in attracting, retaining, and motivating employees, consultants and directors in order to achieve Precision’s long-term growth and profitability objectives. As mentioned above, Precision is also obligated under the Merger Agreement to grant 900,000 stock options to key personnel of Helomics in connection with the Merger.

 

Below is a summary of the 2012 Plan (as if the Amendments are approved), which is qualified entirely by reference to the complete text of the 2012 Plan, a copy of which reflecting the Amendments is attached as Annex G to this proxy statement/prospectus/information statement.

 

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Description of the 2012 Plan

 

General. The purpose of the 2012 Plan is to increase stockholder value and to advance the interests of Precision by furnishing a variety of economic incentives (“Incentives”) designed to attract, retain and motivate employees, certain key consultants and directors of Precision. The 2012 Plan is administered by the compensation committee, or if no committee is designated, the board. The compensation committee may grant Incentives to employees (including officers) of Precision or its subsidiaries, members of the board, and consultants or other independent contractors who provide services to Precision or its subsidiaries, in the following forms: (a) non-statutory stock options and incentive stock options; (b) stock appreciation rights (“SARs”); (c) stock awards; (d) restricted stock; (e) restricted stock units (“RSUs”); and (f) performance awards.

 

Shares Subject to 2012 Plan. Subject to adjustment, the number of shares of common stock which may be issued under the 2012 Plan shall not exceed 10,000,000 shares. In addition, any shares that were available in the reserve of Precision’s prior stock incentive plan (the “2008 Plan”) were added to the 2012 Plan share reserve for issuance under the 2012 Plan. If an Incentive granted under the 2012 Plan or under the 2008 Plan expires or is terminated or canceled unexercised as to any shares of common stock or forfeited or reacquired by Precision pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may again be issued under the 2012 Plan pursuant to another Incentive.

 

Description of Incentives

 

Stock Options. The compensation committee may grant non-qualified and incentive stock options to eligible employees to purchase shares of common stock from Precision. The 2012 Plan confers on the compensation committee discretion, with respect to any such stock option, to determine the term of each option, the time or times during its term when the option becomes exercisable and the number and purchase price of the shares subject to the option. However, the option price per share may not be less than the fair market value of the common stock on the grant date, and the term of each option shall not exceed ten years and one day from the grant date. With respect to stock options which are intended to qualify as “incentive stock options” (as defined in Section 422 of the Internal Revenue Code), the aggregate fair market value of the shares with respect to which incentive stock options are exercisable for the first time cannot exceed $100,000. All incentive stock options must be granted within ten years from the earlier of the date of the 2012 Plan’s adoption by the board or approval by Precision’s stockholders.

 

Stock Appreciation Rights. A stock appreciation right or “SAR” is a right to receive, without payment to Precision, a number of shares, cash or any combination thereof, the amount of which is equal to the aggregate amount of the appreciation in the shares of common stock as to which the SAR is exercised. The compensation committee has the discretion to determine the number of shares as to which a SAR will relate as well as the duration and exercisability of a SAR. The exercise price may not be less than the fair market value of the common stock on the grant date.

 

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Limitation on Certain Grants. Following the approval of the Amendments, during any one fiscal year, no person shall receive Incentives under the 2012 Plan that could result in that person receiving, earning or acquiring, subject to adjustment: (a) stock options and SARs for, in the aggregate, more than 2,000,000 shares of common stock; or (b) performance awards, in the aggregate, for more than 1,000,000 shares of common stock or, if payable in cash, with a maximum amount payable exceeding $2,000,000.00.

 

Stock Awards. Stock awards consist of the transfer by Precision to an eligible participant of shares of common stock, with or without other payment, as additional compensation for services to Precision. The number of shares transferred pursuant to any stock award is determined by the compensation committee.

 

Restricted Stock. Restricted stock consists of the sale or transfer by Precision to an eligible participant of one or more shares of common stock that are subject to restrictions on their sale or other transfer by the employee which restrictions will lapse after a period of time as determined by the compensation committee. If restricted stock is sold to a participant, the sale price will be determined by the compensation committee, and the price may vary from time to time and among participants and may be less than the fair market value of the shares at the date of sale. Subject to these restrictions and the other requirements of the 2012 Plan, a participant receiving restricted stock shall have all of the rights of a stockholder as to those shares.

 

RSUs. Restricted stock units represent the right to receive one share of common stock at a future date that has been granted subject to terms and conditions, including a risk of forfeiture, established by the compensation committee. Dividend equivalents may be granted with respect to any amount of RSUs and either paid at the dividend payment date in cash or in shares of unrestricted stock having a fair market value equal to the amount of such dividends, or deferred with respect to such RSUs and the amount or value thereof automatically deemed reinvested in additional RSUs until the time for delivery of shares pursuant to the terms of the restricted stock unit award. RSUs may be satisfied by delivery of shares of stock, cash equal to the fair market value of the specified number of shares covered by the RSUs, or a combination thereof, as determined by the compensation committee at the date of grant or thereafter.

 

Performance Awards. A performance award is a right to either a number of shares of common stock, their cash equivalent, or a combination thereof, based on satisfaction of performance goals for a particular period. At or about the same time that performance goals are established for a specific period, the compensation committee shall in its absolute discretion establish the percentage of the performance awards granted for such performance period which shall be earned by the participant for various levels of performance measured in relation to achievement of performance goals for such performance period. Performance goals applicable to a performance award will be established by the compensation committee not more than 90 days after the beginning of the relevant performance period. The compensation committee may modify the performance goals if it determines that circumstances have changed and modification is required to reflect the original intent of the performance goals. The compensation committee will determine the terms and conditions applicable to any performance award, which may include restrictions on the delivery of common stock payable in connection with the performance award, the requirement that the stock be delivered in the form of restricted stock, or other restrictions that could result in the future forfeiture of all or part of any stock earned. The compensation committee will, as soon as practicable after the close of a performance period, determine the extent to which the performance goals for such performance period have been achieved; and the percentage of the performance awards earned as a result. Performance awards will not be earned for any participant who is not employed by Precision or a subsidiary continuously during the entire performance period for which such performance award was granted, except in certain events such as death, disability or retirement.

 

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The performance goals of a performance award consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria. The business criteria for Precision, on a consolidated basis, and/or specified subsidiaries or business units of Precision shall consist of one or more of the following: earnings per share, operating income or profit, net income, gross or net sales, expenses, expenses as a percentage of net sales, inventory turns, cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment), gross profit, margins, working capital, earnings before interest and tax (EBIT), earnings before interest, tax, depreciation and amortization (EBITDA), return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue), revenue growth, share price (including, but not limited to, growth measures and total shareholder return), operating efficiency, productivity ratios, market share, economic value added and safety (or any of the above criteria as compared to the performance of a group of comparable companies, or any published or special index that the compensation committee, in its sole discretion, deems appropriate), or the compensation committee may select criteria based on Precision’s share price as compared to various stock market indices.

 

Transferability of Incentives. Incentives granted under the 2012 Plan may not be transferred, pledged or assigned by the holder thereof except, in the event of the holder’s death, by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. However, non-qualified stock options may be transferred by the holder thereof to certain family members or related entities.

 

Duration, Termination and Amendment of the Incentive Plan and Incentives. The 2012 Plan will remain in effect until all Incentives granted under the 2012 Plan have been satisfied or terminated and all restrictions on shares issued under the 2012 Plan have lapsed. No Incentives may be granted under the 2012 Plan after August 13, 2022, the tenth anniversary of the approval of the 2012 Plan by the Board of Directors. The Board of Directors may amend or discontinue the 2012 Plan at any time. However, no such amendment or discontinuance may adversely change or impair a previously granted Incentive without the consent of the recipient thereof. Certain 2012 Plan amendments require stockholder approval, including amendments which would increase the maximum number of shares of common stock which may be issued to all participants under the 2012 Plan, change the class of persons eligible to receive Incentives under the 2012 Plan, or materially increase the benefits accruing to participants under the 2012 Plan. Generally, the terms of an existing Incentive may be amended by agreement between the compensation committee and the participant. However, in the case of a stock option or SAR, no such amendment shall (a) without stockholder approval, lower the exercise price of a previously granted stock option or SAR when the exercise price per share exceeds the fair market value of the underlying shares in exchange for another Incentive or cash or take any other action with respect to a stock option that may be treated as a re-pricing under the federal securities laws or generally accepted accounting principles, or (b) extend the term of the Incentive, with certain exceptions.

 

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Change in Control; Effect of Sale, Merger, Exchange or Liquidation. Upon the occurrence of an event satisfying the definition of “change in control” with respect to a particular Incentive, unless otherwise provided in the agreement for the Incentive, such Incentive shall become vested and all restrictions shall lapse. The compensation committee may, in its discretion, include such further provisions and limitations in any agreement for an Incentive as it may deem desirable. Unless otherwise provided in the agreement for an Incentive, in the event of an acquisition of Precision through the sale of substantially all of Precision’s assets or through a merger, exchange, reorganization or liquidation of Precision or a similar event, the compensation committee has broad discretion to take any and all action it deems equitable under the circumstances, including but not limited to terminating the 2012 Plan and all Incentives and issuing to the holders of outstanding vested options and SARs the stock, securities or assets they would have received if the Incentives had been exercised immediately before the transaction, or other specified actions. 

 

2012 Plan Benefits

 

The amount and timing of all awards under the 2012 Plan are determined in the sole discretion of Precision’s compensation committee (or if no committee is designated, the board) and therefore cannot be determined in advance. The following table sets forth stock options and restricted stock granted under the 2012 Plan to the following persons:

 

Name and Position Number of Shares of Restricted Stock Number of Shares Underlying Options
Carl Schwartz - 1,051,645
David Johnson(1) - 325,202
Bob Myers - 308,778
Josh Kornberg - -
Executive Officer Group - 1,362,575
Non-executive officer Group - 2,146,310

 

(1)                 Effective August 6, 2018, David Johnson was appointed Senior Vice President of Operations of the Company’s Skyline Medical unit and is no longer the Chief Operating Officer.

 

THE PRECISION BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO APPROVE THE AMENDMENTS TO PRECISION’S AMENDED AND RESTATED 2012 STOCK INCENTIVE PLAN TO INCREASE THE RESERVE OF SHARES AUTHORIZED FOR ISSUANCE AND TO INCREASE CERTAIN LIMITATIONS ON GRANTS AS DESCRIBED HEREIN.

 

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PROPOSAL NO. 5: VOTING To adjourn the Special Meeting, if necessary, assuming a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

 

The Precision Board has determined and believes that adjourning the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4 is advisable to, and in the best interests of, Precision and its stockholders.

 

In order to be approved, Proposal No. 5 must be approved by a majority of shares of capital stock of Precision present in person or represented by proxy at the Special Meeting and entitled to vote. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes.

 

The Precision Board unanimously recommends that Precision’s stockholders vote “FOR” Proposal No. 5 to adjourn the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

 

Record Date and Voting Power

 

Only holders of record of Precision common stock at the close of business on the record date, February 5, 2019, are entitled to notice of, and to vote at, the Special Meeting. At the close of business on the record date, there were [137] holders of record of Precision common stock and there were [_________] shares of Precision common stock issued and outstanding. Each share of Precision common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section titled “Principal Stockholders of Precision” beginning on page [___] of this proxy statement/prospectus/information statement for information regarding persons known to the management of Precision to be the beneficial owners of more than 5% of the outstanding shares of Precision common stock.

 

Voting and Revocation of Proxies

 

The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of the Precision Board for use at the Special Meeting.

 

If you are a stockholder of record of Precision as of the record date referred to above, you may vote in person at the Special Meeting or vote by proxy using the enclosed proxy card. Whether you plan to attend the Special Meeting or not, Precision urges you to vote by proxy to ensure your vote is counted. You may still attend the Special Meeting and vote in person if you have already voted by proxy. As a stockholder of record, you are entitled:

 

  · To vote in person — attend the Special Meeting and Precision will give you a ballot when you arrive at the meeting;

 

  · ​To vote using the proxy card — mark, sign and date your proxy card and return it promptly, but in any event, before the Special Meeting to ensure your shares are voted; or

 

  · ​To vote by telephone or on the Internet — dial the number on the proxy card or go to the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by March 12, 2019, 11:59 p.m. Eastern Time to be counted.

 

 

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If your Precision shares are held by your broker as your nominee, that is, in “street name,” you should receive voting instructions from the bank, broker or other nominee that holds your shares. If you do not give instructions to your broker, your broker can vote your Precision shares with respect to “routine” items but not with respect to “non-routine” items. Routine items are proposals considered routine under the rules of the New York Stock Exchange on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-routine items for which you do not give your broker instructions, the Precision shares will be treated as broker non-votes. If your shares of Precision common stock are held in “street name,” you may vote in one the following ways:

 

  · To vote by mail, you should follow the instructions included on the proxy card regarding how to instruct your broker to vote your shares of Precision common stock.

 

  · ​To vote in person at the Special Meeting, you will need to contact the bank, broker or other nominee that is the stockholder of record for your shares to obtain a legal proxy and then bring the legal proxy indicating that you beneficially owned the shares as of the record date and a form of government issued picture identification to the Special Meeting. If you bring all these materials to the Special Meeting, you may vote by completing a paper proxy card or a ballot, which will be available at the Special Meeting. If you do not bring these materials, you will not be able to vote at the Special Meeting.

 

  · To vote by telephone or over the Internet if you are permitted and wish to do so, you should receive instructions from your bank, broker or other nominee and follow those instructions.

