SEC Company Response from AIxCrypto Holdings, Inc. (AIXC) (CIK 0001460702) (FFR) — Jan 24, 2017
AIxCrypto Holdings, Inc. (AIXC) (CIK 0001460702)
Date: Jan. 24, 2017 · CIK: 0001460702 · Accession: 0001493152-17-000746
AI Filing Summary & Sentiment
File numbers found in text: 333-208818, 333-215143
Referenced dates: January 13, 2017
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CORRESP
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filename1.htm
599
Lexington Avenue
New York, NY 10022-7650
+1
212 521 5400
Fax
+1 212 521 5450
reedsmith.com
January
24, 2017
VIA
EDGAR
Securities
and Exchange Commission
Division
of Corporation Finance
100
F Street, N.E.
Washington,
D.C. 20549
Attn:
Suzanne Hayes
Re:
Ritter
Pharmaceuticals, Inc.
Registration
Statement on Form S-1
Filed
on December 16, 2016
File
No. 333-215143
Dear
Ms. Hayes:
On
behalf of our client, Ritter Pharmaceuticals (the “Company”), we submit this letter in response to comments
from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”)
issued in its letter dated January 13, 2017 (the “Comment Letter”) relating to the above-referenced Registration
Statement on Form S-1 (the “Registration Statement”).
Set
forth below in bold are comments from the Comment Letter. For your convenience, each of the numbered paragraphs below corresponds
to the numbered comment in the Comment Letter and includes the caption used in the Comment Letter. Immediately following each
comment is the Company’s response to that comment. Defined terms used but not otherwise defined herein have the meanings
ascribed to such terms in the Registration Statement.
General
1.
In
light of the previously registered resale offering by Aspire Capital of 1,577,699 shares of your common stock pursuant to
a registration statement that was declared effective on February 11, 2016, please provide us with an analysis as to why you
believe this offering is appropriately registered as an indirect primary offering in reliance on rule 415(a)(1)(i). Among
other factors in your response, please address the aggregate size of the resale offerings that have been registered pursuant
to this purchase agreement with Aspire compared to the number of shares of common stock held by non-affiliates. Please also
tell us whether Aspire Capital has resold substantially all of the securities registered under your prior registration statement,
and if so, the date of the most recent sale.
The
Company acknowledges the Staff’s comment. The Company respectfully submits that the transaction set forth in the Registration
Statement relates to the offering of securities solely by or on behalf of a person other than the registrant, a subsidiary
of the registrant or a person of which the registrant is a subsidiary, as discussed in greater detail below, and therefore,
is eligible to be made on a continuous or delayed basis under Rule 415(a)(1)(i) promulgated under the Securities Act of 1933,
as amended (the “Securities Act”).
Securities
and Exchange Commission
January 24, 2017
Page
2
I.
General
On
December 31, 2015, the Company registered up to 1,577,699 shares of common stock issued or to be issued to Aspire Capital, LLC
(“Aspire”) under a common stock purchase agreement (the “Purchase Agreement”) entered into by Aspire
and the Company on December 18, 2015, which provided for a standard equity line transaction between the Company and Aspire, on
a registration statement on Form S-1 (No. 333-208818). As of December 9, 2016, we had issued an aggregate of 1,577,699 shares
of common stock to Aspire under the Purchase Agreement for aggregate gross proceeds of $3.0 million.[1] The Company
is now seeking to register for resale by Aspire an additional 3,000,000 shares of common stock that may be issued to Aspire by
the Company under that Purchase Agreement.
Aspire
is an institutional investor that invests in a wide range of companies and industries emphasizing life sciences, energy and technology
companies. Prior to entering into a common stock purchase agreement (the “Purchase Agreement”) with the Company
on December 18, 2015, Aspire did not own any securities of the Company and was not affiliated with the Company or any of its officers,
directors or any other greater than 5% holder of the Company’s outstanding shares of common stock. Aspire acquired 188,864
shares of common stock as a commitment fee for entering into the Purchase Agreement, and, upon execution of the Purchase Agreement
in December 2015, the Company sold to Aspire 500,000 shares of common stock.
II.
Staff Guidance
Rule
415(a)(1)(i) of the Securities Act provides that securities may be registered for an offering to be made on a continuous or delayed
basis in the future, provided that the registration statement pertains only to securities which are to be offered or sold solely
by or on behalf of a person or persons other than the registrant, a subsidiary of the registrant or a person of which the registrant
is a subsidiary. As stated in the Registration Statement, the securities are being registered for resale or other disposition
by the selling stockholder, Aspire. Proceeds from the sale of any securities are solely for the account of Aspire, although the
Company may receive proceeds of up to $10.0 million from the sale of Shares to Aspire pursuant to the terms of the Purchase Agreement.
