☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes ☐ No ☒
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number
of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The aggregate market value of the registrant’s
voting stock held by non-affiliates on March 11, 2019 (based upon the per share closing price of $0.266) was
approximately $5,124,340.
This Annual Report
on Form 10-K contains a number of “forward-looking statements”. Specifically, all statements other than statements
of historical facts included in this Annual Report on Form 10-K regarding our financial position, business strategy and plans and
objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the
beliefs of management at the time these statements were made, as well as assumptions made by and information currently available
to management. When used in this Annual Report on Form 10-K and the documents incorporated by reference herein, the words “anticipate,”
“believe,” “estimate,” “expect,” “may,” “will,” “continue”
and “intend,” and words or phrases of similar import, as they relate to our financial position, business strategy and
plans, or objectives of management, are intended to identify forward-looking statements. These statements reflect our current view
with respect to future events and are subject to risks, uncertainties and assumptions related to various factors.
You should understand
that the following important factors, in addition to those discussed in our periodic reports to be filed with the SEC under the
Exchange Act, could affect our future results and could cause those results to differ materially from those expressed in such forward-looking
statements:
Although we believe
that our expectations (including those on which our forward-looking statements are based) are reasonable, we cannot assure you
that those expectations will prove to be correct. Should any one or more of these risks or uncertainties materialize, or should
any underlying assumptions prove incorrect, actual results may vary materially from those described in our forward-looking statements
as anticipated, believed, estimated, expected or intended.
Except
for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.
All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to herein. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this Annual Report on Form 10-K and the documents incorporated by reference herein might
not occur.
Item 1A. Risks Factors.
An investment in
our common stock involves substantial risks, including the risks described below. You should carefully consider the risks described
below before purchasing our common stock. The risks highlighted here are not the only ones that we may face. For example, additional
risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If
any of the risks or uncertainties described below or any such additional risks and uncertainties actually occur, our business,
prospects, financial condition or results of operations could be negatively affected, and you might lose all or part of your investment.
Risks Related to Our Business
Our plan relies upon
our ability to obtain additional sources of capital and financing. If the amount of capital we are able to raise from financing
activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may be required to cease
operations.
To become and remain
profitable, we must succeed in developing and commercializing products that generate significant income. This will require us to
be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our drug candidates,
discovering additional drug candidates, obtaining regulatory approval for these drug candidates, manufacturing, marketing and selling
any products for which we may obtain regulatory approval, and establishing and managing our collaborations at various stages of
each candidate’s development. We are only in the preliminary stages of these activities. We may never succeed in these activities
and, even if we do, may never generate income that is significant enough to achieve profitability.
Because of the numerous
risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount
of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the U.S. Food and Drug Administration,
or FDA, or the European Medicines Agency, or EMA, to perform studies in addition to those currently expected, or if there are any
delays in completing our clinical trials or the development of any of our drug candidates, our expenses could increase, and revenue
could be further delayed.
Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and
remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain
the research and development efforts that will be initially funded by the proceeds of our currently effective public offering,
diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to
lose all or part of your investment.
We have incurred losses since our
inception and expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
As of December 31,
2018, we have incurred losses since inception and have an accumulated deficit of $382,830 and, we had approximately $36,411 of
cash on hand. The report of our independent registered public accountants as of and for period ending December 31, 2018, contained
an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability to continue
as a going concern is dependent upon our ability to generate revenue and raise capital from financing transactions. Management
anticipates that our cash resources are not sufficient to continue operations until additional cash investments are secured. The
future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development
of its new business opportunities. There can be no assurance that we will be successful in accomplishing its objectives. Without
such additional capital, we may be required to curtail or cease operations.
We have a limited operating history,
which makes it difficult to evaluate our current business and future prospects.
We are a company with
limited operating history, and our operations are subject to all of the risks inherent in establishing a new business enterprise.
The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently
encountered in connection with the formation of a new business, the development of new technologies or those subject to clinical
testing, and the competitive and regulatory environment in which we will operate. We may never obtain FDA or EMA approval of our
products in development and, even if we do so and are also able to commercialize our products, we may never generate revenue sufficient
to become profitable. Our failure to generate revenue and profit would likely cause our securities to decrease in value or become
worthless.
We will require additional financing
to implement our business plan, which may not be available on favorable terms or at all, and we may have to accept financing terms
that would place restrictions on us.
We believe that we
must raise not less than $2,700,000 in our currently effective public offering in addition to current cash on hand to be able to
continue our business operations for approximately the next 15 months and repay the Auctus Notes; however, funding at any level
lower than $10,000,000 will delay the development of our technology and business. We will need to continue to conduct significant
research, development, testing and regulatory compliance activities for BXT-25, together with projected general and administrative
expenses, we expect will result in operating losses for the foreseeable future. We may not be able to obtain equity or debt financing
on acceptable terms or at all to implement our growth strategy. As a result, adequate capital may not be available to finance our
current development plan, take advantage of business opportunities or respond to competitive pressures. If we are unable to raise
additional funds, we may be forced to curtail or even abandon our business plan.
Until such time, if
ever, as we can generate substantial product income, we expect to finance our cash needs through a combination of equity offerings,
debt financings and license and collaboration agreements. To the extent that we raise additional capital through the sale of equity
or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect the rights of common stockholders. In addition, the terms of
any future financings may impose restrictions on our right to declare dividends or on the manner in which we conduct our business.
Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or making
acquisitions or significant asset sales.
If we raise additional
funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may
have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses
on terms that may not be favorable to us and/or that may reduce the value of our common stock.
Our products are based on novel,
unproven technologies.
Our drug candidates
in development are based on novel, unproven technologies using proprietary co-polymer compounds in combination with similar FDA
approved drug for veterinary use. Co-polymers are difficult to synthesize, and we may not be able to synthesize co-polymer that
will be usable as delivery vehicles for the anti-hypoxia drugs we are working with or other therapeutics we intend to develop.
Clinical trials are expensive, time-consuming and may not be successful. They involve the testing of potential therapeutic agents,
or effective treatments, in humans, typically in three phases, to determine the safety and efficacy of the products necessary for
an approved drug. Many products in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Even
if our products progress successfully through initial or subsequent human testing, they may fail in later stages of development.
We may engage others to conduct our clinical trials, including clinical research organizations and, possibly, government-sponsored
agencies. These trials may not start or be completed as we forecast or may not achieve desired results.
Clinical drug development involves
a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or
ultimately be unable to complete, the development and commercialization of our drug candidates.
Our drug candidate
is unproven, and its risk of failure is high. It is impossible to predict when or if our current or any future drug candidates
will receive regulatory approval or prove effective and safe in humans. Before obtaining marketing approval from regulatory authorities
for the sale of any drug candidate, we must conduct extensive clinical trials and, in the case of BXT-25, first complete preclinical
development, to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult
to design and implement, can take many years to complete and is uncertain as to outcome. A failed clinical trial can occur at any
stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical
trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data
are often susceptible to varying interpretations and analyses, and many companies that have believed their drug candidates performed
satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous
unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval
or commercialize our drug candidates, including:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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clinical trials of our drug candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;
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our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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we may have to suspend or terminate clinical trials of our drug candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;
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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
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the cost of clinical trials of our drug candidates may be greater than we anticipate;
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the supply or quality of our drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate;
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our drug candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials; and
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regulators may revise the requirements for approving our drug candidates, or such requirements may not be as we anticipate.
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If we are required
to conduct additional clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we
are unable to successfully complete clinical trials of our drug candidates or other testing, if the results of these trials or
tests are not positive or are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our drug candidates;
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not obtain marketing approval at all, which would seriously impair our viability;
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obtain marketing approval in some countries and not in others;
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obtain approval for indications or patient populations that are not as broad as we intend or desire;
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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
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be subject to additional post-marketing testing requirements; or
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have the product removed from the market after obtaining marketing approval.
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We plan to initiate
pre-clinical studies of BXT-25. However, we cannot provide any assurance that we will successfully initiate or complete those planned
trials and be able to initiate any other clinical trials for BXT-25 or any of our future drug candidates. The results of our clinical
trials could yield negative or ambiguous results. Such results could adversely affect future development plans, collaborations
and our stock price.
Our product development
costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whether any of our preclinical
studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant
preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize
our drug candidates or allow our competitors to bring products to market before we do, potentially impairing our ability to successfully
commercialize our drug candidates and harming our business and results of operations.
A fast track, breakthrough therapy
or other designation by the FDA may not actually lead to a faster development or regulatory review or approval process.
We may seek fast track,
breakthrough therapy or similar designation for our drug candidates. If a drug is intended for the treatment of a serious or life-threatening
condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply
for FDA fast track designation. The FDA has broad discretion whether or not to grant this designation, and even if we believe a
particular drug candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if
we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional
FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data
from our clinical development program.
Additionally, we may
in the future seek a breakthrough therapy designation for some of our product candidates that reach the regulatory review process.
A breakthrough therapy is a drug candidate that is intended, alone or in combination with one or more other drugs, to treat a serious
or life-threatening disease or condition, and that, as indicated by preliminary clinical evidence, may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed
early in clinical development. Drugs designated as breakthrough therapies by the FDA are eligible for accelerated approval and
increased interaction and communication with the FDA designed to expedite the development and review process.
As with fast track
designation, designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of
our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and may determine not
to grant such a designation. Even if we receive a breakthrough therapy designation for any of our product candidates, the designation
may not result in a materially faster development process, review or approval compared to conventional FDA procedures. Further,
obtaining a breakthrough therapy designation does not assure or increase the likelihood of the FDA’s approval of the applicable
product candidate. In addition, even if one or more of our product candidates qualifies as a breakthrough therapy, the FDA could
later determine that those products no longer meet the conditions for the designation or determine not to shorten the time period
for FDA review or approval.
We will rely on third parties to
conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the
completion of such trials.
We intend to use third-party
clinical research organizations, or CROs, to conduct our planned clinical trials and do not plan to independently conduct clinical
trials of BXT-25 or any future drug candidates. We rely on third parties, such as CROs, clinical data management organizations,
medical institutions and clinical investigators, to conduct and manage our clinical trials. These agreements might terminate for
a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that
would delay our product development activities.
Our reliance on these
third parties for research and development activities reduces our control over these activities but does not relieve us of our
responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with
the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with regulatory standards,
commonly referred to as good clinical practices, or GCPs, for conducting, recording and reporting the results of clinical trials
to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial
participants are protected. Other countries’ regulatory agencies also have requirements for clinical trials with which we
must comply. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored
database,
ClinicalTrials.gov
, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil
and criminal sanctions.
Furthermore, these
third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do
not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals
for our drug candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our drug candidates.
We also expect to rely
on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our
distributors could delay clinical development or marketing approval of our drug candidates or commercialization of our products,
producing additional losses and depriving us of potential product revenue.
If we experience delays or difficulties
in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able
to initiate or continue clinical trials for our drug candidates if we are unable to locate and enroll a sufficient number of eligible
patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States, such
as the EMA. In addition, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications
as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials
of our competitors’ drug candidates.
Patient enrollment
is affected by other factors including:
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the severity of the disease under investigation;
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the patient eligibility criteria for the study in question;
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the perceived risks and benefits of the drug candidate under study;
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the efforts to facilitate timely enrollment in clinical trials;
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our payments for conducting clinical trials;
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the patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment; and
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the proximity and availability of clinical trial sites for prospective patients.
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We are unable to forecast
with precision our ability to enroll patients. Our inability to enroll a sufficient number of patients for our clinical trials
would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in
our clinical trials may result in increased development costs for our drug candidates, which would cause the value of our company
to decline and limit our ability to obtain additional financing.
