S-4/A 1 forms-4a.htm

 

As filed with the Securities and Exchange Commission on April 6, 2020

 

Registration No. 333-236235

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

AMENDMENT NO. 3 TO

FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

 

RITTER PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834   26-3474527
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 

1880 Century Park East, Suite 1000

Los Angeles, CA 90067

(310) 203-1000
(Address including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

Andrew J. Ritter

Chief Executive Officer

Ritter Pharmaceuticals, Inc.

1880 Century Park East, Suite 1000

Los Angeles, CA 90067

(310) 203-1000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Michael Sanders

Jennifer W. Cheng

Wendy Grasso

Reed Smith LLP

1901 Avenue of the Stars, Suite 700

Los Angeles, California 90067-6078

(310) 734-5200

 

Michael Poirier

Qualigen, Inc.

2042 Corte Del Nogal

Carlsbad, CA 92011

(760) 918-9165

 

Hayden Trubitt

Stradling Yocca Carlson & Rauth, a Professional Corporation

4365 Executive Drive, Suite 1500

San Diego, CA 92121

(858) 926-3000

 

 

 

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, as amended, as 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, please 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.

 

Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [X] Smaller reporting company [X]
      Emerging growth company [X]

 

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 13(e)-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 Security Being Registered  Amount to be Registered(1)   Proposed Maximum Offering Price Per Share   Proposed Maximum Aggregate Offering Price(5)   Amount of Registration
Fee(6)
 
Common stock, $0.001 par value per share    342,839,379 (2)    N/A   $ 114,280    $ 15  
Series Alpha convertible preferred stock, $0.001 par value per share   5,360(3)   N/A   $ 60,404    $ 8  

Common stock issuable upon conversion of the Series Alpha convertible preferred stock(4)

    181,210,031                       — 
Total:            $ 174,684    $ 23 (7)

 

(1)

Pursuant to Rule 416 under the Securities Act of 1933, as amended, the shares being registered hereunder include such indeterminate number of shares of common stock and preferred stock as may be issuable with respect to the shares being registered hereunder as a result of stock splits, reverse stock splits, stock dividends or similar transactions.

   
(2)

Represents the maximum number of shares of common stock, $0.001 par value per share (“Ritter common stock”), of Ritter Pharmaceuticals Inc., a Delaware corporation (“Ritter”), estimated to be issued in connection with the proposed merger (the “merger”) of RPG28 Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Ritter, with and into Qualigen, Inc., a Delaware corporation (“Qualigen”), including (i) 267,181,316 shares to holders of common stock, $0.01 par value per share (“Qualigen common stock”) of Qualigen, and (ii) 75,658,063 shares to holders of outstanding warrants of Qualigen, which are to be assumed by Ritter in the merger (on an adjusted basis), upon exercise of such warrants. The amount of Ritter common stock to be registered is based on the estimated maximum number of shares of Ritter common stock that are expected to be issued in connection with the merger, using an exchange ratio of approximately 7.38 shares of Ritter common stock for each share of Qualigen common stock on a pro-forma basis (without adjusting for the proposed reverse stock split), without giving effect to a reverse stock split of Ritter common stock expected to be completed immediately prior to the merger.

   
(3) Represents the maximum number of shares of Series Alpha convertible preferred stock, $0.001 par value per share (“Ritter Series Alpha preferred stock”), of Ritter, issuable to the holder of Series Alpha convertible preferred stock (“Qualigen Series Alpha preferred stock”) of Qualigen, in the merger. The amount of Ritter Series Alpha preferred stock to be registered is based on the estimated maximum number of shares of Ritter Series Alpha preferred stock that are expected to be issued pursuant to the merger, using an exchange ratio of one share of Ritter Series Alpha preferred stock for each share of Qualigen Series Alpha preferred stock.
   
(4)

No additional registration fee is payable pursuant to Rule 457(i) under the Securities Act of 1933, as amended.

   
(5) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f)(2) of the Securities Act of 1933, as amended. Qualigen is a private company, no market exists for its securities, and Qualigen has an accumulated capital deficit. Therefore, the proposed maximum aggregate offering price is one-third of the aggregate par value of the Qualigen securities expected to be exchanged in the proposed merger.

 

(6) This fee has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended, and has been rounded up to the nearest $1.00.
   
(7)

Previously paid.

 

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

   
   

 

The information in this joint proxy and consent solicitation statement/prospectus is not complete and may be changed. Ritter may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This joint proxy and consent solicitation statement/prospectus 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 April 6, 2020

 

 

PROPOSED MERGER
YOUR VOTE IS VERY IMPORTANT

 

To the Stockholders of Ritter Pharmaceuticals, Inc. and Qualigen, Inc.:

 

Ritter Pharmaceuticals, Inc. (“Ritter”) and Qualigen, Inc. (“Qualigen”) have entered into an Agreement and Plan of Merger, dated January 15, 2020, as amended (the “Merger Agreement”), pursuant to which a wholly-owned subsidiary of Ritter (the “Merger Sub”) will merge with and into Qualigen, with Qualigen surviving as a wholly-owned subsidiary of Ritter (the “merger”).

 

At the effective time of the merger (the “Effective Time”), each share of common stock of Qualigen, $0.01 par value per share (“Qualigen common stock”), will be converted into the right to receive approximately 7.38 shares of Ritter common stock, $0.001 par value per share (“Ritter common stock”), as adjusted to take into account the proposed reverse stock split of Ritter common stock (the “Reverse Stock Split”) to be implemented prior to the consummation of the merger (the “Exchange Ratio”) as discussed in this joint proxy and consent solicitation statement/prospectus. The pre-Reverse Stock Split exchange ratio is an estimate only as of the date hereof and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in the section entitled “The Merger—Merger Consideration and Exchange Ratio” beginning on page 106 of this joint proxy and consent solicitation statement/prospectus. At or prior to the Effective Time, (i) each share of preferred stock, $0.01 par value per share, of Qualigen (“Qualigen preferred stock”), other than the new series of Qualigen Series Alpha convertible preferred stock (“Qualigen Series Alpha preferred stock”) that will be issued to the investor (the “Investor”) in or in connection with the Pre-Closing Qualigen Financing (as described herein), will be converted into shares of Qualigen common stock in accordance with the applicable provisions of Qualigen’s certificate of incorporation and thereafter in the merger each such share of Qualigen common stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio, (ii) each share of Qualigen Series Alpha preferred stock issued to the Investor will be converted into the right to receive a share of corresponding Ritter Series Alpha convertible preferred stock (the “Ritter Series Alpha preferred stock”), and (iii) all of Qualigen’s outstanding convertible notes and debentures will convert into the applicable number of shares of Qualigen’s capital stock and thereafter in the merger all such shares of Qualigen capital stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio or (as the case may be) into Ritter Series Alpha preferred stock. At the Effective Time, each warrant to purchase shares of Qualigen’s common stock outstanding and unexercised will be assumed by Ritter in accordance with its terms and converted into a warrant to purchase Ritter common stock, with the number of shares and exercise price being appropriately adjusted by the Exchange Ratio. At the Effective Time, Ritter’s stockholders will continue to own and hold their existing shares of Ritter capital stock subject to the Reverse Stock Split of Ritter common stock to be implemented prior to the consummation of the merger, and the unexercised warrants to purchase shares of Ritter common stock outstanding immediately prior to the Effective Time will remain in effect pursuant to their terms (except as otherwise described herein). Each existing unexpired and unexercised option to purchase Ritter common stock, whether vested or unvested, will remain outstanding after the Effective Time and be exercisable in accordance with its terms, except as described herein and unless otherwise determined by the administrator of the relevant Ritter stock plan in accordance with the terms thereof. 

 

Immediately following the consummation of the merger, the pre-merger Ritter securityholders are expected to own approximately 7.5% of the combined company, on a fully diluted basis, and the pre-merger Qualigen securityholders are expected to own approximately 92.5% of the combined company, on a fully diluted basis (which will include the shares reserved for issuance under the new Ritter 2020 Stock Incentive Plan (as described in this joint proxy and consent solicitation statement/prospectus)), assuming that Qualigen raises the minimum required amount in the Pre-Closing Qualigen Financing.

 

Shares of Ritter common stock are currently listed on the Nasdaq Capital Market under the symbol “RTTR.” Ritter will file an initial listing application for the combined company with the Nasdaq Capital Market. After completion of the merger, Ritter will be renamed “Qualigen Therapeutics, Inc.” and expects to trade under the symbol “QLGN”. On             , 2020, the last trading day before the date of the accompanying joint proxy and consent solicitation statement/prospectus, the closing sale price of Ritter common stock was $            per share.

 

   
   

 

Ritter is holding a virtual special meeting (the “Ritter special meeting”) of the Ritter common stock holders (the “Ritter Stockholders”) in order to obtain the stockholder approvals necessary to complete the merger and related matters. The Ritter special meeting will be held virtually on May 14, 2020 at 9:00 a.m. Pacific time unless postponed or adjourned to a later date. At the Ritter special meeting, Ritter will ask its stockholders, to among other things:

 

  1. Approve the issuance of Ritter common stock to Qualigen Stockholders and Ritter’s Series Alpha preferred stock to the Investor pursuant to the Merger Agreement, a copy of which is attached as Annex A, Annex B and Annex C to this joint proxy and consent solicitation statement/prospectus, and to approve the change of control of Ritter resulting from the merger (pursuant to applicable Nasdaq rules).
     
  2. Approve an amendment to Ritter’s certificate of incorporation, as amended (the “Ritter Certificate of Incorporation”), to effect a reverse stock split of the outstanding shares of Ritter common stock, at a ratio within a range of 1-for-25 to 1-for-35, as determined by Ritter’s board of directors (the “Ritter Board”) in the form attached as Annex E to this joint proxy and consent solicitation statement/prospectus.
     
  3. Approve the amendment to the Ritter Certificate of Incorporation to effect the change of the name of “Ritter Pharmaceuticals, Inc.” to “Qualigen Therapeutics, Inc.”, in the form attached as Annex F to this joint proxy and consent solicitation statement/prospectus.
     
  4.

Approve the adoption of a new Ritter 2020 Stock Incentive Plan, in the form attached as Annex G to this joint proxy and consent solicitation statement/prospectus.

     
  5.

Consider and vote upon an adjournment of the Ritter special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

     
  6. Transact such other business as may properly come before the Ritter special meeting or any adjournment or postponement thereof.

 

The approval and adoption of the Merger Agreement, the merger and the other transactions and actions contemplated by the Merger Agreement by the requisite Qualigen stockholders is required to complete the merger.

 

In addition, Qualigen stockholders are being asked to approve and adopt an amendment to Qualigen’s certificate of incorporation (the “Qualigen COI Amendment”) to amend Article IV of the Qualigen certificate of incorporation to (i) increase the authorized number of shares of Qualigen common stock from 40,000,000 shares to 75,000,000 shares, (ii) increase the authorized number of shares of Qualigen preferred stock from 20,000,000 to 20,007,000 shares, (iii) provide that all weighted-average or ratchet anti-dilution provisions of each series of Qualigen preferred stock that have been triggered by any agreement, issuance or deemed issuance in 2018, 2019 or 2020 or that may be triggered in connection with the merger are, to such extent, deemed, conclusively and ab initio, to have been fully and duly waived, (iv) provide that immediately prior to the Effective Time, as contemplated by the Merger Agreement, all outstanding shares of each series of Qualigen preferred stock (other than outstanding shares of the Qualigen Series Alpha preferred stock) will be automatically and mandatorily converted into Qualigen common stock at the then-effective conversion rate for the applicable series, and (v) provide that all necessary consents and waivers with regard to all protective provisions of each series of Qualigen preferred stock that would otherwise be inconsistent with the Qualigen COI Amendment or with the merger or with any act done or omitted to be done in 2018, 2019 or 2020 (or to be done or omitted to be done hereafter) with an eye to the merger (or with an eye to such a merger) are, to such extent, deemed, conclusively and ab initio, to have been duly given.

 

Qualigen is sending the accompanying joint proxy and consent solicitation statement/prospectus to its stockholders to request that they consider and consent to the proposals to approve and adopt the Merger Agreement, the merger and the Qualigen COI Amendment, by executing and returning the written consent furnished with the accompanying joint proxy and consent solicitation statement/prospectus.

 

In addition, Qualigen is sending to each Qualigen stockholder a proposed Lock-Up Agreement with respect to Ritter securities. The Lock-Up Agreement would prevent the holder from selling (or writing call options against) any Ritter shares received in the merger (or any other Ritter common shares or equity securities) until 180 days after the merger. It is a condition to Ritter’s closing obligation under the Merger Agreement that a majority in interest of all Qualigen stockholders sign and return individual Lock-Up Agreements. Accordingly, Qualigen asks that each Qualigen stockholder also sign and return the Lock-Up Agreement.

 

   
   

 

After careful consideration, the Ritter Board has approved the Merger Agreement and the respective proposals described in this joint proxy and consent solicitation statement/prospectus and determined that the merger and all related transactions contemplated by the Merger Agreement are advisable and in the best interests of Ritter and the Ritter Stockholders. The Ritter Board recommends the Ritter Stockholders vote “FOR” each of the proposals described in this joint proxy and consent solicitation statement/prospectus.

 

After careful consideration, Qualigen’s board of directors (the “Qualigen Board”) has (i) determined that the merger and the other transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of the Qualigen stockholders, (ii) authorized, approved and declared advisable the Merger Agreement, the merger, the other transactions contemplated by the Merger Agreement and the agreements, certificates and instruments presented to the Qualigen Board related to the Merger Agreement and the merger, (iii) approved the Qualigen COI Amendment, (iv) recommended that the Qualigen stockholders vote to approve and adopt the Merger Agreement, the merger and the other matters and transactions contemplated by the Merger Agreement, and approve and adopt the Qualigen COI Amendment and (v) agreed to submit the Merger Agreement, all other matters contemplated by the Merger Agreement and the Qualigen COI Amendment to the Qualigen stockholders for their consideration by written consent in lieu of a special meeting.

 

Your vote on or consent to these matters is very important, regardless of the number of shares you own. We ask Qualigen stockholders to please complete the enclosed written consent and sign the Lock-Up Agreement as soon as possible and return them promptly to Qualigen (for delivery on to Ritter, in the case of the Lock-Up Agreement) by one of the means described in the accompanying joint proxy and consent solicitation statement/prospectus. Whether or not Ritter Stockholders plan to attend the Ritter special meeting online, we ask Ritter Stockholders to please submit a proxy to have their shares voted in advance of the Ritter special meeting by using one of the proxy voting methods described in the accompanying joint proxy and consent solicitation/prospectus.

 

More information about Ritter, Qualigen and the merger is contained in the accompanying joint proxy and consent solicitation statement/prospectus. Ritter and Qualigen urge you to read this joint proxy and consent solicitation statement/prospectus carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 29.

 

Ritter and Qualigen are excited about the opportunities the merger brings to both Ritter’s and Qualigen’s stockholders, and thank you for your consideration and continued support.

 

Andrew J. Ritter Michael S. Poirier
President & Chief Executive Officer President & Chief Executive Officer
Ritter Pharmaceuticals, Inc. Qualigen, Inc.

 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this joint proxy and consent solicitation statement/prospectus. Any representation to the contrary is a criminal offense.

 

The accompanying joint proxy and consent solicitation statement/prospectus is dated           , 2020, and is first being mailed to Ritter’s and Qualigen’s stockholders on or about         , 2020.

 

   
   

 

 

RITTER PHARMACEUTICALS, INC.
1880 CENTURY PARK EAST, SUITE 1000

LOS ANGELES, CA 90067
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 2020

 

Dear Stockholders of Ritter:

 

On behalf of the board of directors (the “Ritter Board”) of Ritter Pharmaceuticals, Inc., a Delaware corporation (“Ritter”), we are pleased to deliver this joint proxy and consent solicitation statement/prospectus for a special meeting of the stockholders of Ritter (the “Ritter special meeting”) and for the proposed merger (the “merger”) between Ritter and Qualigen, Inc., a Delaware corporation (“Qualigen”), pursuant to which RPG28 Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Ritter, will merge with and into Qualigen, with Qualigen surviving as a wholly-owned subsidiary of Ritter. The Ritter special meeting will be held virtually at 9:00 a.m. Pacific time on May 14, 2020. You can attend the Ritter special meeting via the internet, vote your shares electronically and submit your questions during the Ritter special meeting by visiting www.virtualshareholdermeeting.com/RTTR2020 (there is no physical location for the Ritter special meeting).

 

At the Ritter special meeting, Ritter will ask its stockholders, to among other things:

 

  1. Approve the issuance of Ritter’s common stock, par value $0.001 per share (“Ritter common stock”) to the stockholders of Qualigen and Ritter’s Series Alpha convertible preferred stock (the “Ritter Series Alpha preferred stock”) to the investor (the “Investor”) in the Pre-Closing Qualigen Financing (as described in this joint proxy and consent solicitation statement/prospectus) pursuant to the terms of the Agreement and Plan of Merger, dated January 15, 2020, as amended (the “Merger Agreement”), a copy of which is attached as Annex A, Annex B and Annex C to this joint proxy and consent solicitation statement/prospectus, and to approve the change of control of Ritter resulting from the merger (pursuant to applicable Nasdaq rules).
     
  2. Approve an amendment to Ritter’s certificate of incorporation, as amended (the “Ritter Certificate of Incorporation”) to effect a reverse stock split of the outstanding shares of Ritter common stock, at a ratio within a range of 1-for-25 to 1-for-35, as determined by the Ritter Board, in the form attached as Annex E to this joint proxy and consent solicitation statement/prospectus.
     
  3. Approve the amendment to the Ritter Certificate of Incorporation to effect the change of the name of “Ritter Pharmaceuticals, Inc.” to “Qualigen Therapeutics, Inc.”, in the form attached as Annex F to this joint proxy and consent solicitation statement/prospectus.
     
  4.

Approve the adoption of a new Ritter 2020 Stock Incentive Plan, in the form attached as Annex G to this joint proxy and consent solicitation statement/prospectus.

     
  5.

Consider and vote upon an adjournment of the Ritter special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

     
  6. Transact such other business as may properly come before the Ritter special meeting or any adjournment or postponement thereof.

 

The Ritter Board has fixed March 26, 2020, as the record date for the determination of stockholders entitled to notice of, and to vote at, the Ritter special meeting and any adjournment or postponement thereof (the “Record Date”). Only holders of record of shares of Ritter common stock at the close of business on the Record Date are entitled to notice of, and to vote at, the Ritter special meeting. At the close of business on the Record Date, Ritter had 45,713,862 shares of common stock outstanding and entitled to vote.

 

   
   

 

The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Ritter common stock entitled to vote at the Ritter special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. Approval of Proposal Nos. 1, 4 and 5 requires the affirmative vote of a majority of the votes cast by the shares of Ritter common stock present in person or represented by proxy at the Ritter special meeting. Approval of Proposal Nos. 2 and 3 requires the affirmative vote of the holders of a majority of the shares of Ritter common stock outstanding on the Record Date for the Ritter special meeting.

 

Votes will be counted by the inspector of election appointed for the Ritter special meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total and will have the same effect as “AGAINST” votes for Proposal Nos. 2 and 3, but will have no effect on Proposal Nos. 1, 4 and 5. Broker non-votes will have the same effect as “AGAINST” votes for Proposal No. 2, but will have no effect on Proposal Nos. 1, 3, 4 and 5.

 

Each of Proposal Nos. 1, 2, 3 and 4 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3 and 4.

 

Even if you plan to attend the Ritter special meeting online, Ritter requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Ritter special meeting if you are unable to attend.

 

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

 

By Order of the Ritter Board,

 

Andrew J. Ritter

President and Chief Executive Officer

Los Angeles, California

 

                 , 2020

 

 
 

 

ABOUT THIS JOINT PROXY AND CONSENT SOLICITATION STATEMENT/PROSPECTUS

 

This joint proxy and consent solicitation statement/prospectus, which forms part of a registration statement on Form S-4 filed by Ritter with the U.S. Securities and Exchange Commission, which we refer to as the SEC, constitutes a prospectus of Ritter under Section 5 of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the shares of Ritter common stock to be issued in connection with the transactions contemplated by the Merger Agreement. This joint proxy and consent solicitation statement/prospectus also constitutes a joint proxy statement for Ritter and a consent solicitation statement for Qualigen under Section 14(a) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. In addition, this joint proxy and consent solicitation statement/prospectus constitutes a notice of meeting with respect to the special meeting of Ritter stockholders.

 

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy and consent solicitation statement/prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This joint proxy and consent solicitation statement/prospectus is dated                , 2020. You should not assume that the information contained in this joint proxy and consent solicitation statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference herein is accurate as of any date other than the date of such information. Neither the mailing of this joint proxy and consent solicitation statement/prospectus to Ritter stockholders or Qualigen stockholders nor the issuance by Ritter of shares of Ritter common stock and Ritter Series Alpha preferred stock in connection with the merger will create any implication to the contrary.

