U.
S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2020
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE TRANSITION PERIOD FROM ___________ to _____________
Commission File
Number: 000-54296
AXIM
Biotechnologies, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
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27-4029386
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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6191 Cornerstone Court, E, Suite 114
San
Diego, CA 92121
(Address of principal executive offices)
Registrant’s
telephone number, including area code: (858) 923-4422
Securities registered
pursuant to Section 12(b) of the Act: None
Securities registered
pursuant to Section 12(g) of the Act: Common stock, $0.0001 par
value
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act
Yes [
] No [X]
Indicate by check mark whether the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes [
] No [X]
Note – Checking in the box above will not relieve any
registrant required to file reports pursuant to Section 13 or 15(d)
of the Exchange Act form their obligations under those
Sections.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange
Act of 1934 during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check mark whether registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes [X] No [
]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K. [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule12b-2 of the Exchange
Act.
Large accelerated
filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated
filer
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[ ] Do
not check if smaller reporting company)
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Smaller reporting
company
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[X]
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Emerging growth
Company
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[ ]
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act.[
]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ]
No [X]
The
aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant as of June 30, 2020 based upon the
closing price of the common stock as reported by finance.yahoo.com
on such date, was approximately $5,861,569. This calculation does
not reflect a determination that persons are affiliates for any
other purposes.
As of
April 13, 2021, there were 128,860,100 shares of the registrant’s
common stock were issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE: None
AXIM BIOTECHNOLOGIES, INC.
FORM 10-K
FOR
THE YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
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PAGE
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PART
I
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Item
1.
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BUSINESS
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1
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Item
1A.
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RISK
FACTORS
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12
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Item
1B.
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UNRESOLVED STAFF COMMENTS
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40
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Item
2.
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PROPERTIES
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40
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Item
3.
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LEGAL
PROCEEDINGS
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40
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Item
4.
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MINE
SAFETY DISCLOSURES
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41
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PART
II
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Item
5.
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MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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41
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Item
6.
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SELECTED FINANCIAL DATA
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41
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Item
7.
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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42
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Item
7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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45
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Item
8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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46
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Item
9.
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CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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46
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Item
9A.
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CONTROLS AND PROCEDURES
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46
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Item
9B.
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OTHER
INFORMATION
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47
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PART
III
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Item
10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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47
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Item
11.
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EXECUTIVE COMPENSATION
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53
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Item
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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54
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Item
13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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55
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Item
14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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55
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PART
IV
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Item
15.
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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55
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SIGNATURES
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58
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i
WHERE YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and
other information required by the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), with the Securities and Exchange
Commission (the “SEC”). You may read and copy any document we file
with the SEC at the SEC’s public reference room located at 100 F
Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at
1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public from the
SEC’s internet site at http://www.sec.gov.
On
our Internet website, http://www.aximbiotech.com,
we post the following recent filings as soon as reasonably
practicable after they are electronically filed with or furnished
to the SEC: our annual reports on Form 10-K, our quarterly reports
on Form 10-Q, our current reports on Form 8-K, and any amendments
to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act.
When we use the terms “AXIM,” “Company,” “we,” “our” and “us” we
mean Axim Biotechnologies, Inc., a Nevada corporation, and its
consolidated subsidiaries, taken as a whole, as well as any
predecessor entities, unless the context otherwise
indicates.
FORWARD LOOKING STATEMENTS
This
Annual Report on Form 10-K, the other reports, statements, and
information that the Company has previously filed with or furnished
to, or that we may subsequently file with or furnish to, the SEC
and public announcements that we have previously made or may
subsequently make include, may include, or may incorporate by
reference certain statements that may be deemed to be
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended, and that are
intended to enjoy the protection of the safe harbor for
forward-looking statements provided by that Act. To the extent that
any statements made in this report contain information that is not
historical, these statements are essentially forward-looking.
Forward-looking statements can be identified by the use of words
such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”
“ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,”
“could,” and other words of similar meaning. These statements are
subject to risks and uncertainties that cannot be predicted or
quantified and, consequently, actual results may differ materially
from those expressed or implied by such forward-looking statements.
Such risks and uncertainties include, without limitation,
marketability of our products; legal and regulatory risks
associated with trading publicly; our ability to raise additional
capital to finance our activities; the future trading of our common
stock; our ability to operate as a public company; our ability to
protect our proprietary information; general economic and business
conditions; the volatility of our operating results and financial
condition; our ability to attract or retain qualified senior
management personnel and research and development staff; and other
risks detailed from time to time in our filings with the SEC, or
otherwise.
Information regarding market and industry statistics contained in
this report is included based on information available to us that
we believe is accurate. It is generally based on industry and other
publications that are not produced for purposes of securities
offerings or economic analysis. Forecasts and other forward-looking
information obtained from these sources are subject to the same
qualifications and the additional uncertainties accompanying any
estimates of future market size, revenue and market acceptance of
products and services. We do not undertake any obligation to
publicly update any forward-looking statements. As a result,
investors should not place undue reliance on these forward-looking
statements.
ii
PART I
Item 1.
Business
Overview
Axim
Biotechnologies, Inc., a Nevada corporation, is a preclinical stage
research and development company focused on changing diagnosis and
treatment for oncology and SARS-CoV-2, or COVID-19. Axim’s COVID-19
rapid neutralizing antibody test ImmunoPass is the first rapid
diagnostic test measuring levels of functional neutralizing
antibodies that are believed to prevent SARS-CoV-2 from entering
human host cells. Additionally, the Company is developing rapid
diagnostic tests for the early detection of cancer and proprietary
small molecules drugs to treat cancer and block metastasis.
We were
originally incorporated in the State of Nevada on November 18,
2010, under the name AXIM International, Inc. On July 24, 2014, we
changed our name to AXIM Biotechnologies, Inc. to better reflect
our business operations. On August 7, 2014, we incorporated a
wholly owned Nevada subsidiary named Axim Holdings, Inc. to help
facilitate the business operations of the Company.
Our principal
executive office is located at 6191 Cornerstone Court, E. Suite
114, San Diego, CA 92121. Our telephone number is (858) 923-4422
and our website is www.aximbiotech.com. Unless expressly noted,
none of the information on our website is part of this prospectus
or any prospectus supplement. Our common stock is quoted on the
OTCQB Marketplace operated by the OTC Markets Group, Inc., under
the ticker symbol “AXIM.”
Historical Business Operations
Prior
to our acquisition of Sapphire Biotech, Inc. in March 2020, as
further discussed below, our business primarily focused on the
research, development and production of pharmaceutical,
nutraceutical and cosmetic products, genetically controlled
botanical products, and extraction and purification of cannabinoids
technologies based on our proprietary technologies. Our research
and development efforts centered aroud the development of a
delivery system for cannabinoids for the treatment of certain
conditions and diseases, as well as novel cannabinoid extraction
techniques.
On May 11,
2015, we entered into a 50 year, worldwide, exclusive intellectual
property licensing agreement with CanChew Biotechnologies, LLC
(“CanChew”), pursuant to which, in exchange for 5,826,706
restricted shares of our common stock, we received the right to a
royalty fee of approximately 2-3% of all gross proceeds derived
from products produced under such agreement.
In October
2017, we formed a wholly owned subsidiary in the Netherlands for
purposes of holding pharmaceutical licenses as required by the
Netherlands regulations and laws.
On October
16, 2018, we formed a wholly owned disregarded entity, Marina
Street, LLC, as part of improvement of internal control over cash
management and bank activities.
On June 11,
2019, we entered into an operating agreement as a 1/3 member of KAM
Industries, LLC (“Kam”), a Wyoming Limited Company. On June 18,
2019, KAM entered into a Joint Venture Agreement to receive a
percentage of the industrial hemp harvest yield on a parcel of land
in Wayne County, North Carolina owned by FarmShare, LLC, with whom
KAM contracted to purchase a percentage of the hemp harvest for the
2019 growing season. Pursuant to the agreement, in 2020 we received
our 1/3 share of the hemp harvested from the 2019 growing season.
The agreement then expires unless renewed for 2020 with an
additional payment.
On May 6, 2020, we entered into an agreement by and among the
Company, CanChew, CanChew License Company (“CanCo”), Medical
Marijuana, Inc., Dr. George A. Anastassov (“Dr. Anastassov”), Dr.
Philip A. Van Damme (“Dr. Van Damme”), Lekhram Changoer (“Mr.
Changoer”), Sanammad Foundation, Netherlands and Sanammad
Foundation, US (collectively, the “Sanammad Parties”), pursuant to
which we divested substantially all of our cannabis-related
intellectual property and business, including our 100% interest in
CanCo and CanChew.
Acquisition of Sapphire Biotech, Inc.
On March 17, 2020, we entered into a Share Exchange Agreement (the
“Share Exchange Agreement”) with Sapphire and all of its
stockholders, pursuant to which, upon closing of the transaction,
we: (i) acquired 100% of Sapphire’s outstanding capital, consisting
of 100,000,000 shares of common stock and zero shares of preferred
Stock; and (ii) assumed all of the outstanding debt of Sapphire.
The outstanding debt included two convertible notes in the
principal amounts of $310,000 and $190,000, respectfully.
1
In exchange
for 100% of the issued and outstanding shares of Sapphire, we
issued and aggregate of 54,000,000 newly issued shares of the
common stock of the company to Sapphire’s existing stockholders
(the “Share Exchange”). As a result of the Share Exchange, Sapphire
became a 100% owned subsidiary of the Company, which on a going
forward basis will result in consolidated financial reporting by
the Company to include the results of Sapphire.
Our principal
corporate headquarters are located at 6191 Cornerstone E. Suite
114, San Diego, CA 92121. Our website address is
www.aximbiotech.com. The information contained on, or that can be
accessed through, our website is not a part of this prospectus. The
trademarks, trade names and service marks appearing in this
prospectus are the property of their respective owners.
Current Operations Following Acquisition of Sapphire
Oncology
AXIM acquired
Sapphire in order to develop and commercialize a unique therapeutic
approach designed to disrupt cancer growth and block metastatic
spread. Prior to our acquisition of Sapphire, it acquired an
exclusive license to the technology around SBI-183, an
anti-metastatic compound developed by Dr. Douglas Lake at Mayo
Clinic and Arizona State University to inhibit QSOX1. Dr. Douglas
Lake is a co-founder of Sapphire.
Oncology
Strategy
We continue
to advance our mission of improving global cancer care through the
development of novel therapeutics for controlling metastatic cancer
spread, and diagnostics for early cancer detection, response to
treatment, and for monitoring post-treatment recurrence. We aspire
to be the leader in QSOX1-targeted metastatic cancer therapies, and
have undertaken the development of a potent QSOX1 inhibitor to be
used as a platform drug for a variety of indications.
We have been
investigating the enzyme Quiescin Sulfhydryl Oxidase 1 (“QSOX1”), a
master regulator of extracellular matrix remodeling, and its
overexpression by tumor cells. QSOX1 is a tumor-derived enzyme that
is important for cancer growth, invasion and metastasis.
Overexpression of QSOX1 has been unambiguously linked to promoting
tumor invasion and metastasis. One of the Company’s co-founders,
Dr. Douglas Lake, has discovered that a small molecule SBI-183
inhibited the enzymatic activity of QSOX1, and as a result,
suppressed tumor cell invasion in vitro and metastasis of
breast tumor cells in vivo. Through our medicinal chemistry
efforts, we synthesized multiple structural analogs of SBI-183 and
unveiled SPX-1009 as a lead compound that demonstrated ten-fold
improvement in suppressing invasion and metastasis in several
cancer models.
Through our
medicinal chemistry efforts, we have synthesized multiple
structural analogs of SBI-183, and we unveiled SPX-1009 as a lead
compound that demonstrated ten-fold improvement in suppressing
invasion and metastasis in several cancer models.
We believe
that our therapeutic drug development strategy targeting the
metastatic spread is a unique, novel and pioneering approach to
saving lives. Our near-term objective is to demonstrate the ability
of our lead anti-QSOX1 drug candidates to suppress tumor growth and
metastasis and to advance them into pre-clinical studies.
Additionally,
we believe that QSOX1 has a significant potential to be developed
into an important biomarker for a cancer test. We currently
anticipate that ongoing diagnostic product development in 2021 will
result in a commercial prototype in early 2022 of a universal
companion diagnostic to measure the efficacy of any ongoing cancer
treatments based on measuring QSOX1 levels. Ultimately, we aim to
develop a rapid lateral flow blood test that makes possible the
early detection of cancer.
We believe
that Sapphire is the first to discover the over-expression of QSOX1
as a biomarker for cancer in blood. We have filed a patent
application claiming many discoveries related to QSOX1, including a
rapid diagnostic test, which we have developed into a lateral flow
device capable of measuring levels of QSOX1. Our equivalent of a
liquid biopsy test is a non-invasive, rapid blood test that will
measure QSOX1 over-expression. Liquid biopsy refers to the process
of testing the blood for the presence of a disease biomarker. Most
so-called “liquid biopsy” companies test blood for circulating
tumor cells (“CTCs”) and DNA sequences. The disease biomarker we
test for is an enzyme. We seek to prove that measuring QSOX1
over-expression, even before the tumor is formed, will enable
detection of cancer at an earlier stage than liquid biopsy
companies whose tests detect the CTC’s and DNA, usually after the
tumor is formed and is shedding cells.
On January
13, 2020, Sapphire entered into an agreement with Skysong
Innovations, LLC (“Skysong”) for an exclusive license to technology
relating to SBI-183, an anti-metastatic compound suppressing tumor
cell growth and blocking metastasis. As consideration for the
license agreement, the Company agreed to grant Skysong (as
licensing agent for Mayo Clinic Ventures and Arizona State
University) 80,000 shares of Sapphire, which converted into
4,800,000 shares of Axim Biotechnologies, Inc., upon the
merger.
2
Effective
February 7, 2020, Sapphire entered into an Industry Sponsored
Research Agreement (“SRA”) to test and confirm the inhibitory
activity of SBI-183 and SBI-183 analogs, including those
synthesized by the Company. The testing will include cell-based in
vitro assays, NMR binding studies and testing to determine if
SBI-183 enhances the activity of cytotoxic drugs in vitro. Animal
studies will also be conducted under the SRA. Specifically SBI-183
analogs will be evaluated in a mouse model of triple negative
breast cancer using human tumor xenografts. The work will be
performed over a period of one year with the total cost of the SRA
totaling $150,468 paid prior to our acquisition of Sapphire.
On August 11,
2020, Sapphire was awarded a $395,880 phase I Small Business
Innovation Research (“SBIR”) grant by the National Cancer Institute
(“NCI”). The 12-month grant supports the continued development of
novel small molecules that inhibit the enzymatic activity of QSOX1
based on our lead compound SPX-1009.
Covid-19
As Sapphire
is a pioneer in the research and development of diagnostic tools
for the early screening of cancer cells, our researchers have been
able to quickly adapt our existing research and technology
currently under development to create diagnostic tools that screen
for COVID-19 neutralizing antibodies. The current need for such an
instrument is great, as the pandemic continues to plague the
worldwide healthcare landscape.
SARS-CoV-2,
the virus responsible for the COVID-19 pandemic has spread at an
alarming rate since the first cases were identified in late 2019 in
Wuhan, China. The virus can be transmitted from person-to-person in
respiratory secretions from symptomatic or asymptomatic
individuals. Since the virus was new to the human population and
death rates are 10 to 50-fold higher than other respiratory
viruses, the pandemic has placed excessive demands on the global
healthcare network. Because initially there were no vaccines or
effective antiviral therapies that existed for SARS-CoV-2, efforts
to combat this pandemic have been challenging.
Polymerase
chain reaction (“PCR”) tests that detect active SARS-CoV-2
infection are playing an important role in tracking disease spread,
while serological tests that detect antibodies against SARS-CoV-2
are now being used to measure past rates of infection and identify
individuals that could be immune to COVID-19. However, not all
antibodies are created equal and tests that specifically measure
antibodies that neutralize SARS-CoV-2 have not been generally
available to healthcare providers or patients.
SARS-CoV-2
neutralizing antibodies block binding and entry of the virus into
host cells. It is desirable to have high levels of neutralizing
antibodies in convalescent plasma used to treat patients fighting
COVID-19 so that those antibodies can block the virus from further
infecting the host. However, despite convalescing from the disease,
not all individuals make high levels of neutralizing antibodies.
Therefore, there is a clinical need to measure levels of
neutralizing antibodies in COVID-19 convalescent plasma.
3
The most
widely used antibody tests on the market today do not specifically
identify neutralizing antibodies. Instead, they measure a large
family of antibodies that bind to various parts of the virus, but
that do not necessarily neutralize it. To address this shortcoming,
we developed a patent-pending rapid diagnostic test called
ImmunoPass, which is specifically focused on measuring the levels
of functional neutralizing antibodies that prevent SARS-CoV-2 from
attaching to human cells. The test is based on blocking the
interaction between human cell receptors and the viral spike
protein that mimics the virus neutralization process in the
body.
Why
ImmunoPass
ImmunoPass is
a rapid (10-minute) serological diagnostic test that measures
SARS-CoV-2 neutralizing antibodies, or Nabs. ImmunoPass SARS-Cov-2
Neutralizing Antibody (“Nab”) Rapid Test is the first of its kind,
and is a rapid lateral flow chromatographic immunoassay intended
for the semi-quantitative measurement of neutralizing antibody in
human serum or plasma (sodium heparin, potassium and acid dextrose
citrate). The ImmunoPass™ SARS-Cov-2 Neutralizing Antibody (NAb)
Rapid Test measures NAbs within 10 minutes, unlike traditional
tests, which require days. The ImmunoPass™ test kit does not
utilize live biological materials and does not require the strict
biosafety protocol associated with live virus samples.
Specifically, we envision that our ImmunoPass test may be used for
the following:
(i)Measurement
of neutralizing antibodies in individuals who have recovered from
COVID-19 and/or received a vaccine and to provide an “Immunity
Passport” so that they can go back to work and school or
participate in social gatherings without risk of infecting others.
The primary goal of any vaccine is to induce neutralizing antibody
responses that protect vaccine recipients from infection and
subsequent disease. As COVID-19 vaccines have now begun rolling out
to the general public, we believe immunity monitoring is starting
to play a critical role in determining whether the vaccine is
effective, for how long, and when it is time for recipients of the
vaccine to get a booster shot. Since immunity to the virus is not
anticipated to last forever, the immunity monitoring could continue
for many years, even after widespread vaccination throughout the
world.
Additionally,
we believe that measuring neutralizing antibodies in vaccine
recipients after vaccination may provide greater insight into how
vaccine responses hold up over time. That way, when levels of
neutralizing antibodies eventually decrease, vaccine recipients
will have a sense of when their neutralizing antibodies are
unacceptably low and a revaccination is necessary to continue their
protection from COVID-19.
(ii)Screening
plasma collected from individuals recovered from COVID-19 so that
patients fighting COVID-19 can be treated with plasma containing
high levels of Nabs. Additionally, Nabs need to be monitored in
patients receiving convalescent plasma so that we learn what is an
effective therapeutic dose.
Our test is different
from neutralizing antibody tests currently available because:
·It
specifically tests for neutralizing antibodies, which are those
needed to fight COVID-19 within the body;
·It can
quantitatively measure the amount of neutralizing antibodies a
person has;
·
Patients get their results in just a few minutes; and
·It is
portable.
In
preclinical research, ImmunoPass has already been proven to work
with 97.8% accurately in plasma and serum and can easily be
modified to work on any specific strains of COVID-19; accordingly,
we believe that newly-discovered strains will not affect its
efficacy. ImmunoPass has shown a significantly better statistical
correlation with SARS-CoV-2 neutralization assays than the
currently available antibody tests. Since the rapid test lends well
to conducting live virus-based assays, we believe that it could
serve as an effective low-cost alternative to lab-based assays for
monitoring large numbers of vaccine recipients for neutralizing
antibodies.
As our scientific team was hard at work developing
our COVID-19 rapid diagnostic tests we were frustrated by the
delays and costs caused by lack of supply of a recombinant virus
binding protein (“VBP”) for SARS-CoV-2 were essential to our
testing. To continue our projects as planned and decrease overall
costs, we decided to make our own VBP, which is even more potent
than current outsourced options. Our laboratory tests have proven
that SARS-CoV-2 receptor binding domain (“RBD”) spike protein binds
with our novel VBP. Initial tests also show that our novel VBP is
approximately ten times more potent and stable than other VBP
options currently on the market. We now develop these core
ingredients needed to manufacture test strips in-house, and believe
that moving such production in-house provides us with the potential
to derive additional revenue and also allows us to control our
supply chain. We have already manufactured enough VBP for millions
of rapid diagnostic tests.
4
In August
2020, we signed an exclusive licensing, manufacturing and
distribution agreement with Empowered Diagnostics, LLC
(“Empowered”) to execute the high-volume production of our rapid
point-of-care diagnostic test. Together with Empowered, we have
completed the technology transfer, and Empowered has built out
their production facility to enable them to manufacture millions of
our tests per month. To date, ImmunoPass has completed two human
point-of-care clinical trials and the Company, through its
manufacturing partner Empowered Diagnotics, filed for FDA emergency
use approval of the device on March 24, 2021. We hope that our test
will be the first FDA-approved rapid point-of-care test for
neutralizing antibodies.
About Emergency
Use Authorizations (EUAs)
The Emergency
Use Authorization (“EUA”) authority allows FDA to help strengthen
the nation’s public health protections against chemical,
biological, radiological, and nuclear threats including infectious
diseases, by facilitating the availability and use of medical
countermeasures needed during public health emergencies.
Under section
564 of the Federal Food, Drug, and Cosmetic Act, when the Secretary
of Health and Human Services (“HHS”) declares that an emergency use
authorization is appropriate, FDA may authorize unapproved medical
products or unapproved uses of approved medical products to be used
in an emergency to diagnose, treat, or prevent serious or
life-threatening diseases or conditions caused by CBRN threat
agents when certain criteria are met, including there are no
adequate, approved, and available alternatives. The HHS declaration
to support such use must be based on one of four types of
determinations of threats or potential threats by the Secretary of
HHS, Homeland Security, or Defense.
On February
4, 2020, the HHS Secretary determined that there is a public health
emergency that has a significant potential to affect national
security or the health and security of United States citizens
living abroad, and that involves the virus that causes
COVID-19.
COVID-19 Emergency Use Authorizations for Medical
Devices
In
vitro diagnostic (“IVD”) devices are tests performed on samples
taken from the human body, such as swabs of mucus from inside the
nose or back of the throat, or blood taken from a vein or
fingerstick. IVDs can detect diseases or other conditions and can
be used to monitor a person’s overall health to help cure, treat,
or prevent diseases.
There are
several types of SARS-CoV-2 and COVID-19 related IVDs:
·Diagnostic
Tests: Tests that detect parts of the SARS-CoV-2 virus and can
be used to diagnose infection with the SARS-CoV-2 virus. These
include molecular tests and antigen tests.
·Serology/Antibody
and Other Adaptive Immune Response Tests: Tests that detect
antibodies (for example, IgM, IgG) to the SARS-CoV-2 virus or that
measure a different adaptive immune response (such as, T cell
immune response) to the SARS-CoV-2 virus. These types of tests
cannot be used to diagnose a current infection.
·Tests
for Management of COVID-19 Patients: Beyond tests that diagnose
or detect SARS-CoV-2 virus or antibodies, there are also tests that
are authorized for use in the management of patients with COVID-19,
such as to detect biomarkers related to inflammation. Once patients
are diagnosed with COVID-19 disease, these additional tests can be
used to inform patient management decisions.
On September
16, 2020, we filed an EUA application with the FDA for measuring
COVID-19 neutralizing antibodies in plasma and serum through our
first-in-class rapid diagnostic test. The Company amended the EUA
to include positive results from a Biosafety Level 3 (BSL-3) live
virus test that positively correlates the rapid 10-minute lateral
flow assay test that accurately detects and measures levels of
functional COVID-19 neutralizing antibodies in plasma which the FDA
demanded.
On March 24,
2020, our manufacturing partner, Empowered Diagnostics, filed an
EUA application with the FDA for measuring COVID-19 neutralizing
antibodies in whole blood for a Point-of-Care application of our
rapid diagnostic test.
Our COVID-19
related product candidates, including Immunopass, our lateral flow
diagnostic test for measuring SARS-CoV-2 neutralizing antibodies,
are subject to uncertainties relating to product development,
regulatory approval and commercialization, and further risks based
on the constantly evolving situation affecting the United States
and the international community. Even if we are able to
commercialize our product candidates, there is no assurance that
these candidates would generate revenues or that any revenues
generated would be sufficient for us to become profitable or
thereafter maintain profitability. Additionally, due to the
COVID-19 pandemic the FDA is over-run with EUA applications from
thousands of biotech and pharmaceutical companies and could
significantly impact the ability of the FDA to timely review and
process our regulatory submissions, which could have a material
adverse effect on our business.
5
Milestones 2020 to
Date
On January
13, 2020, Sapphire entered into an agreement with Skysong for an
exclusive license to technology relating to SBI-183, an
anti-metastatic compound suppressing tumor cell growth and blocking
metastasis.
On February
6, 2020, Sapphire signs an SRA with Arizona State University to
conduct in vitro testing and in vivo pre-clinical
animal studies re cancer inhibitory agents that will prevent
metastases.
On March 18,
2020, we announced the acquisition of Sapphire.
On March 24,
2020, Sapphire announced the completion of in-vitro studies
on the new compound, SPX-1009, proving ten-fold greater inhibition
of tumor metastasis than parent compound SBI-183 following testing
of over 80 analogs.
On March 27,
2020, Sapphire signed an agreement with TD2 to initiate animal
studies to evaluate the efficacy of SPX-1009 as an anti-metastatic
treatment and to measure levels of QSOX1 as a potential companion
diagnostic test.
On July 15,
2020, we announced the development of a rapid diagnostic test
measuring levels of functional neutralizing antibodies that are
believed to prevent SARS-CoV-2 from entering the host cells. Unlike
currently available serological COVID-19 tests that detect an
antibody response to the virus, our rapid 10-minute test measures a
specific subpopulation of antibodies to block binding of the virus
to host cell receptors. While there are expensive, time consuming
laboratory tests that measure neutralizing antibodies, our test
differs in that it is a portable, low cost, rapid point-of-care
test with results in 10 minutes. Status: Ongoing
On August 5,
2020, we announced the development, patent filing and EAU filing of
NeuCovix-HT™, a high throughput (“HT”) patent-pending diagnostic
test that measures levels of functional antibodies in plasma or
serum that neutralize SARS-CoV-2, the virus that causes COVID-19.
Unlike current serology tests for COVID-19 that qualitatively
detect antibodies to the virus, NeuCovix-HT™ quantitatively
measures functional antibodies that block binding of the virus to
host cell receptors. Status: Ongoing
On August 11,
2020, Sapphire was awarded a $395,880 phase I SBIR grant by the
NCI. The grant will support the continued development of novel
small molecules that inhibit the enzymatic activity of QSOX1 based
on a lead compound. QSOX1 is a tumor-derived enzyme that is
important for cancer growth, invasion and metastasis. Status:
Ongoing
On August 24,
2020, we signed an exclusive limited licensing, manufacturing and
distribution agreement with Empowered Diagnostics LLC (“Empowered
Diagnostics”) for high volume production of our rapid diagnostic
test measuring levels of functional neutralizing antibodies that
are believed to prevent SARS-CoV-2 from entering the host cells.
Status: Ongoing
On September
16, 2020, we filed the EUA application with the FDA for measuring
COVID-19 neutralizing antibodies in plasma and serum through its
first-in-class rapid diagnostic test. Status: Ongoing
On September
22, 2020, we announced that the United States Patent and Trademark
Office (“USPTO”) has issued the Company a new Notice of Allowance
for a patent (Application No. 15/748,784) on anti-neoplastic
compounds and methods targeting QSOX1, an enzyme important for
tumor cell growth, invasion and metastasis.
On September
29, 2020, we announced that we had filed a provisional patent for a
first-in-class face mask that captures and deactivates SARS-CoV-2,
the coronavirus responsible for the ongoing COVID-19 pandemic.
Status: Ongoing
On September
30, 2020, we announced that we had filed a provisional patent for a
recombinant VBP for SARS-CoV-2, the coronavirus responsible for the
current COVID-19 pandemic, and are now manufacturing the VBP. As a
result, we no longer need to rely on outside protein supply to
continue our research and can greatly cut down on our manufacturing
costs.
On December
3, 2020, we announced the development and patent filing for an
enzyme-linked immunosorbent assay (“ELISA”)-based diagnostic test
for the detection of SARS‐CoV-2 neutralizing antibodies. Status:
Ongoing
On February
3, 2021, we announced the initiation of clinical trials for
ImmunoPass, our rapid point-of-care test that semi-quantitatively
measures levels of neutralizing antibodies to COVID-19. Status:
Ongoing
On March 8,
2021, we announced that we had successfully completed point-of-care
clinical trials on our much awaited ImmunoPass rapid test that
semi-quantitatively measures levels of COVID-19 neutralizing
antibodies to help understand COVID-19 immunity, validate vaccine’s
effectiveness and estimate how long the vaccine will be effective
in patients.
6
On March 24,
2021, the Company, through Empowered Diagnostics, filed an EAU
application with the FDA for measuring COVID-19 neutralizing
antibodies in whole blood for a Point-of-Care rapid diagnostic
test. Status: Ongoing
Anticipated Expenses
During the
next twelve months we anticipate incurring costs related to: (i)
filing Exchange Act reports, (ii) contractual obligations, (iii)
clinical trials, and (iv) continued research and development.
Intellectual Property
I.
QSOX1-RELATED INVENTIONS.
QSOX1
(Quiescin Sulfhydryl Oxidase 1) is an enzyme that is over-expressed
in multiple tumor types. Genetically silencing QSOX1 in tumors
slows their growth, migration, invasion and metastasis. Based on
these findings, the inventors of the inventions described below
tested libraries of chemical compounds for the ability to inhibit
QSOX1. Several inhibitors of the QSOX1 enzyme were identified.
Initially, SBI-183 was identified and animal studies confirmed its
ability to suppress tumor growth. The inventors subsequently
developed an entire library of analogs of the parent compound,
SBI-183, detailed in several inventions below to identify compounds
with greater inhibitory activity. These compounds have the
potential to be developed into therapeutic treatments for
metastasis and to be used in conjunction with other neoplastic
treatments, such as chemotherapy.
