PXRB PixarBio Corporation (CE)

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following factors and other information in this prospectus before deciding to invest in our company. If any of the following risks actually occur, our business, financial condition, results of operations and prospects for growth would likely suffer. As a result, you could lose all or part of your investment.

Risk Factors Related to Our Company

We have a limited operating history.

Although we were formed in 2014, we have a limited operating history. Our business model entails testing and developing new pharmaceutical products and eventually bringing them to the marketplace. Because of the uncertainty that is present when attempting to bring any new drug or similar product to market, it is not possible to predict all of the risks associated with our company. Therefore, our forward-looking statements as to our success or failure are speculative. We are subject to all the risks and uncertainties which are characteristic of a new business enterprise, including the substantial problems, expenses and other difficulties typically encountered in the course of establishing a business, organizing operations and procedures, and engaging and training new personnel. The likelihood of our success must be considered in light of these potential problems, expenses, complications, and delays.

Our business model is unproven.

Our business model entails testing and developing new pharmaceutical products and eventually bringing them to the marketplace. Because of the uncertainty that is present when attempting to bring any new drug or similar product to market, it is not possible to predict all of the risks associated with our company. Additionally, we do not have an extensive operating history. Therefore, our forward-looking statements as to our success or failure are speculative. It is possible that our operations will not generate sufficient revenue to pay all of our acquisition and operating expenses, taxes, and debt service requirements, which would result in failure to meet our payment obligations. There is no assurance that we will generate net positive cash flows. Because of the newness of our business we may be required to implement significant operational adjustments to respond to unanticipated contingencies. As a result, we may need to make significant changes to our business model to address any unanticipated issues. The cost of making such changes could be significantly detrimental to us and our ability to make a profit.

We have incurred losses since our inception.

We have not generated revenues and have experienced negative cash flow from operations since our inception. We have incurred an accumulated deficit of $19.1 million through September 30, 2016. We anticipate that our operating expenses will continue to increase substantially in the foreseeable future as we develop our pharmaceutical-related ideas, products and/or services. There can be no assurance that our business strategy will be successful or will generate sufficient revenues to achieve or maintain profitability in the future.

If we need additional capital, there can be no assurance that we can obtain the substantial capital required to finance our operations.

Pursuant to our private placement offering which closed in October, 2016, we raised an aggregate of $7,186,094. In addition, on October 28, 2016, Mr. Francis M. Reynolds, our co-founder, Chief Executive Officer, Chief Financial Officer, Chief Scientific Officer and Chairman of the Board of Directors, has verbally agreed to provide a line of credit to us in the amount of $10,000,000 to fund our operations. We intend to enter into a written agreement shortly. In addition, we anticipate additional funds from the exercise of warrants issued in the most recent private placement offering. Although there can be no assurance when and if the warrants will be exercised, we believe such funds would provide us with sufficient capital to enable us to fund our operations into the first quarter of 2018.

If we need additional funds after the first quarter of 2018, there can be no assurance that we will be able to raise additional funds and there can be no assurance that additional funds can be obtained at favorable rates.

If we elect to raise additional funds through the issuance of more debt, we will be required to service that debt and our operational flexibility may be restricted by the terms of any financing.

If we successfully raise additional funds through the issuance of equity securities, then those securities may have rights, preferences or privileges senior to the rights of our common stock and the holders of common stock may experience dilution.

If we need additional funds after the first quarter of 2018, and we are unable to obtain additional funds, this would materially adversely affect our ability to properly implement our business plan.

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There is substantial doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient cash resources to meet our business objectives, all of which means that we may not be able to continue operations.

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the financial statements for the years ended December 31, 2015 and 2014, respectively, with respect to their doubt about our ability to continue as a going concern. As discussed in Note 1 to our consolidated financial statements for the year ended December 31, 2015, we have incurred losses since inception, we are devoting substantially all of our efforts toward research and development and have an accumulated deficit of $19.1 million at September 30, 2016. These factors raise substantial doubt about our ability to continue as a going concern. Our success is dependent on the successful execution of our management’s strategy, its ability to generate profits in future years and sufficient cash flows to fund its operations. Our ability to execute our operating plan depends on our ability to obtain additional funding via the sale of equity and/or debt securities, a strategic transaction or otherwise. We plan to continue to actively pursue financing alternatives, but there can be no assurance that we will obtain the necessary funding.

We may be subject to tort liability, consumer lawsuits, etc.

Even the most careful and conscientious drug manufacturers are subjected to lawsuits. Under various federal, state, and local laws, ordinances, and regulations, as well as common law, we may be liable for alleged damages as well as related costs of investigations by regulators of our products and/or operations. Such laws could impose liability without regard to whether we knew of, or were responsible for, the alleged conditions. Noncompliance with such laws or regulations may require us to cease or alter operations.

Regional and local economic conditions may adversely affect our business.

Our ability to generate revenues will be influenced by the regional and local economy, which may be negatively impacted by economic slowdowns, increased unemployment, lack of availability of consumer credit, increased levels of consumer debt, poor housing market conditions, adverse weather conditions, natural disasters and other factors. Similarly, other conditions, such as an oversupply of, or a reduction in demand for, pharmaceutical- related products or services and the supply of prospective customers may affect our ability to generate revenue.

Economic conditions may have an adverse effect on our revenues and available cash.

If general economic conditions worsen, people and business may be more reluctant to pay for our products and services. This would hinder our ability to implement our business strategies and have an unfavorable effect on our operations and our ability to generate revenue.