 

Except where specifically noted, the information contained in this joint proxy and consent solicitation statement/prospectus does not give effect to the proposed Reverse Stock Split at a ratio of 1-for-25 to 1-for-35, as determined by the Ritter Board and described in Ritter’s Proposal No. 2 in this joint proxy and consent solicitation statement/prospectus. If the merger and the Reverse Stock Split are approved, the Reverse Stock Split will be effected immediately prior to the closing of the merger.

 

   
   

 

TABLE OF CONTENTS  
   
  Page
   
QUESTIONS AND ANSWERS ABOUT THE MERGER 5
   
PROSPECTUS SUMMARY 16
   
The Companies 16
   
The Merger 16
   
Reasons for the Merger 17
   
Material U.S. Federal Income Tax Consequences of the Merger 18
   
Material U.S. Federal Income Tax Consequences of Receipt of CVRs and the Reverse Stock Split 18
   
Overview of the Merger Agreement 18
   
CVR Agreement 20
   
Nasdaq Stock Market Listing 20
   
Lock-up Agreements 21
   
Management Following the Merger 21
   
Interests of Certain Directors and Officers of Ritter and Qualigen 21
   
Risk Factors 22
   
Regulatory Approvals 23
   
Anticipated Accounting Treatment 23
   
Appraisal Rights 23
   
Comparison of Stockholder Rights 23
   
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND DATA 24
   
MARKET PRICE AND DIVIDEND INFORMATION 28
   
RISK FACTORS 29
   
Risks Related to the Merger 29
   
Risks Related to the Proposed Reverse Stock Split 33
   
Risks Related to Ritter 34
   
Risks Related to Qualigen 54
   
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS 88
   
THE SPECIAL MEETING OF RITTER STOCKHOLDERS 90
   
Date, Time and Place 90
   
Purposes of the Ritter Special Meeting 90
   
Recommendation of the Ritter Board 90
   
Record Date and Voting Power 91
   
Voting and Revocation of Proxies 91
   
Required Vote 92
   
Solicitation of Proxies 92
   
Other Matters 92
   
THE MERGER 93
   
Background of the Merger 93
   
Ritter Reasons for the Merger 100
   
Qualigen Reasons for the Merger 103

 

 i 
 

 

Interests of Ritter Directors and Executive Officers in the Merger 103
   
Interests of Qualigen Directors and Executive Officers in the Merger 105
   
Insurance and Indemnification 105
   
Form of the Merger 105
   
Merger Consideration and Exchange Ratio 106
   
Procedure for Exchanging Qualigen Stock Certificates 107
   
Effective Time of the Merger 108
   
Governmental and Regulatory Approvals 108
   
Tax Treatment of the Merger 108
   
Material U.S. Federal Income Tax Consequences of the Merger 108
   
Nasdaq Listing 111
   
Anticipated Accounting Treatment 111
   
Appraisal Rights 112
   
THE MERGER AGREEMENT 114
   
General 114
   
Merger Consideration 114
   
Treatment of Qualigen Preferred Stock, Options and Warrants 114
   
Treatment of Ritter Options, Warrants and RSUs 115
   
Directors and Officers of Ritter Following the Merger 115
   
Amendments to the Ritter Certificate of Incorporation 115
   
Conditions to the Completion of the Merger 116
   
Transaction Expense Set-off 119
   
Representations and Warranties 119
   
No Shop 120
   
Meetings of Ritter Stockholders; Consent of Qualigen Stockholders 122
   
Covenants; Conduct of Business Pending the Merger 122
   
Other Agreements 125
   
Termination 126
   
Termination Fee 127
   
Amendment 128
   
AGREEMENTS RELATED TO THE MERGER 129
   
Financing Commitment Letter 129
   
Contingent Value Rights Agreement 129
   
Lock-Up Agreements 134
   
MATTERS BEING SUBMITTED TO A VOTE OF RITTER STOCKHOLDERS 135
   
Proposal No. 1: Approval of the Issuance of Ritter common stock to Qualigen Stockholders and Ritter Series Alpha preferred stock to the Investor pursuant to the Merger Agreement and the Change of Control of Ritter Resulting from the merger 135
   
Proposal No. 2: Approval of an Amendment to the Ritter Certificate of Incorporation to effect the Reverse Stock Split 136
   
Proposal No. 3: Approval of Ritter Name Change 141

 

 ii 
 

 

Proposal No. 4: Approval of the Adoption of the Ritter 2020 Plan 142
   
Proposal No. 5: Approval of Possible Adjournment of the Ritter special meeting 145
   
THE SOLICITATION OF WRITTEN CONSENTS TO BE GIVEN BY QUALIGEN STOCKHOLDERS 146
   
Purpose of the Solicitation Of Written Consents 146
   
Recommendation of the Qualigen Board 146
   
Record Date and Voting Power 146
   
Voting 146
   
Required Vote 147
   
Solicitation of Written Consents 147
   
MATTERS SUBMITTED TO QUALIGEN STOCKHOLDERS FOR ACTION BY WRITTEN CONSENT 148
   
The First Qualigen Proposal: Approval and adoption of the Merger Agreement, the merger and the other transaction and actions contemplated by the Merger Agreement 148
   
The Second Qualigen Proposal: Approval and adoption of the amendment to the Qualigen certificate of incorporation 148
   
RITTER BUSINESS 151
   
Overview 151
   
The Gut Microbiome 152
   
Lactose Intolerance (LI) 152
   
Diagnosis 153
   
Health Consequences 153
   
RP-G28 153
   
Market Opportunity 155
   
Clinical and Regulatory 156
   
Manufacturing 159
   
Commercialization 160
   
Competition 160
   
Intellectual Property 160
   
Government Regulation and Product Approval 162
   
United States Government Regulation 163
   
Regulation Outside of the United States 167
   
Reimbursement 167
   
Employees 168
   
Corporate Information 168
   
Available Information 168
   
Properties 168
   
Legal Proceedings 168
   
QUALIGEN’S BUSINESS 169
   
Overview 169
   
Products and Solutions 169
   
Timeline & Milestones 171
   
Regulatory Strategy 171
   
Strategic Partners 172
   
Sales Channels 172

 

 iii 
 

 

Manufacturing 172
   
Research and Development 172
   
Competition 173
   
Intellectual Property 173
   
U.S. and Foreign Government Regulation 174
   
Employees 183
   
RITTER MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 184
   
QUALIGEN MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 194
   
MANAGEMENT FOLLOWING THE MERGER 203
   
RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED COMPANY 207
   
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 208
   
DESCRIPTION OF RITTER CAPITAL STOCK 217
   
General 217
   
Common Stock 217
   
Preferred Stock 217
   
Ritter Series Alpha Convertible Preferred Stock 217
   
Equity Incentive Plans 218
   
Warrants 218
   
Anti-Takeover Effects of Delaware Law and the Certificate of Incorporation and the Ritter Bylaws 218
   
Transfer Agent and Registrar 219
   
Stock Market Listing 219
   
COMPARISON OF RIGHTS OF HOLDERS OF RITTER STOCK AND QUALIGEN STOCK 220
   
PRINCIPAL STOCKHOLDERS OF RITTER 227
   
PRINCIPAL STOCKHOLDERS OF QUALIGEN 229
   
PRINCIPAL STOCKHOLDERS OF COMBINED COMPANY 233
   
LEGAL MATTERS 234
   
EXPERTS 235
   
OTHER MATTERS 236
   
Stockholder Proposals 236
   
Communications with the Ritter Board of Directors 236
   
Available Information 236
   
Householding of Proxy Materials 236
   
WHERE YOU CAN FIND MORE INFORMATION 237
   
index to ritter financial statements F-1
INDEX TO QUALIGEN FINANCIAL STATEMENTS F-35
annex a—agreement and plan of merger A-1
annex b—amendment NO. 1 to agreement and plan of merger B-1
ANNEX C—AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER C-1
annex D—cvr agreement D-1
annex E—certificate of amendment for reverse stock split E-1
annex F—certificate of amendment for name change F-1
ANNEX G—RITTER 2020 PLAN G-1
ANNEX H—APPRAISAL RIGHTS H-1

 

References to “Ritter” and “Qualigen” in this joint proxy and consent solicitation statement/prospectus refer to Ritter Pharmaceuticals, Inc. and Qualigen, Inc., respectively. References to the “combined company” refer to Ritter and its wholly owned subsidiary, Qualigen, after the merger. Except as otherwise noted, references to “we,” “us” or “our” refer to both Ritter and Qualigen. References to “Merger Sub” refer to RPG28 Merger Sub Inc., a newly formed, wholly-owned subsidiary of Ritter.

 

References to the “Merger Agreement” refer to that certain agreement and plan of merger dated as of January 15, 2020 by and among Ritter, Merger Sub and Qualigen, as amended from time to time. References to the “merger” refer to the merger of Merger Sub with and into Qualigen, with Qualigen surviving as the surviving entity and as a wholly owned subsidiary of Ritter as contemplated under the Merger Agreement.

 

Qualigen® and FastPack® are registered trademarks of Qualigen in the United States.

 

 iv 
 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

 

The following are answers to certain questions that you may have regarding the special meeting and the merger (as defined below). Ritter Pharmaceuticals, Inc. (“Ritter”), and Qualigen, Inc. (“Qualigen”) urge you to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote, including the risk factors beginning on page 29. Additional important information is also contained in the appendices to, and the documents incorporated by reference in, this document.

 

The following section provides answers to frequently asked questions about the merger. 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.

 

Q: What is the merger?
   
A: On January 15, 2020, Ritter, RPG28 Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Ritter (“Merger Sub”), and Qualigen entered into an Agreement and Plan of Merger, as amended (the “Merger Agreement”), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Qualigen, with Qualigen surviving as a wholly-owned subsidiary of Ritter (the “merger”).

 

Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger (the “Effective Time”):

 

  each share of Qualigen common stock, par value $0.01 per share (the “Qualigen common stock”) held as treasury stock or otherwise by Qualigen, Merger Sub or any subsidiary of Qualigen immediately prior to the Effective Time will be canceled and retired and will cease to exist, with no consideration being delivered in exchange for such cancellation;
     
  each share of Qualigen common stock outstanding immediately prior to the Effective Time (excluding any shares described above or any dissenting shares) will be converted into the right to receive shares of Ritter common stock, par value $0.001 per share (the “Ritter common stock”) equal to the exchange ratio (the “Exchange Ratio”) described below;
     
  each share of Qualigen Series Alpha preferred stock (the “Qualigen Series Alpha preferred stock”) to be issued to Alpha Capital Anstalt (the “Investor”) in or in connection with the Pre-Closing Qualigen Financing (described below) or otherwise outstanding immediately prior to the Effective Time (excluding dissenting shares) will be automatically converted into the right to receive shares of Ritter Series Alpha convertible preferred stock (the “Ritter Series Alpha preferred stock”) on a one-for-one basis;
     
  each share of Qualigen’s preferred stock, par value $0.01 per share (“Qualigen preferred stock”, and collectively with the Qualigen common stock, the “Qualigen capital stock”) (other than the Qualigen Series Alpha preferred stock) outstanding immediately prior to the Effective Time will be converted into the applicable number of shares of Qualigen common stock in accordance with the applicable provisions of Qualigen’s certificate of incorporation and thereafter in the merger all such shares of Qualigen common stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio described below;
     
  Qualigen’s convertible notes and debentures (the “Qualigen Convertible Notes”) outstanding immediately prior to the Effective Time will be converted into the applicable number of shares of Qualigen capital stock and thereafter in the merger all such shares of Qualigen capital stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio described below or (as the case may be) into Ritter Series Alpha preferred stock;
     
 

all warrants to purchase shares of Qualigen common stock (“Qualigen warrants”) outstanding immediately prior to the Effective Time will be assumed by Ritter and converted into warrants to purchase shares of Ritter common stock (“Ritter warrants”), with the number of shares and exercise price being appropriately adjusted by the Exchange Ratio; and

     
  each share of Merger Sub’s common stock issued and outstanding immediately prior to the Effective Time will be converted into and exchanged for one share of common stock of the combined company.

 

 - 5 - 
 

 

Pursuant to the terms of the Merger Agreement, prior to the Effective Time, Ritter will (i) terminate, redeem or cause to be exercised or (ii) cause the waiver or amendment or the deletion of any anti-dilution adjustment provisions and any provisions that entitle the holder thereof to receive a cash payment as a consequence of the merger in, substantially all of the Ritter warrants outstanding prior to the Effective Time that either (a) contain an anti-dilution adjustment provision or (b) are entitled to receive a cash payment as a consequence of the merger. Unless terminated, redeemed or exercised in accordance with the foregoing sentence, at the Effective Time, each Ritter warrant that is outstanding and unexercised immediately prior to the Effective Time, will survive the closing of the merger (the “Closing”) and remain outstanding in accordance with its terms.

 

Under the Exchange Ratio formula set forth in the Merger Agreement, upon the Closing, on a pro forma basis and based upon the number of shares of Ritter common stock expected to be issued in the merger, the pre-merger Ritter securityholders are expected to own approximately 7.5% of the combined company, on a fully diluted basis, and the pre-merger Qualigen securityholders are expected to own approximately 92.5% of the combined company, on a fully diluted basis (which will include all shares reserved for issuance under the new Ritter Stock Incentive Plan), assuming that Qualigen raises the minimum required amount in the Pre-Closing Qualigen Financing (as described below).

 

Q: What will happen to Ritter if, for any reason, the merger does not close?
   
A: If, for any reason, the merger does not close, it is likely that Ritter will be involuntarily delisted from Nasdaq. The Ritter board of directors (the “Ritter Board”) may elect to dissolve and liquidate Ritter’s assets. If Ritter were able to secure additional capital to provide it with necessary financial resources, it may alternatively attempt to pursue another strategic transaction like the merger, continue to operate its business or sell or otherwise dispose of its assets. Ritter expects that it would be difficult to secure financing in a timely manner, on favorable terms or at all. If Ritter decides to dissolve and liquidate its assets, Ritter would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left, if any, to distribute to stockholders after paying the debts and other obligations of Ritter and setting aside funds for reserves.
   
Q: Why are the two companies proposing to merge?
   
A: The combined company will focus on the development of Qualigen’s nanotechnology therapies for the treatment of cancer and infectious diseases, while also continuing to operate its diagnostic business. For a discussion of Ritter’s and Qualigen’s reasons for the merger, please see the section entitled “The Merger—Ritter Reasons for the Merger” beginning on page 100 and “The Merger—Qualigen Reasons for the Merger” beginning on page 103 of this joint proxy and consent solicitation statement/prospectus.
   
Q: Why am I receiving this joint proxy and consent solicitation statement/prospectus?
   
A: You are receiving this joint proxy and consent solicitation statement/prospectus because you have been identified as a stockholder of Ritter (“Ritter Stockholder”) or a stockholder of Qualigen (“Qualigen Stockholder”) as of the applicable record date, and you are entitled, as applicable, to (i) notice of, and to vote at, the special meeting of Ritter Stockholders (the “Ritter special meeting”) if you are a Ritter Stockholder or (ii) sign and return to Qualigen a written consent (the “Qualigen written consent”) if you are a Qualigen Stockholder and choose to do so. This document serves as:

 

  a proxy statement of Ritter used to solicit proxies for the Ritter special meeting;
     
  a prospectus of Ritter used to offer shares of Ritter common stock in exchange for shares of Qualigen common stock in the merger and to offer shares of Ritter Series Alpha preferred stock in exchange for shares of Qualigen Series Alpha preferred stock in the merger; and
     
  a consent solicitation of Qualigen used to solicit the written consent of Qualigen Stockholders for the adoption of the Merger Agreement and the approval of the merger and related transactions and adoption and approval of an amendment to Qualigen’s certificate of incorporation (the “Qualigen COI Amendment”) (as described below).

 

 - 6 - 
 

 

Q: What is required to consummate the merger?
   
A:

To consummate the merger, Ritter Stockholders must approve (i) the issuance of Ritter common stock to Qualigen Stockholders and Ritter Series Alpha preferred stock to the Investor pursuant to the Merger Agreement, and approve the change of control of Ritter resulting from the merger (pursuant to applicable Nasdaq rules) (Proposal No. 1), (ii) the amendment to Ritter’s certificate of incorporation, as amended (the “Ritter Certificate of Incorporation”) to effect a reverse stock split of the outstanding shares of Ritter common stock, within a range of 1-for-25 and 1-for-35, as determined by the Ritter Board (the “Reverse Stock Split”) (Proposal No. 2), (iii) the amendment to the Ritter Certificate of Incorporation to effect the change of the name of “Ritter Pharmaceuticals, Inc.” to “Qualigen Therapeutics, Inc.” (the “Ritter Name Change”) (Proposal No. 3), (iv) the adoption of a new Ritter 2020 Stock Incentive Plan (the “Ritter 2020 Plan”) (Proposal No. 4), and (v) in the event there are insufficient votes to approve Proposal Nos. 1, 2, 3 and 4, Ritter’s ability to adjourn the Ritter special meeting to solicit additional proxies. If the requisite Ritter Stockholders do not approve each of Proposal Nos. 1, 2, 3 and 4, the merger will not be consummated.

 

In addition, in order to consummate the merger, the Qualigen Stockholders must adopt the Merger Agreement, thereby approving the merger and related transactions, and must approve and adopt the Qualigen COI Amendment to amend Article IV of the Qualigen certificate of incorporation to (i) increase the authorized number of shares of Qualigen common stock from 40,000,000 shares to 75,000,000 shares, (ii) increase the authorized number of shares of Qualigen preferred stock from 20,000,000 shares to 20,007,000 shares, (iii) provide that all weighted-average or ratchet anti-dilution provisions of each series of Qualigen preferred stock that have been triggered by any agreement, issuance or deemed issuance in 2018, 2019 or 2020, or that may be triggered in connection with the merger are, to such extent, deemed, conclusively and ab initio, to have been fully and duly waived, (iv) provide that immediately prior to the Effective Time, as contemplated by the Merger Agreement, all outstanding shares of each series of Qualigen preferred stock (other than outstanding shares of Series Alpha preferred stock) will be automatically and mandatorily converted into Qualigen common stock at the then-effective conversion rate for the applicable series (the “Qualigen Preferred Stock Conversion”), and (v) provide that all necessary consents and waivers with regard to all protective provisions of each series of Qualigen preferred stock that would otherwise be inconsistent with the Qualigen COI Amendment or with the merger or with any act done or omitted to have been done in 2018, 2019 or 2020 (or to be done or omitted to be done hereafter in 2020) with an eye to the merger (or with an eye to such a merger) are, to such extent, deemed, conclusively and ab initio, to have been duly given.

 

The adoption of the Merger Agreement, the approval of the merger and related transactions by the Qualigen Stockholders, and the approval and adoption of the Qualigen COI Amendment, require the written consent of the holders of a majority of the shares of Qualigen common stock and Qualigen preferred stock, on an as-converted to Qualigen common stock basis, each outstanding at the close of business on          , 2020 (the “Qualigen Record Date”) and entitled to vote thereon, as well certain specified supermajorities of each respective series of Qualigen preferred stock. If the requisite Qualigen Stockholders do not approve each of these Qualigen proposals, the merger will not be consummated.

 

Additionally, consummation of the merger is subject to certain closing conditions including, among other things, the registration statement on Form S-4, of which this joint proxy and consent solicitation statement/prospectus is a part (the “Registration Statement”) being declared effective by the Securities and Exchange Commission (the “SEC”), approval by the stockholders of Ritter and Qualigen, the Ritter common stock to be issued in the merger being approved for listing on Nasdaq, the consummation of the Pre-Closing Qualigen Financing, receipt of Lock-Up Agreements from a majority in interest of Qualigen stockholders (including certain specified Qualigen stockholders) and Ritter’s stockholders’ equity being no less than $0.00 as of immediately prior to the Effective Time.

 

For a more complete description of the closing conditions under the Merger Agreement, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 116 of this joint proxy and consent solicitation statement/prospectus.

 

Q: What proposals are to be voted on at the Ritter special meeting?
   
A: At the Ritter special meeting, the Ritter Stockholders will be asked to consider the following proposals, along with any other business that may properly come before the Ritter special meeting or any adjournment or postponement thereof:

 

 

Proposal No. 1 — to approve the issuance of Ritter common stock to Qualigen Stockholders and Ritter Series Alpha preferred stock to the Investor pursuant to the terms of the Merger Agreement, a copy of which is attached as Annex A, Annex B and Annex C to this joint proxy and consent solicitation statement/prospectus, and to approve the change of control of Ritter resulting from the merger (pursuant to Nasdaq rules).

     
  Proposal No. 2 — to approve an amendment to the Ritter Certificate of Incorporation to effect the Reverse Stock Split, in the form attached as Annex E to this joint proxy and consent solicitation statement/prospectus.