Included in
the group of QSOX1-related inventions below is the identification
of a specific splice variant of QSOX1, identified as QSOX1-L, as a
unique Biomarker for the detection of certain tumors overexpressing
QSOX1. This biomarker formed the basis for the invention relating
to a Rapid Diagnostic Test for certain cancers.
A.
Anti-Neoplastic Compounds and Methods Targeting QSOX1
1.US
Provisional Patent Application No. 62/218.732 filed on September
15, 2015
PCT Provisional
Patent Application W02017048712A1
US Nonprovisional
Application No. 15/748,784 filed on January 30, 2018
Patent US 10,894,034
B2 Issued January 19, 2021
Title: Anti-Neoplastic Compounds and Methods Targeting QSOX1
Assignee: Mayo Clinic/Arizona State University
Exclusive Licensee: Axim Biotechnologies, Inc.
Compounds and methods involving inhibition of the enzymatic
activity of QSOX1. The compounds and methods can be used in
treatment of neoplastic cells to suppress tumor growth and invasion
in a variety of cancers, including but not limited to myeloma and
cancers of the breast, kidney and pancreas. Claims include the
compound SBI-183 as a neoplastic agent found to inhibit tumor
growth, invasion and suppress metastasis of tumors by inactivating
QSOX1.
a.
Continuation US
Patent Application 17/124/242 filed on December 16,
2020
Title: Anti-Neoplastic Compounds and Methods Targeting QSOX1
Assignee: Mayo Clinic/Arizona State University
Exclusive Licensee: Axim Biotechnologies, Inc.
Compounds and methods involving inhibition of the enzymatic
activity of QSOX1. The compounds and methods can be used in
treatment of neoplastic cells, for example, to suppress tumor
growth and invasion in a variety of cancers, including but not
limited to myeloma and cancers of the breast, kidney, and
pancreas.
2.US
Provisional Patent Application No. 62/916,065 filed on October 16,
2019
Title: Chemical Compounds that Inhibit QSOX1 for the Treatment of
Cancer
Assignees: Arizona State University/Axim Biotechnologies, Inc.
Derivatives of the parent compound SBI-183 have been identified as
inhibiting the enzymatic activity of QSOX1. These compounds can be
used in treatment of neoplastic cells by suppressing tumor growth
and invasion in a variety of cancers that overexpress QSOX1,
including but not limited to myeloma and cancers of the breast,
kidney and pancreas.
7
3.US
Provisional Patent Application No. 62/916,067 filed October 16,
2019
Title: Anti-Neoplastic Compounds and Methods Targeting QSOX1
Assignees: Arizona State University/Axim Biotechnologies, Inc.
Exclusive Licensee: Axim Biotechnologies, Inc.
Compounds that are structurally distinguishable from the compound,
SBI-183 are SPX-013 and SPX-014, and have been identified as
inhibiting the enzymatic activity of QSOX1. The compounds and
methods can be used in treatment of neoplastic cells by suppressing
tumor growth and invasion in a variety of cancers, including but
not limited to myeloma and cancers of the breast, kidney and
pancreas.
4.US
Provisional Patent Application No. 62/944/283 filed December 5,
2019
Title: Anti-Neoplastic Compounds and Methods Targeting QSOX1
Assignees: Arizona State University/Sapphire Biotech, Inc.
Exclusive Licensee: Axim Biotechnologies, Inc.
Compounds that are structurally distinguishable from the SBI-183
have been identified as inhibiting the enzymatic activity of QSOX1.
One in particular, SPX-1009, also inhibits tumor cell growth,
migration and invasion in vitro and metastasis in a mouse model of
triple negative breast cancer. This invention concerns analogs of
this lead compound SPX-1009. In in vitro testing, the lead compound
SPX-1009 and its analogs have been found to be more potent and to
have improved pharmacodynamics in mouse models of cancer.
5.US
Provisional Patent Application No. 62959752 filed January 10,
2020
Title:
Anti-Neoplastic Compounds and Methods Targeting QSOX1 and
Inhibiting Cellular Responses to MET Receptor.
Assignee: Axim Biotechnologies, Inc.
Compounds and methods involving inhibition of the enzymatic
activity of QSOX1 and methods of inhibiting cellular responses to
the MET receptor signaling are disclosed which include
administering any one or more compounds or pharmaceutical
compositions. The compounds and methods can be used in treatment of
neoplastic cells, for example, to suppress tumor growth and
invasion in a variety of cancers, including but not limited to
myeloma and cancers of the breast, kidney and pancreas. The
uniqueness of the invention relates to the combined inhibition of
QSOX1 and cellular responses to the MET receptor signaling.
B.
Unique Biomarker QSOX1-L Identified and Rapid Diagnostic for
Various Cancers
1.US
Provisional Patent Application No. 62/829,556 filed April 4,
2019;
Utility Patent
Application No. 16/841,521 filed April 6, 2020
International Patent
Application No. PCT/US2020/026936 filed April 6, 2020
Title: Systems and Methods for Rapid Diagnostic for Various
Cancers
Assignee: Axim Biotechnologies, Inc.
QSOX1-L, a splice variant of QSOX1, has been identified as a novel
biomarker of bladder cancer and possibly other cancers in serum.
Proprietary antibodies have been generated that selectively detect
only this variant and not others. QSOX1-L has been used to develop
a rapid and cost-effective diagnostic test for bladder and possibly
other urologic cancers from urine.
II.
SARS-CoV-2-RELATED INVENTIONS
A.
Rapid Diagnostic Test to Measure Levels of Neutralizing
Antibodies to SARS-CoV2
1.US
Provisional Application No. 63/023,646 filed May 12,
2020
Title: Convalescent Plasma Testing and Treatment
Assignee: Axim Biotechnologies, Inc. (Axim) and Arizona State
University (ASU)
Exclusive
Licensee: Axim Biotechnologies, Inc. (ASU’s Interest) Exclusive
Licensee: Empowered Diagnostics, Inc. (Axim’s Interest)
8
The invention refers to a Rapid Test to measure levels of
Neutralizing Antibodies to SARS-CoV2. Unlike currently available
serological COVID-19 tests that detect an antibody response to the
virus, the rapid 10-minute test measures a specific subpopulation
of antibodies that block binding of the virus to host cell
receptors. In contrast to current tests using live viruses which
are time-consuming, expensive and require trained personnel in a
tightly controlled laboratory setting to measure neutralizing
antibodies, the rapid test is a portable, low cost, rapid point-
of-care test that measures levels of neutralizing antibodies in 10
minutes.
2. US Provisional
Application No. 63/144,454 Filed February 1, 2021; US Provisional
Application No. 63/152,774 Filed February 23, 2021
Title:
Rapid LFA Diagnostic Test to Measure Levels of Neutralizing
Antibodies to SARS- CoV-2 from Whole Blood
Assignee: Axim Biotechnologies, Inc.
Exclusive Licensee: Empowered Diagnostics, Inc.
The invention methods and test kits can be used with any sample in
which the presence, absence and/or quantity of neutralizing
antibodies (nAbs) to SARS-CoV-2 is desired to be determined, such
as for example, serum, plasma, whole blood, saliva, mucous, and
other biological fluids. In a particular embodiment, the invention
methods and/or kits are used with whole blood.
B.
AlphaLisa Assay for High Throughput Detection of Neutralizing
Antibodies to SARS-CoV2
1.US
Provisional Application No. 63/060,635 filed August 3, 2020; US
Provisional Application No. 63/061,112 filed August 4,
2020
Title:
NeuCovix-HT AlphaLisa assay for high throughput detection of
Neutralizing Antibodies to SARS-CoV-2
Assignee: Axim Biotechnologies, Inc. and Arizona State University
(ASU)
Exclusive Licensee: Axim Biotechnologies, Inc. (ASU’s Interest)
The invention refers to an AlphaLisa assay for high throughput (HT)
detection of Neutralizing antibodies to SARS-CoV-2. Included in the
claims is the HT diagnostic test that measures levels of functional
antibodies in plasma or serum that neutralize SARS- CoV-2, the
virus that causes COVID19. Unlike current serology tests for COVID
19 that qualitatively detect antibodies to the virus, the HT test
quantitatively measures functional antibodies that block binding of
the virus to host cell receptors.
C.
Direct Competitive ELISA for the Detection of SARS-Cov2
Neutralizing Antibodies
1.
US Provisional
Application No. 63/152,807 filed February 23, 2021
Title: Direct
Competitive ELISA for the Detection of SARS-CoV2 Neutralizing
Antibodies
Assignee:
Axim Biotechnologies, Inc.
The invention
relates to a method for rapid detection of SARS-CoV2 Neutralizing
Antibodies in one of the following test samples: human or animal
serum, plasma, saliva, tear, sweat, exhaled breath condensate. The
test sample is mixed with an ACE2 label detection reagent. The
sample mixture is incubated, and the quantity of ACE2 label
detection reagent bound to the RBD molecules indicates the quantity
of SARs-Co2 Neutralizing Antibodies.
D.ACE2
Variants
1.US
Provisional Application No. 63/081,811 filed September 22,
2020
Title: Super-ACE2 Variants
Assignee: Axim Biotechnologies, Inc.
The invention
relates to a new variant recombinant protein of ACE2 identified as
ACE2-614-Fc (“Super ACE2”), that is more potent and has a longer
shelf life and is more stable than wild type ACE2. Super ACE2
variant can be used in a variety of ways as follows:
1)Development
of competitive assays for neutralizing antibodies that disrupt RBD-
ACE2 interaction.
2)Direct
assays for virus spike antigens. Super ACE2 acts as a very specific
antibody to capture Spike proteins through the RBD
domain.
9
3)Cardio-vascular,
blood-pressure and related disorders therapeutic and
diagnostic.
4)Anything
related to the virus capture such as (i) Mask treatments, (ii)
Aerosols, (iii) Sprays and drops, (iv) Ointment and dermal
applications, (v) Surfaces
E.
Facemask Having Enhanced Infectious Agent Capturing and Related
Methods
1.US
Provisional Application No. 63/066,104 filed August 14,
2020
Title: Facemask Having Enhanced Infectious Agent Capturing and
Related Methods
Assignee: Axim Biotechnologies, Inc.
The invention
is a facemask with a filtration material and an infectious agent
capture-moiety. Infectious agent capture-moiety refers to any
compound or biomolecule that can bind to any infectious agent. The
filtration material acts as a scaffold to either directly block or
impede the flow-through of the infectious agent or to support the
infectious agent capture moiety. The infectious agent capture-
moiety then functions to directly block or impede the flow-through
of an infectious agent. The infectious agent-capture moiety can
aerosolized and sprayed or applied onto pre-treated filtration
material and can be specific to capture infectious agents, such as
SARS-CoV-2. In such embodiments, the facemasks is capable of
providing enhanced protection for the user and to others from
SARS-Co
III.
CANNABINOIDS
A.Polyfunctional
Cannabinoids
1. US
Provisional Patent Application No 3/014,471 filed April 23,
2020
Title: Polyfunctional Cannabinoids
Assignee: Axim Biotechnologies, Inc.
The invention
relates to cannabinoid constructs that may produce more potent
response than individual cannabinoid molecules with the additional
benefit of being more water- soluble and bioavailable.
IV.TRADEMARK
APPLICATIONS
We
have two (2) trademark applications some of which are registered
trademarks, received Notices of Allowance, or are pending in front
of the United States Patent and Trademark Office: Axim, Axim
Biotech, Immunity Passport.
Market, Customers and Distribution Methods
Our focus is
on the development of innovative pharmaceutical, nutraceutical and
cosmetic products focusing on diseases and conditions for which
currently there are no known efficient therapeutic ingredients or
delivery systems for known active pharmaceutical ingredients. We
plan to be an active player in this field of biosciences with our
extensive R&D and pipeline of innovative products.
Competition
The
biotechnology and pharmaceutical industries are characterized by
rapidly advancing technologies, intense competition and a strong
emphasis on proprietary products.
We face
competition from many different sources, including commercial
pharmaceutical and biotechnology enterprises, academic
institutions, government agencies, and private and public research
institutions. Our commercial opportunities will be reduced or
eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer side effects or are less
expensive than any products that we or our collaborators may
develop based on the use of our technologies.
While we
believe that the potential advantages of our new technologies will
enable us to compete effectively against other providers of
technology for Covid-19 Nab product development and manufacturing,
many of our competitors have significantly greater financial
resources and expertise in research and development, manufacturing,
preclinical testing, clinical trials, regulatory approvals and
marketing approved products than we do. Smaller or early stage
companies may also prove to be significant competitors,
particularly through arrangements with large and established
companies, and this may reduce the value of our technologies. In
addition, these third parties compete with us in recruiting and
retaining qualified scientific and management personnel,
establishing clinical trial sites and patient registration for
clinical trials, as well as in acquiring technologies and
technology licenses complementary to our programs or advantageous
to our business.
10
Source and Availability of Raw Materials
We
currently manufacture the majority of our preclinical and Covid-19
testing materials in-house, and use contract manufacturers for the
manufacture of some of our product candidates. We may or may not
manufacture the products we develop, if any. Our internal
manufacturing and contract manufacturers are subject to extensive
governmental regulation.
Government Regulation
Government
authorities in the U.S. (including federal, state and local
authorities) and in other countries extensively regulate, among
other things, the manufacturing, research and clinical development,
marketing, labeling and packaging, storage, distribution,
post-approval monitoring and reporting, advertising and promotion,
export and import of pharmaceutical products, such as those we are
developing. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, local and
foreign statutes and regulations require the expenditure of
substantial time and financial resources. Moreover, failure to
comply with applicable regulatory requirements may result in, among
other things, warning letters, clinical holds, civil or criminal
penalties, recall or seizure of products, injunction, disbarment,
partial or total suspension of production or withdrawal of the
product from the market. Any agency or judicial enforcement action
could have a material adverse effect on us.
U.S. Government Regulation
In the U.S.,
the FDA regulates drugs under the Federal Food, Drug, and Cosmetic
Act (“FDCA”) and its implementing regulations. Drugs are also
subject to other federal, state and local statutes and regulations.
The process required by the FDA before product candidates may be
marketed in the U.S. generally involves the following:
·completion
of extensive preclinical laboratory tests and preclinical animal
studies, all performed in accordance with the FDA’s Good Laboratory
Practice (“GLP”) regulations. Preclinical testing generally
includes evaluation of our product candidates in the laboratory or
in animals to characterize the product and determine safety and
efficacy;
·submission
to the FDA of an IND, which must become effective before human
clinical trials may begin and must be updated annually;
·performance
of adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product candidate for each proposed
indication;
·submission
to the FDA of a Biologics License Application (“BLA”) or an NDA
after completion of all pivotal clinical trials;
·a
determination by the FDA within 60 days of its receipt of a BLA or
an NDA to file the BLA or NDA for review;
·satisfactory
completion of an FDA pre-approval inspection of the manufacturing
facilities at which the active pharmaceutical ingredient (“API”)
and finished drug product are produced and tested to assess
compliance with cGMP regulations;
·satisfactory
completion of an FDA pre-approval inspection of one or more of the
clinical sites at which the clinical trials were
conducted;
·at
the discretion of the FDA, a public Advisory Committee Meeting
where the data is reviewed by experts who discuss the data and give
their opinion (which the FDA is not obliged to follow) of the
adequacy of the data to support an approval; and
·FDA
review and approval of a BLA or an NDA prior to any commercial
marketing or sale of the drug in the U.S.
We rely, and
expect to continue to rely, on third parties for the production,
distribution, shipping and storage of clinical and commercial
quantities of our product candidates. Future FDA and state
inspections may identify compliance issues at our facilities or at
the facilities of our contract manufacturers that may disrupt
production or distribution or require substantial resources to
correct. In addition, discovery of previously unknown problems with
a product or the failure to comply with applicable requirements may
result in restrictions on a product, manufacturer or holder of an
approved BLA or NDA, including withdrawal or recall of the product
from the market or other voluntary, FDA-initiated or judicial
action that could delay or prohibit further marketing. Newly
discovered or developed safety or effectiveness data may require
changes to a product’s approved labeling, including the addition of
new warnings and contraindications, and also may require the
implementation of other risk management measures. Also, new
government requirements, including those resulting from new
legislation, may be established, or the FDA’s policies may change,
which could delay or prevent regulatory approval of our product
candidates under development.
Europe/Rest of World Government Regulations
In addition
to regulations in the U.S., we will be subject to a variety of
regulations in other jurisdictions governing, among other things,
clinical trials and any commercial sales and distribution of our
products.
11
Whether or
not we obtain FDA approval for a product, we must obtain the
requisite approvals from regulatory authorities in foreign
countries prior to the commencement of clinical trials or marketing
of the product in those countries. Certain countries outside of the
U.S. have a similar process that requires the submission of a
clinical trial application much like the IND prior to the
commencement of human clinical trials. In Europe, for example, a
clinical trial application (“CTA”) must be submitted to each
country’s national health authority and an independent ethics
committee, much like the FDA and IRB, respectively. Once the CTA is
approved in accordance with a country’s requirements, clinical
trial development may proceed.
The
requirements and process governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary from country to
country. In all cases, the clinical trials are conducted in
accordance with GCP and the applicable regulatory requirements and
the ethical principles that have their origin in the Declaration of
Helsinki.
To obtain
regulatory approval of an investigational drug under European Union
regulatory systems, we must submit a marketing authorization
application. The application used to file the NDA in the U.S. is
similar to that required in Europe, with the exception of, among
other things, country-specific document requirements. For other
countries outside of the European Union, such as countries in
Eastern Europe, Latin America or Asia, the requirements governing
the conduct of clinical trials, product licensing, pricing and
reimbursement vary from country to country. In all cases, again,
the clinical trials are conducted in accordance with GCP and the
applicable regulatory requirements and the ethical principles that
have their origin in the Declaration of Helsinki.
If we fail to
comply with applicable foreign regulatory requirements, we may be
subject to, among other things, fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution.
Environmental Matters
No
significant pollution or other types of hazardous emission result
from our current operations, and we do not anticipate that our
operations will be materially affected by federal, state or local
provisions concerning environmental controls. Our costs of
complying with environmental, health and safety requirements have
not been material. Furthermore, compliance with federal, state and
local requirements regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, have not had, nor are they expected to have, any
material effect on the capital expenditures, earnings or
competitive position of the Company. However, we will continue to
monitor emerging developments in this area.
Employees
As of March
31, 2021, we have five full-time employees and three part-time
employees. We also allow and utilize the services of independent
contractors. We will be considering the conversion of some of our
part-time employees to full-time positions.. Management believes
that we have a good relationships with our employees.
Company
Website
We maintain a
corporate Internet website at: www.aximbiotech.com. The
contents of our website are not incorporated in or otherwise to be
regarded as part of this prospectus.
We file
reports with the Securities and Exchange Commission (“SEC”), which
are available on our website free of charge. These reports include
annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, “Section 16” filings on Form 3, Form
4, and Form 5, and other related filings, each of which is provided
on our website as soon as reasonably practical after we
electronically file such materials with or furnish them to the SEC.
In addition, the SEC maintains a website (www.sec.gov) that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC, including the Company.
Item 1A. Risk
Factors
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks described below, as well as
the other information in this prospectus, including our financial
statements and the related notes and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” before
deciding whether to invest in our common stock. The occurrence of
any of the events or developments described below could harm our
business, financial condition, operating results, and growth
prospects. In such an event, the market price of our common stock
could decline, and you may lose all or part of your investment.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business
operations.
12
Risk Factor Summary
Below is a summary of the principal factors that make an
investment in our common stock speculative or risky. This summary
does not address all of the risks that we face. Additional
discussion of the risks summarized in this risk factor summary, and
other risks that we face, can be found below and should be
carefully considered, together with other information included in
our Annual Report on Form 10-K for the year ended December 31, 2020
and our other filings with the Securities and Exchange
Commission.
·We
are a pre-clinical stage company subject to significant risks and
uncertainties, including the risk that we or our partners may never
develop, obtain regulatory approval or market any of our product
candidates or generate product related revenues.
·
•We
have incurred significant losses since inception and anticipate
that we will incur continued losses for the foreseeable
future.
·We
will require substantial additional funding, which may not be
available to us on acceptable terms, if at all. If we fail to raise
the necessary additional capital, we may be unable to complete the
development and commercialization of our product candidates or
continue our development programs.
·We
are heavily dependent on the success of our technologies and
product candidates, and we cannot give any assurance that our
product candidates will receive regulatory approval, which is
necessary before they can be commercialized.
·The
regulatory approval processes of the FDA, and comparable foreign
authorities are lengthy, time consuming and unpredictable, and if
we are ultimately unable to obtain regulatory approval for our
product candidates, our business will be substantially harmed.
·We
may expend our limited resources to pursue a particular product,
product candidate or indication, and may fail to capitalize on
products, product candidates or indications that may be more
profitable or for which there is a greater likelihood of
success.
·Our
product candidates may cause undesirable side effects or have other
properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
·We
rely on third parties to conduct our preclinical and clinical
trials. If these third parties do not successfully perform their
contractual legal and regulatory duties or meet expected deadlines,
we may not be able to obtain regulatory approval for or
commercialize our product candidates and our business could be
substantially harmed.
·We
may not be able to manufacture our products or product candidates
in commercial quantities, which would prevent us from
commercializing our products and product candidates.
·With
respect to SPX-009 and any of our product candidates for which we
may receive regulatory approvals, we will be subject to ongoing
obligations and continued regulatory review, which may result in
significant additional expense. Additionally, our product
candidates, if approved, could be subject to labeling and other
restrictions and market withdrawal and we may be subject to
penalties if we fail to comply with regulatory requirements or
experience unanticipated problems with our products.
·Our
failure to successfully discover, acquire, develop and market
additional product candidates or approved products would impair our
ability to grow.
·Our
commercial success depends upon us attaining significant market
acceptance of our product candidates, if approved for sale, among
physicians, patients, healthcare payors and major operators of
cancer and other clinics.
·Reimbursement
may be limited or unavailable in certain market segments for our
product candidates, which could make it difficult for us to sell
our products profitably.
·Price
controls may be imposed, which may adversely affect our future
profitability.
·Our
collaborations depend upon the efforts of third parties to fund and
manage the development of many of our potential product candidates,
and failure of those third-party collaborators to assist or share
in the costs of product development could materially harm our
business, financial condition and results of operations.
·If we
are unable to retain and recruit qualified scientists and advisors,
or if any of our key executives, key employees or key consultants
discontinues his or her employment or consulting relationship with
us, it may delay our development efforts or otherwise harm our
business.
·We
will need to increase the size of our company and may not
effectively manage our growth.
·Drug
development involves a lengthy and expensive process with an
uncertain outcome, and results of earlier studies and trials may
not be predictive of future trial results.
·There
can be no assurance that the product candidates we are developing
for measuring neutralizing COVID-19 antibodies will be granted an
Emergency Use Authorization by the FDA. If no Emergency Use
Authorization is granted or, once granted, it is terminated, we
will be unable to sell our product candidates in the near future
and will be required to pursue the medical devise approval process,
which is lengthy and expensive.
·Interim
“top-line” and preliminary data from our clinical trials that we
announce or publish from time to time may change as more patient
data become available and are subject to audit and verification
procedures that could result in material changes in the final
data.
13
·We
may become involved in the future, in disputes and other legal or
regulatory proceedings that, if adversely decided or settled, could
materially and adversely affect our business, financial condition
and results of operations.
·We
have acquired, and may in the future acquire, assets, businesses
and technologies as part of our business strategy. If we acquire
companies or technologies in the future, they could prove difficult
to integrate, disrupt our business, dilute stockholder value, and
adversely affect our operating results and the value of our common
stock.
·Any
acquisitions we make could disrupt our business and seriously harm
our financial condition.
·Our
long-term success depends on intellectual property protection; if
our intellectual property rights are invalidated or circumvented,
our business will be adversely affected.
·If
any of our trade secrets, know-how or other proprietary information
is disclosed, the value of our trade secrets, know-how and other
proprietary rights would be significantly impaired and our business
and competitive position would suffer.
·Claims
that we infringe upon the rights of third parties may give rise to
costly and lengthy litigation, and we could be prevented from
selling products, forced to pay damages, and defend against
litigation.
·If we
breach any of the agreements under which we license
commercialization rights to our product candidates from third
parties, we could lose license rights that are important to our
business.
·From
time to time we may need to license patents, intellectual property
and proprietary technologies from third parties, which may be
difficult or expensive to obtain.
·The
market price of our common stock may fluctuate significantly, and
investors in our common stock may lose all or a part of their
investment.
Insiders have
substantial influence over us and could delay or prevent a change
in corporate control.
·We
have never paid cash dividends and do not expect to pay cash
dividends in the foreseeable future. Any return on investment may
be limited to the value of our common stock.
·We
have issued preferred stock with designations, rights and
preferences that are superior to that of our common stock, and we
may issue additional shares of preferred stock in the future.
Risks Related to Our Financial Position and Capital
Requirements
We are a pre-clinical stage company subject to significant
risks and uncertainties, including the risk that we or our partners
may never develop, obtain regulatory approval or market any of our
product candidates or generate product related
revenues.
We are
primarily a pre-clinical stage biotechnology company that began
operating in 2010, but did not commence research and development
activities with respect to our current business segments until in
2019. Pharmaceutical product development is a highly speculative
undertaking and involves a substantial degree of risk. There is no
assurance that any of our product candidates in development will be
suitable for diagnostic or therapeutic use, or that we will be able
to identify and isolate therapeutic product candidates, or develop,
market and commercialize these candidates. We do not expect any of
our oncology related product candidates in development, including
but not limited to SXP-009, to be commercially available for a few
years, if ever. Additionally, our COVID-19 related product
candidates, including our lateral flow diagnostic test for
SARS-CoV-2 neutralizing antibodies, are subject to uncertainties
relating to product development, regulatory approval and
commercialization, and further risks based on the constantly
evolving situation affecting the United States and the
international community. Even if we are able to commercialize our
product candidates, there is no assurance that these candidates
would generate revenues or that any revenues generated would be
sufficient for us to become profitable or thereafter maintain
profitability.
We do not have any products that are approved for commercial
sale, and do not expect to generate any revenues from product sales
from most of our product candidates in the foreseeable future, if
ever.
In May 2020,
we divested substantially all of our cannabis-related business,
which was our sole source of revenues during recent years. We have
not generated any revenue from product sales related to our
continuing operations to date, and, with the potential exception of
our COVID-19 related product candidates, do not expect to generate
any such revenues for at least the next several years, if ever.
Although we hope to obtain regulatory approval for our COVID-19
rapid point-of-care diagnostic test in the near term, which would
allow us to commence the manufacturing and sale of our tests, no
assurances can be provided that we will obtain regulatory approval
in the near term, if ever. To obtain revenues from sales of our
product candidates, we must succeed, either alone or with third
parties, in developing, obtaining regulatory approval for, and
manufacturing and marketing products with commercial potential. We
may never succeed in these activities, and we may not generate
sufficient revenues to continue our business operations or achieve
profitability.
14
We have incurred significant losses since inception and
anticipate that we will incur continued losses for the foreseeable
future.
As of
December 31, 2020 and 2019, we had an accumulated deficit related
to our continuing operations of $41,849,922 and $35,440,042,
respectively. We continue to incur significant research and
development and other expenses related to our ongoing operations.
We have incurred operating losses since our inception, expect to
continue to incur significant operating losses for the foreseeable
future, and we expect these losses to increase as we: (i) advance
SPX-009 and our other product candidates, including our COVID-19
related product candidates, into further clinical trials and pursue
other development, acquire, develop and manufacture clinical trial
materials and increase other regulatory operating activities, (ii)
conduct further studies for our COVID-19 related product
candidates, to advance to clinical trials and seek regulatory
approval; (iii) incur incremental expenses associated with our
efforts to further advance SPX-009 into preclinical development
activities, (iv) continue to identify and advance other preclinical
product candidates, (v) incur higher salary, lab supply and
infrastructure costs incurred in connection with supporting all of
our programs, (vi) expand our corporate, development and
manufacturing infrastructure, and (viii) support our subsidiaries’,
including Sapphire’s, pre-clinical development and
commercialization efforts. As such, we are subject to all risks
incidental to the development of new biopharmaceutical products and
related companion diagnostics, and we may encounter unforeseen
expenses, difficulties, complications, delays and other unknown
factors that may adversely affect our business. Our prior losses,
combined with expected future losses, have had and will continue to
have an adverse effect on our stockholders’ equity and working
capital.
We will require substantial additional funding, which may not
be available to us on acceptable terms, if at all. If we fail to
raise the necessary additional capital, we may be unable to
complete the development and commercialization of our product
candidates or continue our development programs.
Our
operations have consumed substantial amounts of cash since
inception. We expect to significantly increase our spending to
advance the preclinical and clinical development of our product
candidates and launch and commercialize any product candidates for
which we may receive regulatory approval. We will require
additional capital for the further development and
commercialization of our product candidates, as well as to fund our
other operating expenses and capital expenditures.
As a result
of our recurring losses from operations, recurring negative cash
flows from operations and substantial cumulative losses, there is
uncertainty regarding our ability to maintain liquidity sufficient
to operate our business effectively, which raises substantial doubt
about our ability to continue as a going concern. If we are
unsuccessful in our efforts to raise additional capital, we may be
required to significantly reduce or cease operations. The report of
our independent registered public accounting firm on our audited
financial statements for the years ended December 31, 2020 and 2019
included a “going concern” explanatory paragraph indicating that
our recurring losses from operations, negative working capital,
recurring negative cash flows from operations and substantial
cumulative net losses raise substantial doubt about our ability to
continue as a going concern.
We cannot be
certain that additional funding will be available on acceptable
terms, if at all. If we are unable to raise additional capital in
sufficient amounts or on terms acceptable to us we may have to
significantly delay, scale back or discontinue the development or
commercialization of one or more of our product candidates. We may
also seek collaborators for one or more of our current or future
product candidates at an earlier stage than otherwise would be
desirable or on terms that are less favorable than might otherwise
be available. Any of these events could significantly harm our
business, financial condition and prospects.
Our future
capital requirements will depend on many factors, including:
·the
progress of the development of SPX-009 and our COVID-19 product
candidates;
·the
number of product candidates we pursue;
·the
time and costs involved in obtaining regulatory
approvals;
·the
costs involved in filing and prosecuting patent applications and
enforcing or defending patent claims;
·our
plans to establish sales, marketing and/or manufacturing
capabilities;
·the
effect of competing technological and market
developments;
·the
terms and timing of any collaborative, licensing and other
arrangements that we may establish;
·general
market conditions for offerings from biopharmaceutical
companies;
·our
ability to establish, enforce and maintain selected strategic
alliances and activities required for product
commercialization;
·our
obligations under our debt arrangements;
·the
time and costs involved in defending and enforcing our rights in
various litigation matters;
·the
effect of the COVID-19 pandemic; and
·our
revenues, if any, from successful development and commercialization
of our product candidates.