We may be liable for certain uninsured losses.

Certain types of losses, such as losses arising from acts of God, certain environmental issues or acts of terrorism or war, generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, this could drain us from any net cash flow realized from our operations. Consequently, any such losses could have a material adverse effect on our results of operations.

Any acquisition we make would involve a number of risks and could have an adverse effect upon our results of operations.

The success of any acquisition depends on management’s ability following the transaction to consolidate operations and integrate departments, systems and procedures, and thereby create business efficiencies, economies of scale, and related cost savings. There are no acquisitions in our immediate future; however, any acquisition we make, if any, would involve various risks, such as uncertainties in assessing the value, strengths, weaknesses, liabilities, including undisclosed liabilities, and potential profitability of the acquired company or asset. In such cases there would be a risk of potential losses of key employees and customers of an acquired business and of an inability to achieve identified operating and financial synergies anticipated to result from an acquisition. Any one or more of these factors could cause us not to realize the benefits anticipated to result from the acquisition or have a negative impact on the fair value of the acquired company or asset.

Accordingly, intangible assets recorded as a result of acquisitions could become impaired. Additionally, previously undisclosed liabilities could be identified and have a material adverse impact on our results of operations and cash flows.

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Interruptions in our information and telecommunication systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems, could adversely affect our business.

We intend to rely extensively upon computer systems to process transactions, maintain information and manage our business. Disruptions in the availability of our computer systems could impact our ability to service our customers and adversely affect our sales and results of operations. We are dependent on internal and third party information technology networks and systems, including the Internet and wireless communications, to process, transmit and store electronic information. Our computer systems are subject to damage or interruption due to system conversions, power outages, computer or telecommunication failures, computer viruses, security breaches, catastrophic events such as fires, tornadoes and hurricanes and usage errors by our employees. Also, our computer systems could be subject to physical or electronic break-ins, unauthorized tampering or other security breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to customers, or in the misappropriation of our proprietary information.

Interruptions in information and telecommunication systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems, whether due to actions by us or others, could delay or disrupt our ability to do business and service our customers, require us to incur significant investments to fix or replace them, harm our reputation, subject us to regulatory sanctions and other claims, lead to a loss of customers and revenues and otherwise adversely affect our business.

Risk Factors Related to Our Product and the Industry

We depend upon the success of our lead product candidate, NeuroRelease, and cannot guarantee that this product candidate will receive regulatory approval or be successfully commercialized.

We have invested a significant portion of our efforts and financial resources in the development of our most advanced product candidate, NeuroRelease. Our ability to generate revenues in the near term substantially depends upon our ability to develop and commercialize NeuroRelease. We intend to submit a new drug application (“NDA”) with the U.S. Food and Drug Administration, or (“FDA”), seeking approval to commercialize NeuroRelease for treatment of postsurgical pain. We cannot commercialize NeuroRelease prior to obtaining FDA approval.

If we do not receive FDA approval for, and commercialize, NeuroRelease, we will not be able to generate revenue from NeuroRelease in the foreseeable future, or at all. Any significant delays in obtaining approval for and commercializing NeuroRelease will have a substantial adverse impact on our business and financial condition.

We may not be able to achieve our marketing and future growth goals.

Our ability to implement our business plan in a rapidly evolving market requires planning and management, particularly with respect to our primary proposed product, NeuroRelease. Future expansion efforts could be expensive and may strain our managerial and other resources. To manage any future growth effectively, we must maintain and enhance our processes and technology, integrate existing and new personnel, and manage expanded operations. There can be no assurance that our current and planned personnel, systems, procedures, and controls will be adequate to support our future operations or that management will be able to hire, train, retain, motivate, and manage required personnel or that our management will be able to successfully identify, manage, and capitalize on existing and potential market opportunities. If we are unable to manage growth effectively, our business, prospects, and general financial condition would be materially adversely affected.

If NeuroRelease is approved by the FDA, our ability to generate revenues from NeuroRelease will depend upon our ability to:

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create market demand for NeuroRelease through our own marketing and sales activities, and any other arrangements to promote this product candidate we may later establish ;

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hire, train and deploy a sales force to commercialize NeuroRelease in the United States ;

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manufacture NeuroRelease in sufficient quantities and at an acceptable quality and at an acceptable manufacturing cost to meet commercial demand at launch and thereafter ;

·

establish and maintain agreements with wholesalers, distributors and group purchasing organizations on commercially reasonable terms ;

·

create partnerships with, or offer licenses to, third parties to promote and sell NeuroRelease outside the United States ; and

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maintain patent and trade secret protection and regulatory exclusivity for NeuroRelease.

If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, we may be unable to generate significant product revenues.

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Our industry is highly diverse and competitive.

We face significant competition from other pharmaceutical and biotechnology companies. Our operating results will suffer if we fail to compete effectively.

The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Our major competitors include organizations such as major multinational pharmaceutical companies, established biotechnology companies and specialty pharmaceutical and generic drug companies. Many of our competitors have greater financial and other resources than we have, such as larger research and development staff, more extensive marketing, distribution, sales and manufacturing organizations and experience, more extensive clinical trial and regulatory experience, expertise in prosecution of intellectual property rights and access to development resources like personnel and technology. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis technologies and drug products that are more effective or less costly than NeuroRelease or any other product candidate that we are currently developing or that we may develop, which could render our products obsolete and noncompetitive or significantly harm the commercial opportunity for NeuroRelease.

