(Address, including
zip code, and telephone number, including area code of registrant’s principal executive offices)
(Name, address, including
zip code, and telephone number, including area code, of agent for service)
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
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RISK
FACTORS
An investment in us involves a high
degree of risk. You should consider carefully the following information about these risks before deciding to purchase any of our
securities. If any of the events or developments described below actually occurs, our business, results of operations and financial
condition would likely suffer. In these circumstances, you may lose all or part of your investment. In addition, it is also possible
that other risks and uncertainties that affect our business may arise or become material in the future.
Risks Related to Our Business
We will need substantial additional
capital to fund our operations. If we fail to obtain additional capital, we may be unable to sustain operations.
Our operations consume substantial amounts
of cash and we expect that our cash used by operations will continue to increase for the next several years. As of June 30, 2017,
we had approximately $4.5 million in cash on hand. We will need to raise additional capital prior to the end of the first quarter
of calendar year 2018 in order to sustain our operations and we estimate that we will need at least an additional $15 million
in capital to cover operating expenses through December 2018. If we are unable to raise additional capital, we may have to significantly
delay, scale back or discontinue one or more of our drug development or research and development programs. We may be required
to cease operations or seek partners for our product candidates at an earlier stage than otherwise would be desirable and on terms
that are less favorable than might otherwise be available. In the absence of additional capital we may also be required to relinquish,
license or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop
or commercialize ourselves on terms that are less favorable than might otherwise be available.
Our corporate objectives are dependent
upon one another and to the extent that there is a delay or complication in any one objective, our ability to timely complete
our other goals could be adversely impacted.
Our corporate
objectives are dependent upon one another and to the extent that there is a delay, complication or failure in any one objective,
our ability to complete our other goals in a timely fashion could be adversely impacted. For example, we are currently conducting
a
Phase 1 first-in-human clinical study of our lead product candidate, AB101, a once-weekly injectable basal insulin for
patients with Type 1 and Type 2 Diabetes Mellitus
(“
Study
”) while concurrently
expanding our pipeline and advancing additional potential drug candidates towards clinical studies. We anticipate generating results
from the Study as early as fourth quarter of calendar year 2017 when we also anticipate needing to raise additional capital. We
expect that potential investors will want to review the results from the Study prior to making an investment decision and in the
event that the results from the Study do not meet or exceed expectations, we may not be able to raise capital and advance additional
pipeline candidates or sustain operations.
Results of preclinical testing or
earlier clinical studies are not necessarily predictive of future results, therefore none of the product candidates we advance
into clinical studies may have favorable results in later clinical studies or receive regulatory approval.
Success in preclinical testing does not
ensure that clinical studies will generate adequate data to demonstrate the efficacy and safety of an investigational drug or
biologic. For example, while we have generated promising preclinical results for AB101, there is no assurance that we will generate
similar data in the Study or additional clinical studies. Even if the Study or other clinical studies for additional programs
produces promising results, there is no assurance that such results will be replicated or exceeded in later clinical studies.
A number of companies in the biopharmaceutical industry, including those with greater resources and experience, have suffered
significant setbacks in clinical studies, even after seeing promising results in earlier preclinical and clinical studies. We
do not know whether the Study or any other clinical studies that we may conduct will demonstrate adequate efficacy and safety
to justify the continuing advancement of a program. If later stage clinical studies do not produce favorable results, our ability
to achieve regulatory approval for any of our product candidates may be adversely impacted. Even if we believe that our product
candidates have performed satisfactorily in preclinical testing and clinical studies, we may still fail to obtain FDA approval
for our product candidates.
We may experience delays in our
clinical trials that could adversely affect our financial position.
Many factors could affect the timing of
the Study and other clinical trials that we may conduct, including lack of cGMP drug product, slow patient recruitment, the proximity
of patients to clinical sites, the eligibility criteria for the trial, competing clinical trials and new drugs approved for the
conditions we are investigating. Other companies may be conducting clinical trials or may announce plans for future trials that
will be seeking patients with the same indications as those we are studying. As a result of all of these factors, our trials may
take longer to enroll patients than we anticipate. Delays in patient enrollment in the trials may increase our costs and slow
down our product development and approval process. Our product development costs will also increase if we need to perform more
or larger clinical trials than planned. Any delays in completing our clinical trials could adversely impact our cash position
and ability to support ongoing operations.
Due to our reliance on contract
research organizations or other third parties to conduct clinical trials, we may not have complete control over the timing, conduct
and expense of our clinical trials.
We rely primarily on third parties to
conduct our clinical trials. As a result, we will have less control over the conduct of the clinical trials, the timing and completion
of the trials, the required reporting of adverse events and the management of data developed through the trial than would be the
case if our own staff conducted all clinical trials. Communicating with outside parties can also be challenging, potentially leading
to mistakes and difficulties in coordinating activities. Outside parties may have staffing difficulties, may undergo changes in
priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials. We may
experience unexpected increased costs that are beyond our control. Problems with the timeliness or quality of the work of a contract
research organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making
this change may be costly and may delay our trials, and contractual restrictions may make such a change difficult or impossible.
Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and
at an acceptable cost.
Adverse events in our clinical trials
may force us to stop development of our product candidates or prevent regulatory approval of our product candidates.
Our product candidates may produce serious
adverse events in patients during clinical trials. These adverse events could interrupt, delay or halt clinical trials of our
product candidates and could result in the FDA, or other regulatory authorities requesting additional preclinical data or denying
approval of our product candidates for any or all targeted indications. An institutional review board, independent data safety
monitoring board, the FDA, other regulatory authorities or the Company itself may suspend or terminate clinical trials at any
time. We cannot assure you that any of our product candidates will prove safe for human use.
