ITEM
1. DESCRIPTION OF BUSINESS
Overview
The
Company was incorporated under the name Creative Learning Products, Inc. in the State of New Jersey on August 31, 1988 and changed
its name to Creative Gaming, Inc. in May 1997. The Company changed its name to Management Services, Inc. in October 2006. In August
2008, the Company changed its name to Centriforce Technology Corp. In May 2010, the Company changed its name to ADB International
Group, Inc. The Company changed its name to its current name, E-Qure Corp., on August 27, 2014.
On
May 12, 2014, the board of directors approved a plan to redomicile from the State of New Jersey to the State of Delaware.
Our
Business
We
are a medical device Company planning to commercialize our Bioelectrical Signal Therapy device (“BST Device,”
or “Device”). Our BST Device treats wounds via electrical stimulation, which is believed to result in accelerated
wound healing by imitating the natural electrical current that occurs in injured skin on the human body. Our BST Device stimulates
renewed blood flow and oxygen in order to induce local cell regeneration and therefore promote wound healing. Our mission is to
improve non-invasive wound care treatments and to become a leading provider of non-invasive wound and ulcer healing treatment.
Our device is designed to specifically address many of the limitations associated with other invasive and non-invasive wound care
devices.
We
believe our BST Device is a simple and effective wound heal method that can be used in and incorporated as an adjunctive therapy
in wound healing. Treatment is safe, effective, and well-tolerated.
Our
BST Device has the Communaute Europeenne (“CE”) mark and is approved to be sold in the EU market. We are planning
to initiate a FDA clinical trial for the purpose of obtaining approval from the United States Food and Drug Administration (the
“FDA”), which we reasonably believe should commence in the third quarter of 2020. We expect the costs related to this
clinical trial to be approximately $1.8 million. We estimate that the initial phase of the first 10 patients (out of 90) to cost
$200K.
The
Company’s success greatly depends upon the successful FDA clinical trial of its BST Device as well as our ability to raise
sufficient equity capital. We successfully completed a Units Rights Offering in 2019. The Device may need additional development
and there can be no assurance that we will, in fact, achieve the requisite safety and efficacy, prerequisites for FDA approval
and/or that FDA approval will be received in a timely manner, if at all. Nevertheless, the Company believes that its BST Device’s
design and procedure is safe and effective, but the path to commercial success in the US, even if FDA approval is granted, may
take more time and may be more costly that we expect or for which we have sufficient resources at the present.
Our
BST Device is designed to treat chronic wounds – primarily Stage III and Stage IV ulcers, which we believe comprises about
11% and 7% of all chronic wounds, respectively, and severe Stage II wounds.
Our
anticipated plan to be able to sell the BST Device commercially in the United States, assuming success in our FDA approval process,
is not expected before the end of 2020. We have not generated any sales revenues from our BST Device to date other than the payment
of US$40,000 we have received from Colombia in January 2018 representing an initial order for our BST Device.
Recent
Developments
During
the first quarter of fiscal 2020, we were granted approval from the Helsinki committee to launch a Randomized Control Study (RCT)
on 60-100 patients in order to assess the efficacy of the BST Device on diabetic foot patients in collaboration with Clalit Health
Services Organization, Israel’s largest HMO, and the Israeli Ministry of Health (MOH). The study will be performed in 3-5
sites including leading clinics and hospitals in Israel. The Company intends to enroll the first patients to the study during
the first quarter of 2020 and expects the trial to be conducted for 12-18 months until completion.
The
Company has concluded a 35-wound, one arm clinical pilot, treating recalcitrant wounds in a leading wound clinic in Tel Aviv Israel,
with 78% of the treated wounds completely healed within 20 weeks (Avg. wound duration at the base was 8 months) and an additional
16% of the treated wounds reaching wound area reduction of greater than 75%. Only 6% of the patients had no substantial positive
clinical effect.
The
Company’s distributor in Colombia, TekMedica SAS, has successfully concluded a clinical pilot study at the Hospital de la
Samaritana in Bogota, Colombia. Starting in January 2020, Colsanitas, a leading Colombian HMO/Health insurance provider and operator
of comprehensive healthcare services in Colombia and a member of the Sanitas group worldwide, will commence a clinical pilot study
which is expected to be concluded by the end of the first half of 2020. If positive results are achieved, similar to those achieved
in the Tel Aviv clinical trials, the Company believes that it will contribute to the penetration of the BST device treatment with
Colsanitas health services in Colombia.
During
the year ended December 31, 2018, the Company raised $1,795,147 from a rights offering of a total of 9,555,468 Units at $0.10
per Unit, each consisting of: (i) one share of Common Stock; (ii) one Class A Warrant exercisable for a period of 24 months to
purchase ½ share of Common Stock at the equivalent of $0.50 per share; and (iii) one Callable Class B Warrant exercisable
for a period of 36 months to purchase ½ share of Common Stock at the equivalent of $1.25 per share. The Company intends
to use the proceeds of the rights offering for general corporate purposes, including working capital, capital expenditures, as
well as acquisitions and other strategic purposes. The warrants fair value is $408,093 and were valued using a Black- Scholes
valuation model.
On
February 20, 2017, the Registrant received the official certification from the Israeli Ministry of Health authorizing the use
of the Registrant’s BST Device in Israel. The BST Device implements patented and proprietary electrical stimulation technologies
to treat hard-to-cure wounds and ulcers up to complete closure and/or cure.
On
January 8, 2017, the Registrant entered into a five-year distribution agreement (the “Distribution Agreement”) with
TekMedica SAS, organized under the laws of Colombia (“TekMedica” or the “Distributor”). Pursuant to the
Distribution Agreement, the Registrant granted TekMedica the exclusive rights to distribute the Registrant’s medical device
for the treatment of chronic wounds (the “BST Device™”) and the accompanying disposable electrodes (sometimes
collectively, the “Products”) in Colombia (the “Territory”).