15
In order to
carry out our business plan and implement our strategy, we
anticipate that we will need to obtain additional financing from
time to time and may choose to raise additional funds through
strategic collaborations, licensing arrangements, joint ventures,
public or private equity or debt financing, asset sales, government
grants or other arrangements. We cannot be sure that any additional
funding, if needed, will be available on terms favorable to us, or
at all. Furthermore, any additional equity or equity-related
financing may be dilutive to our stockholders, and debt or equity
financing, if available, may subject us to restrictive covenants
and significant interest costs. If we obtain funding through a
strategic collaboration or licensing arrangement, we may be
required to relinquish our rights to certain of our product
candidates or marketing territories.
Our inability
to raise capital when needed would harm our business, financial
condition and results of operations, and could cause our stock
price to decline or require that we wind down our operations
altogether.
Risks Related to Our Business and Industry
Our business may be subject to risks arising from pandemic,
epidemic, or an outbreak of diseases, such as the outbreak of
COVID-19.
If a
pandemic, epidemic or outbreak of an infectious disease occurs in
the United States or elsewhere, our business may be adversely
affected.
COVID-19 has
spread worldwide and has resulted in government authorities
implementing numerous measures to try to contain it, such as travel
bans and restrictions, quarantines, shelter-in-place orders and
shutdowns. These measures have impacted, and may further impact,
our workforce and operations, the operations of our partners, and
those of our suppliers. Our critical business operations, including
our headquarters, are located in regions which have been impacted
by COVID-19. Our suppliers and partners have also been affected and
may continue to be affected by COVID-19 related restrictions and
closures.
The spread of
COVID-19 has caused us to modify our business practices as we
comply with state mandated requirements for safety in the workplace
to ensure the health, safety and well-being of our employees. These
measures include personal protective equipment, social distancing,
cleanliness of the facilities and daily monitoring of the health of
employees in our facilities, as well as modifying our policies on
employee travel and the cancellation of physical participation in
meetings, events and conferences. We may take further actions as
required by government authorities or that we determine are in the
best interests of our employees, partners and suppliers. However,
we have not developed a specific and comprehensive contingency plan
designed to address the challenges and risks presented by the
COVID-19 pandemic and, even if and when we do develop such a plan,
there can be no assurance that such plan will be effective in
mitigating the potential adverse effects on our business, financial
condition and results of operations.
In addition,
while the extent and duration of the COVID-19 pandemic on the
global economy and our business in particular is difficult to
assess or predict, the pandemic has resulted in, and may continue
to result in, significant disruption of global financial markets,
which may reduce our ability to access capital, which could
negatively affect our liquidity. A recession or financial market
correction resulting from the lack of containment and spread of
COVID-19 could impact overall technology spending, adversely
affecting demand for our products, our business and the value of
our common stock.
The ultimate
impact of the COVID-19 pandemic or a similar health epidemic is
highly uncertain and subject to change. The extent of the impact of
the COVID-19 pandemic on our operational and financial performance,
including our ability to execute our business strategies and
initiatives in the expected time frame, will depend on future
developments, including, but not limited to, the duration and
continued spread of the pandemic, its severity, the actions to
contain the disease or treat its impact, further related
restrictions on travel, all of which are uncertain and cannot be
predicted. An extended period of economic disruption as a result of
the COVID-19 pandemic could have a material negative impact on our
business, results of operations, access to sources of liquidity and
financial condition, though the full extent and duration is
uncertain.
Management is
actively monitoring the global situation on our financial
condition, liquidity, operations, suppliers, industry and
workforce. Given the daily evolution of the COVID-19 outbreak and
the global responses to curb its spread, we are not able to
estimate the effects of the COVID-19 outbreak on our results of
operations, financial condition or liquidity for fiscal year
2021.
16
We are heavily dependent on the success of our technologies
and product candidates, and we cannot give any assurance that our
product candidates will receive regulatory approval, which is
necessary before they can be commercialized.
To date, we
have invested a significant portion of our efforts and financial
resources in the acquisition and development of our product
candidates. As a pre-clinical stage biotechnology company that has
recently made significant changes to its operations, we have
limited experience and have not yet demonstrated an ability to
successfully overcome many of the risks and uncertainties
frequently encountered by companies in new and rapidly evolving
fields, particularly in the biopharmaceutical area. Our future
success is substantially dependent on our ability to successfully
develop, obtain regulatory approval for, and then successfully
commercialize our product candidates. Our product candidates are
currently in preclinical development or in clinical trials. Our
business depends entirely on the successful development and
commercialization of our product candidates, which may never occur.
We currently do not generate revenues from sales of any products,
and we may not be able to develop or commercialize our product
candidates.
The
successful development, and any commercialization, of our
technologies and any product candidates would require us to
successfully perform a variety of functions, including:
·seeking
and obtaining intellectual property and/or proprietary rights to
our technology and/or the technology of others;
·identifying,
developing, manufacturing and commercializing product candidates;
·entering
into successful licensing and other arrangements with product
development partners;
·participating
in regulatory approval processes;
·formulating
and manufacturing products; and
·conducting
sales and marketing activities.
Each of our
product candidates will require additional preclinical or clinical
development; management of preclinical, clinical and manufacturing
activities; regulatory approval in multiple jurisdictions;
obtaining manufacturing supply; building of a commercial
organization; and significant marketing efforts before we generate
any revenues from product sales. We are not permitted to market or
promote any of our product candidates before we receive regulatory
approval from the U.S. Food and Drug Administration (the “FDA”), or
comparable foreign regulatory authorities, and we may never receive
such regulatory approval for any of our product candidates. In
addition, certain of our product development programs contemplate
the development of companion diagnostics. Companion diagnostics are
subject to regulation as medical devices and must themselves be
approved for marketing by the FDA, or certain other foreign
regulatory agencies before we may commercialize our product
candidates.
There can be no assurance that the product candidates we and
our partners are developing for the detection of COVID-19
neutralizing antibodies will be granted an Emergency Use
Authorization by the FDA. If no Emergency Use Authorization is
granted or, once granted, it is terminated, we will be unable to
sell our product candidates in the near future and will be required
to pursue the drug approval process, which is lengthy and
expensive.
On September
15, 2020, we announced the initial submission of an Emergency Use
Authorization (“EUA”) to the FDA for our lateral flow diagnostic
test kit for the detection of neutralizing antibodies in
sera/plasma of patients who had previously had the SARS-CoV-2
virus. On December 15, 2020, we announced the submission of an
amendment of the original EUA with additional testing data for our
rapid diagnostic test.
On March 24,
2021, our manufacturing partner Empowered Diagnostics announced the
initial submission of an EUA to the FDA for Immunopass, our rapid
point-of-care lateral flow diagnostic test kit for the detection of
neutralizing antibodies in whole blood of patients.
The EUA’s, if
approved, would allow us to market and sell our tests without the
need to pursue the lengthy and expensive drug approval process. The
FDA may issue an EUA during a public health emergency if it
determines that the potential benefits of a product outweigh the
potential risks and if other regulatory criteria are met. If an EUA
is granted for our tests, we will rely on the FDA policies and
guidance in connection with the marketing and sale of the tests. If
these policies and guidance change unexpectedly and/or materially
or if we misinterpret them, potential sales of the tests could be
adversely impacted. In addition, the FDA may revoke an EUA where it
is determined that the underlying health emergency no longer exists
or warrants such authorization. If granted, we cannot predict how
long an EUA for our tests will remain in place. If an EUA for our
tests is granted but subsequently terminated, such termination,
could adversely impact our business, financial condition and
results of operations.
We may also
seek additional EUAs from the FDA for our other product candidates
for the detection of antibodies and/or treatment of COVID-19 and
the SARS-CoV-2 virus. If granted, the additional EUAs would allow
us to market and sell additional product candidates without the
need to pursue the lengthy and expensive drug approval process.
There is no guarantee that we will be able to obtain any additional
EUAs. Failure to obtain additional EUAs or the termination of such
EUAs, if obtained, could adversely impact our business, financial
condition and results of operations.
17
Due to
COVID-19, the FDA is over-run with EUA applications from thousands
of biotech and pharmaceutical companies, which could significantly
impact the ability of the FDA to timely review and process our
regulatory submissions, which could have a material adverse effect
on our business.
The regulatory approval processes of the FDA and comparable
foreign authorities are lengthy, time consuming and inherently
unpredictable, and if we are ultimately unable to obtain regulatory
approval for our product candidates, our business will be
substantially harmed.
The time
required to obtain approval from the FDA and comparable foreign
authorities is unpredictable, but typically takes many years
following the commencement of clinical trials and depends upon
numerous factors, including the substantial discretion of the
regulatory authorities. In addition, approval policies regulations,
or the type and amount of clinical data necessary to gain approval,
may change during the course of a product candidate’s clinical
development and may vary among jurisdictions. We have not obtained
regulatory approval for any of our product candidates, including
both our cancer and COVID-19 related product candidates, and it is
possible that none of our existing product candidates or any
product candidates we may seek to develop in the future will ever
obtain regulatory approval.
We may fail
to receive regulatory approval for our product candidates for many
reasons, including the following:
·the
FDA or comparable foreign regulatory authorities may disagree with
the design or implementation of our clinical trials;
·we
may be unable to demonstrate to the satisfaction of the FDA or
comparable foreign regulatory authorities that a product candidate
is safe and effective for its proposed indication;
·the
results of clinical trials may not meet the level of statistical
significance required for approval by the FDA or comparable foreign
regulatory authorities;
·the
FDA or comparable foreign regulatory authorities may disagree with
our interpretation of data from preclinical studies or clinical
trials;
·the
data collected from clinical trials of our product candidates may
not be sufficient to support the submission of a new drug
application (“NDA”), a marketing authorization application (“MAA”)
or other submission or to obtain regulatory approval in the U.S.,
or elsewhere;
·the
data obtained from studies in one jurisdiction, such as the United
States, may not be accepted by regulatory authorities in other
jurisdictions, and certain jurisdictions may require data from
studies conducted in their country in order to obtain regulatory
approval;
·the
FDA or comparable foreign regulatory authorities may fail to
approve the manufacturing processes or facilities of third-party
manufacturers with which we contract for clinical and commercial
supplies;
·the
FDA or comparable foreign regulatory authorities may fail to
approve the companion diagnostics we contemplate developing with
partners; and
·the
approval policies or regulations of the FDA or comparable foreign
regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval.
This lengthy
approval process as well as the unpredictability of future clinical
trial results may result in our failing to obtain regulatory
approval to market our product candidates, which would
significantly harm our business, results of operations and
prospects.
Our product
candidates may not receive regulatory approval even if our clinical
trials are successful. If we do not receive regulatory approvals
for our product candidates, we may not be able to continue our
operations. Even if we successfully obtain regulatory approvals to
market one or more of our product candidates, our revenues will be
dependent, in some instances, upon our collaborators’ ability to
obtain regulatory approval of the companion diagnostics to be used
with our product candidates, as well as the size of the markets in
the territories for which we gain regulatory approval and have
commercial rights. If the markets for patients that we are
targeting for our product candidates are not as significant as we
estimate, we may not generate significant revenues from sales of
such products, if approved.
18
With respect to SPX-009 and any of our product candidates for
which we may receive regulatory approvals, we will be subject to
ongoing obligations and continued regulatory review, which may
result in significant additional expense. Additionally, our product
candidates, if approved, could be subject to labeling and other
restrictions and market withdrawal and we may be subject to
penalties if we fail to comply with regulatory requirements or
experience unanticipated problems with our products.
Any FDA
approval for SPX-009 and any other regulatory approvals that we may
receive for our product candidates may be subject to limitations on
the approved indicated uses for which the product may be marketed
or to the conditions of approval, or contain requirements for
potentially costly post-marketing testing, including Phase I, II,
II and IV clinical trials, and surveillance to monitor the safety
and efficacy of the product candidate. In addition, if the FDA or a
comparable foreign regulatory authority approves any of our product
candidates, the manufacturing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising,
promotion and recordkeeping for the product will be subject to
extensive and ongoing regulatory requirements. These requirements
include submissions of safety and other post-marketing information
and reports, registration, as well as continued compliance with
cGMPs and cGCPs for any clinical trials that we conduct
post-approval. The future discovery of previously unknown problems
with a product, including adverse events of unanticipated severity
or frequency, or with our third-party manufacturers or
manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
·restrictions
on the marketing or manufacturing of the product, withdrawal of the
product from the market, or voluntary or mandatory product
recalls;
·fines,
warning letters or holds on clinical trials;
·refusal
by the FDA to approve pending applications or supplements to
approved applications filed by us, or suspension or revocation of
product license approvals;
·product
seizure or detention, or refusal to permit the import or export of
products; and
·injunctions
or the imposition of civil or criminal penalties.
The FDA’s
policies may change, and additional government regulations may be
enacted that could prevent, limit or delay regulatory approval of
our product candidates. If we are slow or unable to adapt to
changes in existing requirements or the adoption of new
requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we
may have obtained, which would adversely affect our business,
prospects and ability to achieve or sustain profitability.
We will need to obtain FDA approval of any proposed product
brand names, and any failure or delay associated with such approval
may adversely impact our business.
A
pharmaceutical product cannot be marketed in the U.S. or other
countries until we have completed rigorous and extensive regulatory
review processes, including approval of a brand name. Any brand
names we intend to use for our product candidates will require
approval from the FDA regardless of whether we have secured a
formal trademark registration from the U.S. Patent and Trademark
Office (the “PTO”). The FDA typically conducts a review of proposed
product brand names, including an evaluation of potential for
confusion with other product names. The FDA may also object to a
product brand name if it believes the name inappropriately implies
medical claims. If the FDA objects to any of our proposed product
brand names, we may be required to adopt an alternative brand name
for our product candidates. If we adopt an alternative brand name,
we would lose the benefit of our existing trademark applications
for such product candidate and may be required to expend
significant additional resources in an effort to identify a
suitable product brand name that would qualify under applicable
trademark laws, not infringe the existing rights of third parties
and be acceptable to the FDA. We may be unable to build a
successful brand identity for a new trademark in a timely manner or
at all, which would limit our ability to commercialize our product
candidates.
Our approach to the discovery and development of product
candidates that target neutralizing antibodies (“Nabs”) is
unproven, and we do not know whether we will be able to develop any
products of commercial value.
Diagnostic
products targeting Nabs are emerging technologies and,
consequently, it is conceivable that such technologies may
ultimately fail to identify commercially viable products to treat
human patients. Due to the unproven nature of Nabs, significant
further research and development activities will be required. We
may incur substantial costs in connection with such research and
development activities and there is no guarantee that these
activities will lead to the identification of commercially viable
products.
19
We may expend our limited resources to pursue a particular
product, product candidate or indication and fail to capitalize on
products, product candidates or indications that may be more
profitable or for which there is a greater likelihood of
success.
We are
currently advancing product candidates for both cancer and
COVID-19. Simultaneously advancing more than one product candidates
creates a significant strain on our limited human and financial
resources. As a result, we may not be able to provide sufficient
resources to any single product candidate to permit the successful
development and commercialization of such product candidate,
causing material harm to our business. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Our spending on
current and future research and development programs and product
candidates for specific indications may not yield any commercially
viable products.
If, due to
our limited resources and access to capital, we prioritize
development of certain product candidates that ultimately prove to
be unsuccessful, we may forego or delay pursuit of opportunities
with other product candidates or for other indications that later
prove to have greater commercial potential or a greater likelihood
of success. Our resource allocation decisions may cause us to fail
to capitalize on viable commercial products or profitable market
opportunities.
Our product candidates may cause undesirable side effects or
have other properties that could delay or prevent their regulatory
approval or result in significant negative consequences following
marketing approval, if any.
Undesirable
side effects caused by our product candidates could cause us or
regulatory authorities to interrupt, delay or halt clinical trials
and could result in a more restrictive label or the delay or denial
of regulatory approval by the FDA or other comparable foreign
authorities. Results of our trials could reveal a high and
unacceptable severity and prevalence of these or other side
effects. In such an event, our trials could be suspended or
terminated, and the FDA or comparable foreign regulatory
authorities could order us to cease further development of or deny
approval of our product candidates for any or all targeted
indications. The drug-related side effects could affect patient
recruitment or the ability of enrolled patients to complete the
trial or result in potential product liability claims. Any of these
occurrences may harm our business, financial condition and
prospects significantly.
Additionally,
if we receive marketing approval for one or more of our product
candidates, and we or others later identify undesirable side
effects caused by such products, a number of potentially
significant negative consequences could result, including:
·regulatory
authorities may withdraw approvals of such products;
·regulatory
authorities may require additional warnings on the label;
·we
may be required to create a medication guide outlining the risks of
such side effects for distribution to patients;
·we
could be sued and held liable for harm caused to patients;
and
·our
reputation may suffer.
Any of these
events could prevent us from achieving or maintaining market
acceptance of the particular product candidate or for particular
indications of a product candidate, if approved, and could
significantly harm our business, results of operations and
prospects.
We will rely on third parties to conduct our preclinical and
clinical trials. If these third parties do not successfully perform
their contractual legal and regulatory duties or meet expected
deadlines, we may not be able to obtain regulatory approval for or
commercialize our product candidates and our business could be
substantially harmed.
We have
relied upon and plan to continue to rely upon third-party contract
research organizations (“CROs”) to monitor and manage data for our
ongoing preclinical and clinical programs. We rely on these parties
for execution of our preclinical and clinical trials, and control
only certain aspects of their activities. Nevertheless, we are
responsible for ensuring that each of our studies is conducted in
accordance with the applicable protocol, legal, regulatory and
scientific standards, and our reliance on the CROs does not relieve
us of our regulatory responsibilities. We and our CROs are required
to comply with current good clinical practices (“cGCP”), which are
regulations and guidelines enforced by the FDA, the Competent
Authorities of the Member States of the European Economic Area, and
comparable foreign regulatory authorities for all of our product
candidates in clinical development.
Regulatory
authorities enforce these cGCPs through periodic inspections of
trial sponsors, principal investigators and trial sites. If we or
any of our CROs fail to comply with applicable cGCPs, the clinical
data generated in our clinical trials may be deemed unreliable and
the FDA or comparable foreign regulatory authorities may require us
to perform additional clinical trials before approving our
marketing applications or may not approve our marketing
applications. We cannot assure you that upon inspection by a given
regulatory authority, such regulatory authority will determine that
any of our clinical trials comply with cGCP regulations. In
addition, our clinical trials must be conducted with product
produced under current good manufacturing practices (“cGMP”)
regulations. Our failure to comply with these regulations may
require us to repeat clinical trials, which would delay the
regulatory approval process.
20
If any of our
relationships with these third-party CROs terminate, we may not be
able to enter into arrangements with alternative CROs or to do so
on commercially reasonable terms. In addition, our CROs are not our
employees, and except for remedies available to us under our
agreements with such CROs, we cannot control whether or not they
devote sufficient time and resources to our on-going clinical,
nonclinical and preclinical programs. If CROs do not successfully
carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or
accuracy of the clinical data they obtain is compromised due to the
failure to adhere to our clinical protocols, regulatory
requirements or for other reasons, our clinical trials may be
extended, delayed or terminated and we may not be able to obtain
regulatory approval for or successfully commercialize our product
candidates. As a result, our results of operations and the
commercial prospects for our product candidates would be harmed,
our costs could increase and our ability to generate revenues could
be delayed.
Switching or
adding additional CROs involves additional cost and requires
management time and focus. In addition, there is a natural
transition period when a new CRO commences work. As a result,
delays occur, which can materially impact our ability to meet our
desired clinical development timelines. Though we carefully manage
our relationships with our CROs, there can be no assurance that we
will not encounter similar challenges or delays in the future or
that these delays or challenges will not have a material adverse
impact on our business, financial condition and prospects.
If we fail to comply with manufacturing regulations, our
financial results and financial condition will be adversely
affected.
We currently
manufacture some of our preclinical materials in-house. In
addition, we may enter into collaboration and license agreements
with certain collaborators, pursuant to which we may, among other
things, agree to carry out manufacturing of our collaborators’
material and product candidates. However, we only recently began
manufacturing such materials and do not have significant prior
experience manufacturing preclinical or product candidates. Before
we can begin commercial manufacture of our or any potential
collaborators’ materials or product candidates, regulatory
authorities must approve marketing applications that identify
manufacturing facilities operated by us or our contract
manufacturers that have passed regulatory inspection and
manufacturing processes that are acceptable to the regulatory
authorities.
Due to the
complexity of the processes used to manufacture our product
candidates and our potential collaborators’ product candidates, we
may be unable to continue to pass or initially pass federal or
international regulatory inspections in a cost-effective manner.
For the same reason, any potential third-party manufacturer of our
product candidates may be unable to comply with cGMP regulations in
a cost-effective manner and may be unable to initially or continue
to pass a federal or international regulatory inspection.
If we, or
third-party manufacturers with whom we contract, are unable to
comply with manufacturing regulations, we may be subject to delay
of approval of our product candidates, warning or untitled letters,
fines, unanticipated compliance expenses, recall or seizure of our
products, total or partial suspension of production and/or
enforcement actions, including injunctions, and criminal or civil
prosecution. These possible sanctions would adversely affect our
financial results and financial condition.
The
manufacture of pharmaceutical products requires significant
expertise and capital investment, including the development of
advanced manufacturing techniques and process controls.
Manufacturers of pharmaceutical products often encounter
difficulties in production, which include difficulties with
production costs and yields, quality control and assurance and
shortages of qualified personnel, as well as compliance with
strictly enforced federal, state and foreign regulations. The
third-party manufacturers we may contract with may not perform as
agreed or may terminate their agreements with us. Any of these
factors could cause us to delay or suspend any future clinical
trials, regulatory submissions, required approvals or
commercialization of one or more of our drug candidates, entail
higher costs and result in our being unable to effectively
commercialize products.
Material necessary to manufacture product candidates may not
be available on commercially reasonable terms, or at all, which may
delay the development and commercialization of product
candidates.
There are a
limited number of suppliers for raw materials that we use to
manufacture our products and product candidates and there may be a
need to assess alternate suppliers to prevent a possible disruption
of the manufacture of the materials necessary to produce our
product candidates for clinical trials, and if approved, ultimately
for commercial sale. We do not have any control over the process or
timing of the acquisition of these raw materials by us. We
typically do not have any agreements for the commercial production
of these raw materials. Any significant delay in the supply of a
product candidate, or the raw material components thereof, for an
ongoing clinical trial due to the need to obtain or replace a
third-party manufacturer could considerably delay completion of our
clinical trials, product testing and potential regulatory approval
of our product candidates. If we 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, which
would impair our ability to generate revenues from the sale of our
product candidates.
21
We may not be able to manufacture our products or product
candidates in commercial quantities, which would prevent us from
commercializing our products and product candidates.
We are
largely dependent on our third-party manufacturers to conduct
process development and scale-up work necessary to support greater
clinical development and commercialization requirements for our
products and product candidates. Carrying out these activities in a
timely manner, and on commercially reasonable terms, is critical to
the successful development and commercialization of our products
and product candidates. We expect our third-party manufacturers are
capable of providing sufficient quantities of our products and
product candidates to meet anticipated clinical and full-scale
commercial demands; however, if third parties with whom we
currently work are unable to meet our supply requirements, we will
need to secure alternate suppliers or face potential delays or
shortages. While we believe that there are other contract
manufacturers with the technical capabilities to manufacture our
products and product candidates, we cannot be certain that
identifying and establishing relationships with such sources would
not result in significant delay or material additional costs.
If we are unable to successfully commercialize our products,
our business, financial condition and results of operations will be
materially and adversely affected.
We
currently have no sales and marketing organization. We currently
anticipate that, if our product candidates receive regulatory
approval, we may rely on third parties to sell our product
candidates in the U.S. and/or in international markets. If we enter
into arrangements with third parties to sell and market our
products, we would likely receive less revenue than if we sold our
products directly. In addition, although we would intend to use due
diligence in monitoring the activities of our third-party sales and
marketing partners, we may have little or no control over the sales
efforts of those third parties. In the event we are unable to
develop our own sales force or collaborate with third parties to
sell our product candidates, we may not be able to successfully
commercialize our product candidates, which would negatively impact
our ability to generate revenue. In the event that we elect to
market our own products, we will also have to compete with other
pharmaceutical and biotechnology companies to recruit, hire and
train sales and marketing personnel.
Our failure to successfully discover, acquire, develop and
market additional product candidates or approved products would
impair our ability to grow.
As part of
our growth strategy, we intend to develop and market additional
products and product candidates. We are pursuing various
therapeutic opportunities through our product pipeline. We may
spend several years completing our development of any particular
current or future internal product candidate, and failure can occur
at any stage. The product candidates to which we allocate our
resources may not end up being successful. In addition, because our
internal research capabilities are limited, we may be dependent
upon pharmaceutical and biotechnology companies, academic
scientists and other researchers to sell or license products or
technology to us. The success of this strategy depends partly upon
our ability to identify, select, discover and acquire promising
pharmaceutical product candidates and products. Failure of this
strategy would impair our ability to grow.
The process
of proposing, negotiating and implementing a license or acquisition
of a product candidate or approved product is lengthy and complex.
Other companies, including some with substantially greater
financial, marketing and sales resources, may compete with us for
the license or acquisition of product candidates and approved
products. We have limited resources to identify and execute the
acquisition or in-licensing of third-party products, businesses and
technologies and integrate them into our current infrastructure.
Moreover, we may devote resources to potential acquisitions or
in-licensing opportunities that are never completed, or we may fail
to realize the anticipated benefits of such efforts. We may not be
able to acquire the rights to additional product candidates on
terms that we find acceptable, or at all.
In addition,
future acquisitions may entail numerous operational and financial
risks, including:
·disruption
of our business and diversion of our management’s time and
attention to develop acquired products or technologies;
·incurrence
of substantial debt, dilutive issuances of securities or depletion
of cash to pay for acquisitions;
·higher
than expected acquisition and integration costs;
·difficulty
in combining the operations and personnel of any acquired
businesses with our operations and personnel;
·increased
amortization expenses;
·impairment
of relationships with key suppliers or customers of any acquired
businesses due to changes in management and ownership;
·impairment
of our ability to obtain intellectual property rights or rights to
commercialize additional product candidates, or increased cost to
obtain such rights;
·inability
to motivate key employees of any acquired businesses; and
·assumption
of known and unknown liabilities.
22
Further, any
product candidate that we acquire may require additional
development efforts prior to commercial sale, including extensive
clinical testing and approval by the FDA and applicable foreign
regulatory authorities. All product candidates are prone to risks
of failure typical of pharmaceutical product development, including
the possibility that a product candidate will not be shown to be
sufficiently safe and effective for approval by regulatory
authorities.
Our commercial success depends upon us attaining significant
market acceptance of our product candidates, if approved for sale,
among physicians, patients, healthcare payors and major operators
of cancer and other clinics.
Even if we
obtain regulatory approval for our product candidates, the product
may not gain market acceptance among physicians, health care
payors, patients and the medical community, which are critical to
commercial success. Market acceptance of any product candidate for
which we receive approval depends on a number of factors,
including:
·the
efficacy and safety as demonstrated in clinical trials;
·the
timing of market introduction of such product candidate as well as
competitive products;
·the
clinical indications for which the product candidate is
approved;
·acceptance
by physicians, major operators of cancer clinics and patients of
the product candidate as a safe and effective treatment;
·the
safety of such product candidate seen in a broader patient group,
including its use outside the approved indications;
·the
availability, cost and potential advantages of alternative
treatments, including less expensive generic drugs;
·the
availability of adequate reimbursement and pricing by third-party
payors and government authorities;
·the
product labeling or product insert required by the FDA or
regulatory authority in other countries;
·the
approval, availability, market acceptance and reimbursement for a
companion diagnostic, if any;
·the
prevalence and severity of adverse side effects; and
·the
effectiveness of our sales and marketing efforts.
If any
product candidate that we develop does not provide a treatment
regimen that is as beneficial as, or is perceived as being as
beneficial as, the current standard of care or otherwise does not
provide patient benefit, that product candidate, if approved for
commercial sale by the FDA or other regulatory authorities, likely
will not achieve market acceptance. Our ability to effectively
promote and sell any approved products will also depend on pricing
and cost-effectiveness, including our ability to produce a product
at a competitive price and our ability to obtain sufficient
third-party coverage or reimbursement. If any product candidate is
approved but does not achieve an adequate level of acceptance by
physicians, patients and third-party payors, our ability to
generate revenues from that product would be substantially reduced.
In addition, our efforts to educate the medical community and
third-party payors on the benefits of our product candidates may
require significant resources, may be constrained by FDA rules and
policies on product promotion, and may never be successful.
If we cannot compete successfully against other biotechnology
and pharmaceutical companies, we may not be successful in
developing and commercializing our technology and our business will
suffer.
The
biotechnology and pharmaceutical industries are characterized by
intense competition and rapid technological advances, both in the
U.S. and internationally. In addition, the competition in the
COVID-19 diagnostics and oncology markets, and other relevant
markets, is intense. Even if we are able to develop our product
candidates, each will compete with a number of existing and future
product candidates developed, manufactured and marketed by others.
Specifically, we will compete against fully integrated
pharmaceutical companies and smaller companies that are
collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private
research organizations. Many of these competitors have validated
technologies with products already FDA-approved or in various
stages of development. In addition, many of these competitors,
either alone or together with their collaborative partners, operate
larger research and development programs and have substantially
greater financial resources than we do, as well as significantly
greater experience in:
·developing
product candidates and technologies generally;
·undertaking
preclinical testing and clinical trials;
·obtaining
FDA and other regulatory approvals of product candidates;
·formulating
and manufacturing product candidates; and
·launching,
marketing and selling product candidates.
23
Many of our
competitors have substantially greater financial, technical and
other resources, such as larger research and development staff and
experienced marketing and manufacturing organizations. Additional
mergers and acquisitions in the biotechnology and pharmaceutical
industries may result in even more resources being concentrated in
our competitors. As a result, these companies may obtain regulatory
approval more rapidly than we are able and may be more effective in
selling and marketing their products as well. Smaller or
early-stage pharmaceutical companies may also prove to be
significant competitors, particularly through collaborative
arrangements with large, established companies. Competition may
increase further as a result of advances in the commercial
applicability of technologies and greater availability of capital
for investment in these industries. Our competitors may succeed in
developing, acquiring or licensing on an exclusive basis drug
products that are more effective or less costly than any drug
candidate that we are currently developing or that we may develop.
