The following e-filed documents, listed by NYSCEF document number (Motion 001) 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 28, 29, 30, 31, 39 were read on this motion to/for DISMISS. DECISION + ORDER ON MOTION Upon the foregoing documents, the defendants’ motion to dismiss (Mtn. Seq. No. 001) is DENIED. The Relevant Facts and Circumstances This is a putative class action alleging violations of Section 12(a)(2) and 15 of the Securities Act of 1933 (the 1933 Act) brought on behalf of the plaintiff and a proposed class of investors who purchased NowRx’s stock between February 1, 2022 through July 1, 2022 (the Proposed Class Period) pursuant to a barrage of some 48 hard sell email solicitations (the Email Solicitations; NYSCEF Doc. No. 30) sent during an approximately nine month period by Seed Invest Technology, LLC and/or SI Securities, LLC (collectively, Seed Invest) which told the plaintiff and other similarly situated potential class members, in effect, that they better “act now” because NowRx shares were flying off the shelf and they would lose the opportunity to invest in the then well positioned NowRx. In the well-pled amended complaint (the AC; NYSCEF Doc. No. 9), the plaintiff alleges that he purchased NowRx Series C preferred stock on June 8, 2022 (approximately five months before NowRx’s liquidation where the plaintiff lost his entire investment) pursuant to the Email Solicitations which gave the false and misleading impression that NowRx was doing great (i.e., instead of being in dire straits) and did not mention the “going concern” risks identified in the NowRx’s prior September 29, 2021 Offering Circular (the Offering Circular; NYSCEF Doc. No. 15) or its May 2022 Form 1-K (the May 2022 1-K; NYSCEF Doc. No. 17) and instead and only in fine print in some of such Email Solicitations had a link to such dated documents. However, and significantly, according to the AC, even had an investor clicked on the link and reviewed those NowRx documents, the Email Solicitations still were materially misleading in violation of Section 12 because they gave the false impression that the going concern risks identified in the May 2022 1-K and the Offering Circular were being adequately addressed and also because they failed to disclose the significant costs and risks associated with an investment in NowRx at the time of the sales (including, by way of example, the cost of the Seed Invest capital raise itself). Indeed, if anything, according to the AC, the prior filings made the Email Solicitations all the more misleading because the Email Solicitations gave the plaintiff and other investors the impression that the once “down and out” NowRx was shoring up its financial capital needs and, as such, presented a great and limited opportunity for investment because the Email Solicitations emphasized the effectiveness of Seed Invest’s capital raise campaign — i.e., the very concern identified in the “going concern” opinion in the Offering Circular and the May 2022 1-K. To be clear, the plaintiff does not allege that the information provided in the Email Solicitations regarding topline revenue and share price growth, raw dollars invested, hiring of executives, etc., are affirmatively false. Rather, the claim is that the Email Solicitations painted a misleadingly optimistic picture of NowRx’s viability as an investment by omitting adequate disclosures of NowRx’s need for additional capital to stay afloat and the costs associated with Seed Invest’s crowdfunding campaign which were not disclosed in the Offering Circular or the May 2022 1-K: 45. In or around May 2022, NowRx announced that it had again broken an [e]quity Crowdfunding record on SeedInvest with four days left in its solicitation of sales of NowRx equity campaign when it stated, “its current Series C equity crowdfunding round on SeedInvest, the leading equity crowdfunding platform, “surpassed $22.5M, making it the largest Regulation A investment in SeedInvest history.” 46. In May 2022, SeedInvest forwarded prospective investors an email from Defendant Cary Breese, proclaiming, inter alia, “this a great investment” And touting the C stock offering fundraising. This email claiming was false and misleading because NowRx and/or SeedInvest knew or should have known at that time that the approximately 30 percent of Series C capital raise had been spent on advertising, in addition to the 8.5 percent commission to Seed and thus the amount of capital actually available to Seed from the offering was slightly more than 50 percent of what was represented to Plaintiff and investors. 