The
Distribution Agreement provides that Registrant will provide Distributor with supplies of the BST Devise and disposable electrode
for treatment of patients in hospitals, long-term care facilities, medical centers and out-patient clinics. The Distributor will
make an initial advance payment to be applied against the first year’s quota together with an initial order supported by
a Letter of Credit with subsequent orders as part of the quota, as set forth in the Distribution Agreement, with minimum annual
quota’s during the five-year term. The Distributor will be responsible for securing any product certification, permit, license
or approval that may be required in the Territory for the marketing, sale, sublicensing and delivery and use of the BST Devise
and Products in the Territory.
Our
Wound Healing Strategy
The
objective of our BST Device is to reduce healing time and allow patients to receive treatment at home while delivering optimal
therapeutic results, which eventually should result in significantly higher healing rates along with lower wound treatment costs
presently available on the market.
The
costs associated with untreated and/or unhealed wounds are far in excess of the costs of the physician, hospital and medical equipment,
particularly when there are subsequent complications that require additional medical treatment which are virtually certain to
occur as a result of untreated and/or unhealed wounds in a patient.
The
healing time of chronic wounds usually ranges from a few weeks to up to several months depending on the size and type of the wound
and the patient’s medical condition. Wound treatment typically can involve many direct and indirect costs. Wound dressings
comprise only 10-15% of the total direct treatment cost according to the International Committee of Wound Management. In contrast,
a significant percentage of the total cost is attributable to care providers’ salaries and staff expenses. As a result,
treatment methods that reduce healing time to closure of the wound and reduce staff time inevitably lead to lower cost of care.
We
believe that our BST Device is a very effective and cost-saving method for the chronic wound treatment market. Our belief is based
on the knowledge and experience of our management in the wound care industry that our BST Device is designed to be able to significantly
lower treatment cost compared to other wound therapies modalities due to the fact that our wound heal method requires shorter
healing times, treatment can be easily given at patient homes and therefore reduce per day treatment costs.
Marketing
and Sales
The
Company intends to launch marketing efforts in the US assuming receipt of FDA approval which we anticipate at the end of 2022,
of which there can be no assurance. Until such time, most of our efforts will be related to internally preparing for the launch
of our BST Device in the US as well as proceeding with marketing efforts in the EU, Colombia, Argentina and a few other territories.
Assuming
FDA approval, which we reasonably believe can be achieved by end of 2022 based, in part, because of the approval that our BST
Device has received in Europe. The Company plans to indirectly sell its wound treatment solution by entering into distribution
agreements with distributors specializing in wound care therapy solutions or by creating its own sales and marketing force. The
distributors or the Company will then sell the treatment to hospitals, nursing homes, geriatric institutions and private wound
care clinics.
In
addition to indirect sales through distribution agreements, the Company considers the outright sale of its treatment to each institution
such as hospitals, nursing homes, geriatric institutions, and private clinics, which would rent the Device to their patients on
a monthly basis. Upon completion of the wound healing treatment, the patient would return the Device, which would then re-enter
the medical device rental market.
Competition
Our
principal competition in the chronic wound care market are expected to be the wound care products manufactured by Acelity (formerly
known as KCI) and Smith & Nephew. Acelity is considered a market leader and, we believe, commands a market share of approximately
21% in the United States. Smith & Nephew’s U.S. market share is believed to be approximately 19% based on revenues.
Other significant competitors are ConvaTec, Johnson & Johnson and others, all manufacturers of wound healing devices.
We
also face competition from numerous companies that offer a variety of wound healing methods including traditional wound care dressings,
advanced wound care dressings, such as hydrogels, hydrocolloids, and alginates, skin substitutes, and products containing growth
factors. While many of these methods compete with our BST Device, such methods can also be utilized as complementary therapies
to our BST Device and V is versa.
We
believe that the following treatments or therapies represent alternatives or complementary treatments and/or therapies to our
BST device:
Hyperbaric
oxygen therapy (“HBOT”): Hyperbaric oxygen therapy is a medical treatment that utilizes pressurized oxygen to
heal wounds. The treatment is administered by placing a patient in a comfortable pressure chamber that circulates oxygen at two
to three times the atmospheric pressure rate. The HBOT method is not specifically designed for chronic wounds and the treatment
process is both very long and very expensive. HBOT treatments typically last 90-120 minutes and are administered 1-2 times a daily
for a period of 5 to 6 days a week. The length of treatment depends on the wound’s severity, with some patients requiring
20-40 treatments. There are many companies that offer HBOT treatment in clinics as a direct service to patients.
Vacuum-assisted
closure (“V.A.C.”) method: The V.A.C. method is designed for the treatment of acute care setting, serious trauma
wounds, failed surgical closures, amputations, and serious pressure ulcers. The leading V.A.C. product was launched in 1995 by
KCI, a major global medical technology company, recently acquired by Acelity.
EZCARE
(Smith & Nephew) - Following the acquisition of BlueSky Medical in May 2007, Smith & Nephew provide negative pressure
wound therapy (NPWT). NPWT is a technology used to treat chronic wounds such as diabetic ulcers, pressure ulcers, as well as post-operative
and hard-to-heal wounds. It aids in the healing of open wounds by the application of sub-atmospheric pressure (Similar technology
to KCI).
In
addition, recently developed technologies, or technologies that may be developed in the future, are or may be the basis for products
which compete with our BST Device. There can be given no assurance that we will be able to successfully enter into the chronic
wound heal market with our BST Device or that we will be able to compete effectively against such companies in the future.
Many
of these companies have substantially greater capital and marketing resources, and greater experience in commercializing products
and services than we have.
Patents,
Trademarks, and Copyrights
The
Company has filed a provisional patent with United States Patent and Trademark Office for the purpose of protecting the main features
of our proprietary unique electrical healing signal BST Device. We have a list of all pending and granted patents to date attached
as exhibit 10.9 to our S-1 Registration Statement as filed with the Company’s S-1 on September 6, 2014.
To
the extent that we determine that additional intellectual property (“IP”) protection may be necessary, we plan to
secure such protection by applying for additional patents, trademarks or copyrights related to our business and IP, as we deem
necessary.