 

All properly executed proxies that are not revoked will be voted at the Special Meeting and at any adjournments or postponements of the Special Meeting in accordance with the instructions contained in the proxy. If a holder of Precision common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted as follows: “FOR” Precision Proposal No. 1 to approve the Merger Agreement, and the transactions contemplated thereby, including (1) the issuance of shares of Precision’s common stock and Series D convertible preferred stock to Helomics’ stockholders pursuant to the terms of the Merger Agreement, and (2) the issuance of shares of Precision common stock and Precision warrants to the holders of Helomics notes and warrants pursuant to the Exchange Offer; and “FOR” Precision Proposal No. 5 to adjourn the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Precision Proposal Nos. 1-4 in accordance with the recommendation of the Precision Board.

 

If you are a stockholder of record of Precision, you may change your vote at any time before your proxy is voted at the Special Meeting in any one of the following ways:

 

  · you can send a written notice to the Secretary of Precision before the Special Meeting stating that you would like to revoke your proxy;

 

  · ​if you have signed and returned a paper proxy card, you may sign a new proxy card bearing a later date and submit it as instructed above;

 

  · ​if you have voted by telephone or Internet, you may cast a new vote by telephone or over the Internet as instructed above; or

 

  · ​you can attend the Special Meeting and vote in person, but attendance alone will not revoke a proxy. You must specifically request at the meeting that it be revoked.

 

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Required Vote

 

A quorum of Precision stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the outstanding shares are present at the Special Meeting in person or represented by proxy. On the record date, there were [13,398,339] shares outstanding and entitled to vote. Thus, the holders of [6,699,170] shares must be present in person or represented by proxy at the meeting to have a quorum. Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the holders of a majority of shares present at the meeting in person or represented by proxy, or the chairman of the meeting, may adjourn the meeting to another date.

 

  · To be approved, Proposal No. 1 must receive a “For” vote from the majority of shares of capital stock of Precision present in person or represented by proxy and entitled to vote at the Special Meeting. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes, if any, will have no effect.

 

  · To be approved, Proposal No. 2 must receive a “For” vote from the majority of shares of capital stock of Precision present in person or represented by proxy and entitled to vote at the Special Meeting. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes, if any, will have no effect.

 

  · To be approved, Proposal No. 3 must receive a “For” vote from the majority of shares of capital stock of Precision present in person or represented by proxy and entitled to vote at the Special Meeting. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes, if any, will have no effect.

 

  · To be approved, Proposal No. 4 must receive a “For” vote from the majority of shares of capital stock of Precision present in person or represented by proxy and entitled to vote at the Special Meeting. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes, if any, will have no effect.

 

  · To be approved, Proposal No. 5 must receive a “For” vote from the majority of shares of capital stock of Precision present in person or represented by proxy and entitled to vote at the Special Meeting. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes, if any, will have no effect.

 

Solicitation of Proxies

 

In addition to solicitation by mail, the directors, officers, employees and agents of Precision may solicit proxies from Precision stockholders by personal interview, telephone, telegram or otherwise. Precision and Helomics will share equally the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Precision common stock for the forwarding of solicitation materials to the beneficial owners of Precision common stock. Precision will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur for the forwarding of solicitation materials. Precision has retained Regan & Associates to assist it in soliciting proxies using the means referred to above. Precision will pay the fees of Regan & Associates, which Precision expects to be approximately $30,000, including all reimbursement of out-of-pocket expenses.

 

Other Matters

 

As of the date of this proxy statement/prospectus/information statement, the Precision Board does not know of any business to be presented at the Special Meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the Special Meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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Householding of Proxy Materials

 

The SEC has adopted rules that permit companies and intermediaries (e.g., banks, brokers, trustees or other nominees) to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly, referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. Each stockholder who participates in “householding” will continue to receive a separate proxy card. Under the DGCL, stockholders must consent to “householding” and any stockholder who fails to object in writing to the corporation within sixty (60) days of having been given written notice by the corporation of its intent to “household” is deemed to have consented to “householding.”

 

 

 

 

 

 

 

 

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THE MERGER

 

This section and the section entitled “The Merger Agreement” in this proxy statement/prospectus/information statement describe the material aspects of the Merger, including the Merger Agreement. While Precision and Helomics believe that these descriptions covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the Merger and the Merger Agreement, including the Merger Agreement attached to this proxy statement/prospectus/information statement as Annex A, and the other documents to which you are referred herein. See the section entitled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

 

Background of the Merger

 

Since 2016, Precision has been actively reviewing opportunities to expand its business beyond its current medical devices, in order to enhance shareholder value. In 2016 and 2017, Precision considered acquisitions of several companies that produce and market other products that would be synergistic with Precision’s STREAMWAY System, including other medical devices or systems for operating rooms that could be marketed in conjunction with Precision’s STREAMWAY System.

 

In 2017, Precision determined that a promising business opportunity exists in the contract research organization (CRO) space, including the use of artificial intelligence. After discussions with its financial advisors about potential acquisition candidates, Precision began discussions with CytoBioscience, Inc. (“CytoBioscience”), a company active in the CRO space. On August 9, 2017, Precision entered into a merger agreement with CytoBioscience. On November 7, 2017, the merger agreement was terminated due, in part, to unforeseen delays in obtaining necessary financial information. In particular, CytoBioscience’s audited financial statements were delayed due to the time necessary to perform audit procedures on its European operations. This delay, in turn, would have delayed the satisfaction of conditions of closing to the merger, including Nasdaq approval and approval from the shareholders of CytoBioscience. Shortly after termination of the CytoBioscience merger agreement, Precision, through Richard Gabriel, a member of its board of directors, was introduced to the CEO of Helomics, as discussed further below.

 

In December 2016, a group of investors formed Helomics Holding Corporation and completed the acquisition of Helomics. This investor group consisted mainly of affiliates of Dawson James Securities, and these affiliates continue to constitute the holders of a majority of the outstanding shares of Helomics.

 

In October 2017, representatives of Dawson James introduced Gerald Vardzel, the CEO of Helomics, to Richard Gabriel, a member of the Board of Directors of Precision. The Dawson James representatives recommended that Precision consider a strategic transaction with Helomics. Mr. Gabriel evaluated the opportunity and on October 13, 2017 Mr. Gabriel recommended to Dr. Carl Schwartz, the CEO of Precision, that Precision consider a strategic transaction. Dr. Schwartz forwarded materials regarding Helomics to the Board of Precision that included a summary of possible transactions that might include a cash investment, an exchange of Precision common stock in exchange for 20% of Helomics’ outstanding shares, and a possible future acquisition of the remaining ownership of Helomics. The discussions of terms were based in part on a possible transaction value equal to one-time revenues; Helomics’ projected 12 month revenues of $8 million; and the then-current market value of Precision common stock in the approximate range of $1.40 to $1.50 per share. On October 15, 2017, counsel for Precision circulated a draft of a non-binding letter of interest in such transactions. This letter of interest was circulated among the companies and their representatives, but was not signed. The letter of interest described the possibility of (1) an initial investment of $500,000 in cash for 5% of Helomics’ voting stock, (2) following a due diligence review by Precision and subject to numerous other conditions, the issuance of 1.1 million shares of Precision common stock in exchange for an additional 20% interest in Helomics voting stock, and (3) ultimately, a possible acquisition of the remaining 75% ownership of Helomics subject to the stockholder approval and numerous other conditions. The letter of interest stated that the parties had had preliminary discussions of a third-stage transaction in which, for the remaining 75% interest in Helomics, Precision would issue to Helomics or its stockholders shares of Precision common stock with a market value of $5 million, to be appropriately adjusted for additional equity financing of Helomics prior to the closing.

 

On October 26, 2017, at a meeting of the Precision Board, David Weinstein, a managing director of Dawson James, made a presentation to the Precision Board regarding possible transactions with Helomics. The Precision Board discussed that, in addition to Dawson James being Precision’s financial advisor, Mr. Weinstein and other principles of Dawson James own a significant percentage of the common stock of Helomics. The Precision Board discussed that it should consider Dawson James’ relationship with Helomics in connection with evaluating any of Dawson James’ financial advice about the Helomics transaction and the proposed financial terms of any such transactions. The Precision Board approved making certain cash advances to Helomics and discussed potential transactions with Helomics.

 

In October and November 2017, Precision advanced $175,000 for working capital for Helomics’ business in contemplation of a proposed joint venture between the companies. The notes receivable bore simple interest at 8% and were covered by a security interest in certain equipment of Helomics. In November and December 2017, Precision advanced an additional $425,000 for working capital for Helomics’ business. On November 1, 2017, Precision announced a strategic collaboration between the companies. On November 15, 2017, Precision and Helomics executed a letter of intent for the proposed joint venture to leverage the Helomics D-CHIP™ platform to develop and market new approaches for personalized cancer diagnosis and care. Precision would own 51% of the joint venture, with Helomics owning the remaining 49%. Additionally, in December 2017, Precision advanced on behalf of Helomics $67,512.10 to De Lage Landen as fifty percent (50%) down payment for a lease to purchase certain equipment. The note is covered by a security interest in certain equipment of Helomics.

 

On November 28, 2017, Precision, Helomics and GLG Pharma, LLC entered into a Strategic Partnership Agreement under which GLG and the Precision-Helomics joint venture would build a personalized medicine platform for the diagnosis and treatment of women’s cancer. Net earnings of the Partnership would be allocated equally between GLG and the Skyline-Helomics joint venture. This agreement was announced on November 15, 2017. Richard Gabriel, a director of Precision and the Chief Operating Officer of Precision’s TumorGenesis subsidiary, is COO of GLG.

 

On December 5, 2017, counsel to Precision circulated a proposed outline of a share exchange transaction with Helomics. On December 11, 2017, Mr. Vardzel, Mark Collins and Michael Young made a presentation to the Precision Board regarding Helomics and the opportunities presented by a strategic transaction between the companies. At a meeting on December 12, 2017, the Precision Board discussed possible transactions with Helomics. Mr. Weinstein participated in the meeting on behalf of Dawson James, and Messrs. Vardzel, Collins and Young participated in the meeting on behalf of Helomics.

 

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In early December 2017, the Precision Board approved the terms of a share exchange agreement with Helomics. On January 11, 2018, Precision entered into the Share Exchange Agreement with Helomics. Pursuant to the Agreement Helomics issued 2,500,000 shares of its Series A Preferred Stock in exchange for 1,100,000 shares of Precision common stock. Under the share exchange agreement, Precision has the right to convert $500,000 in secured notes into another 5% of Helomics’ outstanding shares, which would result in Precision owning 25% of Helomics outstanding stock. The secured notes are related to Precision’s previous loans of $500,000 to Helomics. The Precision shares are being held in escrow by Corporate Stock Transfer, Inc. as escrow agent. While the Precision shares are held in escrow, they will be voted as directed by Precision’s board of directors and management. The Precision shares will be released to Helomics following a determination that Helomics’ revenues in any 12-month period have been equal or greater than $8,000,000. The Helomics Preferred Stock issued to Precision is convertible into an aggregate of 20% of the outstanding capital stock of Helomics. In addition, the terms of the Helomics Preferred Stock issued to Precision include certain protective provisions that require consent of Precision before Helomics may take certain actions, including issuing preferred stock senior to the Helomics Preferred Stock or entering into fundamental corporate transactions. Precision also has certain anti-dilution protections and the right to receive dividends.

 

On February 22, 2018, Precision converted $500,000 of the notes receivable into 833,333 shares of common stock for an additional 5% interest in Helomics. Immediately prior to the conversion, Helomics owed Precision $667,512.50. Precision converted $500,000 of the principal amount, including accrued interest thereon, into 833,333 shares of Common Stock of Helomics. Prior to the issuance of the Conversion Shares, the outstanding capital stock of Helomics consisted of 2,500,000 shares of Series A Preferred Stock owned by Precision and 10,000,000 shares of Common Stock. After the issuance of the Conversion Shares and upon full conversion of its Series A Preferred Stock, Precision owned 2,500,000 shares of preferred stock and 833,333 shares of Helomics Common Stock, which represented 25% of the 13,333,433 then-outstanding shares of Helomics Stock. In consideration of the conversion, Helomics assigned to Precision all Helomics’ right, title and interest in the name “Precision Therapeutics”, including any related trademarks, trade names, logos and domain names, as well as all related artwork and other creative content related thereto. There will be a balance of $167,512.50 in Principal Amount remaining outstanding to Precision, which will remain subject to repayment with interest, consistent with the original terms of the Note. The Security Agreement shall remain in full force and effect with respect to the remaining balance of the Principal Amount.

 

Also on February 22, 2018, Mr. Weinstein sent an email to Carl Schwartz, the CEO of Precision, proposing preliminary terms for the acquisition by Precision of the remaining interest in Helomics. He proposed that Precision would issue 7.5 million shares of common stock for the remaining 75% of Helomics stock. He proposed that Precision would assume the $3.0 million of notes (and remaining cash) of Helomics, but would offer the noteholders at that time the ability to convert into Precision shares to be offered in a future offering. He proposed that the parties would create a ratio for the warrants of Helomics to convert into Precision warrants. Mr. Weinstein’s proposal was based on an assessment of the terms that would be necessary to obtain stockholder approval of both companies. His proposal also considered that, although both companies were behind the previously anticipated schedule in executing their respective business plans from a revenue standpoint, Helomics had begun to realize upon the value of its biorepository database. Helomics was utilizing this database to build its Precision Oncology Insights business, using artificial intelligence and its D-CHIP (Digital Clinical Health Insights Platform) to generate a personalized oncology roadmap that provides additional context to help the patient’s oncologist personalize treatment, initially to provide physicians with guidance on treating ovarian cancer. The new terms valued Helomics at slightly less than Precision, and the increase in the number of shares to be issued reflected additional dilution incurred by Precision since the transaction was first discussed.