 

 - 7 - 
 

 

  Proposal No. 3 — to approve the amendment to the Ritter Certificate of Incorporation to effect the Ritter Name Change, in the form attached as Annex F to this joint proxy and consent solicitation statement/prospectus.
     
 

Proposal No. 4 — to approve the adoption of the Ritter 2020 Plan, in the form attached as Annex G to this joint proxy and consent solicitation statement/prospectus.

     
 

Proposal No. 5 — to consider and vote upon an adjournment of the Ritter special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 and/or 4.

 

Q: What stockholder votes are required to approve the proposals required in connection with the merger at the Ritter special meeting?
   
A:

The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Ritter common stock entitled to vote at the Ritter special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. Approval of Proposal Nos. 1, 4 and 5 require the affirmative vote of a majority of the votes cast by the shares of Ritter common stock present in person or represented by proxy at the Ritter special meeting. Approval of Proposal Nos. 2 and 3 require the affirmative vote of the holders of a majority of the shares of Ritter common stock outstanding at the close of business on March 26, 2020 (the “Ritter Record Date”) for the Ritter special meeting.

 

Votes will be counted by the inspector of election appointed for the Ritter special meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total and will have the same effect as “AGAINST” votes for Proposal Nos. 2 and 3, but will have no effect on Proposal Nos. 1, 4 and 5. Broker non-votes will have the same effect as “AGAINST” votes for Proposal No. 2, but will have no effect on Proposal Nos. 1, 3, 4 and 5.

 

Each of Proposal Nos. 1, 2, 3 and 4 is conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3 and 4.

 

Q: What proposals are being submitted to the Qualigen Stockholders for approval?
   
A: Qualigen Stockholders are being asked to deliver written consents to approve and adopt:

 

  the Merger Agreement, the merger and the other transactions and actions contemplated by the Merger Agreement.
     
  the Qualigen COI Amendment to (i) increase the authorized number of shares of Qualigen common stock from 40,000,000 shares to 75,000,000 shares, (ii) increase the authorized number of shares of Qualigen preferred stock from 20,000,000 shares to 20,007,000 shares, (iii) provide that all weighted-average or ratchet anti-dilution provisions of each series of Qualigen preferred stock that have been triggered by any agreement, issuance or deemed issuance in 2018, 2019 or 2020, or that may be triggered in connection with the merger are, to such extent, deemed, conclusively and ab initio, to have been fully and duly waived, (iv) provide that immediately before the Effective Time, as contemplated by the Merger Agreement, all outstanding shares of each series of Qualigen preferred stock (other than outstanding shares of Series Alpha preferred stock) will be automatically and mandatorily converted into Qualigen common stock at the then-effective conversion rate for the applicable series, and (v) provide that all necessary consents and waivers with regard to all protective provisions of each series of Qualigen preferred stock that would otherwise be inconsistent with the Qualigen COI Amendment or with the merger or with any act done or omitted to have been done in 2018, 2019 or 2020 (or to be done or omitted to be done hereafter in 2020) with an eye to the merger (or with an eye to such a merger) are, to such extent, deemed, conclusively and ab initio, to have been duly given.

 

 - 8 - 
 

 

Q: What stockholder votes are required to approve the proposals required to be approved in connection with the merger by Qualigen Stockholders?
   
A: The proposals to be submitted to the Qualigen Stockholders for approval (the “Qualigen Proposals”) require the affirmative written consent of the holders (as of the Qualigen Record Date) of (i) a majority of the voting power of the Qualigen preferred stock and Qualigen common stock, voting together as a single class in accordance with their respective applicable voting power, (ii) at least 75% of the shares of the Qualigen Series A preferred stock, voting together as a single series, (iii) at least 51% of the shares of the Qualigen Series B preferred stock, voting together as a single series, (iv) at least 66 2/3% of the shares of Qualigen Series C convertible preferred stock, voting together as a single series; (v) at least 66 2/3% of the shares of Qualigen Series D convertible preferred stock, voting together as single series; and (iv) at least 66 2/3% of the shares of the Qualigen Series D-1 convertible preferred non-voting stock, voting together as a single series outstanding on the Qualigen Record Date.
   
  There is no formal means to vote “AGAINST” or to abstain from an action by written consent to stockholders, but the mere failure to sign and return an affirmative written consent will have the same effect as a vote “AGAINST” both the Qualigen Proposals being submitted to Qualigen Stockholders for approval.
   
  Approval of each Qualigen Proposal being submitted to the Qualigen Stockholders is conditioned upon the approval of the other. Therefore, the merger cannot be consummated without the approval of both of the Qualigen Proposals by the requisite Qualigen Stockholders.
   
Q: What will Qualigen securityholders receive in the merger?
   
A: At or prior to the Effective Time:

 

  each share of Qualigen common stock outstanding immediately prior to the Effective Time (excluding any shares of Qualigen common stock held as treasury stock or dissenting shares) will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio described below;
     
  each share of Qualigen Series Alpha preferred stock to be issued to the Investor in or in connection with the Pre-Closing Qualigen Financing (described below) outstanding immediately prior to the Effective Time (excluding dissenting shares) will be automatically converted into the right to receive shares of Ritter Series Alpha preferred stock on a one-for-one basis;
     
  each share of Qualigen preferred stock (other than the Qualigen Series Alpha preferred stock) outstanding immediately prior to the Effective Time will be converted into the applicable number of shares of Qualigen common stock and thereafter in the merger all such shares of Qualigen common stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio described below;
     
  Qualigen Convertible Notes outstanding immediately prior to the Effective Time will be converted into the applicable number of shares of Qualigen capital stock and thereafter in the merger all such shares of Qualigen capital stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio described below or (as the case may be) into Ritter Series Alpha preferred stock; and
     
  all Qualigen warrants outstanding immediately prior to the Effective Time will be assumed by Ritter and converted into Ritter warrants, with the number of shares and exercise price being appropriately adjusted by the Exchange Ratio.

 

Based on the Exchange Ratio, at the Closing, the pre-merger Qualigen securityholders are expected to own approximately 92.5% of the combined company, on a fully diluted basis (which will include all shares reserved for issuance under the Ritter 2020 Plan), assuming Qualigen raises the minimum required amount in the Pre-Closing Qualigen Financing. For a more complete description of what Qualigen securityholders will receive in the merger, please see the sections entitled “The Merger— Merger Consideration and Exchange Ratio” beginning on page 106 of this joint proxy and consent solicitation statement/prospectus.

 

Q: What will Ritter Stockholders, Ritter option holders and Ritter warrant holders receive in the merger?
   
A: Each share of Ritter common stock outstanding as of immediately before the Effective Time will remain outstanding after the Effective Time.

 

 - 9 - 
 

 

At or before the Effective Time, Ritter, the CVR Holders’ Representative and the CVR Consultant will enter into a Contingent Value Rights Agreement (the “CVR Agreement”). Pursuant to the Merger Agreement and the CVR Agreement, each Ritter Stockholder of record as of immediately prior to the Effective Time (after giving effect to the exercise of any outstanding Ritter stock options or Ritter warrants and the conversion of any outstanding Ritter preferred stock) will continue to own and hold their existing shares of Ritter common stock and will receive one contingent value right (a “CVR”) for each share of Ritter common stock held by such stockholder, entitling the holder to receive the net proceeds, if any, from any sale, license, transfer, spin-off or other monetizing event of all or any part of Ritter’s intellectual property or technology (a “Legacy Monetization”) that is entered into during the period beginning on the date the Merger Agreement was signed and ending on the third anniversary of the Closing. The CVRs will not be transferable by the CVR holders (the “CVR Holders”), except in certain limited circumstances, will not be certificated or evidenced by any instrument, will not accrue interest and will not be registered with the SEC or listed for trading on any exchange. The CVRs will terminate on the tenth anniversary of the Effective Time (the “CVR Termination Date”). No payments with respect to the CVRs will be payable in respect of any Legacy Monetization actually received after the CVR Termination Date by Ritter. From and after the CVR Termination Date, any further proceeds received by Ritter arising from any Legacy Monetization will be retained by Ritter and will not be distributed to the CVR Holders. There is currently no third-party sale or transaction involving RP-G28 planned or contemplated and there is no guarantee that Ritter will be able to find a buyer or strategic partner for these assets, particularly in light of the failed Liberatus Phase 3 clinical trial. See the section entitled “Agreements Related to the Merger—Contingent Value Rights Agreement” beginning on page 129 of this joint proxy and consent solicitation statement/prospectus.

 

Except as otherwise described in this joint proxy and consent solicitation statement/prospectus, each outstanding and unexercised Ritter option held by a Ritter Stockholder will remain outstanding after the Effective Time and be exercisable by the holder thereof in accordance with its terms, unless otherwise determined by the administrator of the relevant Ritter stock plan in accordance with the terms thereof.

 

Prior to the Effective Time, Ritter will (i) terminate, redeem or cause to be exercised or (ii) cause the waiver or amendment for the deletion of any anti-dilution adjustment provisions and any provisions that entitle the holder thereof to receive a cash payment as a consequence of the merger in, substantially all of the holders of Ritter’s warrants, which either (a) contain an anti-dilution adjustment provision or (b) are entitled to receive a cash payment as a consequence of the merger. Unless terminated, redeemed or exercised in accordance with the foregoing, at the Effective Time, each Ritter warrant that is outstanding and unexercised immediately prior to the Effective Time will survive the Closing and remain outstanding in accordance with its terms.

 

Q: Who will be the directors of Ritter following the merger?
   
A: Following the Closing, the Ritter Board will consist of seven directors, with six directors to be designated by Qualigen, including the following individuals:

 

Name   Title
     
Michael S. Poirier   Chairman
     
Kurt H. Kruger   Director
     
Richard A. David, MD FACS   Director
     
Matthew Korenberg   Director

 

Qualigen intends to designate a fifth director and a sixth director, at least one of whom will be, as contemplated by California law applicable to California public companies, a qualified female director.

 

The Merger Agreement calls for one member of the post-merger Ritter Board to be designated by the pre-merger Ritter Board, subject to the reasonable approval and consent of the members of the post-merger Ritter Board who have been designated by Qualigen. Ira Ritter has been designated by the pre-merger Ritter Board, and has been approved and consented to by the members of the post-merger Ritter Board who have been designated by Qualigen.

 

 - 10 - 
 

 

Q: Who will be the executive officers of Ritter immediately following the merger?
   
A: Immediately following the consummation of the merger, Michael Poirier, President, Chief Executive Officer and Chairman of Qualigen, will serve as Ritter’s President and Chief Executive Officer. The executive management team of Ritter is expected to be composed solely of the members of pre-merger Qualigen’s executive management team, as follows:

 

Name   Title
     
Michael S. Poirier   President & Chief Executive Officer
     
Christopher L. Lotz   Vice President of Finance, Chief Financial Officer
     
Shishir K. Sinha   Vice President of Operations
     
Wajdi Abdul-Ahad, PhD   Vice President, Research and Development, Chief Scientific Officer

 

Q: What are the material U.S. federal income tax consequences of the merger?
   
A:

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation (“Stradling”), counsel to Qualigen, and subject to the Tax Opinion Representations and Assumptions, the merger should qualify as either a tax-free contribution pursuant to Section 351 of the Internal Revenue Code of 1986, as amended (the “Code”) or a “reorganization” within the meaning of Section 368(a) of the Code. Subject to the representations, assumptions and exclusions described in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 108 of this joint proxy and consent solicitation statement/prospectus, a Qualigen U.S. Holder generally should not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Qualigen stock for shares of Ritter stock in the merger. However, it is possible that, under certain circumstances, the merger will not satisfy the requirements to qualify as either a tax-free contribution pursuant to Section 351 of the Code or a “reorganization” within the meaning of Section 368(a) of the Code. Further, if any of the Tax Opinion Representations and Assumptions is incorrect, incomplete or inaccurate or is breached, the accuracy of the opinion described above may be affected and the U.S. federal income tax consequences of the merger could differ from those described in this joint proxy and consent solicitation statement/prospectus.

 

Please review the information in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 108 of this joint proxy and consent solicitation statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the merger to Qualigen U.S. Holders. The tax consequences to you of the merger will depend on your particular facts and circumstances. You should consult your tax advisors as to the specific tax consequences to you of the merger.

 

Q: What are the material U.S. federal income tax consequences of the receipt of CVRs and the Reverse Stock Split to U.S. Holders of Ritter?
   
A: In the opinion of Reed Smith LLP (“Reed Smith”), Ritter’s legal counsel, based on the facts, assumptions limitations and exclusions described in this joint proxy and consent solicitation statement/prospectus, the issuance of the CVRs to Ritter U.S. Holders under the terms expressed in the form of the CVR Agreement in the form attached as Annex D to this joint proxy and consent solicitation statement/prospectus is more likely than not to be treated as a distribution of property with respect to Ritter common stock. Please review the information in the section entitled “Agreements Related to the Merger—Contingent Value Rights Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” for a more complete description of the material U.S. federal income tax consequences of the receipt of CVRs to Ritter U.S. Holders, including possible alternative treatments. A Ritter U.S. Holder generally should not recognize gain or loss upon the Reverse Stock Split. Please review the information in the section entitled “Proposal No. 2: Approval of an Amendment to the Ritter Certificate of Incorporation to Effect the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” beginning on page 139 of this joint proxy and consent solicitation statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the Reverse Stock Split to Ritter U.S. Holders.

 

A Ritter U.S. Holder generally should not recognize gain or loss upon the Reverse Stock Split.

 

 - 11 - 
 

 

The tax consequences to you of the receipt of CVRs and the Reverse Stock Split will depend on your particular facts and circumstances. You should consult your tax advisors as to the specific tax consequences to you.

 

Q: What is the Pre-Closing Qualigen Financing?
   
A: As a condition to signing the Merger Agreement, Qualigen has entered into a financing commitment letter with the Investor to sell to the Investor shares of Qualigen Series Alpha preferred stock (and associated warrants) for at least $4 million in cash no later than immediately prior to the Effective Time (the “Pre-Closing Qualigen Financing”). The consummation of the Pre-Closing Qualigen Financing is a condition to the merger.
   
Q: As a Ritter Stockholder, how does the Ritter Board recommend that I vote?
   
A: After careful consideration, the Ritter Board recommends that Ritter Stockholders vote “FOR” all of the proposals described in this joint proxy and consent solicitation statement/prospectus.
   
Q: As a Qualigen Stockholder, how does the board of directors of Qualigen (the “Qualigen Board”) recommend that I vote?
   
A: After careful consideration, the Qualigen Board recommends that Qualigen Stockholders execute the written consent to approve and adopt the merger, the Merger Agreement, and the transactions contemplated therein, substantially in accordance with the terms of the Merger Agreement and the other agreements contemplated by the Merger Agreement, and to approve and adopt the Qualigen COI Amendment, as described in this joint proxy and consent solicitation statement/prospectus.
   
Q: What risks should I consider in deciding whether to vote in favor of the merger or to execute and return the written consent, as applicable?
   
A: You should carefully review the section entitled “Risk Factors” beginning on page 29 of this joint proxy and consent solicitation statement/prospectus 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 Ritter and Qualigen, as independent companies, are subject.
   
Q: Who can vote at the Ritter special meeting?
   
A: Only Ritter Stockholders as of the Ritter Record Date will be entitled to vote at the Ritter special meeting. At the close of business on the Ritter Record Date, there were 45,713,862 shares of Ritter common stock outstanding and entitled to vote.

 

Stockholder of Record: Shares Registered in Your Name

 

If, at the close of business on the Ritter Record Date, your shares of Ritter common stock were registered directly in your name with Ritter’s transfer agent, Corporate Stock Transfer, Inc., then you are a Ritter Stockholder of record. As a Ritter Stockholder of record, you may vote at the Ritter special meeting or vote by proxy. Whether or not you plan to attend the Ritter special meeting online, 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 on the proxy card to ensure your vote is counted.

 

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

 

If your shares of Ritter common stock are held by your broker, bank or other nominee, that is, in “street name,” you will receive a voting instruction card from the institution that holds your shares. Please follow the instructions included on that voting instruction card regarding how to instruct your broker, bank or other nominee to vote your shares of Ritter common stock. If you are a beneficial owner, you may not vote your shares at the Ritter special meeting unless you obtain a legal proxy from your broker, bank or other nominee.

 

Q: How many votes do I have for the Ritter special meeting?
   
A: On each matter to be voted upon at the Ritter special meeting, you have one vote for each share of Ritter common stock you own as of the Ritter Record Date.

 

 - 12 - 
 

 

Q: What is the quorum requirement for the Ritter special meeting?
   
A: The quorum requirement for holding the Ritter special meeting and transacting business is a majority of the outstanding shares of Ritter common stock. The shares may be present in person or represented by proxy at the Ritter special meeting. Abstentions and broker non-votes will be counted as present and entitled to vote for purposes of determining a quorum.
   
Q: What are “broker non-votes”?
   
A: A “broker non-vote” occurs when a broker submits a proxy that does not indicate a vote for one or more of the proposals because the broker has not received instructions from the beneficial owner on how to vote on such proposals and does not have discretionary authority to vote in the absence of instructions. Brokers have discretionary authority to vote on matters that are deemed “routine,” but brokers do not have discretionary authority to vote on matters that are deemed “non-routine”.

 

Brokers are expected to have discretionary authority to vote on Proposal Nos. 3 and 5. Brokers are not expected to have discretionary authority to vote on Proposal Nos. 1, 2 and 4. This means that banks, brokers and other financial intermediaries may not vote on Proposal Nos. 1, 2 and 4 in their discretion on behalf of clients (the beneficial owners) who have not furnished voting instructions at least 10 days before the date of the Ritter special meeting, provided the proxy materials have been distributed at least 15 days before the date of the Ritter special meeting. To ensure your vote is counted at the Ritter special meeting, you should instruct your broker to vote your shares, following the procedures provided by the institution that holds your shares.

 

Q. Who is entitled to deliver written consents to Qualigen to approve the Qualigen Proposals?
   
A: Only Qualigen Stockholders of record at the close of business on the Qualigen Record Date will be entitled to sign and return the Qualigen written consent approving the Qualigen Proposals. At the close of business on the Qualigen Record Date, 5,602,212 shares of Qualigen common stock were issued and outstanding, 2,412,887 shares of Qualigen Series A preferred stock were issued and outstanding, 7,707,736 shares of Qualigen Series B preferred stock were issued and outstanding, 3,300,715 shares of Qualigen Series C convertible preferred stock were issued and outstanding, 1,508,305 shares of Qualigen Series D convertible preferred stock were issued and outstanding, and 643,511 shares of Qualigen Series D-1 convertible preferred non-voting stock were issued and outstanding.
   
Q: How many “votes” do I have as a Qualigen Stockholders in the consent solicitation?
   
A: On each matter being submitted to Qualigen Stockholders for approval, you have one vote for each share of Qualigen common stock you own as of the Qualigen Record Date, 0.5333 votes for each share of Qualigen Series A preferred stock you own as of the Qualigen Record Date, 0.3333 votes for each Qualigen Series B preferred stock you own as of the Qualigen Record Date, 3.0000 votes for each share of Qualigen Series C convertible preferred stock you own as of the Qualigen Record Date, and 3.1172 votes for each share of Qualigen Series D convertible preferred stock you own as of the Qualigen Record Date. In addition, holders of the shares of the Qualigen Series D-1 convertible preferred non-voting stock as of the Qualigen Record Date will have one vote per share of Qualigen Series D-1 convertible preferred non-voting stock, but only in the intra-series vote.
   
Q: When do you expect the merger to be consummated?
   
A: Ritter and Qualigen anticipate that the merger will occur sometime soon after the Ritter special meeting to be held on May 14, 2020, but the companies cannot predict the exact timing. For more information, please see the section entitled “The Merger Agreement— Conditions to the Completion of the Merger” beginning on page 116 this joint proxy and consent solicitation statement/prospectus.
   
Q: What do I need to do now?
   
A: Ritter and Qualigen urge you to read this joint proxy and consent solicitation statement/prospectus carefully, including its annexes, and to consider how the merger affects you.

 

If you are a Ritter Stockholder of record, you may provide your proxy instructions in one of four different ways. First, you can mail your signed proxy card in the enclosed return envelope. You may also provide your proxy instructions via telephone or via the Internet by following the instructions on your proxy card or voting instruction form. Finally, you can vote your shares online at the Ritter special meeting; see “How can I vote and attend the Ritter special meeting online?” below. 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 Ritter special meeting.

 

 - 13 - 
 

 

Ritter Stockholders who hold shares of Ritter common stock through a bank, broker or other nominee may vote by the methods that their bank or broker makes available, in which case the bank or broker will include instructions with this joint proxy and consent solicitation statement/prospectus. If you wish to vote at the Ritter special meeting, you must obtain a legal proxy from your bank, broker or other nominee giving you the right to vote the shares at the Ritter special meeting.