If serious adverse or unacceptable
side effects are identified during the development of our drug candidate or we observe limited efficacy, we may need to abandon
or limit our development of some of our drug candidate.
If our drug candidate
is associated with undesirable side effects in clinical trials, have limited efficacy or have characteristics that are unexpected,
we may need to abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side
effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. We have not
commenced pre-clinical trials of BXT-25, which even if it proves successful, may later be found to cause side effects that will
prevent further development of the compounds.
Even if our drug candidate
receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payers
and others in the medical community necessary for commercial success.
Even if our drug candidate receives marketing approval, it may
nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payers and others in the medical community.
If our drug candidate does not achieve an adequate level of acceptance, we may not generate significant product revenues and we
may not become profitable. The degree of market acceptance of our drug candidate, if approved for commercial sale, will depend
on a number of factors, including:
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their efficacy, safety and other potential advantages compared to alternative treatments;
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our ability to offer them for sale at competitive prices;
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their convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of marketing and distribution support;
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the availability of third-party coverage and adequate reimbursement for our drug candidate;
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the prevalence and severity of their side effects;
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any restrictions on the use of our products together with other medications;
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interactions of our products with other medicines patients are taking; and
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inability of certain types of patients to take our products.
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If we are unable to
address and overcome these and similar concerns, our business and results of operations could be substantially harmed.
If we are unable to establish effective
sales, marketing and distribution capabilities or enter into agreements with third parties with such capabilities, we may not be
successful in commercializing our drug candidate if and when they are approved.
We do not have a sales
or marketing infrastructure and have limited experience in the sale, marketing or distribution of our products. To achieve commercial
success for any product for which we obtain marketing approval, we will need to successfully establish and maintain relationships
with third parties to perform sales and marketing functions.
Factors that may inhibit
our efforts to commercialize our products on our own include:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or educate physicians on the benefits of our products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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unforeseen costs and expenses associated with creating an independent sales and marketing organization;
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inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies; and
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inability to obtain sufficient coverage and reimbursement from third-party payors and governmental agencies.
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We will rely on third
parties to sell, market and distribute our drug candidate. We may not be successful in entering into, or maintaining, arrangements
with such third parties or may be unable to do so on terms that are favorable to us. In addition, our product revenues and our
profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute
any products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to
devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing
and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful
in commercializing our drug candidate.
If we are unable to convince physicians
as to the benefits of our proposed products, we may incur delays or additional expense in our attempt to establish market acceptance.
Broad use of our proposed
products may require physicians to be informed regarding our proposed products and the intended benefits. Inability to carry out
this physician education process may adversely affect market acceptance of our proposed products. We may be unable to timely educate
physicians regarding our proposed products in sufficient numbers to achieve our marketing plans or to achieve product acceptance.
Any delay in physician education may materially delay or reduce demand for our products. In addition, we may expend significant
funds toward physician education before any acceptance or demand for our proposed products is created, if at all.
We face substantial competition,
which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
The development and
commercialization of new drug products is highly competitive. We face competition with respect to BXT-25 and will face competition
with respect to any drug candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies,
specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology
companies that currently market and sell products or are pursuing the development of products in the field of oxygen therapeutics
for the treatment of a variety of conditions and any of such products may target the stroke. Potential competitors also include
academic institutions, government agencies and other public and private research organizations that conduct research, seek patent
protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
A substantial number
of the companies against which we are competing or against which we may compete in the future have significantly greater financial
resources, established presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting
clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical
and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors.
Smaller and other early
stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These third parties compete with us in recruiting and retaining qualified scientific, sales and marketing and management
personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
Our commercial opportunity
could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less
severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may
obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result
in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete
may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products.
We may be unable to
compete in our target marketplaces, which could impair our ability to generate revenues, thus causing a material adverse impact
on our results of operations.
Our success depends upon our ability
to retain key executives and to attract, retain, and motivate qualified personnel, and the loss of these persons could adversely
affect our operations and results.
We are highly dependent
on the principal members of our management, scientific and clinical team, including Dr. David Platt, our Chairman, President and
Chief Executive Officer and Ola Soderquist, our Chief Financial Officer. We don’t have a “key person” insurance
for any of Dr. Platt or Ola Soderquist and even if such policies were to be obtained, such insurance policies may not adequately
compensate us for the loss of their services.
The loss of the services
of any of our executive officers or of any members of our scientific and medical advisory board, could impede the achievement of
our research, development and commercialization objectives and seriously harm our ability to successfully implement our business
strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time
because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully
develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we
may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical
and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel
from universities and research institutions. In addition, we rely and expect to continue to rely to a significant degree on consultants
and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization
strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or
advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain
high quality personnel, our ability to pursue our growth strategy will be limited.
Our lack of operating experience
may cause us difficulty in managing our growth which could lead to our inability to implement our business plan.
We have limited experience
in marketing and the selling of pharmaceutical products. Any growth will require us to expand our management and our operational
and financial systems and controls. If we are unable to do so, our business and financial condition would be materially harmed.
If rapid growth occurs, it may strain our operational, managerial and financial resources.
We will depend on third parties to
manufacture and market our products and to design trial protocols, arrange for and monitor the clinical trials, and collect and
analyze data.
We do not have, and
do not now intend to develop, facilities for the manufacture of any of our products for clinical or commercial production. In addition,
we are not a party to any long-term agreement with any of our suppliers, and accordingly, we have our products manufactured on
a purchase-order basis from one of two primary suppliers. We will need to develop relationships with manufacturers and enter into
collaborative arrangements with licensees or have others manufacture our products on a contract basis. We expect to depend on such
collaborators to supply us with products manufactured in compliance with standards imposed by the FDA and foreign regulators.
Moreover, as we develop
products eligible for clinical trials, we contract with independent parties to design the trial protocols, arrange for and monitor
the clinical trials, collect data and analyze data. In addition, certain clinical trials for our products may be conducted by government-sponsored
agencies and will be dependent on governmental participation and funding. Our dependence on independent parties and clinical sites
involves risks including reduced control over the timing and other aspects of our clinical trials.
We are exposed to product liability,
pre-clinical and clinical liability risks which could place a substantial financial burden upon us, should we be sued.
Our business exposes
us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical
formulations and products. Such claims may be asserted against us. In addition, the use in our clinical trials of pharmaceutical
formulations and products that our potential collaborators may develop and the subsequent sale of these formulations or products
by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claims,
or series of claims brought against us could have a material adverse effect on our business, financial condition and results of
operations.
Since we do not currently
have any FDA-approved products or other formulations, we do not currently have any other product liability insurance covering commercialized
products. We may not be able to obtain or maintain adequate product liability insurance, when needed, on acceptable terms, if at
all, or such insurance may not provide adequate coverage against our potential liabilities. Furthermore, our potential partners
with whom we intend to have collaborative agreements, or our future licensees may not be willing to indemnify us against these
types of liabilities and may not themselves be sufficiently insured or have sufficient liquidity to satisfy any product liability
claims. Claims or losses in excess of any product liability insurance coverage that may be obtained by us could have a material
adverse effect on our business, financial condition and results of operations.
In addition, we may
be unable to obtain or to maintain clinical trial liability insurance on acceptable terms, if at all. Any inability to obtain and/or
maintain insurance coverage on acceptable terms could prevent or limit the commercialization of any products we develop.
If users of our proposed products
are unable to obtain adequate reimbursement from third-party payers or if new restrictive legislation is adopted, market acceptance
of our proposed products may be limited, and we may not achieve revenues.
The continuing efforts
of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce
costs of health care may affect our future revenues and profitability, and the future revenues and profitability of our potential
customers, suppliers and collaborative partners and the availability of capital. For example, in certain international markets,
pricing or profitability of prescription pharmaceuticals is subject to government control. In the U.S., given recent federal and
state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will
likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and
Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement
or adoption of such proposals could materially harm our business, financial condition and results of operations.
Our ability to commercialize
our proposed products will depend in part on the extent to which appropriate reimbursement levels for the cost of our proposed
formulations and products and related treatments are obtained by governmental authorities, private health insurers and other organizations,
such as HMOs. Third-party payers are increasingly challenging the prices charged for medical drugs and services. Also, the trend
toward managed health care in the U.S. and the concurrent growth of organizations such as HMOs, which could control or significantly
influence the purchase of health care services and drugs, as well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices for or rejection of our products.
There are risks associated with our
reliance on third parties for marketing, sales and distribution infrastructure and channels.
We intend to enter
into agreements with commercial partners to engage in sales, marketing and distribution efforts around our products in development.
We may be unable to establish or maintain these third-party relationships, or establish new relationships, on a commercially reasonable
basis, if at all. In addition, these third parties may have similar or more established relationships with our competitors. If
we do not enter into or maintain relationships with third parties for the sales and marketing of our proposed products, we will
need to develop our own sales and marketing capabilities. Furthermore, even if engaged, these distributors may:
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offer, design, manufacture or promote competing formulations or products.
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If we fail to develop
sales, marketing and distribution channels, we could experience delays in generating sales and incur increased costs, which would
harm our financial results.
We will be subject to risks if we
seek to develop our own sales force.
If we choose at some
point to develop our own sales and marketing capability, our experience in developing a fully integrated commercial organization
is limited. If we choose to establish a fully integrated commercial organization, we will likely incur substantial expenses in
developing, training and managing such an organization. We may be unable to build a fully integrated commercial organization on
a cost-effective basis, or at all. Any such direct marketing and sales efforts may prove to be unsuccessful. In addition, we will
compete with many other companies that currently have extensive and well-funded marketing and sales operations. Our marketing and
sales efforts may be unable to compete against these other companies. We may be unable to establish a sufficient sales and marketing
organization on a timely basis, if at all.
Risks Related to Our Industry
We will need regulatory approvals
to commercialize our products as drugs.
In offering BXT-25,
or any other product as a drug, we are required to obtain approval from the FDA to sell our products in the U.S. and from foreign
regulatory authorities to sell our products in other countries. The FDA’s review and approval process is lengthy, expensive
and uncertain. Extensive pre-clinical and clinical data and supporting information must be submitted to the FDA for each indication
for each product candidate to secure FDA approval. Before receiving FDA clearance to market our proposed products, we will have
to demonstrate that our products are safe and effective on the patient population and for the diseases that are to be treated.
Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of the FDA and equivalent
foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations
govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices.
As a result, regulatory approvals can take a number of years or longer to accomplish and require the expenditure of substantial
financial, managerial and other resources. The FDA could reject an application or require us to conduct additional clinical or
other studies as part of the regulatory review process. Delays in obtaining or failure to obtain FDA approvals would prevent or
delay the commercialization of our product candidates, which would prevent, defer or decrease our receipt of revenues. In addition,
if we receive initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and
foreign government regulation.
Data obtained from clinical trials are susceptible
to varying interpretations, which could delay, limit or prevent regulatory clearances.
Data we obtain from
our planned pre-clinical studies and clinical trials will not necessarily predict the results that will be obtained from later
pre-clinical studies and clinical trials. Moreover, pre-clinical and clinical data is susceptible to varying interpretations, which
could delay, limit or prevent regulatory approval. A number of companies in the pharmaceutical industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the
safety and effectiveness of a proposed formulation or product under development could delay or prevent regulatory clearance of
the potential drug, resulting in delays to commercialization, and could materially harm our business. Our clinical trials may not
demonstrate sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approvals for our drugs, and
thus our proposed drugs may not be approved for marketing.
Our competitive position depends
on protection of our intellectual property.