 

The parties continued to discuss the appropriate terms over the following several weeks, and the Precision officers expressed agreement with the proposed terms after discussions with Precision Board members.. [Precision considered (1) Helomics’ success in raising an additional $3 million in financing since January 1, 2018 and (2) the terms that would be necessary to obtain stockholder approval of both companies. Precision also considered the importance of acquiring Helomics’ business to Precision’s strategy of focusing on the CRO and precision therapeutics businesses.

 

On March 15, 2018, counsel for Precision circulated a proposed timetable for a merger agreement to Precision, Helomics and counsel for Helomics. On March 19, 2018, counsel for Precision circulated a draft of a merger agreement to the same group. The draft agreement included the terms that had been proposed by Mr. Weinstein. The Precision Board discussed the merger and the structure of the companies at its March 22, 2018 meeting. The parties determined to proceed to a letter of intent as an interim step. On April 11, 2018, counsel for Precision circulated a draft letter of intent to the same group that embodied the terms that had been proposed by Mr. Weinstein. After comments by the parties, the letter of intent was finalized and presented to the Precision Board, which approved the terms at a meeting on April 18, 2018. The letter of intent was signed on April 20, 2018, and Precision announced the signing of the letter of intent on April 23, 2018.

 

On April 27, 2018, counsel for Precision circulated a revised draft of the Merger Agreement to Precision, Helomics and counsel for Helomics, with changes based on the letter of intent. Over the succeeding weeks, the parties and their counsel circulated further revised drafts. The parties and representatives of Dawson James also shared information regarding the holders of Helomics notes and warrants and discussed proposals for the exchange of Precision securities with these holders. On June 4, the parties and representatives of Dawson James held a conference call to discuss proposals for the exchange of Precision securities with the holders of Helomics notes and warrants. Mr. Weinstein and Bob Keyser from Dawson James expressed that the terms of the exchange would need to be sufficiently beneficial to the holders of Helomics notes and warrants to induce a substantial majority of such holders to accept the exchange. Because Dawson James was the selling agent for the Helomics offering of the notes and warrants, Dawson James is familiar with these individuals as account holders. The parties proceeded to discuss the terms of this exchange over the next several weeks and continued to negotiate the Merger Agreement. On June 9, 2018, counsel for Precision circulated a summary of exchange terms that contemplated that the holders of Helomics notes would exchange their $7.3 million in notes for 3.5 million shares of Precision common stock and $3 million in new Precision notes. The holders of Helomics warrants would exchange their 18.1 million Helomics warrants for 9.5 million Precision warrants.

 

On June 11, 2018, Mr. Keyser sent an email to Dr. Schwartz, stating that the proposed terms were not sufficient to induce the Helomics note and warrant holders to exchange. On the same date, Mr. Myers discussed the terms further with Mr. Weinstein and circulated the following terms. 75% of all Helomics notes would convert into newly issued shares of Precision at a 25% discount to the market price at the time of closing. The remaining 25% of the debt would be assumed by Precision and would be due by December 31, 2018. The warrants would be exchanged at a 60% ratio for Precision warrants with a $1.00 exercise price.

 

On June 12, 2018, representatives of Precision, Helomics, Dawson James and their respective counsel had a conference call to discuss the changes in the terms necessary to induce the Helomics note and warrant holders to participate in the exchange, based on the Dawson James’ representatives’ discussions with these holders. These terms included: (1) each noteholder would have the option to exchange 75-100% of the principal and accrued interest on their note into Precision stock, at an exchange price of $1.00 per share; all shares issuable in exchange for the notes will not reduce the merger consideration payable to the Helomics shareholders; the shares will be registered on Form S-4; each warrant will be exchanged for the right to purchase, for $1.00 per share, Precision stock equal to 60% of the face value of the warrant; and the shares issuable upon exercise of the warrants will be registered for sale on the S-4. Conditions to closing the Merger would require (i) at least 75% of the outstanding principal and interest on the notes shall have agreed to exchange for Precision stock; and (ii) any holders of notes not fully exchanged for Precision stock will have agreed to exchange the remaining principal and interest on their notes into Precision notes due December 31, 2018.

 

Based on review of these terms. Mr. Keyser sent an email on June 13, 2018 stating that there were several changes to the previous proposal, including clarifying that additional warrants would need to be added in order to treat all of the classes of Helomics warrants equally. All of the additional Precision warrants would have the same cash exercise price of $1.00 per share, which would result in additional capital if the warrants were exercised after the transaction.

 

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On June 14, 2018, counsel for Precision circulated a proposed form of agreement in principle to be circulated to the holders of Helomics notes and warrants to determine their intention to participate. In June 2018, representatives of Helomics and Dawson James obtained agreements in principle from holders of the Helomics notes and warrants, under which holders of more than 80% of such outstanding securities expressed an interest in accepting the Precision securities detailed under the Exchange Offer.

 

On June 28, 2018 the Precision Board of Directors met and approved the terms of the Merger Agreement and the Exchange Offer. On June 28, 2018 the Helomics Board of Directors met and approved the terms of the Merger Agreement. On June 28, 2018, the parties executed the definitive Merger Agreement.

 

In October 2018, the parties discussed changing the Merger consideration from 7.0 million shares of Precision common stock to 4.0 million shares of Precision common stock and 3.5 million shares of Precision Series D Preferred Stock. The parties also discussed changing the structure of the Merger from a reverse triangular merger to a forward triangular merger and imposing certain additional conditions on the consummation of the Merger. On October 26, 2018, the parties executed the Amended and Restated Merger Agreement.

 

 

Precision Reasons for the Merger

 

The Precision Board considered the following factors in reaching its conclusion to approve and adopt the Merger Agreement and the transactions contemplated thereby and to recommend that the Precision stockholders approve the Merger, including the issuance of shares of Precision common stock and Series D convertible preferred stock in the Merger and the business combination with Helomics:

 

·The Precision Board believes, based in part on the judgment, advice and analysis of Precision management with respect to the potential strategic, financial and operational benefits of the Merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Helomics), that Helomics has the potential, if successful, to create significant value for the stockholders of the merged company.

 

·Helomics operates in multiple lines of businesses, one of which operates in the emerging precision oncology market, which the Precision Board believes will create the opportunity for significant growth in future revenues and earnings.

 

·Helomics’ proprietary portfolio of intellectual property provides Helomics with competitive advantages over its competitors.

 

·Helomics’ historical investments in research and development provide Helomics with an advantage over its competitors.

 

·The addition of Helomics’ business to Precision represents Precision’s first major expansion into the business of application of artificial intelligence to personalized medicine and drug discovery, which the Precision Board has identified as a major business opportunity.

 

·The addition of Helomics’ business will create a platform for Precision to access Helomics’ suite of artificial intelligence, precision diagnostic and integrated CRO capabilities, which will likely (a) improve patient care and advance the development of innovative clinical products and technologies for the treatment of cancers business and (b) enhance Precision’s position and ability to make further complementary acquisitions of companies and technology.

 

·The integration of Helomics’ management team into the management of Precision’s existing TumorGenesis operations will allow Precision to leverage Helomics’ complementary offering in the precision oncology market and to benefit from operational synergies in the collaboration between Helomics and TumorGenesis in the testing of PDx tumors in the Helomics facilities. The TumorGenesis PDx model represents a potential answer to the unmet need for new and effective treatments tailored the unique tumor profiles of patients suffering from any one of three cancers – Multiple Myeloma, Triple-Negative Breast cancer, and Ovarian cancers.

 

·The addition of Helomics’ business presents the combined company with additional opportunities to raise capital from investors interested in investing in this business area.

 

·​The Precision Board also reviewed with the management of Precision the current plans of Helomics for continuing to expand its business to confirm the likelihood that the combined company would possess sufficient financial resources to allow management to continue to operate and maintain Precision’s existing operations while at the same time focus on the continued development of Helomics’ products and service offerings and expansion into new markets.

 

·​The Precision Board also considered the possibility that the combined company would be able to take advantage of the potential benefits resulting from the combination of Precision and Helomics to raise additional capital in the future.

 

·​The Precision Board considered the opportunity, as a result of the Merger, for Precision stockholders to participate in the potential value that may result from development of the Helomics business and the potential increase in value of the combined company following the Merger.

 

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·​The Precision Board also reviewed various factors impacting the financial condition, results of operations and prospects for Precision, including:

 

·the strategic alternatives of Precision to the Merger, including other potential transactions with other potential merger partners;

 

·​The consequences of current market conditions, Precision’s current liquidity position, its stock price and the likelihood that the resulting circumstances of Precision would not change for the benefit of the Precision stockholders in the foreseeable future on a stand-alone basis;

 

·​The risks of continuing to operate Precision on a stand-alone basis, including the need to continue to support its STREAMWAY business with the capital that would be available from investors if Precision’s business was limited to that business; and

 

·Precision management’s belief, based on the advice of its financial advisor, Dawson James, that it would be difficult to obtain additional equity or debt financing on acceptable terms without expanding Precision’s shareholder base, which Precision believes the Merger will accomplish.

 

The Precision Board also reviewed the terms and conditions of the Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:

 

·The number of shares of Precision common stock (including the number of shares of Series D convertible preferred stock, on an as-converted basis) to be issued in the Merger (i.e., the Merger Shares), and the expected relative percentage ownership of Precision stockholders and Helomics stockholders immediately following the completion of the Merger;

 

·​The limited number and nature of the conditions to the Helomics obligation to consummate the Merger and the limited risk of non-satisfaction of such conditions as well as the likelihood that the Merger will be consummated on a timely basis;

 

·The fact that 860,000 shares of the Merger Consideration are to be held in escrow to satisfy potential future indemnification obligations of Helomics;

 

·​Expressions of intention by the principal stockholders of Helomics to vote all their shares of Helomics capital stock in favor of adoption of the Merger Agreement;

 

·Agreements in principle received from the holders of more than 80% of the outstanding principal of Helomics notes and warrants to accept Precision common stock in exchange for their Helomics notes and Precision warrants in exchange for their Helomics warrants; and

 

·​The belief that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

 

In its deliberations relating to the Merger, the Precision Board also considered a variety of risks and other countervailing factors related to the Merger, including:

 

·The substantial expenses to be incurred in connection with the Merger;

 

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·The results of operations and financial condition of Helomics, which experienced significant losses in recent periods; however, the Board considered these losses to be outweighed by the potential for enhanced profitability in future periods;

 

·​The possible volatility, at least in the short term, of the trading price of the Precision common stock resulting from the Merger announcement;

 

·​The risk that the Merger might not be consummated in a timely manner, or at all, and the potential adverse effect of the public announcement of the Merger or on the delay or failure to complete the Merger on the reputation of Precision;

 

·​The risk to Precision’s business, operations and financial results in the event the Merger is not consummated;

 

·​The fact that the Merger would give rise to substantial limitations on the utilization of Precision’s net operating loss carry-forwards; and

 

·​Various other risks associated with the combined company and the Merger, including those described in the section titled “Risk Factors” in this proxy statement/prospectus/information statement.

 

​The foregoing information and factors considered by the Precision Board are not intended to be exhaustive, but are believed to include all the material factors considered by the Precision Board. In view of the wide variety of factors considered in its evaluation of the Merger and the complexity of these matters, the Precision Board did not find it useful to attempt, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the Precision Board may have given different weight to different factors. The Precision Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Precision management team and the legal and financial advisors of Precision, and considered the factors overall to be favorable to, and to support, its determination.

 

Helomics Reasons for the Merger

 

Helomics believes its new Artificial Intelligence based precision medicine business will have the best opportunity to grow and mature if Helomics has access to the public markets for the purpose of raising capital. Helomics Board approved the Merger based on a number of factors, including the following:

 

  · The strategic alternatives to the Merger, including potential transactions that could have resulted from discussions that Helomics’ management conducted with other potential merger partners;

 

  · The ability to optimize the growth of its Artificial Intelligence based precision medicine business by virtue of its being part of a post-Merger organization that is able to access the public securities markets;

 

  · Helomics’ precision medicine technology and business offers a rapid path for the combined entity to become a leader in precision medicine both for cancer care and the development of new therapies, particularly in conjunction with Precision’s TumorGenesis entity;

 

  · The quality of the Precision Board of Directors and management team;

 

  · The consequences of Helomics’ current liquidity position, and anticipated cash needs prior to its achieving a breakeven operation;

 

  · The liquidity provided to the holders of Helomics’ equity securities as a result of the merger;

 

  · The risks of continuing to operate Helomics on a stand-alone basis, including the need to continue to support the capital requirements of its business if Helomics’ business continued to be operated on a stand alone basis; and

 

  · The terms and conditions of the Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks.