If approved, our product candidates will face competition from
commercially available drugs as well as drugs that are in the
development pipelines of our competitors and later enter the
market.
Established
pharmaceutical companies may invest heavily to accelerate discovery
and development of novel compounds or to in-license novel compounds
that could make our product candidates less competitive. In
addition, any new product that competes with an approved product
must demonstrate compelling advantages in efficacy, convenience,
tolerability and safety in order to overcome price competition and
to be commercially successful. Accordingly, our competitors may
succeed in obtaining patent protection, receiving FDA or other
regulatory approval or discovering, developing and commercializing
medicines before we do, which would have a material adverse impact
on our business. If our technologies fail to compete effectively
against third party technologies, our business will be adversely
impacted.
We expect
that our ability to compete effectively will depend upon our
ability to:
·successfully
and efficiently complete clinical trials and submit for and obtain
all requisite regulatory approvals in a cost-effective manner;
·obtain
and maintain a proprietary position for our products and
manufacturing processes and other related product technology;
·attract
and retain key personnel;
·develop
relationships with physicians prescribing these products; and
·build
an adequate sales and marketing infrastructure for our product
candidates.
Because we
will be competing against significantly larger companies with
established track records, we will have to demonstrate that, based
on experience, clinical data, side-effect profiles and other
factors, our product candidates, if approved, are competitive with
other products.
Price controls may be imposed, which may adversely affect our
future profitability.
In some
countries, including member states of the European Union (the
“EU”), the pricing of prescription pharmaceuticals is subject to
governmental control. In these countries, pricing negotiations with
governmental authorities can take a significant amount of time
after receipt of marketing approval for a product. In addition,
there can be considerable pressure by governments and other
stakeholders on prices and reimbursement levels, including as part
of cost containment measures. Political, economic and regulatory
developments may further complicate pricing negotiations, and
pricing negotiations may continue after reimbursement has been
obtained. Reference pricing used by various EU member states and
parallel distribution, or arbitrage between low-priced and
high-priced member states, can further reduce prices, and in
certain instances render commercialization in certain markets
infeasible or disadvantageous from a financial perspective. In some
countries, we or our collaborators may be required to conduct a
clinical trial or other studies that compare the cost-effectiveness
of our product and/or our product candidates to other available
products in order to obtain or maintain reimbursement or pricing
approval. Publication of discounts by third party payors or
government authorities may lead to further pressure on the prices
or reimbursement levels. If reimbursement of our products is
unavailable or limited in scope or amount, or if pricing is set at
unsatisfactory levels, the commercial launch of our product and/or
product candidates could be delayed, possibly for lengthy periods
of time, we or our collaborators may not launch at all in a
particular country, we may not be able to recoup our investment in
one or more product candidates, and there could be a material
adverse effect on our business.
Recently,
there has been considerable public and government scrutiny in the
U.S. of pharmaceutical pricing and proposals to address the
perceived high cost of pharmaceuticals. There have also been
several recent state legislative efforts to address drug costs,
which generally have focused on increasing transparency around drug
costs or limiting drug prices or price increases. Adoption of new
legislation at the federal or state level could affect demand for,
or pricing of, our product candidates, if approved, and could
diminish our ability to establish what we believe is a fair price
for our products, ultimately diminishing our revenue for our
products if they are approved.
24
Healthcare reform measures could hinder or prevent our
product candidates’ commercial success.
In both the
U.S. and certain foreign jurisdictions, there have been, and we
expect there will continue to be, a number of legislative and
regulatory changes to the health care system that could impact our
ability to sell our products profitably. The U.S. government and
other governments have shown significant interest in pursuing
healthcare reform. In particular, the Medicare Modernization Act of
2003 revised the payment methodology for many products under the
Medicare program in the U.S. This has resulted in lower rates of
reimbursement. In 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation Act
(collectively, the “Healthcare Reform Law”), was enacted. The
Healthcare Reform Law substantially changed the way healthcare is
financed by both governmental and private insurers. Such
government-adopted reform measures may adversely impact the pricing
of healthcare products and services in the U.S. or internationally
and the amount of reimbursement available from governmental
agencies or other third-party payors.
There have
been, and likely will continue to be, legislative and regulatory
proposals at the federal and state levels directed at broadening
the availability of healthcare and containing or lowering the cost
of healthcare. For example, there have been public announcements by
members of the U.S. Congress regarding their plans to repeal and
replace the Healthcare Reform Law and Medicare, and the Biden
administration has announced plans to amend and expand the scope of
the Healthcare Reform Law. Although we cannot predict the ultimate
content or timing of any healthcare reform legislation, potential
changes resulting from any amendment, repeal, replacement or
expansion of these programs, including any reduction in the future
availability of healthcare insurance benefits, could adversely
affect our business and future results of operations. The
continuing efforts of the government, insurance companies, managed
care organizations and other payors of healthcare services to
contain or reduce costs of healthcare may adversely affect the
demand for any product candidates for which we may obtain
regulatory approval, as well as our ability to set satisfactory
prices for our products, to generate revenues, and to achieve and
maintain profitability.
Failure to successfully validate, develop and obtain
regulatory approval for companion diagnostics could harm our
long-term drug development strategy.
As one of the
key elements of our clinical development strategy in the cancer
space, we seek to identify patients within a disease category or
indication who may derive selective and meaningful benefit from the
product candidates we are developing. As such, we plan to develop,
or partner with third parties to develop, companion diagnostics to
help us to more accurately identify patients within a particular
category or indication, both during our clinical trials and in
connection with the commercialization of certain of our product
candidates.
Companion
diagnostics are subject to regulation by the FDA and comparable
foreign regulatory authorities as medical devices and require
separate regulatory approval prior to commercialization. We and our
collaborators may encounter difficulties in developing and
obtaining approval for the companion diagnostics, including issues
relating to selectivity/specificity, analytical validation,
reproducibility or clinical validation. Any delay or failure by our
collaborators to develop or obtain regulatory approval of the
companion diagnostics could delay or prevent approval of our
product candidates. In addition, our collaborators may encounter
production difficulties that could constrain the supply of the
companion diagnostics, and both they and we may have difficulties
gaining acceptance of the use of the companion diagnostics in the
clinical community. If such companion diagnostics fail to gain
market acceptance, it would have an adverse effect on our ability
to derive revenues from sales of our products. In addition, any
diagnostic company with whom we contract may decide to discontinue
selling or manufacturing the companion diagnostic that we
anticipate using in connection with development and
commercialization of our product candidates or our relationship
with such diagnostic company may otherwise terminate. In such
instances, we may not be able to enter into arrangements with
another diagnostic company to obtain supplies of an alternative
diagnostic test for use in connection with the development and
commercialization of our product candidates or do so on
commercially reasonable terms, which could adversely affect and/or
delay the development or commercialization of our product
candidates.
We may seek to establish collaborations and, if we are not
able to establish them on commercially reasonable terms, we may
have to alter our development and commercialization
plans.
From time to
time we may engage in efforts to enter into licensing, distribution
and/or collaboration agreements with one or more pharmaceutical or
biotechnology companies to assist us with development and/or
commercialization of our other product candidates. If we are
successful in entering into such agreements, we may not be able to
negotiate agreements with economic terms similar to those
negotiated by other companies. We may not, for example, obtain
significant upfront payments, substantial royalty rates or
milestones. If we fail to enter into any such agreements in a
timely manner or at all, our efforts to develop and/or
commercialize our product candidates may be undermined. In
addition, if we do not raise funds through any such agreements, we
will need to rely on other financing mechanisms, such as sales of
debt or equity securities, to fund our operations. Such financing
mechanisms, if available, may not be sufficient or timely enough to
advance our programs forward in a meaningful way in the
short-term.
25
We may not
be successful in entering into additional collaborations as a
result of many factors, including the following:
·competition
in seeking appropriate collaborators;
·a
reduced number of potential collaborators due to recent business
combinations in the pharmaceutical industry;
·inability
to negotiate collaborations on acceptable terms;
·inability
to negotiate collaborations on a timely basis;
·a
potential collaborator’s evaluation of our product or product
candidates;
·a
potential collaborator’s resources and expertise; and
·restrictions
due to an existing collaboration agreement.
If we are
unable to enter into collaborations, we may have to curtail the
commercialization or the development of any product candidate on
which we are seeking to collaborate, reduce or delay its
development program or those for other of our other development
programs, delay its potential commercialization or reduce the scope
of any sales or marketing activities, or increase our expenditures
and undertake development or commercialization activities at our
own expense. If we elect to increase our expenditures to fund
development or commercialization activities on our own, we may need
to obtain additional capital, which may not be available to us on
acceptable terms or at all. If we do not have sufficient funds, we
may not be able to develop or commercialize our product
candidates.
Even if we
enter into collaboration agreements and strategic partnerships or
license our intellectual property, we may not be able to maintain
them or they may be unsuccessful, which could delay our timelines
or otherwise adversely affect our business.
We, as well as any collaborators or licensees of our
technologies and services, will not be able to commercialize our
product candidates if preclinical studies do not produce successful
results or clinical trials do not demonstrate safety and efficacy
in humans.
Preclinical
and clinical testing is expensive, difficult to design and
implement, can take many years to complete and have an uncertain
outcome. Success in preclinical testing and early clinical trials
does not ensure that later clinical trials will be successful, and
interim results of a clinical trial do not necessarily predict
final results. We, as well as any licensees and collaborators, may
experience numerous unforeseen events during, or as a result of,
preclinical testing and the clinical trial process that could delay
or prevent the commercialization of product candidates based on our
technologies, including the following:
·Preclinical
or clinical trials may produce negative or inconclusive results,
which may require additional preclinical testing, additional
clinical trials or the abandonment of projects that we, our
licensees or our collaborators expect to be promising. For example,
promising animal data may be obtained about the anticipated
efficacy of a product candidate and then human tests may not result
in such an effect. In addition, unexpected safety concerns may be
encountered that would require further testing even if the product
candidate produced an otherwise favorable response in human
subjects.
·Initial
clinical results may not be supported by further or more extensive
clinical trials. For example, we or a licensee may obtain data that
suggest a desirable response from a product candidate in a small
human study, but when tests are conducted on larger numbers of
people, the same extent of response may not occur. If the response
generated by a product candidate is too low or occurs in too few
treated individuals, then the product candidate will have no
commercial value.
·Enrollment
in any of our or any of our licensees’ or collaborators’ clinical
trials may be slower than projected, resulting in significant
delays. The cost of conducting a clinical trial increases as the
time required to enroll adequate numbers of human subjects to
obtain meaningful results increases. Enrollment in a clinical trial
can be a slower-than-anticipated process because of competition
from other clinical trials, because the study is not of interest to
qualified subjects, or because the stringency of requirements for
enrollment limits the number of people who are eligible to
participate in the clinical trial.
·We,
our licensees or our collaborators might have to suspend or
terminate clinical trials if the participating subjects are being
exposed to unacceptable health risks. Animal tests do not always
adequately predict potential safety risks to human subjects. The
risk of any product candidate is unknown until it is tested in
human subjects, and if subjects experience adverse events during
the clinical trial, the trial may have to be suspended and modified
or terminated entirely.
·Regulators
or institutional review boards may suspend or terminate clinical
research for various reasons, including safety concerns or
noncompliance with regulatory requirements.
·Any
regulatory approval ultimately obtained may be limited or subject
to restrictions or post-approval commitments that render the
product not commercially viable.
·The
effects of our technology-derived or technology-enhanced product
candidates may not be the desired effects or may include
undesirable side effects.
Significant
clinical trial delays could allow our competitors to bring products
to market before we, any of our licensees or our collaborators do
and impair our ability to commercialize our technologies and
product candidates based on our technologies. Poor clinical trial
results or delays may make it impossible to license a product
candidate or so reduce its attractiveness to prospective licensees
that we will be unable to successfully develop and commercialize
such a product candidate.
26
Because our development activities are expected to rely
heavily on sensitive and personal information, an area which is
highly regulated by privacy laws, we may not be able to generate,
maintain or access essential patient samples or data to continue
our research and development efforts in the future on reasonable
terms and conditions, which may adversely affect our
business.
Although we
are not subject to the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”), as we are neither a Covered
Entity nor Business Associate (as defined in HIPAA and the Health
Information Technology and Clinical Health Act (the “HITECH Act”),
we may have access to very sensitive data regarding patients whose
tissue samples are used in our studies. This data will contain
information that is personal in nature. The maintenance of this
data is subject to certain privacy-related laws, which impose upon
us administrative and financial burdens, and litigation risks. In
the U.S., numerous federal and state laws and regulations,
including state data breach notification laws, state health
information privacy laws and federal and state consumer protection
laws govern the collection, use, disclosure and protection of
health-related and other personal information. For instance, the
rules promulgated by the Department of Health and Human Services
under HIPAA create national standards to protect patients’ medical
records and other personal information in the U.S. These rules
require that healthcare providers and other covered entities obtain
written authorizations from patients prior to disclosing protected
health care information of the patient to companies. If the patient
fails to execute an authorization or the authorization fails to
contain all required provisions, then we will not be allowed access
to the patient’s information and our research efforts can be
substantially delayed. Furthermore, use of protected health
information that is provided to us pursuant to a valid patient
authorization is subject to the limits set forth in the
authorization (i.e., for use in research and in submissions to
regulatory authorities for product approvals). As such, we are
required to implement policies, procedures and reasonable and
appropriate security measures to protect individually identifiable
health information we receive from covered entities, and to ensure
such information is used only as authorized by the patient. Any
violations of these rules by us could subject us to civil and
criminal penalties and adverse publicity and could harm our ability
to initiate and complete clinical trials required to support
regulatory applications for our product candidates. In addition,
HIPAA does not replace federal, state, or other laws that may grant
individuals even greater privacy protections.
California
recently enacted the California Consumer Privacy Act (“CCPA”),
which creates new individual privacy rights for California
consumers and places increased privacy and security obligations on
entities handling personal data of consumers or households. The
CCPA requires covered companies to provide new disclosure to
consumers about such companies’ data collection, use and sharing
practices, provide such consumers new ways to opt-out of certain
sales or transfers of personal information, and provide consumers
with additional causes of action. The CCPA went into effect on
January 1, 2020, and beginning July 1, 2020, the California
Attorney General may bring enforcement actions for violations. The
CCPA, among other things, requires covered companies to provide
disclosures to California consumers concerning the collection and
sale of personal information, and will give such consumers the
right to opt-out of certain sales of personal information. The CCPA
may increase our company`s compliance costs and potential
liability, and we cannot yet predict the impact of the CCPA on our
business.
International
data protection laws, including Regulation 2016/679, known as the
General Data Protection Regulation (“GDPR”), may also apply to
health-related and other personal information obtained outside of
the United States. The GDPR went into effect on May 25, 2018. The
GDPR strengthened data protection requirements in the European
Union, as well as potential fines for noncompliant companies of up
to the greater of €20 million or 4% of annual global revenue. The
regulation imposes numerous new requirements for the collection,
use, storage and disclosure of personal information, including more
stringent requirements relating to consent and the information that
must be shared with data subjects about how their personal
information is used, the obligation to notify regulators and
affected individuals of personal data breaches, extensive new
internal privacy governance obligations and obligations to honor
expanded rights of individuals in relation to their personal
information, including the right to access, correct and delete
their data. In addition, the GDPR includes restrictions on
cross-border data transfers. The GDPR increased our responsibility
and liability in relation to personal data that we process where
such processing is subject to the GDPR, and we may be required to
put in place additional mechanisms to ensure compliance with the
GDPR, including as implemented by individual countries. Further,
the United Kingdom’s exit from the European Union, often referred
to as Brexit, has created uncertainty with regard to data
protection regulation in the United Kingdom. In particular, it is
unclear how data transfers to and from the United Kingdom will be
regulated.
Failure to
comply with data protection laws and regulations could result in
government enforcement actions, which may involve civil and
criminal penalties, private litigation and/or adverse publicity and
could negatively affect our operating results and business. Claims
that we have violated individuals’ privacy rights or breached our
contractual obligations, even if we are not found liable, could be
expensive and time-consuming to defend and could result in adverse
publicity that could harm our business.
We can
provide no assurance that future legislation will not prevent us
from generating or maintaining personal data or that patients will
consent to the use of their personal information, either of which
may prevent us from undertaking or publishing essential research.
These burdens or risks may prove too great for us to reasonably
bear and may adversely affect our ability to achieve profitability
or maintain profitably in the future.
27
We may be exposed to liability claims associated with the use
of hazardous materials and chemicals.
Our research
and development activities may involve the controlled use of
hazardous materials and chemicals. Although we believe that our
safety procedures for using, storing, handling and disposing of
these materials comply with federal, state and local laws and
regulations, we cannot eliminate the risk of accidental injury or
contamination from these materials. In the event of such an
accident, we could be held liable for any resulting damages and any
liability could materially adversely affect our business, financial
condition and results of operations. We do not currently maintain
hazardous materials insurance coverage. In addition, the federal,
state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of hazardous or
radioactive materials and waste products may require us to incur
substantial compliance costs that could materially harm our
business.
If we are unable to retain and recruit qualified scientists
and advisors, or if any of our key executives, key employees or key
consultants discontinues his or her employment or consulting
relationship with us, it may delay our development efforts or
otherwise harm our business.
We may not be
able to attract or retain qualified management and scientific and
clinical personnel in the future due to the intense competition for
qualified personnel among biotechnology, pharmaceutical and other
businesses, particularly in the San Diego, California area. Our
industry has experienced a high rate of turnover of management
personnel in recent years. If we are not able to attract, retain
and motivate necessary personnel to accomplish our business
objectives, we may experience constraints that will significantly
impede the successful development of any product candidates, our
ability to raise additional capital and our ability to implement
our overall business strategy. In addition, our CMO operations will
depend, in part, on our ability to attract and retain an
appropriately skilled and sufficient workforce to operate our
development and manufacturing facilities. The facilities are
located in a growing biotechnology hub and competition for skilled
workers will continue to increase as the industry undergoes further
growth in the area.
We are highly
dependent on key members of our management and scientific staff,
especially John W. Huemoeller II., Chairman of the Board, Chief
Executive Officer and President, Catalina Valencia, Sapphire’s
Chief Executive and Sergei Svarovsky, our Chief Science Officer.
Our success also depends on our ability to continue to attract,
retain and motivate highly skilled junior, mid-level and senior
managers as well as junior, mid-level and senior scientific and
medical personnel. The loss of any of our executive officers, key
employees or key consultants and our inability to find suitable
replacements could impede the achievement of our research and
development objectives, and potentially harm our business,
financial condition and prospects. Furthermore, recruiting and
retaining qualified scientific personnel to perform research and
development work in the future is critical to our success. We may
be unable to attract and retain personnel on acceptable terms given
the competition among biotechnology, biopharmaceutical and health
care companies, universities and non-profit research institutions
for experienced scientists. Certain of our current officers,
directors, scientific advisors and/or consultants or certain of the
officers, directors, scientific advisors and/or consultants
hereafter appointed may from time to time serve as officers,
directors, scientific advisors and/or consultants of other
biopharmaceutical or biotechnology companies. We do not maintain
“key man” insurance policies on any of our officers or employees.
All of our employees are employed “at will” and, therefore, each
employee may leave our employment at any time.
We may not be
able to attract or retain qualified management and scientific
personnel in the future due to the intense competition for a
limited number of qualified personnel among biopharmaceutical,
biotechnology, pharmaceutical and other businesses. Many of the
other pharmaceutical companies that we compete against for
qualified personnel have greater financial and other resources,
different risk profiles and a longer history in the industry than
we do. They also may provide more diverse opportunities and better
chances for career advancement. Some of these characteristics may
be more appealing to high quality candidates than what we have to
offer. If we are unable to continue to attract and retain high
quality personnel, the rate and success at which we can develop and
commercialize product candidates will be limited.
We plan to
grant stock options or other forms of equity awards in the future
as a method of attracting and retaining employees, motivating
performance and aligning the interests of employees with those of
our stockholders. If we are unable to implement and maintain equity
compensation arrangements that provide sufficient incentives, we
may be unable to retain our existing employees and attract
additional qualified candidates. If we are unable to retain our
existing employees, including qualified scientific personnel, and
attract additional qualified candidates, our business and results
of operations could be adversely affected.
28
Our employees may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and
requirements, which could have a material adverse effect on our
business.
We are
exposed to the risk of employee fraud or other misconduct.
Misconduct by employees could include intentional failures to
comply with FDA regulations, provide accurate information to the
FDA, comply with manufacturing standards we have established,
comply with federal and state health-care fraud and abuse laws and
regulations, comply with laws and regulations (including, but not
limited to the Foreign Corrupt Practices Act of 1977, as amended,
15 U.S.C. §§ 78dd-1 (“FCPA”)) and internal policies restricting
payments to government agencies and representatives, report
financial information or data accurately or disclose unauthorized
activities to us. In particular, sales, marketing and business
arrangements in the healthcare industry are subject to extensive
laws and regulations intended to prevent fraud, kickbacks,
self-dealing and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing,
discounting, marketing and promotion, sales commission, customer
incentive programs and other business arrangements. Employee
misconduct could also involve the improper use of information
obtained in the course of clinical trials, which could result in
regulatory sanctions and serious harm to our reputation. We have
adopted a Code of Business Conduct and Ethics, but it is not always
possible to identify and deter employee misconduct, and the
precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or
lawsuits stemming from a failure to be in compliance with such laws
or regulations. If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our
rights, those actions could have a significant impact on our
business and results of operations, including the imposition of
significant fines or other sanctions.
We may be subject, directly or indirectly, to federal and
state healthcare fraud and abuse laws, false claims laws and health
information privacy and security laws. If we are unable to comply,
or have not fully complied, with such laws, we could face
substantial penalties.
If we obtain
FDA approval for any of our product candidates and begin
commercializing those products in the U.S., our operations may be
directly, or indirectly through our customers, subject to various
federal and state fraud and abuse laws, including, without
limitation, the federal Anti-Kickback Statute and the federal False
Claims Act. These laws may impact, among other things, our proposed
sales, marketing and education programs. In addition, we may be
subject to patient privacy regulation by both the federal
government and the states in which we conduct our business. The
laws that may affect our ability to operate include:
·the
federal Anti-Kickback Statute, which prohibits, among other things,
persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, to induce,
or in return for, the purchase or recommendation of an item or
service reimbursable under a federal healthcare program, such as
the Medicare and Medicaid programs;
·federal
civil and criminal false claims laws and civil monetary penalty
laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid, or other third-party payers that
are false or fraudulent;
·HIPAA,
which created new federal criminal statutes that prohibit executing
a scheme to defraud any healthcare benefit program and making false
statements relating to healthcare matters;
·HIPAA,
as amended by the HITECH Act, and its implementing regulations,
which imposes certain requirements relating to the privacy,
security and transmission of individually identifiable health
information; and
·state
law equivalents of each of the above federal laws, such as
anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payer, including commercial
insurers, and state laws governing the privacy and security of
health information in certain circumstances, many of which differ
from each other in significant ways and may not have the same
effect, thus complicating compliance efforts.
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, we may be subject to penalties, including civil and criminal
penalties, damages, fines and the curtailment or restructuring of
our operations, any of which could adversely affect our ability to
operate our business and our results of operations.
If product liability lawsuits are brought against us, we may
incur substantial liabilities and may be required to limit
commercialization of our product candidates.
We face an
inherent risk of product liability as a result of the clinical
testing of our product candidates and will face an even greater
risk for the commercialization of any products, including SPX-009.
For example, we may be sued if any product we develop allegedly
causes injury or is found to be otherwise unsuitable during product
testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers
inherent in the product, negligence, strict liability, and a breach
of warranties. Claims could also be asserted under state consumer
protection acts. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or
be required to limit commercialization of our product candidates,
if approved. Even successful defense would require significant
financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in:
29
·decreased
demand for our product candidates or products that we may
develop;
·injury
to our reputation;
·withdrawal
of clinical trial participants;
·initiation
of investigations by regulators;
·restrictions
on the marketing or manufacturing of the product, withdrawal of the
product from the market or voluntary or mandatory product
recalls;
·costs
to defend the related litigation;
·a
diversion of management’s time and our resources;
·substantial
monetary awards to trial participants or patients;
·product
recalls, withdrawals or labeling, marketing or promotional
restrictions;
·loss
of revenues from product sales; and
·the
inability to commercialize our product candidates.
Our inability
to obtain and retain sufficient product liability insurance at an
acceptable cost to protect against potential product liability
claims could prevent or inhibit the commercialization of products
we develop. We currently carry product liability insurance and
errors and omissions insurance that we believe is appropriate for
our company. Although we maintain product liability insurance, any
claim that may be brought against us could result in a court
judgment or settlement in an amount that is not covered, in whole
or in part, by our insurance or that is in excess of the limits of
our insurance coverage. Our insurance policies also have various
exclusions, and we may be subject to a product liability claim for
which we have insufficient or no coverage. If we have to pay any
amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our
insurance, we may not have, or be able to obtain, sufficient
capital to pay such amounts. In addition, insurance coverage is
becoming increasingly expensive, and we may not be able to maintain
insurance coverage at a reasonable cost. We also may not be able to
obtain additional insurance coverage that will be adequate to cover
product liability risks that may arise. Consequently, a product
liability claim may result in losses that could be material to our
business, financial condition and results of operations.
We will need to increase the size of our company and may not
effectively manage our growth.
Our success
will depend upon growing our business and our employee base. Over
the next 12 months, we plan to add additional employees to assist
us with research and development and our commercialization efforts.
Our future growth, if any, may cause a significant strain on our
management, and our operational, financial and other resources. Our
ability to manage our growth effectively will require us to
implement and improve our operational, financial and management
systems and to expand, train, manage and motivate our employees.
These demands may require the hiring of additional management
personnel and the development of additional expertise by
management. Any increase in resources devoted to research and
product development without a corresponding increase in our
operational, financial and management systems could have a material
adverse effect on our business, financial condition, and results of
operations.
Drug development involves a lengthy and expensive process
with an uncertain outcome, and results of earlier studies and
trials may not be predictive of future trial results.
Clinical
testing is expensive and can take many years to complete, and its
outcome is risky and uncertain. Failure can occur at any time
during the clinical trial process. The results of preclinical
studies and early clinical trials of our product candidates may not
be predictive of the results of later-stage clinical trials.
Product candidates in later stages of clinical trials may fail to
show the desired safety and efficacy traits despite having
progressed through preclinical studies and initial clinical trials.
It is not uncommon for companies in the pharmaceutical industry to
suffer significant setbacks in advanced clinical trials due to lack
of efficacy or adverse safety profiles, notwithstanding promising
results in earlier trials. Our future clinical trial results may
not be successful.
This drug
candidate development risk is heightened by any changes in the
planned clinical trials compared to the completed clinical trials.
As product candidates are developed through preclinical to early
and late-stage clinical trials towards approval and
commercialization, it is customary that various aspects of the
development program, such as manufacturing and methods of
administration, are altered along the way in an effort to optimize
processes and results. While these types of changes are common and
are intended to optimize the product candidates for late-stage
clinical trials, approval and commercialization, such changes do
carry the risk that they will not achieve these intended
objectives.
30
In the event
we are able to conduct a pivotal clinical trial of a product
candidate, the results of such trial may not be adequate to support
marketing approval. Because our product candidates are intended for
use in life-threatening diseases, in some cases we ultimately
intend to seek marketing approval for each product candidate based
on the results of a single pivotal clinical trial. As a result,
these trials may receive enhanced scrutiny from the FDA. For any
such pivotal trial, if the FDA disagrees with our choice of primary
endpoint or the results for the primary endpoint are not robust or
significant relative to control, are subject to confounding
factors, or are not adequately supported by other study endpoints,
including possibly overall survival or complete response rate, the
FDA may refuse to approve a NDA, Biologics License Application or
other application for marketing based on such pivotal trial. The
FDA may require additional clinical trials as a condition for
approving our product candidates.
Interim “top-line” and preliminary data from our clinical
trials that we announce or publish from time to time may change as
more patient data become available and are subject to audit and
verification procedures that could result in material changes in
the final data.
From time to
time, we may publish interim “top-line” or preliminary data from
our clinical trials, which is based on a preliminary analysis of
then-available data, and the results and related findings and
conclusions are subject to change following a more comprehensive
review of the data related to the particular study. We also make
assumptions, estimations, calculations and conclusions as part of
our analyses of data, and we may not have received or had the
opportunity to fully and carefully evaluate all data. As a result,
the topline results that we report may differ from future results
of the same studies, or different conclusions or considerations may
qualify such results, once additional data have been received and
fully evaluated. Preliminary or interim data from clinical trials
that we may complete are subject to the risk that one or more of
the clinical outcomes may materially change as patient enrollment
and dosing continues and more patient data become available.
Preliminary or interim data also remain subject to audit and
verification procedures that may result in the final data being
materially different from the preliminary data we previously
published. As a result, interim and preliminary data should be
viewed with caution until the final data are available. Adverse
differences between preliminary or interim data and final data
could significantly harm our business, financial condition and
results of operations.
Further,
others, including regulatory agencies, may not accept or agree with
our assumptions, estimates, calculations, conclusions or analyses
or may interpret or weigh the importance of data differently, which
could impact the value of the particular program, the approvability
or commercialization of the particular product candidate or product
and our company in general. Data disclosures must be carefully
managed to conform to limitations on preapproval promotion and laws
related to clinical trial registration and posting of results. In
addition, the information we choose to publicly disclose regarding
a particular study or clinical trial is based on what is typically
extensive information, and you or others may not agree with what we
determine is the material or otherwise appropriate information to
include in our disclosure, and any information we determine not to
disclose may ultimately be deemed significant with respect to
future decisions, conclusions, views, activities or otherwise
regarding a particular drug, product, product candidate or our
business. If the top-line data that we report differ from actual
results, or if others, including regulatory authorities, disagree
with the conclusions reached, our ability to obtain approval for,
and commercialize, our product candidates may be harmed, which
could harm our business, financial condition and results of
operations.
Any disruption in our research and development facilities
could adversely affect our business, financial condition and
results of operations.
Our principal
executive offices, which house our research and development
programs, are in San Diego, California. Our facilities may be
affected by natural or man-made disasters. Earthquakes are of
particular significance since our facilities are located in an
earthquake-prone area. We are also vulnerable to damage from other
types of disasters, including power loss, attacks from extremist
organizations, fires, floods and similar events. If our facilities
are affected by a natural or man-made disaster, we may be forced to
curtail our operations and/or rely on third-parties to perform some
or all of our research and development activities. Although we
believe we possess adequate insurance for damage to our property
and the disruption of our business from casualties, such insurance
may not be sufficient to cover all of our potential losses and may
not continue to be available to us on acceptable terms, or at all.