Development and protection
of our intellectual property are critical to our business. All of our intellectual property has been invented and/or developed
or co-developed by Dr. David Platt; and other intellectual property that is important to the development of BXT-25 is in the public
domain. If we do not adequately protect our intellectual property, or if competitors develop technologies incorporating the same
or similar technologies that already are in the public domain, those competitors may be able to practice our technologies. Our
success depends in part on our ability to obtain patent protection for our products or processes in the U.S. and other countries,
protect trade secrets, and prevent others from infringing on our proprietary rights.
Since patent applications
in the U.S. are maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuance or, if
earlier, 18 months from earliest filing date for most applications) and since other publication of discoveries in the scientific
or patent literature often lags behind actual discoveries, we cannot be certain that we are or will be the first to make the inventions
to be covered by our patent applications. The patent position of biopharmaceutical firms generally is highly uncertain and involves
complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the
breadth of claims that it will allow in biotechnology patents.
The patent applications
we file, including applications that will follow the filing of Provisionals, may not issue as patents or the claims of any issued
patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or to any future
licensors may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in the biotechnology
industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and
validity of third-party proprietary rights, and we may not have the required resources to pursue such litigation or to protect
our patent rights.
Although we will require
our scientific and technical employees and consultants to enter into broad assignment of inventions agreements, and all of our
employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements,
these agreements may not be honored. Currently, we do not have any scientific or technical employees.
Products we develop could be subject
to infringement claims asserted by others.
We cannot assure that
products based on our patents or intellectual property that we license from others will not be challenged by a third-party claiming
infringement of its proprietary rights. If we were not able to successfully defend patents that may be issued to us, that we may
acquire, or that we may license in the future, we may have to pay substantial damages, possibly including treble damages, for past
infringement.
We face intense competition in the
biotechnology and pharmaceutical industries.
The biotechnology and
pharmaceutical industries are intensely competitive. We face direct competition from U.S. and foreign companies focusing on pharmaceutical
products, which are rapidly evolving. Our competitors include major multinational pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions. Many of these competitors have greater financial and other
resources, larger research and development staffs and more effective marketing and manufacturing organizations, than we do. In
addition, academic and government institutions are increasingly likely to enter into exclusive licensing agreements with commercial
enterprises, including our competitors, to market commercial products based on technology developed at such institutions. Our competitors
may succeed in developing or licensing technologies and products that are more effective or less costly than ours or succeed in
obtaining FDA or other regulatory approvals for product candidates before we do. Acquisitions of, or investments in, competing
pharmaceutical or biotechnology companies by large corporations could increase such competitors’ financial, marketing, manufacturing
and other resources.
The market for our proposed products
is rapidly changing and competitive, and new drugs and new treatments which may be developed by others could impair our ability
to maintain and grow our business and remain competitive.
The pharmaceutical
and biotechnology industries are subject to rapid and substantial technological change. Developments by others may render our proposed
products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors.
Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying
into the field is intense and is expected to increase.
As a pre-revenue company
engaged in the development of drug technologies, our resources are limited, and we may experience technical challenges inherent
in such technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may
be, the basis for competition. Some of these technologies may have an entirely different approach or means of accomplishing similar
therapeutic effects compared to our proposed products. Our competitors may develop drugs that are safer, more effective or less
costly than our proposed products and, therefore, present a serious competitive threat to us.
The potential widespread
acceptance of therapies that are alternatives to ours may limit market acceptance of our proposed products, even if commercialized.
Many of our targeted diseases and conditions can also be treated by other medication. These treatments may be widely accepted in
medical communities and have a longer history of use. The established use of these competitive drugs may limit the potential for
our technologies, formulations and products to receive widespread acceptance if commercialized.
Health care cost containment initiatives
and the growth of managed care may limit our returns.
Our ability to commercialize
our products successfully may be affected by the ongoing efforts of governmental and third-party payers to contain the cost of
health care. These entities are challenging prices of health care products and services, denying or limiting coverage and reimbursement
amounts for new therapeutic products, and for FDA-approved products considered experimental or investigational, or which are used
for disease indications without FDA marketing approval.
Even if we succeed
in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available
or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize
an appropriate return on our investment in research and product development. In addition, legislation and regulations affecting
the pricing of pharmaceuticals may change in ways adverse to us before or after any of our proposed products are approved for marketing.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain
patent protection for our products, or if the scope of the patent protection obtained is not sufficiently broad, competitors could
develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may
be impaired.
Our plan for the development
of BXT-25 is based in part on a technology developed by the Biopure Corporation which separates hemoglobin from red blood cells.
Biopure filed for bankruptcy in 2009 and the technology we use from Biopure is in the public domain. We plan to apply our proprietary
chemistry to break down and augment a bovine hemoglobin molecule producing a co-polymer-based molecule we call BXT-25. We face
competitors and other entities who are engaged in the further development of some or all of that public-domain technology for the
purpose of creating products that may compete directly with our products.
Among such competitors
and other entities is Boston Therapeutics, Inc. (OTCQB: BTHE). Our chairman, David Platt, was founder, and until April 1, 2015,
Chief Executive Officer of Boston Therapeutics; and that entity is a pharmaceutical company focused on developing, manufacturing
and commercializing novel compounds based on complex carbohydrate chemistry to address unmet medical needs in diabetes. According
to its website, products Boston Therapeutics seeks to develop include an anti-necrosis glyco-protein based therapeutic agent that
consists of a stabilized glycoprotein composition containing oxygen-rechargeable iron, targeting both human and animal tissues
and organ systems deprived of oxygen and in need of metabolic support. The Boston Therapeutic development efforts are, like the
efforts of the Company, based in part on Biopure technology that is now in the public domain. While Boston Therapeutics is focused
on medical conditions that are different from the conditions that will be addressed by the Company, and while the Company’s
proprietary technology is very different from the technology under development at Boston Therapeutics at the time of Dr. Platt’s
departure from that entity, a refocus of Boston Therapeutics to treat conditions that are central to the Company’s focus
may make it a direct competitor.
Currently there are
four drugs candidates to treat a stroke. Abciximab from Eli Lilly is a platelet aggregation inhibitor. Clinical trials show little
advantage over placebos and could lead to dangerous side effects, including more bleeding in patients. Cerovive from AstraZeneca
is a Nitrone-based neuro protectant currently in phase III clinical trials which shows no significant benefit over placebos with
respect to changes in neurological impairment as measured by the national institute of health stroke scale. Candesartan, from AstraZeneca,
is an angiotensin receptor blocker which was used to control blood pressure. Its efficacy in stroke patients still must be proven.
Ancod from Knoll Pharmaceuticals is an anti-coagulant that acts by breaking down the fibrinogen. It increases the risk of hemorrhage
similar to those associated with tPA.
Our success depends
in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and
other countries with respect to our proprietary products. We seek to protect our proprietary position by filing patent applications
in the United States and abroad related to our drug candidates.
The patent prosecution
process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications
at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable
aspects of our research and development output before it is too late to obtain patent protection.
The patent position
of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has
in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the
same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major markets. For example,
European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications
of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States
and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot
know with certainty whether we were the first to make the inventions claimed in our owned patents or pending patent applications,
or that we were the first to file for patent protection of such inventions, nor can we know whether those from whom we license
patents were the first to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability
and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents
being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing
competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States
and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Recent patent reform
legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed
into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that
affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office,
or U.S. PTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the
substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became
effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of
our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution
of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect
on our business and financial condition.
Moreover, we may be
subject to a third-party pre-issuance submission of prior art to the U.S. PTO, or become involved in opposition, derivation, reexamination,
inter partes
review, post-grant review or interference proceedings challenging our patent rights or the patent rights of
others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate our
patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to
us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition,
if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies
from collaborating with us to license, develop or commercialize current or future drug candidates.
Even if our patent
applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors
from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned
or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent
is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or
patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent
claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from
using or commercializing similar or identical products, or limit the duration of the patent protection of our products. Given the
amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates
might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with
sufficient rights to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits
to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe
our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement
claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties
to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement
proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s
claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover
the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being
invalidated or interpreted narrowly, which could adversely affect us.
Third parties may initiate legal
proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could
have a material adverse effect on the success of our business.
Our commercial success
depends upon our ability to develop, manufacture, market and sell our drug candidates without infringing the proprietary rights
of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. While
no such litigation has been brought against us and we have not been held by any court to have infringed a third party’s intellectual
property rights, we cannot guarantee that our products or use of our products do not infringe third-party patents. It is also possible
that we have failed to identify relevant third-party patents or applications. For example, applications filed before November 29,
2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until
patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest
filing, which is referred to as the priority date. Therefore, patent applications covering our products or technology could have
been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to
certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products.
We may become party
to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our
products and technology, including inter parties review, interference, or derivation proceedings before the U.S. PTO and similar
bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual property rights
and intellectual property rights that may be granted in the future.
If we are found to
infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to
continue developing and marketing our products. However, we may not be able to obtain any required license on commercially reasonable
terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology
or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we
are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our drug candidates
or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated
the confidential information or trade secrets of third parties could have a similar negative impact on our business.
Obtaining and maintaining our patent
protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance
fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of
the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be
cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application
include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and
failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market,
which would have a material adverse effect on our business.
We may be subject to claims by third
parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard
as our own intellectual property.
The employees and consultants
we may hire likely will have been previously employed at universities or other biotechnology or pharmaceutical companies, including
our competitors or potential competitors. Although we will try to ensure that our employees and contractors do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed
intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer.
Litigation may be necessary to defend against these claims.
In addition, while
it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute
agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who
in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing
or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to
determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting
or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be
a distraction to management.
Intellectual property litigation
could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in
our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses
and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors
perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation
or proceedings could substantially increase our operating losses and reduce the resources available for development activities
or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such
litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
If we are unable to protect the confidentiality
of our trade secrets, our business and competitive position would be harmed.
In addition to seeking
patents for some of our technology and drug candidates, we also intend to rely on trade secrets, including unpatented know-how,
technology and other proprietary information, to maintain our competitive position. We will seek to protect these trade secrets,
in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees,
corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties.
We also seek to enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite
these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets,
and we may not be able to obtain adequate remedies for such breaches. Our trade secrets may also be obtained by third parties by
other means, such as breaches of our physical or computer security systems. Enforcing a claim that a party illegally disclosed
or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some
courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets
were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom
they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed
to or independently developed by a competitor, our competitive position would be harmed.
Risks Relating to Our Currently Effective
Public Offering and Ownership of Our Common Stock
Prior to our currently effective
public offering, we had a limited public market for our shares of common stock, and you may not be able to resell our shares at
or above the price you paid, or at all.
Prior to our currently
effective public offering, there was a limited public market for our common stock in the OTC (Pink) market. We intend to apply
for quotation on the OTCBB or OTCBB through a market maker; however, there can be no assurance that our common stock will ever
be quoted on any quotation service. In order to be eligible for trading on the OTCBB and OTCQB we must a market maker file an application
with FINRA to have our common stock quoted on the OTCBB and the OTCQB and remain current in our filings with the Securities and
Exchange Commission. In order to be eligible for the OTCQB we must have a minimum bid price of $0.01, have at least 50 beneficial
stockholders, each owning at least 100 shares, have a freely traded public float of at least 10% of our issued and outstanding
shares of Common Stock or qualify from an exemption thereof and pay initial listing fees. We cannot assure you that an active public
market for our common stock will develop or that the market price of our shares will not decline below the public offering price.
The public offering price of our shares may not be indicative of prices that will prevail in the trading market following our currently
effective public offering.
Because
we are subject to the “Penny Stock” rules, the level of trading activity in our stock may be reduced.
The Securities and
Exchange Commission has adopted regulations which generally define “penny stock” to be any listed, trading equity security
that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market.
The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny
stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in
a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase
the difficulty Purchasers may experience in attempting to liquidate such securities.