 

 

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Interests of the Precision Directors and Executive Officers in the Merger

 

In considering the recommendation of the Precision Board with respect to issuing shares of Precision common stock and preferred stock as contemplated by the Merger Agreement and the other matters to be acted upon by Precision stockholders at the Special Meeting, Precision stockholders should be aware that certain members of the Precision Board and certain executive officers of Precision have interests in the Merger that may be different from, or in addition to, the interests of Precision stockholders. These interests relate to or arise from the matters described below. The board of directors of each of Precision and Helomics were aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement and the Merger, and to recommend, as applicable, that the Precision stockholders approve the Precision proposals to be presented to the Precision stockholders for consideration at the Special Meeting as contemplated by this proxy statement/prospectus/information statement, and that the Helomics stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

 

Interests of the Helomics Directors and Executive Officers in the Merger

 

In considering the recommendation of the Helomics Board with respect to adopting the Merger Agreement, Helomics stockholders should be aware that certain members of the Helomics Board and certain executive officers of Helomics may have interests in the Merger that may be different from, or in addition to, the interests of Helomics’ stockholders. Each of the Precision Board and the Helomics Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement and the Merger, and to recommend, as applicable, that the Precision stockholders approve the proposals to be presented to Precision stockholders for consideration at the Special Meeting as contemplated by this proxy statement/prospectus/information statement, and that Helomics stockholders sign and return the Helomics Stockholder Consent as contemplated by this proxy statement/prospectus/information statement. Gerald Vardzel, the President of Helomics and a number of people associated with Dawson James Securities Inc., Robert D. Keyser, Jr., Richard Aulicino and R. Douglas Armstrong are members of the Helomics Board of Directors and/or material shareholders of Helomics. Those individuals negotiated for the purchase of Helomics in December 2016. Following such acquisition, Helomics engaged Dawson James Securities to act as the placement agent for multiple private offerings conducted by Helomics. All of the funding provided to the Company from those private placements was provided by Dawson James Securities’ customers.

 

Helomics Ownership Interests

 

The holders of the outstanding number of shares of Common Stock of Helomics that will be asked to approve the Merger on behalf of Helomics are as follows:

 

Stockholder   Type Ownership % Shares
Precision Therapeutics Inc. Party to the Merger Agreement Preferred/Common 24.95% 3,333,333
Gerald Vardzel Jr. President and CEO Common 13.47% 1,800,000
Robert Keyser Jr. Director Common 11.23% 1,500,000
Douglas Armstrong Director, Chairman of the Board Common 11.23% 1,500,000
Richard Aulicino Director Common 11.23% 1,500,000
Dawson James Securities Inc. Securities Broker Dealer Common 16.47% 2,200,000
David Weinstein Banker, Dawson James Securities Inc. Common 1.87% 250,000
Monique Maclaren Corporate Secretary and associated person of Dawson James Securities Inc. Common 0.37% 50,000
HealthCare Royalty Partners II, L.P. Investment Firm Common 8.98% 1,200,000
Jason Lyons Public Relations Common 0.19% 25,000
Helomics Intermediate Corporation

Helomics Subsidiary

Common 0.01% 100
Total Stock Issued     100.00% 13,358,433

 

 

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Management Following the Merger

 

As described elsewhere in this proxy statement/prospectus/information statement, including in the section captioned “Management Following the Merger,” the directors and executive officers of Precision upon the closing of the Merger are expected to remain the same, except the Precision Board will be expanded thereafter to include seven members instead of six, and Helomics will designate the seventh member. Helomics intends to nominate Gerald J. Vardzel, Jr.

 

Employment Agreements

 

As described elsewhere in this joint proxy statement/prospectus/information statement, including in “Management Following the Merger — Executive Compensation — Employment Agreements and Potential Payments Upon Termination of Employment or Change in Control” beginning on page [___], Helomics’ executive officers are parties to employment agreements that become effective only upon closing of the Merger.

 

Indemnification and Insurance

 

Under the Merger Agreement, for a period of six years after the Effective Time (as defined below), Precision shall cause Helomics, as the surviving corporation of the Merger with Merger Sub, and Helomics’ subsidiaries to indemnify their respective current or former directors and officers and any person who becomes a director or officer of Helomics or its subsidiaries prior to the Effective Time to the fullest extent that applicable law permits a company to indemnify its own directors and officers and in compliance with any agreements related to such indemnification that are in effect as of the Effective Time, including any provision therein relating to advancement of expenses.

 

The Merger Agreement also provides that Precision shall at all times continue to maintain directors’ and officers’ liability insurance following the Effective Time with such coverage limits and other terms as are deemed reasonable by the Precision Board.

 

Limitations on Liability and Indemnification

 

In addition to the indemnification required in the Merger Agreement, Precision has entered into indemnification agreements with each of its directors and executive officers. These agreements provide for the indemnification of the directors and executive officers of Precision for all reasonable expenses and liabilities incurred in any action or proceeding brought against them by reason of the fact that they are or were agents of Precision. Precision anticipates that the directors and officers of the combined company will enter into substantially similar agreements with the combined company, effective upon consummation of the Merger.

 

Form of the Merger

 

The Merger Agreement provides that at the Effective Time, Helomics will merge with and into the Merger Sub, with Merger Sub, to be renamed Helomics Holding Corporation, surviving as a wholly-owned subsidiary of Precision. From and after the effective time of the Merger, all of the rights, privileges and authority of Helomics and Merger Sub shall vest in the Merger Sub, which we refer to as the Surviving Corporation; all of the assets and property of Helomics and Merger Sub and every interest therein shall be vested in the Surviving Corporation; and all debts and obligations of Helomics and Merger Sub shall be vested in the Surviving Corporation.

 

Merger Consideration

 

At the effective time of the Merger (the “Effective Time”), each share of Helomics common stock will be converted into the right to receive a proportionate share of 4,000,000 shares of Precision common stock and 3,500,000 shares of Precision Series D convertible preferred stock, in addition to the 1.1 million shares of Precision Common Stock previously issued to Helomics as consideration for Precision’s prior acquisition of a twenty percent ownership interest in Helomics. As a condition to receiving their Merger Shares, the holders of Helomics common stock who receive Merger Shares as a result of the Merger shall agree (i) not to sell or otherwise transfer the Merger Shares for 90 days after the Effective Time, and (ii) with respect to any holders (or groups of affiliated holders) who receive at least 200,000 Merger Shares, thereafter not to sell in any three month period shares representing more than one percent (1%) of the outstanding common stock of Precision; provided, that all of such restrictions will lapse one year after the Effective Time.

 

Convertible Preferred Stock

 

All of shares of Precision convertible preferred stock outstanding at the time of the Merger will remain outstanding and their respective rights, privileges and preferences will remain unchanged.

 

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Stock Options and Warrants

 

All warrants and options to purchase shares of Precision’s common stock that are outstanding immediately prior to the Effective Time will remain outstanding following the Effective Time.

 

At the Effective Time, all or a significant portion of 23,741,883 warrants to purchase Helomics common stock will be exchanged for warrants to purchase Precision common stock, at a ratio of 0.6 Precision warrants for each Helomics warrant. 995,000 of the existing Helomics warrants have an exercise price of $0.01 per share, and the rest are exercisable at a price of $1.00 per share, and the parties contemplate they will convert into Precision warrants on those same terms.

 

Effective Time of the Merger

 

The consummation of the Merger (the “Closing”) shall take place at the offices of Maslon LLP, counsel to Precision, on a date to be designated jointly by Precision and Helomics, which shall be no later than the second business day after the satisfaction or waiver of the last to be satisfied or waived of the closing conditions set forth in the Merger Agreement, including the approval by Precision stockholders of Precision Proposal No. 1. The date on which the Closing actually takes place is referred to as the “Closing Date.” The Merger shall become effective on the Closing Date at the time of the filing of a Certificate of Merger with the Secretary of State of the State of Delaware (or at such later time as may be designated jointly by Precision, Merger Sub and Helomics and specified in the Certificate of Merger). The time when the Merger becomes effective is the “Effective Time.”

 

Regulatory Approvals

 

Precision must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market (“NASDAQ”) in connection with the issuance of shares of Precision common stock and the filing of this proxy statement/prospectus/information statement with the SEC.

 

Tax Treatment of the Merger

 

Precision and Helomics intend the Merger (and more specifically, the exchange of Helomics common stock for the Merger Shares) to qualify as a reorganization within the meaning of Section 368(a) of the Code. Upon request by Helomics, Precision must use its good faith, commercially reasonable efforts to cause the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and not to permit or cause any affiliate or any subsidiary of Precision or Helomics to, take any action or cause any action to be taken which would cause the Merger to fail to qualify as a reorganization under Section 368(a) of the Code. For a description of material U.S. federal income tax consequences of the Merger, see the section titled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” below.

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following discussion summarizes the material U.S. federal income tax consequences of the Merger that are expected to apply generally to each Helomics stockholder upon the exchange of shares of Helomics capital stock for shares of Precision common stock and Series D convertible preferred stock upon the consummation of the Merger. This summary is based upon current provisions of the Code, existing Treasury regulations and current administrative rulings and court decisions, all in effect as of the date hereof and all of which are subject to change. Any change, which may be retroactive, could alter the tax consequences to Precision, Helomics or the Helomics stockholders as described in this summary.

 

No attempt has been made to comment on all of the U.S. federal income tax consequences of the Merger that may be relevant to particular holders, including holders who do not hold their shares as capital assets; holders subject to special treatment under the Code such as dealers in securities; banks; insurance companies; other financial institutions; mutual funds; real estate investment trusts; regulated investment companies; tax-exempt organizations; pass-through entities such as partnerships, S corporations, disregarded entities for federal income tax purposes and limited liability companies (and investors therein); persons who are not U.S. holders (as defined below); stockholders who are subject to the alternative minimum tax provisions of the Code; Helomics stockholders who hold their shares as part of a hedge, wash sale, synthetic security, conversion transaction, or other integrated transaction; persons that have a functional currency other than the U.S. dollar; traders in securities who elect to apply a mark-to-market method of accounting; persons who hold shares of Helomics capital stock that may constitute “qualified small business stock” under Section 1202 of the Code or as “Section 1244 stock” for purposes of Section 1244 of the Code; Helomics stockholders who acquired their shares of stock in a transaction subject to the gain rollover provisions of Section 1045 of the Code; Helomics stockholders who acquired their shares of stock pursuant to the exercise of options or otherwise as compensation or through a tax-qualified retirement plan or through the exercise of a warrant or conversion rights under convertible instruments; and certain expatriates or former citizens or long-term residents of the United States. Stockholders described in this paragraph are urged to consult their own tax advisors regarding the consequences to them of the Merger.

 

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In the case of a stockholder that is a partnership, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships that are holders of Helomics capital stock and partners in such partnerships are urged to consult their own tax advisors regarding the tax consequences to them of the Merger.

 

In addition, the following discussion does not address the tax consequences of the Merger under state, local or non-U.S. tax laws or federal tax laws other than income tax laws. Furthermore, the following discussion does not address: (a) the tax consequences of transactions effectuated before, after or at the same time as the Merger, whether or not they are in connection with the Merger, including, without limitation, transactions in which shares of Helomics capital stock are acquired or disposed of other than in exchange for shares of Precision common stock and preferred stock in the Merger; (b) the tax consequences to holders of options or warrants issued by Helomics which are assumed in connection with the Merger; (c) the tax consequences of the receipt of shares of Precision common stock and preferred stock other than in exchange for shares of Helomics capital stock pursuant to the Merger Agreement; (d) any U.S. federal non-income tax consequences of the Merger, including estate, gift or other tax consequences; (e) any state, local or non-U.S. tax consequences of the Merger; or (f) the Medicare contribution tax on net investment income. No ruling from the Internal Revenue Service (the “IRS”) or opinion of counsel, has been or will be requested in connection with the Merger, and Helomics stockholders should be aware that the IRS could adopt a position which could be sustained by a court contrary to that set forth in this discussion.

 

Holders of Helomics capital stock are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the Merger in light of their personal circumstances and the consequences under state, local and non-U.S. tax laws and other federal tax laws.

 

Treatment of the Merger as a “Reorganization” under Section 368(a)

 

Precision and Helomics intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, but the Merger may not so qualify. The Merger is conditioned on receipt of a tax opinion relating to the qualification of the Merger as such a reorganization.

 

Definition of “U.S. Holder”

 

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Helomics capital stock that is:

 

·an individual who is a citizen or resident of the United States;

 

·​a corporation or any other entity taxable as a corporation created or organized in or under the laws of the United States or of a state of the United States, any state thereof or the District of Columbia;

 

·​a trust if either (i) a court within the United States is able to exercise primary supervision over the administration of such trust, and one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) are authorized or have the authority to control all substantial decisions of such trust, or (ii) the trust was in existence on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes; or

 

·​an estate, the income of which is subject to U.S. federal income tax regardless of its source.

 

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Treatment of U.S. Holders in the Merger

 

If the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, Helomics stockholders generally will not recognize gain or loss upon the exchange of their Helomics capital stock for Precision common stock and Series D convertible preferred stock. Helomics Stockholders generally will obtain a basis in the Precision common stock and Series D convertible preferred stock they receive in the Merger equal to their basis in the exchanged Helomics capital stock. The holding period of the shares received by a Helomics stockholder in the Merger will include the holding period of the shares of Helomics capital stock surrendered in exchange therefor.

 

If the Merger is not treated as a reorganization within the meaning of Section 368(a) of the Code, then each U.S. holder generally will be treated as exchanging its Helomics capital stock in a fully taxable transaction in exchange for Precision common stock and preferred stock. Helomics stockholders will generally recognize gain or loss in such exchange equal to the amount that such Helomics stockholder’s adjusted tax basis in the Helomics capital stock surrendered is less or more than the fair market value of the Precision common stock or Series D convertible preferred stock received in exchange therefor. Gain or loss recognized upon such an exchange generally will be capital gain or capital loss. Any recognized capital gain or capital loss will be long-term capital gain or capital loss, if the U.S. holder has held the shares of Helomics capital stock for more than one year. The deductibility of capital losses is subject to limitations. In addition, for purposes of the above discussion of the bases and holding periods for shares of Helomics capital stock and Precision common stock and preferred stock, U.S. holders who acquired different blocks of Helomics capital stock at different times for different prices must calculate their gains and losses and holding periods separately for each identifiable block of such stock exchanged in the Merger.