 

If you are a Qualigen Stockholder as of the close of business on the Qualigen Record Date, and after carefully reading and considering the information contained in this joint proxy and consent solicitation statement/prospectus you wish to return your written consent, please complete, date and sign the enclosed written consent and promptly return it to Qualigen at the address below, or email a .pdf copy of your signed and dated written consent to Qualigen to the email address below. Please also sign and return your lock-up agreement in the same manner.

 

  By Mail. If you choose to submit your written consent by mail, simply complete the enclosed written consent, date and sign it, and return it to Qualigen, Inc., 2042 Corte Del Nogal, Carlsbad, CA 92011
     
  By Email. If you choose to submit your written consent by email, once you have completed, dated and signed the written consent, you may deliver it to Qualigen by emailing a .pdf copy of your written consent to vote@qualigeninc.com.

 

Q: What is the deadline for submission of written consents by Qualigen Stockholders?
   
A:

Qualigen has set             , 2020 as the Qualigen consent deadline (the “Qualigen Consent Deadline”). Qualigen reserves the right to extend the Qualigen consent deadline beyond the Qualigen Consent Deadline, and any such extension may be made without notice to Qualigen Stockholders.

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

If you are a Ritter Stockholder, the failure to return your proxy card or otherwise provide proxy instructions will have the same effect as voting “AGAINST” Proposal No. 2, but will have no effect on Proposal Nos. 1, 3, 4 and 5.

   
Q: What happens if I do not execute and return a Qualigen Stockholder written consent?
   
A:

If you are a Qualigen Stockholder, the failure to execute and return a Qualigen Stockholder written consent will have the same effect as voting “AGAINST” the Qualigen Proposals being presented to Qualigen Stockholders for approval.

   
Q: When and where is the special meeting of Ritter’s stockholders?
   
A: The Ritter special meeting will be held at 9:00 a.m., Pacific time, on May 14, 2020. The Ritter special meeting will be held entirely via the internet as a virtual meeting. Online access will begin at 8:45 a.m., Pacific time, and Ritter encourages its stockholders to access the meeting prior to the start time. For instructions on how to attend the Ritter special meeting online see “How can I vote and attend the Ritter special meeting of stockholders online” below.
   
Q:

How can I vote and attend the Ritter special meeting online?

   
A:

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

 

If your shares of Ritter 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 Ritter special meeting online. Because a beneficial owner is not the stockholder of record, you may not vote your shares at the Ritter special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the Ritter special meeting.

 

The Ritter special meeting will be a completely virtual meeting of stockholders, which will be conducted via live webcast. You will be able to attend the Ritter special meeting and submit your questions during the meeting by attending virtually at www.virtualshareholdermeeting.com/RTTR2020. Ritter stockholders and proxy holders will be able to vote their shares online at the Ritter special meeting. To attend the Ritter special meeting online, you will need the control number included on the proxy card or voting instruction card that accompanied your proxy materials. The live webcast will begin promptly at 9:00 a.m., Pacific time. We encourage you to access the Ritter special meeting prior to the start time. Online check-in will begin at 8:45 a.m., Pacific time, and you should allow ample time for the check-in procedures.

   
Q: If my Ritter 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 the matter, your broker will not be able to vote your shares of Ritter common stock without instructions from you. It is expected that brokers will have discretionary authority to vote on Proposal Nos. 3 and 5. Brokers will not have discretionary authority to vote on Proposal Nos. 1, 2 or 4. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

 - 14 - 
 

 

Q: May I change my vote after I have submitted a Ritter proxy or provided proxy instructions?
   
A: Ritter Stockholders of record may change their vote at any time before their proxy is voted at the Ritter special meeting in one of three ways. First, a Ritter Stockholder of record may file with Ritter’s transfer agent a written notice of revocation. Second, a Ritter Stockholder of record may timely deliver a valid, later-dated proxy by telephone, on the Internet, or by mail. Third, a Ritter Stockholder of record may attend the Ritter special meeting and vote online at the meeting. Participation in the Ritter special meeting will not by itself revoke a previously granted proxy unless the Ritter Stockholder of record also votes at the Ritter special meeting.

 

If a stockholder who owns shares of Ritter common stock in “street name” has instructed a broker to vote its shares of Ritter common stock, the stockholder must follow directions received from its broker to change those instructions if the stockholder wishes to change the instructions.

 

Q: May I change my vote after I have submitted a Qualigen Stockholder written consent?
   
A: Qualigen Stockholders of record may withdraw their written consent, at any time before the Qualigen Consent Deadline, by sending Qualigen a written notice of revocation by mail or by email.
   
Q: Who is paying for this proxy solicitation?
   
A: Ritter and Qualigen will share equally the cost of printing and filing this joint proxy and consent solicitation statement/prospectus and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Ritter common stock for the forwarding of solicitation materials to the beneficial owners of Ritter common stock. Ritter will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials.

 

Ritter has engaged Georgeson, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a services fee of $15,000 and the reimbursement of customary disbursements, which are not expected to exceed $50,000 in total.

 

Qualigen has engaged Georgeson, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a services fee of $10,000 and the reimbursement of customary disbursements.

 

Q: Who can help answer my questions?
   
A: If you are a Ritter Stockholder and would like additional copies, without charge, of this joint proxy and consent solicitation statement/prospectus or if you have questions about the merger, including the procedures for voting your shares, you should contact:

 

Ritter Pharmaceuticals, Inc.

1880 Century Park East, Suite 1000

Los Angeles, CA 90067

Attention: John Beck 

Email: John@ritterpharma.com

 

If you are a Qualigen Stockholder, and would like additional copies, without charge, of this joint proxy and consent solicitation statement/prospectus or if you have questions about the merger, including the procedures for “voting” your shares, you should contact:

 

Qualigen, Inc.

2042 Corte Del Nogal

Carlsbad, CA 92011

Email: vote@qualigeninc.com

 

 - 15 - 
 

 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information from this joint proxy and consent solicitation statement/prospectus and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the Ritter special meeting and Qualigen’s stockholder actions that are the subject of the written consent, you should read this entire joint proxy and consent solicitation statement/prospectus carefully, including the Merger Agreement attached as Annex A, Annex B and Annex C and the other annexes to which you are referred herein. For more information, please see the section entitled “Where You Can Find More Information” beginning on page 237 of this joint proxy and consent solicitation statement/prospectus.

 

The Companies

 

Ritter Pharmaceuticals, Inc.

1880 Century Park East, Suite 1000

Los Angeles, CA 90067

 

Ritter develops novel therapeutic products that modulate the gut microbiome to treat gastrointestinal diseases. Ritter’s only product candidate, RP-G28, is an orally administered, high purity galacto-oligosaccharide (GOS), for the treatment of lactose intolerance (LI), a condition that affects millions of people worldwide.

 

Qualigen, Inc.

2042 Corte Del Nogal

Carlsbad, CA 92011

 

Qualigen is a biotechnology company which intends to focus on developing novel therapeutics for the treatment of cancer and infectious diseases using nanoparticle coating technology similar to the core nanoparticle coating technology in its U.S. Food and Drug Administration (“FDA”)-approved FastPack® System, which has been used in Qualigen’s blood-testing diagnostic products for almost 20 years. Qualigen also maintains an ongoing business of manufacturing and selling these diagnostic instruments and test kits for use in physician offices and other point-of-care locations. Qualigen’s cancer therapeutics pipeline includes AS1411-GNP (“ALAN”), RAS-F3 and the Selective Target Antigen Removal System (“STARS”).

 

RPG28 Merger Sub Inc.

 

Merger Sub is a wholly-owned subsidiary of Ritter, formed solely for the purposes of carrying out the merger.

 

The Merger (see page 93)

 

On January 15, 2020, Ritter, Merger Sub, and Qualigen entered into that certain Merger Agreement, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Qualigen, with Qualigen surviving as a wholly-owned subsidiary of Ritter.

 

Under the Exchange Ratio formula set forth in the Merger Agreement, upon the Closing, on a pro forma basis and based upon the number of shares of Ritter common stock expected to be issued in the merger, the pre-merger Ritter securityholders are expected to own approximately 7.5% of the combined company, on a fully diluted basis, and the pre-merger Qualigen securityholders are expected to own approximately 92.5% of the combined company, on a fully diluted basis (which will include all shares reserved for issuance under the new Ritter 2020 Plan), assuming that Qualigen raises the minimum required amount in the Pre-Closing Qualigen Financing. For a more complete description of the Exchange Ratio please see the section entitled “The Merger Agreement” beginning on page 114 of this joint proxy and consent solicitation statement/prospectus.

 

 

 - 16 - 
 

 

 

Reasons for the Merger (see pages 100 and 103)

 

Ritter and Qualigen believe that the combined company will have the following potential advantages:

 

 

Expanded Pipeline with History of Revenue. Qualigen has a pipeline of cancer therapeutics that, if approved by the applicable regulatory authorities, will complement its commercialized revenue-generating diagnostic-device products.

     
  Management Team. It is expected that the combined company will be led by the experienced senior management from Qualigen and a board of directors with representation from each of Ritter and Qualigen.
     
  Cash Resources. The combined company is expected to have sufficient cash at the Closing for the combined company to sustain its operations and the combined company’s public company structure will provide it with access to the public market to seek to raise additional funds in the future.

 

Each of the Ritter Board and Qualigen Board also considered other reasons for the merger, as described herein. For example, the Ritter Board considered, among other things:

 

  the belief that a go it alone scenario was not without significant risk and dilution to the Ritter Stockholders, taking into account Ritter’s business, operational and financial prospects, including its cash position, the substantially diminished price of the Ritter common stock following the public announcement by Ritter that its Phase 3 clinical trial of RP-G28 failed to demonstrate statistical significance in its pre-specified endpoints; and
     
  the conclusion that the merger provides existing Ritter Stockholders a significant opportunity to participate in the potential growth of the combined company following the merger, while potentially receiving certain cash payments from the grant, sale or transfer of rights to RP-G28 during a certain period following Closing on account of the CVR Agreement to be executed at the Effective Time.

 

In addition, the Qualigen Board approved the merger based on a number of factors, including the following:

 

  to obtain for the Qualigen Stockholders a supermajority interest in Ritter as a vehicle, with common stock listed on the Nasdaq Capital Market, to carry forward (on a consolidated basis) Qualigen’s legacy and prospective business efforts;
     
  to procure the $4,000,000 Pre-Closing Qualigen Financing from the Investor (which would not be made available by the Investor except in the context of a transaction by which Qualigen engaged in a “reverse merger” transaction such as the merger with a public-company vehicle having common stock listed on the Nasdaq Capital Market), in view of Qualigen’s inability to otherwise procure an equivalent financing from the Investor or anyone else in view of Qualigen’s private-company illiquidity and liquidation-preference-heavy current capital structure;
     
 

to obtain for the Qualigen Stockholders the liquidity advantages associated with owning common stock in a publicly traded company listed on the Nasdaq Capital Market (and which has a large number of street-name beneficial owners of common stock), as opposed to owning their current illiquid Qualigen private-company stock; and

     
  to obtain advantages generally associated with being a publicly traded company, including better access to potential future financing, name recognition and validation to benefit its business offerings and personnel recruitment efforts, and a better ability to attract and retain key personnel by offering stock options exercisable for publicly-traded common stock and similar equity incentives.

 

 

 - 17 - 
 

 

 

Material U.S. Federal Income Tax Consequences of the Merger (see page 108)

 

In the opinion of Stradling, and subject to the Tax Opinion Representations and Assumptions, the merger should qualify as either a tax-free contribution pursuant to Section 351 of the Code or a “reorganization” within the meaning of Section 368(a) of the Code. Subject to the representations, assumptions and exclusions described in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 108 of this proxy statement/prospectus/information, a Qualigen U.S. Holder generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Qualigen capital stock for shares of Ritter stock in the merger. However, it is possible that, under certain circumstances, the merger will not satisfy the requirements to qualify as either a tax-free contribution pursuant to Section 351 of the Code or a “reorganization” within the meaning of Section 368(a) of the Code. Further, if any of the Tax Opinion Representations and Assumptions is incorrect, incomplete or inaccurate or is breached, the accuracy of the opinion described above may be affected and the U.S. federal income tax consequences of the merger could differ from those described in this joint proxy and consent solicitation statement/prospectus. 

 

Please review the information in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 108 of this joint proxy and consent solicitation statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the merger to Qualigen U.S. Holders. The tax consequences to you of the merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the merger.

 

Material U.S. Federal Income Tax Consequences of Receipt of CVRs and the Reverse Stock Split (see pages 131 and 139)

 

In the opinion of Reed Smith, Ritter’s legal counsel, based on the facts, assumptions, limitations and exclusions set forth in this joint proxy and consent solicitation statement/prospectus, the issuance of the CVRs to Ritter U.S. Holders under the terms expressed in the form of the CVR Agreement attached as Annex D to this joint proxy and consent solicitation statement/prospectus is more likely than not to be treated as a distribution of property with respect to Ritter common stock. Please review the information in the section entitled “Agreements Related to the Merger—Contingent Value Rights Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” beginning on page 131 of this joint proxy and consent solicitation statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the receipt of CVRs to Ritter U.S. Holders, including possible alternative treatments.

 

A Ritter U.S. Holder should not recognize gain or loss upon the Reverse Stock Split. Please review the information in the section entitled “Proposal No. 2: Approval of an Amendment to the Ritter Certificate of Incorporation to Effect the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” beginning on page 139 of this joint proxy and consent solicitation statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the Reverse Stock Split to Ritter U.S. Holders.

 

The tax consequences to you of the receipt of CVRs and the Reverse Stock Split will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you.

 

Overview of the Merger Agreement

 

Merger Consideration (see page 106)

 

At the Effective Time, each share of Qualigen common stock outstanding immediately prior to the Effective Time (excluding any shares of Qualigen common stock held as treasury stock or dissenting shares) will be converted solely into the right to receive a number of shares of Ritter common stock equal to the Exchange Ratio.

 

Subject to the terms and conditions of the Merger Agreement, at the Effective Time:

 

  each share of Qualigen common stock held as treasury stock or otherwise by Qualigen, Merger Sub or any subsidiary of Qualigen immediately prior to the Effective Time will be canceled and retired and will cease to exist, with no consideration being delivered in exchange for such cancellation;
     
  each share of Qualigen common stock outstanding immediately prior to the Effective Time (excluding any shares described above or dissenting shares) will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio;
     
  each share of Qualigen Series Alpha preferred stock to be issued to the Investor in or in connection with the Pre-Closing Qualigen Financing (or otherwise) outstanding immediately prior to the Effective Time (excluding dissenting shares) will be automatically converted into the right to receive shares of Ritter Series Alpha preferred stock on a one-for-one basis;

 

 

 - 18 - 
 

 

 

  each share of Qualigen preferred stock (other than the Qualigen Series Alpha preferred stock) outstanding immediately prior to the Effective Time will be converted into the applicable number of shares of Qualigen common stock in accordance with the applicable provisions of Qualigen’s certificate of incorporation and thereafter in the merger all such shares of Qualigen common stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio;
     
  the Qualigen Convertible Notes outstanding immediately prior to the Effective Time will be converted into the applicable number of shares of Qualigen capital stock and thereafter in the merger all such shares of Qualigen capital stock will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio or (as the case may be) into Ritter Series Alpha preferred stock;
     
  all Qualigen warrants outstanding immediately prior to the Effective Time will be assumed by Ritter and converted into Ritter warrants, with the number of shares and exercise price being appropriately adjusted by the Exchange Ratio; and
     
  each share of Merger Sub common stock issued and outstanding immediately prior to the Effective Time will be converted into and exchanged for one share of common stock of the combined company.

 

The Merger Agreement does not provide for an adjustment to the total number of shares of Ritter common stock that Qualigen Stockholders will be entitled to receive for changes in the market price of Ritter common stock. Accordingly, the market value of the shares of Ritter common stock issued pursuant to the merger will depend on the market value of the shares of Ritter common stock at the time the merger closes, and could vary significantly from the market value on the date of this joint proxy and consent solicitation statement/prospectus.

 

Fractional Shares (see page 138)

 

No fractional shares will be issued in connection with the Reverse Stock Split. Instead, any fractional shares resulting from the Reverse Stock Split will be rounded up to the nearest whole share

 

Treatment of Ritter Options and Warrants (see page 115)

 

Except as described in this joint proxy and consent solicitation and unless the Ritter Board (or a committee of the Ritter Board) determines to take other action with respect to any Ritter options, including cancellation of such options, each outstanding and unexercised Ritter option will remain outstanding after the Effective Time and be exercisable by the holder of such option in accordance with its terms.

 

Prior to the Effective Time, with respect to substantially all Ritter warrants that either contain an anti-dilution adjustment provision or are entitled to receive a cash payment as a consequence of the merger, Ritter will terminate, redeem or cause to be exercised such warrants, or cause the waiver or amendment for the deletion of any anti-dilution adjustment provisions and any provisions that entitle the holder of such Ritter warrants to receive a cash payment as a consequence of the merger. Unless terminated, redeemed or exercised in accordance with the foregoing sentence, at the Effective Time, each Ritter warrant that is outstanding and unexercised immediately prior to the Effective Time will survive the Closing and remain outstanding in accordance with its terms.

 

Conditions to the Completion of the Merger (see page 116)

 

To consummate the merger, Ritter Stockholders must approve Proposal Nos. 1, 2, 3 and 4. Additionally, Qualigen Stockholders must (i) adopt and approve the Merger Agreement, the merger and the transactions contemplated by the Merger Agreement, and (ii) adopt and approve the Qualigen COI Amendment.

 

In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement, as described under the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 116 of this joint proxy and consent solicitation statement/prospectus must be satisfied or waived.

 

No Shop (see page 120)

 

Each of Ritter and Qualigen agreed that during the period commencing on the date of the Merger Agreement and ending on the earlier of the consummation of the merger or the termination of the Merger Agreement, except as described below, Ritter and Qualigen will not, nor will either party authorize any of the directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors or representatives retained by it to, directly or indirectly:

 

  solicit, initiate or knowingly encourage, induce or knowingly facilitate the communication, making, submission or announcement of, any “acquisition proposal” or “acquisition inquiry” (each as defined below);
     
  furnish any non-public information with respect to it to any person in connection with or in response to an acquisition proposal or acquisition inquiry;

 

 

 - 19 - 
 

 

 

  engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;
     
  approve, endorse or recommend an acquisition proposal;
     
  execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any “acquisition transaction” as defined below (other than a confidentiality agreement permitted by the Merger Agreement); or
     
  publicly propose to do any of the above.

 

Termination (see page 126)

 

Either Ritter or Qualigen may terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

 

Termination Fee (see page 127)

 

If the Merger Agreement is terminated under certain circumstances, Ritter or Qualigen will be required to pay the other party a termination fee of $100,000.

 

CVR Agreement (see page 129)

 

Pursuant to the CVR Agreement, holders of Ritter capital stock of record as of immediately before the Effective Time (or as of such other date as may be mutually agreed by Ritter and Qualigen) will be entitled to receive one contractual CVR issued by Ritter subject to and in accordance with the terms and conditions of the CVR Agreement for each share of Ritter common stock held by such stockholder (after giving effect to the exercise of any outstanding Ritter options or Ritter warrants and the conversion of any outstanding Ritter preferred stock, but not to be adjusted for any reverse split to be effected in connection with the merger). Each CVR will entitle its holder to receive a pro rata portion of the net proceeds, if any, from any Legacy Monetization that is entered into during the period beginning on January 15, 2020 and ending on the date that is 36 months following the closing date of the merger.

 

Under the CVR Agreement, the combined company will make available up to $350,000 (subject to any reduction pursuant to the terms of the Merger Agreement), to be allocated in accordance with the good-faith discretion of the CVR Consultant or the CVR Holders’ Representative, but with the intention that it be expended at a rate sufficient that it last for 36 months after the merger (subject to earlier use as needed for the execution of any particular Legacy Monetization), for certain expenses to be incurred by Ritter in pursuing and closing any Legacy Monetization (the “Ongoing Support Funding”).

 

The CVRs will not be transferable by the CVR Holders, except in certain limited circumstances; will not have any voting or dividend rights; will not be certificated or evidenced by any instrument; will not accrue interest; and will not be registered with the SEC or listed for trading on any exchange. It is intended that the CVRs will not constitute securities, or a class of securities, for the purposes of any securities laws. The CVRs will not represent any equity or ownership interest in Ritter (or in Qualigen) or in all or any part of Ritter’s intellectual property or technology, or any other asset.

 

There is currently no third-party sale or transaction involving RP-G28 planned or contemplated and there is no guarantee that Ritter will be able to find a buyer or strategic partner for these assets, particularly in light of the failed Liberatus Phase 3 clinical trial.