We do not
expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.
We do not anticipate
paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on
earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider
relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only
if our stock price appreciates.
Provisions
in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against our
directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors
or officers in any such actions.
Members of our board
of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except
in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised
Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable
to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity
as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted
a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional
misconduct, fraud or a knowing violation of law. This provision is intended to afford directors and officers protection against
and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director
or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached
their fiduciary duty of care. In addition, our Bylaws allow us to indemnify our directors and officers from and against any and
all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce
an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending
the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations
could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash
flows, and adversely affect prevailing market prices for our common stock.
Future sales of substantial amounts
of the shares of common stock by existing shareholders could adversely affect the price of our common stock.
If our existing shareholders
sell substantial amounts of the shares following our currently effective public offering, the market price of our common stock
could fall. Such sales by our existing shareholders might make it more difficult for us to issue new equity or equity-related securities
in the future at a time and place we deem appropriate. The shares of common stock offered in our currently effective public offering
will be eligible for immediate resale in the public market without restrictions. All remaining shares, which are currently held
by our existing shareholders, may be sold in the public market in the future subject to the lock-up agreements and the restrictions
contained in Rule 144 under the Securities Act. If any existing shareholders sell a substantial amount of shares, the prevailing
market price for our shares could be adversely affected.
The market price of our Common
Stock may be subject to fluctuation and you could lose all or part of your investment.
Our currently effective
public offering price has been arbitrarily determined by us and may not be indicative of prices that will prevail in the trading
market. The price of our shares may decline following our currently effective public offering. The stock market in general has
been, and the market price of our ordinary shares in particular will likely be, subject to fluctuation, whether due to, or irrespective
of, our operating results and financial condition. The market price of our shares may fluctuate as a result of a number of factors,
some of which are beyond our control, including, but not limited to:
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actual or anticipated variations in our and our competitors’ results of operations and financial condition;
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market acceptance of our products;
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the mix of products that we sell and related services that we provide;
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changes in earnings estimates or recommendations by securities analysts, if our shares are covered by analysts;
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development of technological innovations or new competitive products by others;
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announcements of technological innovations or new products by us;
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failure by us to achieve a publicly announced milestone;
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delays between our expenditures to develop and market new or enhanced products and the generation of sales from those products;
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developments concerning intellectual property rights, including our involvement in litigation;
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regulatory developments and the decisions of regulatory authorities as to the approval or rejection of new or modified products;
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changes in the amounts that we spend to develop, acquire or license new products, technologies or businesses;
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changes in our expenditures to promote our products;
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our sale or proposed sale, or the sale by our significant shareholders, of our shares or other securities in the future;
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changes in key personnel;
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success or failure of our research and development projects or those of our competitors;
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the trading volume of our Shares; and
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general economic and market conditions and other factors, including factors unrelated to our operating performance.
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These factors and any
corresponding price fluctuations may materially and adversely affect the market price of our shares and result in substantial losses
being incurred by our investors. In the past, following periods of market volatility, public company shareholders have often instituted
securities class action litigation. If we were involved in securities litigation, it could impose a substantial cost upon us and
divert the resources and attention of our management from our business.
The financial and operational projections that we may
make from time to time are subject to inherent risks.
The projections that
we provide herein or our management may provide from time to time (including, but not limited to, those relating to potential peak
sales amounts, clinical and regulatory timelines, production and supply matters, commercial launch dates, and other financial or
operational matters) reflect numerous assumptions made by management, including assumptions with respect to our specific as well
as general business, regulatory, economic, market and financial conditions and other matters, all of which are difficult to predict
and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections,
or the projections themselves, will prove inaccurate. There may be differences between actual and projected results, and actual
results may be materially different from than those contained in the projections. The inclusion of the projections in this Annual
Report on Form 10-K should not be regarded as an indication that we, our management, or their representatives considered or consider
the projections to be a guaranteed prediction of future events, and the projections should not be relied upon as such.
An investment in our company may
involve tax implications, and you are encouraged to consult your own advisors as neither we nor any related party is offering any
tax assurances or guidance regarding our company or your investment.
The formation of our
company, as well as an investment in our company generally, involves complex federal, state and local income tax considerations.
Neither the Internal Revenue Service nor any State or local taxing authority has reviewed the transactions described herein, and
may take different positions than the ones contemplated by management. You are strongly urged to consult your own tax and other
advisors prior to investing, as neither we nor any of our officers, directors or related parties is offering you tax or similar
advice, nor are any such persons making any representations and warranties regarding such matters.
Our ability to use our net operating
loss carry-forwards and certain other tax attributes may be limited.
Under Section 382 of
the Internal Revenue Code of 1986, as amended, referred to as the Internal Revenue Code, if a corporation undergoes an “ownership
change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the
corporation’s ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such as
research tax credits) to offset its post-change income may be limited. We may also experience ownership changes in the future as
a result of subsequent shifts in our stock ownership, including as a result of the completion of our currently effective public
offering when it is taken together with other transactions we may consummate in the succeeding three-year period. As a result,
if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable
income may be subject to limitations, which potentially could result in increased future tax liability to us.
Our Certificate of Incorporation
permits “blank check” preferred stock, which can be designated by our Board of Directors without stockholder approval.
We have 50,000,000
authorized shares of preferred stock. The shares of our preferred stock may be issued from time to time in one or more series,
each of which shall have a distinctive designation or title as is determined by our Board of Directors prior to the issuance of
any shares thereof. The preferred stock may have such voting powers, full or limited, or no voting powers, and such preferences
and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted
by the Board of Directors. Because the Board of Directors is able to designate the powers and preferences of the preferred stock
without the vote of a majority of our stockholders, stockholders will have no control over what designations and preferences our
preferred stock will have. If preferred stock is designated and issued, then depending upon the designation and preferences, the
holders of the preferred stock may exercise voting control over us. As a result, our stockholders will have no control over the
designations and preferences of the preferred stock and as a result the operations of our company.]
Our management collectively owns
a substantial majority of our common stock.
Collectively, our officers,
our directors and 5 other stockholders own or exercise voting and investment control of approximately 98% of our outstanding common
stock. As a result, investors may be prevented from affecting matters involving our company, including:
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the composition of our Board of Directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;
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any determinations with respect to mergers or other business combinations;
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our acquisition or disposition of assets; and
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our corporate financing activities.
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Furthermore, this concentration
of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that
might otherwise be beneficial to our stockholders. This significant concentration of share ownership may also adversely affect
the trading price for our common stock because investors may perceive disadvantages in owning stock in a company that is controlled
by a small number of stockholders.
If we fail to establish and maintain
an effective system of internal control or disclosure controls and procedures are not effective, we may not be able to report our
financial results accurately and timely or to prevent fraud. Any inability to report and file our financial results accurately
and timely could harm our reputation and adversely impact the trading price of our common stock.
Effective internal
controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley
Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and, depending on our future growth,
may require our independent registered public accounting firm to annually attest to our evaluation, as well as issue their own
opinion on our internal controls over financial reporting. The process of implementing and maintaining proper internal controls
and complying with Section 404 is expensive and time consuming. We cannot be certain that the measures we will undertake will ensure
that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore, if we are able to
rapidly grow our business, the internal controls that we will need may become more complex, and significantly more resources will
be required to ensure our internal controls remain effective. Failure to implement required controls, or difficulties encountered
in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If our auditors
or we discover a material weakness in our internal controls, the disclosure of that fact, even if the weakness is quickly remedied,
could diminish investors’ confidence in our financial statements and harm our stock price. In addition, non-compliance with
Section 404 could subject us to a variety of administrative sanctions, including the suspension of trading, ineligibility for future
listing on one of the Nasdaq Stock Markets or national securities exchanges, and the inability of registered broker-dealers to
make a market in our common stock, which may reduce our stock price.
If securities or industry analysts
do not publish research or reports about us, our business or our market, or if they make and then change their recommendations
regarding our common stock adversely, the price of our common stock and trading volume could decline.
The trading market
for our common stock, should it develop, may be influenced by the research and reports that securities or industry analysts may
publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation
regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our
common stock would likely decline. If any analyst who may cover us was to cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or trading
volume to decline.
In making your investment decision,
you should understand that we have not authorized any other party to provide you with information concerning us or our currently
effective public offering.
You should carefully
evaluate all of the information in this Annual Report on Form 10-K before investing in our company. We may receive media coverage
regarding our company, including coverage that is not directly attributable to statements made by our officers, that incorrectly
reports on statements made by our officers or employees, or that is misleading as a result of omitting information provided by
us, our officers or employees. We have not authorized any other party to provide you with information concerning us or our currently
effective public offering, and you should not rely on this information in making an investment decision.
Risks Related
to the Note Financings
Common Stock
that we issue upon conversion of the promissory note will dilute our existing stockholders and depress the market price of our
common stock.
As of the date of this
Annual Report on Form 10-K, we are, based on current market price of $0.266/share, obligated to issue approximately 2,891,845 shares
of common stock upon conversion of the currently outstanding Auctus Notes and 208,333 shares upon exercise of the warrants. For
Auctus, the shares total is based on $250,000 of currently outstanding principal and unpaid interest and based upon a conversion
price equal to the lesser of (i) the lowest trading price for the twenty-day period prior to the date of the Note or (ii)
65% of the average of the three lowest trading prices during the twenty days prior to a conversion notice on the applicable trading
market or the closing bid price on the applicable trading market. Auctus is limited to converting no more than 4.99% of our issued
an outstanding common stock.
The total potential
issuable shares increase with the inclusion of additional interest and any decrease in our stock price. As of the date of this
Annual Report on Form 10-K, no shares have been issued pursuant to conversion of the Auctus Notes and Auctus has not elected to
convert any part of the Auctus Notes to date.
The
issuance of shares upon conversion of the notes will dilute our existing shareholders. The number of common shares issuable by
us upon conversion of the notes is dependent on the trading price of our common shares during the twenty days prior to conversion.
If the price of our stock declines in value, we will be obligated to issue more shares to the note holders which would have a
further dilutive effect on our stock which could depress the market price of our common stock.
The holders of the notes convertible
into our common stock will pay less than the then- prevailing market price for our common stock.
The notes are convertible
at the lesser of (i) the lowest trading price for the twenty-day period prior to the date of the Note or (ii) 65% of the average
of the three lowest trading prices during the twenty days prior to a conversion notice on the applicable trading market or the
closing bid price on the applicable trading market. As such, the note holders have a financial incentive to sell our common stock
immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market
price. If the noteholders sell shares, the price of our common stock will likely decrease. If our stock price decreases, the noteholders
may have a further incentive to sell the shares of our common stock that they hold. These sales may put further downward pressure
on our stock price and reduce the value of your common shares.
The price of the Common Stock we
are selling under our currently effective public offering is significantly higher than the conversion price of the Auctus Notes
and warrant and the price of our common stock would likely drop to or below the conversion price of the Auctus Notes upon conversion
by Auctus.
In the event that Auctus
converts the Auctus Notes into common stock, the conversion price is significantly lower than the price at which we are selling
our common stock in our currently effective public offering. As a result, the sale by Auctus of our common stock could drive the
market price down to the conversion price as determined at the date of conversion or lower. This could result in the purchaser
of our common stock in our currently effective public offering to immediately loose a substantial portion of his or her investment.
If our stock price materially declines,
the convertible note holders will have the right to a large number of shares of common stock upon exchange of amounts due under
the notes, which may result in significant dilution.