 

Reporting Requirements

 

If the Merger is a reorganization within the meaning of Section 368(a) of the Code, each U.S. holder who receives shares of Precision common stock and Series D convertible preferred stock in the Merger is required to retain permanent records pertaining to the Merger, and make such records available to any authorized IRS officers and employees. Such records should specifically include information regarding the amount, basis, and fair market value of all transferred property, and relevant facts regarding any liabilities assumed or extinguished as part of such reorganization. Additionally, U.S. holders who owned immediately before the Merger at least one percent (by vote or value) of the total outstanding stock of Helomics are required to attach a statement to their tax returns for the year in which the Merger is consummated that contains the information listed in Treasury Regulation Section 1.368-3(b). Such statement must include the U.S. holder’s tax basis in such holder’s Helomics Capital Stock surrendered in the Merger, the fair market value of such stock, the date of the Merger and the name and employer identification number of each of Helomics and Precision. U.S. holders are urged to consult with their tax advisors to comply with these rules.

 

The foregoing summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular Helomics stockholder. This summary does not take into account your particular circumstances and does not address consequences that may be particular to you. Therefore, you should consult your tax advisor regarding the particular consequences of the Merger to you.

 

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Anticipated Accounting Treatment

 

The Merger will be treated by Precision as a forward triangular merger under the acquisition method of accounting in accordance with U.S. GAAP. For accounting purposes, Precision will be the accounting predecessor and will be treated as having acquired Helomics in this transaction. Management of Precision and Helomics have made a preliminary estimate of the purchase price calculated as described in Note 2 to the unaudited pro forma condensed combined financial statements. The net tangible assets acquired and liabilities assumed in the Merger transaction will be recorded at their estimated acquisition date fair values. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible and intangible assets of Helomics that exist as of the date of completion of the transaction.

 

NASDAQ Stock Market Listing

 

Precision common stock currently is listed on NASDAQ under the symbol “AIPT.” Precision has agreed to use take all steps necessary to cause the listing of the shares of Precision common stock to be issued to Helomics stockholders pursuant to the Merger on NASDAQ. Precision must also deliver to Helomics evidence that NASDAQ has approved the Merger and related transactions.

 

 

 

 

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THE MERGER AGREEMENT

 

The following is a summary of the material terms of the Merger Agreement. A copy of the Merger Agreement, as amended, is attached as Annex A to this proxy statement/prospectus/information statement and is incorporated by reference into this proxy statement/prospectus/information statement. The Merger Agreement has been attached to this proxy statement/prospectus/information statement to provide you with information regarding its terms. It is not intended to provide any other factual information about Precision, Helomics or Merger Sub. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. You should refer to the full text of the Merger Agreement for details of the Merger and the terms and conditions of the Merger Agreement.

 

The Merger Agreement contains representations and warranties that Precision and Merger Sub, on the one hand, and Helomics, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with signing the Merger Agreement. While Precision and Helomics do not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Merger Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about Precision or Helomics, because they were made as of specific dates, may be intended merely as a risk allocation mechanism between Precision and Merger Sub, and Helomics and are modified by the disclosure schedules.

 

Structure

 

Under the Merger Agreement, Helomics will merge with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of Precision. From and after the effective time of the Merger, all of the rights, privileges and authority of Helomics and Merger Sub shall vest in the Surviving Corporation; all of the assets and property of Helomics and Merger Sub and every interest therein shall be vested in the Surviving Corporation; and all debts and obligations of Helomics and Merger Sub shall be vested in the Surviving Corporation.

 

Completion and Effectiveness of the Merger

 

The Merger will be completed no later than the second business day after all the conditions to completion of the Merger are satisfied or waived, including the approval of the stockholders of Precision and Helomics (the “Closing Date”). Precision and Helomics are working to complete the Merger as quickly as practicable. However, Precision and Helomics cannot predict the exact timing of the completion of the Merger because it is subject to various conditions.

 

Merger Consideration

 

At the effective time of the Merger (the “Effective Time”), each share of Helomics common stock will be converted into the right to receive a proportionate share of 4,000,000 shares of Precision common stock and 3,500,000 shares of Precision Series D convertible preferred stock, in addition to the 1.1 million shares of Precision Common Stock previously issued to Helomics as consideration for Precision’s prior acquisition of a twenty percent ownership interest in Helomics. As a condition to receiving their Merger Shares, the holders of Helomics common stock who receive Merger Shares as a result of the Merger must agree (i) not to sell or otherwise transfer the Merger Shares for 90 days after the Effective Time, and (ii) with respect to any holders (or groups of affiliated holders) who receive at least 200,000 Merger Shares, thereafter not to sell in any three month period shares representing more than one percent of the outstanding common stock of Precision; provided, however, that all of such restrictions will lapse one year after the Effective Time.

 

Helomics Notes and Warrants

 

Helomics is obligated under the Merger Agreement to use commercially reasonable efforts to cause the holder of each Helomics Note Payable (meaning all outstanding secured and unsecured debt obligations owed by Helomics to third parties, whether represented by a promissory note or otherwise, excluding any obligations owed to Precision) to enter into an agreement in form and substance reasonably satisfactory to Precision and Helomics (each, a “Conversion and Exchange Agreement”) whereby such holder agrees that, at the Effective Time, (a) all or a certain portion of the indebtedness evidenced by such Helomics Note Payable shall be converted into Precision common stock at $1.00 per share, (b) all of such holder’s warrants to purchase Helomics common stock shall be converted into warrants to purchase Precision common stock, in a form reasonably acceptable to Precision, and (c) the unconverted portion of any indebtedness evidenced by such Helomics Note Payable shall be converted into a promissory note issued by Precision as of the Closing Date, in a form reasonably acceptable to Precision. This conversion and exchange transaction is described elsewhere in this proxy statement/prospectus/information statement as the “Exchange Offer.”

 

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The Merger is conditioned on at least 75% of Helomics’ $8.8 million in outstanding Helomics Notes Payable being exchanged for additional shares of Precision common stock via Conversion and Exchange Agreements.

 

Procedures for Exchanging Helomics Stock Certificates

 

As soon as practicable after October 26, 2018, Precision must engage Corporate Stock Transfer, Inc., its transfer agent, or another bank or trust company reasonably satisfactory to Precision and Helomics, to act as exchange agent in the Merger (the “Exchange Agent”). As soon as practicable after October 26, 2018, and not fewer than ten business days prior to the Closing Date, Precision must also cause the Exchange Agent to send to each Helomics stockholder a letter of transmittal with instructions for how Helomics stockholders may surrender their Helomics stock certificates in exchange for certificates representing Precision common stock and Series D convertible preferred stock. Upon surrender of a Helomics stock certificate to the Exchange Agent for exchange, together with a duly executed letter of transmittal and other required documents, the holder of such Helomics stock certificate shall be entitled to receive one or more certificates representing the number of shares of Precision common stock and Series D convertible preferred stock that such holder has the right to receive pursuant to the Merger Agreement (or in lieu of such certificate(s), confirmation of the issuance of such Precision stock via book entry in the books of the Exchange Agent).

 

Fractional Shares

 

No fractional shares of Precision common stock or preferred stock will be issued in connection with the Merger. With respect to each Helomics stockholder, the Merger Shares to which such stockholder is entitled pursuant to the Merger Agreement will be rounded to the nearest whole share of Precision common stock and/or preferred stock, as applicable.

 

Representations and Warranties

 

The Merger Agreement contains customary representations and warranties made by Precision, Merger Sub and Helomics relating to their respective businesses, as well as other facts pertinent to the Merger. The representations and warranties of each of Precision, Merger Sub and Helomics have been made solely for the benefit of the other parties and those representations and warranties should not be relied on by any other person. In addition, those representations and warranties may be intended not as statements of actual fact, but rather as a way of allocating risk among the parties, may have been modified by the disclosure schedules delivered in connection with the Merger Agreement, are subject to the materiality standard described in the Merger Agreement, which may differ from what may be viewed as material by you, and were made only as of the date of the Merger Agreement or another date as is specified in the Merger Agreement.

 

Precision and Merger Sub jointly and severally represented and warranted to Helomics about the following matters (it being understood that (a) each representation and warranty is subject to the exceptions and disclosures set forth in the part or subpart of the Precision disclosure schedule, (b) as of October 26, 2018, Precision and Merger Sub had not yet fully investigated the matters covered by the representations and warranties, which is subject to the parties’ due diligence investigation, and (c) no inaccuracy or breach of any such representation or warranty can be grounds for any claim by Helomics prior to the Closing Date):

 

·subsidiaries; due organization;

 

·authority, binding nature of the Merger Agreement;

 

·capitalization;

 

·financial statements; internal controls;

 

·absence of undisclosed liabilities;

 

·absence of changes;

 

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·title to assets;

 

·loans;

 

·equipment; real property; leasehold

 

·intellectual property;

 

·contracts and commitments; no defaults thereunder;

 

·compliance with legal requirements;

 

·governmental authorizations;

 

·tax matters;

 

·employee and labor matters; benefit plans;

 

·environmental matters;

 

·insurance;

 

·legal proceedings; orders;

 

·non-contravention; consents

 

·no financial advisor;

 

·formation of Merger Sub; and

 

·valid issuance of Merger Consideration.

 

Helomics represented and warranted to Precision and Merger about the following matters (it being understood that (a) each representation and warranty is subject to the exceptions and disclosures set forth in the part or subpart of the Helomics disclosure schedule, (b) as of October 26, 2018 Helomics had not yet fully investigated the matters covered by the representations and warranties, which is subject to the parties’ due diligence investigation, and (c) no inaccuracy or breach of any such representation or warranty can be grounds for any claim by Precision or Merger Sub prior to the Closing Date):

 

·subsidiaries; due organization;

 

·authority, binding nature of the Merger Agreement;

 

·capitalization;

 

·financial statements; internal controls;

 

·absence of undisclosed liabilities;

 

·absence of changes;

 

·title to assets;

 

·loans;

 

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·equipment; real property; leasehold;

 

·intellectual property;

 

·contracts and commitments; no defaults thereunder;

 

·compliance with legal requirements;

 

·governmental authorizations;

 

·tax matters;

 

·employee and labor matters; benefit plans;

 

·environmental matters;

 

·insurance;

 

·legal proceedings; orders;

 

·Helomics stockholder approval;

 

·non-contravention; consents; and

 

·no financial advisor.

 

Access and Investigation; Conduct of Business Pending the Merger

 

Access and Investigation. With respect to access and investigation, the parties agreed that upon reasonable request they must each (a) provide to the other reasonable access to its personnel, tax and accounting advisers and assets and to all existing books, records, tax returns, and other documents and information relating to such entity or any of its subsidiaries; and (b) provide the other party with such copies of the existing books, records, tax returns, and other documents and information relating to such entity and its subsidiaries.

 

Operation of Helomics and Its Subsidiaries. With respect to the operation of Helomics and its subsidiaries, Helomics agreed that prior to the Closing Date, it will ensure that it and its subsidiaries conduct their business and operations in the ordinary course and in accordance in all material respects with past practices. Helomics also agreed, prior to the Closing Date, to not do the following without Precision’s prior written consent, which cannot be unreasonably withheld, conditioned, or delayed:

 

1.declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities;

 

2.sell, issue, grant or authorize the sale, issuance or grant of: (A) any capital stock or other security; (B) any option, call, warrant or right to acquire any capital stock or other security (or whose value is directly related to shares of Helomics common stock); or (C) any instrument convertible into or exchangeable for any capital stock or other security (except that Helomics may issue shares of common stock upon the valid exercise of Helomics warrants outstanding as of the date of the Merger Agreement);

 

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3.amend or permit the adoption of any amendment to its certificate of incorporation or bylaws or other charter or organizational documents;

 

4.acquire any equity interest or other interest in any other entity; form any subsidiary; or effect or become a party to any merger, consolidation, share exchange, business combination, amalgamation, recapitalization, reclassification of shares, stock split, reverse stock split, division or subdivision of shares, consolidation of shares or similar transaction; or

 

5.agree or commit to take any of the foregoing actions.

 

Operation of Precision and Its Subsidiaries. With respect to the operation of Precision and its subsidiaries, Precision agreed that prior to the Closing Date, it will ensure that it and its subsidiaries conduct their business and operations in the ordinary course and in accordance in all material respects with past practices or as disclosed in Precision’s SEC filings. Precision also agreed, prior to the Closing Date, to not do the following without Helomics’ prior written consent, which cannot be unreasonably withheld, conditioned, or delayed:

 

1.declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, other than in connection with the withholding of shares of Precision common stock to satisfy tax obligations with respect to the exercise, vesting or settlement of Precision equity awards made pursuant to Precision’s Amended and Restated 2012 Stock Incentive Plan;

 

2.sell, issue, grant or authorize the sale, issuance or grant of: (a) any capital stock or other security; (b) any option, call, warrant or right to acquire any capital stock or other security; or (c) any instrument convertible into or exchangeable for any capital stock or other security (except that Precision (1) may grant further share awards authorized under its Amended and Restated 2012 Stock Incentive Plan and (2) may issue shares of Precision common stock upon the valid exercise of Precision options and warrants outstanding as of the date of the Merger Agreement);

 

3.amend, waive any of its rights under or, (except as contemplated by the terms of its Amended and Restated 2012 Stock Incentive Plan, existing equity award agreements or any applicable employment agreement, in each case as in effect as of the date of the Merger Agreement) accelerate the vesting under, any provision of the its Amended and Restated 2012 Stock Incentive Plan or any provision of any agreement evidencing any outstanding equity award except for the acceleration of the “Parent Options” set forth on the Precision disclosure schedule, or otherwise modify any of the terms of any outstanding Precision equity award, warrant or other security or any related contract;

 

4.amend or permit the adoption of any amendment to its articles of incorporation or bylaws or other charter or organizational documents; or

 

5.agree or commit to take any of the foregoing actions.