 

Nasdaq Listing (see page 111)

 

Ritter will file an initial listing application with Nasdaq pursuant to Nasdaq Stock Market LLC “business combination” rules. If such application is accepted, Ritter anticipates that Ritter common stock will be listed on Nasdaq following the closing of the merger under the trading symbol “QLGN.”

 

 

 - 20 - 
 

 

 

Lock-up Agreements (see page 134)

 

It is a condition to the Closing that Qualigen stockholders holding at least 50% of Qualigen capital stock (solely in their capacity as Qualigen Stockholders), which will include Sekisui Diagnostics, LLC (“Sekisui”), and each executive officer and director of Qualigen who is elected or appointed, as applicable, as an executive officer and/or director of Ritter as of immediately following the Closing, will execute and deliver to Ritter lock-up agreements (the “Lock-Up Agreements”) in substantially the form attached as an exhibit to the Merger Agreement.

 

Ritter may waive the restrictions applicable to certain Qualigen Stockholders in its discretion and as needed to comply with the initial listing requirements of the Nasdaq Stock Market LLC and as described under the section entitled “Agreements Related to the Merger—Lock-Up Agreements” beginning on page 134 of this joint proxy and consent solicitation statement/prospectus.

 

Management Following the Merger (see page 203)

 

Effective as of the Closing, Ritter’s officers and directors are expected to include:

 

Name   Age   Position
Michael S. Poirier   64   Chairman, President & CEO
Christopher L. Lotz   55   Vice President of Finance, CFO
Shishir K. Sinha   53   Vice President of Operations
Wajdi Abdul-Ahad, PhD   67   Vice President, Research & Development, Chief Scientific Officer
Kurt H. Kruger   64   Director
Richard A. David, MD FACS   60   Director
Matthew Korenberg   45   Director
Ira E. Ritter   71   Director

 

The Merger Agreement calls for one member of the post-merger Ritter Board to be designated by the pre-merger Ritter Board, subject to the reasonable approval and consent of the members of the post-merger Ritter Board who have been designated by Qualigen. Ira Ritter has been designated by the pre-merger Ritter Board, and has been approved and consented to by the members of the post-merger Ritter Board who have been designated by Qualigen.

 

Qualigen intends to designate a sixth director and a seventh director, at least one of whom will be, as contemplated by California law applicable to California public companies, a qualified female director.

 

Interests of Certain Directors and Officers of Ritter and Qualigen (see page 103 and 105)

 

In considering the recommendation of the Ritter Board with respect to issuing shares of Ritter common stock as contemplated by the Merger Agreement and the other matters to be acted upon by Ritter Stockholders at the Ritter special meeting, Ritter Stockholders should be aware that certain members of the Ritter Board and certain of Ritter’s executive officers have interests in the merger that may be different from, or in addition to, the interests of Ritter Stockholders.

 

Andrew Ritter, currently the President and Chief Executive Officer of Ritter, and John Beck, Chief Financial Officer of Ritter, are expected to be terminated from their positions as officers of Ritter as of the Effective Time. Following the merger, Mr. Ritter and Mr. Beck will continue to provide services to the combined company as consultants.

 

Ira Ritter has been designated by the pre-merger Ritter Board for continued service on the board of directors of the combined company.

 

Ritter’s executive officers will be entitled to certain severance payments, executive bonuses and stock options and may be entitled to certain payments under the CVR Agreement (as described in this joint proxy and consent solicitation statement/prospectus).

 

At the Effective Time, Qualigen’s current directors and executive officers will each become directors and executive officers of Ritter as well as of Qualigen. Their Qualigen stockholdings will be treated in the merger the same as all other Qualigen stockholders’ stockholdings are treated in the merger. Their total compensation will not increase by virtue of taking on their additional positions at the Ritter level. However, if the merger results in a more successful development and commercialization of Qualigen’s therapeutics product programs, the merger might indirectly create conditions that could result, in the longer term, in the directors’ and executive officers’ compensation being raised to levels that it would not have been able to be raised to without the merger.

 

 

 - 21 - 
 

 

 

Risk Factors (see page 29)

 

Both Ritter and Qualigen are subject to various risks associated with their businesses and their industries. In addition, there are risks associated with the merger, including the possibility that the merger may not be completed, as well as the following risks:

 

  Failure to complete the merger may result in either Ritter or Qualigen paying a termination fee to the other party and could significantly harm the market price of Ritter common stock and negatively affect the future business and operations of each company.
     
  The issuance of Ritter common stock to Qualigen Stockholders pursuant to the Merger Agreement and the resulting change in control from the merger, as well as the other matters described in this joint proxy and consent solicitation statement/prospectus must be approved by Ritter Stockholders, and the Merger Agreement and transactions contemplated thereby (and the related Qualigen COI Amendment) must be approved and adopted by the Qualigen Stockholders. Failure to obtain these approvals would prevent the Closing.
     
  The merger may be completed even though certain events occur prior to the Closing that materially and adversely affect Ritter or Qualigen.
     
  Some Ritter and Qualigen officers and directors have interests in the merger that are different from the respective stockholders of Ritter and Qualigen and that may influence them to support or approve the merger without regard to the interests of the respective stockholders of Ritter and Qualigen.
     
  The market price of Ritter common stock following the merger may decline as a result of the merger.
     
  Ritter Stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.
     
  Ritter Stockholders and Qualigen securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the Closing as compared to their current ownership and voting interest in the respective companies.
     
  Ritter Stockholders and Qualigen Stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.
     
  During the pendency of the merger, Ritter and Qualigen 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.
     
  Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
     
  Because the lack of a public market for Qualigen capital stock makes it difficult to evaluate the value of Qualigen capital stock, the Qualigen Stockholders may receive shares of Ritter common stock in the merger that have a value that is less than, or greater than, the fair market value of Qualigen capital stock.
     
  If the conditions to the merger are not met, the merger will not occur.

 

These risks and other risks are discussed in greater detail under the section entitled “Risk Factors” beginning on page 29 of this joint proxy and consent solicitation statement/prospectus. Ritter and Qualigen both encourage you to read and consider all of these risks carefully.

 

 

 - 22 - 
 

 

 

Governmental and Regulatory Approvals (see page 108)

 

In the United States, Ritter must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Ritter’s capital stock and the filing of this joint proxy and consent solicitation statement/prospectus with the SEC.

 

Anticipated Accounting Treatment (see page 111)

 

For accounting purposes, Qualigen is considered to be the acquiring company and the merger will be accounted for as a reverse recapitalization of Ritter by Qualigen because the primary assets of Ritter, which primarily include cash and cash equivalents and prepaid expenses, will be nominal at the close of the merger.

 

Appraisal Rights (see page 112)

 

Holders of Ritter common stock are not entitled to appraisal rights in connection with the merger. Holders of Qualigen common stock are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, please see the provisions of Section 262 of the DGCL attached as Annex H and the section entitled “The Merger—Appraisal Rights” beginning on page 112 of this joint proxy and consent solicitation statement/prospectus.

 

Comparison of Stockholder Rights (see page 220)

 

Both Ritter and Qualigen 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 DGCL. If Proposals Nos. 1, 2, 3 and 4 are approved by Ritter Stockholders at the Ritter special meeting and, the merger is completed, Qualigen Stockholders will become stockholders of Ritter, and as such, their rights will be governed by the DGCL, Ritter’s amended and restated bylaws (the “Ritter Bylaws”) and the Ritter Certificate of Incorporation. The rights of Ritter Stockholders contained in the Ritter Certificate of Incorporation and Ritter Bylaws differ from the rights of Qualigen Stockholders under the certificate of incorporation and bylaws, each as amended, of Qualigen, as more fully described under the section entitled “Comparison of Rights of Holders of Ritter Stock and Qualigen Stock” beginning on page 220 of this joint proxy and consent solicitation statement/prospectus.

 

 

 - 23 - 
 

 

 

SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION AND DATA

 

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

 

Selected Historical Financial Data of Ritter

 

The selected statements of operations data for the years ended December 31, 2019 and 2018 and the selected balance sheet data as of December 31, 2019 and 2018 are derived from Ritter’s audited financial statements included elsewhere in this joint proxy and consent solicitation statement/prospectus. Ritter’s 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 “Ritter Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors—Risks Related to Ritter” and Ritter’s financial statements and related notes included elsewhere in this joint proxy and consent solicitation statement/prospectus.

 

    Years ended December 31,  
    2019     2018  
             
Statement of Operations Data:            
Operating costs and expenses:                
Research and development   $ 6,126,972     $ 12,259,940  
Patent costs     146,281       204,396  
General and administrative     4,570,932       5,425,033  
Total operating costs and expenses     10,844,185       17,889,369  
(Loss) from operations     (10,844,185 )     (17,889,369 )
Other income (expense):                
Interest income     123,052       126,835  
Other income     588,114       893,823  
Net (loss)   $ (10,133,019 )   $ (16,868,711 )
Net loss per share, basic and diluted   $ (1.06 )   $ (3.66 )
Weighted average shares outstanding, basic and diluted     9,570,061       5,304,667  

 

    As of
December 31,
 
    2019     2018  
Balance sheet data                
Cash and cash equivalents   $ 1,699,971     $ 7,812,259  
Total assets     2,797,024       15,319,902  
Total liabilities     1,697,046       5,933,518  
Total stockholders’ equity     1,099,978       9,386,384  

 

 

 - 24 - 
 

 

 

Selected Historical Financial Data of Qualigen

 

The selected statements of operations data for the years ended March 31, 2019 and 2018 and the selected balance sheet data as of March 31, 2019 and 2018 are derived from Qualigen’s audited financial statements included elsewhere in this joint proxy consent solicitation statement/prospectus. The selected statements of operations data for the nine months ended December 31, 2019 and 2018 and the selected balance sheet data as of December 31, 2019 are derived from Qualigen’s unaudited interim financial statements included elsewhere in this joint proxy consent solicitation statement/prospectus. Qualigen’s unaudited interim financial statements have been prepared in accordance with U.S. 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. Qualigen’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 December 31, 2019 are not necessarily indicative of results to be expected for the full year ending March 31, 2020 or any other period.

 

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

 

   Nine Months Ended
December 31,
   Year Ended
March 31,
 
   2019   2018   2019   2018 
Statements of Operations Data:                    
Net revenue  $4,101,212   $4,491,603   $5,803,044   $9,775,640 
                     
Operating expenses:                    
Cost of product sales   1,100,260    993,122    1,309,462    1,311,307 
Cost of product sales-related party   1,886,118    2,103,366    2,795,331    3,868,333 
General and administrative   591,689    851,139    1,053,249    1,248,869 
Research and development   431,134    362,884    550,779    41,714 
Research and development-related party   535,926    442,060    769,082    2,889,590 
Sales and marketing   275,691    310,585    380,341    618,462 
                     
Total operating expenses   4,820,818    5,063,156    6,858,244    9,978,275 
                     
Loss from operations   (719,606)   (571,553)   (1,055,200)   (202,635)
Other income (expense):                    
Interest expense   (192,338)   (79,412)   (152,036)   (60,261)
Other income (expense)   1,627    9,268   11,489    (88,465)
Total other expense   (190,711)   (70,144)   (140,547)   (148,726)
                     
Loss before provision for income taxes   (910,317)   (641,697)   (1,195,747)   (351,361)
Provision for income taxes   (4,619)   (4,619)   (4,619)   (5,087)
Net loss  $(914,936)  $(646,316)  $(1,200,366)  $(356,448)
                     
Net loss per common share, basic and diluted  $(0.16)  $ (0.12 )  $(0.21)  $(0.06)
Weighted-average number of shares outstanding, basic and diluted    5,602,214      5,602,214      5,602,214      5,602,214  

 

   As of
December 31,
   As of
March 31,
 
   2019   2018   2019   2018 
Balance sheet data                    
Cash and cash equivalents  $128,696   $415,009   $125,123   $60,723 
Total assets   4,100,761    4,056,284    3,963,520    4,206,667 
Total liabilities   5,163,821    3,682,963    4,111,644    3,187,030 
Total stockholders’ (deficit) equity   (1,063,060)   373,321    (148,124)   1,019,637 

 

 

 - 25 - 
 

 

 

Selected Unaudited Pro Forma Condensed Combined Financial Data of Ritter and Qualigen

 

The following unaudited pro forma information has been retroactively restated to reflect the impact, estimated to be one-for-30, of the proposed Reverse Stock Split described in Ritter Proposal No. 2, beginning on page 136 in this joint proxy and consent solicitation statement/prospectus.

 

   Nine Months Ended   Twelve Months Ended 
   December 31,   March 31, 
   2019   2019 
Revenue          
Net product sales  $1,625,516   $1,973,984 
Net product sales- related party   2,435,696    3,829,060 
Collaborative research revenue   40,000    - 
Total revenues   4,101,212    5,803,044 
           
Operating expenses          
Cost of product sales   1,100,260    1,309,462 
Cost of product sales- related party   1,886,118    2,795,331 
General and administrative    4,009,044     6,478,282 
Patent costs    97,656     204,396 
Research and development    2,983,251      12,810,719  
Research and development- related party   535,926    769,082 
Sales and marketing   275,691    380,341 
Total operating expenses    10,887,946     

24,747,613

 
           
Loss from operations    (6,786,734 )     (18,944,569 )
           
Interest expense, net   92,738    19,236 
Interest income    (51,761 )    (126,835)
Other expense (income), net    (589,741 )     (905,312 )
Total other (income) expense    (548,764 )     (1,012,911 )
           
Loss before provision for income taxes    (6,237,970 )    (17,931,658)
           
Provision for income taxes   (4,619)   (4,619)
           
Loss from continuing operations  $ (6,242,589 )   $(17,936,277)
           
Loss from continuing operations per share:          
Basic and diluted  $ (0.64 )   $ (1.81 )
           
Weighted average number of shares    9,802,301      9,914,483  

 

  

As of

December 31, 2019

 
Unaudited Proforma Condensed Combined Balance Sheet Data:       
Cash and cash equivalents  $ 6,004,755  
Total assets    11,073,873  
Total liabilities    4,177,330  
Total stockholders’ equity    6,896,543  

 

 

 - 26 - 
 

 

 

Comparative Historical and Unaudited Pro Forma Per Share Data

 

The following unaudited pro forma information has been retroactively restated to reflect the impact, estimated to be one-for-30, of the proposed Reverse Stock Split described in Ritter Proposal No. 2, beginning on page 136 in this joint proxy and consent solicitation statement/prospectus.

 

The information below reflects the unaudited pro forma net loss and book value per share after giving effect to the Merger of Ritter with Qualigen on a pro forma basis.

 

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

 

    Nine Months
Ended
    Twelve Months
Ended
 
    December 31, 2019     March 31, 2019  
Ritter Historical Per Common Share Data:                
Basic and diluted net loss per share   $ (0.54 )     (3.66 )
Book value per share     0.06       1.55  
Qualigen Historical Per Common Share Data:                
Basic and diluted net loss per share     (0.16 )     (0.21 )
Book value per share     (0.19 )     (0.03 )
Qualigen and Ritter Combined Company Pro Forma Data:                
Basic and diluted net loss per share   $ (0.64 )   $ (1.81 )
Book value per share     0.66       N/A  

 

 

 - 27 - 
 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

Ritter common stock is listed on the Nasdaq Capital Market under the symbol “RTTR.” Qualigen is a private company and shares of Qualigen common stock and Qualigen preferred stock are not publicly traded. The closing price of Ritter common stock on January 17, 2020, the last trading day prior to the public announcement of the merger, was $0.2236 per share, and the closing price of Ritter common stock was $           on           , 2020, each as reported on the Nasdaq Capital Market. Because the market price of Ritter common stock is subject to fluctuation, the market value of the shares of Ritter common stock that Qualigen Stockholders will be entitled to receive in the merger may increase or decrease.

 

Assuming approval of Proposal Nos. 1, 2, 3 and 4 and successful application for initial listing on the Nasdaq Capital Market, following the consummation of the merger, the Ritter common stock will trade on the Nasdaq Capital Market under the symbol “QLGN”.

 

As of March 26, 2020, the Ritter Record Date for the Ritter special meeting, there were approximately 141 holders of record of Ritter common stock. As of March 26, 2020, Qualigen had 538 holders of record of Qualigen common stock and 463 holders of record of Qualigen preferred stock. For detailed information regarding the beneficial ownership of certain Ritter Stockholders upon consummation of the merger, see the section entitled “Principal Stockholders of Combined Company” beginning on page 233 of this joint proxy and consent solicitation statement/prospectus.

 

Dividends

 

Ritter has never declared or paid any cash dividends on the Ritter common stock and does not anticipate paying cash dividends on the Ritter 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 the combined company’s then-current board of directors and will depend upon a number of factors, including the combined company’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the then-current board of directors deems relevant.

 

Qualigen has never paid or declared any cash dividends on the Qualigen capital stock. If the merger does not occur, Qualigen does not anticipate paying any cash dividends on the Qualigen capital stock in the foreseeable future, and Qualigen 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 the Qualigen Board and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, and restrictions imposed by applicable laws and other factors the Qualigen Board deems relevant. Qualigen’s existing preferred stock series have dividend preferences over the Qualigen common stock.

 

 - 28 - 
 

 

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 joint proxy and consent solicitation statement/prospectus, you should carefully consider the material risks described below and those described in the section entitled “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 88 of this joint proxy and consent solicitation statement/prospectus before deciding how to vote your shares of stock. You should also read and consider the other information in this joint proxy and consent solicitation statement/prospectus. Please see the section entitled “Where You Can Find More Information” beginning on page 237 of this joint proxy and consent solicitation statement/prospectus.

 

Risks Related to the Merger

 

The Exchange Ratio set forth in the Merger Agreement is not adjustable based on the market price of Ritter common stock, so the merger consideration at the Closing may have a greater or lesser value than at the time the Merger Agreement was signed.

 

The Merger Agreement has set the calculation of the Exchange Ratio for the Qualigen capital stock, and the Exchange Ratio is based on the fully-diluted capitalization of Qualigen and Ritter, in each case immediately prior to the Effective Time of the merger as described in the section entitled “The Merger—Merger Consideration and Exchange Ratio”. Based on the current estimate of the Exchange Ratio, the pre-merger Ritter securityholders are expected to own approximately 7.5% of the combined company, on a fully-diluted basis, and the pre-merger Qualigen securityholders are expected to own approximately 92.5% of the combined company, on a fully-diluted basis (which will include the shares reserved for issuance under the Ritter 2020 Plan), assuming that Qualigen raises the minimum required amount in the Pre-Closing Qualigen Financing. Any changes in the market price of Ritter common stock before the completion of the merger will not affect the number of shares of Ritter common stock issuable to Qualigen Stockholders pursuant to the Merger Agreement. Therefore, if before the completion of the merger the market price of Ritter common stock declines from the market price on the date of the Merger Agreement, then Qualigen Stockholders could receive merger consideration with substantially lower value than the value of such merger consideration on the date of the Merger Agreement. Similarly, if before the completion of the merger the market price of Ritter common stock increases from the market price of Ritter common stock on the date of the Merger Agreement, then Qualigen’s Stockholders could receive merger consideration with substantially greater value than the value of such merger consideration on the date of the Merger Agreement. The Merger Agreement does not include a price-based termination right.

 

Failure to complete the merger may result in either Ritter or Qualigen paying a termination fee to the other party and could significantly harm the market price of Ritter common stock and negatively affect the future business and operations of each company.

 

If the merger is not completed and the Merger Agreement is terminated under certain circumstances, Ritter or Qualigen may be required to pay the other party a termination fee of $100,000. Even if a termination fee is not payable in connection with a termination of the Merger Agreement, each of Ritter and Qualigen will have incurred significant fees and expenses, most of which must be paid whether or not the merger is completed. Further, if the merger is not completed, it could significantly harm the market price of Ritter common stock and will likely result in Ritter being involuntarily delisted from Nasdaq. See section entitled “Risk Factors–Ritter’s failure to meet the continued listing requirements of Nasdaq could result in a delisting of Ritter common stock and the termination of the Merger Agreement by Qualigen.”

 

In addition, if the Merger Agreement is terminated and the Ritter Board or Qualigen Board determines to seek another business combination, there can be no assurance that either Ritter or Qualigen will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Merger Agreement. See the section entitled “Risk Factors—If the merger is not completed, Ritter may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the merger with Qualigen, or at all, and Ritter may otherwise be unable to continue to operate its business. The Ritter Board may decide to pursue a dissolution and liquidation of Ritter. In such an event, the amount of cash available for distribution to Ritter Stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

 

The issuance of Ritter common stock to Qualigen Stockholders pursuant to the Merger Agreement and the resulting change in control resulting from the merger must be approved by Ritter Stockholders (pursuant to Nasdaq rules) along with the other matters described in this joint proxy and consent solicitation statement/prospectus, and the Merger Agreement and transactions contemplated thereby must be approved by the Qualigen Stockholders. Failure to obtain these approvals would prevent the Closing.