In the future, we may choose to expand our operations in either our
existing facilities or in new facilities. If we expand our
worldwide manufacturing locations, there can be no assurance that
this expansion will occur without implementation difficulties, or
at all.
31
Effective
February 6, 2021, the health officer of San Diego County, where our
principal executive offices are located, issued an updated
shelter-in-place order, ordering, among other things, that all
individuals living in the County of San Diego to remain in their
homes or at their place of residence for an indefinite period of
time (subject to certain exceptions for essential businesses and to
facilitate authorized necessary activities and reopened businesses)
to mitigate the impact of the COVID-19 pandemic. The order is
scheduled to continue until further notice from the health officer
of San Diego County. In addition, in mid-March 2020, the Governor
of California and the State Public Health Officer and Director of
the California Department of Public Health ordered all individuals
living in the State of California to stay at their place of
residence for an indefinite period of time (subject to certain
exceptions to facilitate authorized necessary activities, and
subject to certain variances approved by the California Department
of Public Health on a county-by-county basis) to mitigate the
impact of the COVID-19 pandemic. The executive order exempts
certain individuals needed to maintain continuity of operations of
essential critical infrastructure sectors and additional sectors as
the State Public Health Officer may designate as critical to
protect health and well-being of all Californians. In May 2020, the
Governor of California issued an executive order that informed
local health jurisdictions and industry sectors that they may
gradually reopen under new modifications and guidance provided by
the state of California. In August 2020, the state of California
released revised criteria for loosening and tightening restrictions
on certain activities on generally a county-by-county basis. Under
the executive orders, San Diego County, where our principal
executive offices are located, continues to be subject to certain
restrictions. These orders and others may be further modified,
amended and adopted depending upon the COVID-19 transmission rates
in our county and state, as well as other factors. If the
operations in our principal executive offices or other facilities
are deemed non-essential, we may not be able to operate for the
duration of any shelter-in-place order, which could negatively
impact our business, operating results and financial condition.
Our business and operations would suffer in the event of
system failures.
Despite the
implementation of security measures, our internal computer systems
and those of our CROs and other contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access,
cybersecurity attacks or hacking, natural disasters, terrorism, war
and telecommunication and electrical failures. In addition, as a
result of the COVID-19 pandemic, we may face increased
cybersecurity risks due to our reliance, and the reliance of our
CROs, contractors and consultants reliance, on internet technology
and the number of our employees, and employees of our CROs,
contractors and consultants, who are working remotely, which may
create additional opportunities for cybercriminals to exploit
vulnerabilities. While we have not experienced any such system
failure, accident or security breach to date, if such an event were
to occur and cause interruptions in our operations, it could result
in a material disruption of our drug development programs. For
example, the loss of clinical trial data from completed or ongoing
or planned clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security
breach was to result in a loss of or damage to our data or
applications, or inappropriate disclosure of confidential or
proprietary information, we could incur material legal claims and
liability, damage to our reputation, suffer loss or harm to our
intellectual property rights and the further research, development
and commercial efforts of our products and product candidates could
be delayed. If we are held liable for a claim against which we are
not insured or for damages exceeding the limits of our insurance
coverage, whether arising out of cybersecurity matters, or from
some other matter, that claim could have a material adverse effect
on our results of operations.
Further, a
cybersecurity attack, data breach or privacy violation that leads
to disclosure or modification of, or prevents access to, patient
information, including personally identifiable information or
protected health information, could harm our reputation, compel us
to comply with federal and/or state breach notification laws and
foreign law equivalents, subject us to mandatory corrective action,
require us to verify the correctness of database contents and
otherwise subject us to liability under laws and regulations that
protect personal data, resulting in increased costs or loss of
revenue. Portions of our information technology systems may
experience interruptions, delays or cessations of service or
produce errors in connection with ongoing systems implementation
work. Cybersecurity attacks in particular are evolving and include,
but are not limited to, threats, malicious software, ransom ware,
attempts to gain unauthorized access to data and other electronic
security breaches that could lead to disruptions in systems,
misappropriation of confidential or otherwise protected information
and corruption of data. If we are unable to prevent such
cybersecurity attacks, data security breaches or privacy violations
or implement satisfactory remedial measures, our operations could
be disrupted, and we may suffer loss of reputation, financial loss
and other regulatory penalties because of lost or misappropriated
information, including sensitive patient data. In addition, these
breaches and other inappropriate access can be difficult to detect,
and any delay in identifying them may lead to increased harm of the
type described above.
Comprehensive tax reform legislation could adversely affect
our business and financial condition.
Our effective
income tax rate in the future could be adversely affected by a
number of factors, including: changes in the mix of earnings in
countries with differing statutory tax rates, changes in the
valuation of deferred tax assets and liabilities, changes in tax
laws, and the outcome of income tax audits in various
jurisdictions. We regularly assess all of these matters to
determine the adequacy of its tax provision, which is subject to
significant discretion.
32
Compliance with changing regulations concerning corporate
governance and public disclosure may result in additional
expenses.
There have
been changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”),
the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), new regulations
promulgated by the U.S. Securities and Exchange Commission (the
“SEC”) and rules promulgated by the national securities exchanges.
The Dodd-Frank Act, enacted in July 2010, expanded federal
regulation of corporate governance matters and imposes requirements
on public companies to, among other things, provides stockholders
with a periodic advisory vote on executive compensation and also
adds compensation committee reforms and enhanced
pay-for-performance disclosures. While some provisions of the
Dodd-Frank Act were effective upon enactment, others have been and
will be implemented upon the SEC’s adoption of related rules and
regulations. The scope and timing of the adoption of such rules and
regulations is uncertain and, accordingly, the cost of compliance
with the Dodd-Frank Act is also uncertain. Areas subject to
potential change, amendment or repeal include the Dodd-Frank Act,
including § 619 (12 U.S.C. § 1851) known as the Volcker Rule and
various swaps and derivatives regulations, the authority of the
Federal Reserve and the Financial Stability Oversight Council, and
renewed proposals to separate banks’ commercial and investment
banking activities.
These new or
changed laws, regulations and standards are, or will be, subject to
varying interpretations in many cases due to their lack of
specificity, and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and
governing bodies, which could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. As a
result, our efforts to comply with evolving laws, regulations and
standards are likely to continue to result in increased general and
administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance
activities. Members of our board of directors and our principal
executive officer and principal financial officer could face an
increased risk of personal liability in connection with the
performance of their duties. As a result, we may have difficulty
attracting and retaining qualified directors and executive
officers, which could harm our business. If the actions we take in
our efforts to comply with new or changed laws, regulations and
standards differ from the actions intended by regulatory or
governing bodies, we could be subject to liability under applicable
laws or our reputation may be harmed.
Risks Related to Acquisitions
We have acquired, and may in the future acquire, assets,
businesses and technologies as part of our business strategy. If we
acquire companies or technologies in the future, they could prove
difficult to integrate, disrupt our business, dilute stockholder
value, and adversely affect our operating results and the value of
our common stock.
As part of
our business strategy, we may acquire, enter into joint ventures
with, or make investments in complementary or synergistic
companies, services, and technologies in the future. Acquisitions
and investments involve numerous risks, including without
limitation:
·difficulties
in identifying and acquiring products, technologies, proprietary
rights or businesses that will help our business;
·difficulties
in integrating operations, technologies, services, and
personnel;
·diversion
of financial and managerial resources from existing
operations;
·the
risk of entering new development activities and markets in which we
have little to no experience;
·risks
related to the assumption of known and unknown liabilities;
·risks
related to our ability to raise sufficient capital to fund
additional operating activities; and
·the
issuance of our securities as partial or full payment for any
acquisitions and investments could result in material dilution to
our existing stockholders.
As a result,
if we fail to properly evaluate acquisitions or investments, we may
not achieve the anticipated benefits of any such acquisitions, we
may incur costs in excess of what we anticipate, and management
resources and attention may be diverted from other necessary or
valuable activities.
Any acquisitions we make could disrupt our business and
seriously harm our financial condition.
We have in
the past made (and may, from time to time, consider) acquisitions
of complementary companies, products or technologies. Acquisitions
involve numerous risks, including difficulties in the assimilation
of the acquired businesses, the diversion of our management’s
attention from other business concerns and potential adverse
effects on existing business relationships. In addition, any
acquisitions could involve the incurrence of substantial additional
indebtedness. We cannot assure you that we will be able to
successfully integrate any acquisitions that we pursue or that such
acquisitions will perform as planned or prove to be beneficial to
our operations and cash flow. Any such failure could seriously harm
our business, financial condition and results of operations.
33
Risks Related to Our Intellectual Property
Our ability to protect our intellectual property rights will
be critically important to the success of our business, and we may
not be able to protect these rights in the U.S. or
abroad.
Our success,
competitive position and future revenues will depend in part on our
ability to obtain and maintain patent protection for our product
candidates, methods, processes and other technologies, to prevent
third parties from infringing on our proprietary rights, exclude
others from using our technology and to operate without infringing
upon the proprietary rights of third parties. We will be able to
protect our proprietary rights from unauthorized use by third
parties only to the extent that our proprietary rights are covered
by valid and enforceable patents or are effectively maintained as
trade secrets. We attempt to protect our proprietary position by
maintaining trade secrets and by filing U.S. and foreign patent
applications related to our proprietary technology, inventions and
improvements that are important to the development of our business.
The first of the patent applications related to our ongoing
business operations was issued in 2020, and we continue to file
additional patent applications for our product candidates and
technology.
We have
commenced generating a patent portfolio to protect each product
candidate in our pipeline. However, the patent position of
biopharmaceutical companies involves complex legal and factual
questions, and therefore we cannot predict with certainty whether
any patent applications that we have filed or that we may file in
the future will be approved, will cover our products or product
candidates or that any resulting patents will be enforced. In
addition, third parties may challenge, seek to invalidate, limit
the scope of or circumvent any of our patents, once they are
issued. Thus, any patents that we own or license from third parties
or joint venture or development partners may not provide any
protection against competitors. Any patent applications that we
have filed or that we may file in the future, or those we may
license from third parties or joint venture or development
partners, may not result in patents being issued. Moreover,
disputes between our licensing or joint development partners and us
may arise over license scope, or ownership, assignment,
inventorship and/or rights to use or commercialize patent or other
proprietary rights, which may adversely impact our ability to
obtain and protect our proprietary technology and products. Also,
patent rights may not provide us with adequate proprietary
protection or competitive advantages against competitors with
similar technologies or products.
In addition,
the laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of
the U.S. If we fail to apply for intellectual property protection
or if we cannot adequately protect our intellectual property rights
in these foreign countries, our competitors may be able to compete
more effectively against us, which could adversely affect our
competitive position, as well as our business, financial condition
and results of operations.
Periodic
maintenance fees, renewal fees, annuity fees and various other
governmental fees on patents and/or applications will be due to the
PTO and various foreign patent offices at various points over the
lifetime of our patents and/or applications. We have systems in
place to remind us to pay these fees, and we rely on our outside
counsel or service providers to pay these fees when due.
Additionally, the PTO and various foreign patent offices require
compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process.
We employ reputable law firms and other professionals to help us
comply, and in many cases, an inadvertent lapse can be cured by
payment of a late fee or by other means in accordance with rules
applicable to the particular jurisdiction. However, there are
situations in which noncompliance can result in abandonment or
lapse of the patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. If
such an event were to occur, it could have a material adverse
effect on our business. In addition, we are responsible for the
payment of patent fees for patent rights that we have licensed from
other parties. If any licensor of these patents does not itself
elect to make these payments, and we fail to do so, we may be
liable to the licensor for any costs and consequences of any
resulting loss of patent rights.
We may become involved in lawsuits to protect or enforce our
patents or other intellectual property, which could be expensive,
time consuming and unsuccessful.
Competitors
may infringe our patents, trademarks, copyrights or other
intellectual property. To counter infringement or unauthorized use,
we may be required to file infringement claims, which can be
expensive and time consuming and divert the time and attention of
our management and scientific personnel. Any claims we assert
against perceived infringers could provoke these parties to assert
counterclaims against us alleging that we infringe their patents,
in addition to counterclaims asserting that our patents are invalid
or unenforceable, or both. In any patent infringement proceeding,
there is a risk that a court will decide that a patent of ours is
invalid or unenforceable, in whole or in part, and that we do not
have the right to stop the other party from using the invention at
issue. There is also a risk that, even if the validity of such
patents is upheld, the court will construe the patent’s claims
narrowly or decide that we do not have the right to stop the other
party from using the invention at issue on the grounds that our
patent claims do not cover the invention. An adverse outcome in a
litigation or proceeding involving our patents could limit our
ability to assert our patents against those parties or other
competitors, and may curtail or preclude our ability to exclude
third parties from making and selling similar or competitive
products. Any of these occurrences could adversely affect our
competitive business position, business prospects and financial
condition. Similarly, if we assert trademark infringement claims, a
court may determine that the marks we have asserted are invalid or
unenforceable, or that the party against whom we have asserted
trademark infringement has superior rights to the marks in
question. In this case, we could ultimately be forced to cease use
of such trademarks.
34
Even if we
establish infringement, the court may decide not to grant an
injunction against further infringing activity and instead award
only monetary damages, which may or may not be an adequate remedy.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during litigation. There could also be
public announcements of the results of hearings, motions or other
interim proceedings or developments. If securities analysts or
investors perceive these results to be negative, it could have a
material adverse effect on the price of shares of our common stock.
Moreover, there can be no assurance that we will have sufficient
financial or other resources to file and pursue such infringement
claims, which typically last for years before they are concluded.
Even if we ultimately prevail in such claims, the monetary cost of
such litigation and the diversion of the attention of our
management and scientific personnel could outweigh any benefit we
receive as a result of the proceedings.
Our long-term success depends on intellectual property
protection; if our intellectual property rights are invalidated or
circumvented, our business will be adversely affected.
Our long-term
success depends on our ability to continually discover, develop and
commercialize innovative new pharmaceutical products. Without
strong intellectual property protection, we may be unable to
generate the returns necessary to support the enormous investments
in research and development and capital as well as other
expenditures required to bring new drugs to the market and for
commercialization.
Intellectual
property protection varies throughout the world and is subject to
change over time. In the U.S., for small molecule drug products,
such as SPX-009 (which is held by our subsidiary, Sapphire), the
Hatch-Waxman Act provides generic companies powerful incentives to
seek to invalidate our pharmaceutical patents. As a result, we
expect that our U.S. patents on major pharmaceutical products will
be routinely challenged, and there can be no assurance that our
patents will be upheld. We face generic manufacturer challenges to
our patents outside the U.S. as well. In addition, competitors or
other third parties may claim that our activities infringe patents
or other intellectual property rights held by them. If successful,
such claims could result in our being unable to market a product in
a particular territory or being required to pay damages for past
infringement or royalties on future sales.
If any of our trade secrets, know-how or other proprietary
information is disclosed, the value of our trade secrets, know-how
and other proprietary rights would be significantly impaired and
our business and competitive position would suffer.
Our success
also depends upon the skills, knowledge and experience of our
scientific and technical personnel and our consultants and
advisors, as well as our licensors. To help protect our proprietary
know-how and our inventions for which patents may be unobtainable
or difficult to obtain, or prior to seeking patent protection, we
rely on trade secret protection and confidentiality agreements.
Unlike some of our competitors, in addition to certain
manufacturing processes, we maintain our proprietary libraries for
ourselves as trade secrets. To this end, we require all our
employees, consultants, advisors and contractors to enter into
agreements which prohibit the disclosure of confidential
information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and
inventions important to our business. These agreements may not
provide adequate protection for our trade secrets, know-how or
other proprietary information in the event of any unauthorized use
or disclosure or the lawful development by others of such
information. If any of our trade secrets, know-how or other
proprietary information is disclosed, the value of our trade
secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position
would suffer. Moreover, our third-party licensing partners may
retain rights in some of our proprietary or joint trade secrets,
know-how, patented inventions or other proprietary information,
including rights to sublicense and rights of publication, which may
adversely impact our ability to obtain patents and protect trade
secrets, know-how or other proprietary information. In addition,
the U.S. government may retain rights in some of our patents or
other proprietary information.
In addition,
many of the formulations used and processes developed by us in
manufacturing any of our collaborators’ products are subject to
trade secret protection, patents or other intellectual property
protections owned or licensed by such collaborator. While we make
significant efforts to protect our collaborators’ proprietary and
confidential information, including requiring our employees to
enter into agreements protecting such information, if any of our
employees breaches the non-disclosure provisions in such
agreements, or if our collaborators make claims that their
proprietary information has been disclosed, our reputation may
suffer damage and we may become subject to legal proceedings that
could require us to incur significant expenses and divert our
management’s time, attention and resources.
Claims that we infringe upon the rights of third parties may
give rise to costly and lengthy litigation, and we could be
prevented from selling products, forced to pay damages, and defend
against litigation.
Third parties
may assert patent or other intellectual property infringement
claims against us or our strategic partners or licensees with
respect to our technologies and product candidates or potential
product candidates. If our products, methods, processes and other
technologies infringe upon the proprietary rights of other parties,
we could incur substantial costs and we may have to:
35
·obtain
licenses, which may not be available on commercially reasonable
terms, if at all, and may be non-exclusive, thereby giving our
competitors access to the same intellectual property licensed to
us;
·redesign
our products or processes to avoid infringement;
·stop
using the subject matter validly claimed in the patents held by
others;
·pay
damages; and
·defend
litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our valuable management resources.
Even if we
were to prevail, any litigation could be costly and time-consuming
and would divert the attention of our management and key personnel
from our business operations. Furthermore, as a result of a patent
infringement suit brought against us or our strategic partners or
licensees, we or our strategic partners or licensees may be forced
to stop or delay developing, manufacturing or selling technologies,
product candidates or potential products that are claimed to
infringe a third party’s intellectual property unless that party
grants us or our strategic partners’ or licensees’ rights to use
its intellectual property. Ultimately, we may be unable to develop
some of our technologies or potential products or may have to
discontinue development of a product candidate or cease some of our
business operations as a result of patent infringement claims,
which could severely harm our business.
In addition,
our collaborators’ products may be subject to claims of
intellectual property infringement and such claims could materially
affect our business if their products cease to be manufactured and
they have to discontinue the use of the infringing technology which
we may provide. Any of the foregoing could affect our ability to
compete or could have a material adverse effect on our business,
financial condition and results of operations.
Our position as a relatively small company may cause us to be
at a significant disadvantage in defending our intellectual
property rights and in defending against infringement claims by
third parties.
Litigation
relating to the ownership and use of intellectual property is
expensive, and our position as a small company in an industry
dominated by very large companies may cause us to be at a
significant disadvantage in defending our intellectual property
rights and in defending against claims that our technology
infringes or misappropriates third party intellectual property
rights. However, we may seek to use various post-grant
administrative proceedings, including new procedures created under
the America Invents Act, to invalidate potentially overly-broad
third party rights. Even if we can defend our position, the cost of
doing so may adversely affect our ability to grow, generate revenue
or become profitable. In the course of the ongoing litigation or
any future additional litigation to which we may be subject, we may
not be able to protect our intellectual property at a reasonable
cost, or at all. The outcome of litigation is always uncertain, and
in some cases could include judgments against us that require us to
pay damages, enjoin us from certain activities or otherwise affect
our legal, contractual or intellectual property rights, which could
have a significant adverse effect on our business.
Third-party claims of intellectual property infringement may
prevent or delay our drug discovery and development
efforts.
Our
commercial success depends in part on our avoiding infringement of
the patents and proprietary rights of third parties.
There is a
substantial amount of litigation involving patent and other
intellectual property rights in the biotechnology and
pharmaceutical industries, including PTO administrative
proceedings, such as inter parties reviews, and reexamination
proceedings before the PTO or oppositions and revocations and other
comparable proceedings in foreign jurisdictions. Numerous U.S. and
foreign issued patents and pending patent applications, which are
owned by third parties, exist in the fields in which we are
developing product candidates. As the biotechnology and
pharmaceutical industries expand and more patents are issued, the
risk increases that our product candidates may give rise to claims
of infringement of the patent rights of others.
Despite safe
harbor provisions, third parties may assert that we are employing
their proprietary technology without authorization. There may be
third-party patents, of which we are currently unaware, with claims
to materials, formulations, methods of doing research or library
screening, methods of manufacture or methods for treatment related
to the use or manufacture of our product candidates. Because patent
applications can take many years to issue, there may be currently
pending patent published applications which may later result in
issued patents that our product candidates may infringe. In
addition, third parties may obtain patents in the future and claim
that use of our technologies infringes upon these patents. If any
third-party patents were held by a court of competent jurisdiction
to cover the manufacturing process of any of our product
candidates, any molecules formed during the manufacturing process
or any final product itself, the holders of any such patents may be
able to block our ability to commercialize such product candidate
unless we obtain a license under the applicable patents, or until
such patents expire or they are finally determined to be held
invalid or unenforceable. Similarly, if any third-party patent were
held by a court of competent jurisdiction to cover aspects of our
formulations, processes for manufacture or methods of use,
including combination therapy or patient selection methods, the
holders of any such patent may be able to block our ability to
develop and commercialize the applicable product candidate unless
we obtain a license, limit our uses, or until such patent expires
or is finally determined to be held invalid or unenforceable. In
either case, such a license may not be available on commercially
reasonable terms or at all.
36
Parties
making claims against us may obtain injunctive or other equitable
relief, which could effectively block our ability to further
develop and commercialize one or more of our product candidates.
Defense of these claims, regardless of their merit, would involve
substantial litigation expense and would be a substantial diversion
of employee resources from our business. In the event of a
successful claim of infringement against us, we may have to pay
substantial damages, including treble damages and attorneys’ fees
for willful infringement, obtain one or more licenses from third
parties, cease marketing our products or developing our product
candidates, limit our uses, pay royalties or redesign our
infringing product candidates, which may be impossible or require
substantial time and monetary expenditure. We cannot predict
whether any such license would be available at all or whether it
would be available on commercially reasonable terms. Furthermore,
even in the absence of litigation, we may need to obtain licenses
from third parties to advance our research or allow
commercialization of our product candidates. We may fail to obtain
any of these licenses at a reasonable cost or on reasonable terms,
if at all. In that event, we would be unable to further develop and
commercialize one or more of our product candidates, which could
harm our business significantly.
We may not be able to protect our intellectual property
rights throughout the world.
Filing,
prosecuting and defending patents on all of our product candidates
throughout the world would be prohibitively expensive. Competitors
may use our technologies in jurisdictions where we have not
obtained patent protection to develop their own products and
further, may export otherwise infringing products to territories
where we have patent protection, but enforcement is not as strong
as that in the U.S. These products may compete with our products in
jurisdictions where we do not have any issued patents and our
patent claims or other intellectual property rights may not be
effective or sufficient to prevent them from so competing.
Many
companies have encountered significant problems in protecting and
defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents and
other intellectual property protection, particularly those relating
to biopharmaceuticals, which could make it difficult for us to stop
the infringement of our patents or marketing of competing products
in violation of our proprietary rights generally. Proceedings to
enforce our patent rights in foreign jurisdictions could result in
substantial cost and divert our efforts and attention from other
aspects of our business.
If we breach any of the agreements under which we license
commercialization rights to our product candidates from third
parties, we could lose license rights that are important to our
business.
We license
the use, development and commercialization rights for some of our
product candidates and may enter into similar licenses in the
future. Under our existing license agreements we are subject to
commercialization and development, diligence obligations, milestone
payment obligations, royalty payments and other obligations. If we
fail to comply with any of these obligations or otherwise breach
our license agreements, our licensing partners may have the right
to terminate the license in whole or in part.
Generally,
the loss of any one of our current licenses or other licenses in
the future could materially harm our business, prospects, financial
condition and results of operations.
Intellectual property rights do not necessarily address all
potential threats to our competitive advantage.
The degree of
future protection afforded by our intellectual property rights is
uncertain because intellectual property rights have limitations,
and may not adequately protect our business, or permit us to
maintain our competitive advantage. The following examples are
illustrative:
·Others
may be able to make compounds that are similar to our product
candidates but that are not covered by the claims of the patents
that we own or have exclusively licensed;
·We or
our licensors or strategic partners might not have been the first
to make the inventions covered by the issued patent or pending
patent application that we own or have exclusively
licensed;
·We or
our licensors or strategic partners might not have been the first
to file patent applications covering certain of our
inventions;
·Others
may independently develop similar or alternative technologies or
duplicate any of our technologies without infringing our
intellectual property rights;
·Our
pending patent applications may not lead to issued
patents;
·Issued
patents that we own or have exclusively licensed may not provide us
with any competitive advantages, or may be held invalid or
unenforceable, as a result of legal challenges by our
competitors;
·Our
competitors might conduct research and development activities in
countries where we do not have patent rights and then use the
information learned from such activities to develop competitive
products for sale in our major commercial markets;
·We
may not develop additional proprietary technologies that are
patentable; and
·The
patents of others may have an adverse effect on our
business.
37
Should any of
these events occur, they could significantly harm our business,
results of operations and prospects.
Risks Related to Ownership of Our Common Stock
The market price of our common stock may fluctuate
significantly, and investors in our common stock may lose all or a
part of their investment.
The market
prices for securities of biotechnology and pharmaceutical companies
have historically been highly volatile, and the market has from
time-to-time experienced significant price and volume fluctuations
that are unrelated to the operating performance of particular
companies. For example, from January 2, 2020 to December 31, 2020,
our closing stock price ranged from $0.10 to $1.44 per share. The
market price of our common stock may fluctuate significantly in
response to numerous factors, some of which are beyond our control,
such as:
·actual
or anticipated adverse results or delays in our clinical
trials;
·our
failure to commercialize our product candidates, if
approved;
·unanticipated
serious safety concerns related to the use of any of our product
candidates;
·adverse
regulatory decisions;
·changes
in laws or regulations applicable to our product candidates,
including but not limited to clinical trial requirements for
approvals;
·legal
disputes or other developments relating to proprietary rights,
including patents, litigation matters and our ability to obtain
patent protection for our product candidates, government
investigations and the results of any proceedings or lawsuits,
including, but not limited to, patent or stockholder
litigation;
·our
decision to initiate a clinical trial, not initiate a clinical
trial or to terminate an existing clinical trial;
·our
dependence on third parties, including CROs;
·announcements
of the introduction of new products by our competitors;
·market
conditions in the pharmaceutical and biotechnology
sectors;
·announcements
concerning product development results or intellectual property
rights of others;
·future
issuances of common stock or other securities;
·the
addition or departure of key personnel;
·failure
to meet or exceed any financial guidance or expectations regarding
development milestones that we may provide to the public;
·actual
or anticipated variations in quarterly operating results;
·our
failure to meet or exceed the estimates and projections of the
investment community;
·overall
performance of the equity markets and other factors that may be
unrelated to our operating performance or the operating performance
of our competitors, including changes in market valuations of
similar companies;
·conditions
or trends in the biotechnology and biopharmaceutical
industries;
·introduction
of new products offered by us or our competitors;
·announcements
of significant acquisitions, strategic partnerships, joint ventures
or capital commitments by us or our competitors;
·issuances
of debt or equity securities;
·sales
of our common stock by us or our stockholders in the
future;
·trading
volume of our common stock;
·ineffectiveness
of our internal controls;
·publication
of research reports about us or our industry or positive or
negative recommendations or withdrawal of research coverage by
securities analysts;
·failure
to effectively integrate the acquired companies’
operations;
·general
political and economic conditions;
·effects
of natural or man-made catastrophic events;
·effects
of public health crises, pandemics and epidemics, such as the
COVID-19 pandemic; and
·other
events or factors, many of which are beyond our control.
Further, the
equity markets in general have recently experienced extreme price
and volume fluctuations. Continued market fluctuations could result
in extreme volatility in the price of our common stock, which could
cause a decline in the value of our common stock. Price volatility
of our common stock might worsen if the trading volume of our
common stock is low. The realization of any of the above risks or
any of a broad range of other risks, including those described in
these “Risk Factors,” could have a dramatic and material adverse
impact on the market price of our common stock.
38
We have never paid cash dividends and do not expect to pay
cash dividends in the foreseeable future. Any return on investment
may be limited to the value of our common stock.
We have never
paid cash dividends on our common stock and do not anticipate
paying cash dividends on our common stock in the foreseeable
future. The payment of dividends on our capital stock will depend
on our earnings, financial condition and other business and
economic factors affecting us at such time as the board of
directors may consider relevant. We currently anticipate that we
will re-invest any funds that we receive into the business to
further our business strategy, and not to pay dividends. If we do
not pay dividends, our common stock may be less valuable because a
return on your investment will only occur if the common stock price
appreciates.
A sale of a substantial number of shares of the common stock
may cause the price of our common stock to decline.
If our
stockholders sell, or the market perceives that our stockholders
intend to sell for various reasons, substantial amounts of our
common stock in the public market, including shares issued in
connection with the exercise of outstanding options or warrants,
the market price of our common stock could fall. Sales of a
substantial number of shares of our common stock may make it more
difficult for us to sell equity or equity-related securities in the
future at a time and price that we deem reasonable or appropriate.
We may become involved in securities class action litigation that
could divert management’s attention and harm our business.
The stock
markets have from time-to-time experienced significant price and
volume fluctuations that have affected the market prices for the
common stock of biotechnology and biopharmaceutical companies.
These broad market fluctuations may cause the market price of our
common stock to decline. In the past, securities class action
litigation has often been brought against a company following a
decline in the market price of our securities. This risk is
especially relevant for us because biotechnology and
biopharmaceutical companies have experienced significant stock
price volatility in recent years. We may become involved in this
type of litigation in the future. Litigation often is expensive and
diverts management’s attention and resources, which could adversely
affect our business.
Our quarterly operating results may fluctuate
significantly.
We expect our
operating results to be subject to quarterly fluctuations. Our net
loss and other operating results will be affected by numerous
factors, including:
·variations
in the level of expenses related to our development
programs;
·the
addition or termination of clinical trials;
·any
intellectual property infringement lawsuit in which we may become
involved;
·regulatory
developments affecting our product candidates; and
·our
execution of any collaborative, licensing or similar arrangements,
and the timing of payments we may make or receive under these
arrangements.
If our
quarterly operating results fall below the expectations of
investors or securities analysts, the price of our common stock
could decline substantially. Furthermore, any quarterly
fluctuations in our operating results may, in turn, cause the price
of our common stock to fluctuate substantially.