 

Non-Solicitation

 

From the date of the Merger Agreement until the Effective Time or, if earlier, the termination of the Merger Agreement, Helomics shall not, directly or indirectly, shall cause its subsidiaries and the respective officers, employees directors and financial advisers of Helomics and its subsidiaries to not, directly or indirectly, and shall use its reasonable best efforts to ensure that the other Helomics representatives do not, directly or indirectly:

 

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1.solicit, initiate, knowingly encourage or knowingly facilitate the making, submission or announcement of any acquisition proposal with respect to Helomics or its subsidiaries or an acquisition inquiry with respect to Helomics or its subsidiaries;

 

2.furnish any information regarding Helomics or its subsidiaries to any person in connection with or in response to an acquisition proposal with respect to Helomics or its subsidiaries or an acquisition inquiry with respect to Helomics or its subsidiaries;

 

3.engage in discussions or negotiations with any person relating to any acquisition proposal with respect Helomics or its subsidiaries or an acquisition inquiry with respect to Helomics or its subsidiaries;

 

4.approve, endorse or recommend any acquisition proposal with respect to Helomics or its subsidiaries or an acquisition inquiry with respect to Helomics or its subsidiaries or any person or group becoming the beneficial owner of more than 5% of the equity securities of Helomics or its subsidiaries; or

 

5.enter into any letter of intent or similar document or any contract (other than a confidentiality agreement on the terms described in the Merger Agreement) contemplating or otherwise relating to any acquisition transaction with respect to Helomics or its subsidiaries.

 

Helomics must promptly (and in no event later than 24 hours after receipt of any acquisition proposal or acquisition inquiry with respect to Helomics or its subsidiaries) advise Precision orally and in writing of any such acquisition proposal or acquisition inquiry. Helomics must also keep Precision reasonably informed with respect to: (i) the status of any such acquisition proposal or acquisition inquiry; and (ii) the status and terms of any material modification or proposed material modification thereto.

 

Registration Statement, Prospectus, Information Statement

 

As promptly as practicable, Precision must prepare and file with the SEC this proxy statement/prospectus/information statement and, in cooperation with Helomics, register on Form S-4 under the Securities Act of 1933, the shares of Precision common stock and preferred stock to be issued pursuant to the Merger and the Exchange Offer. Each of Precision and Helomics must use its reasonable best effort to cause the registration statement to become effective as promptly as practicable. Each of Precision and Helomics must also furnish all information concerning itself and its subsidiaries, as applicable, to the other party as the other party may reasonably request relating to such actions and the preparation of the registration statement and this proxy statement/prospectus/information statement. As promptly as practicable after the registration statement is declared effective by the SEC, Precision and Helomics must mail this proxy statement/prospectus/information statement to their respective stockholders.

 

Meeting of Precision Stockholders and Written Consent of Helomics Stockholders

 

Precision must call, give notice of and hold the Special Meeting as promptly as practicable. Helomics must as promptly as practicable obtain the consent of its stockholders to the Merger Agreement, the Merger and the transactions contemplated thereby (the “Helomics Stockholder Consent”).

 

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Regulatory Approvals

 

Neither Precision nor Helomics is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to complete the Merger. Precision must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market in connection with the issuance of shares of Precision common stock in the Merger, including the filing with the SEC of this proxy statement/prospectus/information statement.

 

Indemnification and Insurance

 

For six years after the Effective Time, Precision must cause Helomics, as the surviving corporation of the Merger with Merger Sub, and Helomics’ subsidiaries, to indemnify their respective current or former directors and officers and any person who becomes a director or officer of Helomics or any of its subsidiaries prior to the Effective Time to the fullest extent that applicable law permits a company to indemnify its own directors and officers and in compliance with any agreements related to such indemnification that are in effect as of the Effective Time, including any provision therein relating to advancement of expenses. Precision must also at all times continue to maintain directors’ and officers’ liability insurance with such coverage limits and other terms as are deemed reasonable by the Precision Board of Directors.

 

NASDAQ Stock Market Listing

 

Precision must cause the Merger Shares, and any shares of Precision common stock that are subject to Precision options issued to any employee, stockholder or affiliate of Helomics in connection with the Merger, to be listed on The NASDAQ Capital Market (“NASDAQ”). Precision must also deliver to Helomics evidence that the staff of NASDAQ has approved the Merger and related transactions.

 

Conditions to the Completion of the Merger

 

Conditions Precedent to Obligations of Precision and Merger Sub

 

The obligations of Precision and Merger Sub to cause the Merger to be affected and to otherwise cause the transactions contemplated by the Merger to be consummated are subject to satisfaction or waiver of certain conditions, including the following:

 

  a. Each of the Helomics Fundamental Representations being accurate in all respects as of October 26, 2018 and as of the Closing Date as if made on and as of the Closing Date (except for any such representations and warranties made as of a specific date, which must have been accurate in all material respects as of such date). A “Helomics Fundamental Representation” means the representations and warranties made by Helomics regarding the following: (1) subsidiaries; due organization; (2) authority; binding nature of the Merger Agreement; (3) capitalization; (4) title to assets; (5) intellectual property; (6) tax matters; (7) employee and labor matters; benefit plans; (8) the Helomics stockholder approval; and (9) no financial advisor.

 

  b. Each of the other representations and warranties of Helomics being accurate in all respects as of October 26, 2018 and being accurate in all material respects as of the Closing Date as if made on and as of the Closing Date (except for any such representations and warranties made as of a specific date, which must have been accurate in all respects as of such date); provided, however, that for purposes of determining the accuracy of such representations and warranties as of the Closing Date, all materiality qualifications limiting the scope of such representations and warranties shall be disregarded.

 

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  c. Since October 26, 2018, there must not have been any Material Adverse Effect with respect to Helomics which has not been cured, and no event must have occurred, or circumstance must exist that, in combination with any other events or circumstances then in existence, would reasonably be expected to have or result in a Material Adverse Effect with respect to Helomics. A “Material Adverse Effectmeans, with respect to Helomics, any effect, change, claim, event or circumstance (collectively, “Effect”) that, considered together with all other Effects, is or would reasonably be expected to be or to become materially adverse to, or has or would reasonably be expected to have or result in a material adverse effect on: (a) the business, financial condition, results of operations or prospects of Helomics and its subsidiaries taken as a whole; provided, however, that, in no event shall any Effects resulting from any of the following, alone or in combination, be deemed to constitute, or be taken into account in determining whether there has occurred, a Helomics Material Adverse Effect: (i) conditions generally affecting the industries in which Helomics participates or the U.S. or global economy as a whole, to the extent that such conditions do not have a disproportionate impact on Helomics and its subsidiaries, taken as a whole, as compared to other industry participants; (ii) general conditions in the financial markets, and any changes therein (including any changes arising out of acts of terrorism, war, weather conditions or other force majeure events), to the extent that such conditions do not have a disproportionate impact on Helomics and its subsidiaries, taken as a whole, as compared to other industry participants; (iii) changes in GAAP (or any interpretations of GAAP) applicable to Helomics or its subsidiaries; (iv) the failure to meet public estimates or forecasts of revenues, earnings of other financial metrics, in and of itself, or the failure to meet internal projections, forecasts or budgets of revenues, earnings or other financial metrics, in and of itself (it being understood, however, that, except as otherwise provided in clauses (i), (ii), (iii), (v), (vi), (vii), or (viii) of this sentence, any Effect giving rise to or contributing to any such failure may give rise to a Helomics Material Adverse Effect and may be taken into account in determining whether a Helomics Material Adverse Effect has occurred); (v) any lawsuit commenced by a stockholder of Helomics (in his, her or its capacity as a stockholder) directly resulting from the execution of the Merger Agreement or the performance of the transactions contemplated thereby; (vi) loss of employees, suppliers or customers (including customer orders or contracts) resulting directly from the announcement or pendency of the Merger Agreement or the transactions contemplated thereby; (vii) the taking of any action expressly required to be taken pursuant to the Merger Agreement or the taking of any action requested by Precision to be taken pursuant to the terms of the Merger Agreement to the extent taken in accordance with such request; or (viii) changes in applicable legal requirements after the date of the Merger Agreement; or (b) the ability of Helomics to consummate the Merger or any of the other transaction contemplated thereby.

 

d.Helomics must have delivered to Precision counterparts to “Conversion and Exchange Agreements” pursuant to which holders of Helomics Notes Payable (meaning all outstanding secured and unsecured debt obligations owed by Helomics to third parties, whether represented by a promissory note or otherwise, excluding any obligations owed to Precision) have agreed to convert in the aggregate 75% of the total indebtedness under the Helomics Notes Payable into shares of Precision common stock.

 

e.Helomics must have obtained written consent of the Helomics Stockholders approving the Merger and have delivered reasonably acceptable evidence thereof to Precision.

 

f.There must be no Helomics Dissenting Shares (meaning shares of Helomics common stock held by a holder who did not consent to the adoption of the Merger Agreement or otherwise vote in favor of adoption of the Merger Agreement);

 

g.Precision’s stockholders must have approved (i) the Merger Agreement and the transactions contemplated thereby, including the Merger and the issuance of shares of Precision’s common stock and preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement, (ii) Proposal No. 2 of this proxy statement/prospectus/information statement, and (iii) Proposal No. 3 of this proxy statement/prospectus/information statement.

 

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h.Precision must have received from NASDAQ evidence that the staff of NASDAQ has approved the Merger and related transactions. NASDAQ must also have approved the listing of the Merger Shares.

 

i.This proxy statement/prospectus/information statement must have been declared effective by the SEC under the Securities Act of 1933. No stop order suspending the effectiveness thereof shall have been issued by the SEC and no proceeding for that purpose or a similar purpose shall have been initiated or threatened in writing by the SEC.

 

j.Certain employees of Helomics and/or its subsidiaries must have entered into acceptable employment and non-competition agreements with Precision to be effective as of the Closing Date.

 

k.Precision must be satisfied in its sole discretion with the results of its due diligence regarding Helomics and the contents of Helomics’ disclosure schedule.

 

l.Precision shall have filed the Certificate of Designation, the form of which is attached hereto as Annex I, with the Office of the Delaware Secretary of State, and such Certificate shall have been accepted by such office.

 

m.Precision shall have filed an amendment to its Certificate of Incorporation with the Office of the Delaware Secretary of State in order to effectuate Proposal Nos. 2 and 4 of this proxy statement/prospectus/information statement, and such Amendment shall have been accepted by such office.

 

Conditions Precedent to Obligations of Helomics

 

The obligation of Helomics to effect the Merger and otherwise consummate the transactions contemplated by the Merger to be consummated are subject to satisfaction or waiver of certain conditions, including the following:

 

  a. Each of the Precision Fundamental Representations being accurate in all respects as of the date of October 26, 2018 and the Closing Date as if made on and as of the Closing Date (except for any such representations and warranties made as of a specific date, which must have been accurate in all material respects as of such date); provided, however, that, all changes in the capital structure resulting from the exercise of Precision options, warrants or other convertible securities pursuant to their terms or as contemplated by the Merger Agreement is to be disregarded. A “Precision Fundamental Representation” means the representations and warranties made by Precision and Merger Sub regarding the following: (1) subsidiaries; due organization; (2) authority; binding nature of the Merger Agreement; (3) capitalization; (4) title to assets; (5) intellectual property; (6) tax matters; and (7) no financial advisor.

 

  b. Each of the representations and warranties of Precision and Merger Sub (other than the Precision Fundamental Representations) being accurate in all respects as of October 26, 2018 and being accurate in all material respects as of the Closing Date as if made on and as of the Closing Date (except for any such representations and warranties made as of a specific date, which shall have been accurate in all respects as of such date); provided, however, that for purposes of determining the accuracy of such representations and warranties as of the Closing Date, all materiality qualifications limiting the scope of such representations and warranties shall be disregarded.