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize NeuroRelease. Our competitors may also develop drugs that are more effective, useful or less costly than ours and may be more successful than us in manufacturing and marketing their products.

NeuroRelease will compete with well-established products with similar indications. Competing products available for postsurgical pain management include opioids such as morphine, fentanyl, meperidine and hydromorphone, each of which is available generically from several manufacturers, and several of which are available as proprietary products using novel delivery systems. While opioids represent the mainstay for treating postsurgical pain, we expect to compete with currently marketed products targeting the postsurgical market, including: liposomal bupivacaine (Exparel), IV Tylenol (Ofirmev) and elastomeric bumps (OnQ) in an effort to eliminate or greatly reduce the need for opioids. We also expect to compete with extended release bupivacaine products in development by Heron Therapeutics (OTX-011), Durect Corporation which licensed its product to Hospira in North America (Posidur) and to Nycomed for Europe (Optesia).

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for NeuroRelease or other product candidates that we may develop and may have to limit their commercialization.

Even the most careful and conscientious drug manufacturers are subjected to lawsuits. Under various federal, state, and local laws, ordinances, and regulations, as well as common law, we may be liable for alleged damages as well as related costs of investigations by regulators of our products and/or operations. Such laws could impose liability without regard to whether we knew of, or were responsible for, the alleged conditions. Noncompliance with such laws or regulations may require us to cease or alter operations.

We do not have product liability insurance. If we choose to obtain product liability insurance but cannot obtain sufficient insurance coverage at an acceptable cost or otherwise protect against potential product liability claims, the commercialization of products that we develop may be prevented or inhibited. On occasion, large judgments have been awarded in class action lawsuits based upon drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

Failure to invent, develop or acquire one or more minimally viable products or services would adversely affect our business.

We are a development stage corporation primarily focused on pre-clinical and commercial development of new products that meet the needs of neurological clinicians and their patients. We have developed a novel drug delivery platform to treat post-operative, acute and chronic pain. We are using patent pending formulations of FDA approved biomaterials and FDA approved non-opiate drugs to target key neurological areas to treat pain. There can be no assurance that we will be successful in inventing, developing or acquiring pharmaceutical-related products or services that will be economically viable in the marketplace or that such will be profitable.

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Failure to obtain customers would adversely affect our business.

Our success depends in part upon our ability to find and/or retain customers that want our pharmaceutical-related products or services. Our ability to obtain customers depends on a variety of factors, including the quality, price, and responsiveness of the products or services we offer, as well as our ability to market such products or services effectively and differentiate our offerings from those of our competitors. We cannot assure shareholders that we will find customers for our products or services or that any customers we find will not turn to competitors.

Our products or services may contain, utilize or involve hazardous materials and chemicals which could result in claims against us.

While we intend to utilize environmentally-friendly methods and/or non-toxic products wherever possible, in the pharmaceutical industry many products or services may contain, utilize or involve hazardous materials and chemicals.

Misuse of such hazardous material can lead to injuries and damages even with the use of proper PPEs (Personal Protection Equipment) and procedures. While the chances of injuries and accidents are rare, because of the nature of these substances or related residues, we may be liable for certain costs, including, among others, costs for health-related claims, or removal or remediation of such substances. We may be involved in claims and litigation filed on behalf of persons alleging injury as a result of exposure to such substances or by governmental or regulatory bodies related to our handling and disposing of these substances. Because of the unpredictable nature of personal injury and property damage litigation and governmental enforcement, it is not possible to predict the ultimate outcome of any such claims or lawsuits that may arise. Any such claims and lawsuits, individually or in the aggregate, that are resolved against us, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We may be subject to environmental, health and safety regulations and may be adversely affected by new and changing laws and regulations.

We may be subject to laws and regulations relating to the protection of the environment and natural resources, and workplace health and safety, particularly with respect to our future manufacturing operations. These include, among other things, reporting on chemical inventories and risk management plans, and the management of hazardous substances. Violations of existing laws and enactment of future legislation and regulations could result in substantial penalties, temporary or permanent facility closures, and legal consequences. Moreover, in the event we acquire other pharmaceutical-related companies or concerns, the nature of their existing and historical operations may expose us to the risk of liability to third parties. The potential costs relating to environmental, solid waste, and product registration laws and regulations are uncertain due to factors such as the unknown magnitude and type of possible contamination and clean-up costs, the complexity and evolving nature of laws and regulations, and the timing and expense of compliance. Changes to current laws, regulations or policies could impose new restrictions, costs, or prohibitions on our intended practices which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

If our products are improperly manufactured, packaged, or labeled or become adulterated or expire, those items may need to be recalled or withdrawn from sale.

We may need to recall, voluntarily or otherwise, any products we sell if such products are improperly manufactured, packaged, or labeled or if they become adulterated or expire. Widespread product recalls could result in significant losses due to the costs of a recall and lost sales due to the unavailability of product for a period of time. A significant product recall could also result in adverse publicity, damage to our reputation, and loss of customer confidence in our products, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Changes in the types or variety of our products could affect our financial performance

Our financial performance may be affected by changes in the types or variety of pharmaceutical-related products offered to our customers. For example, if we evolve our business to include a combination of products, the amount of money required for the purchase of additional equipment and training for associates may increase. Additionally, the gross margin on product sales can often be less than gross margin on service revenue. Any such changes in variety or adjustment to any product and service offerings could have a material adverse effect on our financial performance.