47. On November 15, 2021, 2:04 p.m., SeedInvest sent Plaintiff and class members an email that included a message from CEO Cary Breese, who stated that with their “plans to expand to several new territories alongside potential new growth opportunities in specialty and mail order medication, we believe the future looks extremely bright in 2022.” 48. On January 27, 2022, at 4:15 p.m., SeedInvest sent Plaintiff and class members an email that stated the company “reported two consecutive months or record-breaking revenue in November and December 2021, [that] explains NowRx’s plans for nationwide expansion.” 49. Similarly, on February 10, 2022, SeedInvest sent another email with a message from the newly acquired CFO, who stated “NowRx is growing quickly” and “[was] out in front of the competition.” 50. On March 1, 2022, 4:09 p.m., SeedInvest sent an email quoting CEO Cary Breese, who stated, “the popularity of our newest telehealth service demonstrates NowRx’s ability to expand beyond just prescription delivery” and “we believe this offers another incredible channel to scale revenue in the growing $61B_U.S. telehealth market.” 51. Per an email on April 21, 2022, 1:56 p.m., SeedInvest stated “NowRx has continued to see strong traction in 2022, with four facilities announced, record-breaking revenue, and strategic hires…helping position the company for growth.” 52. Despite this constant touting of company growth, record-breaking revenue, and expansion into a lucrative market, SeedInvest failed to disclose or warn that NowRx recent financial condition was materially worse than the stale financials in the Offering Circular showed. 53. On January 26, 2022, SeedInvest sent Plaintiff a “Deal Updates” email in which it touted NowRx in which it solicited Plaintiff to “Register here.” 54. SeedInvest maintained a “profile” in its website for NowRx on which it posted NowRx updates thereto. SeedInvest’s emails to Plaintiff included a link to click on the “profile.” 55. On March 30, 2022 “SeedInvest” sent an email which stated, inter alia: The successful campaign has surpassed 17.2 million raised making it the most funded live deal on SeedInvest. 56. SeedInvest sold NowRx Series C stock through its “SeedInvest platform” as it admitted in a May 8, 2022 email to Plaintiff, October 5, 2021 email. 57. In its March 1, 2022 email SeedInvest announced: With over $15.9m raised from 5,000 investors don’t Miss Your Chance to invest…. 58. In its May 19, 2022 email, SeedInvest implored Plaintiff: As an existing investor in NowRx you might be following its historic Series C currently underway on SeedInvest making it the largest campaign in SeedInvest history. And “Since the last count in 2020, the share price increased 203 percent.” The subject line stated: “You already hold an investment that’s risen over 203 percent.“ 59. In its April 21, 2022 email to Plaintiff, SeedInvest announced that the “campaign has surpassed $18.5 million raised to date” and solicited Plaintiff and other investors to buy more C stock: “There is still time to invest before the campaign closes on Friday, May 20, less than one month from today … Already invested and want to invest more? If you have already confirmed an investment in this current Series C round, you can increase your investment by investing again” This was repeated in SeedInvest’s May 10, 2022 email and April 27, 2022, May 1, 2022 and May 12, 2022. 60. In its May 1, 2022 email SeedInvest announced that NowRx had “surpassed $20m raised is successfully funded…” and that since its first raise on SeedInvest in 2015, NowRx has “grown its share price over 1650 percent.” 61. It also stated: The stock market may be up and down, but it has little correlation with private investments available on SeedInvest. 62. These solicitations failed to disclose that NowRx’ percentage net proceeds of Series C, net of “Monthly Ad Spread” was steadily declining from 80 percent at the end of February 2022 to 69 percent by the end of May 2023. 63. In fact, despite touting the success of the SeedInvest offering, NowRx spent $867,500 on “Ad Spread” in March but raised only $1,438,250. In April the spread was $1,419,000 and the raise was $1,078,896; in May the spread was $2,839,000 and the raise was $3,390,000. 64. The Offering Statements available by links on SeedInvest emails would not have cured or ameliorated the misleading effects of SeedInvest emails because the linked Offering Statements were stale since they contained financial statement only as of June 30, 2021. 65. NowRx issued its “Offering Circular” dated September 29, 2021 and a supplement thereto dated January 21, 2022 (collectively “Offering Circular”). The Offering Circular was not sent to any investors in NowRx C stock but was sometimes accessible via a link in some of Seed’s email blasts to its crowd funded investors. 