Existing stockholders’ interest in us may be diluted by
additional issuances of equity securities and raising funds through
acquisitions, lending and licensing arrangements may restrict our
operations or require us to relinquish proprietary
rights.
We may issue
additional equity securities to fund future expansion and pursuant
to equity incentive or employee benefit plans. We may also issue
additional equity for other purposes. These securities may have the
same rights as our common stock or, alternatively, may have
dividend, liquidation or other preferences to our common stock. The
issuance of additional equity securities will dilute the holdings
of existing stockholders and may reduce the share price of our
common stock.
If we raise
additional funds through collaboration, licensing or other similar
arrangements, it may be necessary to relinquish potentially
valuable rights to our product candidates, potential products or
proprietary technologies, or grant licenses on terms that may not
be favorable to us. If adequate funds are not available, our
ability to achieve profitability or to respond to competitive
pressures would be significantly limited and we may be required to
delay, significantly curtail or eliminate the development of our
product candidates.
39
Our investors could experience substantial dilution of their
investments as a result of subsequent exercises of our outstanding
options, including the CEO Performance Award, or the grant of
future equity awards by us.
As of
December 31, 2020, 10 million shares of our common stock were
reserved for issuance under our 2015 Stock Incentive Plan, of which
7,466,662 million shares of our common stock were subject to
options outstanding at such date at a weighted-average exercise
price of $.36 per share. To the extent outstanding options are
exercised, our existing stockholders may incur dilution.
We rely on
equity awards to motivate current employees and to attract new
employees. The grant of future equity awards by us to our employees
and other service providers may further dilute our
stockholders.
Our directors and executive officers own a significant
percentage of our capital stock, and they may make decisions that
you do not consider to be in your best interests or those of our
other stockholders.
As of
December 31, 2020, our directors and executive officers
beneficially owned, in the aggregate, approximately 55.51% of our
outstanding voting securities. As a result, if some or all of them
acted together, they would have the ability to exert significant
influence over the election of our board of directors and the
outcome of issues requiring approval by our stockholders. This
concentration of ownership may also have the effect of delaying or
preventing a change in control of our company that may be favored
by other stockholders. This could prevent transactions in which
stockholders might otherwise recover a premium for their shares
over current market prices.
Our articles of incorporation, as amended, and bylaws provide
for indemnification of officers and directors at our expense and
limits their liability, which may result in a major cost to us and
hurt the interests of our stockholders because corporate resources
may be expended for the benefit of our officers and/or
directors.
Our articles
of incorporation, as amended, bylaws and applicable Nevada law
provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against
attorney’s fees and other expenses incurred by them in any
litigation to which they become a party arising from their
association with or activities on our behalf. We will also bear the
expenses of such litigation for any of our directors, officers,
employees, or agents, upon such person’s promise to repay us,
therefore if it is ultimately determined that any such person shall
not have been entitled to indemnification. This indemnification
policy could result in substantial expenditures by us, which we
will be unable to recover.
We have issued Preferred Stock.
Our articles of incorporation, as amended, authorize the issuance
of up to 5,000,000 shares of preferred stock with designations,
rights and preferences determined from time to time by our Board of
Directors. We currently have one class of preferred stock
designated, our Series C Convertible Preferred Stock (“Series C
Preferred”). As of December 31, 2020, of the 5,000,000 preferred
shares authorized: (i) 1,000,000 shares were designated as Series A
Convertible Preferred Stock, of which none were issued and
outstanding, (ii) 500,000 shares were designated as Series B
Convertible Preferred Stock, of which none were issued and
outstanding, and (iii) 500,000 shares were designated as Series C
Convertible Preferred Stock, of which 500,000 shares were issued
and outstanding. The holders of our Preferred Stock have voting
control of the Company. Our Board of Directors is empowered,
without stockholder approval, to designate and issue preferred
stock with dividend, liquidation, conversion, voting, or other
rights which could adversely affect the voting power or other
rights of the holders of the common stock. The issuance of
additional shares of preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
North American Address:
6191
Cornerstone CT E. Suite 114
San
Diego, CA 92121
Item 3. Legal Proceedings
We are
subject to litigation, claims, investigations and audits arising
from time to time in the ordinary course of our business. However,
at this time, we are not aware on any material pending, threatened
or unasserted claims.
40
Item 4. Mine Safety Disclosure
Not
applicable.
PART II
Item 5. Market for Registrant’s Common Equity and Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Our common
stock is currently traded on the OTCQB under trading symbol “AXIM.”
An active public market for our common stock may not develop or be
sustained. Trading of securities on the OTCQB is often sporadic and
investors may have difficulty buying and selling or obtaining
market quotations.
The following
table sets forth the high and low closing bid prices for our common
stock as reported on OTCQB for the following periods. These prices
do not include retail mark-ups, markdowns or commissions, and may
not necessarily represent actual transactions.
|
High ($)
|
|
Low
($)
|
Fiscal Year Ended
December 31, 2020
|
|
|
|
First Quarter
|
0.51
|
|
0.12
|
Second Quarter
|
0.67
|
|
0.12
|
Third Quarter
|
1.05
|
|
0.24
|
Fourth Quarter
|
0.68
|
|
0.41
|
|
|
|
|
Fiscal Year Ended
December 31, 2019
|
|
|
|
First Quarter
|
2.25
|
|
0.91
|
Second Quarter
|
1.62
|
|
0.76
|
Third Quarter
|
0.97
|
|
0.62
|
Fourth Quarter
|
0.66
|
|
0.35
|
As of April
14, 2021, there are 75 holders of record of our common stock. This
number does not include beneficial holders of our stock. Because
many of our shares of common stock are held by brokers and other
institutions on behalf of shareholders, we are unable to estimate
the total number of shareholders represented by these record
holders.
Dividends
We have never
declared or paid cash dividends on our common stock. We anticipate
that in the future we will retain any earnings for operation of our
business. Accordingly, we do not anticipate declaring or paying any
cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation
Plans
Effective May
29, 2015 the company adopted a stock incentive plan under which
eligible persons or vendors whom provide the company services may
be afforded an opportunity to acquire an equity interest in the
company in exchange for those services provided. The Company has
reserved 9,806,000 shares of its common stock for issuance under
this plan.
Unregistered Sales of Equity Securities and Use of
Proceeds
The Company
did not sell any securities that were not registered under the
Securities Act of 1933, as amended, during fiscal year 2020 that
have not already been reported on a Current Report on Form 8-K or a
Quarterly Report on Form 10-Q.
Issuer Repurchases of Equity Securities
None.
Item 6. Selected Financial Data
Not
applicable to a “smaller reporting company” as defined in Item
10(f)(1) of SEC Regulation S-K.
41
Item 7 Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion of our financial condition and results
of operations for the years ended December 31, 2020 and 2019 should
be read in conjunction with the financial statements and the notes
to those statements that are included elsewhere in this Annual
Report on Form 10-K. Our discussion includes forward-looking
statements based upon current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations and
intentions. Actual results and the timing of events could differ
materially from those anticipated in these forward-looking
statements as a result of a number of factors. We use words such as
“anticipate,” “estimate,” “plan,” “project,” “continuing,”
“ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,”
“could,” and similar expressions to identify forward-looking
statements.
Liquidity and Capital Resources
We are in our
early stages of development and growth, without established records
of sales or earnings. We will be subject to numerous risks inherent
in the business and operations of financially unstable and early
stage or emerging growth companies.
We estimate
our G & A expenses for 2021 to be approximately $3,500,000,
which includes projected audit and accounting costs of $250,000.
R&D expenses for 2021 will vary based on drug formulation and
clinical trial project activity that the Company is engaged in,
which in turn is determined by available capital. We don't expect
R&D expenditures to exceed $2 million in 2021.
We can
provide no assurance that the Company can continue to satisfy its
cash requirements for at least the next twelve months.
We expect to
obtain financing through shareholder loans and private placements.
Shareholder loans will be without stated terms of repayment or
interest. We will not consider taking on any long-term or
short-term debt from financial institutions in the immediate
future. Shareholders loans may be granted from time to time as
required to meet current working capital needs. We have no formal
agreement that ensures that we will receive such loans. We may
exhaust this source of funding at any time.
We are
dependent upon certain related parties to provide continued funding
and capital resources. If continued funding and capital resources
are unavailable at reasonable terms, we may not be able to
implement our plan of operations. These loans may include terms
that may be highly dilutive to existing shareholders.
On September
14, 2017, our Registration Statement on Form S-3 was declared
effective by the SEC. We issued 7,494,792 shares common stock
pursuant to the Company’s Registration Statement on Form S-3 during
the year ending December 31, 2020.
In December
2019, a novel strain of coronavirus (“COVID-19”) was reported in
Wuhan, China. The COVID-19 pandemic, as it was declared by the
World Health Organization, has continued to spread and has already
caused severe global disruptions. The extent of COVID-19’s effect
on our operational and financial performance will depend on future
developments, including the duration, spread and intensity of the
pandemic, all of which are uncertain and difficult to predict
considering the rapidly evolving landscape.
We expect
COVID-19, along with the resulting government-imposed restrictions
on businesses, shelter-in place orders and temporary retail and
grocery store closures to negatively impact our operations due to
decreased consumer demand as well as potential production and
warehouse limitations which results in an event or condition,
before consideration of management’s plans, that could impact our
ability to meet future obligations. We believe that our cash and
cash equivalents on hand and these cost reduction measures, as
needed, will provide sufficient liquidity to fund our operations
for the next 12 months from the issuance of the consolidated
financial statements.
Sources of Capital
We expect to
sustain our working capital needs through shareholder loans and
private placements. Shareholder loans will be without stated terms
of repayment or interest. We will not consider taking on any
long-term or short-term debt from financial institutions in the
immediate future. Shareholders loans may be granted from time to
time as required to meet current working capital needs. We have no
formal agreement that ensures that we will receive such loans. We
may exhaust this source of funding at any time.
During the
next twelve months, we anticipate incurring costs related to:
(i)filing
Exchange Act reports,
(ii)contractual
obligations
(iii)clinical
trials, and
(iv)continued
research and development of pharmaceutical formulations
42
We believe we
will be able to meet these costs through use of funds in our
treasury, deferral of fees by certain service providers and
additional amounts, as necessary, to be loaned to or invested in us
by our shareholders, management or other investors. As of the date
of the period covered by this report, we have limited cash. There
are no assurances that we will be able to secure any additional
funding as needed. Currently, however our ability to continue as a
going concern is dependent upon our ability to generate future
profitable operations and/or to obtain the necessary financing to
meet our obligations and repay our liabilities arising from normal
business operations when they come due. Management’s plan includes
obtaining additional funds by equity financing and/or related party
advances; however, there is no assurance of additional funding
being available.
Going Concern
The Company’s
financial statements have been presented assuming that the Company
will continue as a going concern. As shown in the financial
statements, the Company has negative working capital of $783,163,
has an accumulated deficit of $41,849,922, has cash used in
continuing operating activities of $2,000,097 and presently does
not have the resources to accomplish its objectives during the next
twelve months. These conditions raise substantial doubt about the
ability of the Company to continue as a going concern. The
financial statements do not include any adjustments related to the
recoverability of assets and classification of liabilities that
might be necessary should the Company be unable to continue in
operation
The Company intends to raise
additional capital through private placements of debt and equity
securities, but there can be no assurance that these funds will be
available on terms acceptable to the Company or will be sufficient
to enable the Company to fully complete its development activities
or sustain operations. If the Company is unable to raise sufficient
additional funds, it will have to develop and implement a plan to
further extend payables, reduce overhead, or scale back its current
business plan until sufficient additional capital is raised to
support further operations. There can be no assurance that such a
plan will be successful.
Results of Operations
Comparison of the year ended December 31, 2020 and 2019.
|
|
December 31, 2020
|
|
December 31, 2019
|
|
$
Change
|
|
%
Change
|
Revenues
|
$
|
-
|
$
|
-
|
$
|
-
|
|
-
|
Cost of goods
sold
|
-
|
|
-
|
|
-
|
|
-
|
Gross margin
percentage
|
-
|
|
-
|
|
-
|
|
-
|
Operating
expenses
|
4,948,998
|
|
3,108,838
|
|
1,840,160
|
|
59.19%
|
Loss from continuing
operations
|
(4,948,998)
|
|
(3,108,838)
|
|
(1,840,160)
|
|
59.19%
|
Loss from
discontinued operations
|
(119,293)
|
|
(3,480,633)
|
|
3,361,340
|
|
-97.58%
|
Other expenses
(income)
|
1,341,589
|
|
(141,914)
|
|
1,483,503
|
|
-1045.35%
|
Net loss
|
$
|
(6,409,880)
|
$
|
(6,447,557)
|
$
|
37,677
|
|
-0.58%
|
Revenue
Revenues from
continuing operations recognized for twelve months ended December
31, 2020 and 2019 amounted to $-0- and $-0-, respectively. Revenues
from discontinued operations recognized for twelve months ended
December 31, 2020 and 2019 amounted to, $7,990 and $742,083,
respectively. The decrease is primarily due to discontinued sale
activities of Wellness gum in 2020.
Cost of Revenue
Cost of
Revenue from continuing operations recognized for twelve months
ended December 31, 2020 and 2019 amounted to $-0- and $-0-,
respectively. Cost of Revenue from discontinued operations
recognized for twelve months ended December 31, 2020 and 2019
amounted to, $2,893 and $575,694, respectively. The decrease is
primarily due to discontinued sale activities of Wellness gum in
2020.
Operating Expenses
Research
and Development Expenses
For the
twelve months ended December 31, 2020 and 2019 the Company incurred
research and development expenses of $426,708 and $-0- from
continuing operations, respectively. For the twelve months ended
December 31, 2020 and 2019 the Company incurred research and
development expenses of $359,251 and $2,452,506 from discontinued
operations, respectively. The decrease is primarily due to
discontinued research and clinical activities of Wellness gum in
2020.
43
Selling,
General and Administrative Expenses
Our Selling,
General and Administrative expenses for the years ending in 2020
and 2019 were $4,506,290 and $3,105,482, respectively. The increase
is primarily due to services in legal, consulting and accounting
because of the acquisition of Sapphire Biotech on March 2020.
Depreciation Expenses
For the year
ended December 31, 2020 our depreciation expenses were $16,001 as
compared to $3,356 for the year ended December 31, 2019. The
increase is primarily due to recognizing the property and equipment
as a result of the acquisition of Sapphire Biotech on March 17,
2020.
Other
Income and Expenses
Our interest
expenses for the year ending 2020 and 2019 were $234,754 and
$222,236 respectively. Loss on extinguishment of debt for the years
ending in 2020 and 2019 were $923,605 and $-0- respectively,
variance was result of debt exchange and true-up adjustment for
stock compensation. Amortization of debt discount was $86,059 and
$75,272 respectively. The change to the FMV in marketable
securities for years ending in 2020 and 2019 resulted in unrealized
gain (loss) and realized gain (loss) of $(104,705), $113,748,
$(109,040), and $268,274. Income grants from government for the
year ending 2020 and 2019 were $115,899 and $-0- respectively,
variance was result of receiving innovation research grants from
NCI in 2020.
For the Year Ended December 31, 2020 and 2019
Net Cash Provided by/Used in Operating Activities
Net cash used
in continuing operating activities and discontinued operating
activities was $2,000,097 and $1,215,602 respectively for the
twelve months ended December 31, 2020, as compared to net cash used
of $1,357,039 and $3,681,944 for the twelve months ended December
31, 2019. The cash used in operating activities is primarily
attributable to our net loss from operations of $6,409,880 and
offset by net changes in the balances of operating assets and
liabilities and non-cash expenses. For the twelve months ended
December 31, 2020 stock-based compensation was $1,958,730 and
amortization of debt discount was $86,059. For the twelve months
ended December 31, 2019 these non-cash expenses were stock-based
compensation of $1,835,000 and amortization of $75,272. For the
twelve months ended December 31, 2020 and 2019 the Company recorded
increase to accounts payable and accrued expenses $532,245 and
$153,740 of continuing operating activities. The Company recorded
for the twelve months ended December 31, 2020 and 2019 a loss on
extinguishment of debt of $923,604 and $(57,400), respectively, and
unrealized gain (loss) on marketable securities of $(104,705) and
$113,748, respectively, and realized gain (loss) on marketable
securities of $(109,040) and $268,274, respectively.
Net Cash provided by Investing Activities
Net cash used
in (provided by) investing activities during the period ended
December 31, 2020 was $9,980 compared to $348,187 for the same
period in 2019 due to $79,814 cash acquired in Sapphire acquisition
off set by cash used in equipment purchase for $97,324.
Net Cash Provided by Financing Activities
Net cash
provided by financing activities during the twelve months period
ended December 31, 2020, was $3,151,270 including $65,000 used in
discontinued financing activities compared to $3,396,799 for the
same period in 2019 including $78,917 used in discontinued
financing activities. The Company has successfully raised
significant capital in exchange for its common stock for the twelve
months ended December 31, 2020.
Off-Balance Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Contractual Obligations
As a “smaller
reporting company” as defined by Item 10 of Regulation S-K, the
Company is not required to provide this information.
44
Critical Accounting Policies
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of
revenue and expenses during the reported periods. The more critical
accounting estimates include estimates related to revenue
recognition and accounts receivable allowances. We also have other
key accounting policies, which involve the use of estimates,
judgments and assumptions that are significant to understanding our
results, which are described in Note 4 to our consolidated
financial statements.
Our
management’s discussion and analysis of financial condition and
results of operations is based on our consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States, or GAAP. The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities and expenses and the disclosure of contingent assets
and liabilities in our consolidated financial statements during the
reporting periods. These items are monitored and analyzed by us for
changes in facts and circumstances, and material changes in these
estimates could occur in the future. We base our estimates on
historical experience, known trends and events, and on various
other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Changes in estimates
are reflected in reported results for the period in which they
become known. Actual results may differ materially from these
estimates under different assumptions or conditions.
Fair Value of Financial Instruments
Fair value is
defined as the price that would be received to sell an asset, or
paid to transfer a liability, in an orderly transaction between
market participants. A fair value hierarchy has been established
for valuation inputs that gives the highest priority to quoted
prices in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs.
Research and Development Costs
Research and
development costs are expensed as incurred. Research and
development reimbursements and grants are recorded by us as a
reduction of research and development cost
Share-Based Payments
We estimate
the fair value of each stock option award at the grant date by
using the Black-Scholes option pricing model. The fair value
determined represents the cost for the award and is recognized over
the vesting period during which an employee is required to provide
service in exchange for the award. We account for forfeitures of
stock options as they occur.
Income Taxes
We use the
asset and liability method to calculate deferred taxes. Deferred
taxes are recognized based on the differences between the financial
reporting and income tax bases of assets and liabilities using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. We review deferred tax assets
for a valuation allowance based upon whether it is more likely than
not that the deferred tax asset will be fully realized. A valuation
allowance, if necessary, is provided against deferred tax assets,
based upon our assessment as to their realization.
We recognize
tax when the positions meet a “more-likely-than-not” recognition
threshold. There were no tax positions for which it is considered
reasonably possible that the total amounts of unrecognized tax
benefits will significantly increase or decrease within the next
year. We recognize interest related to unrecognized tax benefits in
interest expense and penalties in operating expenses.
Recently Issued Accounting Standards
Note 5 to
consolidated financial statements appearing elsewhere in this
report includes Recently Issued Accounting Standards.
Foreign Currency Transactions
Foreign
exchange gain (loss) in the year ended December 31, 2020 was
$(7,324) compared to $(3,198) for the same period in 2019. All
foreign currency gain (loss) were related to discontinued
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Not
applicable to a “smaller reporting company” as defined in Item
10(f)(1) of Regulation S-K.
45
Item 8. Financial Statement and Supplementary Data
The full text
of the Company's= consolidated financial statements for the fiscal
years ended December 31, 2020 and 2019, begins on page F-1 of this
Annual Report on Form 10-K.
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls
and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain
disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed pursuant
to the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules, regulations
and related forms, and that such information is accumulated and
communicated to our principal executive officer and principal
financial officer, as appropriate, to allow timely decisions
regarding required disclosure.
As of
December 31, 2020, we carried out an evaluation, under the
supervision and with the participation of our principal executive
officer and our principal financial officer of the effectiveness of
the design and operation of our disclosure controls and procedures.
Based on this evaluation, our principal executive officer and our
principal financial officer concluded that our disclosure controls
and procedures were effective as of the end of the period covered
by this report.
Management’s Annual Report on Internal Control over Financial
Reporting
The Company’s
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in rule 13a-15(f) of the Exchange Act. The Company’s internal
control system is designed to provide reasonable assurance to the
Company’s management and Board of Directors regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP. The
Company’s internal control over financial reporting includes those
policies and procedures that:
·Pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
·Provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP,
and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors
of the Company; and
·Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial
statements.
These
limitations preclude the board and management from having absolute
assurance of the achievement of the entity’s objectives. Even an
effective control system provides reasonable but not absolute
assurances.
An evaluation
was performed under the supervision and with the participation of
the Company’s management of the effectiveness of the design and
operation of the Company’s procedures and internal control over
financial reporting as of December 31, 2020. In making this
assessment, the Company used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework as updated as of
2017. Based on that evaluation, the Company’s management concluded
that the Company’s internal controls over financial reporting were
effective as of December 31, 2020. Management, board of directors,
and other personnel use judgment every day to select, develop, and
deploy controls across the Company. Management, among other
personnel apply judgement as they monitor and assess the
effectiveness of the system of internal control.
Attestation Report of the Registered Public Accounting
Firm
This annual
report does not include an attestation report of our registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by
the Company’s registered public accounting firm pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act, wherein
non-accelerated filers are exempt from Sarbanes-Oxley internal
control audit requirements.
46
Changes in Internal Control over Financial Reporting
The Company
has formal Compensation, Audit, Nominating and Governance
Committees. Management and the Board established controls over
financial reporting through policies and procedures that help
ensure that management’s directives to mitigate risks to the
achievement of objectives are carried out. Control activities are
performed at all levels of the entity, at various levels within
day-to-day procedures, and over technology environment. The
Company’s control over financial reporting includes combination of
preventive and detective controls and encompass a range of manual
and automated activities such as authorizations and approvals,
verifications, reconciliations, and business performance
reviews.
Inherent Limitations of Internal Controls
Internal
control provides reasonable assurance of achieving entity’s
objectives, limitations do exist. Internal control cannot prevent
bad judgment or decisions, or external events that can cause the
Company to fail to achieve its operational goals. However, even an
effective system of internal control can experience a failure. The
limitations include, but not limited to: suitability of objectives
established as a precondition to internal control; reality that
human judgment in decision making can be faulty and subject to
bias; breakdowns that can occur because of human failures such as
simple errors; ability of management to override internal control;
ability of management, other personnel, and/or third parties to
circumvent controls through collusion; external events beyond the
organization’s control. Notwithstanding these inherent limitations,
management is aware of them when selecting, developing, and
deploying controls that minimize, to the extent practical, these
limitations. Segregation of duties is built into the selection and
development of control activities. Where segregation of duties is
not practical, management selects and develops alternative control
activities. Ongoing evaluations are built into business process at
different hierarchy levels of the Company and provide timely
information. Findings are evaluated against criteria established by
regulations, recognized standard-setting bodies or management and
the board of directors, and deficiencies are communicated to
management and the board of directors as appropriate.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
Directors and Executive Officers AXIM
Our executive
officers, key employees and directors are listed in the below
table. There are no arrangements, agreements or understandings
between non-management security holders and management under which
non-management security holders may directly or indirectly
participate in or influence the management of our affairs. There
are no arrangements or understandings between any director and any
other person pursuant to which any director or executive officer
was or is to be selected as a director or executive officer, as
applicable. There currently are no legal proceedings, and during
the past ten years there have been no legal proceedings, that are
material to the evaluation of the ability or integrity of any of
our directors or director nominees.
NAME
|
AGE
|
POSITION
|
John W.
Huemoeller II
|
65
|
Chief
Executive Officer, President
|
Robert Malasek
|
52
|
Chief Financial
Officer, Secretary
|
Timothy R.
Scott, PhD
|
68
|
Director
|
Robert
Cunningham
|
73
|
Director
|
Mauricio Javier
Gatto-Bellora
|
59
|
Director
|
Peter O’Rourke
|
48
|
Director
|
47
The background of our executive officers, key employees and
directors is as follows:
John W. Huemoeller II - Chief Executive Officer,
President
Mr.
Huemoeller has over 30 years’ experience in financial markets and
publicly traded companies including investment banking, corporate
finance, executive management, sales and marketing, mergers and
acquisitions, leveraged buyouts and private placements of
securities. Since April 2015 to the present, Mr. Huemoeller has
been the chief executive officer and president of Air Water Earth
Inc. From March 2013 to January 2016, he was chairman, chief
executive officer and chief financial officer of Propell
Technologies Group Inc. From April 2012 to March 2013, Mr.
Huemoeller served as the president of Joshua Tree Capital Inc. Mr.
Huemoeller has held Series 3, 7, 24, 63 and 79 Securities Licenses,
was registered with various state insurance boards, the Chicago
Board of Trade as a commodities broker, and worked for various
broker-dealers throughout his career including Smith Barney, Drexel
Burnham, Prudential Securities, and Paine Webber. Mr. Huemoeller is
co-author of U.S. Patent #5,855,005.
Robert Malasek - Chief Financial Officer, Secretary
Mr. Malasek’s experience includes
serving as the Assistant Controller for Starwood Hotel &
Resorts Worldwide, Inc., Controller for Pacific Crest Equity
Partners (a private equity company), and Chief Financial Officer
for NatureWell, Inc. From 2011 to 2015, Robert served as the
Chief Financial Officer, Secretary, Treasurer and a Director of
Liberty Coal Energy Corp. Since 2015, Robert has served as
the Chief Financial Officer of Cannalink, Inc. Robert received his Bachelor of Science
in Accountancy from San Diego State University.
Timothy R. Scott, PhD - Director
Dr. Scott has
served on the Board of Directors of Medical Marijuana, Inc. from
March 2015 to the present. From September 2001 to May 2008, Dr.
Scott served on the board of directors of Naturewell, Incorporated,
a publicly traded company engaged in the nutraceutical and
homeopathic drug business. From 1998 to 2000, Dr. Scott served as a
member of the board of directors of ICH Corporation, an American
Stock Exchange listed company, which owned 265 fast food and family
dining restaurants having approximately $265 million in revenues
and 7,800 employees, and as a member of ICH’s compensation
committee. Dr. Scott has served as chairman of the board of
directors, president and senior pastor of a 2,500-member church
located in San Diego, California from 1992 to the present. He also
has served as chairman and president of Project Reach World, Inc.,
a 501(c)(3) charitable organization from 1995 to the present. He
received his Ph.D. in Theology from Christian University in 1981
and served as a Professor of Philosophy and Religion at Pacific
International College from 1981 to 1985.
Robert Cunningham
- Director
Robert “Bob”
Cunningham has over 40 years of executive management experience in
financial services and venture capital. From August 2011 to the
present, he serves as the chief executive officer of Preferred
Dealer Programs LLC, a venture funded firm developing electronic
payment technologies for banks. Prior to joining PDP, from January
1985 to December 2006, he was the founding partner in Placer
Financial Group, a nationwide mortgage and real estate development
company. Mr. Cunningham also served as Trustee for the U.S.
Department of Justice, and as a member of the board for numerous
firms, including Allied Commercial Corporation, Vermillion
Development, Pacific Building Industries Corporation and Bond HD
Hospitality Group. From March 2015 to the present, Mr. Cunningham
has served on the board of directors of Medical Marijuana, Inc.
Mauricio Javier Gatto-Bellora - Director
Mr.
Gatto-Bellora has over 30 years in the pharmaceutical, biochemistry
and cosmetics industries throughout the world. Mr. Gatto-Bellora’s
business background includes Allergan (Mexico, Latin America,
Brazil, Argentina), Natura (USA, Argentina, Brazil, Chile, Peru,
Bolivia, France), Jugos Del Sur S.A., Mary Kay Inc, DaumDeuman,
LLC, MonaVie and Hair Ventures, LLC. Since 2015 to the present, Mr.
Gatto-Bellora has been the founder and President of Hair Ventures,
LLC based in New York City. While working with Natura from
2002-2011, Mr. Gatto-Bellora served as CEO-International,
CEO-Brazil & Latin America, President-Latin America and General
Manager-Argentina being responsible for more than US$ 5 Billion in
sales. From 2011 to the present, Mr. Gatto-Bellora served as the
founder and CEO of Daumdeuman, LLC, a company specializing in the
strategy and implementation of startup and turnaround companies
with an emphasis on international scenarios. From 2013-2015, Mr.
Gatto-Bellora was the President, CEO and Chairman of the Board of
MonaVie a MLM company selling nutritional products in 46 countries.
Mr. Gatto-Bellora holds a doctor’s degree in Pharmaceutical
Sciences & Biochemistry from the University of Buenos Aires,
and Postgrad degree in International business from INSEAD. Mr Gatto
Bellora was published in multiple countries including the Journal
of Micro-encapsulation and Journal of antimicrobial agents and
chemotherapy.
48
Peter O’Rourke – Director
Mr.
O’Rourke’s background includes holding leadership roles in
management consulting, private equity, aerospace and operations
companies. Mr. O’Rourke’s experience includes leadership in sales,
marketing, operations, finance and performance improvement. In
2018, Mr. O’Rourke was appointed Acting Secretary of the U.S.
Department of Veterans Affairs after serving as the Chief of Staff
and Executive Director for the Office of Accountability and
Whistleblower Protection. Before joining the Department of Veterans
Affairs, Mr. O’Rouke honorably served as a U.S. Navy enlisted
Airman and an Air Force Officer and Logistician. Mr. O’Rourke
received a Bachelor of Arts in Political Science from the
University of Tennessee in Knoxville as well as a Master of Science
in Logistics and Supply Chain Management from the United States Air
Force’s Institute of Technology.
Officers of Sapphire Biotech, Inc.
Catalina Valencia, J.D
Chief Executive Officer and Co-Founder - Sapphire Biotech,
Inc.