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We may be unable to generate sufficient revenue, if we are unable to establish effective marketing and sales capabilities or to enter into agreements with third parties to market and sell our proposed products

We currently do not have a commercial infrastructure for the marketing, sale and distribution of pharmaceutical products. In order to commercialize our products, we must build our marketing, sales and distribution capabilities or make arrangements with third parties to perform these services. If NeuroRelease is approved by the FDA, we plan to build a commercial infrastructure to launch NeuroRelease in the United States, which may include a specialty sales force. We may seek to further penetrate the U.S. market by expanding our sales force or through collaborations with other pharmaceutical or biotechnology companies or third-party manufacturing and sales organizations. We may also seek to commercialize NeuroRelease outside the United States, although we currently plan to do so with a marketing and sales collaborator and not with our own sales force.

The establishment and development of our own sales force and related compliance plans to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We, or our future collaborators, will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. In the event we are unable to develop a marketing and sales infrastructure, we would not be able to commercialize NeuroRelease or any other product candidates that we develop, which would limit our ability to generate product revenues.

Although our current plan is to hire most of our sales and marketing personnel only if NeuroRelease is approved by the FDA, we will incur expenses prior to product launch in recruiting this sales force and developing a marketing and sales infrastructure. If the commercial launch of NeuroRelease is delayed as a result of FDA requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of NeuroRelease. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing NeuroRelease or any other product candidates that we may develop.

To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts. In the event we are unable to collaborate with a third-party marketing and sales organization, our ability to generate product revenues may be limited either in the United States or internationally.

If NeuroRelease does not achieve broad market acceptance, the revenues that we generate from its sales will be limited.

Even if NeuroRelease is approved by the appropriate regulatory authorities for marketing and sale, it may not gain acceptance among physicians, hospitals, patients and third-party payers. If our products for which we obtain regulatory approval do not gain an adequate level of acceptance, we may not generate significant additional product revenues or become profitable. Market acceptance of NeuroRelease, and any other product candidates that we develop, license or acquire, by physicians, hospitals, patients and third-party payers will depend upon a number of factors, some of which are beyond our control. The degree of market acceptance of NeuroRelease will depend upon a number of factors, including:

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limitations or warnings contained in the product’s FDA-approved labeling, including potential limitations or warnings for NeuroRelease that may be more restrictive than other pain management products;

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changes in the standard of care for the targeted indications for NeuroRelease, which could reduce the marketing impact of any claims that we could make following FDA approval, if obtained;

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the relative convenience and ease of administration of NeuroRelease;

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the prevalence and severity of adverse events associated with NeuroRelease;

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cost of treatment versus economic and clinical benefit in relation to alternative treatments;

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the availability of adequate coverage or reimbursement by third parties, such as insurance companies and other healthcare payers, and by government healthcare programs, including Medicare and Medicaid;

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the extent and strength of our marketing and distribution of NeuroRelease;

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the safety, efficacy and other potential advantages over, and availability of, alternative treatments, including, in the case of NeuroRelease, a number of products already used to treat pain in the hospital setting; and

·

distribution and use restrictions imposed by the FDA or to which we agree as part of a mandatory risk evaluation and mitigation strategy or voluntary risk management plan.

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Our ability to effectively promote and sell NeuroRelease and any other product candidates that we may develop, license or acquire in the hospital marketplace will also depend upon pricing and cost effectiveness, including our ability to produce a product at a competitive price and achieve acceptance of the product onto hospital formularies, and our ability to obtain sufficient third-party coverage or reimbursement. Since many hospitals are members of group purchasing organizations, which leverage the purchasing power of a group of entities to obtain discounts based upon the collective buying power of the group, our ability to attract customers in the hospital marketplace will also depend upon our ability to effectively promote our product candidates to group purchasing organizations. We will also need to demonstrate acceptable evidence of safety and efficacy, as well as relative convenience and ease of administration. Market acceptance could be further limited depending on the prevalence and severity of any expected or unexpected adverse side effects associated with our product candidates. If our product candidates are approved but do not achieve an adequate level of acceptance by physicians, health care payers and patients, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payers on the benefits of our product candidates may require significant resources and may never be successful.

In addition, even if the medical community accepts that NeuroRelease is safe and effective for its approved indications, physicians and patients may not immediately be receptive to NeuroRelease and may be slow to adopt it as an accepted treatment of postsurgical pain. It is unlikely that any labeling approved by the FDA will contain claims that NeuroRelease is safer or more effective than competitive products or will permit us to promote NeuroRelease as being superior to competing products. Further, the availability of inexpensive generic forms of postsurgical pain management products may also limit acceptance of NeuroRelease among physicians, patients and third-party payers. If NeuroRelease is approved but does not achieve an adequate level of acceptance among physicians, patients and third-party payers, we may not generate meaningful revenues from NeuroRelease and we may not become profitable.

We may rely upon third parties to perform many essential services for any products that we commercialize, including services related to warehousing and inventory control, distribution, customer service, accounts receivable management, cash collection and adverse event reporting. If these third parties fail to perform as expected or to comply with legal and regulatory requirements, our ability to commercialize NeuroRelease will be significantly impacted and we may be subject to regulatory sanctions.