With regard to the Staff’s comment, we note Securities Act Rules Compliance and Disclosure Interpretation (“C&DI”)
612.09, which indicates that the issue of whether an offering is by or on behalf of the issuer involves an analysis of facts beyond
the entity that will receive the proceeds of the sale of securities that are being registered. Specifically, C&DI 612.09 states
that consideration should be given to the following factors:
1.
how long the selling shareholders have held the shares,
2.
the circumstances under which they have received them,
3.
their relationship to the issuer,
4.
the amount of shares involved,
5.
whether the sellers are in the business of underwriting securities, and
6.
whether under all the circumstances it appears that the seller is acting as a conduit for the issuer.
1
We note the Staff’s inquiry regarding the amount of shares sold by Aspire and the date of Aspire’s most recent
sale. Given the arm’s-length relationship between the Company and Aspire, however, we respectfully advise the Staff that
we are not aware of the answer to that inquiry.
Securities
and Exchange Commission
January 24, 2017
Page
3
As
detailed below, after considering the above factors, we respectfully submit that the proposed registration is eligible to be made
on a shelf basis under Rule 415(a)(1)(i).
III.
Analysis
Each
of the six factors of C&DI 612.09 is discussed below.
A.
The Period for which the Selling Stockholder has Held the Shares
The
3,000,000 shares being registered pursuant to the Registration Statement may be sold to Aspire under the Purchase Agreement, and
subsequently resold by Aspire under the Registration Statement, over a period of approximately 30 months from December 18, 2015,
the date the Purchase Agreement was signed. In this regard, we believe it is important to note that C&DI 139.13 provides that
no minimum holding period is required where the Company has “completed the private transaction of all of the securities
it is registering” through an equity line transaction and the investor is at market risk at the time of filing of the resale
registration statement. As in all equity line transactions, Aspire has accepted the market risk of its investment from the date
of entering into the Purchase Agreement, including market risk related to the shares currently held and those that the Company
may choose, in its sole discretion, to put to Aspire pursuant to the terms of the Purchase Agreement.
B.
The Circumstances under which the Selling Stockholder Received the Shares
Aspire
will receive the shares offered in the Registration Statement pursuant to the privately negotiated transaction between the Company
and Aspire completed at arm’s length prior to the filing of the Registration Statement. Although Aspire is required by the
Staff to include disclosure that it is an “underwriter” with regard to its resales under the Registration Statement,
we respectfully note that the transaction has characteristics more closely associated with a traditional investment transaction
than with an underwritten offering. Specifically, in a typical underwriting, the underwriter and the issuer agree on a price at
which the securities will be sold to the public and the underwriter receives a portion of the proceeds of such sale as compensation
for its selling efforts and for bearing market risk. Pursuant to the Purchase Agreement, however, Aspire will purchase any shares
put to it by the Company at a slight discount to the market price for the shares. Aspire is required to take the securities put
to it by the Company under the Purchase Agreement and there is no agreement or arrangement regarding the price at which Aspire
will resell such shares to the public pursuant to the Registration Statement. Additionally, Aspire is prohibited from engaging
in or effecting, directly or indirectly, any (i) “short sale” of the Company’s common stock or (ii) hedging
of the Company’s common stock. As such, unlike a traditional underwriter, Aspire is taking investment risk with regard to
the securities it will acquire under the Purchase Agreement and there is no certainty that it will receive premium on the resale
of any shares it purchases pursuant to the Purchase Agreement. Indeed, Aspire is at risk that it may incur a loss on the resale
of those shares.
C.
The Selling Stockholder’s Relationship to the Issuer
Aspire
is not as affiliate of the Company or a broker-dealer or an affiliate of a broker-dealer. The only relationship between Aspire
and the Company is the relationship established through the Purchase Agreement. Aspire has agreed to acquire the Company’s
securities for investment purposes as a principal, not as an agent, and is at market risk for all shares purchased as part of
its investment. Aspire will retain all proceeds from the sale of shares pursuant to the Registration Statement and, in contrast
to the economic terms of an underwritten offering, the proceeds of the sale by the Company to Aspire are not dependent on the
price at which Aspire ultimately sells the shares pursuant to the Registration Statement.