The notes have a conversion
feature which is based upon 65% of the average of the three lowest trading prices during the twenty days prior to a conversion
notice on the applicable trading market or the closing bid price on the applicable trading market. If our common stock price materially
declines, we will be obligated to issue a large number of shares to Auctus upon conversion. This will likely materially dilute
existing shareholders. The potential for such dilutive issuances upon conversion of outstanding notes may depress the price of
common stock regardless of our business performance, and could encourage short selling by market participants, especially if the
trading price of our common stock begins to decrease.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our board of directors, executive officers
and key employees are as follows:
Name
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Age as of
November 19, 2018
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Position
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David Platt, Ph.D.
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65
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Chief Executive Officer, Chairman and Director
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Ola Soderquist, MBA, CPA, CMA
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57
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Chief Financial Officer, Treasurer, Secretary
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Dale H. Conaway, D.V.M.
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62
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Director
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Alan M. Hoberman. Ph.D.
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64
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Director
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Henry J. Esber, Ph.D.
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75
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Director
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Anders Utter
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50
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Director
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David Platt,
Ph.D.
is the Chief Executive Officer and Chairman of our Board of Directors. Dr. Platt is a world-renowned expert in carbohydrate
chemistry and has founded three publicly-traded companies, creating nearly $1B for investors. He has raised $150M directly in public
markets in the U.S. and has led development of two drug candidates from concept through phase II clinical trials. Prior to Bioxytran,
Inc. Dr. Platt founded Boston Therapeutics Inc. in 2010 (OTC: BTHE) where he served as chief executive officer from 2010 to April
1, 2015 and as a director from March 2017 to June 8, 2017. From 2001 to 2009, Dr. Platt was a founder, Chief Executive Officer
and Chairman of the Board at Pro-Pharmaceuticals, Inc. (OTC: PRWP and AMEX: PRW, now NASDAQ: GALT). From 1995 to 2000 Dr. Platt
was the founder of International Gene Group (NASDAQ: IGGI, GLGS now LPJC). Dr. Platt received a Ph.D. in Chemistry in 1988 from
Hebrew University in Jerusalem. In 1989, Dr. Platt was a research fellow at the Weizmann Institute of Science, Rehovot, Israel,
and from 1989 to 1991, was a research fellow at the Michigan Foundation (re-named Barbara Ann Karmanos Institute). From 1991 to
1992, Dr. Platt was a research scientist with the Department of Internal Medicine at the University of Michigan. Dr. Platt has
published peer-reviewed articles and holds many patents, primarily in the field of carbohydrate chemistry. Our board of directors
believes that Dr. Platt’s expertise and experience with public biotech companies, his perspective, depth and background in
chemistry and finance, the capital formation process and leadership experience in public companies provide him with the qualifications
and skills to serve on our board of directors.
Ola Soderquist,
MBA, CPA, CMA, CM&AA
has more than 30 years of senior international entrepreneurial management experience within technology
companies. Ola’s managerial experience portfolio includes; Start-ups, Private, Public, Venture Capital and Private Equity
ownership. He has served in CFO and other managerial capacities in multiple industry sectors and companies. His public company
tenures include companies in the Wallenberg Sphere (1986-1996): Industrivarden (OMX:INDU), Electrolux (OMX:ELUX), Ericsson (NASDAQ:ERIC),
Swedish Match (OMX:SWMA) and SKF AB (OMX:SKF), and most recently in Traction (OMX:TRAC) (1996-2001) and Belden (NYSE: BDC) (2006-2011).
His private company experience includes CFO and CAO positions in Proditec, Inc. (2001-2006), LFA Corp. (2012-2014) and Faria Beede
Instruments, Inc. (2014-2016). Ola is a multi-lingual senior finance professional poised to work globally and cross-functionally,
particularly with complex projects involving change management, business integration, systems implementation, continuous improvement,
and process excellence. He obtained a BS and an MSA rom Stockholm School of Economics and an MBA from Babson College.
Dale H. Conaway,
D.V.M.,
is a Director of the Company. He is the Chief Veterinary Medical Officer for the Office of Research Oversight,
an office within the Veterans Health Administration under the U.S. Department of Veterans Affairs. From 2001 to 2006, Dr. Conaway
was the Deputy Regional Director (Southern Region). From 2010 to September 15, 2017, Dr. Conaway served as a member of the board
of directors of Boston Therapeutics, Inc.. From 1998 to 2001, Dr. Conaway served as Manager of the Equine Drug Testing and Animal
Disease Surveillance Laboratories for the Michigan Department of Agriculture. From 1994 to 1998, he was Regulatory Affairs Manager
for the Michigan Department of Public Health Vaccine Production Division. Dr. Conaway received a D.V.M. degree from Tuskegee Institute
and an M.S. degree in pathology from the College of Veterinary Medicine at Michigan State University. Our board of directors believes
that Dr. Conway’s expertise and experience as a director in a public biotech company, his perspective, depth and background
in testing and the development of biologic compounds, and his leadership in management provide him with the qualifications and
skills to serve on our board of directors.
Alan M. Hoberman,
Ph.D
. is president and CEO of Argus International, Inc., overseeing a staff of scientists and other professionals who provide
consulting services for industry, government agencies, law firms and other organizations, both in the U.S. and internationally.
From 2014 to September 15, 2017 Dr. Hoberman served as a member of the board of directors of Boston Therapeutics, Inc. Between
1991 and 2013 he held a series of positions of increasing responsibility at Charles River Laboratories Preclinical Services (formerly,
Argus Research Laboratories, Inc.), most recently as Executive Director of Site Operations and Toxicology. He currently works with
that organization to design, supervise and evaluate reproductive and developmental toxicity, neurotoxicity, inhalation and photobiology
studies. Dr. Hoberman holds a PhD in toxicology from Pacific Western University, an MS in interdisciplinary toxicology from the
University of Arkansas and a BS in biology from Drexel University. Our board of directors believes that Dr. Hoberman’s expertise
and experience as a director in a public biotech company, his perspective, depth and background in consulting and advising clients
and his experience in the testing and development of biologic compounds, and his leadership in management provide him with the
qualifications and skills to serve on our board of directors.
Henry J. Esber,
Ph.D.
, a Director of the Company, has been a Principal in Esber D&D consulting since 2005. From 2003 to 2005, Dr. Esber
was a Senior Consultant, Business Development at Charles River Labs, Discovery and Development Services. From 2010 to September
11, 2017, Dr. Esber served as a member of the board of directors of Boston Therapeutics, Inc. Dr. Esber has more than 35 years
of experience in the areas of oncology/tumor immunology and immunotherapy as well as strong knowledge in the field of toxicology
and regulatory affairs. Dr. Esber received a B.S. degree in biology/pre-med from the College of William and Mary, an M.S. degree
in public health and parasitology from the University of North Carolina, and a Ph.D. in immunology/microbiology from West Virginia
University Medical Center. Our board of directors believes that Dr. Esber’s expertise and experience as a director in a public
biotech company, his perspective, depth and background in immunology and immunotherapy and toxicology, and his leadership in business
development provide him with the qualifications and skills to serve on our board of directors.
Anders N. Utter,
has more than 25 years of finance, accounting and management experience in medical devices, consulting and manufacturing industries
in capacities as CFO, Controller and Managing Director. He had progressively increased management experience in the European Nolato
Group and later on in the Amplex Group. Mr. Utter has had a broad business exposure with IFRS and GAAP reporting as well as with
SOX compliance. He has also worked with M&A evaluations, financing and integration as well as more hands-on manufacturing cost
accounting and reporting. He is currently in charge of the finance control at one of General Cable’s entities. Mr. Utter
is and has been serving as a director on boards in both profit as well as non-profit organizations. Mr. Utter holds an MBA from
Babson College and a BA from Uppsala University in Sweden. Our board of directors believes that Mr. Utter’s expertise and
experience as a chief financial officer, his perspective, depth and background in GAAP reporting and SOX compliance, and his finance,
management and accounting experience provide him with the qualifications and skills to serve on our board of directors.
Our Directors are elected
annually and each holds office until the annual meeting of the shareholders of the Company and until their respective successors
are elected and qualified. Our officers, including any officers we may elect moving forward, will hold their positions at the pleasure
of the Board of Directors, absent any employment agreement. In the event, we employ any additional officers or directors of the
Company, they may receive compensation as determined by the Company from time to time by vote of the Board of Directors. Vacancies
in the Board will be filled by majority vote of the remaining directors or in the event that a sole remaining Director vacates
his position, by our majority shareholders. Our Directors may be reimbursed by the Company for expenses incurred in attending meetings
of the Board of Directors.
Executive Officers
Set forth below is information regarding
our current executive officers. Except as set forth below, there are no family relationships between any of our executive officers
and our directors. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until
he resigns or is removed by the Board or his successor is elected and qualified.
Name
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Age as of December 31,
2018
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Position
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Term as Officer/Director
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David Platt, Ph.D.
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65
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Chief Executive Officer, Chairman and Director
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September 2018 to Present
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Ola Soderquist, MBA, CPA, CMA
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57
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Chief Financial Officer, Treasurer, Secretary
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September 2018 to Present
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Biographical information with respect to Mr. Platt and Mr. Soderquist
is set forth above.
Scientific Advisory Board
We are establishing
a scientific advisory board to advise our management regarding our clinical and regulatory development programs and other customary
matters. Our scientific advisors are experts in various areas of medicine including diabetes and other diseases. We believe the
advice of our scientific advisors is important to the research, development and clinical testing of our products. Our scientific
advisory board is comprised of the following individuals.
Medical Advisory Board
We are evaluating
a Medical Advisory Board that will be comprised of Clinicians and Clinical Research professionals who are interested in the field
of Diabetes or in other subjects related to our product pipeline. The board will provide leadership and expertise to assist us
in designing, executing and implementing our clinically oriented activities in a safe, efficient and professional manner
The Company has established and approved
charters for separate audit, compensation and nominating/governance committees of its board of directors.
Code of Ethics
A code of business conduct and ethics is
a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely
and understandable disclosure in regulatory filings and public statements, (c) compliance with applicable laws, rules and regulations,
(d) the prompt reporting violation of the code and (e) accountability for adherence to the code. We are not currently subject to
any law, rule or regulation requiring that we adopt a code of ethics; however, we intend to adopt one in the near future.
Board of Directors Independence
Board of Directors
Independence. Our Board of Directors consists of six members. We are not currently subject to any law, rule or regulation requiring
that all or any portion of our Board of Directors include “independent” directors. Three of the members of the Board
of Directors, Dale H. Conaway, D.V.M., Alan Hoberman and Henry Esber are “independent” as defined in Section 4200(a)(15)
of NASDAQ Stock Market Rules.
Audit Committee
Our Board of Directors
has established an audit committee, whose members are initially Anders Utter, as Chairman, Henry Esber, Alan Hoberman and Dale
Conaway.
Nominating and Governance Committee
Our Board of Directors
has established a nominating and governance committee, whose initial members are Dale Conaway, Chairman, Henry Esber and Alan Hoberman.
Compensation Committee
The Board of Directors
has appointed Henry Esber, Chairman, Dale Conaway and Alan Hoberman to our compensation committee.
Compensation Committee Interlocks
and Insider Participation
The Compensation Committee of the Board
has four members. All members of the committee are non-employee directors of the Company. None of our executive
officers serves on the Compensation Committee or board of directors of any other company of which any members of our Compensation
Committee or any of our directors is an executive officer.