We may not be successful in our
efforts to partner AB101 or any of our programs with larger pharmaceutical companies.
Complete clinical programs through Phase
3 and beyond for drug candidates in diabetes and metabolic diseases are expensive and complex. We estimate that prior any regulatory
approval of AB101 more than $300 million would be required to fund manufacturing scale up and clinical studies. As a result, we
expect to partner with a larger pharmaceutical company with broader resources and experience to advance AB101 into later clinical
studies. Even if the Study or additional early studies of AB101 produces compelling data supporting the advancement of the program,
no assurance can be given that any of the larger pharmaceutical companies will be interested in partnering with us or that we
would be able to enter into a collaboration on favorable terms. Our failure to partner AB101 could have a material and adverse
impact on our ability to further develop the program or continue our overall operations.
We may not be successful in our
efforts to identify, discover or formulate product pipeline candidates.
Research and development programs require
substantial technical, financial and human resources to identify new product pipeline candidates. Our research and development
programs may initially demonstrate success in identifying potential product pipeline candidates but subsequently fail to yield
them. Through our research and development programs, if we are unable to formulate innovative long-acting therapies based on our
microsphere platform technology or otherwise, our long-term business, financial position, income, expansion and outlook may be
materially adversely affected.
Our competitors may develop and
market drugs that are less expensive, more effective or safer than our product candidates.
The pharmaceutical market is highly competitive.
If approved by regulatory agencies and subsequently commercialized, our product candidates that contain currently approved active
ingredients will likely face competition from existing products on the market. In particular, if we successfully commercialize
AB101, our product candidate would compete directly against Sanofi’s Toujeo and Lantus, Novo Nordisk’s Levemir and
Tresiba and Eli Lilly’s Basaglar. Additionally, other pharmaceutical and biotechnology companies may develop improved formulations
of the same drugs that compete with drug products we are developing. It is possible that our competitors will develop and market
products that are less expensive, more effective or safer than our future products or that will render our products obsolete.
We expect that competition from pharmaceutical and biotechnology companies, universities and public and private research institutions
will increase. Many of these competitors have substantially greater financial, technical, research and other resources than we
do. We may not have the financial resources, technical and research expertise or marketing, distribution or support capabilities
to successfully compete with these competitors.
After the completion of our clinical
studies, we cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates and we cannot,
therefore, predict the timing of any future revenue from these product candidates.
Even if we achieve positive clinical results
and file for regulatory approval, we cannot commercialize any of our product candidates until the appropriate regulatory agencies
have reviewed and approved the applications for such product candidates. We cannot assure that the regulatory agencies will complete
their review processes in a timely manner or that we will obtain regulatory approval for any product candidate we develop. Satisfaction
of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires
the expenditure of substantial resources. In addition, we may experience delays or rejections based upon additional government
regulation from future legislation or administrative action or changes in FDA policy during the period of product development,
clinical studies and FDA regulatory review.
Even if our product candidates receive
regulatory approval, they may still face future development and regulatory hurdles.
Even if
US regulatory approval is obtained for a particular drug candidate, the FDA may still impose significant restrictions on marketing,
indicated uses and/or require potentially costly post-approval studies or post-market surveillance. For example, the label ultimately
approved, if any, may include restrictions on use. Further, the FDA may require that long-term safety data may need to be obtained
as a post-market requirement.
Even if the FDA or a foreign regulatory agency approves a product candidate, the approval
may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or
production of such product and may impose requirements for post-approval studies, including additional research and development
and clinical trials. The FDA and other agencies also may impose various civil or criminal sanctions for failure to comply with
regulatory requirements, including substantial monetary penalties and withdrawal of product approval.
In addition, manufacturers of drug products
and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for
compliance with current good manufacturing practices and regulations. If we or a regulatory agency discovers previously unknown
problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the
product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including
requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates or
the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency
may:
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issue
warning letters or untitled letters;
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seek
an injunction or impose civil or criminal penalties or monetary fines;
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suspend
or withdraw regulatory approval;
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suspend
any ongoing clinical studies;
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refuse
to approve pending applications or supplements to applications filed by us;
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suspend
or impose restrictions on operations, including costly new manufacturing requirements;
or
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seize
or detain products, refuse to permit the import or export of products, or require us
to initiate a product recall.
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The occurrence of any event or penalty
described above may inhibit our ability to commercialize our products and generate revenue.
If any of our product candidates
for which we receive regulatory approval does not achieve broad market acceptance, the revenue that we generate from its sales,
if any, will be limited
The commercial success of our product
candidates for which we obtain marketing approval from the FDA or other regulatory agencies will depend upon the acceptance of
these products by the medical community, including physicians, patients and payors. The degree of market acceptance of any of
our approved products will depend on a number of factors, including:
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demonstration
of clinical safety and efficacy compared to other products;
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prevalence
and severity of any adverse effects;
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limitations
or warnings contained in a product’s FDA-approved labeling;
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availability
of alternative treatments;
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pricing
and cost-effectiveness;
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the
effectiveness of our or any future collaborators’ sales and marketing strategies;
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our
ability to obtain and maintain sufficient third-party coverage or reimbursement from
government health care programs, including Medicare and Medicaid; and
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the
willingness of patients to pay out-of-pocket in the absence of third-party coverage.