66. The offering was for ‘UP TO 7,002,801 SHARES OF PREFERRED STOCK” with a “minimum” of 238,095 shares. 67. In the “Use of Proceeds” statement at page 3, it stated: Use Of Proceeds: The net proceeds of the offering will be used to increase our research and development in pharmacy automation technology, accelerate our growth into new geographical regions and markets and expand operations to meet increasing consumer demand. This statement was materially false and misleading because it led investors to believe that the “net” was only net of the 8.5 percent commissions when in a reality the true net proceed were about 30 percent lower due to “Ad Spreading” to generate sales of C stock. 68. In a more comprehensive “Use of Proceeds” section at pages 14-15 of the Offering Circular, it provided more detail about the use of proceeds and allocation of proceeds to things like “pharmacy operations and support,” general administrative expenses of “employee compensation,” “legal, and office expenses” and “sales and marketing.” The Use of Proceeds in the September Offering Circular contained details on pages 14-15 about marketing expenses based upon various levels of the C stock offering size. For each offering scenario illustrated, the “sale and marketing” estimate was over 25 percent of the allocation of proceeds where the estimated offering size was between greater than $18.75 million up to the maximum net proceeds of $67.8 million. While the Offering Circular section Managements Discussion And Analysis” (“MDA”) disclosed that “sales and marketing” expenses included marketing costs for the sales of Series A securities, it made no disclosure of any estimate of marketing expenses to solicit sales of the C stock through Seed. The estimates were stale and materially misleading by February 2022 because Seed knew, or should have known that the Ad Spreading to spur sales of C stock were increasing every month but were yielding diminishing results of C stock sold. A ordinary investor could not piece together from the Offering Circular that NowRx spent approximately $2,041,872 on marketing to solicit Series A stock sale while generating $18.75 million of net proceeds, a bit over 10 percent of the net proceeds in early stages (up to December 31, 2021) of the C stock offering which were ballooning upward through 2022. 69. In the “Liquidity and Capital Resources” section of the MDA (pages 31-32), NowRx informed investors: “As we have done historically, we may again in the future elect to finance operations by selling equity to finance operations by selling equity or debt securities or borrowing money” and went on to state: “If we are unable to raise additional capital or generate sufficient cash from operations to adequately fund our operations, we will need to curtail planned activities to reduce costs.” Id. “Doing so will likely have an unfavorable effect on our ability to execute on our business plan, and have an adverse effect on our business results of operations and future prospects.” Id. 70. The Offering Circular revealed that after the minimum offering amount has been met, “the company may close on investments on a “rolling basis…” Id. at 47. 71. The Offering Statement included audited financial statements as of December 31, 2020 and unaudited six months financial statements ended June 30, 2021. Id. at page 50. The Supplemental Offering Circular did not include any new financial statements after June 21, 2021 even though unaudited six months and one year results as of December 31, 2021 were available when the Supplement issued. This information vacuum allowed Plaintiff and other class members to be misled by Seed’s materially false and misleading solicitations. 72. The January 21, 2022 Supplement addressed only two sections: “Directors Executive Officers and Significant Employees” and “Security Ownership of Management And Certain Shareholders.” There was no update to any financial condition or status of NowRx as a going concern, nor was there any disclosure of the progress of the C stock offering. 73. Internally, at NowRx, the Company’s financial condition and its capital raising as detailed in its December 15, 2021 Minutes of a Regular Meeting of the Board of Directors of NowRx, Inc. and information in the “Board Meeting __________ 12-15-2021″ told a materially different and bleaker story of events at NowRx. See NowRx-SEC-220 0000005-19. 74. The company forecast net loss of $9,047,633 million for three quarters 2021 based on $15,568,839 million of revenue versus a net loss of 10.4 million for all of 2020. 75. The Company internally shared that “Total Equity” had gone from $3,043,316 as of June 30, 2021 to negative 41,454 as of September 30, 2020. (NYSCEF Doc. No. 9,