We may retain third-party service providers to perform a variety of functions related to the sale and distribution of NeuroRelease, key aspects of which will be out of our direct control. These service providers may provide key services related to warehousing and inventory control, distribution, customer service, accounts receivable management and cash collection, and, as a result, most of our inventory may be stored at a single warehouse maintained by one such service provider. If we retain this provider, we would substantially rely upon them as well as other third-party providers that perform services for us, including entrusting our inventories of products to their care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical or natural damage at their facilities, our ability to deliver product to meet commercial demand would be significantly impaired. In addition, we may engage third parties to perform various other services for us relating to adverse event reporting, safety database management, fulfillment of requests for medical information regarding our product candidates and related services. If the quality or accuracy of the data maintained by these service providers is insufficient, we could be subject to regulatory sanctions.

Risk Factors Related to Management

There are risks associated with our management.

Our future operations could be adversely affected by future changes related to our management and/or founders which could include, without limitation, illness, disability, or a decision to pursue other interests. While none of these events is contemplated as of the date of this Prospectus, if any such events occur, there can be no assurance that one or more of these events or another potential event would not adversely affect the ability of our officers and directors to fulfill their obligations.

Our management and affiliates may have conflicts of interest.

Our management may act in a similar capacity for other unaffiliated concerns. Our management’s capability to satisfy its obligations could be adversely affected by such other involvements. Certain services to be provided to us, such as legal, accounting, engineering, analysis, consulting, marketing, overhead, and technical services may be performed by affiliates or related parties of our management. Such services will be performed at rates believed to be comparable to rates charged by other independent non-affiliated concerns operating in nearby areas for similar services. However, there is the likelihood that if our anticipated activities are not ultimately profitable, that such affiliates or related parties may still realize profits even though our shareholders do not realize the same such profit. Conflicts of interest may arise for our management, consultants, affiliates, and others associated with us by way of contract.

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In addition, our management may become affiliated with other entities engaged in business activities similar to those which we intend to conduct. Additionally, our management may become aware of business opportunities which may presented to us as well as to other entities with which they are or may be affiliated. Due to their existing affiliations, our management may have fiduciary obligations to present potential business opportunities to those entities before presenting them to us, which could cause additional conflicts of interest. We cannot assure our shareholders that these conflicts will be resolved in our favor.

Also, certain managers may have personal, family, unrelated business or other relationships with each other. Such relationships could give rise to issues not otherwise present.

We will indemnify our directors and our management and authorize them to obtain D&O (directors and officers) liability insurance paid for by us.

All of these activities and factors may result in conflicts of interest.

Our success depends upon certain key members of management, the loss of whom could disrupt our business operations.

Our success depends upon the success of our management team and our other key personnel, particularly Francis M. Reynolds, one of our founders, our Chief Executive Officer, Chief Financial Officer, Chief Scientific Officer and Chairman of the Board of Directors. The loss of Mr. Reynolds’s services would disrupt our operations, our performance, our value and the value of our assets. Our operations, our performance, our value and the value of our assets depend upon our ability to retain and motivate our other officers and other key employees. The loss of the services of any of our management or other key employees could have a material adverse effect upon our business, prospects, financial condition, and results of operations. To the extent that the services of Mr. Reynolds or any of our management or other key employees become unavailable, we will be required to retain other qualified persons and there can be no assurance that we shall be able to employ qualified persons upon acceptable terms.

We do not have a key person life insurance policy with respect to any member of our management.

We are dependent upon attracting and retaining highly skilled personnel.

We believe our future success depends upon our ability to identify, attract, hire, train, retain, and motivate other highly skilled technical, managerial, sales, marketing, and customer service personnel. Competition for such personnel is intense and there can be no assurance that we will be able to successfully attract, assimilate, and retain sufficiently qualified personnel. The failure to attract and retain the necessary technical, managerial, sales, marketing, and customer service personnel could have a material adverse effect on our business, prospects, financial condition, and results of operations.

Our management and shareholders will have broad discretion on how to use proceeds and over corporate actions.

Our management will have broad discretion with respect to the use of the proceeds of any offering, including discretion to use the proceeds in ways which may not be discussed in this Prospectus and with which investors may disagree. The shareholders will be relying on the sole judgment and discretion of our management regarding the application of the proceeds of any offering which may be used for any purpose.

Certain shareholders may exert significant influence over any corporate action requiring stockholder approval.

As of the date of this Prospectus, certain founding shareholders and/or control persons own or control a majority of our shares of Common Stock. As a result, these shareholders may be in a position to exert significant influence over any corporate action requiring shareholder approval, including the election of directors, determination of significant corporate actions, amendments to our certificate of incorporation and by-laws, and the approval of any business transaction, such as mergers or takeover attempts, in a manner that could conflict with the interests of other shareholders.

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Risk Factors Related to Government Regulations

We could incur securities regulatory action.

Prior to the date of this Prospectus, we have conducted one or more private placement offerings of equity and/or debt securities. We believe the placement of such securities were conducted in compliance with existing federal and state securities laws and exemptions from registration. However, any one or more of such placements of such securities could be found by the SEC and/or one or more state securities regulatory agencies to have not been conducted in accordance with the requirements of available exemptions and/or constitute a single offering of securities, which finding could lead to a disallowance of exemptions from registration. Such could give rise to various legal actions against us brought by federal or state regulatory agencies and/or private litigants. In such event there can be no assurance that such proceedings would be resolved in our favor.

We may be adversely affected by regulatory matters.

Our operations may be adversely affected by legislative, regulatory, administrative and enforcement actions at the local, state and national levels (for example, the U.S. Food and Drug Administration, U.S. Securities and Exchange Commission, Federal Trade Commission, state consumer protection agencies, etc.).