Government
Regulation
Our
operations and the marketing of our BST Device is subject to extensive regulation by numerous federal and state governmental authorities
in the United States, foremost of which is the FDA. There can be no assurance that the FDA, other governmental agencies or a third
party will not contend that certain aspects of our business and our BST Device is either subject to or is not in compliance with
applicable laws, regulations or rules or that the state or federal regulatory agencies or courts would interpret such laws, regulations
and rules in our favor. The sanctions for failure to comply with such laws, regulations or rules could include denial of the right
to conduct business, significant fines and criminal and civil penalties. Additionally, any increase in the complexity or substantive
requirements of such laws, regulations or rules could have a material adverse effect on our business.
Any
change in current regulatory requirements or related interpretations by or positions of, state officials where we operate could
adversely affect our operations within those states. State regulatory requirements could adversely affect our ability to establish
operations in such other states.
Timeline
and Estimated Costs for Regulatory FDA Approval of Our BST Device
We
expect FDA approval of our BST Device at the end of 2021 after total costs and expenses of approximately $1.5 million. We have
received Investigative Device Exemption (IDE) approval from the FDA which involved a lengthier process and are currently preparing
to commence our clinical trial in the U.S. To that end, we have engaged IMARC Research Inc., a leading clinical research organization
located in Ohio, to conduct our Randomized Control Trial (RCT) based upon a monthly payment schedule with payments determined
by the amount of work provided, the number of patients enrolled to the study and the expenses incurred IMARC during the RCT.
Based
upon our current estimations, which we believe are based on sound business analysis after consultation with IMARC, we expect that
we should be able to complete: (i) the first phase of the RCT with 10 patients by the end of Q4 2020; and (ii) the second phase
of the RCT with 80 patients by the end of Q2 2021, depending on patient enrollment rate. We will incur fixed costs during the
RCT and additional costs paid to IMARC and other service providers based upon the time devoted during the RCT process.
Various
state and federal laws apply to the operations of medical device providers including, but are not limited to, the following:
Licensing
Requirements: Certain medical device providers are required to be licensed by various state regulatory bodies. However,
if we are found to not be in compliance, we could be subject to fines and penalties or ordered to cease operations which could
have an adverse effect on our business.
False
Claims Act: The Federal False Claims Act and some state laws impose requirements in connection with the submission of
claims for payment for health care services and products, including prohibiting the knowing submission of false or fraudulent
claims and submission of false records or statements for reimbursement and payment to the United States government or state government.
Such requirements would apply to the hospitals to which we provide our Device related to wound care treatment services. Not only
are government agencies active in investigating and enforcing actions with respect to applicable health laws, but also health
care providers are often subject to actions brought by individuals on behalf of the government. As such, “whistleblower”
lawsuits, also known as “qui tam” actions, are generally filed under seal with a court to allow the government adequate
time to investigate and determine whether it will intervene in the action. As a result, health care providers subject to qui tam
actions are often unaware of the lawsuit until the government has made its determination whether to intervene, or not, at which
time the seal is lifted. The Federal False Claims Act provides for penalties equal to three (3) times the actual amount of any
overpayments plus $11,000 per claim. Under legislation passed in 2009, those who bill third parties are now obligated to discover
and disclose any overpayments received or be subject to False Claims Act penalties as well.
Fraud
and Abuse Laws: Since a significant portion of reimbursement for healthcare products and services are currently paid through
reimbursements under Medicare, Medicaid or similar programs, the federal government and many states have adopted statutes and
regulations that address fraudulent and/or abusive behavior in connection with such programs.
As
part of this regulatory scheme, the federal government believes that an “inducement” to refer a Medicare or Medicaid
patient is likely to result in fraud or abuse on the Medicare or Medicaid programs. Therefore, the federal government adopted
a number of laws and regulations to recoup funds and assess penalties which it believes were paid inappropriately. In cases of
criminal fraud, the individuals responsible for the fraudulent activity can be subject to imprisonment.
One
of the principal federal statutes regulating fraud and abuse is the Anti-Kickback Statute. The Anti-Kickback statute prohibits
the solicitation, payment, receipt or offering of any direct or indirect remuneration in exchange for the referral of Medicare
and Medicaid patients or for the purchasing, arranging for or recommending the purchasing, leasing or ordering of Medicare or
Medicaid covered services, items or equipment. To be convicted of a violation of the Anti-Kickback Statute, the party must have
had specific intent to induce the referral of Medicare or Medicaid patients or the purchase, lease or ordering of a good, item
or service reimbursable by Medicare or Medicaid. Some of the federal courts have broadly construed the Anti-Kickback Statute and
held that the “intent” required to support a criminal conviction will exist if only one purpose of the referral is
to induce a prohibited referral.
To
clarify some of the issues created by the Anti-Kickback Statute, the Center for Medicare and Medicaid Services issued “safe
harbor” regulations identifying actions which will not be deemed to violate the Anti-Kickback Statute. Some of these “safe
harbors” are in the area of joint ventures, personal services, and other arrangements. Conducting an activity that falls
within a “safe harbor” regulation provides comfort that such activity will not be prosecuted. Compliance with each
element of a particular “safe harbor” is required in order to assured of the protection provided by such “safe
harbor”. Even though a transaction that does not fall within a “safe harbor” may be perfectly appropriate, the
arrangement will be evaluated based on its facts and circumstances to determine if the parties intended to induce the referral
of Medicare or Medicaid patients or the purchase, lease or ordering of a good, item or service reimbursable under Medicare or
Medicaid.
An
allegation of violation and/or a conviction for violation of the Anti-Kickback Statute and parallel state laws could have a significant
impact on our ability to conduct our business. As noted earlier, significant fines, penalties, exclusion from Medicare and Medicaid
programs and imprisonment of individuals can result. Because the burden to prove specific intent under the Anti-Kickback Statute
can sometimes be difficult, the government has been pursuing enforcement under statutes that do not require specific intent such
as the False Claims Act. In fact, in recent legislation the Congress has required that those submitting claims for third party
reimbursement are required to discover and repay any overpayments, or they are subject to additional penalties.