 

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  c. Since October 26, 2018, there shall not have occurred any Material Adverse Effect with respect to Precision which has not been cured, and no event shall have occurred, or circumstance shall exist that, in combination with any other events or circumstances, then in existence would reasonably be expected to have or result in a Material Adverse Effect with respect to Precision. A “Material Adverse Effect with respect to Precision means any Effect that, considered together with all other Effects, is or would reasonably be expected to be or to become materially adverse to, or has or would reasonably be expected to have or result in a material adverse effect on: (a) the business, financial condition, results of operations or prospects of Precision and its Subsidiaries taken as a whole; provided, however, that, in no event shall any Effects resulting from any of the following, alone or in combination, be deemed to constitute, or be taken into account in determining whether there has occurred, a Precision Material Adverse Effect: (i) conditions generally affecting the industries in which Precision participates or the U.S. or global economy as a whole, to the extent that such conditions do not have a disproportionate impact on Precision and its subsidiaries, taken as a whole, as compared to other industry participants; (ii) general conditions in the financial markets, and any changes therein (including any changes arising out of acts of terrorism, war, weather conditions or other force majeure events), to the extent that such conditions do not have a disproportionate impact on Precision and its subsidiaries, taken as a whole, as compared to other industry participants; (iii) changes in the trading price or trading volume of Precision common stock (it being understood, however, that, except as otherwise provided in clauses (i), (ii), (iv), (v), (vi), (vii), (viii) or (ix) of this sentence, any Effect giving rise to or contributing to such changes in the trading price or trading volume may give rise to a Precision Material Adverse Effect and may be taken into account in determining whether a Precision Material Adverse Effect has occurred); (iv) changes in GAAP (or any interpretations of GAAP) applicable to Precision or any of its subsidiaries; (v) the failure to meet public estimates or forecasts of revenues, earnings of other financial metrics, in and of itself, or the failure to meet internal projections, forecasts or budgets of revenues, earnings or other financial metrics, in and of itself (it being understood, however, that, except as otherwise provided in clauses (i), (ii), (iii), (iv), (vi), (vii), (viii) or (ix) or of this sentence, any Effect giving rise to or contributing to any such failure may give rise to a Precision Material Adverse Effect and may be taken into account in determining whether a Precision Material Adverse Effect has occurred); (vi) any lawsuit commenced by a stockholder of Precision (in his, her or its capacity as a stockholder) directly resulting from the execution of the Merger Agreement or the performance of the transactions contemplated thereby; (vii) loss of employees, suppliers or customers (including customer orders or Contracts) resulting directly from the announcement or pendency of this Agreement or transactions contemplated thereby; (viii) the taking of any action expressly required to be taken pursuant to the Merger Agreement or the taking of any action requested by Helomics to be taken pursuant to the terms of the Merger Agreement to the extent taken in accordance with such request; or (ix) changes in applicable legal requirements after the date of the Merger Agreement; or (b) the ability of Precision to consummate the Merger or any of transactions contemplated thereby.

 

d.Helomics must have obtained the Helomics Stockholder Consent.

 

e.There must be no shares of Helomics common stock held by a holder who did not consent to the adoption of the Merger Agreement or otherwise vote in favor of adoption of the Merger Agreement and exercised his, her or its statutory appraisal rights.

 

f.Precision’s stockholders must have approved (i) the Merger Agreement and the transactions contemplated thereby, including the Merger and the issuance of shares of Precision’s common stock and preferred stock to Helomics’ security holders pursuant to the terms of the Merger Agreement, (ii) Proposal No. 2 of this proxy statement/prospectus/information statement, and (iii) Proposal No. 3 of this proxy statement/prospectus/information statement.

 

g.Precision must have received from NASDAQ evidence that the staff of NASDAQ has approved the Merger and related transactions. NASDAQ must also have approved the listing of the Merger Shares. Precision must have delivered to Helomics evidence that the staff of NASDAQ has approved the Merger and related transactions.

 

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h.Precision shall have filed the Certificate of Designation, the form of which is attached hereto as Annex I, with the Office of the Delaware Secretary of State, and such Certificate shall have been accepted by such office.

 

i.Precision shall have filed an Amendment to its Certificate of Incorporation with the Office of the Delaware Secretary of State in order to effectuate Proposal Nos. 2 and 4 of this proxy statement/prospectus/information statement, and such Amendment shall have bene accepted by such office.

 

Termination of the Merger Agreement

 

The Merger Agreement may be terminated prior to the Closing Date, for several reasons, including the following:

 

1.by written agreement of Precision and Helomics;

 

  2. by either Precision or Helomics if the Merger is not consummated on or before March 31, 2019 (the “End Date”); provided, however, that neither are permitted to so terminate the Merger Agreement if the failure to consummate the Merger by the End Date is attributable to a failure on the part of such party to perform any covenant or obligation in the Merger Agreement required to be performed by such party at or prior to the Closing Date;

 

3.by either Precision or Helomics if a court or other governmental body issues a final and non-appealable order, or takes any other action, that permanently prohibits the Merger; and

 

4.by Precision or Helomics if either of the following occurs: (a) the Precision Board determines that an acquisition proposal with respect to Precision is more favorable to Precision and its stockholders than the Merger; or (b) Precision enters into any letter of intent or similar document or any contract relating to any acquisition proposal.

 

In the event of the termination of the Merger Agreement, the Merger Agreement will be of no further force and effect, except that the parties will still have certain indemnification obligations, the Confidentiality Agreement signed in connection with the Merger Agreement will remain in full force and effect and the termination of the Merger Agreement will not relieve any party thereto of any liability for any breach of the Merger Agreement or fraud.

 

Amendment

 

The Merger Agreement may be amended with the approval of the respective Board of Directors of Precision and Helomics at any time without approval of any of Helomics’ stockholders; provided, however, that no amendment may be made which by applicable law requires further approval of Helomics’ stockholders without the further approval of such stockholders. The Merger Agreement may not be amended except by an instrument in writing signed by both parties.

 

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GENERAL TERMS OF THE EXCHANGE OFFER

 

Purpose of the Exchange Offer

 

Helomics and Precision intend to effect a merger of Helomics with and into a wholly-owned subsidiary of Precision. The purposes of the Exchange Offer is to accommodate the Merger and provide consideration in connection therewith to holders of Helomics Notes Payable and Helomics Warrants.

 

Terms of the Exchange Offer

 

In connection with the Merger, Precision is offering the Exchange Offer, as described herein, to holders of certain promissory notes of Helomics that were issued to investors (the “Helomics Notes Payable”) and accompanying warrants to purchase Helomics common stock (the “Helomics Warrants”): the exchange of (a) one share of Common Stock, par value $0.01 (“Common Stock”), of Precision, for each $1.00 of principal and accrued and unpaid interest, calculated as of the Effective Time, outstanding of the tendered Helomics Notes Payable held by each holder as of the Effective Time, and (b) a warrant to purchase shares of Common Stock at an exercise price of $1.00 per share (a “Precision Warrant”) for each of the Helomics Warrants held by such holders, at a ratio of 0.6 Precision Warrants for each 1.0 Helomics Warrant. Consummation of the Merger is conditioned upon holders of at least 75% of the outstanding balance of the Helomics Notes Payable exchanging their Helomics Notes Payable for Common Stock of Precision pursuant to the terms of the Exchange Offer.

 

Upon the terms and subject to the conditions described in this proxy statement/prospectus/information statement and in the Letter of Transmittal, Precision is offering, through the Exchange Offer, to issue up to an aggregate of 12,778,333 shares of Common Stock of Precision and up to an aggregate of 14,245,130 Precision Warrants to the holders of outstanding Helomics Notes Payable and Helomics Warrants, respectively, who validly tender their Helomics Notes Payable and/or Helomics Warrants on or prior to the Expiration Date. All outstanding Helomics Notes Payable and/or Helomics Warrants that are (a) not tendered prior to the Expiration Date or (b) tendered, but (i) properly withdrawn any time before the Expiration Date or (ii) for any valid reason, not accepted by Precision, will continue to be outstanding according to the terms unmodified.

 

As of January 23, 2019, the following was outstanding: (a) total principal and accrued interest under the Helomics Notes Payable in an amount of $8,778,333 and (b) 23,741,883 Helomics Warrants, in each case, subject to the Exchange Offer. This prospectus and the Letter of Transmittal are being sent to all registered holders of outstanding Helomics Notes Payable and/or Helomics Warrants. There will be no fixed record date for determining registered holders of the Helomics Notes Payable and/or Helomics Warrants entitled to participate in the Exchange Offer.

 

The Exchange Agent will act as agent for the tendering holders of the Helomics Notes Payable and/or Helomics Warrants for the purposes of receiving (a) the Common Stock of Precision and/or Precision Warrants, as applicable, (b) the completed, signed and dated Letter of Transmittal and (c) all other required documents. Precision will issue the Common Stock of Precision and/or Precision Warrants promptly after the Expiration Date.

 

Precision intends to conduct the Exchange Offer in accordance with the applicable requirements of the Securities Act and the Exchange Act, and the rules and regulations promulgated by the SEC thereunder.

 

Market and Trading Information

 

Common Stock of Precision is traded on The NASDAQ Capital Market under the symbol “AIPT.” The last reported per share price for the Common Stock of Precision was $0.92, as quoted on The NASDAQ Capital Market on January 23, 2019.

 

The Precision Warrants are not listed for trading on any market.

 

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Expiration Date

 

The Exchange Offer will expire on the Expiration Date, which is at midnight, Eastern Time, on March 13, 2019, unless extended by Precision at its sole discretion.

 

Extensions; Waivers and Amendments; Termination

 

Subject to applicable law, including, without limitation, the obligations set forth under Exchange Act Rule 14e-1(d), Precision reserves the right to, at any time or at various times, regardless of whether any events preventing satisfaction of the conditions to the Exchange Offer, to extend the period of time during which the Exchange Offer is open. Any such extension will be consistent with the requirements of Exchange Act Rule 14e-1(d). To extend the period of time during which the Exchange Offer is open, Precision will provide oral (to be confirmed in writing) or written notice of such extension to the Exchange Agent and make a public disclosure by press release or other appropriate means of such extension to the extent required by law.

 

During any extension of the Exchange Offer, all Helomics Notes Payable and Helomics Warrants previously tendered and not accepted by Precision will remain subject to the Exchange Offer and may, subject to the terms and conditions of the Exchange Offer, be accepted by Precision, and all Helomics Notes Payable and Helomics Warrants previously tendered and accepted by Precision pursuant to the Exchange Offer will remain effective. In addition, Precision may waive conditions without extending the Exchange Offer in accordance with applicable law.

 

If any of the conditions described below under “– Conditions to the Exchange Offer” have not been satisfied with respect to the Exchange Offer, Precision reserves the right, at its sole discretion to:

 

§

subject in all respects to Exchange Act Rule 14e-1(d) and other applicable law, extend the Expiration Date and Exchange Offer;

 

§delay accepting any Helomics Notes Payable or Helomics Warrants tendered pursuant to the Exchange Offer;

 

§

subject in all respects to Exchange Act Rule 14e-1(c) and other applicable law, terminate the Exchange Offer; or

 

§otherwise amend the Exchange Offer in any respect in compliance with applicable securities laws and stock exchange rules.

 

If Precision does not accept any Helomics Notes Payable tendered in the Exchange Offer for any reason described in the terms and conditions of the Exchange Offer or if any Helomics Notes Payable tendered are withdrawn pursuant to the terms of the Exchange Offer, Precision will return such Helomics Notes Payable without expense to the holder.

 

If Precision does not accept any Helomics Warrants tendered in the Exchange Offer for any reason described in the terms and conditions of the Exchange Offer or if any Helomics Warrants tendered are withdrawn pursuant to the terms of the Exchange Offer, Precision will return such Helomics Warrants without expense to the holder.

 

Announcements

 

If the conditions to the Exchange Offer are satisfied, or if Precision waives all of the conditions that have not been satisfied, Precision will accept, on the Expiration Date and after it receives completed and duly executed Letters of Transmittal with respect to any and all of the Helomics Notes Payable and/or Helomics Warrants tendered at such time, the tendered Helomics Notes Payable and/or Helomics Warrants, as applicable, by notifying the Exchange Agent of Precision’s acceptance. The notice may be oral if Precision promptly confirms it in writing.

 

Acceptance of Tendered Helomics Notes Payable and/or Helomics Warrants to the Exchange Offer

 

If the conditions to the Exchange Offer are satisfied, or if Precision waives all of the conditions that have not been satisfied, Precision will accept, on the Expiration Date and after it receives completed and duly executed Letters of Transmittal with respect to any and all of the Helomics Notes Payable and/or Helomics Warrants tendered at such time, the tendered Helomics Notes Payable and/or Helomics Warrants, as applicable, by notifying the Exchange Agent of its acceptance. The notice may be oral if Precision promptly confirms it in writing.

 

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Subject to applicable law, including, without limitation, the obligations set forth under Exchange Act Rule 14e-1(c)-(d), Precision expressly reserves the right, in its sole discretion, to delay acceptance of the Helomics Notes Payable and/or Helomics Warrants tendered pursuant to the Exchange Offer, or to terminate the Exchange Offer and not accept the Helomics Notes Payable and/or Helomics Warrants tendered pursuant to the Exchange Offer, (a) if any of the conditions to the Exchange Offer shall not have been satisfied or validly waived by Precision, or (b) in order to comply in whole or in part with any applicable law. Any delay in such acceptance will only be effected through an extension of the Exchange Offer consistent with the requirements of Exchange Act Rule 14e-1(d) as described below.

 

In all cases, the Common Stock of Precision and/or Precision Warrants, as applicable, will be issued only after timely receipt by the Exchange Agent of (a) the properly completed and duly executed Letter of Transmittal (or a facsimile thereof), and (b) any other documents required by the Letter of Transmittal, including, without limitation, the Helomics Notes Payable and/or Helomics Warrants.

 

For purposes of the Exchange Offer, Precision will have accepted the Helomics Notes Payable and Helomics Warrants tendered pursuant to the Exchange Offer, if, as and when it gives oral or written notice to the Exchange Agent of its acceptance of such Helomics Notes Payable and Helomics Warrants pursuant to the Exchange Offer. In all cases, the issuance of the Common Stock of Precision and Precision Warrants will be made by the deposit of such consideration with the Exchange Agent, which will act as your agent for the purposes of receiving such consideration from Precision and delivering such consideration to you.

 

If, for any reason whatsoever, acceptance of any Helomics Notes Payable or Helomics Warrants tendered or the issuance of the Common Stock of Precision of Precision Warrants is delayed or Precision extends the Exchange Offer or is unable to accept the tender of the Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer, then, without prejudice to Precision’s rights set forth herein, Precision may instruct the Exchange Agent to retain the Helomics Notes Payable and/or Helomics Warrants tendered and such tender may not be withdrawn, subject to the limited circumstances described in “— Withdrawal of Tender and Participation in this Exchange Offer” below.