We may not receive regulatory approval for NeuroRelease or any of our other product candidates, or the approval may be delayed for various reasons, including successful challenges to the FDA’s interpretation of Section 505(b)(2), which would have a material adverse effect on our business and financial condition.

We may experience delays in our efforts to obtain regulatory approval from the FDA for NeuroRelease or any of our other product candidates, and there can be no assurance that such approval will not be delayed, or that the FDA will ultimately approve these product candidates.

The FDA may require additional data or information as part of its review of our NDA. If additional stability data or other manufacturing data is required, such data may not be available for a significant amount of time, which could further delay the approval of our NDA for NeuroRelease and cause us to incur significant additional expenses.

Our NDA approval may be subject to a pre-approval inspection of our production facilities for manufacturing for NeuroRelease. Our NDA approval for NeuroRelease could be delayed if the FDA does not agree that the registration batches submitted in our NDA are fully representative of the manufacturing process and thus meet the requirements for batches that may be used to provide evidence of stability for this product candidate. In such an event, we would be required to potentially manufacture new batches in order to provide the necessary stability data which could delay FDA approval and cause us to incur significant additional expenses.

Additionally, our NDA for NeuroRelease may not be approved, or approval may be delayed, as a result of changes in FDA policies for drug approval. For example, although many products have been approved by the FDA in recent years under Section 505(b)(2) under the FDCA, objections have been raised by certain brand-name pharmaceutical companies and others to the FDA’s interpretation of Section 505(b)(2). If challenges to the FDA’s interpretation of Section 505(b)(2) are successful, the agency may be required to change its interpretation, which could delay or prevent the approval of our NDAs for NeuroRelease or any of our other product candidates.

Any significant delay in re-submitting an NDA and obtaining FDA approval for NeuroRelease, or a non-approval, could negatively impact our ability to ultimately obtain marketing authorization for this product candidate and would have a material adverse effect on our business and financial condition.

If NeuroRelease is approved and we fail to manufacture the product in sufficient quantities and at acceptable quality and pricing levels, or to fully comply with cGMP regulations, we may face delays in the commercialization of this product candidate or be unable to meet market demand, and may lose potential revenues.

The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls, and the use of specialized processing equipment. To meet anticipated demand for NeuroRelease if this product candidate is approved, we plan to install additional specialized processing equipment to expand the manufacturing capacity for NeuroRelease in our facilities. This processing equipment is designed based upon our specifications and is not generally commercially available. If we are not able to expand our capacity to manufacture NeuroRelease on time or at all, our ability to meet our customers’ product demands may be materially and adversely impacted.

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We purchase raw materials and components from various suppliers in order to manufacture NeuroRelease. If we are unable to source the required raw materials from our suppliers, we may experience delays in manufacturing NeuroRelease and may not be able to meet our customers’ demands for NeuroRelease.

In addition, we need to comply with federal, state and foreign regulations, including cGMP requirements enforced by the FDA through its facilities inspection program. Any failure to comply with applicable regulations may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval, and would limit the availability of our product. Any manufacturing defect or error discovered after products have been produced and distributed could result in even more significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims.

If we are unable to produce the required commercial quantities of NeuroRelease to meet market demand for NeuroRelease on a timely basis or at all, or if we fail to comply with applicable laws for the manufacturing of NeuroRelease, we will suffer damage to our reputation and commercial prospects and we will lose potential revenues.

The FDA may determine that NeuroRelease or any of our other product candidates have undesirable side effects that could delay or prevent their regulatory approval or commercialization.

If concerns are raised regarding the safety of a new drug as a result of undesirable side effects identified during clinical testing, the FDA may decline to approve the drug at the end of the NDA review period or issue a letter requesting additional data or information prior to making a final decision regarding whether or not to approve the drug. The number of such requests for additional data or information issued by the FDA in recent years has increased, and resulted in substantial delays in the approval of several new drugs. Undesirable side effects caused by NeuroRelease or any other product candidate could also result in the inclusion of unfavorable information in our product labeling, denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, and in turn prevent us from commercializing and generating revenues from the sale of NeuroRelease or any other product candidate.

If NeuroRelease or any of our other product candidates receive regulatory approval and we or others later identify undesirable side effects caused by such products:

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regulatory authorities may require the addition of unfavorable labeling statements, specific warnings or a contraindication

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regulatory authorities may suspend or withdraw their approval of the product, or require it to be removed from the market

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regulatory authorities may impose restrictions on the distribution or use of the product

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we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product

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we may be subject to product liability claims and litigation; and

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our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of NeuroRelease or any of our other product candidates and could substantially increase our commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from its sale.

Regulatory approval for any approved product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated.

Any regulatory approval is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. In addition to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. If we do not obtain FDA approval for any desired future indications for our products and product candidates, our ability to effectively market and sell our products may be reduced and our business may be adversely affected.

While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA. These “off-label” uses are common across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to issue warning letters or untitled letters, suspend or withdraw an approved product from the market, require a recall or institute fines or civil fines, or could result in disgorgement of money, operating restrictions, injunctions or criminal prosecution, any of which could harm our business.

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If we are unable to complete pre-commercialization manufacturing development activities for NeuroRelease on a timely basis or fail to comply with stringent regulatory requirements, we will face delays in our ability to obtain regulatory approval for, and to commercialize, this product candidate, and our costs will increase.