Catalina
specialized in leading enterprises to success through the strategic
development of businesses and products. Her career focus has been
on start-ups and small businesses in the biotech industry starting
with Genentech. Early in her legal career, Catalina joined the Rio
de Janeiro office of Cleary, Gottlieb, Steen & Hamilton as an
Associate Attorney where she represented American companies seeking
to enter into joint ventures with Brazilian enterprises. In the Bay
Area, she was recruited by Itel, a Wall Street success story that
declared a historic bankruptcy due to its size just one year after
she joined the company. She successfully completed the disposition
of over $1 Billion in executory contracts, enabling the company to
emerge from bankruptcy. Subsequently, Catalina was recruited by
Genentech, Inc., the premier biotech pioneer, during the company’s
early start-up phase. Catalina’s accomplishments included
structuring ventures which formed the basis for Genentech’s
international expansion. Catalina has been the co-founder of
several companies, most recently Sapphire Biotech, all with a
mission to develop pioneering scientific technologies with
life-saving potential. Catalina graduated Magna Cum Laude, Highest
Department Honors, with a B.A. degree from UCLA and received her
J.D. Degree from the University of California, Berkeley School of
Law. Her scholastic achievements include an Alumni Scholarship to
UCLA, Fellowship to Berkeley Law School, Teaching Fellowship to
Stanford Law School and Fulbright Fellowship to Brazil.
Dr. Sergei A. Svarovsky, Ph.D, MBA
Chief Scientific Officer and Co-Founder - Sapphire Biotech,
Inc.
Dr. Svarovsky
is the scientific founder of Sapphire. He brings to the Company a
breadth of experience and expertise from his academic, government
and industry careers in the fields of medicinal chemistry and
medical diagnostics. He has authored over 25 peer reviewed
publications, reviews and book chapters, contributed to at least 20
international and U.S. patents and participated in over 50
international symposia. Some of his patents has been licensed by
Pfizer, BioRad, among others. He serves on Editorial Boards of
several international journals in the fields of chemistry, medical
technology and nanotechnology and is a reviewer for a number of
national and international funding organizations including National
Science Foundation, National Institutes of Health, Israeli Science
Foundation, and Georgian Science Foundations. Dr. Svarovsky
obtained a PhD in Physical Organic Chemistry and MBA in Finance
from University of West Virginia in 2000. Prior to entering the
biopharma industry, Dr. Svarovsky served as a Postdoctoral Fellow
at the Laboratory of Medicinal Chemistry at the National Cancer
Institute. In 2006 he became an Associate Professor at the
Biodesign Institute at Arizona State University where he met with
another co-founder of Sapphire, Dr. Douglas Lake. Dr. Svarovsky
joins Axim Biotechnologies, Inc. in the role of Chief Scientific
Officer with a mission to develop novel therapeutics modalities and
diagnostics for the treatment and detection of cancer.
Dr. Douglas
Lake, Ph.D
Chief Clinical Officer - Sapphire Biotech, Inc.
Douglas Lake
is a tumor immunologist who has been at ASU since 2006. Previously,
he was at the University of Arizona Cancer Center where he studied
anti-tumor T cells and tumor-associated peptides as immunotherapy
targets. Currently, he is investigating an enzyme called QSOX1 that
is over-expressed in multiple tumor types. Lake was the first to
show that this enzyme is important in tumor cell growth, invasion
and metastasis. His laboratory is developing chemical and
biological inhibitors of QSOX1 with strong therapeutic potential.
His laboratory also studies Valley Fever (Coccidioidomycosis). A
pressing clinical need is that Valley Fever lacks an accurate and
sensitive diagnostic test while patients are acutely symptomatic.
Lake is developing a test that detects bits and pieces of the
fungus in urine in infected patients. Lake’s research team also
studies chimeric antigen receptor T cells (CAR T cells). This
technology re-directs the immune system toward defined markers on
tumors and unleashes T cells as the most potent killers against
tumors. The vision for CAR T therapies is to re-activate patients’
immune systems against their tumors, such that they will have
lifelong immunity against their tumor and any mutant tumors that
might arise. In addition, Lake teaches immunology and microbiology
at the undergraduate level and advance cell biology at the graduate
level.
49
Alim Seit-Nebi, Ph.D
Chief Technology Officer and Co-Founder - Sapphire Biotech,
Inc.
Dr.Seit-Nebi
leads the development and implementation of new antibody and
protein-based technologies in diagnostics and therapeutics. Prior
to joining Sapphire, Dr.Seit-Nebi was leading the development and
production of antibodies, recombinant proteins, biomarkers, and
immunoassays for diagnostic and therapeutic applications for
industry and academia, serving at various roles at GenWay Biotech,
Inc. for more than 11 years. Dr.Seit-Nebi is an expert in a broad
array of biochemical, genetic, molecular, and cellular biology
methods with detailed knowledge of signaling pathways in
inflammation, oncogenesis, and cell stress response. He published
38 articles in prestigious peer-reviewed life-science journals. He
received a doctorate degree in molecular biology from the
Engelhardt Institute of Molecular Biology in Moscow, Russia, in
2002. He then pursued his research interests in immunology and
molecular biology as a postdoctoral fellow at The Scripps Research
Institute.
Maria Moa, Ph.D
VP, Product Development - Sapphire Biotech, Inc.
Dr. Maria J.
Gonzalez Moa is an NCI-trained Medicinal Chemist and as VP, Product
Development, will be responsible for chemical synthesis, compound
design, compound acquisition from outside sources, and assistance
with molecular modeling and NMR. Dr. Moa holds a Ph.D in
Organic/Physical Chemistry from the University of Vigo, Spain. At
the University of Vigo, she was Postdoctoral Research Associate,
Department of Organic and Physical Chemistry. Dr. Moa was a
Postdoctoral Fellow in the Laboratory of Medicinal Chemistry at the
National Cancer Institute, National Institutes of Health,
Frederick, Maryland. Dr. Moa was Postdoctoral Research Associate at
the Center for Innovations in Medicine, the Biodesign Institute,
Arizona State University in Tempe, Arizona. She has extensive
experience working with new tools for diagnostics and was in charge
of the development of novel lateral flow assay tests for the rapid
diagnostic of infectious diseases. Her experience in Medicinal
Chemistry includes design, synthesis, and the computational study
of small molecules with potential anticancer and antiviral
activity. Dr. Moa has published and co-authored over 40 articles in
peer-reviewed publications, reviews and book chapters.
Corporate Governance
General
We believe that good corporate governance is important to ensure
that the Company is managed for the long-term benefit of our
shareholders. This section describes key corporate governance
practices that we have adopted.
Board of Directors Meetings and Attendance
The Company’s
Board of Directors has responsibility for establishing broad
corporate policies and reviewing our overall performance rather
than day-to-day operations. The primary responsibility of the Board
is to oversee the management of the Company and, in doing so, serve
the best interests of the Company and its shareholders. The Board
selects, evaluates and provides for the succession of executive
officers and, subject to shareholder election, directors. It
reviews and approves corporate objectives and strategies and
evaluates significant policies and proposed major commitments of
corporate resources. The Board also participates in decisions that
have a potential major economic impact on the Company. Management
keeps the directors informed of Company activity through regular
communication, including written reports and presentations at Board
and committee meetings.
Committees of the Board of Directors
The Company
has formal Compensation and Audit and Nominating and Governance
Committees. All other functions of the Board are being undertaken
by the Board of Directors as a whole.
On April 2,
2019, Blake N. Schroeder resigned from the Company’s Audit,
Compensation and Nomination and Governance Committees. Mr.
Schroeder’s resignation was not because of any disagreements with
the Company on matters relating to its operations, policies and
practices.
Effective
April 3, 2019, the Company’s Board of Directors appointed Mauricio
Javier Gatto-Bellora as a member of the Company’s Audit,
Compensation and Nominating and Governance Committees.
On
May 6, 2020, the Company bought back 500,000 shares of Series B
Preferred stock and retired it.
Effective May
6, 2020, Dr. George Anastassov resigned as a member of the
Company’s Board of Directors. Dr. George Anastassov’s resignation
was not because of any disagreements with the Company on matters
relating to its operations, policies and practices.
50
Effective May
6, 2020, Lekhram Changoer resigned as a member of the Company’s
Board of Directors. Lekhram Changoer’s resignation was not because
of any disagreements with the Company on matters relating to its
operations, policies and practices.
Effective May
6, 2020, Dr. Philip Van Damme resigned as a member of the Company’s
Board of Directors. Dr. Philip Van Damme’s resignation was not
because of any disagreements with the Company on matters relating
to its operations, policies and practices.
On July 21,
2020 pursuant to the Company’s Amended and Restated Bylaws, the
holder of the Company’s Series C Preferred Stock appointed Peter
O’Rourke to fill one of the vacant positions on board created by
the resignations of Dr. George Anastassov, Lekhram Changoer, and
Dr. Philip Van Damme.
Compensation Committee
The
Compensation Committee consists of Mauricio Javier Gatto-Bellora,
Timothy Scott, and Robert Cunningham and has established a charter
that requires all members of the Compensation Committee to be
“non-employee directors” for purposes of Rule 16b-3 of the Exchange
Act and satisfy the requirements of an “outside director” for
purposes of Section 16(m) of the Internal Revenue Code. The
Compensation Committee is responsible for overseeing and, as
appropriate, making recommendations to the Board of Directors
regarding the annual salaries and other compensation of our
executive officers, our general employee compensation and other
policies and providing assistance and recommendations with respect
to our compensation policies and practices. The Compensation
Committee is authorized to carry out these activities and other
actions reasonably related to the Compensation Committee's purposes
or assigned by the Board of Directors from time to time. The
Compensation Committee's specific responsibilities are delineated
in its charter.
Audit Committee
The Audit
Committee consists of Robert Cunningham, Mauricio Javier
Gatto-Bellora, and Timothy Scott and has established a charter that
requires all members of the Audit Committee to be independent in
accordance with applicable listing standards. Our securities are
quoted on the OTCQB, which does not have any director independence
requirements. Further, companies with securities only quoted on the
OTCQB are not required to comply with the independence standards
set forth in Rule 10A-3(b)(1) of the Exchange Act. Our Board of
Directors has also determined that Mr. Robert Cunningham is an
“audit committee financial expert” as defined in Item 407(d) of
Regulation S-K.
The Audit
Committees responsibilities include: a) selecting and evaluating
the performance of our independent auditors; b) reviewing the scope
of the audit to be conducted by our independent auditors, as well
as the result of their audit, and approving audit and non-audit
services to be provided; c) reviewing and assessing our financial
reporting activities and disclosure, including our earnings press
releases and periodic reports, and the accounting standards and
principles followed; d) reviewing the scope, adequacy and
effectiveness of our internal control over financial reporting; e)
reviewing management’s assessment of our compliance with our
disclosure controls and procedures; f) reviewing our public
disclosure policies and procedures; g) reviewing our guidelines and
policies regarding risk assessment and management, our tax strategy
and our investment policy; h) reviewing and approving related-party
transactions; and i) reviewing threatened or pending litigation
matters and investigating matters brought to the committees
attention that are within the scope of its duties.
Nominating and Governance Committee
The
Nominating and Governance Committee consists of Mauricio Javier
Gatto-Bellora, Robert Cunningham, and Timothy Scott and has
established a charter that governs its role with the Company.
Timothy Scott has been appointed as the Chairman of the Nominating
and Governance Committee.
The role of
the Nominating and Governance Committee is to identify, qualify and
propose new board members for the Company. The Nominating and
Governance Committee shall also submit a slate of officers
including, when applicable. The Nominating and Governance Committee
shall: (i) obtain biographies and effectively screen all
nominations to ensure selection of members of the highest caliber
to serve as selected officers and directors. and (ii) in connection
with the performance of its duties, the Nominating and Governance
Committee shall have unrestricted access to and assistance from the
officers, employees and independent auditors of the Corporation,
and shall be furnished with such resources and support from the
Company as the Nominating and Governance Committee shall deem
necessary. The Nominating and Governance Committee shall have the
authority to employ, at the expense of the Company, such experts
and professionals as the Nominating and Governance Committee shall
deem appropriate from time to time.
51
Security Holder Communications with our Board of
Directors
The Company provides an informal process for security holders to
send communications to our board of directors. Security holders who
wish to contact the board of directors or any of its members may do
so by writing to: AXIM Biotechnologies, Inc., 45 Rockefeller Plaza
20th Floor, Suite 83, New York, NY 10111. Correspondence directed
to an individual board member is referred, unopened, to that
member. Correspondence not directed to a particular board member is
referred, unopened, to the President and CEO.
Conflicts of
Interest
Some of
officers and all our directors are not obligated to commit their
full time and attention to our business and, accordingly, they may
encounter a conflict of interest in allocating their time between
our operations and those of other businesses. In the course of
their other business activities, they may become aware of
investment and business opportunities which may be appropriate for
presentation to us as well as other entities to which they owe a
fiduciary duty. As a result, they may have conflicts of interest in
determining to which entity a particular business opportunity
should be presented. They may be currently and, in the future, may
become affiliated with entities that are engaged in business
activities similar to those we intend to conduct.
In general,
officers and directors of a corporation are required to present
business opportunities to the Company if:
1.
The Company could financially undertake the opportunity;
2.
The opportunity is within the Company’s line of business;
and
3. It
would be unfair to the Company and its shareholders not to bring
the opportunity to the attention of the Company.
Code of Ethics
We have
adopted a written code of ethics that obligates our directors,
officers and employees to disclose potential conflicts of interest
and prohibits those persons from engaging in such transactions
without our consent.
Compliance with Section 16(a) of Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the registrant’s officers and directors, and persons who
own more than 10% of a registered class of the registrant’s equity
securities, to file reports of ownership and changes in ownership
of equity securities of the Registrant with the Securities and
Exchange Commission. Officers, directors and greater-than-10%
shareholders are required by the Securities and Exchange Commission
regulation to furnish the registrant with copies of all Section
16(a) forms that they file. Based solely upon a review of Forms 3
and 4 and amendments thereto furnished to us during our most recent
fiscal year and Forms 5 and amendments thereto furnished to us with
respect to our most recent fiscal year, to the best of our
knowledge, all executive officers, directors and persons holding
greater than 10% of our issued and outstanding stock have filed the
required reports in a timely manner during fiscal 2017.
Family Relationships
There is no family relationship between any Director, executive or
person nominated or chosen by the Company to become a Director or
executive officer.
52
Item 11. Executive
Compensation
The following
table sets forth the cash compensation paid to our officers and
directors for services rendered, and to be rendered:
Name and Principal
Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Warrant
Option
Awards
|
Non-Equity
Incentive
Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
All
Other
Compensation
|
Total/$
|
John W. Huemoeller
II
|
2020
|
420,000
|
-
|
-
|
1,260,000
|
-
|
-
|
-
|
1,680,000
|
Director, Chief
Executive Officer
|
2019
|
210,000
|
-
|
-
|
1,820,000
|
-
|
-
|
-
|
2,030,000
|
|
|
|
|
|
|
|
|
|
-
|
Robert
Malasek
|
2020
|
36,000
|
-
|
-
|
126,000
|
-
|
-
|
-
|
162,000
|
Chief Financial
Officer, Secretary
|
2019
|
30,000
|
-
|
-
|
-
|
-
|
-
|
-
|
30,000
|
|
|
|
|
|
|
|
|
|
-
|
Timothy R. Scott,
PhD
|
2020
|
20,000
|
-
|
-
|
55,405
|
-
|
-
|
-
|
75,405
|
Director
|
2019
|
40,000
|
-
|
-
|
-
|
-
|
-
|
-
|
40,000
|
|
|
|
|
|
|
|
|
|
-
|
Robert
Cunningham
|
2020
|
20,000
|
-
|
-
|
55,405
|
-
|
-
|
-
|
75,405
|
Director
|
2019
|
40,000
|
-
|
-
|
-
|
-
|
-
|
-
|
40,000
|
|
|
|
|
|
|
|
|
|
-
|
Peter O’
Rourke
|
2020
|
10,000
|
-
|
-
|
-
|
-
|
-
|
-
|
10,000
|
Director, Chief
Executive Officer
|
2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
-
|
Mauricio J
Gatto-Bellora
|
2020
|
20,000
|
-
|
-
|
55,405
|
-
|
-
|
-
|
75,405
|
Director
|
2019
|
20,000
|
-
|
-
|
-
|
-
|
-
|
-
|
20,000
|
|
|
|
|
|
|
|
|
|
|
Douglas F.
Lake
|
2020
|
-
|
-
|
-
|
164,433
|
-
|
-
|
-
|
164,433
|
Director
|
2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Alim
Seit-Nebi
|
2020
|
-
|
-
|
-
|
82,218
|
-
|
-
|
-
|
82,218
|
Director
|
2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Noel C.
Gillespie
|
2020
|
-
|
-
|
-
|
148,879
|
-
|
-
|
-
|
148,879
|
Director
|
2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Employment
Agreements
On January 2,
2019 the Company entered into the term of Executive’s employment
agreement, at a base salary of $10,000 per month with John W.
Huemoeller II to serve as its Chief Executive Officer. The Company
and Executive acknowledge and agree that Executive’s employment
hereunder shall at all times be “at will,” which means that either
Executive may resign at any time for any reason or for no reason,
and that the Company may terminate Executive’s employment at any
time for any reason or for no reason, in either case, subject to
the applicable provisions of this Agreement. In further
consideration for Executive’s services and subject to the approval
of the Board, Executive will be granted an option to purchase
2,000,000 shares of the Company’s common stock (the “Option
Shares”). The option will be subject to the terms and conditions
applicable to stock options granted under the Company’s 2015 Stock
Incentive Plan, as amended from time to time (the “Plan”), and as
described in the Plan and the stock option agreement, which
Executive will be required to sign. 50% of the Option Shares shall
vest on the date of grant and the remaining 50% of the Option
Shares shall vest on the 12- month anniversary of the grant date,
subject to Executive’s continued employment by the Company. The
exercise price per share will be equal to the fair market value per
share on the date of grant, as determined by the last closing price
of the Company’s common stock the day prior to grant. Beginning in
October 2019, the board decided to increase CEO base salary to
$35,000 per month.
53
On September
1, 2016, the Company entered into an amended and restated
employment agreement with Mr. Lekhram Changoer, its Chief
Technology Officer. The agreement does not have a set term and may
be terminated at any time by the Company or Mr. Changoer with
proper notice. Under the agreement Mr. Changoer receives an annual
base compensation of $240,000 and an incentive payment of 2,000,000
shares of the Company’s common stock due upon execution of the
agreement. Upon the one year anniversary of the agreement, the
Company has the direction to grant additional equity awards to Mr.
Changoer. On May 6, 2020, Mr. Lekhram Changoer resigned as a member
of the Company’s Board of Directors
On August 3,
2016, all AXIM affiliates, as such term is defined by the
Securities Act of 1933, as amended (the “Act”), entered into an
agreement whereby each affiliate agreed to be prohibited from
selling any Company securities pursuant to Rule 144 of the Act
until the later of: (i) twelve (12) months from the date of the
agreement; or (ii) twelve (12) months from the date of acquisition
of the securities.
On or about
June 29, 2016, Robert Malasek was appointed as the Company’s Chief
Financial Officer and Secretary. In April, 2017 the Company entered
in employment agreement with Robert Malasek its, Chief Financial
Officer and Secretary. The agreement does not have a set term and
may be terminated by any time by the Company or Mr. Robert Malasek
with proper notice. Under the agreement Mr. Malasek receives a
monthly base compensation of $1,000 and on March 20, 2018 issued
unrestricted 50,000 shares of the Company’s common stock. In April
2019 the Company agreed to increase monthly base compensation to
$3,000 effective April 1, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The following
table sets forth certain information regarding our common stock
beneficially owned as of December 31, 2020:
(i)each
stockholder known by us to be the beneficial owner of five (5%)
percent or more of our outstanding common stock;
(ii)each
of our officers and directors
This information as to beneficial ownership was furnished to the
Company by or on behalf of each person named. As at December 31,
2020, there were 125,327,579 shares of our common stock issued and
outstanding.
Title of
Class
|
Name and Address of
Beneficial Owner
|
Amount and Nature
of
Beneficial Ownership
|
Percentage
of
Class
|
Common Stock
|
John W. Huemoeller
II(1)
|
9,000,000
|
6.84%
|
Common Stock
|
Robert
Malasek(1)
|
300,000
|
0.22%
|
Common Stock
|
Mauricio Javier Gatto-Bellora(1)
|
333,333
|
0.25
|
Common Stock
|
Timothy R. Scott,
PhD(1)
|
333,333
|
0.25%
|
Common Stock
|
Robert
Cunningham(1)
|
333,333
|
0.25%
|
Common Stock
|
Peter O’Rourke
(1)
|
-
|
**
|
Common Stock
|
Stuart W Titus
(1)
|
5,236,645
|
3.97%
|
Common Stock
|
MJNA Investment
Holdings LLC(2) (3)
|
17,969,125
|
13.65%
|
Common Stock
|
Catalina Valencia
|
19,800,000
|
15.04%
|
Common Stock
|
Glycodots, LLC
|
19,800,000
|
15.04%
|
Common Stock
|
All Directors and
Officers as a Group
|
73,105,770
|
55.51%
|
** Less than .1%
(1)The
address is: 6191 Cornerstone Court, E. Suite 114, San Diego, CA
92121
(2)The
address is: 13831 Danielson, Poway, CA 92064.
(3)MJNA
Investment Holdings, LLC owns 17,969,125 individually and holds
500,000 shares of our Series C preferred stock.
Beneficial ownership is determined in accordance with the rules and
regulations of the SEC. The number of shares and the percentage
beneficially owned by each individual listed above include shares
that are subject to options held by that individual that are
immediately exercisable or exercisable within 60 days from the date
of this Report and the number of shares and the percentage
beneficially owned by all officers and directors as a group
includes shares subject to options held by all officers and
directors as a group that are immediately exercisable or
exercisable within 60 days from the date of this Report.
54
Item
13. Certain Relationships and Related Transactions, and Director
Independence
On August 8,
2014 the Company entered into a Promissory Note Agreement with
CanChew Biotechnologies, LLC (CCB), a related party (the owners of
CCB also own a majority of the outstanding shares of the Company),
under which it borrowed $1,000,000 to fund working capital. The
original loan was a demand note bearing interest at the rate of 7%
per annum, which amount, along with principal, was payable upon
demand. The demand note was amended effective January 1, 2015 to
reduce the annual interest rate to 3%. All other terms and
conditions shall remain in full force and effect. The Company is in
discussions to have the demand note modified or exchanged for a
longer term, fixed maturity note.
On May 21, 2014, the Company’s President advanced an additional
$5,000 to the Company to fund working capital needs.
On June 25, 2014, the Company received a non-interest-bearing
advance from CanChew Biotechnologies, LLC (CCB) of $30,000 to pay
the down payment on its D & O liability insurance. In addition,
the Company during 2014 was advanced an additional $35,775 for
operating expenses principally for the owner’s salary. For the
years ended December 31, 2017 and 2016, the Company received
additional advance of $0 and $1,619,067, respectively for operation
expenses. The advance is due on demand. In the 4th
quarter of 2019 and 2018, the Company evaluated changes in imputed
interest and recorded $25,292 and $44,312 of interest expenses
which represents 1.61% and 2.76% interest rate (Index for
Applicable Federal Rates) as provided by IRS for December 2019 and
2018.
On May 6, 2020 (the “Effective Date”), AXIM Biotechnologies, Inc.,
a Nevada corporation (the “Company”), entered into an Agreement
(the “Separation Agreement”). Pursuant to the Separation Agreement,
the Company transferred 100% of its interest in CanCo and CanChew
to an entity designated by Dr. Anastassov. In consideration for the
transfers set forth above, any and all indebtedness owed by the
Company to CanChew, totaling approximately $2.61 million, was
satisfied and paid in its entirety.
Board of Directors Independence
The Company considers Mauricio Javier Gatto-Bellora, Robert
Cunningham, and Timothy Scott to be “independent” within the
meaning of definitions established by the Securities and Exchange
Commission.
Item 14. Principal Accountant Fees and Services
Audit Fees
RBSM LLP,
billed us $116,703 and $107,000 in audit fees during the years
ended December 31, 2020 and 2019, respectively.
Audit-Related Fees
We did not pay any fees to any of our primary auditors, for
assurance and related services that are not reported under Audit
Fees above, during our fiscal years ended December 31, 2020 and
2019.
Tax and All Other Fees
We did not pay any fees to any of our primary auditors for tax
compliance, tax advice, tax planning or other work during our
fiscal years ended December 31, 2020 and 2019.
Pre-Approval Policies and Procedures
With respect to the audit of our financial statements as of
December 31, 2020 and 2019, and for the years then ended, none of
the hours expended on any of our primary auditor’s engagement to
audit those financial statements were attributed to work by persons
other than our primary auditor’s full- time, permanent
employees.
Item 15. Exhibits, Financial Statement Schedules
Please see the below Exhibit Index and the Index to Financial
Statements and related notes to financials which follows the
signature page to this annual report on Form 10-K and which is
incorporated by reference herein.
55
Exhibit Index
|
|
Incorporated by Reference
(Form Type)
|
|
Filed
with
This
Report
|
Exhibits
|
Exhibit #
|
Filing Date
|
|
|
|
|
|
Articles of
Incorporation, as filed with the Nevada Secretary of State on
November 18, 2010.
|
3.1
|
10-Q
|
11/14/2014
|
|
|
|
|
|
|
Certificate of
Amendment, as filed with the Nevada Secretary of State on July 24,
2014.
|
3.2
|
10-Q
|
11/14/2014
|
|
|
|
|
|
|
Amended and Restated
(As of August 17, 2016) Bylaws of AXIM Biotechnologies, Inc.
|
3.3
|
10-Q
|
8/22/2016
|
|
|
|
|
|
|
Certificate of
Designation of Series B Preferred Stock.
|
3.4
|
10-Q
|
8/22/2016
|
|
|
|
|
|
|
Certificate of
Designation of Series C Preferred Stock.
|
3.5
|
10-Q
|
8/22/2016
|
|
|
|
|
|
|
Amended and Restated
Employment Agreement effective September 1, 2016, by and between
AXIM International, Inc. and Dr. George E. Anastassov.
|
10.1
|
10-Q
|
11/21/2016
|
|
|
|
|
|
|
Amended and Restated
Employment Agreement effective September 1, 2016, by and between
AXIM International, Inc. and Lekhram Changoer.
|
10.2
|
10Q
|
11/21/2016
|
|
|
|
|
|
|
Employment Agreement
effective September 1, 2016, by and between AXIM International,
Inc. and Dr. Philip A. Van Damme.
|
10.3
|
10-Q
|
11/21/2016
|
|
|
|
|
|
|
Letter of Intent
(“Terms Sheet”) dated September 3, 2018, by and between Impression
Healthcare Limited and AXIM Biotechnologies, Inc.
|
10.4
|
10-K
(A/1)
|
10/30/2019
|
|
|
|
|
|
|
Exclusivity Agreement
dated September 3, 2018, by and between Impression Healthcare
Limited and AXIM Biotechnologies, Inc.
|
10.5
|
10-K
(A/1)
|
10/30/2019
|
|
|
|
|
|
|
Amendment #1 to
Exclusivity Agreement dated December 11, 2018, by and between
Impression Healthcare Limited and AXIM Biotechnologies, Inc.
|
10.6
|
10-K
(A/1)
|
10/30/2019
|
|
|
|
|
|
|
Supply Agreement
dated May 31, 2019, by and between Impression Healthcare Limited
and AXIM Biotechnologies, Inc.
|
10.7
|
10-K
(A/1)
|
10/30/2019
|
|
|
|
|
|
|
Code of Business
Conduct and Ethics.
|
14.1
|
10-Q
|
11/20/2017
|
|
|
|
|
|
|
Certification of
Principal Executive Officer Pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.1
|
|
|
X
|
|
|
|
|
|
Consent of
Independent Registered Public Accounting Firm
|
23.1
|
|
|
X
|
|
|
|
|
|
Certification of
Principal Financial Officer Pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
|
X
|
|
|
|
|
|
Certification of
Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.1*
|
|
|
X
|
56
Certification of
Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2*
|
|
|
X
|
|
|
|
|
|
Nominating and
Governance Committee Charter.
|
99.1
|
10-Q
|
11/20/2017
|
|
Compensation
Committee Charter.
|
99.2
|
10-Q
|
11/20/2017
|
|
Audit Committee
Charter.
|
99.3
|
10-Q
|
11/20/2017
|
|
|
|
|
|
|
XBRL Instance
Document
|
101.INS
|
|
|
X
|
|
|
|
|
|
XBRL Taxonomy
Extension Schema Document
|
101.SCH
|
|
|
X
|
|
|
|
|
|
XBRL Taxonomy
Extension Calculation Linkbase Document
|
101.CAL
|
|
|
X
|
|
|
|
|
|
XBRL Taxonomy
Extension Definition Linkbase Document
|
101.DEF
|
|
|
X
|
|
|
|
|
|
XBRL Taxonomy
Extension Label Linkbase Document
|
101.LAB
|
|
|
X
|
|
|
|
|
|
XBRL Taxonomy
Extension Presentation Linkbase Document
|
101.PRE
|
|
|
X
|
57
SIGNATURES
Pursuant to
the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ John W.
Huemoeller II
|
|
President and
Director (Principal Executive Officer)
|
|
Date April, 15,
2021
|
John W. Huemoeller
II
|
|
|
|
|
|
|
|
|
|
/s/ Robert
Malasek
|
|
Chief Financial
Officer (Principal Financial Officer)
|
|
Date April, 15,
2021
|
Robert Malasek
|
|
|
|
|
|
|
|
|
|
/s/ Timothy R.
Scott, PhD
|
|
Director
|
|
Date April, 15,
2021
|
Timothy R. Scott,
PhD
|
|
|
|
|
|
|
|
|
|
/s/ Robert
Cunningham
|
|
Director
|
|
Date April, 15,
2021
|
Robert Cunningham
|
|
|
|
|
|
|
|
|
|
/s/ Mauricio
Javier Gatto-Bellora
|
|
Director
|
|
Date April, 15,
2021
|
Mauricio Javier
Gatto-Bellora
|
|
|
|
|
|
|
|
|
|
/s/ Peter
O’Rourke
|
|
Director
|
|
Date April, 15,
2021
|
Peter O’ Rourke
|
|
|
|
|
58
AXIM BIOTECHNOLOGIES, INC.
Index to Financial Statements
|
|
|
Page
|
|
|
Report of Independent
Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated Balance
Sheet as of December 31, 2020 and 2019
|
F-4
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2020 and
2019
|
F-5
|
|
|
Consolidated
Statement of Changes in Shareholders’ Deficit for years ended
December 31, 2020 and 2019
|
F-6
|
|
|
Consolidated
Statement of Cash Flows for the years ended December 31, 2020 and
2019
|
F-8
|
|
|
Notes to Consolidated
Financial Statements.
|
F-10
|
|
|
|
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
Axim
Biotechnologies, Inc.