Audit Committee Report Regarding Audited Financial Statements
The Audit Committee of the Board is composed
of three directors, all of whom are “independent” as defined in Section 4200(a)(15) of NASDAQ Stock Market Rules. The
Audit Committee has prepared the following report on its activities with respect to the Company’s audited financial statements
for the fiscal year ended December 31, 2018 (the “Audited Financial Statements”).
|
●
|
The Audit Committee reviewed
and discussed the Company’s Audited Financial Statements with management;
|
|
●
|
The Audit Committee discussed with Pinnacle Accountancy Group of Utah (“Pinnacle”), the Company’s independent registered public accounting firm for fiscal 2018, the matters required to be discussed by the Public Company Accounting Oversight Board in Rule 3200T;
|
|
●
|
The Audit Committee received from the independent registered public accounting firm the written disclosures regarding auditor independence, discussed with Pinnacle its independence from the Company and its management: and
|
|
●
|
Based on the review and discussion referred to above, and in reliance thereon, the Audit Committee determined that the Audited Financial Statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, for filing with the U.S. Securities and Exchange Commission.
|
All members of the Audit Committee concur
in this report.
|
Audit Committee:
|
Anders Utter (Chairman)
|
Indemnification Agreements
Our By-laws provide
for the indemnification of directors and officers. See “Indemnification of Directors and Officers.” As of October 1,
2018, Dr. Platt and Mr. Soderquist will receive a monthly compensation of $6,000 each, while our non-employee Directors will be
compensated with 1,000 shares per board meeting as of November 2018.
Director Independence
Four of the members of the board of directors
are “independent” as defined under the rules of the NASDAQ Stock Market.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of
the issued and outstanding shares of our common stock to file reports of initial ownership of common stock and other equity securities
and subsequent changes in that ownership with the SEC. Officers, directors and greater than ten percent stockholders are required
by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, we confirm that, based solely
on a review of the copies of such reports furnished to us and written representations except for the Form 3 Initial Statement of
Beneficial Ownership to be filed by David Platt, Ola Soderquist and Offer Binder, that no other reports were required, during the
fiscal year ended December 31, 2018 all Section 16(a) filing requirements applicable to our officers, directors and greater than
10% beneficial owners were complied with.
Item 11. Executive Compensation
The following table
sets forth information concerning all cash all cash and non-cash compensation awarded to, earned by or paid to the Company’s
chief executive officer and chief financial officer, regardless of compensation level. The Company’s chief executive officer
and Chief Financial Officer are the only officers of the Company for whom compensation disclosure is required pursuant to instruction
1 to Item 402(m)(2) of Regulation S-K.
Summary Compensation Table
Name and Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Total
Compensation
|
|
David Platt, Chairman of the Board
|
|
2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Chief Executive Officer and President
|
|
2018
|
|
$
|
18,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ola Soderquist, Chief Financial Officer
|
|
2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
2018
|
|
$
|
18,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,000
|
|
Grants of Plan-Based Awards
There were no equity
or non-equity awards granted to any of our Executive Officers from the Company’s inception through December 31, 2018.
Outstanding Equity Awards at December 31, 2018; Option exercises
and vested
There were no outstanding
options or equity awards held by the Company’s Executive Officers at December 31, 2018.
Director Compensation
All compensation paid
to our employee directors is set forth in the table summarizing executive officer compensation above. Our non-employee directors
currently are entitled to receive 1,000 shares of our common stock for each meeting that they attend per quarter in arrears. There
was no stock compensation issued in 2018. Except for the foregoing, there are currently no agreements in effect entitling them
to compensation.
Employment Contracts
Our executive officers
have entered into employment contracts and confidentiality, non-disclosure and assignment of invention agreements. Except for a
commitment to pay David Platt and Ola Soderquist $6,000 in monthly compensation, starting in October 2018, the employment agreements
do not provide for the payment of any compensation to our executive officers but provide for the payment of $100,000 (subject to
upward adjustment in certain circumstances) in severance upon termination of employment without cause and make no provisions for
any payment upon a change of control. The employment agreements also prohibit the sale of any common stock owned by our executive
officers in the 180 days following the effective date of the Registration Statement initially filed on November 30, 2018. There
are no arrangements or plans in which we provide pension, retirement or similar benefits for any of executive officers or directors.
Our executive officers and directors may receive stock options at the discretion of our board of directors in the future. We do
not have any bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to any of our executive
officers or directors, except that stock options may be granted at the discretion of our board of directors from time to time.
Compensation Risk Assessment
We have formed a Compensation
Committee. In setting compensation, the Compensation Committee will consider the risks to the Company’s stockholders and
to achievement of its goals that may be inherent in its compensation programs. The Compensation Committee will review and discuss
its assessment with management and outside legal counsel to confirm that the Company’s compensation programs are and will
be within industry standards and designed with the appropriate balance of risk and reward to align employees’ interests with
those of the Company without incenting employees to take unnecessary or excessive risks. We believe our compensation plans will
be appropriately structured consistent with the Company’s status as a pre-revenue start-up enterprise, and will not be reasonably
likely to result in a material adverse effect on the Company.
Securities
Authorized for Issuance under Equity Compensation Plans
Securities Authorized for Issuance
under Equity Compensation Plans
On January 19, 2010,
the Company established a 2010 Employee, Director and Consultant Stock Plan
(the “2010 Plan”). The 2010
Plan was approved by the Company’s board of directors and by the consent of the shareholders owning a majority of the outstanding
shares. The material features of the 2010 Plan are described below.
Administration
A designated Administrator,
or in the absence of such, our Board of Directors’ Compensation Committee or both, in the sole discretion of our Board, administers
the 2010 Plan, which was approved by the Company’s Board of Directors on January 19, 2010. The Board, subject to the provisions
of the 2010 Plan, has the authority to determine and designate officers, employees, directors and consultants to whom awards shall
be made and the terms, conditions and restrictions applicable to each award (including, but not limited to, the option price, any
restriction or limitation, any vesting schedule or acceleration thereof, and any forfeiture restrictions). The Board may, in its
sole discretion, accelerate the vesting of awards. The Board of Directors must approve all grants of Options and Stock Awards issued
to our officers or directors.
Types of Awards
The 2010 Plan is designed
to enable us to offer certain officers, employees, directors and consultants of us and our subsidiaries equity interests in us
and other incentive awards in order to attract, retain and reward such individuals and to strengthen the mutuality of interests
between such individuals and our stockholders. In furtherance of this purpose, the 2010 Plan contains provisions
for granting incentive and non-statutory stock options, stock wards and stock appreciation rights.
Stock Options
.
A “stock option” is a contractual right to purchase a number of shares of Common Stock at a price determined on the
date the option is granted. The option price per share of Common Stock purchasable upon exercise of a stock option and the time
or times at which such options shall be exercisable shall be determined by the Board at the time of grant. Such option price shall
not be less than 100% of the fair market value of the Common Stock on the date of grant. The option price must be paid in cash,
money order, check or Common Stock of the Company. The Options may also contain at the time of grant, at the discretion
of the Board, certain other cashless exercise provisions.
Options shall be exercisable
at the times and subject to the conditions determined by the Board at the date of grant, but no option may be exercisable more
than ten years after the date it is granted. If the Optionee ceases to be an employee of our company for any reason other than
death, any option granted as an Incentive Stock Option exercisable on the date of the termination of employment may be exercised
for a period of thirty days or until the expiration of the stated term of the option, whichever period is shorter. In the event
of the Optionee’s death, any granted Incentive Stock Option exercisable at the date of death may be exercised by the legal
heirs of the Optionee from the date of death until the expiration of the stated term of the option or six months from the date
of death, whichever event first occurs. In the event of disability of the Optionee, any granted Incentive Stock Options
shall expire on the stated date that the Option would otherwise have expired or 12 months from the date of disability, whichever
event first occurs. The termination and other provisions of a non-statutory stock option shall be fixed by the Board
of Directors at the date of grant of each respective option.
Common Stock Award
.
“Common Stock Award” is shares of Common Stock that will be issued to a recipient at the end of a restriction period,
if any, specified by the Board if he or she continues to be an employee, director or consultant of us. If the recipient remains
an employee, director or consultant at the end of the restriction period, the applicable restrictions will lapse and we will issue
a stock certificate representing such shares of Common Stock to the participant. If the recipient ceases to be an employee, director
or consultant of us for any reason (including death, disability or retirement) before the end of the restriction period unless
otherwise determined by the Board, the restricted stock award will be terminated.
Eligibility
The Company’s
officers, employees, directors and consultants of U.S. Rare Earth Minerals, Inc. are eligible to be granted stock options, and
Common Stock Awards. Eligibility shall be determined by the Board; however, all Options and Stock Awards granted to
officers and directors must be approved by the Board.
Termination or Amendment of the 2010
Plan
The Board may at any
time amend, discontinue, or terminate all or any part of the 2010 Plan, provided, however, that unless otherwise required by law,
the rights of a participant may not be impaired without his or her consent, and provided that we will seek the approval of our
stockholders for any amendment if such approval is necessary to comply with any applicable federal or state securities laws or
rules or regulations.
Awards
On April 25, 2017,
3,000,000 (pre-split) 100,000 (post-split) shares were issued to two consultants under the 2010 Plan to pay for services rendered
to the Company in lieu of cash. These awards are made when the Company does not have sufficient cash to pay for the services provided
to the Company.
Shares Subject to the 2010 Plan
Subject to adjustment,
the aggregate number of shares of Stock which may be delivered under the 2010 Plan shall not exceed a number equal to 15% of the
total number of shares of Stock outstanding immediately following the Effective Time, assuming for this purpose the conversion
into Stock of all outstanding securities that are convertible by their terms (directly or indirectly) into Stock
;
provided,
however, that, as of January 1 of each calendar year, commencing with the year 2011, the maximum number of shares of Stock
which may be delivered under the 2010 Plan shall automatically increase by a number sufficient to cause the number of shares of
Stock covered by the 2010 Plan to equal 15% of the total number of shares of Stock then outstanding, assuming for this purpose
the conversion into Stock of all outstanding securities that are convertible by their terms (directly or indirectly) into Stock
.
The Company filed a
registration statement on August 29, 2016 with the Securities and Exchange Commission to register 6,200,000 (pre-split) 206,666
(post split) additional shares to be available to be issued from the 2010 Plan.
Federal Tax Consequences
The Federal income
tax discussion set forth below is intended for general information only. State and local income tax consequences are not discussed,
and may vary from locality to locality.
Incentive Stock
Options.
Incentive stock options granted under the 2010 Plan are designed to qualify for the special tax treatment
for incentive stock options provided for in the Internal Revenue Code (the “Code”). Under the provisions
of the Code, an optionee who at all times from the date of grant until three months before the date of exercise is an employee
of the Company, and who holds the shares of Common Stock obtained upon exercise of his incentive stock option for two years after
the date of grant and one year after exercise, will recognize no taxable income on either the grant or exercise of such option
and will recognize capital gain or loss on the sale of the shares. If such shares are held by the optionee for the required
holding period, the Company will not be entitled to any tax deduction with respect to the grant or exercise of the option. If
such shares are sold by the optionee prior to the expiration of the holding periods described above, the optionee will recognize
ordinary income upon such disposition. Upon the exercise of an incentive stock option, the optionee will incur an item
of tax preference equal to the excess of the fair market value of the shares at the time of exercise over the exercise price, which
may subject the optionee to the alternative minimum tax.
Non-Qualified Options
.
Under present Treasury regulations, an optionee who is granted a non-qualified option will not realize taxable income at the time
the option is granted. In general, an optionee will be subject to tax for the year of exercise on an amount of ordinary income
equal to the excess of the fair market value of the shares on the date of exercise over the option price, and the Company will
receive a corresponding deduction. Income tax withholding requirements apply upon exercise. The optionee’s basis in the shares
so acquired will be equal to the option price plus the amount of ordinary income upon which he is taxed. Upon subsequent disposition
of the shares, the optionee will realize capital gain or loss, long-term or short-term, depending upon the length of time the shares
are held after the option is exercised.
Common Stock Awards.
Recipients
of shares of restricted Common Stock that are not “transferable” and are subject to “substantial risk of forfeiture”
at the time of grant will not be subject to Federal income taxes until lapse or release of the restrictions on the shares. The
recipient’s income and the Company’s deduction will be equal to the fair market value of the shares on the date of
lapse or release of such restrictions. It has been the Company’s policy to value the cost of the issuance of said unregistered
shares at the then bid price of the stock when issued.