Securities
and Exchange Commission
January 24, 2017
Page
4
In
addition, Aspire has not and will not, receive a commission or any other remuneration from the Company if and when the additional
shares are sold to Aspire under the Purchase Agreement. Aspire will be responsible for paying any broker-dealer fees or underwriting
discounts or commissions directly to any broker-dealers it engages to assist in selling any common stock, as applicable. Aspire
will retain all proceeds from the sale of shares pursuant to the Registration Statement and the Company will not obtain any direct
or indirect benefit from any amounts received from those sales.
D.
The Amount of Shares to be Sold by the Selling Stockholder
As
of December 9, 2016, the Company had 11,619,197 shares of common stock outstanding. Of such shares, the Company believes that
approximately 8,302,142 shares are held by non-affiliates of the Company. If all of the 3,000,000 shares of common stock to be
registered pursuant to the Registration Statement were issued and outstanding as of December 9, 2016, such shares would have represented
20.5% of the total outstanding shares and 26.5% of the shares held by affiliates (the aggregate number of shares registered, including
the 3,000,000 shares the Company is now seeking to register plus the 1,577,699 shares previously registered would have represented
31.3% of the total outstanding shares and 40.5% of the shares held by affiliates).
In
the context of convertible securities that have the potential for a significant, but undefined, dilutive effect on existing stockholders,
the Staff has expressed concerns that a registered resale transaction involving more than one-third of the issuer’s outstanding
shares held by non-affiliates may constitute a primary offering on behalf of the issuer. However, this staff position is limited
to resales of securities underlying convertible securities, which present significant policy issues that are not present in the
transaction being registered in the Registration Statement, which relates only to the resale of common stock by Aspire.
Prior
to entering into the Purchase Agreement, Aspire had no affiliation, agreements or understandings with the Company, its officers,
directors or affiliates. At no time since the execution of the Purchase Agreement has Aspire had the ability to control or influence
the decisions of the Company due, primarily, to the existence of larger stockholders and its relative position. Were the Company
to issue all 3,000,000 shares that it has the contractual right to issue to Aspire under the Purchase Agreement, Aspire still
would not be an affiliate of the Company, as it would lack the ability to control or influence the decisions of the Company.
As
described in the Registration Statement, the Purchase Agreement permits the Company, in its sole discretion, to put shares to
Aspire at the price tied directly to the market price of the common stock. When the Company gives notice to Aspire of a put, the
company will either know the exact price at which such shares will be purchased by Aspire in the case of a “regular purchase”
or can establish a minimum purchase price in the case of a “VWAP purchase”. Also, in the case of a regular purchase,
the purchase price is determined prior to the time any shares will be issued to Aspire. As Aspire is prohibited from effecting
short sales (or any other heading transaction) in the Company’s Securities, this provision provides a fundamental economic
incentive to Aspire to avoid selling into the market if it would cause downward pressure on the stock price. Finally, the Purchase
Agreement includes a floor price, which prohibits any sales by the Company on days that the stock price closes below a specified
price. These provisions allay any potential concerns that the transaction contemplated under the Purchase Agreement could have
a “toxic” effect to existing stockholders.
Securities
and Exchange Commission
January 24, 2017
Page
5
E.
The Selling Stockholder is Not in the Business of Underwriting Securities
Aspire
is not in the business of underwriting securities and is not a registered broker-dealer. In fact, Aspire and its principals have
a long history of entering into equity line transactions that are fundamentally similar to the transaction it has entered into
with the Company and a long history of maintaining ownership interest in the companies with which it engages in those transactions.
F.
Under all of the Circumstances, the Selling Stockholder is Not Acting as a Conduit for the Company
Aspire
is an investor in the Company and has agreed to incur the economic risk for its investment over the term of the Purchase Agreement.
In contrast, an underwriter typically desires to sell shares before it even acquires them to eliminate market risk, among other
reasons.
Securities
Act Section C&DI 139.13 sets forth the Staff’s view as to when an offering of securities by a selling stockholder may
be characterized as an indirect primary offering. Specifically, a company must meet the following conditions:
●
it
must “complete” the private transaction of all of the securities it is registering for “resale” prior
to the filing of the registration statement;
●
the
“resale” registration statement must be on the form that the company is eligible to use for a primary offering;
and
●
the
investor(s) must be identified as underwriter(s) in the prospectus, as well as selling stockholder(s).
We
respectfully submit that the Company has met the requirements set forth above such that the offering set forth in the Registration
Statement is properly characterized as an indirect primary offering. In this regard, we note that Aspire has been unconditionally
obligated to accept the shares described in the Registr