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If our product candidates are approved,
but do not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient
revenue from these products, and we may not become or remain profitable. In addition, our efforts to educate the medical community
and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
Our manufacturing experience is
limited.
The manufacture
of drugs for clinical trials and for commercial sale is subject to regulation by the FDA under cGMP regulations and by other regulators
under other laws and regulations. We cannot assure you that we can successfully manufacture our products under cGMP regulations
or other laws and regulations in sufficient quantities for clinical trials or for commercial sale, or in a timely or economical
manner.
Our manufacturing
facilities require specialized personnel and are expensive to operate and maintain. Any delay in the regulatory approval of product
candidates to be manufactured in these facilities will require us to continue to operate these expensive facilities and retain
specialized personnel, which may increase our losses. Construction of our manufacturing facility and original validation has been
completed. Validation is an ongoing process that must be maintained to allow us to manufacture under cGMP guidelines. We cannot
guarantee that the FDA or any foreign regulatory agencies will approve our other facilities or, once approved, that any of our
facilities will remain in compliance with cGMP regulations.
The manufacture
of pharmaceutical products is a highly complex process in which a variety of difficulties may arise from time to time. Specifically,
the manufacture of microspheres consists of twelve highly engineered unit operations to produce a sterile dry powder in vial for
resuspension. We may not be able to resolve any such difficulties with this process in a timely fashion, if at all. We are currently
the sole manufacturer of AB101 and if anything were to interfere with our continuing manufacturing operations in our facility,
it could materially adversely affect our business and financial condition.
If one or more
of our product candidates progress to mid- to late-stage development, we may incur significant expenses in the expansion and/or
construction of manufacturing facilities and increases in personnel in order to manufacture product candidates. We cannot assure
you that we have the necessary funds or that we will be able to develop this manufacturing infrastructure in a timely or economical
manner, or at all.
Currently, our
other potential product candidates are manufactured in small quantities for use in various studies. We cannot assure you that
we will be able to successfully manufacture additional product candidates at a larger scale in a timely or economical manner,
or at all. If and when any of these product candidates are ready for clinical trials, we will need to manufacture them in larger
quantities. If we are unable to successfully increase our manufacturing scale or capacity, the regulatory approval of such clinical
studies may be delayed.
If we fail to develop manufacturing capacity
and experience, fail to manufacture our product candidates economically or on reasonable scale or volumes, or in accordance with
cGMP regulations, our development programs and commercialization of any approved products will be materially adversely affected.
This may result in delays in filing our IND or in commencing our clinical trials. Any such delays could materially adversely affect
our business and financial condition.
If our product candidates do not
meet safety or efficacy requirements, they will not receive regulatory approval and we will be unable to market them.
The process of drug development, regulatory
review and approval typically is expensive, takes many years and the timing of any approval cannot be accurately predicted. If
we fail to obtain regulatory approval for our current or future product candidates, we will be unable to market and sell such
products and therefore may never be profitable.
As part of the regulatory approval process,
we must conduct preclinical studies and clinical trials for each product candidate to demonstrate safety and efficacy. The number
of preclinical studies and clinical trials that will be required varies depending on the product candidate, the indication being
evaluated, the trial results and regulations applicable to any particular product candidate.
The results of preclinical studies and
initial clinical trials of our product candidates do not necessarily predict the results of later-stage clinical trials. Product
candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through
initial clinical trials. We cannot assure you that the data collected from the preclinical studies and clinical trials of our
product candidates will be sufficient to support approval by FDA or a foreign regulatory authority. In addition, the continuation
of a particular study after review by an independent data safety monitoring board does not necessarily indicate that our product
candidate will achieve the clinical endpoint.
The FDA and other regulatory agencies
can delay, limit or deny approval for many reasons, including:
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a
product candidate may not be safe or effective;
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our
manufacturing processes or facility may not meet the applicable requirements; and
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changes
in regulatory agency approval policies or adoption of new regulations may require additional
clinical trials or work on our end.
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Any delay in, or failure to receive or
maintain, approval for any of our products could prevent us from ever generating meaningful revenues or achieving profitability.
Our product candidates are prone to the
risks of failure inherent in drug development. Before obtaining regulatory approvals for the commercial sale of any product candidate
for a target indication, we must demonstrate safety in preclinical studies and effectiveness with substantial evidence gathered
in well-controlled clinical studies. With respect to approval in the US, to the satisfaction of the FDA and, with respect to approval
in other countries, to the satisfaction of regulatory authorities in those countries, we must demonstrate that the product candidate
is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate.
Despite our efforts, our product candidates
may not:
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offer
therapeutic benefit or other improvements over existing, comparable therapeutics;
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be
proven safe and effective in clinical studies;
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meet
applicable regulatory standards;
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be
capable of being produced in sufficient quantities at acceptable costs;
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be
successfully commercialized; or
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obtain
favorable reimbursement.
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We are not permitted to market AB101 or
any of our other product candidates in the US until we receive approval of a new drug application, or approval of a biologics
license application, from the FDA, or in any foreign countries until we receive the requisite approval from such countries. We
have not submitted a new drug application or biologics license application or received marketing approval for any of our product
candidates.
Preclinical testing and clinical studies
are long, expensive and uncertain processes. We may spend several years completing our testing for any particular product candidate,
and failure can occur at any stage. Negative or inconclusive results or adverse medical events during a clinical study could also
cause us or the FDA to terminate a clinical study or require that we repeat it or conduct additional clinical studies. Additionally,
data obtained from a clinical study is susceptible to varying interpretations and the FDA or other regulatory authorities may
interpret the results of our clinical studies less favorably than we do. The FDA and equivalent foreign regulatory agencies have
substantial discretion in the approval process and may decide that our data is insufficient to support a marketing application
and require additional preclinical, clinical or other studies.
