Subsequent Events

12 Months Ended

Dec. 31, 2019

Note 12 — Subsequent Events

On January 28, 2020, we announced a cost reduction plan for the purpose of aligning our personnel needs and capital requirements as we explored strategic alternatives previously announced. We will maintain operations of our Sapphire Cryocooler cryogenics initiatives while ceasing additional manufacturing of our HTS Conductus

wire. The plan also included a 70% employee workforce reduction.

On February 26, 2020 we entered into a definitive merger agreement with Allied Integral United, Inc. (“Clearday”), a privately-held company dedicated to delivering next generation longevity care and wellness services, whereby a wholly-owned subsidiary of STI will merge with and into Clearday in a

stock-for-stock

transaction with Clearday. Upon completion of the merger, STI will change its name to Clearday, Inc. The merged company will focus on the development of Clearday’s

non-residential

daily care service model as well as the continued operation of Clearday’s existing Memory Care America residential memory care facilities. As part of plans to develop and expand its assortment of innovative,

non-residential

daily care services, Clearday intends to leverage STI’s existing Cryogenic Cooler as an enabling technology for one of its service offerings in the home healthcare market.

The

completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by each of STI and Clearday stockholders, (ii) Nasdaq approval of continued listing of STI Common Stock under its applicable rules, including the rules applicable to its change of control listing application, (iii) the Registration Statement being declared effective by the Securities and Exchange Commission (“SEC”) and (iv) the STI officers with severance rights entering Waiver Agreements. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement, (iii) the absence of any Material Adverse Effect (as defined in the Merger Agreement) on the other party and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. In addition, it is a condition to closing that STI’s adjusted net working capital computed in accordance with the terms of the Merger Agreement be not less than negative

$250,000

as of immediately prior to the Effective Time and that all directors of STI, other than Jeffrey Quiram, STI’s current Chief Executive Officer, shall have resigned from the Board of Directors of STI; Mr. Quiram is expected to remain a member of the Board of Directors

The Merger Agreement contains customary representations and warranties. The representations, warranties and covenants of each party set forth in the Merger Agreement have been made only for the purposes of, and were and are solely for the benefit of the parties to, the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and investors should not rely on them as statements of fact. In addition, such representations and warranties (i) will not survive consummation of the Merger and (ii) were made only as of the date of the Merger Agreement or such other date as is specified in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures. Accordingly, the Merger Agreement is included with this filing only to provide investors with information regarding the terms of the Merger Agreement, and not to provide investors with any factual information regarding STI or Clearday, their respective affiliates or their respective businesses. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the STI, Clearday, their respective affiliates or their respective businesses, the Merger Agreement and the Merger that will be contained in, or incorporated by reference into, the Registration Statement, as well as in the Forms

10-K,

Forms

10-Q

and other filings that STI makes with the SEC

connection with the proposed transaction between STI and Clearday, the parties intend to file relevant materials with the SEC, including a STI registration statement on Form

S-4

that will contain a combined proxy statement/prospectus/information statement

Subsequent to the announcement on January 28, 2020 about our cost reduction plan, we started the process of selling, in separate transactions, assets that we deemed

non-essential

going forward. The latest such transaction entered into on March 5th, when considered in combination with the prior transactions since January 28, 2020, may be deemed a material definitive purchase agreement for sales of various production, R&D, and testing equipment and selected intellectual property related primarily to our superconducting wire initiative. The aggregate sales prices of the post January 28th transactions is expected to be approximately $1,075,000, all sold to purchasers having no affiliation with us. When the transactions are completed over the next several weeks, we will continue to hold production, R&D, and testing assets for our Sapphire cryocooler business, along with the majority of our intellectual property assets. The proceeds from this series of transactions is expected to be sufficient, together with the our other capital resources, for us to complete the Merger.

From March 3, 2020 to March

, 2020, 5,551,716 warrants issued in connection with our October 2019 financing were exercised, providing us with proceeds of $1.4

million

On January 7, 2020, we received a letter (the “Nasdaq Letter”) from the Staff notifying us that we had not regained compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement) by January 6, 2020, the 180 calendar day period previously provided in the letter received from the Staff on July 9, 2019 to regain compliance. The letter also confirmed that we are not eligible for a second 180 day period to regain compliance due to us not satisfying the Stockholders’ Equity Requirement.

On January 13, 2020, we submitted a written request for a hearing before a Nasdaq Hearings Panel (the “Panel”) to appeal the determination of the staff of the Nasdaq Listing Qualifications Department (the “Staff”) relating to the previously disclosed Nasdaq Letter. The hearing before the Panel was on February 27, 2020 and no decision has been received yet. The hearing request will stay any delisting action by Nasdaq of our common stock at least until the Panel renders a decision in this matter. At the hearing, we outlined our plan to regain compliance with the Bid Price Requirement and the Stockholders’ Equity Requirement. There can be no assurance that the Panel will accept our compliance plan. Our plan of compliance is to complete the Merger with Clearday, and regain compliance based upon the combined company’s financial condition and operations and governance. The Merger will take time to complete, and the Nasdaq Hearing Panel may not, under Nasdaq’s rules, grant us beyond July 6, 2020, if they decide to grant us any time at all, in their discretion.

As of the date of this Report, the Nasdaq Hearing Panel has not ruled on our request to obtain additional time in which to cure our listing deficiencies. There is no assurance as to when or how the Nasdaq Hearing Panel will rule, or whether, even if a ruling is to provide us additional time, the amount of time will be sufficient. In addition, there is no assurance that the SEC will declare our planned Form

S-4

effective at all or in a timely manner, nor is there any assurance that the various conditions to the Merger Agreement will be satisfied at all or in a timely manner. In particular, there is no assurance that the financial statements required of Clearday will be provided in a timely manner or that they will be reasonably satisfactory to us.

December 2019, a novel strain of coronavirus was first identified in Wuhan, Hubei Province, China, and has since spread to a number of other countries, including the United States. Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations. For example, the coronavirus may impact the global economy or negatively affect various aspects of our business, including demand for our products and services. The extent to which the coronavirus may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus. A health epidemic or other outbreak could materially and adversely affect our business, financial condition and results of

operations.