The
Stark Law: Federal and some state laws prohibit physician referrals to an entity in which the physician or his or her
immediate family members have a financial interest for provision of certain designated health services that are reimbursed by
Medicare or Medicaid. We cannot assure you that the federal government, or other states in which we operate, will not enact similar
or more restrictive legislation or restrictions or interpret existing laws and regulations in a manner that could harm our business.
Health
Care Reform: There are currently a number of legislative proposals that have been proposed as health care reform in the
United States Congress. At this time, it is not clear which, if any, of these proposals will be enacted. Therefore, although one
or more of these proposals, if enacted, could have an impact on our business, we cannot predict at this time what that impact
will be until there is legislation that becomes law.
Ongoing
Investigations: Federal and state investigations and enforcement actions continue to focus on the health care industry,
scrutinizing a wide range of items such as joint venture arrangements and referral and billing practices. We believe planned activities
will be substantially in compliance with applicable legal requirements. We cannot assure you, however, that a governmental agency
or a third party will not contend that certain aspects of our business are subject to, or are not in compliance with, such laws,
regulations or rules, or that state or federal regulatory agencies or courts would interpret such laws, regulations and rules
in our favor, or that future interpretations of such laws will not require structural or organizational modifications of our business
or have a negative impact on our business. Applicable laws and regulations are very broad and complex, and, in many cases, the
courts interpret them differently, making compliance difficult. Although we try to comply with such laws, regulations and rules,
a violation could result in denial of the right to conduct business, significant fines and criminal penalties. Additionally, an
increase in the complexity or substantive requirements of such laws, regulations or rules, or reform of the structure of health
care delivery systems and payment methods, could have a material adverse effect on our business.
Employees
We
presently have one full-time employee, which is our CEO, Ohad Goren. Our CFO, Gal Peleg, dedicates 25% of his professional time
to our business and Itsik Ben Yesha, our CTO, dedicates 50% of his professional time to our business. Our CEO, CTO and CFO are
employed under separate service agreements with the Company.
ITEM
1A. RISK FACTORS
This
Annual Report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, the market in which we operate, our beliefs and our management’s assumptions.
In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words
such as “expects”, “anticipates”, “targets”, “goals”, “projects”,
“intends”, “plans”, “believes”, “seeks”, “estimates”, variations of
such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict or assess. Therefore,
actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements.
Risks
Related to Our Business
Our
Independent Registered Public Accounting Firm Has Expressed Substantial Doubt As To Our Ability To Continue As A Going Concern.
The
audited financial statements included in the Registration Statement have been prepared assuming that we will continue as a going
concern and do not include any adjustments that might result if we cease to continue as a going concern. We believe that in order
to continue as a going concern, including the costs of being a public company, we will need approximately $50,000 per year simply
to cover the administrative, legal and accounting fees. We have incurred significant losses since our inception. We have funded
these losses primarily through the sale of restricted shares of our Common Stock and the issuance of convertible notes, which
have subsequently been converted into restricted shares of Common Stock.
Based
on our financial history, our independent registered public accounting firm has expressed substantial doubt as to our ability
to continue as a going concern. We are a development stage company that has generated no revenue.
Notwithstanding
our success in funding our business from the sale of equity and debt securities to date, there can be no assurance that we will
have adequate capital resources or be able to continue to raise equity and/or debt capital to fund planned operations or that
any additional funds will be available to us when needed or at all, or, if available, will be available on favorable terms or
in amounts required by us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay,
scale back or eliminate some or all of our plan of operations, which may have a material adverse effect on our business, results
of operations and ability to operate as a going concern.
The
outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including
our preclinical studies and clinical trials.
Public
health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of
coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”), surfaced in Wuhan, China. Since then,
COVID-19 has spread to multiple countries, including Israel and the United States.
As
a result of the COVID-19 outbreak, or similar pandemics, we have and may in the future experience disruptions that could severely
impact our business, preclinical studies and clinical trials, including:
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delays
or difficulties in enrolling patients in our clinical trials;
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delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical
site staff;
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delays
or disruptions in non-clinical experiments due to unforeseen circumstances at contract research organizations and vendors
along their supply chain;
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increased
rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced
to quarantine, or not accepting home health visits;
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interruption
of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended
by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures
(particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical
study endpoints;
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interruption
or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact approval timelines;
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limitations
on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including
because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people,
an increased reliance on working from home or mass transit disruptions.
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These
and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could
continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each
of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material
adverse impact on our operations and financial condition and results.
As
a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms.
The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, preclinical studies
and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such
as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the
outbreak or treat its impact, such as social distancing and quarantines or lock-downs in Israel and the United States and other
countries, business closures or business disruptions and the effectiveness of actions taken in Israel and the United States and
other countries to contain and treat the disease.
We
Have Limited Operating History And Face Many Of The Risks And Difficulties Frequently Encountered By Start-Up Companies.
In
January 2014, the Company acquiring certain patents pertaining to a wound healing device. The Company’s new plan of operation
has not yet generated any revenues. We have no operation history as a medical device company upon which an evaluation of the Company
and its prospects could be based. There can be no assurance that management of the Company will be successful in commercially
exploiting our wound healing device and implementing the corporate infrastructure to support its new operations so that the Company
will generate sufficient revenues to meet its expenses or to achieve or maintain profitability.
If
we are unable to raise sufficient capital as needed, we may be required to reduce the scope of our business development activities,
which could harm our business plans, financial condition and operating results, or cease our operations entirely, in which case,
you will lose all your investment.
If
The Clinical Trial Studies Of Our Current Patented Device Does Not Produce Results Necessary To Support Regulatory Clearance Or
Approval In The United States, We Will Be Unable To Commercialize Our Device.