As part of the process for obtaining regulatory approval, we must demonstrate that the facilities, equipment and processes used to manufacture NeuroRelease are capable of consistently producing a product that meets all applicable quality criteria, and that is comparable to the product that was used in our clinical trials. We must also provide the FDA with information regarding the validation of the manufacturing facilities, equipment and processes and data supporting the stability of our product candidate. If we are not in compliance with cGMP requirements, the approval of our NDA may be delayed, existing product batches may be compromised, and we may experience delays in the availability of this product candidate for commercial distribution.

Even if NeuroRelease receives regulatory approval, it and any other products we may market will remain subject to substantial regulatory scrutiny.

NeuroRelease and any other product candidates that we may develop, license or acquire will also be subject to ongoing FDA requirements with respect to the manufacturing, labeling, packaging, storage, distribution, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. In addition, the subsequent discovery of previously unknown problems with a product may result in restrictions on the product, including withdrawal of the product from the market.

If NeuroRelease or any other product that we may develop, license or acquire fails to comply with applicable regulatory requirements, such as cGMP regulations, a regulatory agency may:

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issue warning letters or untitled letters;

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require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

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impose fines and other civil or criminal penalties;

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suspend regulatory approval;

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suspend any ongoing clinical trials;

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refuse to approve pending applications or supplements to approved applications filed by us;

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impose restrictions on operations, including costly new manufacturing requirements; or

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seize or detain products or require a product recall.

If we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

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the federal Anti-Kickback Statute, which constrains our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

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federal physician self-referral laws, such as the Stark law, which prohibit a physician from making a referral to a provider of certain health services with which the physician or the physician’s family member has a financial interest, and prohibit submission of a claim for reimbursement pursuant to a prohibited referral;

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HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; and

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Recently, several pharmaceutical and other healthcare companies have been prosecuted under the federal false claims laws for allegedly inflating drug prices they report to pricing services, which in turn are used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. To the extent that any product we make is sold in a foreign country, we may be subject to similar foreign laws and regulations. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

If the government or third-party payers fail to provide coverage and adequate coverage and payment rates for NeuroRelease or any future products we may develop, license or acquire, if any, or if hospitals choose to use therapies that are less expensive, our revenue and prospects for profitability will be limited.

In both domestic and foreign markets, sales of our existing products and any future products will depend in part upon the availability of coverage and reimbursement from third-party payers. Such third-party payers include government health programs such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate. In particular, many U.S. hospitals receive a fixed reimbursement amount per procedure for certain surgeries and other treatment therapies they perform. Because this amount may not be based upon the actual expenses the hospital incurs, hospitals may choose to use therapies which are less expensive when compared to our product candidates. Accordingly, NeuroRelease or any other product candidates that we may develop, in-license or acquire, if approved, will face competition from other therapies and drugs for these limited hospital financial resources. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to the satisfaction of hospitals, other target customers and their third-party payers. Such studies might require us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.

Third party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payers. Therefore, coverage and reimbursement for drug products can differ significantly from payer to payer.

Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a negative effect on our business, results of operations, financial condition and prospects.

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The FDA may not approve our proposed trade name, NeuroRelease.

NeuroRelease, or any other trade name that we intend to use for extended-release liposome injection of carbamazepine, must be approved by the FDA irrespective of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office. The FDA conducts a rigorous review of proposed product names, and may reject a product name if it believes that the name inappropriately implies medical claims or if it poses the potential for confusion with other product names. The FDA will not approve this trade name until the NDA for NeuroRelease is approved. If our trade name, NeuroRelease, is rejected, we will lose the benefit of any brand equity that may already have been developed for this product candidate, as well as the benefit of our existing trademark applications for this trade name. If the FDA does not approve the NeuroRelease trade name, we may be required to launch this product candidate without a brand name, and our efforts to build a successful brand identity for, and commercialize, this product candidate may be adversely impacted.

We are subject to new legislation, regulatory proposals and healthcare payer initiatives that may increase our costs of compliance and adversely affect our ability to market our products, obtain collaborators and raise capital.

In March 2010, the President signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, which we refer to collectively as the Health Care Reform Law. The Health Care Reform Law makes extensive changes to the delivery of health care in the United States. These measures could result in decreased net revenues from our pharmaceutical products and decrease potential returns from our development efforts.

In addition, there have been a number of other state legislative and regulatory proposals aimed at changing the pharmaceutical industry. Compliance with future federal or state electronic pedigree requirements to track pharmaceuticals products may increase our operational expenses and impose significant administrative burdens. As a result of these and other new proposals, we may change our manner of operation, provide additional benefits or change our contract arrangements, any of which could have a material adverse effect on our business, financial condition and results of operations.

Public concern regarding the safety of drug products such as NeuroRelease could delay or limit our ability to obtain regulatory approval, result in the inclusion of unfavorable information in our labeling, or require us to undertake other activities that may entail additional costs.