Any failure or delay by our third-party
suppliers on which we rely or intend to rely to provide materials necessary to develop and manufacture our drug products may delay
or impair our ability to commercialize our product candidates.
We rely upon a small number of third-party
suppliers for the manufacture of certain raw materials that are necessary to formulate our drug products, including AB101, for
preclinical and clinical testing purposes. We intend to continue to rely on them in the future. We also expect to rely upon third
parties to produce materials required for the commercial production of our product candidates if we succeed in obtaining necessary
regulatory approvals. If we are unable to arrange for third-party sources, or do so on commercially unreasonable terms, we may
not be able to complete development of or market our product candidates.
There are a small number of suppliers
for raw materials that we use to manufacture our drugs. Such suppliers may not sell these raw materials at the times we need them
or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these raw materials
by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials.
Although we generally do not begin a clinical study unless we believe we have a sufficient supply of a product candidate to complete
the clinical study, any significant delay in the supply of raw material components needed to produce a product candidate for a
clinical study due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies,
product testing and potential regulatory approval of our product candidates. If we or our manufacturers are unable to purchase
these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product
candidates would be delayed or there would be a shortage in supply of such product candidates, which would impair our ability
to generate revenues from the sale of our product candidates.
If we successfully commercialize any of
our product candidates, we may be required to establish commercial manufacturing capabilities of larger scale. In addition, as
our drug development pipeline increases and matures, we will have a greater need for clinical study and commercial manufacturing
capacity. We have no experience manufacturing pharmaceutical products on a commercial scale and we may need to rely on third-party
manufacturers with capacity for increased production scale to meet our projected needs for commercial manufacturing, the satisfaction
of which on a timely basis may not be met.
Recently enacted and future legislation
or regulatory reform of the health care system in the US and foreign jurisdictions may affect our ability to sell our products
profitably.
Our ability to commercialize our future
products successfully, alone or with collaborators, will depend in part on the extent to which reimbursement for the products
will be available from government and health administration authorities, private health insurers and other third-party payors.
The continuing efforts of the US and foreign governments, insurance companies, managed care organizations and other payors of
health care services to contain or reduce health care costs may adversely affect our ability to set fair prices for our products,
generate revenues and achieve and maintain profitability.
Specifically, in both the US and some
foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways
that could impact our ability to sell our products profitably. In March 2010, President Obama signed into law the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Health Care Reform
Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance
remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new
taxes and fees on the health industry and impose additional health policy reforms.
We will not know the full effects of the
Health Care Reform Law until applicable federal and state agencies issue regulations or guidance under the new law. Although it
is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical
pricing, especially under the Medicare program, and also may increase our regulatory burdens and operating costs. We expect further
federal and state proposals and health care reforms to continue to be proposed by legislators, which could limit the prices that
can be charged for the products we develop and may limit our commercial opportunity.
Also in the US, the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act, or MMA, changed the way Medicare
covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and
introduced a new reimbursement methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare
Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic
class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional
pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease
the coverage and price that we receive for any approved products and could seriously harm our business. While the MMA applies
only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations
in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar
reduction in payments from private payors.
The continuing efforts of government and
other third-party payors to contain or reduce the costs of health care through various means may limit our commercial opportunity.
It will be time-consuming and expensive for us to go through the process of seeking reimbursement from Medicare and private payors.
Our products may not be considered cost-effective, and government and third-party private health insurance coverage and reimbursement
may not be available to patients for any of our future products or sufficient to allow us to sell our products on a competitive
and profitable basis. Our results of operations could be adversely affected by the MMA, the Health Care Reform Law, and additional
prescription drug coverage legislation, by the possible effect of this legislation on amounts that private insurers will pay and
by other health care reforms that may be enacted or adopted in the future. In addition, increasing emphasis on managed care in
the US will continue to put pressure on the pricing of pharmaceutical products. Cost control initiatives could decrease the price
that we or any potential collaborators could receive for any of our future products and could adversely affect our profitability.
In some foreign countries, including major
markets in the European Union and Japan, the pricing of prescription pharmaceuticals is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can take up to 12 months or longer after the receipt of regulatory
marketing approval for a drug product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct
a clinical study that compares the cost effectiveness of our product candidates to other available therapies. Such pharmacoeconomic
studies can be costly and the results uncertain. Our business could be harmed if reimbursement of our products is unavailable,
limited in scope or amount or if pricing is set at unsatisfactory levels.
We face potential product liability
exposure, and, if successful claims are brought against us, we may incur substantial liability.
The use of our product candidates in clinical
studies and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims.
Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling
or otherwise coming into contact with our products. If we cannot successfully defend ourselves against product liability claims,
we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result
in:
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impairment
of our business reputation;
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withdrawal
of clinical study participants;
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costs
of related litigation;
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distraction
of management’s attention from our primary business;
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substantial
monetary awards to patients or other claimants;
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the
inability to commercialize our product candidates; and
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decreased
demand for our product candidates, if approved for commercial sale.
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We currently have clinical trial insurance
on AB101, our lead product candidate. This product liability insurance coverage for our clinical studies may not be sufficient
to reimburse us for all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and,
in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. If and when we obtain marketing approval for any of our product candidates, we intend to expand our insurance
coverage to include the sale of commercial products; however, we may be unable to obtain this product liability insurance on commercially
reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated
adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline
and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
If we use hazardous and biological
materials in a manner that causes injury or violates applicable law, we may be liable for damages.