We
have engaged a third party to conduct clinical trials and we reasonably expect trial results in 2019. Clinical testing may be
expected to take a significant amount of time, is expensive and carries uncertain outcomes. The initiation and completion of the
trial study may be prevented, delayed, or halted for numerous reasons, including, but not limited to, the following:
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the FDA, institutional review boards or other regulatory authorities do not approve a clinical study protocol, force us to modify
a previously approved protocol, or place a clinical study on hold;
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patients do not enroll in, or enroll at a lower rate than we expect, or do not complete a clinical study;
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patients or investigators do not comply with study protocols;
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patients do not return for post-treatment follow-up at the expected rate;
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patients experience serious or unexpected adverse side effects for a variety of reasons that may or may not be related to our
product causing a clinical trial study to be put on hold;
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sites participating in an ongoing clinical study withdraw, requiring us to engage new sites;
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difficulties or delays associated with establishing additional clinical sites;
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third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the
anticipated schedule, or act in ways inconsistent with the investigator agreement, clinical study protocol, good clinical practices,
and other FDA and Institutional Review Board requirements;
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third-party entities do not perform data collection and analysis in a timely or accurate manner;
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regulatory inspections of our clinical studies require us to undertake corrective action or suspend or terminate our clinical
studies;
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changes in federal, state, or foreign governmental statutes, regulations or policies;
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interim results are inconclusive or unfavorable as to immediate and long-term safety or efficacy; or
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the study design is inadequate to demonstrate safety and efficacy.
Clinical
trial failure can occur at any stage of the testing. Our clinical study may produce negative or inconclusive results, and we may
decide, or regulators may require us, to conduct additional clinical and/or non-clinical testing in addition to those we have
planned. Our failure to adequately demonstrate the safety and efficacy of our device would prevent receipt of regulatory clearance
or approval and, ultimately, the commercialization of that device or indication for use. Any of these occurrences may harm our
business, financial condition and prospects significantly.
Our
Expected Revenue Will Be Generated From Our Sole Product, And Any Decline In The Future Sales Of This Product Or Failure To Gain
Market Acceptance Of This Product Will Negatively Impact Our Business.
We
expect our revenue to be derived entirely from sales of our wound healing Device for the foreseeable future. If we are unable
to achieve and maintain market acceptance of our product and do not achieve sustained positive cash flow, we will be severely
constrained in our ability to fund our operations, fulfill our business plan and be able to possibly develop and commercialize
other potential products. In addition, if we are unable to market our product as a result of a quality problem, failure to maintain
or obtain regulatory approvals, unexpected or serious complications or other unforeseen negative effects related to our product
or the other factors discussed in these risk factors, we would lose our only potential source of revenue, and our business will
be materially adversely affected.
If
We Fail To Develop And Retain Our Sales Force, Our Business Could Suffer.
We
plan to develop a direct sales force in the United States. As we launch our product, assuming that we are successful in securing
FDA approval, any efforts to increase our marketing efforts and expand into new geographies will be dependent on our ability to
hire and retain, as well as grow and develop our sales personnel. We intend to make a significant investment in recruiting and
training sales representatives. There is significant competition for sales personnel experienced in relevant medical device sales.
Once hired, the training process may be expected to be lengthy because it requires significant education for new sales representatives
to achieve the level of competency with our product and meet the expectations of potential clients. Upon completion of the training,
and any previous experience in marketing medical devices, generally, our sales representatives typically require lead time in
the field to grow their network of accounts and achieve the productivity levels we expect them to reach in any individual territory.
If we are unable to attract, motivate, develop and retain a sufficient number of qualified sales personnel, and if our sales representatives
do not achieve the productivity levels we expect them to reach, our revenue will not grow at the rate we expect and our financial
performance will suffer. Also, to the extent we hire personnel from our competitors, we may have to wait until applicable non-competition
provisions have expired before deploying such personnel in restricted territories or incur costs to relocate personnel outside
of such territories, and we may be subject to allegations that these new hires have been improperly solicited, or that they have
divulged to us proprietary or other confidential information of their former employers.
If
We Are Unable To Educate Physicians On The Safe And Effective Use Of Our Product, We May Be Unable To Achieve Our Expected Growth.
An
important part of our sales process will include the education of physicians on the safe and effective use of our wound healing
device. There is a learning process for physicians to become proficient in the use of our product and, based upon the use of our
Device in Europe, it typically takes several procedures for a physician to become comfortable using the device. If a physician
experiences difficulties during an initial procedure or otherwise, that physician may be less likely to continue to use our product,
or to recommend it to other physicians. It is critical to the success of our commercialization efforts to educate physicians on
the proper use of the device, and to provide them with adequate product support during training. It is important for our expected
growth that these physicians advocate for the benefits of our product in the broader marketplace. If physicians are not properly
trained, they may misuse or ineffectively use our product. This may also result in unsatisfactory patient outcomes, negative publicity
or lawsuits against us, any of which could have a material adverse effect on our business.
There
May Not Be A Wide Enough Client Base To Sustain Our Business.
The
Company’s principal business is to engage in marketing and selling its wound healing treatments with our device. The Company
hopes to sell its wound healing device treatments in numbers large enough to make its business model work for profitability, of
which there can b no assurance.
If
We Are Unable To Protect Our Intellectual Property, Our Business Will Be Negatively Affected.
The
market for medical devices is subject to frequent litigation regarding patent and other intellectual property rights. It is possible
that our device may not withstand challenges made by others or that our patents protect our rights adequately.
Our
success depends in large part on our ability to secure and maintain effective patent protection for our product in the United
States and internationally. We have acquired patents that have been granted as well as patents pending and expect to continue
to file patent applications for various aspects of our device technology. However, we face the risks that:
●
we may fail to secure necessary patents on our patents pending prior to or after obtaining regulatory clearances, thereby permitting
competitors to market competing products; and
●
our already-granted patents may be re-examined, invalidated or not extended.
If
we are unable to protect our intellectual property adequately, our business and commercial prospects will suffer.
We
May Be Accused Of Infringing Intellectual Property Rights Of Third Parties.
Other
parties may claim that our Device infringes on their proprietary rights. We may be subject to claims and legal proceedings regarding
alleged infringement by us of the intellectual property rights of third parties. Such claims, whether or not meritorious, may
result in the expenditure of significant financial and managerial resources, legal fees, injunctions or the payment of damages.