 

Before the merger can be completed, the stockholders of each of Ritter and Qualigen must approve the merger. Failure to obtain the required stockholder approvals may result in a material delay in, or the abandonment of, the merger. Any delay in completing the merger may materially adversely affect the timing and benefits that are expected to be achieved from the merger and could result in Ritter being involuntarily delisted from Nasdaq. See section entitled “Risk Factors–Ritter’s failure to meet the continued listing requirements of Nasdaq could result in a delisting of Ritter common stock and the termination of the Merger Agreement by Qualigen.”

 

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The merger may be completed even though certain events occur prior to the Closing that materially and adversely affect Ritter or Qualigen.

 

The Merger Agreement provides that either Ritter or Qualigen can refuse to complete the merger if there is a material adverse change affecting the other party between January 15, 2020, the date of the Merger Agreement, and the Closing. 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 Ritter or Qualigen, including:

 

  general business or economic conditions affecting the industries in which Qualigen or Ritter, as applicable, operates, except to the extent they disproportionately affect Ritter or Qualigen, taken as a whole, relative to other similarly situated companies in the industries in which Ritter and Qualigen operate;
     
  any acts of war, armed hostilities or terrorism, except to the extent they disproportionately affect Ritter or Qualigen, taken as a whole, relative to other similarly situated companies in the industries in which Ritter and Qualigen operate;
     
  any changes in financial, banking or securities markets, except to the extent they disproportionately affect Ritter or Qualigen, taken as a whole, relative to other similarly situated companies in the industries in which Ritter and Qualigen operate;
     
  with respect to Ritter, any change in the stock price or trading volume of Ritter common stock (it being understood, however, that any underlying effect that may have caused or contributed to such change may be taken into account in determining whether a material adverse effect has occurred, unless such effects are otherwise excepted from causing a material adverse effect under the Merger Agreement);
     
  failure to meet internal or analysts’ expectations or projections or the results of operations;
     
  with respect to Ritter, any clinical trial programs or studies, including any adverse data, event or outcome arising out of or related to any such programs or studies;
     
  any change in, or any compliance with or action taken for the purpose of complying with, any applicable laws or U.S. GAAP, or interpretations thereof;
     
  any effect resulting from the announcement or pendency of the Merger Agreement, merger or any related transactions;
     
  with respect to Ritter, continued losses from operations or decreases in its cash balances; and
     
  any effect resulting from the taking of any action by Ritter or Qualigen specifically required to be taken by the Merger Agreement;

 

If adverse changes occur and Ritter and Qualigen still complete the merger, the market price of the combined company’s common stock may suffer. This in turn may reduce the value of the merger to the stockholders of Ritter, Qualigen or both.

 

Some Ritter and Qualigen officers and directors have interests in the merger that are different from the respective stockholders of Ritter and Qualigen and that may influence them to support or approve the merger without regard to the interests of the respective stockholders of Ritter and Qualigen.

 

Certain officers and directors of Ritter and Qualigen participate in arrangements that provide them with interests in the merger that are different from the interests of the respective stockholders of Ritter and Qualigen, including, among others, the continued service as an officer or director of the combined company, severance benefits, the acceleration of equity vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined company in accordance with Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).

 

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For example, Ritter has entered into executive severance & change of control agreements with its executive officers that will result in the receipt by such executive officers of cash severance payments, vesting of equity awards and other benefits in the event of a covered termination of employment of each executive officer’s employment in connection with a change of control of Ritter.

 

The CVR Agreement provides that Ritter legacy executives who assist in any particular Legacy Monetization on behalf of Ritter will be entitled to receive a cash bonus, in an amount equal, in the aggregate, to 30% of the net proceeds of such Legacy Monetization (a “Success Bonus”), which will be allocated among the legacy Ritter executives in accordance with the good-faith discretion of the CVR Consultant (during the consulting term) or the CVR Holders’ Representative (after the CVR Consultant’s consulting term). In addition, all of Qualigen’s directors and executive officers are expected to become directors and executive officers of Ritter upon the Closing, and all of Qualigen’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement.

 

These interests, among others, may influence the officers and directors of Ritter and Qualigen to support or approve the merger. For more information concerning the interests of Ritter’s and Qualigen’s executive officers and directors, see the sections entitled “The Merger—Interests of Ritter Directors and Executive Officers in the Merger” and “The Merger—Interests of Qualigen Directors and Executive Officers in the Merger” beginning on pages 103 and 105, respectively, of this joint proxy and consent solicitation statement/prospectus.

 

The market price of Ritter common stock following the merger may decline as a result of the merger.

 

The market price of Ritter common stock may decline as a result of the merger for a number of reasons, including if:

 

  investors react negatively to the prospects of the combined company’s product candidates, business and financial condition following the merger;
     
  the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or
     
  the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.

 

Following the merger, a few stockholders will own a significant percentage of Ritter’s shares, and these stockholders could influence Ritter’s affairs which may preclude other stockholders from being able to influence stockholder votes.

 

Following the merger, three stockholders will beneficially own approximately 34.6% of Ritter’s common stock. As such, these stockholders may exert influence over the outcome of matters submitted to stockholders for approval, including the election of directors and other corporate actions such as mergers and other business combinations, which could result in or prevent a change of control of Ritter. Circumstances may occur in which the interests of these stockholders could be in conflict with the interests of other stockholders. Furthermore, two of these stockholders hold convertible securities (some of which are currently subject to blocker provisions), which if converted would increase their control of Ritter.

 

Ritter and Qualigen securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the Closing as compared to their current ownership and voting interest in the respective companies.

 

If the proposed merger is completed, the current securityholders of Ritter and Qualigen will own a smaller percentage of the combined company than their ownership in their respective companies prior to the merger. Each share of Qualigen common stock outstanding immediately prior to the Effective Time will be converted into the right to receive shares of Ritter common stock equal to the Exchange Ratio. Applying the current estimate of the Exchange Ratio, the pre-merger Ritter securityholders are expected to own approximately 7.5% of the combined company, on a fully diluted basis, and the pre-merger Qualigen securityholders are expected to own approximately 92.5% of the combined company, on a fully-diluted basis (which will include the shares reserved for issuance under the Ritter 2020 Plan), assuming that Qualigen raises the minimum required amount in the Pre-Closing Qualigen Financing. See also the section entitled “Risk Factors - The Exchange Ratio set forth in the Merger Agreement is not adjustable based on the market price of Ritter 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.” Accordingly, the issuance of shares of Ritter common stock to Qualigen Stockholders in the merger will reduce significantly the relative voting power of each share of Ritter common stock held by its current stockholders and will reduce the relative voting power of each share of Qualigen common stock held by its current stockholders. Consequently, Ritter Stockholders as a group and Qualigen Stockholders as a group will have less influence over the management and policies of the combined company after the merger than prior to the merger.

 

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Ritter Stockholders and Qualigen 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 company is unable to realize the strategic and financial benefits currently anticipated from the merger, Ritter Stockholders and Qualigen Stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the merger.

 

The combined company will need to raise additional capital by issuing securities or debt or through licensing or other strategic arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or impact its proprietary rights.

 

The combined company may be required to raise additional funds sooner than currently planned. If either or both of Ritter or Qualigen hold less cash at the time of the Closing than the parties currently expect, the combined company will need to raise additional capital sooner than expected. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined company’s stockholders’ ownership and the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined company’s technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.

 

During the pendency of the merger, Ritter and Qualigen 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.

 

Covenants in the Merger Agreement impede the ability of Ritter and Qualigen to make acquisitions, subject to certain exceptions relating to fiduciary duties, as set forth below, or to complete other transactions that would endanger the listing of Ritter common stock on Nasdaq or that are not in the ordinary course of Qualigen’s business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during such period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination with any third-party that would endanger the listing of Ritter common stock on Nasdaq or that are not in the ordinary course of Qualigen’s business, subject to certain exceptions relating to fiduciary duties. Any such transactions could be favorable to such party’s stockholders.

 

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

 

The terms of the Merger Agreement prohibit each of Ritter and Qualigen from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and that failure to cooperate with the proponent of the proposal would be reasonably likely to be inconsistent with the applicable board’s fiduciary duties. Any such transactions could be favorable to such party’s stockholders.

 

Because the lack of a public market for Qualigen capital stock makes it difficult to evaluate the value of Qualigen capital stock, the Qualigen Stockholders may receive shares of Ritter common stock in the merger that have a value that is less than, or greater than, the fair market value of Qualigen capital stock.

 

The outstanding capital stock of Qualigen 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 Qualigen. Because the percentage of Ritter common stock to be issued to Qualigen Stockholders was determined based on negotiations between the parties, it is possible that the value of Ritter common stock to be received by Qualigen Stockholders will be less than the fair market value of Qualigen, or Ritter may pay more than the aggregate fair market value for Qualigen.

 

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If the conditions to the merger are not met, or the Merger Agreement is terminated pursuant to the conditions set forth in the Merger Agreement, the merger will not occur and it is likely that Ritter will be involuntarily delisted from Nasdaq.

 

There can be no assurances that the necessary stockholder approvals will be obtained to complete the merger. Failure to obtain stockholder approval may result in a material delay in, or the abandonment of, the merger. Even if the merger is approved by Ritter Stockholders and Qualigen Stockholders, certain other specified conditions set forth in the Merger Agreement must be satisfied or waived to complete the merger. The Merger Agreement may also be terminated by the parties in certain circumstances, including, without limitation, by Qualigen if Ritter fails to maintain its listing on Nasdaq. The pre-closing conditions are set forth in the Merger Agreement and described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 116 of this joint proxy and consent solicitation statement/prospectus and the conditions for terminating the Merger Agreement are set forth in “Merger Agreement–Termination” beginning on page 126 of this joint proxy and consent solicitation statement/prospectus. Ritter and Qualigen cannot assure you that all of the conditions will be satisfied or waived, or that the Merger Agreement will not be terminated prior to the closing. If the conditions are not satisfied or waived, or the Merger Agreement is terminated, the merger will not occur or will be delayed, and Ritter and Qualigen each may lose some or all of the intended benefits of the merger. If the merger is not consummated, it is also likely that Ritter will be involuntarily delisted from Nasdaq. See section entitled “Risk Factors–Ritter’s failure to meet the continued listing requirements of Nasdaq could result in a delisting of Ritter common stock and the termination of the Merger Agreement by Qualigen.”

 

Litigation relating to the merger could require Ritter or Qualigen to incur significant costs and suffer management distraction, and could delay or enjoin the merger.

 

Ritter and Qualigen could be subject to demands or litigation related to the merger, whether or not the merger is consummated. Such actions may create uncertainty relating to the merger, or delay or enjoin the merger, result in substantial costs to Ritter or Qualigen and divert management time and resources.

 

Risks Related to the Proposed Reverse Stock Split

 

The proposed Reverse Stock Split may not increase the combined company’s stock price over the long-term.

 

One of the purposes of the proposed Reverse Stock Split is to increase the per-share market price of the Ritter common stock in order to comply with the continued listing requirements of Nasdaq. It cannot be assured, however, that the proposed Reverse Stock Split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of Ritter common stock will proportionally increase the market price of Ritter common stock, it cannot be assured that the proposed Reverse Stock Split will increase the market price of Ritter common stock by a multiple of the proposed Reverse Stock Split ratio, or result in any permanent or sustained increase in the market price of Ritter common stock, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions and prospects for future success. Thus, while the stock price of the combined company might meet the continued listing requirements of Nasdaq, it cannot be assured that it will continue to do so.

 

The proposed Reverse Stock Split may decrease the liquidity of the combined company’s common stock.

 

Although the Ritter Board believes that the anticipated increase in the market price of the combined company’s common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the proposed Reverse Stock Split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Ritter common stock.

 

The proposed Reverse Stock Split may lead to a decrease in the combined company’s overall market capitalization.

 

Should the market price of the combined company’s common stock decline after the proposed Reverse Stock Split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the proposed Reverse Stock Split. A reverse stock split may be viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the proposed Reverse Stock Split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Ritter common stock will remain the same after the proposed Reverse Stock Split is effected, or that the proposed Reverse Stock Split will not have an adverse effect on the stock price of Ritter common stock due to the reduced number of shares outstanding after the proposed Reverse Stock Split.

 

The merger may not qualify as either a tax-free contribution pursuant to Section 351 of the Code or a “reorganization” within the meaning of Section 368(a) of the Code.

 

It is intended that the merger qualify as either a tax-free contribution pursuant to Section 351 of the Code or a “reorganization” within the meaning of Section 368(a) of the Code. Ritter and Qualigen have each agreed to use their reasonable best efforts to cause the merger to qualify as either a tax-free contribution pursuant to Section 351 of the Code or a reorganization under Section 368(a) of the Code, and to not take any actions or cause any actions to be taken that would be reasonably expected to cause the merger to fail to so qualify. However, no ruling has been or will be requested from the IRS with respect to the tax consequences of the merger. Furthermore, it is possible that, under certain circumstances, the merger will not satisfy the requirements to qualify as either a tax-free contribution pursuant to Section 351 of the Code or a “reorganization” within the meaning of Section 368(a) of the Code, and therefore, be treated as a taxable transaction, which may result in taxable gain to a Qualigen U.S. Holder, depending on such holder’s particular situation.

 

Please review the information in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 108 of this joint proxy and consent solicitation statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the merger to Qualigen U.S. Holders. The tax consequences to you of the merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the merger.

 

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Risks Related to Ritter

 

Risks Related to Ritter’s Financial Condition and Ritter’s Need for Additional Financing, and Additional Risks Related to the Merger

 

There is no assurance that the merger will be completed in a timely manner or at all. If the merger is not completed, Ritter’s business could suffer materially and Ritter’s stock price could decline, and Ritter will likely be involuntarily delisted from Nasdaq.

 

The closing of the merger is subject to the satisfaction or waiver of a number of closing conditions, as described above, including the required approvals by Ritter Stockholders and Qualigen Stockholders and other customary closing conditions. See the risk factors above titled, “The issuance of Ritter common stock to Qualigen Stockholders pursuant to the Merger Agreement and the resulting change in control from the merger (pursuant to Nasdaq rules) along with the other matters described in this joint proxy and consent solicitation statement/prospectus must be approved by Ritter Stockholders, and the Merger Agreement and transactions contemplated thereby must be approved by the Qualigen Stockholders. Failure to obtain these approvals would prevent the Closing.” If the conditions are not satisfied or waived, the merger may be materially delayed or abandoned. If the merger is not consummated, Ritter’s ongoing business may be adversely affected and, without realizing any of the benefits of having consummated the merger, Ritter will be subject to a number of risks, including the following:

 

  Ritter has incurred and expects to continue to incur significant expenses related to the merger even if the merger is not consummated;
     
  Ritter could be obligated to pay Qualigen a termination fee of $100,000 under certain circumstances set forth in the Merger Agreement;
     
  the market price of Ritter’s common stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed; and
     
  matters relating to the merger have required and will continue to require substantial commitments of time and resources by Ritter’s remaining management and employees, which could otherwise have been devoted to other opportunities that may have been beneficial to Ritter.

 

Ritter also could be subject to litigation related to any failure to consummate the merger or to perform its obligations under the Merger Agreement. If the merger is not completed, these risks may materialize and may adversely affect its business, financial condition and the market price of Ritter’s common stock. If the merger is not consummated, it is also likely that Ritter will be involuntarily delisted from Nasdaq. See section entitled “Risk Factors–Ritter’s failure to meet the continued listing requirements of Nasdaq could result in a delisting of Ritter common stock and the termination of the Merger Agreement by Qualigen.”

 

If the merger is not completed, Ritter may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the merger with Qualigen, or at all, and Ritter may otherwise be unable to continue to operate its business. The Ritter Board may decide to pursue a dissolution and liquidation of Ritter. In such an event, the amount of cash available for distribution to Ritter Stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

 

Ritter’s assets currently consist primarily of cash, cash equivalents and short-term investments, Ritter’s RP-G28 assets, Ritter’s listing on the Nasdaq Capital Market and the Merger Agreement with Qualigen. While Ritter has entered into the Merger Agreement with Qualigen, the Closing may be delayed or may not occur at all and there can be no assurance that the merger will deliver the anticipated benefits Ritter expects or enhance stockholder value. If Ritter is unable to consummate the merger, the Ritter Board may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the merger. If the merger is not consummated, it is likely that Ritter will be involuntarily delisted from Nasdaq, which may make it more difficult for Ritter to complete an alternative transaction. Attempting to complete an alternative transaction like the merger will be costly and time consuming, and Ritter can make no assurances that such an alternative transaction would occur at all.

 

If the merger is not consummated, the Ritter Board may elect to continue its operations to determine if it can identify a path forward for RP-G28. Ritter may seek to recommence the development and commercialization of RP-G28 as a prescription drug (which may require the filing of a new IND), or explore its potential development as an over-the-counter (“OTC”) product or dietary supplement for the consumer healthcare industry. However, Ritter’s existing capital resources will not be adequate to enable it to conduct and complete any additional clinical trials that would be required to obtain the necessary regulatory approvals to commercialize RP-G28. Ritter would need significant additional funding to initiate and complete any additional clinical trials of RP-G28 and to otherwise further the development of its RP-G28 program.

 

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If the merger is not completed and Ritter is unable to raise sufficient additional funds for the continued development of RP-G28, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if Ritter otherwise determines to discontinue the development of its RP-G28 program, Ritter will likely determine to cease operations.

 

If the Ritter Board pursues a dissolution and liquidation of Ritter, the amount of cash available for distribution to the Ritter Stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as Ritter continues to fund its operations. In addition, if the Ritter Board were to approve and recommend, and the Ritter Stockholders were to approve, a dissolution and liquidation of Ritter, Ritter would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to the Ritter Stockholders. Ritter’s commitments and contingent liabilities may include severance obligations, regulatory and clinical obligations, and certain fees and expenses related to the merger. As a result of this requirement, a portion of Ritter’s assets may need to be reserved pending the resolution of such obligations. In addition, Ritter may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the Ritter Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, Ritter Stockholders could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of Ritter.

 

The issuance of shares of Ritter common stock to Qualigen stockholders in the merger will substantially dilute the voting power of the current Ritter Stockholders.

 

If the merger is completed, pre-merger Ritter securityholders are expected to own approximately 7.5% of the combined company, on a fully-diluted basis, and the pre-merger Qualigen securityholders are expected to own approximately 92.5% of the combined company, on a fully-diluted basis (which will include the shares reserved for issuance under the Ritter 2020 Plan), assuming that Qualigen raises the minimum required amount in the Pre-Closing Qualigen Financing. Accordingly, the issuance of shares of Ritter common stock to Qualigen Stockholders in the merger will reduce significantly the relative voting power of each share of Ritter common stock held by current Ritter Stockholders. Consequently, the Ritter Stockholders as a group will have significantly less influence over the management and policies of the combined company after the merger than prior to the merger. These estimates are based on the anticipated Exchange Ratio and are subject to adjustment as provided in the Merger Agreement. See also the risk factor above titled, “The exchange ratio set forth in the Merger Agreement is not adjustable based on the market price of Ritter common stock, so the merger consideration at the Closing may have a greater or lesser value than at the time the Merger Agreement was signed.

 

Ritter Stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

 

The right of Ritter Stockholders to receive any future payment for or derive any value from the CVRs will be contingent solely upon Ritter’s ability to monetize all or any part of Ritter’s intellectual property or technology through a Legacy Monetization within the time periods specified in the CVR Agreement and the consideration received being greater than the amounts permitted to be retained or deducted by Ritter (including the success bonus contemplated by the CVR Agreement) under the CVR Agreement. There is currently no third-party sale or transaction involving RP-G28 planned or contemplated and there is no guarantee that Ritter will be able to find a buyer or strategic partner for these assets, particularly in light of the failed Liberatus Phase 3 clinical trial. If a Legacy Monetization is not achieved within the time periods specified in the CVR Agreement or the consideration received is not greater than the amounts permitted to be retained or deducted by Ritter, no payments will be made under the CVR Agreement, and the CVRs will expire valueless. Qualigen has agreed to commit up to $350,000 to support Ritter’s pursuit of a Legacy Monetization, subject to reductions.

 

Following the Effective Time, neither Ritter nor Qualigen will have any obligation to develop RPG28, or to expend any effort or resources to divest or otherwise monetize RP-G28. If the up to $350,000 (or any such reduced amount) is insufficient to fund the expenses incurred in connection with a Legacy Monetization, neither Ritter nor Qualigen will have any obligation to provide further funding.

 

Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company.

 

The tax treatment of the CVRs is uncertain.