Our research and development activities
involve the controlled use of potentially hazardous substances, including toxic chemical and biological materials. We could be
held liable for any contamination, injury or other damages resulting from these hazardous substances. In addition, our operations
produce hazardous waste products. While third parties are responsible for disposal of our hazardous waste, we could be liable
under environmental laws for any required cleanup of sites at which our waste is disposed. Federal, state, foreign and local laws
and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials. If we fail to comply
with these laws and regulations at any time, or if they change, we may be subject to criminal sanctions and substantial civil
liabilities, which may harm our business. Even if we continue to comply with all applicable laws and regulations regarding hazardous
materials, we cannot eliminate the risk of accidental contamination or discharge and our resultant liability for any injuries
or other damages caused by these accidents.
If we are unable to establish sales
and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable
to generate any revenue.
We currently do not have dedicated staff
for the sale, marketing and distribution of drug products. The cost of establishing and maintaining such a staff may exceed the
cost-effectiveness of doing so. In order to market any products that may be approved by the FDA, we must build our sales, marketing,
managerial and other non-technical capabilities or make arrangements with third parties to perform these services. If we are unable
to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not
be able to generate product revenue and may not become profitable. We will be competing with many companies that currently have
extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform
marketing and sales functions, we may be unable to compete successfully against these more established companies.
Guidelines and recommendations published
by various organizations may adversely affect the use of any products for which we may receive regulatory approval.
Government agencies issue regulations
and guidelines directly applicable to us and to our product candidates. In addition, professional societies, practice management
groups, private health or science foundations and organizations involved in various diseases from time to time publish guidelines
or recommendations to the medical and patient communities. These various sorts of recommendations may relate to such matters as
product usage and use of related or competing therapies. For example, organizations like the American Diabetes Association have
made recommendations about therapies in the diabetes therapeutics market. Changes to these recommendations or other guidelines
advocating alternative therapies could result in decreased use of any products for which we may receive regulatory approval, which
may adversely affect our results of operations.
Our independent registered public
accounting firm’s report, contained herein, includes an explanatory paragraph that expresses substantial doubt about our
ability to continue as a going concern.
Our financial statements have been prepared
on the basis that we will continue as a going concern. For the period from March 24, 2010 to June 30, 2017, we have an accumulated
deficit of approximately $64,322,000. As of June 30, 2017, our total stockholder’s equity was approximately $8,528,000 and
we had working capital of approximately $3,157,000. We expect to continue to incur losses for the foreseeable future as we develop
and commercialize AB101, and we must raise additional capital from external sources in order to sustain our operations. Primarily
as a result of our history of losses and limited cash balances, our independent registered public accounting firm has included
in their audit report an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is contingent upon, among other factors, our ability to obtain financing to continue
to fund our operations. We cannot provide any assurance that we will be able to raise additional capital. If we are unable to
secure additional capital, we may be required to curtail our research and development initiatives and take additional measures
to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures
could cause significant delays in the development of AB101 and other product candidates.
We are at an early stage of development
as a company and we do not have, and may never have, any products that generate significant revenues.
We are at an early stage of development
as a proprietary product specialty pharmaceutical company and we do not have any commercial products. Our existing product candidates
will require extensive additional clinical evaluation, regulatory review, significant marketing efforts and substantial investment
before they generate any revenues. Our efforts may not lead to commercially successful products, for a number of reasons, including:
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our
product candidates may not prove to be safe and effective in clinical trials;
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we
may not be able to obtain regulatory approvals for our product candidates or approved
uses may be narrower than we seek;
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we
may not have adequate financial or other resources to complete the development and commercialization
of our product candidates; or
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any
products that are approved may not be accepted or reimbursed in the marketplace.
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We do not expect to be able to market
any of our product candidates for a number of years. If we are unable to develop, receive approval for, or successfully commercialize
any of our product candidates, we will be unable to generate significant revenues. If our development programs are delayed, we
may have to raise additional capital or reduce or cease our operations.
Initially, we expect to derive all of
our revenues, if any, from AB101. As we cannot currently enter the market with AB101, it is uncertain whether AB101 will achieve
and sustain high levels of demand and market acceptance. Our success will depend to a substantial extent on our ability to successfully
commercialize and market our products. Failure of consumers to accept AB101 would significantly adversely affect our revenues
and profitability.
We have never generated any revenues
and may never become profitable.
Since inception, we have not generated
any revenues and have incurred an accumulated deficit of approximately $64,322,000 through June 30, 2017. We expect to continue
to incur substantial operating losses for the next several years as we move AB101 and other product candidates into clinical trials
and continue our research and development efforts. To become profitable, we must successfully develop, manufacture and market
our product candidates, either alone or in conjunction with possible collaborators. We may never have any revenues or become profitable.
Our limited operating history makes
it difficult to evaluate our business and prospects.
Our operations to date have been limited
to organizing and staffing our company, acquiring product and technology rights and conducting preclinical studies. We have not
demonstrated an ability to produce product under cGMP conditions, conduct clinical trials, obtain regulatory approval for or commercialize
a product candidate. Consequently, any predictions about our future performance may not be as accurate as they could be if we
had a history of successfully testing, developing and commercializing pharmaceutical products.