The issuance of any
of our common or preferred stock is within the discretion of our Board of Directors, which has the power to issue any or all of
our authorized but unissued shares without stockholder approval.
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
The following table
sets forth certain information as of March 12, 2019 with respect to the beneficial ownership of shares of the Company’s common
stock by (i) each person or group known to us, to beneficially own more than 5% of the outstanding shares of such stock (as we
do not have a class of securities registered under Section 12 of the Exchange Act, holders of 5% or more of the outstanding shares
of our common stock are not currently required to file Schedule 13D or Schedule 13G with the Securities and Exchange Commission
)
,
(ii) each director; (iii) each of our executive officers named in the summary compensation table under “Director and Executive
Compensation” currently serving as an executive officer; and (iv) the executive officers and directors as a group. All persons
listed below have (i) sole voting power and investment power with respect to their shares of common stock (the only class of outstanding
stock), except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership
with respect to their shares of stock. The percentage of beneficial ownership is based upon 85,103,673 shares of common stock outstanding
as of November 19, 2018. Except as otherwise indicated in the footnotes to the table, the persons and entities named in the table
have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws, where
applicable.
Name and Address of Beneficial Owner
|
|
Number of Shares
|
|
|
Percent of Class (1)
|
|
|
|
|
|
|
|
|
David Platt (2)
|
|
|
43,891,974
|
|
|
|
51.6
|
%
|
|
|
|
|
|
|
|
|
|
Offer Binder
|
|
|
8,781,969
|
|
|
|
10.3
|
%
|
Via Armand Fedeli 121
Perugia PG 06132
Italy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ola Soderquist (2)
|
|
|
21,947,263
|
|
|
|
25.8
|
%
|
|
|
|
|
|
|
|
|
|
Dale H. Conaway (2)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan M. Hoberman (2)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry J. Esber (2)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anders Utter (2)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Officers and Directors as a Group (6 persons)
|
|
|
65,839,237
|
|
|
|
77.4
|
%
|
(1)
|
The percentage shown in the table is based on 85,103,673 shares of Common Stock outstanding on March 8, 2019
|
(2)
|
The business address for these individuals is 233 Needham Street, Suite 300, Newton, MA 02464.
|
Item 13. Certain Relationships and Related Transactions,
and Director Independence
From the date of the
Company’s Merger on September 21, 2018 we have not entered into any material transactions or series of transactions that
would be considered material in which any officer, director or beneficial owner of 5% or more of any class of our capital stock,
or any immediate family member of any of the preceding persons, had a direct or indirect material interest, and there are no transactions
presently proposed, except as follows:
As of December 31,
2018, the Company have accrued a total amount of $10,900 for Ola Soderquist for salary, retirement benefits and expense reimbursements.
Item 14. Principal Accountant Fees and Services.
The table below shows the fees that we
paid or accrued for the audit and other services provided by Pinnacle Accountancy Group of Utah for the fiscal year ended December
31, 2018 and 2017.
Fee Category
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Audit Fees - Pinnacle
|
|
$
|
11,450
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Audit Related Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
$
|
1,500
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
All other Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
This
category includes the audit of our annual financial statements, review of financial statements included in our annual and quarterly
reports and services that are normally provided by the independent registered public accounting firms in connection with engagements
for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of,
the audit or the review of interim financial statements.
Audit-Related Fees
This category consists
of assurance and related services by the independent registered public accounting firms that are reasonably related to the performance
of the audit or review of our financial statements and are not reported above under “Audit Fees”. The services for
the fees disclosed under this category include services relating to our registration statements.
Tax Fees
This category consists
of professional services rendered for tax compliance and tax advice.
All Other Fees
This category consists
of fees for other miscellaneous items.
Pre-Approved Services
The Audit Committee
requires pre-approval of audit, audit-related and tax services to be performed by the independent registered public accounting
firm. The Audit Committee approved the audit and audit-related services to be performed by the independent registered public accounting
firms and tax professionals in 2018 and 2017.
The Audit Committee
has not expressly adopted rules permitting the Audit Committee to delegate to one or more of its members pre- approval authority
with respect to permitted services nor has the Audit Committee actually delegated such authority to its members. To the extent
it elects to do so in the future, the Board expects that such delegation will be subject to the requirement that the decisions
of any Audit Committee member to whom pre-approval authority is delegated must be presented to the full Audit Committee at its
next scheduled meeting.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2018 AND DECEMBER
31, 2017
NOTE 1 – BACKGROUND AND ORGANIZATION
Business Operations
Bioxytran, Inc. (the “Company”)
is an early-stage pharmaceutical company focused on the development, manufacture and commercialization of therapeutic drugs designed
to address hypoxia in humans, which is a lack of oxygen to tissues, in a safe and efficient manner. If it is not addressed, lack
of oxygen to tissues, or hypoxia, results in necrosis, which is the death of cells comprising body tissue. Necrosis cannot be reversed.
Our lead drug candidate, code named BXT-25, is an oxygen-carrying small molecule consisting of bovine hemoglobin stabilized with
a co-polymer with intended applications to include treatment of hypoxic conditions in the brain resulting from stroke, and hypoxic
conditions in wounds to prevent necrosis and to promote healing. The Company’s initial focus is the treatment of hypoxic
conditions in the brain resulting from stroke, and hypoxic conditions in wounds to prevent necrosis and to promote healing. We
believe that ours is a novel approach that will result in the creation of safe drug alternatives to existing therapies for effectively
addressing hypoxic conditions in humans. Our drug development efforts are guided by specialists in co-polymer chemistry and other
disciplines, and we intend to supplement our efforts with input from a scientific and medical advisory board whose members are
leading physicians.
Organization
Bioxytan, Inc., was organized on October
5, 2017, as a Delaware corporation with a taxing structure for U.S. federal and state income tax as a C-Corporation with 95,000,000
authorized common shares with a par value of $0.0001, and 5,000,000 preferred shares with a par value of $0.0001. On September
21 the company went under a reorganization in form of a reverse merger and is currently registered as a Nevada corporation with
a taxing structure for U.S. federal and state income tax as a C-Corporation with 300,000,000 authorized common shares with a par
value of $0.001, and 50,000,000 preferred shares with a par value of $0.001
Basis of Presentation
The summary of significant accounting policies
presented below is designed to assist in understanding the Company’s consolidated financial statements. Such financial statements
and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity.
These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”)
in all material respects, and have been consistently applied in preparing the accompanying financial statements. The Company has
not earned any revenue from operations since inception. The Company chose December 31
st
as its fiscal year end.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of Bioxytran, Inc. a Nevada Corporation and its wholly owned subsidiary Bioxytran, Inc. of Delaware
(collectively, the “Company”). All intercompany accounts have been eliminated upon consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A summary of the significant accounting
policies applied in the preparation of the accompanying financial statements follows.
Cash
For purposes of the Statement of Cash Flows,
the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during
the reporting period. Significant estimates include the fair value of the Company’s stock, stock-based compensation and the
valuation allowance related to deferred tax assets. Actual results may differ from these estimates.
Net Loss per Common Share, basic and
diluted
The Company computes earnings (loss) per
share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common
share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted
earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially
dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.
There are 208,333 warrants outstanding at December 31, 2018
(Note 6), and no potential dilutive items outstanding as of December 31, 2017
Stock Based Compensation
The Company measures the cost of services
received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the
fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured
on vesting dates and financial reporting dates until the service period is complete. The fair value amount is then recognized over
the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based
compensation expense is recorded by the Company in the same expense classifications in the statements of operations, as if such
amounts were paid in cash. As of December 31, 2018, and 2017 there were no outstanding stock options.
Income Taxes
The Company accounts for income taxes under
the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or be settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely
than not that some portion of the gross deferred tax asset will not be realized. The Company records interest and penalties related
to income taxes as a component of provision for income taxes. The Company did not recognize any interest and penalty expense for
the year ended December 31, 2018 and 2017.
On December 22, 2017, the Tax Cuts and
Jobs Act (TCJA) was signed into law by the President of the United States. TCJA is a tax reform act that among other things, reduced
corporate tax rates to 21 percent effective January 1, 2018. FASB ASC 740, Income Taxes, requires deferred tax assets and liabilities
to be adjusted for the effect of a change in tax laws or rates in the year of enactment, which is the year in which the change
was signed into law. Accordingly, the Company adjusted its deferred tax assets and liabilities at December 31, 2018, using the
new corporate tax rate of 21 percent. See Note 8.
Research and Development
The Company accounts for research and development
costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”).
Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and
development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has
been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research
and development costs related to both present and future products are expensed in the period incurred. During the year ended December
31, 2018 and from October 5, 2017 (date of inception) through December 31, 2017, the Company did not incur significant research
and development expenses.
Fair Value
Accounting Standards Codification subtopic
825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments.
The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected
in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial
assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements
together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit
risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise
only available information pertinent to fair value has been disclosed.
The Company follows Accounting Standards
Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification
subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments
and certain other items at fair value.
Recent Accounting Pronouncements
There were various updates recently issued,
most of which represented technical corrections to the accounting literature or application to specific industries and are not
expected to a have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 3 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of December
31, 2018, the Company had cash of $36,411 and a negative working capital of $225,314. From October 5, 2017 (date of inception)
through December 31, 2018, the Company has not yet generated any revenues, and has incurred cumulative net losses of $382,830.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
From October 5,
2017 (date of inception) through December 31, 2018, the Company has not raised any cash proceeds from the issuance of debt or common
stock. The Company is aware that its current cash on hand will not be sufficient to fund its projected operating requirements through
the month of September 2019 and is pursuing alternative opportunities to funding.
The Company intends
to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these
funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development
activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement
a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital
is raised to support further operations. There can be no assurance that such a plan will be successful.
Accordingly, the
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”), which contemplate continuation of the Company as a going concern and the realization of
assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented
in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do
not include any adjustment that might result from the outcome of this uncertainty.
NOTE 4 – ACCOUNTS PAYABLES AND
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
On December 31, 2018, there was $10,900 in Accounts Payables
to related parties in form of payroll and advanced expenses. On December 31, 2017 there was $1,419 in Accounts Payables to related
parties in form of payroll and advanced expenses.
The following table represents the major components of accounts
payables and accrued expenses and other current liabilities at December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Accounts Payables related party
|
|
$
|
10,900
|
|
|
$
|
1,419
|
|
Professional fees
|
|
|
19,175
|
|
|
|
-
|
|
Interest
|
|
|
3,722
|
|
|
|
-
|
|
Taxes
|
|
|
400
|
|
|
|
-
|
|
Other Accounts Payables
|
|
|
150
|
|
|
|
-
|
|
Convertible Note Payables
|
|
|
227,378
|
|
|
|
-
|
|
Total
|
|
$
|
261,725
|
|
|
$
|
1,419
|
|
NOTE 5 – CONVERTIBLE NOTES PAYABLE
On October 25, 2018 U.S. Rare Earth Minerals,
Inc. (the “Company”) entered into a $250,000 Senior Secured Promissory Note, dated October 24, 2018 at an interest
rate of 8% per annum, maturing on October 24, 2019 (the “Maturity Date”). Issuance fees totaling $25,520 were recorded
as a debt discount, resulting in net proceeds of $222,205. The Note is convertible into common stock of the Company, par value
$.001 per share (the “Common Stock”) at any time after the earlier of: (i) 180 days from the date of the Note or (ii)
upon effective date of a registration statement. The conversion price of the Note is equal to the lesser of : (i) the lowest trading
price for the twenty-day period prior to the date of the Note or (ii) 65% of the average of the three lowest trading prices during
the twenty days prior to a conversion notice on the applicable trading market or the closing bid price on the applicable trading
market. The Company may prepay the Note at any time at a rate of 120% of outstanding principal and interest during the first 90
days it is outstanding and 130% of outstanding principal and interest for the next 90 days thereafter. Thereafter the prepayment
amount increases 5% for each thirty-day period until 270 days from the issue date at which time it is fixed at 150% of the outstanding
principal and interest on the Note.