 

In the opinion of Reed Smith, the issuance of the CVRs to the persons who prior to completion of the merger were Ritter Stockholders and under the terms expressed in the form of the CVR Agreement attached as Annex D to this joint proxy and consent solicitation statement/prospectus is more likely than not to be treated as a distribution of property with respect to the Ritter Common Stock under the Code. However, there is no authority directly on point addressing the U.S. federal income tax treatment of contingent value rights with characteristics similar to the CVRs. Therefore, it is possible that the issuance of the CVRs may be treated as a distribution of equity with respect to its stock, as an “open transaction,” or as a “debt instrument” for U.S. federal income tax purposes, and such questions are inherently factual in nature. For more information regarding the U.S. federal income tax consequences of the CVRs, see the section entitled “Agreements Related to the Merger–Contingent Value Rights Agreement–Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” beginning on page 131 of this joint proxy and consent solicitation statement/prospectus.

 

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Ritter has incurred losses since inception, and Ritter anticipates that it will continue to incur losses for the foreseeable future.

 

Ritter’s net losses were $2.2 million for the nine months ended September 30, 2019 and $16.9 million for the year ended December 31, 2018. As of September 30, 2019, Ritter had an accumulated deficit of $79.9 million. These losses, among other things, have had and will continue to have an adverse effect on Ritter’s stockholders’ equity and working capital. Ritter expects to continue to incur significant expenses and increased operating losses for the foreseeable future.

 

Ritter has financed its operations primarily through the issuance and sale of common stock and warrants in public and private offerings, and has devoted substantially all of its financial resources and efforts on research and development, including clinical development of RP-G28. However, in September 2019 Ritter announced that its Liberatus Phase 3 clinical trial of RP-G28 for LI failed to demonstrate statistical significance in its pre-specified primary and secondary endpoints. The failure of the Liberatus Phase 3 clinical trial to achieve its endpoints has significantly depressed Ritter’s stock price and has severely harmed Ritter’s ability to raise additional capital and to secure potential collaborative, partnering or other strategic arrangements for its RP-G28 assets, and consequently, Ritter’s prospects to continue as a going concern have been severely diminished.

 

To become and remain profitable, Ritter must develop and eventually commercialize a product with market potential, which would require it to raise additional capital. Currently, Ritter has no ongoing collaborations for the development and commercialization of RP-G28 or any other product candidate and has limited sources of revenue. If the merger is not completed and Ritter is unable to raise sufficient additional funds for the continued development of its RP-G28 program, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if Ritter otherwise determines to discontinue the development of its RP-G28 program, Ritter will likely determine to cease operations.

 

Even if Ritter is able to raise additional funds to permit the continued development of RP-G28 or another product candidate, if Ritter and/or any potential collaborators are unable to develop and commercialize RP-G28 or another product candidate, if development is further delayed or is eliminated, or if sales revenue from any Ritter product upon receiving marketing approval, if ever, is insufficient, Ritter may never become profitable and it will not be successful.

 

Ritter is substantially dependent on its remaining employees to facilitate the consummation of the merger.

 

As of the date of this joint proxy and consent solicitation statement/prospectus, Ritter had only five full-time employees. Ritter’s ability to successfully complete the merger depends in large part on its ability to retain its remaining personnel. Despite Ritter’s efforts to retain these employees, one or more may terminate their employment with Ritter on short notice. The loss of the services of these employees could potentially harm Ritter’s ability to consummate the merger, to run its day-to-day business operations, and to continue to fulfill its reporting obligations as a public company.

 

The pendency of the merger could have an adverse effect on the trading price of Ritter common stock and its business, financial condition and prospects.

 

The pendency of the merger could disrupt Ritter’s business in many ways, including:

 

  the attention of its remaining management and employees may be directed toward the completion of the merger and related matters and may be diverted from Ritter’s day-to-day business operations; and
     
  third parties may seek to terminate or renegotiate their relationships with Ritter as a result of the merger, whether pursuant to the terms of their existing agreements with Ritter or otherwise.

 

The occurrence of these events or others resulting from the proposed merger could adversely affect the trading price of Ritter common stock or harm its business, financial condition and prospects.

 

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Risks Related to Regulatory Approval Status of RP-G28 and Ongoing Regulatory Requirements if the Merger is not Completed

 

Ritter’s business has been entirely dependent on the success of RP-G28, its only product candidate. The failure of RP-G28 to demonstrate statistical significance in its pre-specified primary and secondary endpoints in Ritter’s Liberatus Phase 3 clinical trial has severely diminished Ritter’s prospects to continue as a going concern. If the merger is not completed, Ritter may seek to recommence the development and commercialization of RP-G28 as either a prescription drug (which may require the filing of a new IND), or explore its potential development as an OTC product or a dietary supplement for the consumer healthcare industry, which would, in any case, require significant additional funding. If Ritter is unable to obtain funding for and to advance the development of RP-G28, it would likely be required to cease operations. Even if Ritter is able to obtain funding for and to advance the development of RP-G28 (as either a prescription drug, OTC product or dietary supplement), Ritter may never receive marketing approval for, or successfully commercialize, RP-G28 for any indication.

 

Ritter currently has only one product candidate, RP-G28, previously in clinical development as a prescription drug, and its business has depended on RP-G28’s successful clinical development, regulatory approval and commercialization. In September 2019, Ritter announced that its Liberatus Phase 3 clinical trial of RP-G28 for lactose intolerance failed to demonstrate statistical significance in its primary and secondary endpoints.

 

The failure of the Liberatus trial to achieve its primary and secondary endpoints has significantly depressed Ritter’s stock price and has severely harmed its ability to raise additional capital and to secure potential collaborative, partnering or other strategic arrangements for its RP-G28 assets, and consequently, Ritter’s prospects to continue as a going concern have been severely diminished.

 

Following the Effective Time, neither Ritter nor Qualigen will have any obligation to continue the development of RP-G28, or to expend any funds or efforts with respect to RP-G28. Pursuant to the terms of the CVR Agreement, Qualigen has agreed to commit up to $350,000 (subject to possible reduction pursuant to the terms of the Merger Agreement) to support Ritter’s continued pursuit of a Legacy Monetization. If the up to $350,000 (or any such reduced amount) is insufficient to fund the expenses incurred in connection with a Legacy Monetization, however, neither Ritter nor Qualigen will have any obligation to provide further funding.

 

Even if Ritter were to obtain the additional funding necessary to advance the development of RP-G28 (as a prescription drug, OTC product or dietary supplement), including through a strategic partnership, the process for obtaining regulatory approval or completing the regulatory process necessary to commercialize RP-G28 could be extensive and lengthy. There can be no guarantee that Ritter would ever obtain the regulatory approvals or the regulatory hurdles necessary to commercialize RP-G28 in these ways.

 

To commercialize RP-G28 as a prescription drug or OTC product, Ritter will need to demonstrate to the FDA the safety and efficacy of RP-G28 for its intended use. Additional clinical testing is expensive, time consuming and uncertain as to outcome. OTC products must generally either receive premarket approval by the FDA through the NDA process or conform to a “monograph” for a particular drug category, as established by the FDA’s OTC Drug Review. These monographs specify conditions whereby OTC product ingredients are generally recognized as safe and effective, and not misbranded. Certain OTC products may remain on the market without an NDA approval until a monograph for its class of drugs is finalized as a regulation. However, once the FDA has made a final determination on the status of an OTC product category, such products must either be the subject of an approved NDA or comply with the appropriate monograph for an OTC product. No assurance can be given that RP-G28 may be sold as an OTC product under and NDA or under the FDA’s OTC monograph product regulations. Of the large number of drugs in development in the United States, only a small percentage of drugs successfully complete the FDA regulatory process and are commercialized. Accordingly, even if Ritter is able to complete development of RP-G28, Ritter cannot assure you that RP-G28 will ever be commercialized.

 

If the merger is not completed, Ritter may also seek to explore the development and commercialization of RP-G28 as a dietary supplement. A dietary supplement is a product taken by mouth that contains a “dietary ingredient” intended to supplement the diet. The “dietary ingredients” in these products may include: vitamins, minerals, herbs or other botanicals, amino acids, and substances such as enzymes, organ tissues, glandulars, and metabolites. Dietary supplements can also be extracts or concentrates, and may be found in many forms such as tablets, capsules, soft gels, gel caps, liquids, or powders. Whatever their form may be, the Dietary Supplement Health and Education Act (“DSHEA”) places dietary supplements in a special category under the general umbrella of “foods,” not drugs, and requires that every supplement be labeled a dietary supplement. The DSHEA created a new regulatory framework for the safety and labeling of dietary supplements. Under DSHEA, a firm is responsible for determining that the dietary supplements it manufactures or distributes are safe and that any representations or claims made about them are substantiated by adequate evidence to show that they are not false or misleading. This means that dietary supplements do not need approval from the FDA before they are marketed. Except in the case of a new dietary ingredient, where pre-market review for safety data and other information is required by law, a firm does not have to provide the FDA with the evidence it relies on to substantiate safety or effectiveness before or after it markets its products.

 

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RP-G28 is a >95% purified GOS, product derived from a commercially available GOS food ingredient, which is designated as “generally recognized as safe” (“GRAS”) by the FDA. In 2016, the FDA published an updated draft guidance, which is intended, among other things, to help manufacturers and distributors of dietary supplement products determine when they are required to file with the FDA a New Dietary Ingredient (“NDI”), notification with respect to a dietary supplement product. In this draft guidance, the FDA highlighted the necessity for marketers of dietary supplements to submit NDI notifications as an important preventive control to ensure that consumers are not exposed to potential unnecessary public health risks in the form of new ingredients with unknown safety profiles. Ritter cannot provide any assurance that if it decided to pursue RP-G28 as a dietary supplement, it would not be required to submit a NDI notification. If the FDA were to conclude that Ritter should have filed an NDI notification, then Ritter could be subject to enforcement actions by the FDA. Such enforcement actions could include product seizures and injunctive relief being granted against Ritter, any of which would harm its business.

 

Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. In recent years, there has been increased pressure in the United States and other markets to increase regulation of dietary supplements. New regulations, or new interpretations of those regulations, could impose additional restrictions, including requiring reformulation of some products to meet new standards, recalls or discontinuance of some products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of some products, additional or different labeling, additional scientific substantiation, additional adverse event reporting, or other new requirements.

 

RP-G28 may have undesirable side effects that may delay or prevent marketing approval, or, if approval is received, require it to be taken off the market, require Ritter to include safety warnings or otherwise limit sales.

 

If the merger is not completed and Ritter elects to recommence the development and commercialization of RP-G28 as a prescription drug (which may require the filing of a new IND) or explore its potential development as an OTC product or a dietary supplement for the consumer healthcare industry, and it is able to obtain the necessary funding for such development, the detection of any undesirable side effects could delay or prevent marketing approval or commercialization. Alternatively, if Ritter is able to identify and secure a Legacy Monetization for RP-G28, and undesirable side effects of RP-G28 are later identified, Ritter could face seller liability.

 

There were no notable differences observed between placebo-treated subjects and RP-G28-treated subjects in the Phase 3 clinical trial. However, unforeseen side effects from RP-G28 could arise at any time during clinical development or, if approved, after RP-G28 has been marketed. Any undesirable or unacceptable side effects associated with RP-G28 could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, and could impact Ritter’s ability to attract potential third-party collaborators, or could result in Ritter facing seller liability in the event RP-G28 is sold to another party.

 

Even if Ritter receives regulatory approval for RP-G28, it may still face future development and regulatory difficulties.

 

RP-G28, if approved (as either a prescription drug or OTC product) or launched as a dietary supplement, will be subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information. In addition, products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and European Medicines Agency (“EMA”) requirements and requirements of other similar agencies, including ensuring that quality control and manufacturing procedures conform to applicable current good manufacturing practice (“cGMPs”), whether governing drugs or dietary supplements. Accordingly, Ritter and others with whom it works must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. Ritter will also be required to report certain adverse reactions and production problems, if any, to the FDA and EMA and other similar agencies and to comply with certain requirements concerning advertising and promotion for its products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions by the FDA and must be consistent with the information in the product’s approved label. Accordingly, Ritter may not promote its approved products, if any, for indications or uses for which they are not approved. Similarly, the U.S. Federal Trade Commission (the “FTC”) exercises jurisdiction over the advertising of OTC products and dietary supplements and has instituted numerous enforcement actions against OTC products and supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. Failure by Ritter to comply with applicable regulations could result in substantial monetary penalties, which could have a material adverse effect on its financial condition or results of operations.

 

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If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or Ritter, including requiring withdrawal of the product from the market. If RP-G28, or any product candidate developed by Ritter in the future, fails to comply with applicable regulatory requirements, a regulatory agency may:

 

  issue warning letters;

 

  mandate modifications to promotional materials or require Ritter to provide corrective information to healthcare practitioners;
     
  require Ritter or it potential future collaborators to enter into a consent decree or permanent injunction, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
     
  impose other administrative or judicial civil or criminal penalties;
     
  withdraw regulatory approval;
     
  refuse to approve pending applications or supplements to approved applications filed by Ritter or its potential future collaborators;
     
  impose restrictions on operations, including costly new manufacturing requirements; or
     
  detain, seize and/or condemn and destroy products.

 

If Ritter markets products in a manner that violates healthcare fraud and abuse laws, or if Ritter violates government price reporting laws, Ritter may be subject to civil or criminal penalties.

 

In addition to FDA and FTC restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws, commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices in the pharmaceutical and supplement industry. Other jurisdictions such as Europe have similar laws. These laws include false claims and anti-kickback statutes. If Ritter markets its products and its products are paid for by governmental programs, it is possible that some of Ritter’s business activities could be subject to challenge under one or more of these laws.

 

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative, civil and criminal sanctions may be imposed under these federal and state laws.

 

Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates.

 

Risks Related to Dependence on Third Parties

 

Any collaborative arrangements that Ritter establishes in the future may not be successful or Ritter may otherwise not realize the anticipated benefits from these collaborations. In addition, any future collaborative arrangements may place the development and commercialization of Ritter’s product candidates outside its control, may require Ritter to relinquish important rights or may otherwise be on terms unfavorable to Ritter.

 

If the merger is not completed, Ritter may continue to seek partnering, collaborative or similar strategic arrangements with third parties to develop and commercialize RP-G28 either as a prescription drug or OTC product or as a dietary supplement, but Ritter may be unsuccessful in locating a third-party collaborator to develop and market RP-G28. If Ritter is able to locate a third-party collaborator, the collaboration may not be successful or Ritter may otherwise not realize the anticipated benefits from such collaboration.

 

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Dependence on collaborative arrangements subjects Ritter to a number of risks, including:

 

  Ritter may not be able to control the amount and timing of resources that its potential collaborators may devote to RP-G28;
     
  potential collaborations may experience financial difficulties or changes in business focus;
     
  Ritter may be required to relinquish important rights such as marketing and distribution rights;
     
  should a collaborator fail to develop or commercialize RP-G28, Ritter may not receive any future milestone payments and will not receive any royalties for RP-G28;
     
  business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
     
  under certain circumstances, a collaborator could move forward with a competing product candidate developed either independently or in collaboration with others, including Ritter’s competitors; and
     
  collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing RP-G28.

 

Any delay or disruption in the manufacture and supply of any Ritter product may negatively impact Ritter’s operations.

 

Ritter does not intend to manufacture any product that is offered for sale. Ritter currently has an agreement with Ricerche Sperimentali Montale SpA (“RSM”), its contract manufacturer, for the production of Improved GOS, the active pharmaceutical ingredient in RP-G28, and the formulation of sufficient quantities of Improved GOS for the clinical and nonclinical studies that Ritter believes it will need to conduct prior to seeking regulatory approval for RP-G28 if Ritter decides to pursue the development of RP-G28. However, Ritter does not have agreements for commercial supplies of RP-G28 and it may not be able to reach agreement with RSM or any other contract manufacturer for sufficient supplies to commercialize RP-G28 if it is approved or any other product candidate it may develop in the future.

 

Reliance on third-party manufacturers entails risks, to which Ritter would not be subject if it manufactured its products itself, including:

 

  the possibility that Ritter is unable to enter into a manufacturing agreement with third parties to manufacture RP-G28 or any other product candidate it may develop in the future;
     
  the possible breach of the manufacturing agreements by third parties because of factors beyond Ritter’s control; and
     
  the possible termination or nonrenewal of manufacturing agreements by the third parties before Ritter is able to arrange for a qualified replacement third-party manufacturers.

 

Any of these factors could cause the delay of approval or commercialization of RP-G28 or any other product candidate Ritter may develop in the future (in the event the merger is not completed), or cause Ritter to incur higher costs. Furthermore, if RP-G28 or another product candidate is approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices and Ritter is unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, Ritter would likely be unable to meet demand for its product and could lose potential revenue. It may take several years to establish an alternative source of supply for RP-G28 or any other product candidate and to have any such new source approved by the government agencies that regulate its products. In the event Ritter does need to identify alternative manufacturing partners, Ritter may have to secure licenses to manufacturing and/or purification technologies, including third-party patent licenses, to allow Ritter to manufacture RP-G28 or any other product candidate that is suitable for the late-stage regulatory review process and/or adequate to manufacture commercial quantities for such product candidate.

 

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Ritter has historically depended on third-party contractors for a substantial portion of its operations and may not be able to control their work as effectively as if Ritter performed these functions itself.

 

If the merger is not completed and Ritter elects to continue the clinical development of RP-G28 (as either a prescription drug, OTC product or dietary supplement) Ritter will continue to outsource substantial portions of its operations to third-party service providers, including the conduct of preclinical studies and clinical trials, collection and analysis of data, and manufacturing. Ritter’s agreements with third-party service providers and contract research organizations (“CROs”) are on a study-by-study and project-by-project basis. Typically, Ritter may terminate the agreements with notice and would be responsible for the supplier’s previously incurred costs. In addition, any CRO that Ritter retains will be subject to the FDA’s and EMA’s regulatory requirements and similar standards outside of the United States and Europe and Ritter does not have control over compliance with these regulations by these providers. Consequently, if these providers do not adhere to applicable governing practices and standards, the development and commercialization of Ritter’s product candidates could be delayed or stopped, which could severely harm its business and financial condition.

 

Because Ritter has relied on third parties, its internal capacity to perform these functions is limited to management oversight. Outsourcing these functions involves the risk that third parties may not perform to Ritter’s standards, may not produce results in a timely manner or may fail to perform at all. Although Ritter has not experienced any significant difficulties with its third-party contractors, it is possible that Ritter could experience difficulties in the future. In addition, the use of third-party service providers requires Ritter to disclose its proprietary information to these parties, which could increase the risk that this information will be misappropriated. There are a limited number of third-party service providers that specialize or have the expertise required to achieve its business objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in Ritter’s development programs. Ritter currently has a small number of employees, which limits the internal resources Ritter has available to identify and monitor third-party service providers. To the extent Ritter is unable to identify, retain and successfully manage the performance of third-party service providers in the future, Ritter’s business may be adversely affected, and Ritter may be subject to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.

 

Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement for RP-G28, it is less likely that it will be widely used.

 

In the event Ritter is able to obtain the additional funding necessary to advance the clinical development of RP-G28, and RP-G28 is ultimately approved for sale by the applicable regulatory authorities, market acceptance and sales of RP-G28 will depend on reimbursement policies and may be affected by, among other things, future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. Ritter cannot be certain that reimbursement will be available for RP-G28. Also, Ritter cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, its products. If reimbursement is not available or is available on a limited basis, Ritter may not be able to successfully commercialize RP-G28.

 

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for Ritter’s products covered by a Part D prescription drug plan would likely be lower than the prices it might otherwise obtain in the United States. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

 

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The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect Ritter’s ability to sell its products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. If RP-G28 is ultimately approved for sale by the applicable regulatory authorities, Ritter expects that it would experience pricing pressures in connection with the sale of RP-G28, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.

 

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”), enacted in March 2010, is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on health industry and impose additional health policy reforms. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under Medicare Part D program. Although it is too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase Ritter’s regulatory burdens and operating costs. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. Congress and President Trump have expressed their intentions to repeal and replace the ACA. President Trump issued an Executive Order and both chambers of Congress passed bills, all with the goal of fulfilling their intentions. However, to date, the Executive Order has had limited effect and the Congressional activities have not resulted in the passage of a law. If a law is enacted, many if not all of the provisions of the ACA may no longer apply to prescription drugs.

 

Risks Related to the Commercialization of RP-G28 or Any Other Product Candidate Developed by Ritter in the Future in the Event the Merger is not Completed

 

Any product approved for sale by the applicable regulatory authorities, or launched as an OTC product without the need for regulatory approval, may not achieve broad market acceptance among physicians, patients and healthcare payors, and as a result Ritter’s revenues generated from sales of any such product may be limited.