If we are unable to successfully
remediate the material weakness in our internal control over financial reporting, the accuracy and timing of our financial reporting
may be adversely affected, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
In connection with the audit of the fiscal
2017 consolidated financial statements of AntriaBio, Inc., our auditors noted a material weakness in our controls, principally
as a result of not having segregated duties as our Chief Accounting Officer can initiate and complete transactions, not having
measures that would prevent the Chief Accounting Officer from overriding the internal control system, and the Chief Accounting
Officer is responsible for complex accounting issues without additional reviews within the Company. A material weakness is a deficiency
or combination of deficiencies in internal control over financial reporting that results in more than reasonable possibility that
a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. We have
also begun evaluating and implementing additional procedures to improve the segregation of duties. We cannot assure that these
or other measures will fully remediate the deficiencies or material weakness described above. We also cannot assure you that we
have identified all of our existing significant deficiencies and material weaknesses, or that we will not in the future have additional
significant deficiencies or material weaknesses.
Operations outside the United States
may be affected by different local politics, business and cultural factors, different regulatory requirements and prohibitions
between jurisdictions.
Operations outside the United States may
be affected by different local business and cultural factors, different regulatory requirements and prohibitions between jurisdictions,
including the Foreign Corrupt Practices Act and local laws prohibiting corrupt payments; and changes in regulatory requirements
for financing activities.
We are currently in the process of establishing
a wholly-owned subsidiary in the Republic of Korea (South Korea). Our operations, once established, will be subject to various
political, economic, and other risks and uncertainties inherent to the country. Among other risks, the registrant’s
operations are subject to the risks of political conditions and governmental regulations. If there are any changes to government
regulations that affect our ability to operate, we may face significant losses.
The persistently weak global economic
and financial environment in many countries and increasing political and social instability may have a material adverse effect
on our results.
Many of the world’s largest economies
and financial institutions continue to be impacted by a weak ongoing global economic and financial environment, with some continuing
to face financial difficulty, liquidity problems and limited availability of credit. It is uncertain how long these effects will
last, or whether economic and financial trends will worsen or improve. Such uncertain times may have a material adverse effect
on our results of operations, financial condition and, if circumstances worsen, our ability to raise capital at reasonable rates.
In addition, the varying effects of difficult
economic times on the economies, currencies and financial markets of different countries could unpredictably impact, the conversion
of our operating results into our reporting currency, the US dollar. Alternately, inflation could accelerate, which could lead
to higher interest rates, which would increase our costs of raising capital.
In addition, increasing political and
social instability around the world may lead to significant business disruptions or other adverse business conditions. Similarly,
increased scrutiny of corporate taxes and executive pay may lead to significant business disruptions or other adverse business
conditions, and may interfere with our ability to attract and retain qualified personnel in South Korea.
Risks Related to Our Intellectual Property
Our current patent positions and
license portfolio may not include all patent rights needed for the full development and commercialization of our product candidates.
We cannot be sure that patent rights we may need in the future will be available to license on commercially reasonable terms,
or at all.
We typically develop our product candidates
using compounds that we have acquired or in-licensed, including the original composition of matter patents and patents that claim
the activities and methods for such compounds’ production and use. For example, in 2017 we in-licensed a kallikrein inhibitor
portfolio from ActiveSite Pharmaceuticals and in consideration for such license, we will owe milestone payments and royalties
to ActiveSite if and when we progress product candidates through development.
As we learn more about the mechanisms
of action and new methods of manufacture and use of these product candidates, we may file additional patent applications for these
new inventions or we may need to ask our licensors to file them. We may also need to license additional patent rights or other
rights on compounds, treatment methods or manufacturing processes because we learn that we need such rights during the continuing
development of our product candidates.
Although our patents may prevent others
from making, using or selling similar products, they do not ensure that we will not infringe the patent rights of third parties.
We may not be aware of all patents or patent applications that may impact our ability to make, use or sell any of our product
candidates or proposed product candidates. For example, because we sometimes identify the mechanism of action or molecular target
of a given product candidate after identifying its composition of matter and therapeutic use, we may not be aware until the mechanism
or target is further elucidated that a third party has an issued or pending patent claiming biological activities or targets that
may cover our product candidate. US patent applications filed after November 29, 2000 are confidential in the US Patent and Trademark
Office for the first 18 months after such applications’ earliest priority date, and patent offices in other countries often
publish patent applications for the first time six months or more after filing. Furthermore, we may not be aware of published
or granted conflicting patent rights. Any conflicts resulting from patent applications and patents of others could significantly
reduce the coverage of our patents and limit our ability to obtain meaningful patent protection. If others obtain patents with
conflicting claims, we may need to obtain licenses to these patents or to develop or obtain alternative technology.
We may not be able to obtain any licenses
or other rights to patents, technology or know-how from third parties necessary to conduct our business as described in this report
and such licenses, if available at all, may not be available on commercially reasonable terms. Any failure to obtain such licenses
could delay or prevent us from developing or commercializing our drug candidates or proposed product candidates, which would harm
our business. Litigation or patent interference proceedings may be necessarily brought against third parties, as discussed below,
to enforce any of our patents or other proprietary rights or to determine the scope and validity or enforceability of the proprietary
rights of such third parties.
If our or our licensors’ patent
positions do not adequately protect our product candidates or any future products, others could compete with us more directly,
which would harm our business.
Our commercial success will depend in
part on our and our licensors’ ability to obtain additional patents and protect our existing patent positions, particularly
those patents for which we have secured exclusive rights, as well as our ability to maintain adequate protection of other intellectual
property for our technologies, product candidates and any future products in the US and other countries. If we or our licensors
do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive
advantage we may have, which could materially harm our business, negatively affect our position in the marketplace, limit our
ability to commercialize our product candidates and delay or render impossible our achievement of profitability. The laws of some
foreign countries do not protect our proprietary rights to the same extent as the laws of the US, and we may encounter significant
problems in protecting our proprietary rights in these countries.