In the event that our patents do not fully protect us, we may need to obtain licenses from third parties who allege that we have
infringed their rights, but such licenses may not be available on terms acceptable to us or at all. In addition, we may not be
able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect to intellectual
property we do not own.
We
May Face Product Liability Claims That Could Result In Costly Litigation And Significant Liabilities.
Marketing
of our device and clinical testing of our product may expose us to product liability and other tort claims. Although we intend
to purchase and maintain product liability insurance, the coverage limits of our policies may not be adequate and one or more
successful claims brought against us may have a material adverse effect on our business and results of operations. Additionally,
product liability claims could negatively affect our business reputation, adversely impacting continued product sales as well
as our ability to obtain and maintain regulatory approval for our products.
Current
Or Future Government Regulations May Add To Our Operating Costs.
We
may face unanticipated increases in operating costs because of any changes in governmental regulations related to our wound healing
Device, specifically, and/or medical devices, generally. We have no assurance that the independent clinical trials will result
in favorable data that will be accepted by the FDA. Laws and regulations may be introduced and court decisions may be rendered
that materially affect the demand for our product. Complying with new regulations and/or court decisions could increase our operating
costs. Furthermore, we may be subject to the laws of various jurisdictions where we actually conduct business. Our failure to
qualify to do business in a jurisdiction that requires us to do so could subject us to fines or penalties and could have a material
adverse impact on our business and operations.
We
Are Required To Comply With Medical Device Reporting, Or MDR, Requirements And Must Report Certain Malfunctions, Deaths And Serious
Injuries Associated With Our Device Which Can Result In Voluntary Corrective Actions, Mandatory Recall Or Agency Enforcement Actions.
Under
applicable FDA MDR regulations, medical device manufacturers are required to submit information to the FDA when they receive a
report or become aware that a device has or may have caused or contributed to a death or serious injury or has or may have a malfunction
that would likely cause or contribute to death or serious injury if the malfunction were to recur. All manufacturers placing medical
devices on the market in the European Economic Area and the United States are legally bound to report any serious or potentially
serious incidents involving devices they produce or sell to the regulatory agency, or Competent Authority, in whose jurisdiction
the incident occurred.
Malfunction
of our wound healing Device could result in future voluntary corrective actions, such as recalls, including corrections, or customer
notifications, or agency action, such as inspection or enforcement actions. If malfunctions do occur, we may be unable to correct
the malfunctions adequately or prevent further malfunctions, in which case we may need to cease manufacture and distribution of
the affected products, initiate voluntary recalls, and redesign the products. Regulatory authorities may also take actions against
us, such as ordering recalls, imposing fines, or seizing the affected products. Any corrective action, whether voluntary or involuntary,
will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation
and financial results.
We
May Be Subject To Federal, State And Foreign Healthcare Laws And Regulations, And A Finding Of Failure To Comply With Such Laws
And Regulations Could Have A Material Adverse Effect On Our Business.
Our
operations are, and will continue to be, directly and indirectly affected by various federal, state or foreign healthcare laws,
including, but not limited to, those described below. In particular, we are subject to the federal Anti-Kickback Statute, which
prohibit, among other things, any person or entity from knowingly and willfully offering, paying, soliciting or receiving any
remuneration, directly or indirectly, in cash or in kind, in return for or to induce the referring, ordering, leasing, purchasing
or arranging for or recommending the referring, ordering, purchasing or leasing of any good, facility, item or service, for which
payment may be made, in whole or in part, under federal healthcare programs, such as the Medicare and Medicaid programs.
We
are also subject to the federal HIPAA statute, which, among other things, created federal criminal laws that prohibit knowingly
and willfully executing, or attempting to execute, a scheme or artifice to defraud any health care benefit program or making any
materially false, fictitious or fraudulent statements relating to health care matters.
We
are also subject to the federal “sunshine” law, which requires us to track and report annually to the Centers for
Medicare & Medicaid Services, or CMS, information related to “payments or other transfers of value” made to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and to report annually
to CMS ownership and investment interests held by physicians, as defined above, and their immediate family members in our company
so long as it is privately held.
In
addition, we are subject to the federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit,
among other things, persons or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim to,
or the knowing use of false records or statements to obtain payment from, or approval by, the federal government. Suits filed
under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government
and such individuals, commonly known as “whistleblowers”, may share in any amounts paid by the entity to the government
in fines or settlement. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three
times the actual damages sustained by the government, plus civil penalties for each separate false claim.
Many
states have also adopted laws similar to each of the above federal laws, such as anti-kickback and false claims laws which may
be broader in scope and apply to items or services reimbursed by any third-party payor, including commercial insurers, as well
as laws that restrict our marketing activities with physicians, and require us to report consulting and other payments to physicians.
Some states mandate implementation of compliance programs to ensure compliance with these laws. We also are subject to foreign
fraud and abuse laws, which vary by country.
If
our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply
to us now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement,
exclusion from governmental health care programs, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our financial results.
Our
Future Success Is Dependent, In Part, On The Performance And Continued Service Of Ohad Goren and Itsik Ben Yesha, Our Chief Executive
Officer and Chief Technology Officer.
The
Company will be dependent on its key executives, Ohad Goren and Itsik Ben Yesha, our CEO and CTO, respectively, for the foreseeable
future. The loss of the services from either one could have a material adverse effect on the operations and prospects of the Company.
They are expected to handle all aspects of our medical device business and manage our operations. Their responsibilities include
developing business arrangements, directing the development of the Company’s technology and IP, overseeing technical aspects
of our business, regulations and formulating strategies and materials to be used during our presentations and meetings. At this
time, the Company does not have an employment agreement with either Mr. Goren or Ben Yesha, though the Company may enter into
such an agreement with Mr. Goren, its CEO and Mr. Ben Yesha, its CTO, on terms and conditions usual and customary in our industry.
The Company does not currently have “key man” life insurance on neither Mr. Goren, Mr. Ben Yesha nor on Mr. Ron Weissberg,
our Chairman and control shareholder.
We
Operate In A Highly Competitive Industry And Compete Against Several Large Companies Which Could Adversely Affect Our Ability
to Succeed.