 

In the event of any extension of the period of time during which the Exchange Offer is open, such extension will be consistent with the requirements of Exchange Act Rule 14e-1(d). To extend the period of time during which the Exchange Offer is open, Precision will provide oral (to be confirmed in writing) or written notice of such extension to the Exchange Agent and make a public disclosure by press release or other appropriate means of such extension to the extent required by law. 

 

Precision will have the right, which may be waived, to reject the defective tender of Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer as invalid and ineffective. If Precision waives its rights to reject a defective tender, subject to the other terms and conditions set forth in the Exchange Offer and Letter of Transmittal, you will be entitled to Common Stock of Precision and/or Precision Warrants, as applicable.

 

Precision will pay or cause to be paid all transfer taxes with respect to the tender of the Helomics Notes Payable and Helomics Warrants to the Exchange Offer unless the boxes titled “Special Issuance Instructions – Precision Warrants,” “Special Delivery Instructions – Common Stock,” or “Special Delivery Instructions – Precision Warrants” in the Letter of Transmittal has been completed, as described in the instructions included therewith.

 

Procedures for Participating in the Exchange Offer

 

General

 

In order to participate in the Exchange Offer, you must tender your Helomics Notes Payable and/or Helomics Warrants as described below. It is your responsibility to tender your Helomics Notes Payable and/or Helomics Warrants. Precision has the right in its sole and absolute discretion to waive any defects. However, Precision is not required to waive defects and is not required to notify you of defects in your tender.

 

If you have any questions or need help in tendering your Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer, please contact the Exchange Agent, whose address and telephone number is listed below under “— Depositary and the Exchange Agent.”

 

The method of tendering the Helomics Notes Payable and/or Helomics Warrants and delivering the Letters of Transmittal and other required documents is at your election and risk. If delivery is by mail, Precision recommends that registered mail, properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to assure timely delivery. No Helomics Notes Payable and/or Helomics Warrants, Letters of Transmittal or other required documents should be sent to Precision or Helomics.

 

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Proper Participation in the Exchange

 

In all cases, the issuance of the Common Stock of Precision and/or Precision Warrants pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of:

 

§Letter of Transmittal properly completed and duly executed; and

 

§Any required signature guarantees and other documents required by the Letter of Transmittal.

 

Procedures for Tendering Helomics Notes Payable and/or Helomics Warrants Held Through a Custodian

 

If you are a beneficial owner of Helomics Notes Payable and/or Helomics Warrants, but the holder of such Helomics Notes Payable and/or Helomics Warrants, as applicable, is a custodial entity such as a bank, broker, dealer, trust company or other nominee, and you seek to tender your Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer, you must provide appropriate instructions to such holder of the Helomics Notes Payable and/or Helomics Warrants, as applicable, your Helomics Notes Payable and/or Helomics Warrants. Beneficial owners may be instructed to complete and deliver an instruction letter to such holder of Helomics Notes Payable and/or Helomics Warrants for this purpose. Precision urges you to promptly contact such person that holds Helomics Notes Payable and/or Helomics Warrants for you if you wish to tender your Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer.

 

Signature Guarantees

 

Signatures on all Letters of Transmittal must be guaranteed by a recognized participant in the Securities Transfer Agents Medallion Program (a “Medallion Signature Guarantor”), unless the Letter of Transmittal is delivered, and any tendered Helomics Notes Payable and/or Helomics Warrants thereby are delivered (i) by a registered holder of Helomics Notes Payable and/or Helomics Warrants, as applicable, who has not completed a box entitled “Special Issuance Instructions – Precision Warrants,” “Special Delivery Instructions – Common Stock” or “Special Delivery Instructions – Precision Warrants” on the Letter of Transmittal or (ii) for the account of a member firm of a registered national securities exchange, a member of the Financial Industry Regulatory Authority or a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an “Eligible Institution”). If the Helomics Notes Payable and/or Helomics Warrants, as applicable, are registered in the name of a person other than the signer of the Letter of Transmittal, or if Helomics Notes Payable and/or Helomics Warrants, as applicable, not accepted for exercise pursuant to the Exchange Offer are to be returned to a person other than such holder of such Helomics Notes Payable and/or Helomics Warrants, then the signatures on the Letters of Transmittal accompanying the delivery of the Helomics Notes Payable and/or Helomics Warrants must be guaranteed by a Medallion Signature Guarantor as described above.

 

Determination of Validity of Tender of Helomics Notes Payable and/or Helomics Warrants

 

All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tendered Helomics Notes Payable and/or Helomics Warrants pursuant to this Exchange Offer and any of the procedures described above, and the form and validity (including time of receipt of notices of withdrawal) of all documents will be determined by Precision in its sole and absolute discretion, which determination will be final and binding, subject to the rights of Helomics Notes Payable and/or Helomics Warrants holders to challenge such determination in a court of competent jurisdiction. Precision reserves the absolute right to reject any or all tenders of Helomics Notes Payable and/or Helomics Warrants determined by Precision not to be in proper form, or if the acceptance of or tender of Helomics Notes Payable and/or Helomics Warrants may, in the opinion of Precision’s counsel, be unlawful. Precision also reserves the right to waive any conditions to the Exchange Offer that it is legally permitted to waive.

 

Your tender of Helomics Notes Payable and/or Helomics Warrants, as applicable, to the Exchange Offer will not be deemed to have been made until all defects or irregularities in your exercise have been cured or waived. Neither Precision, nor the Exchange Agent, nor any other person or entity is under any duty to give notification of any defects or irregularities in any exercise or withdrawal of any exercise pursuant to the Exchange Offer, or will incur any liability for failure to give any such notification.

 

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Please do not send Letters of Transmittal to Precision or Helomics. You should send Letters of Transmittal only to the Exchange Agent, at its office as indicated under Depositary and Exchange Agent” below and in the Letter of Transmittal. The Exchange Agent can answer your questions regarding how to tender your Helomics Notes Payable and/or Helomics Warrants.

 

Withdrawal of Tender and Participation in this Exchange Offer

 

You right to withdraw the tender of any Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer will expire at midnight, Eastern Time, on the Expiration Date.

 

To be effective, a written or facsimile notice of withdrawal of a tender of Helomics Notes Payable and/or Helomics Warrants, as applicable, must:

 

§be received by the Exchange Agent at the following address prior to midnight, Eastern Time, on the Expiration Date;

 

Corporate Stock Transfer, Inc.

3200 Cherry Creek Drive South, #430

Denver, Colorado 80209

Facsimile: 303-282-5800

Phone: 303-282-4800

Toll Free: 877-309-2764

 

§specify the name of the holder of the Helomics Notes Payable and/or Helomics Warrants to be withdrawn;

 

§contain the description of the Helomics Notes Payable and/or Helomics Warrants to be withdrawn; and

 

§be signed by the holder of the Helomics Notes Payable and/or Helomics Warrants in the same manner as the original signature on the Letter of Transmittal or be accompanied by the documents of transfer sufficient to have the trustee register the transfer of the Helomics Notes Payable and/or Helomics Warrants into the name of the person withdrawing the tender of such Helomics Notes Payable and/or Helomics Warrants.

 

If the tendered Helomics Notes Payable and/or Helomics Warrants to be withdrawn have been delivered or otherwise identified to the Exchange Agent, a signed notice of withdrawal is effective immediately upon receipt by the Exchange Agent of written or facsimile transmission of the notice of withdrawal or revocation even if physical release is not yet effected. A withdrawal of tendered Helomics Notes Payable and/or Helomics Warrants can only be accomplished in accordance with the foregoing procedures.

 

If you withdraw tendered Helomics Notes Payable and/or Helomics Warrants, you will have the right to re-tender such Helomics Notes Payable and/or Helomics Warrants on or prior to the Expiration Date in accordance with the procedures described above for tendering Helomics Notes Payable and/or Helomics Warrants. If Precision amends or modifies the terms of the Exchange Offer, or the information concerning the Exchange Offer, in a manner determined by Precision to constitute a material change to the holders of the Helomics Notes Payable and/or Helomics Warrants, Precision will disseminate additional Exchange Offer materials and extend the period of the Exchange Offer, including any withdrawal rights, to the extent required by law and as it determines necessary. An extension of the Expiration Date will not affect the withdrawal rights of a holder of Helomics Notes Payable and/or Helomics Warrants.

 

Return of Helomics Notes Payable and/or Helomics Warrants

 

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If Precision does not accept any Helomics Notes Payable and/or Helomics Warrants in the Exchange Offer for any reason described in the terms and conditions of the Exchange Offer or if the Helomics Notes Payable and/or Helomics Warrants so tendered are withdrawn pursuant to the terms of the Exchange Offer, Precision will return such Helomics Notes Payable and Helomics Warrants without expense to the holder promptly as practicable after the expiration or termination of the Exchange Offer or the failure to meet any of the conditions to the Exchange Offer, including, without limitation, the consummation of the Merger.

 

Your Representations to Precision

 

By signing or agreeing to be bound by the Letter of Transmittal and other required documents, you will represent to Precision that, among other things:

 

§you own all right, title and interest in and to the Helomics Notes Payable and Helomics Warrants tendered;

 

§you have no arrangement or understanding with any person to participate in the distribution of the Common Stock of Precision and Precision Warrants;

 

§you agree to be bound by the transfer restrictions detailed in the Letter of Transmittal including the restrictions set forth below under “resales”;

 

§if you are not a broker-dealer, you are not engaged in and do not intend to be engaged in the distribution of the Common Stock of Precision and Precision Warrants; and

 

§if you are a broker-dealer, that you will receive the Common Stock of Precision and/or Precision Warrants for your own account in exchange for Helomics Notes Payable and/or Helomics Warrants that were required as a result of market-making activities or other trading activities and that you will deliver a prospectus in connection with any resale of the Common Stock of Precision and/or Precision Warrants.

 

Interests of Certain Persons in the Exchange Offer

 

The Helomics Notes and Warrants are owned by customers of Dawson James Securities, a securities broker-dealer with which Robert D. Keyser, Jr., R. Douglas Armstrong and Richard Aulicino are associated. Messrs. Keyser, Armstrong and Aulicino are members of the Board of Directors of Helomics.

 

Resales

 

Each broker-dealer that receives Common Stock of Precision and/or Precision Warrants for its own account in exchange for the tender of Helomics Notes Payable and/or Helomics Warrants, where such Helomics Notes Payable and/or Helomics Warrants were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the components of the Helomics Notes Payable and/or Helomics Warrants.

 

As a condition to receiving Common Stock of Precision and/or Precision Warrants, each recipient will agree to (a) not sell or otherwise transfer any shares of Common Stock of Precision received in connection with the exchange of such recipient’s Helomics Notes Payable for 90 days after the Effective Time and, (b) with respect to any holders (or groups of affiliated holders) who receive at least 200,000 shares of Common Stock of Precision in connection with the exchange of such recipient’s Helomics Notes Payable, not to sell in any three-month period shares representing more than one percent (1%) of the outstanding Common Stock of Precision; provided, that such restrictions provided in (a) and (b) will lapse one year after the Effective Time.

 

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Conditions to the Exchange Offer

 

Notwithstanding any other provisions of this Exchange Offer, Precision will not be required to accept the tendered Helomics Notes Payable and/or Helomics Warrants pursuant to the Exchange Offer or to issue Common Stock of Precision and/or Precision Warrants pursuant to the Exchange Offer, and, in the reasonable judgment of Precision, may terminate, amend or extend the Exchange Offer or delay issuing Common Stock of Precision and/or Precision Warrants, if any of the following shall occur or exist or have not been satisfied, or have not been waived by Precision, prior to the Expiration Date:

 

§The Merger shall have occurred;

 

§

No action or event shall have occurred, no action shall have been taken, and no statute, rule, regulation, judgment, order, stay, decree or injunction shall have been promulgated, enacted, entered or enforced applicable to the Exchange Offer or the exchange of Helomics Notes Payable for Common Stock of Precision and/or Helomics Warrants for Precision Warrants under the Exchange Offer by or before any court or governmental regulatory authority or administrative agency, authority or tribunal of competent jurisdiction, including, without limitation, taxing authorities, that, in Precision’s reasonable discretion, challenges the making of the Exchange Offer or the exchange of Helomics Notes Payable for Common Stock of Precision and/or Helomics Warrants for Precision Warrants under the Exchange Offer or would, in Precision’s reasonable discretion, be expected to, directly or indirectly, prohibit, prevent, restrict or delay consummation of, or, in Precision’s reasonable discretion, would be expected to otherwise adversely affect in any material manner, the Exchange Offer or the exchange of Helomics Notes Payable for Common Stock of Precision and/or Helomics Warrants for Precision Warrants under the Exchange Offer;

 

§There shall not have occurred:

 

§any general suspension of or limitation on trading in securities on The NASDAQ Capital Market, whether or not mandatory;

 

§a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States, whether or not mandatory;

 

§a commencement of a war, armed hostilities, a terrorist act or other national or international calamity directly or indirectly relating to the United States; or

 

§in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof; and

 

§The SEC shall have declared Precision’s registration statement on Form S-4, of which this proxy statement/prospectus/information statement forms a part, effective, and such registration statement shall not be subject to a stop order, and no proceedings for that purpose shall have been instituted or be pending or, to Precision’s knowledge, be contemplated or threatened by the SEC.

 

These conditions are for Precision’s benefit and may be asserted by Precision or may be waived by Precision by Precision giving rise to any condition, in whole or in part, at any time and from time to time at or prior to the Expiration Date, in Precision’s reasonable discretion. Precision may additionally terminate the Exchange Offer if any condition is not satisfied on or prior to the Expiration Date. If any of these events occur, subject to the terminatio