In light of widely publicized events concerning the safety risk of certain drug products, the FDA, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and the establishment of risk management programs that may, for example, restrict distribution of drug products after approval. The Food and Drug Administration Amendments Act of 2007 (“FDAAA”) grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the FDAAA authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information and require risk evaluation and mitigation strategies for certain drugs, including certain currently approved drugs. It also significantly expands the federal government’s clinical trial registry and results databank, which we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties. The increased attention to drug safety issues may result in a more cautious approach by the FDA in its review of data from our clinical trials. Data from clinical trials may receive greater scrutiny, particularly with respect to safety, which may make the FDA or other regulatory authorities more likely to require additional preclinical studies or clinical trials. If the FDA requires us to conduct additional preclinical studies or clinical trials prior to approving NeuroRelease, our ability to obtain approval of this product candidate will be delayed. If the FDA requires us to provide additional clinical or preclinical data following the approval of NeuroRelease, the indications for which this product candidate is approved may be limited or there may be specific warnings or limitations on dosing, and our efforts to commercialize NeuroRelease may be otherwise adversely impacted.

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Risks Related to Intellectual Property

The patents and the patent applications that we have covering our products are limited to specific drug delivery technology and our market opportunity for our product candidates may be limited by the lack of patent protection for the active ingredient itself and other formulations and delivery technology and systems that may be developed by competitors.

A therapeutically active ingredient in NeuroRelease is carbamazepine, a known compound for which patent protection is unavailable. As a result, competitors who obtain the requisite regulatory approval can offer products with the same active ingredients as NeuroRelease so long as the competitors do not infringe any process, use or formulation patents that we have developed for these drugs encapsulated in our NeuroRelease drug delivery technology.

The commercial opportunity for NeuroRelease could be significantly harmed if competitors are able to develop and commercialize alternative formulations of carbamazepine that are long acting but outside the scope of our patents.

If NeuroRelease is approved by the FDA, one or more third parties may challenge the patents covering this product, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. For example, if a third party files an Abbreviated New Drug Application, or ANDA, for a generic drug product containing carbamazepine and relies in whole or in part on studies conducted by or for us, the third party will be required to certify to the FDA that either: (1) there is no patent information listed in the FDA’s Orange Book with respect to our NDA for NeuroRelease; (2) the patents listed in the Orange Book have expired; (3) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of the third-party’s generic drug product. Upon receiving a certification that the new product will not infringe the Orange Book-listed patents for NeuroRelease, or that such patents are we may then initiate a lawsuit to defend the patents identified in the notice. Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in unfavorable results that could adversely impact our ability to prevent third parties from competing with our products.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming to defend against such claims, and an unfavorable outcome in any litigation would harm our business.

Our ability to develop, manufacture, market and sell NeuroRelease or any other product candidates that we may develop, license or acquire depends upon our ability to avoid infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the general fields of pain management and cancer treatment and cover the use of numerous compounds and formulations in our targeted markets. Because of the uncertainty inherent in any patent or other litigation involving proprietary rights, we may not be successful in defending intellectual property claims by third parties, which could have a material adverse effect on our results of operations. Regardless of the outcome of any litigation, defending the litigation may be expensive, time-consuming and distracting to management. In addition, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that NeuroRelease may infringe. There could also be existing patents of which we are not aware that NeuroRelease—or its manufacture or use— may inadvertently infringe.

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third party claims that we infringe on their products or technology, we could face a number of issues, including:

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infringement and other intellectual property claims which, with or without merit, can be expensive and time consuming to litigate and can divert management’s attention from our core business;

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substantial damages for past infringement which we may have to pay if a court decides that our product infringes on a competitor’s patent;

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a court prohibiting us from selling or licensing our product unless the patent holder licenses the patent to us, which it would not be required to do

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if a license is available from a patent holder, we may have to pay substantial royalties or grant cross licenses to our patents; and

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redesigning our processes so they do not infringe, which may not be possible or could require substantial funds and time

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We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we 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 we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risk Factors Related to Our Securities

Insiders have substantial control over us, and they could delay or prevent a change in our corporate control even if our other shareholders wanted it to occur.

Francis Reynolds, our chief executive officer, director, and principal shareholder owns a large majority of our outstanding common stock. Accordingly, this shareholder is able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other shareholders wanted it to occur.

Our common stock commenced trading on October 31, 2016, but liquidity is limited, and we may be unable to obtain listing of our common stock on a more liquid market.

There has been limited trading activity in our common stock. The purchasers of shares of our common stock may find it difficult to resell their shares at prices quoted in the market or at all.

Our common stock is quoted on the OTCQB, which provides significantly less liquidity than a securities exchange (such as the NYSE MKT, New York Stock Exchange or the Nasdaq National Market System). We intend to file applications for our common stock to be listed on the OTCQX. There is uncertainty that we will ever be accepted for a listing on a national securities exchange.

We intend to file an application for our common stock to be listed on the Nasdaq National Market System. Our management and our affiliates may engage in limited purchase and resale transactions in the shares, although they are not required to do so. If they decide to engage in such transactions, they may stop at any time. There is limited market for our shares and, as a result, shareholders may suffer a substantial loss of principal or invested capital. It is anticipated that there will be a limited market for the resale of our securities.

Our common stock may be a "penny stock" which may restrict the ability of stockholders to sell our common stock in the secondary market.

The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price, as defined, of less than $5.00 per share, or an exercise price of less than $5.00 per share, subject to certain exceptions, including an exception of an equity security that is quoted on a national securities exchange. Our common stock is not now quoted on a national exchange but is traded on the OTCQB of the OTC Markets. Thus, they are subject to rules that impose additional sales practice requirements on broker-dealers who sell these securities. For example, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser's written consent to the transactions prior to the purchase. Additionally, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered underwriter, and current quotations for the securities, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The "penny stock" rules, may restrict the ability of our stockholders to sell our common stock and warrants in the secondary market.

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