There
are numerous established companies that offer wound healing products including products from Kinetic Concepts, Inc. and Smith
& Nephew, which have far greater financial and other resources and far longer operating histories than we do. We are a new
entry into this competitive market and may struggle to differentiate ourselves as a viable competitor whose wound healing Device
provides more value and efficacy than the competition.
We
Are An “Emerging Growth Company” Under The Recently Enacted Jobs Act And We Cannot Be Certain If The Reduced Disclosure
Requirements Applicable To Emerging Growth Companies Will Make Our Common Stock Less Attractive To Investors.
We
qualify as an “emerging growth company” under the recently enacted JOBS Act. As a result, we are permitted to, and
intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, among other
things, we will not be required to:
●
have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
●
submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency”;
●
obtain shareholder approval of any golden parachute payments not previously approved; and
●
disclose certain executive compensation related items such as the correlation between executive compensation and performance and
comparisons of the Chief Executive’s compensation to median employee compensation.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
In other words, an “Emerging Growth Company” can delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting
standards.
We
will remain an “Emerging Growth Company” for up to five years, or until the earliest of (i) the last day of the first
fiscal year in which our total annual gross revenues exceed $1 billion; (ii) the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our
ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed
second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding
three-year period.
Until
such time, however, because the JOBS Act has only recently been enacted, we cannot predict whether investors will find our stock
less attractive because of the more limited disclosure requirements that we may be entitled to follow and other exemptions on
which we are relying while we are an “emerging growth company”. If some investors find our Common Stock less attractive
as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
Our
By-Laws Provide For Indemnification Of Our Directors And the Purchase Of D&O Insurance At Our Expense And Limit Their Liability
Which May Result In A Major Cost To Us And Hurt The Interest Of Our Shareholders Because Corporate Resources May Be Expended For
The Benefit Of Our Directors.
The
Company’s By-Laws include provisions that eliminate the personal liability of the directors of the Company for monetary
damages to the fullest extent possible under the laws of the State of Delaware or other applicable law. These provisions eliminate
the liability of directors to the Company and its stockholders for monetary damages arising out of any violation of a director
of his fiduciary duty of due care. Under Delaware law, however, such provisions do not eliminate the personal liability of a director
for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct
or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv)
any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities
under the federal securities laws or the recovery of damages by third parties.
Reporting
Requirements Under The Exchange Act And Compliance With The Sarbanes-Oxley Act Of 2002, Including Establishing And Maintaining
Acceptable Internal Controls Over Financial Reporting, Are Costly And May Increase Substantially.
The
rules and regulations of the SEC require a public company to prepare and file periodic reports under the Exchange Act, which will
require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is
costly. Additionally, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that
we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with
the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us to design, implement
and maintain adequate internal controls over financial reporting. We expect these costs to be approximately $50,000 per year.
In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our internal
controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition
and result in loss of investor confidence and a decline in our share price.
As
a public company, we may be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank
Act of 2010 and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance
with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more
difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “Emerging
Growth Company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with
respect to our business and operating results.
We
are working with our legal, independent accounting and financial advisors to identify those areas in which changes should be made
to our financial and management control systems to manage our growth and our obligations as a public company. These areas include
corporate governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We
have made, and will continue to make, changes in these and other areas. However, we anticipate that the expenses that will be
required for being a public company could be material. We estimate that the aggregate cost of increased legal services; accounting
and audit functions; personnel, such as a chief financial officer familiar with the obligations of public company reporting; consultants
to design and implement internal controls could be material. In addition, if and when we retain independent directors and/or additional
members of senior management, we may incur additional expenses related to director compensation and/or premiums for directors’
and officers’ liability insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses
associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However, these
additional expenses individually, or in the aggregate, may also be material.
In
addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including
directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or
incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
The
increased costs associated with operating as a public company may decrease our operating performance, and may cause us increase
the prices of our product to offset the effect of such increased costs. Additionally, if these requirements divert our management’s
attention from other business concerns, they could have a material adverse effect on our business, financial condition and results
of operations.
Future
Manufacturing Of Our Product May Be Interrupted Due To International Political Situations, Natural Disasters Or Other Causes.
Once
FDA approval is granted, we plan to manufacture our BST Device principally in Israel. Domestic situations in Israel and surrounding
countries could possibly result in production and delivery problems. We are subject to the risk that future manufacturing and
delivery of our BST Device may be interrupted as a result of natural disasters or capacity constraints with our vendors’
or suppliers’ hardware. Any such interruptions may lead to a loss of customers or distributors and, accordingly, may adversely
affect our business and results of operations.
Risks
Related to Our Common Stock
There
Is No Assurance Of A Liquid Public Market Of Our Common Stock Or That You May Be Able To Liquidate Your Investment In Our Common
Stock.
At
present, our Common Stock is subject to quotation of the OTCQB market. There is only a limited, liquid public trading marketing
for our Common Stock and there can be no assurance that one will ever develop. Market liquidity will depend on the perception
of our business and any steps that our management might take to bring us to the awareness of investors. There can be given no
assurance that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or
liquidate it at a price that reflects the value of the business or the value of their initial investment in our Common Stock.
As a result, holders of our securities may not find purchasers for our securities should they to decide to sell securities held
by them. Consequently, our securities should be purchased only by investors who have no need for liquidity in their investment
and who can hold our securities for a prolonged period of time.
The
Market Price Of Our Common Stock May Be Volatile.
In
the event an active trading market develops for our Common Stock, the market price of our Common Stock may be highly volatile,
as is the stock market in general, and the market for securities subject to quotation on OTCQB Markets in particular. Some of
the factors that may materially affect the market price of our Common Stock are beyond our control, such as changes in conditions
or trends in the industry in which we operate or sales of our Common Stock. These factors may materially adversely affect the
market price of our Common Stock, regardless of our business performance. Public stock markets have experienced extreme price
and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for
reasons frequently unrelated to the operating performance of the specific companies. These market fluctuations may adversely affect
the market price of our Common Stock.