As long as the convertible notes remain
outstanding, the Company is restricted from incurring any indebtedness or liens, except as permitted (as defined), amend its charter
in any matter that materially effects rights of noteholders, repay or repurchase more than de minimis number of shares of common
stock other than conversion or warrant shares, repay or repurchase all or any portion of any indebtedness or pay cash dividends.
In connection with the issuance of the
Convertible Debentures, the Company issued an aggregate of 208,333 warrants to purchase the Company’s common stock at $0.60
per share, exercisable immediately upon issuance, expiring five years from the date of issuance, the latest being October 24, 2023.
The Company applies the provisions of ASC
480, Distinguishing Liabilities from Equity with the excess over the note’s undiscounted face value being deemed a premium
to be added to the principal balance and amortized to additional paid-in capital over the life of the note. Based on the classification
of the debt instrument it was determined that derivative treatment was not a factor due to the ASC 480 treatment.
On October 24, 2018, the Company issued
208,333 warrants, as part of the one-year Convertible Note “The Auctus Note”, all classified as equity instruments
and were fully exercisable as of date of issuance at a fixed exercise price of $0.60 with an expiration date of October 23, 2023.
The warrants are exempt from derivative accounting because they have a fixed exercise price and there are no exercise contingencies.
For the year ended December 31, 2018, the
Company amortized $5,173 debt discount to operations as interest expense.
Convertible notes
payable consists of the following at December 31, 2018:
|
|
2018
|
|
Principal balance
|
|
$
|
250,000
|
|
Debt discount
|
|
|
(20,347
|
)
|
Deferred finance costs
|
|
|
(2,275
|
)
|
Outstanding, net of debt discount
|
|
$
|
227,378
|
|
There were no convertible notes outstanding in 2017.
NOTE 6 – STOCKHOLDERS’ EQUITY
At a Board of Director’s Meeting
on July 30, 2018, the Company authorized a reverse split that resulted in a reduction of the number of outstanding and issued shares
of both common and preferred stock so that after the split became effective on August 13, 2018, the shares of both common and preferred
stock were reduced to 1 share for each 30 shares currently issued and outstanding. The effect on the Balance Sheet is a transfer
of value from stock value at par to Additional Paid-in Capital (APIC).
As a result of the
one (1) for thirty (30) reverse stock split, the Company will continue to be authorized to issue 300,000,000 shares of Common Stock.
The impact of the reverse stock split has been retroactively applied to all periods presented, and all references to common and
preferred stock in the footnotes are assumed to be post-split unless otherwise indicated.
Preferred stock
As of July 30, 2018, and prior to the reverse
stock split, there were 440,500 outstanding shares of the Company’s Preferred Stock. After the reverse stock split that was
effective on August 13, 2018, the Company’s outstanding shares of preferred stock was 14,683 and the authorized preferred
stock of 50,000,000 shares remained unchanged.
On September 20, 2018 the total of 9,999
shares of Preferred Stock were returned to treasury as a result of a Merger, (please see 8-K statement filed on September 24, 2018
and its financial amendment 8-K/A filed on October 29, 2018, for more detailed information about the merger and asset purchase
agreement).
The change of control of ownership resulted
in the mandatory conversion of all of the outstanding shares of the Company’s Class A 6% Cumulative Convertible Voting Preferred
Stock, par value $.001 per share (“Preferred Stock”), with 5 shares of common stock, par value $.001 per share (the
“Common Stock”) of the Company, being issued for each outstanding share of Preferred Stock, as well as combined accrued
interest.
As of December 31, 2018, no preferred shares
have been designated nor issued.
Common stock
As of July 30, 2018, and prior to the reverse
stock split, there were 111,336,350 shares of Common Stock outstanding. As a result of the reverse stock split that was effective
on August 13, 2018, there were approximately 3,711,204 shares of Common Stock outstanding. A total of 30,000 shares, included in
the above count, had on July 30, 2018 been issued as a settlement of accounts payable for a related party.
On September 21, 2018, the Company completed
a series of transactions as a result of a Merger, (please see 8-K statement filed on September 24, 2018 and its financial amendment
8-K/A filed on October 29, 2018, for more detailed information about the merger and asset purchase agreement
As consideration for the Merger, the stockholders
of Bioxytran were issued 76,586,937 shares of common stock of the Company. The Merger was structured as a tax-free reorganization.
A 6% secured promissory note in the principal
amount of $110,000, including all interest had been in default since August 23, 2013. The Note was secured by substantially all
of the assets of the Company. As consideration for the satisfaction of the obligation and as a condition to the Settlement, the
Company agreed to divest substantially all of its assets and remaining liabilities to an affiliate of the creditor and former majority
stockholder of the Company. The creditor agreed to release all liens upon the completion of the asset sale. Included in the Settlement
a former majority stockholder of the Company received 4,455,856 shares of common stock, while the former Directors and Officers
received 850,732 shares of common Stock.
An additional 30,500 shares of common stock
were issued as a result of a mandatory conversion of 4,681 shares preferred stock, convertible 5:1 while, 7,095 shares of common
stock were issued in form of accrued 6% annual combined interest on the preferred stock. An additional 9,999 shares of preferred
stock were returned to treasury.
As of December 31, 2018, and after completion
of the above transactions, the Company has 85,103,673 shares of Common Stock issued and outstanding. No shares of common stock
have been issued since the merger.
Common Stock Warrants
With reference to Note 6, the Company has
determined that the Warrants are exempt from derivative accounting and were valued at $101,937 on the Date of Inception using the
Black Scholes Options Pricing Model. Assumptions used for the Black Scholes Options Pricing Model include (1) stock price
of $0.49 per share, (2) exercise price of $0.60 per share, (3) term of 5 years, (4) expected volatility of 287.03% and (5) risk
free interest rate of 2.51%. The note proceeds of $250,000 were then allocated between the fair value of the promissory note
($250,000) and the Warrants ($101,937), resulting in a debt discount of $72,412. This debt discount was amortized in its entirety
to interest expense on the Date of Issuance and allocated to Additional Paid in Capital.
The following table summarizes the Company’s
common stock warrants activity for the years ended December 31, 2018:
|
|
|
|
|
Weighted Average
|
|
|
Weighted-Average Remaining
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Contractual
Term
|
|
Outstanding as of December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Granted
|
|
|
208,333
|
|
|
|
0.6
|
|
|
|
4.8
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding as of December 31, 2018
|
|
|
208,333
|
|
|
$
|
0.6
|
|
|
|
4.8
|
|
NOTE 7 – PROVISION FOR INCOME
TAXES
Provision for
Income Taxes
During the year ended December 31, 2018
and the period of October 5, 2017 (inception) no provision for income taxes was recorded as the Company generated net operating
losses.
The tax effects of
temporary differences that give rise to deferred tax assets are presented below:
|
|
2018
|
|
|
2017
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
62,200
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
62,200
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(62,200
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
The income tax provision
(benefit) consists of the following:
|
|
2018
|
|
|
2017
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
-
|
|
|
|
-
|
|
Income tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of
the statutory federal income tax rate to the Company’s effective tax rate is as follows:
Tax benefit at federal statutory rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
There was no provision for income taxes in 2017.
The Company assesses
the likelihood that deferred tax assets will be realized. To the extent that realization is not likely, a valuation allowance is
established. Based upon the Company’s history of losses since inception, management believes that it is more likely than
not that future benefits of deferred tax assets will not be realized.
At December 31, 2018,
the Company had approximately $62,200 of federal net operating losses that may be available to offset future taxable income, in
2017 there were no federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in
2038 for federal purposes.
Pursuant to the Internal Revenue Code Section
382 (“Section 382”), certain ownership changes may subject the net operating loss carryforwards (“carryforwards”)
and research and development tax credit carryforwards to annual limitations which could reduce or defer the carryforwards. Section
382 imposes limitations on a corporation’s ability to utilize carryforwards if it experiences an ownership change. An ownership
change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than
50 percentage points over a three-year period. In the event of an ownership change, utilization of the carryforwards would be subject
to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change
by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of
this limitation on its ability to use the carryforwards to offset future taxable income could cause the Company to pay U.S. federal
income taxes earlier than if such limitation were not in effect and could cause such carryforwards to expire unused, reducing or
eliminating the benefit of such carryforwards. The Company has not completed a Section 382 study to determine if there have been
one or more ownership changes due to the costs associated with such a study. Until a study is completed and the extent of the limitations,
if any, is able to be determined, no additional amounts have been written off or are being presented as an uncertain tax position.
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act
establishes new tax laws that affects 2018 and future years, including a reduction in the U.S. federal corporate income tax rate
to 21%, effective January 1, 2018. In the deferred tax assets for 2016, it is recorded a provisional decrease of $37,900, with
a corresponding adjustment to valuation allowance of $37,900 as of December 31, 2017.
The Company applies the provisions of ASC
740-10, Income Taxes. The Company has not recognized any liability for unrecognized tax benefits and does not believe there is
any uncertainty with respect to its tax position. The Company’s policy with respect to unrecognized tax benefits is to recognize
interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company files tax returns as prescribed
by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination
by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. Earlier years may
be examined to the extent that tax credit or net operating loss carryforwards are used in future periods. The Company’s policy
is to record interest and penalties related to income taxes as part of its income tax provision.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Employment contracts
The Company’s executive officers
have entered into employment contracts and confidentiality, non-disclosure and assignment of invention agreements. The employment
agreements do not provide for the payment of any compensation to our executive officers.
Litigation
In the normal course of business, the Company
may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject
to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and
we accrue for adverse outcomes as they become probable and estimable. During the period from October 5, 2017 (inception) to December
31, 2018, and through the issuance of these financial statements, the Company was not involved in any legal proceedings.
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated events from December
31, 2018 through the date the financial statements were issued, and the following events have been determined to require disclosure.
On February 14, 2019, the company’s
S/1 was declared effective, allowing the company to raise up to $10 million in public equity. The S/1 was originally submitted
on November 30, 2018. Further, the S-1 effectiveness triggers the ASC 480 treatment of the convertible note, as earlier described
under Note 6.
On February 25, 2019 we entered into a
$250,000 Senior Secured Promissory Note, dated February 25, 2019 at an interest rate of 8% per annum, maturing on October 24,
2019 (the “Maturity Date”). The Note is convertible into common stock of the Company, par value $.001 per share (the
“Common Stock”) at any time after the earlier of: (i) 180 days from the date of the Note or (ii) upon effective date
of a registration statement. The conversion price of the Note is equal to the lesser of : (i) the lowest trading price for the
twenty-day period prior to the date of the Note or (ii) 65% of the average of the three lowest trading prices during the twenty
days prior to a conversion notice on the applicable trading market or the closing bid price on the applicable trading market.
The Company may prepay the Note at any time at a rate of 120% of outstanding principal and interest during the first 90 days it
is outstanding and 130% of outstanding principal and interest for the next 90 days thereafter. Thereafter the prepayment amount
increases 5% for each thirty-day period until 270 days from the issue date at which time it is fixed at 150% of the outstanding
principal and interest on the Note.
As earlier described under Note 6, the
warrants are exempt from derivative accounting because they have a fixed exercise price and there are no exercise contingencies,
while the convertible note will trigger the ASC 480 treatment of the convertible note 180 days of issuance, or a next S-1 effectiveness,
whichever comes first.
F-13