 

The commercial success of any product Ritter launches will depend upon its acceptance among the medical community, including physicians, health care payors and patients. The degree of market acceptance of a product will depend on a number of factors, including:

 

  limitations or warnings contained in Ritter’s product candidates’ labeling, including FDA-approved labeling;
     
 

changes in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for such product candidates;

     
  limitations in the approved clinical indications or intended use for such product;
     
  demonstrated clinical safety and efficacy compared to other products;
     
  lack of significant adverse side effects;
     
  sales, marketing and distribution support;
     
  availability of reimbursement from managed care plans and other third-party payors;
     
  timing of market introduction and perceived effectiveness of competitive products;
     
  the degree of cost-effectiveness;
     
  availability of alternative therapies at similar or lower cost, including generics and OTC products;
     
  the extent to which a product candidate is approved for inclusion on formularies of hospitals and managed care organizations;
     
  whether a product candidate is designated under physician treatment guidelines for the treatment of or reduction of symptoms associated with the indications for which Ritter has received regulatory approval;
     
  adverse publicity about a product candidate or favorable publicity about competitive products;
     
  convenience and ease of administration of a product candidate; and
     
  potential product liability claims.

 

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If RP-G28 or any other product candidate developed by Ritter is approved by the applicable regulatory authorities (or launched without the need for regulatory approval), but does not achieve an adequate level of acceptance by physicians, patients, the medical community and healthcare payors, sufficient revenue may not be generated from its sales and Ritter may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of any product candidate may require significant resources and may never be successful.

 

The OTC product business is subject to significant competitive pressures.

 

If the merger is not completed, Ritter may continue to seek partnering, collaborative or similar strategic arrangements with third parties to develop and commercialize RP-G28 as an OTC product. The OTC healthcare product industry, however, is highly competitive. Many participants in this industry have substantially greater capital resources, technical staffs, facilities, marketing resources, product development, and distribution experience than Ritter does. Ritter believes that its ability to compete in the OTC healthcare product industry will depend on a number of factors, including product quality and price, availability, speed to market, consumer marketing, reliability, credit terms, brand name recognition, delivery time and post-sale service and support. However, Ritter’s failure to appropriately and timely respond to consumer preferences and demand for new products could significantly harm its business, financial condition and results of operations. Furthermore, unfavorable publicity or consumer perception of products Ritter develops and commercializes could have a material adverse effect on its business and operations. There can be no assurance that Ritter would be able to compete successfully in this highly-competitive OTC industry. If Ritter is unable to compete effectively, its earnings would be significantly negatively impacted.

 

Ritter has no internal sales, distribution and/or marketing capabilities and it would have to invest significant resources to develop those capabilities or enter into acceptable third-party sales and marketing arrangements in the event the merger is not completed and Ritter decides to continue operations.

 

Ritter has no internal sales, distribution and/or marketing capabilities at this time. To develop these capabilities, Ritter would need to invest significant amounts of financial and management resources, some of which may need to be committed prior to any confirmation that a particular product candidate will be approved. Ritter could also face a number of additional risks, including:

 

  it or its third-party sales collaborators may not be able to attract and build an effective marketing or sales force;
     
  the cost of securing or establishing a marketing or sales force may exceed the revenues generated by the product candidate; and
     
  its direct sales and marketing efforts may not be successful.

 

Ritter may have limited or no control over the sales, marketing and distribution activities of third parties. Its future revenues could depend heavily on the success of the efforts of third parties.

 

Risks Relating to Ritter’s Intellectual Property if the Merger is not Completed

 

If Ritter’s patent position does not adequately protect its product candidates, others could compete against Ritter more directly, which would harm Ritter’s business, possibly materially.

 

Ritter’s commercial success will depend in part on obtaining, maintaining and enforcing patent protection and on developing, preserving and enforcing current trade secret protection. In particular, it will depend in part on Ritter’s ability to obtain, maintain and enforce patents, especially those directed to methods of using Ritter’s products and those directed to the methods used to develop and manufacture Ritter’s products, as well as successfully defending these patents against third-party challenges. Ritter’s ability to stop third parties from making, using, selling, offering to sell or importing Ritter’s products depends on the extent to which Ritter has rights under valid and enforceable patents (and/or trade secrets) that cover these activities. Ritter cannot be sure that patents will be granted with respect to any of its pending patent applications or with respect to any patent applications it files in the future, nor can Ritter be sure that any of its existing patents or any patents that may be granted to it in the future will withstand subsequent challenges to their validity, enforceability, and/or patentability, or if they will be commercially useful in protecting Ritter’s product candidates, discovery programs and processes. Furthermore, Ritter cannot be sure that its existing patents and patent applications will embrace (or “claim”) the particular uses for RP-G28 or any other product candidate that may be approved by the FDA. Ritter’s inability to protect its patents, would also likely impact its ability to attract potential third-party collaborators.

 

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The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.

 

No consistent policy regarding the patentability and/or validity of patent claims related to pharmaceutical patents has emerged, to date, in the United States or in most jurisdictions outside of the United States. Changes in either the patent laws (be they substantive or procedural) or in the interpretations of patent laws in the United States and other countries may diminish the value of Ritter’s intellectual property. Accordingly, Ritter cannot predict the breadth of any claims that will issue or will be enforceable in the patents that have or may be issued from the patents and applications Ritter currently owns or may in the future own or license from third parties. Further, if any patents Ritter obtains, or to which Ritter obtains licenses, are deemed invalid, unpatentable and unenforceable, Ritter’s ability to commercialize or license its technology could be adversely affected.

 

In the future others may file patent applications directed to products, uses for products, and manufacturing techniques and related technologies that are similar, identical or competitive to Ritter’s or important to Ritter’s business. Ritter cannot be certain that any patent or patent application owned by a third-party will not have priority over patent applications filed or in-licensed by Ritter in the future, or that Ritter or its licensors will not be involved in interference, opposition, inter partes review or invalidity proceedings before U.S. or non-U.S. patent offices or courts.

 

The degree of future protection for Ritter’s proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect its rights or permit Ritter to gain or keep its competitive advantage. For example:

 

  others may be able to develop a platform similar to, or better than, Ritter’s in a way that does not infringe Ritter’s patents;
     
  others may be able to make compounds that are similar to Ritter’s product candidates but that do not infringe Ritter’s patents;
     
  others may be able to manufacture compounds that are similar or identical to Ritter’s product candidates using processes that do not infringe Ritter’s method of making patents;
     
  others may obtain regulatory approval for uses of compounds, similar or identical to Ritter’s product, that do not infringe Ritter’s pharmaceutical composition patents or Ritter’s method of use patents;
     
  Ritter may not be able to obtain licenses for patents that are essential to the process of making the product;

 

  Ritter might not have been the first to make the inventions claimed in its issued patents and pending patent applications;
     
  Ritter might not have been the first to file patent applications for these inventions;
     
  others may independently develop similar or alternative technologies or duplicate any of Ritter’s technologies;
     
  any patents that Ritter obtains may not provide Ritter with any competitive advantages;
     
  Ritter may not develop additional proprietary technologies that are patentable; or
     
  the patents of others may have an adverse effect on Ritter’s business.

 

Patents directed to pharmaceutical compositions containing RP-G28 or methods of using RP-G28 expire in 2030 if the appropriate maintenance fee renewal, annuity, or other government fees are paid, unless a patent term extension based on regulatory delay is obtained. Ritter expects that expiration in 2030 of some of its pharmaceutical composition and method-of-use patents directed to RP-G28 and its use in treating lactose intolerance will have a limited impact on its ability to protect its intellectual property in the United States, where Ritter has additional issued patents directed to such compositions and uses that extend until 2030. In other countries, Ritter’s issued patents and pending patent applications directed to compositions containing or methods of using RP-G28 for treating other indications, if issued, would expire in 2030. If Ritter decides to pursue the continued development of RP-G28, including with a strategic partner, Ritter will attempt to mitigate the effect of patent expiration by seeking data exclusivity, or the foreign equivalent thereof, in conjunction with product approval, as well as by filing additional patent applications covering improvements in its intellectual property.

 

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Ritter expects that the other patent applications for the RP-G28 portfolio, if issued, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, would expire in 2030. Ritter owns pending applications in the United States, Europe, and certain other countries directed to uses of RP-G28 to treat a variety of disorders, including lactose intolerance. Patent protection, to the extent these patents issue, would be expected to extend to 2030, unless a patent term extension based on regulatory delay is obtained.

 

Due to the patent laws of a country, or the decisions of a patent examiner in a country, or Ritter’s own filing strategies, Ritter may not obtain patents directed to all of its product candidates or methods involving these candidates in the parent patent application. Ritter could pursue divisional patent applications or continuation patent applications in the United States and other countries to obtain claims directed to inventions that were disclosed but not claimed in the parent patent application.

 

Ritter also may rely on trade secrets to protect its technology, especially where Ritter does not believe patent protection is appropriate or feasible. However, trade secrets are difficult to protect. Although Ritter uses reasonable efforts to protect its trade secrets, its employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose Ritter’s information to competitors. Enforcing a claim that a third-party illegally obtained and is using any of Ritter’s trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, Ritter’s competitors may independently develop equivalent knowledge, methods and know-how.

 

Ritter’s patents are not directed to RP-G28 as a composition of matter.

 

Although Ritter owns certain patents and patent applications with claims directed to specific pharmaceutical compositions and methods of using RP-G28 to treat LI, Ritter does not have patents directed to RP-G28 as a composition of matter in the United States or elsewhere. As a result, Ritter may be limited in its ability to list its patents in the FDA’s Orange Book if its product or the use of its product, consistent with its FDA-approved label, would not fall within the scope of its patent claims. Also, Ritter’s competitors may be able to offer and sell products so long as these competitors do not infringe any other patents that Ritter (or third parties) holds, including patents with claims directed to the manufacture of RP-G28, pharmaceutical compositions containing RP-G28, and/or method of using RP-G28. In general, pharmaceutical composition patents and method of use patents are more difficult to enforce than composition of matter patents because, for example, of the risks that FDA may approve alternative uses of the subject compounds not covered by the method of use patents, and others may engage in off-label sale or use of the subject compounds. Physicians are permitted to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions may infringe Ritter’s method of use patents, the practice is common across medical specialties and such infringement is difficult to prevent or prosecute. FDA approval of uses that are not covered by Ritter’s patents would limit its ability to generate revenue from the sale of RP-G28, if approved for commercial sale. Off-label sales would limit Ritter’s ability to generate revenue from the sale of RP-G28, if approved for commercial sale. Any of these factors could impact Ritter’s ability to attract potential third-party collaborators.

 

Ritter may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

 

If Ritter chooses to go to court to stop another party from using the inventions claimed in any patents Ritter obtains, that individual or company may seek a post grant review (including inter partes review) of Ritter’s patents, and has the right to ask the court to rule that such patents are invalid or should not be enforced against that third-party. These lawsuits and administrative proceedings are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if Ritter was successful in stopping the infringement of such patents. In addition, there is a risk that the court or administrative body will decide that such patents are not valid or unpatentable and that Ritter does not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity/patentability of such patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe Ritter’s patents. In addition, the U.S. Supreme Court and the Court of Appeals for the Federal Circuit have articulated and/or modified certain tests used by the U.S. Patent and Trademark Office (the “USPTO”), in assessing patentability and by the courts in assessing validity and claim scope, which may decrease the likelihood that Ritter will be able to obtain patents and increase the likelihood that others may succeed in challenging any patents Ritter obtain or license.

 

Ritter may infringe the intellectual property rights of others, which may prevent or delay its product development efforts and stop it from commercializing or increase the costs of commercializing its product candidates.

 

Ritter’s success will depend in part on its ability to operate without infringing the proprietary rights of third parties. Ritter cannot guarantee that its products, methods of manufacture, or uses of RP-G28 (or any future product candidate), will not infringe third-party patents. Furthermore, a third-party may claim that Ritter or its manufacturing or commercialization collaborators are using inventions covered by the third-party’s patent rights and may go to court to stop Ritter from engaging in its normal operations and activities, including making or selling its product candidates. These lawsuits are costly and could affect Ritter’s results of operations and divert the attention of managerial and scientific personnel. There is a risk that a court would decide that Ritter or its commercialization collaborators are infringing the third-party’s patents and would order Ritter or its collaborators to stop the activities covered by the patents. In that event, Ritter or its commercialization collaborators may not have a viable way around the patent and may need to halt commercialization of the relevant product. In addition, there is a risk that a court will order Ritter or its collaborators to pay the other party damages for having violated the other party’s patents. In the future, Ritter may agree to indemnify its commercial collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including Ritter, which patents cover various types of products or methods of use. The scope of coverage of a patent is subject to interpretation by the courts, and the interpretation is not always uniform.

 

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If Ritter is sued for patent infringement, the patentee would need to demonstrate, by a preponderance of the evidence that Ritter’s products or methods infringe the patent claims of the relevant patent, and Ritter would need to demonstrate either that it does not infringe or, by clear and convincing evidence, that the patent claims are invalid; Ritter may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if Ritter is successful in these proceedings, it may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on Ritter. If Ritter is unable to avoid infringing the patent rights of others, Ritter may be required to seek a license, which may not be available, defend an infringement action or challenge the validity or enforceability of the patents in court. Patent litigation is costly and time consuming. Ritter may not have sufficient resources to bring these actions to a successful conclusion. In addition, if Ritter does not obtain a license, develop or obtain non-infringing technology, otherwise fail to defend an infringement action successfully or have a court hold that any patent Ritter infringes is invalid or unenforceable, Ritter may incur substantial monetary damages, encounter significant delays in bringing its product candidates to market and may be precluded from manufacturing or selling its product candidates.

 

Ritter cannot be certain that others have not filed patent applications for technology claimed in its pending applications, or that Ritter was the first to invent the technology, because:

 

  some patent applications in the United States may be maintained in secrecy until the patents are issued;
     
  patent applications in the United States are typically not published until at least 18 months after the earliest asserted priority date; and
     
  publications in the scientific literature often lag behind actual discoveries.

 

Ritter’s competitors may have filed, and may in the future file, patent applications directed to technology similar to Ritter’s. Any such patent application may have priority over Ritter’s patent applications, which could further require Ritter to obtain rights to issued patents directed to such technologies. If another party has filed a U.S. patent application on inventions similar to Ritter’s, Ritter may have to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to Ritter, the other party had independently arrived at the same or similar invention prior to Ritter’s own invention, resulting in a loss of Ritter’s U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and other parties may be entitled to priority over Ritter’s applications in such jurisdictions.

 

Some of Ritter’s competitors may be able to sustain the costs of complex patent litigation more effectively than Ritter can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on Ritter’s ability to raise the funds necessary to continue its operations or to attract potential third-party collaborators.

 

Obtaining and maintaining Ritter’s patent portfolio depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and Ritter’s patents could be deemed abandoned or eliminated for non-compliance with these requirements.

 

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. Ritter employs an outside firm to pay fees due to non-U.S. patent agencies and this outside firm has systems in place to ensure compliance on payment of fees. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Ritter employs reputable law firms and other professionals to help Ritter comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, Ritter’s competitors might be able to enter the market and this circumstance would have a material adverse effect on Ritter’s business. Furthermore, Ritter’s inability to protect its patents, would also likely impact its ability to attract potential third-party collaborators.

 

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Ritter may be subject to claims that its employees have wrongfully used or disclosed alleged trade secrets of their former employers. If Ritter is not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of its technology and products could be significantly diminished.

 

As is common in the biotechnology and pharmaceutical industries, Ritter employs individuals who were previously employed at other biotechnology or pharmaceutical companies, including competitors or potential competitors. Ritter may be subject to claims that these employees, or Ritter, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if Ritter was successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

Ritter has relied on trade secrets to protect its proprietary technologies, especially where Ritter does not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Ritter has also relied in part on confidentiality agreements with its employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect its trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover Ritter’s trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that Ritter may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope of Ritter’s proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect Ritter’s competitive business position.

 

Failure to secure trademark registrations could adversely affect Ritter’s business.

 

Ritter has not developed a trademark for its RP-G28 product. Hence, Ritter does not currently own any actual or potential trademark rights associated with its RP-G28 product. If Ritter seeks to register any trademarks in the future, its trademark applications may not be allowed for registration or its registered trademarks may not be maintained or enforced. During trademark registration proceedings, Ritter may receive rejections. Although Ritter is given an opportunity to respond to those rejections, Ritter may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many other jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against Ritter’s trademarks, and Ritter’s trademarks may not survive such proceedings. If Ritter does not secure registrations for its trademarks, Ritter may encounter more difficulty in enforcing them against third parties than Ritter otherwise would.

 

Risks Relating to Ritter’s Business and Strategy if the Merger is not Completed

 

If the merger is not completed and Ritter decides to continue its operations and the development of RP-G28 as either a prescription drug, OTC product or dietary supplement, it will face competition from other biotechnology and pharmaceutical companies and Ritter’s operating results will suffer if Ritter fail to compete effectively.

 

Although Ritter knows of no other drug candidates in advanced clinical trials for treating lactose intolerance, the biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. If the merger is not completed and Ritter decides to continue its operations and the development of RP-G28 as either a prescription drug, OTC product or dietary supplement, it would have potential competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of these potential competitors have greater financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in Ritter’s target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that Ritter develops obsolete.

 

As a result of all of these factors, these potential competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing drugs for the diseases that Ritter is targeting before it does. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Some of the pharmaceutical and biotechnology companies Ritter could compete with include microbiome-based development companies: Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Rebiotix Inc. In addition, many universities and private and public research institutes may become active in Ritter targets disease areas. These potential competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly, which could render Ritter’s products obsolete and noncompetitive.

 

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Ritter believes that its ability to successfully compete will depend on, among other things:

 

  Ritter’s ability to commercialize and market any product candidates approved for sale;
     
  the efficacy, safety and reliability of any product candidates approved for sale;
     
  the price of any product candidates approved for sale;
     
  adequate levels of reimbursement under private and governmental health insurance plans, including Medicare;
     
  Ritter’s ability to protect intellectual property rights related to any product candidates approved for sale;
     
  Ritter’s ability to manufacture and sell commercial quantities of any product candidates approved for sale to the market; and
     
  acceptance of any product candidates approved for sale by physicians and other health care providers.

 

If Ritter’s competitors market products that are more effective, safer or less expensive, or that reach the market sooner than any Ritter product candidate approved for sale, Ritter may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. Because Ritter’s research approach integrates many technologies, it may be difficult for Ritter to stay abreast of the rapid changes in each technology. If Ritter fails to stay at the forefront of technological change, Ritter may be unable to compete effectively. Technological advances or products developed by Ritter’s competitors may render its technologies or product candidates obsolete, less competitive or not economical.

 

If the merger is not completed and Ritter is able to raise the additional funds necessary to pursue the continued development of RP-G28 (either as a prescription drug, OTC product or dietary supplement), Ritter will need to expand its operations and increase the size of its company, and Ritter may experience difficulties in managing growth.

 

If the merger is not completed and Ritter is able to raise the additional funds necessary to pursue the continued development of RP-G28 (either as a prescription drug, OTC product or dietary supplement), Ritter will need to increase its product development, scientific and administrative headcount to manage the development and commercialization of its product candidates. If Ritter is unable to successfully manage this growth and increased complexity of operations, Ritter’s business may be adversely affected.

 

Ritter may not be able to manage its business effectively if Ritter is unable to attract and retain key personnel and consultants.

 

If Ritter is not able to attract and retain necessary personnel and consultants to accomplish its business objectives, Ritter may experience constraints that will significantly impede the achievement of its development objectives, its ability to raise additional capital and its ability to implement its business strategy. There is also a risk that other obligations could distract Ritter’s officers and employees from its business, which could have negative impact on Ritter’s ability to effectuate its business plans.

 

Competition to hire and retain consultants from a limited pool is intense. Further, because these advisors are not Ritter’s employees, they may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to Ritter, and typically they will not enter into non-compete agreements with Ritter. If a conflict of interest arises between their work for Ritter and their work for another entity, Ritter may lose their services. In addition, Ritter’s advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with Ritter’s.

 

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If the merger is not completed and Ritter decides to pursue the development of RP-G28 as either a prescription drug, OTC product or dietary supplement, Ritter may face product liability exposure, and if successful claims are brought against Ritter, Ritter may incur substantial liability for a product candidate and may have to limit its commercialization.

 

The use of Ritter’s product candidates in clinical trials and the sale of any products for which Ritter may obtain marketing approval expose Ritter to the risk of product liability claims. Product liability claims may be brought against Ritter or its potential future collaborators by participants enrolled in its clinical trials, patients, health care providers or others using, administering or selling its products. If Ritter cannot successfully defend itself against any such claims, it would incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

 

  withdrawal of clinical trial participants;
     
  termination of clinical trial sites or entire trial programs;

 

  costs of related litigation;
     
  substantial monetary awards to patients or other claimants;
     
  decreased demand for Ritter’s product candidates and loss of revenues;
     
  impairment of Ritter’s business reputation;