A
Large Number Of Additional Shares Will Be Available For Resale Into The Public Market Pursuant To This Offering As Well As In
The Near Future, Which May Cause The Market Price Of Our Common Stock To Decline Significantly, Even If Our Business Performs
As Expected.
Sales
of a substantial number of shares of our Common Stock in the public market pursuant to our Offerings, or the perception that additional
shares of Common Stock become available pursuant to Rule 144 promulgated by the SEC under the Act, could adversely affect the
market price of our Common Stock. As of April 13, 2020, we have 34,546,060 shares of Common Stock outstanding of which 21,420,321
shares of Common Stock are restricted as a result of applicable securities laws. As restrictions on resale expire, the market
price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending
to sell them. For a more detailed description, see “Shares Eligible for Future Sale.”
If
holders of restricted securities sell a large number of shares pursuant to Rule 144 under the Act, they could adversely affect
the market price for our Common Stock.
You
Will Experience Dilution Of Your Ownership Interest Because Of The Future Issuance Of Additional Shares Of Our Common Stock Or
Our Preferred Stock.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are authorized to issue an aggregate of 500,000,000 shares of Common Stock, par value
$0.00001 per share, of which 34,546,060 are currently outstanding.
We
may also issue additional shares of our Common Stock or other securities that are convertible into or exercisable for Common Stock
in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital
raising purposes, or for other business purposes. The future issuance of any such additional shares of our Common Stock or other
securities may have a negative impact on the market price of our Common Stock. There can be no assurance that we will not be required
to issue additional shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees
or consultants, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes,
including at a price (or exercise prices) below the price at which shares of our Common Stock will be quoted on the OTCQB Markets.
We
May Never Pay Any Dividends To Our Shareholders.
We
currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not
expect to pay any dividends in the foreseeable future, but will review this policy as circumstances dictate. The declaration and
payment of all future dividends, if any, will be at the sole discretion of our board of directors, which retains the right to
change our dividend policy at any time. Consequently, stockholders must rely on sales of their Common Stock after price appreciation,
which may never occur, as the only way to realize any future gains on their investment.
Insider
Will Continue To Have Substantial Control Over Us After This Offering and Will Be Able To Influence Corporate Matters.
Our
directors and executive officers and stockholders holding more than 5% of our Common Stock and their affiliates will beneficially
own, in the aggregate, approximately 30% of our outstanding Common Stock. As a result, if these stockholders were to choose to
act together, they would be able to exercise significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or
its assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of
delaying or preventing a third party from acquiring control over us. For information regarding the ownership of our outstanding
stock by our executive officers and directors and their affiliates, see “Security Ownership of Certain Beneficial Owners
and Management.”
We
cannot assure you that the interests of our management team will coincide with the interests of the investors. So long as our
management team collectively controls a significant portion of our Common Stock, these individuals, or entities controlled by
them, will continue to collectively be able to strongly influence or effectively control our decisions.
Anti-Takeover
Provisions Of The Delaware General Corporation Law May Discourage Or Prevent A Change Of Control, Even If An Acquisition Would
Be Beneficial To Our Shareholders, Which Could Reduce Our Stock Price.
We
are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations
with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate
of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers
to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including
a merger, tender offer or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes
in our board of directors could cause the market price of our Common Stock to decline.
State
Blue Sky Registration, Potential Limitations On Resale Of Our Common Stock.
The
holders of our shares of Common Stock and those persons, who desire to purchase our Common Stock in any trading market that might
develop, should be aware that there may be state blue-sky law restrictions upon the ability of investors to resell our securities.
Accordingly, investors should consider the secondary market our securities to be a limited one.
It
is the present intention of management after the active commencement of operations in to seek coverage and publication of information
regarding the Company in an accepted publication manual, which permits a manual exemption. The manual exemption permits a security
to be distributed in a particular state without being registered if the Registrant issuing the security has a listing for that
security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized
manual. The listing entry must contain (1) the names of issuer’s officers, and directors, (2) an issuer’s balance
sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal
year of operations. Furthermore, the manual exemption is a non-issuer exemption restricted to secondary trading transactions,
making it unavailable for issuers selling newly issued securities.
Most
of the accepted manuals are those published in Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment
Service, and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare
that they “recognize securities manuals” but do not specify the recognized manuals. The following states do not have
any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana,
Montana, South Dakota, Tennessee, Vermont and Wisconsin.
Our
Common Stock Is Considered A Penny Stock, Which May Be Subject To Restrictions On Marketability, So You May Not Be Able To Sell
Your Shares.
We
may be subject now and in the future to the Penny Stock rules if our shares of Common Stock sell below $5.00 per share. Penny
stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver
a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level
of 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, and monthly account statements showing the market
value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given
to the customer in writing before or with the customer’s confirmation.
In
addition, the penny stock rules require that prior to a transaction, the broker dealer must 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.
The penny stock rules are burdensome and may reduce purchases of any Offerings and reduce the trading activity for shares of our
Common Stock. As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common
Stock may find it more difficult to sell their securities.
The
Control Deficiencies In Our Internal Control Over Financial Reporting May Until Remedied Cause Errors in Our Financial Statements
Or Cause Our Filings With The SEC To Not Be Timely.
We
have identified control deficiencies in our internal control over financial reporting as of the evaluation done by management
as of December 31, 2019, including those related to (i) absent or inadequate segregation of duties within a significant account
or process, (ii) inadequate documentation of the components of internal control, and (iii) inadequate design of information technology
general and application controls that prevent the information system from providing complete and accurate information consistent
with financial reporting objectives and current needs. If our internal control over financial reporting or disclosure controls
and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings
may not be timely made with the SEC. Based on the work undertaken and performed by us, however, we believe the financial statements
contained in our reports filed with the SEC are fairly stated in all material respects in accordance with GAAP for each of the
periods presented. We intend to implement additional corporate governance and control measures to strengthen our control environment
as we are able, but we may not achieve our desired objectives. We may identify material weaknesses and control deficiencies in
our internal control over financial reporting in the future that may require remediation and could lead investors losing confidence
in our reported financial information, which could lead to a decline in our stock price.