The patent positions of biotechnology
and pharmaceutical companies, including our own patent position, involve complex legal and factual questions, and, therefore,
validity and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated or
circumvented. We and our licensors will be able to protect our proprietary rights from unauthorized use by third parties only
to the extent that our proprietary technologies, product candidates and any future products are covered by valid and enforceable
patents or are effectively maintained as trade secrets.
The degree of future protection for our
proprietary rights is uncertain, and we cannot ensure that:
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we
or our licensors were the first to make the inventions covered by each of our pending
patent applications;
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we
or our licensors were the first to file patent applications for these inventions;
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others
will not independently develop similar or alternative technologies or duplicate any of
our technologies;
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any
of our or our licensors’ pending patent applications will result in issued patents;
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any
of our or our licensors’ patents will be valid or enforceable;
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any
patents issued to us or our licensors and collaborators will provide a basis for commercially
viable products, will provide us with any competitive advantages or will not be challenged
by third parties;
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we
will develop additional proprietary technologies or product candidates that are patentable;
or
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the
patents of others will not have an adverse effect on our business.
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We may be unable to adequately prevent
disclosure of trade secrets and other proprietary information.
We rely on trade secrets to protect our
proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable.
However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants,
outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary
information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate
remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our
trade secrets and proprietary information. Costly and time consuming litigation could be necessary to enforce and determine the
scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary
information to develop products that compete with our products or cause additional, material adverse effects upon our competitive
business position.
Litigation regarding patents, patent
applications and other proprietary rights may be expensive and time consuming. If we are involved in such litigation, it could
cause delays in bringing product candidates to market and harm our ability to operate.
Our commercial success will depend in
part on our ability to manufacture, use, sell and offer to sell our product candidates and proposed product candidates without
infringing patents or other proprietary rights of third parties. Although we are not currently aware of any litigation or other
proceedings or third-party claims of intellectual property infringement related to our product candidates, the pharmaceutical
industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may
obtain patents in the future and allege that the use of our technologies infringes these patent claims or that we are employing
their proprietary technology without authorization. Likewise, third parties may challenge or infringe upon our or our licensors’
existing or future patents. Proceedings involving our patents or patent applications or those of others could result in adverse
decisions regarding the patentability of our inventions relating to our product candidates or the enforceability, validity or
scope of protection offered by our patents relating to our product candidates.
Even if we are successful in these proceedings,
we may incur substantial costs and divert management’s time and attention in pursuing these proceedings. If we are unable
to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge
the validity of the patents in court. Patent litigation is costly and time-consuming. We may not have sufficient resources to
bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology,
fail to defend an infringement action successfully or have our patents declared invalid, we may incur substantial monetary damages;
encounter significant delays in bringing our product candidates to market; or be precluded from participating in the manufacture,
use or sale of our product candidates or methods of treatment requiring licenses.
If our patent and other intellectual
property protection is inadequate, our sales and profits could suffer or competitors could force our products completely out of
the market.
Patents which prevent the manufacture
or sale of our products may be issued to others. We may have to license those patents and pay significant fees or royalties to
the owners of the patents in order to keep marketing our products. This would cause profits on sales to suffer.
We have been granted patents or licensed
patents in the US, but patent applications that have been, or may in the future be, filed by us may not result in the issuance
of additional patents. The scope of any patent issued may not be sufficient to protect our technology. The laws of foreign jurisdictions
in which we intend to sell our products may not protect our rights to the same extent as the laws of the US.
In addition to patent protection, we also
rely on trade secrets, proprietary know-how and technology advances. We enter into confidentiality agreements with our employees
and others, but these agreements may not be effective in protecting our proprietary information. Others may independently develop
substantially equivalent proprietary information or obtain access to our know-how. Litigation, which is expensive, may be necessary
to enforce or defend our patents or proprietary rights and may not end favorably for us. We may also choose to initiate litigation
against other parties who we come to believe are infringing these patents. If such litigation is unsuccessful or if the patents
are invalidated or canceled, we may have to write off the related intangible assets and such an event could significantly reduce
our earnings. Any of our licenses, patents or other intellectual property may be challenged, invalidated, canceled, infringed
or circumvented and may not provide any competitive advantage to us.
If the Company is required to impair
their long-lived assets, the Company’s financial condition and results could be negatively affected.
If we are unable to manufacture products
in our manufacturing facilities or successfully develop products using our patents that were purchased, the Company conclude our
long-lived assets may be impaired. If we evaluate our long-lived assets and deem that there is an impairment, under current accounting
standards, the Company will be required to write down the assets. Any write-down would have a negative effect on our consolidated
financial statements.
Risks Related to Our Common Stock
Investors may experience dilution
if we issue additional shares of common stock.
In general, stockholders do not have preemptive
rights to any common stock issued by us in the future. Therefore, stockholders may experience dilution of their equity investment
if we issue additional shares of common stock in the future. This includes shares issuable under equity incentive plans, or if
we issue securities that are convertible into shares of our common stock. Given that we will we require additional capital, we
intend to raise funds in the future by issuing common stock that will cause dilution to our stockholders. We also have significant
outstanding warrants to purchase common stock as well as a stock option pool available to employees, which if exercised, would
cause dilution to our stockholders.
There is a limited trading market
for our common stock, which could make it difficult to liquidate an investment in our common stock, in a timely manner.
Our common stock is currently traded on
the OTCQB. Because there is a limited public market for our common stock, investors may not be able to liquidate their investment
whenever desired. We cannot assure that an active trading market for our common stock will ever develop and the lack of an active
public trading market means that investors may be exposed to increased risk. In addition, if we failed to meet the criteria set
forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other
than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending
or selling our common stock, which may further affect its liquidity.
With a limited trading market for
our common stock, the trading price can be impacted by naked short selling.
Our stock price has been under downward
pressure for over a year and we have been puzzled as to why there would be consistent downward pressure on our stock even in the
face of positive news about the Company and our prospects. Following some investigation and with the assistance of outside advisors,
we believe we are the target of naked short selling. Naked short selling is when an investor sells short shares that they do not
possess and have not confirmed their ability to possess. If the trade associated with the short does not take place within the
clearing time period and the short-seller does not tender shares to the buyer, the trade is considered a “failure to deliver.”
Naked short selling, a practice that is
prohibited by the SEC's Regulation SHO, reduces the value of companies and shareholders' investments by artificially pushing a
company’s stock price down. For smaller companies like ours that are looking to raise working capital, it makes the process
difficult. Upon tracking our trading activity, we have determined that approximately 44% of our daily trading volume is short
selling and we believe that the short sellers have been lax at complying with Regulation SHO since early 2013. There are no assurances
that we will be able to curb the naked short selling of our stock.
If securities analysts do not publish
research or reports about our business or if they downgrade us or our sector, the price of our common stock could decline.
The trading market for our common stock
will depend in part on research and reports that industry or financial analysts publish about us or our business. We do not control
these analysts. Furthermore, if one or more of the analysts who cover us downgrades us or the industry in which we operate or
the stock of any of our competitors, the price of our common stock will likely decline. If one or more of these analysts ceases
coverage altogether, we could lose visibility, which could also lead to a decline in the price of the common stock.
We cannot ensure that our common
stock will be listed on a securities exchange, which may adversely affect your ability to dispose of our common stock in a timely
fashion.
We plan to seek listing of our common
stock on the NYSE MKT or NASDAQ exchange as soon as reasonably practicable. In 2011, the NYSE MKT and the NASDAQ amended their
listings to restrict the ability of companies that have completed reverse mergers to list their securities on such exchanges.
In order to become eligible to list their securities on such exchange, reverse merger companies must have had their securities
traded on an over-the-counter (OTC) market for at least one year, maintained a certain minimum closing price for no less than
30 of the most recent 60 days prior to the filing of an initial listing application and prior to listing, and timely filed with
the SEC all required reports since consummation of the reverse merger, including one annual report containing audited financial
statements for a full fiscal year commencing after the date of the filing of the Form 8-K containing the Company’s Form
10 information. To date the Company has not met all of the filing requirements above and may not be able to satisfy the initial
listing standards of the NYSE MKT or NASDAQ exchanges in the foreseeable future or at all. Even if we are able to list our common
stock on such exchange, we may not be able to maintain a listing of the common stock on such stock exchange.
The market price and trading volume
of our common stock may be volatile, which may adversely affect its market price.
The market price of our common stock could
be subject to significant fluctuations due to factors such as:
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actual
or anticipated fluctuations in our financial condition or results of operations;
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limited
trading activity;
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success
or failure of our operating strategies and our perceived prospects; realization of any
of the risks described in this section; failure to be covered by securities analysts
or failure to meet the expectations of securities analysts;
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decline
in the stock prices of peer companies; and
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discount
in the trading multiple of our common stock relative to that of common stock of certain
of our peer companies due to perceived risks associated with our smaller size.
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As a result, shares of our common stock
may trade at prices significantly below the price an investor paid to acquire them. Furthermore, declines in the price of our
common stock may adversely affect the Company’s ability to conduct future offerings or to recruit and retain key employees.
Our common stock may be considered
a “penny stock.”
Trades of our common stock are subject
to Rule 15g-9 promulgated by the SEC under the Exchange Act, which imposes certain requirements on broker/dealers who sell securities
subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule,
broker/dealers must make a special suitability determination for purchasers of the securities and receive the purchaser’s
written agreement to the transaction prior to sale. The SEC also has other rules that regulate broker/dealer practices in connection
with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00
(other than securities listed on a national securities exchange, provided that current price and volume information with respect
to transactions in that security is provided by the exchange or system). 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 prepared
by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer
also must 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. 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 effecting the transaction and must be given to the customer in writing before
or with the customer’s confirmation. These disclosure requirements have the effect of reducing the level of trading activity
in the secondary market for our common stock. As a result of the foregoing, investors may find it difficult to sell their shares.
We have no current plan to pay dividends
on our common stock and investors may lose the entire amount of their investment.
We have no current plans to pay dividends
on our common stock. Therefore, investors will not receive any funds absent a sale of their shares. We cannot assure investors
of a positive return on their investment.
MARKET,
INDUSTRY AND OTHER DATA
Unless otherwise indicated, information
contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and
market position, market opportunity and market size, is based on information from various sources, on assumptions that we have
made that are based on those data and other similar sources and on our knowledge of the markets for our services. These data involve
a number of assumptions and limitations. In addition, projections, assumptions and estimates of our future performance and the
future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to
a variety of factors, including those described in section entitled “
Risk Factors
” of this prospectus and elsewhere
in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made
by the independent parties and by us.