Opinion on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Axim
Biotechnologies, Inc. (the “Company”), as of December 31, 2020 and
2019, and the related consolidated statements of operations,
stockholders’ deficit and cash flows for each of the two years in
the period ended December 31, 2020 and the related notes
(collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2020 and 2019, and the results of
its operations and its cash flows for each of the two years in the
period ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of America.
The Company's Ability to Continue as a Going Concern
The
accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed
in Note 4 to the accompanying consolidated financial statements,
the Company has suffered recurring losses from operations,
generated negative cash flows from operating activities, has an
accumulated deficit that raise substantial doubt about Company’s
ability to continue as a going concern. Management's evaluation of
the events and conditions and management’s plans in regarding these
matters are also described in Note 4. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We
are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The company is not required to have, nor were we engaged to
perform, an audit of the Company’s internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The
critical audit matters communicated below are matters arising
from the current period audit of the carve-out financial statements
that were communicated or required to be communicated to the audit
committee and that (i) relate to accounts or disclosures that are
material to the carve-out financial statements and (ii) involved
our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the carve-out financial statements, taken as a
whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
F-2
Valuation
of intangible assets acquired in a business combination
In March 2020,
the Company acquired Sapphire Biotech, Inc., a biotechnology
company focusing on improving cancer care through the development
of proprietary therapeutics for inhibiting cancer growth and
metastasis. The Company issued 54,000,000 shares of common stock
with a total fair value of $7,506,000, in exchange for all
outstanding shares of SAPPHIRE BIOTECH, Inc. The Company accounted
for the acquisition using the purchase method of accounting for
business combinations.
Addressing the matter involved testing the estimated fair value of
the Company's intangible assets acquired from Sapphire Biotech,
Inc. Our audit procedures, among others, included evaluating the
Company's use of appropriate valuation methodologies with the
assistance of a valuation specialist, and testing the accuracy of
the underlying data used to develop the assumptions. Our audit
procedures over the significant assumptions included comparing the
most significant assumptions to current industry, market and
economic trends, and to other relevant factors.
/s/ RBSM,
LLP
We
have served as the Company’s auditor since 2014
New
York, New York
April
15, 2021
F-3
CONSOLIDATED
BALANCE SHEETS OF
|
AXIM
BIOTECHNOLOGIES, INC.
|
As of December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash
|
$
|
457,181
|
$
|
511,630
|
|
Prepaid expenses
|
|
255,923
|
|
77,606
|
|
Marketable
securities
|
|
-
|
|
213,745
|
|
Investment in Joint
Venture
|
|
-
|
|
-
|
|
Current assets of
discontinued operations
|
|
-
|
|
836,147
|
|
|
Total current
assets
|
|
713,104
|
|
1,639,128
|
|
|
|
|
|
|
|
Property and
equipment, net of accumulated depreciation
|
|
104,094
|
|
2,237
|
Other Assets:
|
|
|
|
|
|
Notes receivable-
related party
|
|
103,242
|
|
-
|
|
Goodwill
|
|
2,458,233
|
|
-
|
|
Research in
progress
|
|
7,800,000
|
|
-
|
|
Security deposit
|
|
5,000
|
|
-
|
|
Operating lease
right-of-use asset
|
|
130,722
|
|
-
|
|
Other assets of
discontinued operations
|
|
-
|
|
50,534
|
|
|
Total other assets
|
|
10,497,197
|
|
50,534
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
11,314,395
|
$
|
1,691,899
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
1,073,142
|
$
|
750,310
|
|
Lease liability
obligations (see note 17)
|
|
53,851
|
|
|
|
Due to shareholder
|
|
180
|
|
5,000
|
|
Due to first insurance
funding
|
|
25,369
|
|
42,121
|
|
Promissory note
(including accrued interest of $19,507 and $0, respectively)(see
note 9)
|
|
343,725
|
|
-
|
|
Due to/from
Axim/Sapphire
|
|
-
|
|
-
|
|
Due to/from Sapphire
Bio/Sapphire Diagnostic
|
|
-
|
|
-
|
|
Current liabilities of
discontinued operations
|
|
-
|
|
2,598,000
|
|
|
Total
current liabilities
|
|
1,496,267
|
|
3,395,431
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
Deferred
tax liability
|
|
2,340,000
|
|
-
|
|
Convertible note payable (including accrued interest of $236,148
and $168,208, respectively) net of unamortized debt discount of
$843,673 and $739,732, respectively(see note 12)
|
|
1,676,788
|
|
912,954
|
|
Convertible note payable - related party (including accrued
interest of $158,648 and $93,333, respectively)
|
|
4,158,648
|
|
4,093,333
|
|
Convertible note payable - shareholder (including accrued interest
of $0 and $5,578, respectively)
|
|
-
|
|
50,578
|
|
Lease liability
obligations (see note 17)
|
|
76,871
|
|
-
|
|
Other liabilities of
discontinued operations
|
|
-
|
|
-
|
|
|
Total
long-term liabilities
|
|
8,252,307
|
|
5,056,865
|
TOTAL LIABILITIES
|
|
9,748,574
|
|
8,452,296
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
Preferred stock,
$0.0001 par value, 5,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Convertible
Preferred Stock, $0.0001 par value 500,000 shares designated,
|
|
|
|
|
|
|
500,000
and 500,000 shares issued, 0 and 500,000 outstanding,
respectively
|
|
-
|
|
50
|
|
|
Series C Convertible
Preferred Stock, $0.0001 par value 500,000 shares designated,
|
|
|
|
|
|
|
500,000
and 500,000 shares issued and outstanding, respectively
|
|
50
|
|
50
|
|
|
|
|
|
|
|
|
Common stock, $0.0001
par value, 300,000,000 shares authorized
|
|
12,533
|
|
6,485
|
|
|
125,327,579 and
64,854,539 shares issued and outstanding, respectively
|
|
|
|
|
|
Additional paid in
capital
|
|
43,201,186
|
|
28,623,060
|
|
Common stock to be
issued
|
|
201,974
|
|
50,000
|
|
Accumulated
deficit
|
|
(41,849,922)
|
|
(35,440,042)
|
TOTAL STOCKHOLDERS'
DEFICIT
|
|
1,565,821
|
|
(6,760,397)
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
$
|
11,314,395
|
$
|
1,691,899
|
|
|
|
|
|
|
|
See accompanying
notes to these consolidated financial statements
|
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS OF
|
AXIM
BIOTECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
For
the
|
|
For
the
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Revenues
|
$
|
-
|
$
|
|
Cost of goods sold
|
|
-
|
|
-
|
Gross profit
|
|
-
|
|
-
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
Research and
development expenses
|
|
426,708
|
|
-
|
Selling, general and
administrative
|
|
4,506,289
|
|
3,105,482
|
Depreciation
|
|
16,001
|
|
3,356
|
Total operating
expenses from continuing operations
|
|
4,948,998
|
|
3,108,838
|
|
|
|
|
|
Gain (Loss) from
continuing operations
|
|
(4,948,998)
|
|
(3,108,838)
|
|
|
|
|
|
Other (income)
expenses:
|
|
|
|
|
Income from Impression Healthcare Ltd
|
|
-
|
|
(57,400)
|
Interest income
|
|
(675)
|
|
-
|
Income from Grants from Government
|
|
(115,899)
|
|
-
|
Other income
|
|
|
|
|
Unrealized loss (gain) on marketable
securities
|
|
104,705
|
|
(113,748)
|
Realized loss (gain) on marketable
securities
|
|
109,040
|
|
(268,274)
|
Loss on extinguishment/conversion of
debt
|
|
923,605
|
|
-
|
Amortization of note discount
|
|
86,059
|
|
75,272
|
Interest expense
|
|
234,754
|
|
222,236
|
Total other (income)
expenses
|
|
1,341,589
|
|
(141,914)
|
|
|
|
|
|
Loss before provision
of income tax
|
|
(6,290,587)
|
|
(2,966,924)
|
Provision for income
tax
|
|
-
|
|
-
|
|
|
|
|
|
Income(loss) from
continuing operations
|
|
(6,290,587)
|
|
(2,966,924)
|
Income(loss) from
discontinued operations
|
|
(119,293)
|
|
(3,480,633)
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
|
(6,409,880)
|
$
|
(6,447,557)
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE
TO COMMON SHAREHOLDERS
|
$
|
(6,409,880)
|
$
|
(6,447,557)
|
Earning per share from
continuing operations
|
|
|
|
|
Basic
|
$
|
(0.06)
|
$
|
(0.05)
|
Diluted
|
$
|
(0.06)
|
$
|
(0.05)
|
Earning per share from
discontinued operations
|
|
|
|
|
Basic
|
$
|
(0.00)
|
$
|
(0.06)
|
Diluted
|
$
|
(0.00)
|
$
|
(0.06)
|
Earning per share
|
|
|
|
|
Basic
|
$
|
(0.06)
|
$
|
(0.10)
|
Diluted
|
$
|
(0.06)
|
$
|
(0.10)
|
|
|
|
|
|
Weighted average
common shares outstanding - basic and diluted
|
|
110,386,386
|
|
61,947,333
|
|
|
|
|
|
See
accompanying notes to these consolidated financial statements
|
F-5
AXIM
BIOTECHNOLOGIES, INC.
|
Consolidated
Statement of Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible
|
Series B Convertible
|
Series C Convertible
|
|
|
|
|
|
Common Stock
|
Preferred Stock
|
Preferred Stock
|
Preferred Stock
|
Preferred Stock
|
|
|
|
|
|
Shares
#
|
Amount
$
|
Shares
#
|
Amount
$
|
Shares
#
|
Amount
$
|
Shares
#
|
Amount
$
|
Shares
#
|
Amount
$
|
Common Stock to be Issued
$
|
Additional
Paid
In
Capital
$
|
Accumulated
Deficit
$
|
Total
$
|
Balance at December
31, 2018
|
59,582,890
|
5,958
|
-
|
-
|
-
|
-
|
500,000
|
50
|
500,000
|
50
|
41,000
|
22,863,608
|
(28,992,485)
|
(6,081,819)
|
Common stock to be issued for consultancy services
|
25,723
|
3
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(41,000)
|
55,997
|
-
|
15,000
|
Common stock issued for cash
|
5,006,405
|
501
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,413,875
|
-
|
3,414,376
|
Common stock issued against CS subcription received in PY
|
239,521
|
24
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
399,976
|
-
|
400,000
|
Common stock to be issued per stock purchase agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
50,000
|
-
|
-
|
50,000
|
Fair value of stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,820,000
|
-
|
1,820,000
|
Imputed interest on interest free loan from related party
advances
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
69,604
|
-
|
69,604
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,447,557)
|
(6,447,557)
|
Balance at December
31, 2019
|
64,854,539
|
6,486
|
-
|
-
|
-
|
-
|
500,000
|
50
|
500,000
|
50
|
50,000
|
28,623,060
|
(35,440,042)
|
(6,760,396)
|
Common stock to be issued for Note receivable and True-up
adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
201,974
|
-
|
-
|
201,974
|
Common stock issued against common stock to be issued received in
PY
|
250,000
|
25
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(50,000)
|
49,975
|
-
|
-
|
Common stock issued for services
|
1,436,782
|
143
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
666,047
|
-
|
666,190
|
Common stock issued for severance
|
922,486
|
93
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
479,907
|
-
|
480,000
|
Common stock issued for cash
|
17,292,751
|
1,729
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,307,401
|
-
|
3,309,130
|
Subscription price adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(609,835)
|
-
|
(609,835)
|
Beneficial conversion feature on the convertible note
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
190,000
|
-
|
190,000
|
Common stock issued for acquisition
|
54,000,000
|
5,400
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
7,500,600
|
-
|
7,506,000
|
Retired common stock
|
(18,570,356)
|
(1,857)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,857)
|
Series B preferred stock retirement
|
-
|
-
|
-
|
-
|
-
|
-
|
(500,000)
|
(50)
|
-
|
-
|
-
|
-
|
-
|
(50)
|
Convertible note and accrued interest converted to common stock
|
5,141,377
|
514
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
50,900
|
-
|
51,414
|
Stock based compensation - stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,947,745
|
-
|
1,947,745
|
Loss on conversion of convertible note
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
823,497
|
-
|
823,497
|
Loss on extinguishment of debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
171,889
|
-
|
171,889
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,409,880)
|
(6,409,880)
|
Balance at December
31, 2020
|
125,327,579
|
12,533
|
-
|
-
|
-
|
-
|
-
|
-
|
500,000
|
50
|
201,974
|
43,201,186
|
(41,849,922)
|
1,565,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to these consolidated financial statements
|
F-6
AXIM
BIOTECHNOLOGIES, INC.
|
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
For
the
|
|
For
the
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
December 31,
2020
|
|
December 31
2019
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
$
|
(6,409,880)
|
$
|
(6,447,557)
|
|
Less: Loss from
discontinued operations
|
|
(119,293)
|
|
(3,480,633)
|
|
Loss from continuing
operations
|
|
(6,290,587)
|
|
(2,966,924)
|
|
Adjustments to reconcile net loss
to cash used in operating activities:
|
|
|
|
|
|
Depreciation
|
|
16,001
|
|
3,356
|
|
Stock based
compensation
|
|
2,311,935
|
|
1,835,000
|
|
Amortization of
prepaid expenses
|
|
253,376
|
|
111,929
|
|
Amortization of debt
discount
|
|
86,059
|
|
75,272
|
|
|
|
|
|
|
|
Unrealized (gain) loss
on marketable securities
|
|
104,705
|
|
(113,748)
|
|
Realized (gain) loss
on marketable securities
|
|
109,040
|
|
(268,274)
|
|
Loss on
extinguishment/conversion of debt
|
|
923,604
|
|
(57,400)
|
|
Changes in operating assets &
liabilities:
|
|
|
|
|
|
Increase (decrease) in
interest receivable
|
|
(675)
|
|
-
|
|
Increase (decrease) in
prepaid expenses
|
|
(53,585)
|
|
(137,430)
|
|
Increase (decrease) in
accounts payable and accrued expenses
|
|
532,245
|
|
153,740
|
|
Decrease in security
deposits
|
|
7,785
|
|
7,440
|
|
Net cash provided by
(used in) operating activities from continuing operations
|
|
(2,000,097)
|
|
(1,357,039)
|
|
Net cash provided by
(used in) operating activities from discontinued operations
|
|
(1,215,602)
|
|
(3,681,944)
|
|
Net cash provided by
(used in) operating activities
|
|
(3,215,699)
|
|
(5,038,983)
|
CASH FLOW FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
Proceeds from Sales of
Marketable Securities
|
|
-
|
|
375,677
|
|
Cash acquired in
acquisition
|
|
79,814
|
|
-
|
|
Increase in property
and equipment
|
|
(97,324)
|
|
-
|
|
Net cash provided by
(used in) investing activities from continuing operations
|
(17,510)
|
|
375,677
|
|
Net cash provided by
(used in) investing activities from discontinued operations
|
27,490
|
|
(27,490)
|
|
Net cash provided by
(used in) investing activities
|
|
9,980
|
|
348,187
|
CASH FLOW FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Repayment of
convertible notes
|
|
-
|
|
(7,500)
|
|
Common stock issued
under registration statement on Form S-3
|
|
1,510,500
|
|
2,514,375
|
|
Common stock issued
under SPA
|
|
1,798,630
|
|
950,000
|
|
Repayment of First
Insurance Funding
|
|
(92,860)
|
|
18,841
|
|
Net cash provided by
(used in) continuing financing activities
|
|
3,216,270
|
|
3,475,716
|
|
Net cash provided by
(used in) discontinued financing activities
|
|
(65,000)
|
|
(78,917)
|
|
Net cash provided by
(used in) financing activities
|
|
3,151,270
|
|
3,396,799
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
(54,449)
|
|
(1,293,997)
|
|
Cash and cash
equivalents at beginning of period
|
|
511,630
|
|
1,805,627
|
|
Cash and cash
equivalents at end of period
|
$
|
457,181
|
$
|
511,630
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
CASH PAID DURING THE
PERIOD FOR:
|
|
|
|
|
|
Interest
|
$
|
-
|
$
|
60,278
|
|
Income taxes - net of
tax refund
|
$
|
-
|
$
|
-
|
F-7
NON-CASH INVESTING
AND FINANCING ACTIVITIES
|
|
|
|
|
|
Common stock issued
against common stock to be issued
|
$
|
50,000
|
$
|
56,000
|
|
Common stock issued
against CS subscription
|
$
|
-
|
$
|
400,000
|
|
Common stock issued
for services recorded as prepaid expense
|
$
|
302,000
|
$
|
-
|
|
Common stock issued
for severance
|
$
|
480,000
|
$
|
-
|
|
Shares issued for
acquisition of Sapphire Biotechnology
|
$
|
7,506,000
|
$
|
-
|
|
Deferred tax liability
accounted for as a result of Sapphire Biotech Acquisition
|
$
|
2,340,000
|
$
|
-
|
|
Assets acquired and
liability assumed as a result of Sapphire Biotech Acquisition
|
$
|
525,365
|
$
|
-
|
|
BCF related to
discount on conversion
|
$
|
190,000
|
$
|
-
|
|
Common stock issued
for note receivable
|
$
|
135,000
|
$
|
-
|
|
Adoption of lease
obligation and ROU asset
|
$
|
164,910
|
$
|
-
|
|
Common stock
retired
|
$
|
1,907
|
$
|
-
|
|
Convertible note
issued against subscription price adjustment
|
$
|
609,835
|
$
|
-
|
|
Convertible note
converted to common stock
|
$
|
51,414
|
$
|
-
|
|
Assets acquired as a
result of Sapphire Biotech Acquisition
|
$
|
33,319
|
$
|
-
|
|
Prepaid insurance paid
through first insurance funding
|
$
|
76,108
|
$
|
-
|
|
Others
|
$
|
71,782
|
$
|
-
|
|
|
|
|
|
|
See
accompanying notes to these consolidated financial statements
|
F-8
AXIM BIOTECHNOLOGIES,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 1: ORGANIZATION
The
Company was originally incorporated in Nevada on November 18, 2010,
as Axim International Inc. On July 24, 2014, the Company changed
its name to AXIM Biotechnologies, Inc. to better reflect its
business operations. The Company’s principal executive office is
located at 45 Rockefeller Plaza 20th Floor, Suite 83, New York, NY
10111. On August 7, 2014, the Company formed a wholly owned Nevada
subsidiary named Axim Holdings, Inc. This subsidiary will be used
to help facilitate the anticipated activities planned by the
Company. On May 11, 2015 the Company acquired a 100% interest in
CanChew License Company a Nevada incorporated licensing Company,
through the exchange of 5,826,706 shares of its common stock. In
October 2017 the company formed a wholly owned subsidiary in the
Netherlands for purposes of holding pharmaceutical licenses as
required by the Netherlands regulations and laws. On October 16, 2018, the Company
formed a wholly owned disregarded entity Marina Street, LLC as part
of improvement of internal control over cash management and bank
activities.
On
March 17, 2020, the Company acquired Sapphire Biotech, Inc.,
(“Sapphire’) which is research and Development Company that has
a mission to improve global cancer care through the development of
proprietary therapeutics for inhibiting cancer growth and
metastasis. Sapphire is also developing a line of novel diagnostics
for early cancer detection, response to treatment, and recurrence
monitoring. Additionally, with the onset of the COVID-19
pandemic, the Company decided to begin creating COVID-19 rapid
diagnostic tools, including multiple first-in-class COVID-19
neutralizing antibody tests and other innovations.
Sapphire’s operations are
located in the Greater San Diego Area.
Company Developments – Divesture of Cannabis Related
Assets
On May 6,
2020 (the “Effective Date”), AXIM Biotechnologies, Inc., a Nevada
corporation (the “Company”), entered into an Agreement (the
“Separation Agreement”) by and among the Company, CanChew License
Company (“CanCo”), CanChew Biotechnologies, LLC (“CanChew”),
Medical Marijuana, Inc., Dr. George A. Anastassov (“Dr.
Anastassov”), Dr. Philip A. Van Damme (“Dr. Van Damme”), Lekhram
Changoer (“Mr. Changoer”), Sanammad Foundation, Netherlands and
Sanammad Foundation, US (collectively, the “Sanammad Parties”),
pursuant to which, among other matters as described herein, Drs.
Anastassov and Van Damme and Mr. Changoer resigned as members of
the Company’s Board of Directors.
Pursuant
to the Separation Agreement, the Company transferred and assigned
to an entity designated by Dr. Anastassov all of the Company’s
cannabis-related intellectual property other than the inventions
and discoveries described in that certain cannabis-related patent
application filed by the Company’s wholly-owned subsidiary,
Sapphire Biotech, Inc. (water-soluble cannabinoid molecules). The
Company also transferred 100% of its interest in CanCo and CanChew
to an entity designated by Dr. Anastassov. In consideration for the
transfers set forth above, any and all indebtedness owed by the
Company to CanChew, totaling approximately $2.61 million, was
satisfied and paid in its entirety.
In
addition, in consideration for the payment by the Company of
$65,000, the Company purchased 100% of the issued and outstanding
shares of Series B Preferred Stock held by the Sanammad Parties.
Such shares shall be retired to treasury of the Company. The
Sanammad Parties also agreed to forfeit and assign back to
treasury, for no consideration, a total of 18,570,356 shares of the
Company’s common stock.
NOTE 2: ACQUISITION OF SAPPHIRE BIOTECH, INC.
On
March 17, 2020, the Company entered into a Share Exchange Agreement
(“Agreement”) with Sapphire Biotech, Inc., a Delaware corporation
(“Sapphire”) and all of the Sapphire stockholders (collectively,
the “Sapphire Stockholders”). Following the closing of the
transaction, Sapphire will become a wholly owned subsidiary of
AXIM.
Under
the terms of the Agreement, the Company: (i) acquired 100% of
Sapphire’s outstanding capital (consisting of 100,000,000 shares of
common stock and zero (0) shares of Preferred Stock); and (ii)
assume all of the outstanding debt of Sapphire. The outstanding
debt includes two (2) convertible notes in the principal amounts of
$310,000 and $190,000. Pursuant to the terms of the Share Exchange
Agreement, the Company acquired 100% of the issued and outstanding
shares of Sapphire by means of a share exchange with the Sapphire
Stockholders in exchange for 54,000,000 newly issued shares of the
common stock of AXIM (the “Share Exchange”). As a result of the
Share Exchange, Sapphire became a 100% owned subsidiary of AXIM,
which on a going forward basis will result in consolidated
financial reporting by AXIM to include the results of Sapphire. The
closing of the Share Exchange occurred concurrently with entry into
the Share Exchange Agreement (the “Closing”).
F-9
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 2: ACQUISITION OF SAPPHIRE BIOTECH, INC.
(CONTINUED)
In
March 2020, the Company acquired Sapphire Biotech, Inc., a
biotechnology company focusing on improving cancer care through the
development of proprietary therapeutics for inhibiting cancer
growth and metastasis. The Company issued 54,000,000 shares of
common stock with a total fair value of $7,506,000 and assumed net
liabilities of $412,233 (resulting in a total acquisition cost of
$7,918,233), in exchange for all outstanding shares of Sapphire
Biotech, Inc. The Company accounted for the acquisition using the
acquisition method of accounting for business combinations. On the
acquisition date, the Company performed a preliminary allocation of
the purchase price to include the tangible assets acquired and the
liabilities assumed with the remainder of the purchase price
allocated to patents pending approval, in-process research and
development (IPR&D) and goodwill. The Company incurred $6,000
of acquisition-related costs, which will be recorded as expense
after the evaluation work been completed. In addition, the Company
recorded an estimated deferred tax liability on the assets
acquired, except for goodwill for which deferred taxes are not
applicable.
The
Company completed the valuation of the intangible assets acquired
in the Sapphire Biotech, Inc. transaction by September 2020.
Pursuant to the valuation, the Company determined that the patents
continue to be expanded and chose to subsume the patents within the
IPR&D balance. In management’s judgment, the amount assigned to
IPR&D represents the amount the Company would reasonably expect
to pay an unrelated party for each project included in the
technology. Based on the final valuation, the remaining excess
purchase price has been allocated to goodwill.
The
aggregate purchase price of $7,918,233 consisted of common stock
valued at $7,506,000 and the net liabilities assumed of $412,233.
The value of the $7,506,000 of common shares issued was determined
based on the closing price of the Company’s common shares at the
acquisition date.
The
following table summarizes the consideration paid for Sapphire and
the estimated amounts of the assets acquired and liabilities
assumed recognized at the acquisition date.
Consideration:
|
|
|
Cash
and cash equivalents
|
$
|
79,814
|
Property and equipment, net
|
|
20,533
|
In
process R&D
|
|
7,800,000
|
Goodwill
|
|
2,458,233
|
Security deposit
|
|
12,785
|
Total asset
acquired
|
$
|
10,371,365
|
|
|
|
Accrued expenses and
other current liabilities
|
$
|
5,767
|
Deferred taxes
liability
|
|
2,340,000
|
Notes Payable
including convertible and discount on conversion
|
|
519,598
|
Total
liabilities assumed
|
$
|
2,865,365
|
Net
assets acquired
|
$
|
7,506,000
|
|
|
|
The
IPR&D and goodwill assets are not subject to amortization, and
$2,340,000 was calculated as the deferred tax liability on the
assets acquired, which amount was included in goodwill at the date
of acquisition in accordance with accounting requirements.
The
$2,458,233 of goodwill is not expected to be deductible for tax
purposes.
The
effective settlement of receivable/payable between the Company and
Sapphire deemed to be not material, which was recorded as gain on
intercompany transaction in P&L.
Disclosure of Pro Forma Information
F-10
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 2: ACQUISITION OF SAPPHIRE BIOTECH, INC.
(CONTINUED)
The
following (unaudited) pro forma consolidated results of operations
have been prepared as if the acquisition of Sapphire Biotech, Inc.
had occurred at January 1, 2019:
For twelve months
ended
|
|
December 31,
2020
|
|
December 31,
2019
|
Revenues
|
$
|
-
|
$
|
-
|
Net loss from
continuing operations
|
$
|
(6,716,906)
|
$
|
(3,508,529)
|
Net income (loss)
from discontinued operations
|
$
|
(119,293)
|
$
|
(3,480,633)
|
Net loss per
share—Basic and Diluted
|
$
|
(0.06)
|
$
|
(0.10)
|
|
|
|
|
|
The pro
forma information is presented for informational purposes only and
is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisition been
consummated as of that time, nor is it intended to be a projection
of future results. During the twelve months ended December 31, 2020
Sapphire had no revenue transactions.
NOTE 3: BASIS OF PRESENTATION:
The
consolidated financial statements of AXIM Biotechnologies, Inc.
(formerly Axim
International, Inc.) as of December 31, 2020, and 2019 have
been prepared in accordance with United States generally accepted
accounting principles (“US GAAP”).
Principles of
Consolidation
The
consolidated financial statements include the accounts of Axim
Biotechnologies, Inc. and its wholly owned subsidiaries Axim
Holdings, Inc., Marina Street LLC, Axim Biotechnologies (the
Netherland Company) and Sapphire Biotech, Inc. The consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant inter-company balances
and transactions have been eliminated upon consolidation.
NOTE 4: GOING CONCERN
The Company’s consolidated
financial statements have been presented assuming that the Company
will continue as a going concern. As shown in the consolidated
financial statements, the Company has negative working capital of
$783,163 and has an accumulated deficit of $41,849,922 has cash
used in operating activities of continuing operations $2,000,097.
The Company extinguished its old debt and entered in debt exchange
agreement. On April 16, 2018, the Company entered into a Stock
Purchase Agreement and sold 1,945,000 shares of our common stock
registered under the Registration Statement on Form S-3 declared
effective by the Securities and Exchange Commission on September
14, 2017. On March 11, 2019 the company issued shares in accordance
with an SPA dated August 1, 2018 which the amount reduced due to
shareholder by $400,000. During the year ended December 31, 2020,
the Company raised additional capital of $3,309,130 through Stock
Purchase Agreements. This capital provides funds for research,
development, and ongoing operations. The Company intends to raise
substantial additional capital through private placements of debt
and equity securities, but there can be no assurance that these
funds will be available on terms acceptable to the Company or will
be sufficient to enable the Company to fully complete its
development activities or sustain operations. If the Company is
unable to raise sufficient additional funds, it will have to
develop and implement a plan to further extend payables, reduce
overhead, or scale back its current business plan until sufficient
additional capital is raised to support further operations. There
can be no assurance that such a plan will be successful. That will
raise a doubt about the ability of the Company to continue as a
going concern. The consolidated financial statements
do not include any adjustments related to the recoverability of
assets and classification of liabilities that might be necessary
should the Company be unable to continue in operation.
F-11
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenue and expenses
during reporting periods. Actual results could differ from these
estimates. Significant estimates are assumptions about collection
of accounts receivable, useful life of intangible assets and
assumptions used in Black-Scholes-Merton, or BSM, valuation
methods, such as expected volatility, risk-free interest rate and
expected dividend rate.
Operating lease
We
lease property under various operating leases which are disclosed
on our Balance sheet in accordance with ASC 842
Risks and uncertainties
The
Company operates in a dynamic and highly competitive industry and
is subject to risks and uncertainties common to early-stage
companies in the biotechnology industry, including, but not limited
to, development by competitors of new technological innovations,
protection of proprietary technology, dependence on key personnel,
contract manufacturer and contract research organizations,
compliance with government regulations and the need to obtain
additional financing to fund operations. Product candidates
currently under development will require significant additional
research and development efforts, including extensive preclinical
studies and clinical trials and regulatory approval, prior to
commercialization. These efforts require significant amounts of
additional capital, adequate personnel infrastructure and extensive
compliance and reporting. The Company believes that changes in any
of the following areas could have a material adverse effect on the
Company’s future financial position, results of operations, or cash
flows; ability to obtain future financing; advances and trends in
new technologies and industry standards; results of clinical
trials; regulatory approval and market acceptance of the Company’s
products; development of sales channels; certain strategic
relationships; litigation or claims against the Company based on
intellectual property, patent, product, regulatory, or other
factors; and the Company’s ability to attract and retain employees
necessary to support its growth.
Products developed by the Company require approvals from the U.S.
Food and Drug Administration (“FDA”) or other international
regulatory agencies prior to commercial sales. There can be no
assurance that the Company’s research and development will be
successfully completed, that adequate protection for the Company’s
intellectual property will be obtained or maintained, that the
products will receive the necessary approvals, or that any approved
products will be commercially viable. If the Company was denied
approval, approval was delayed or the Company was unable to
maintain approval, it could have a materially adverse impact on the
Company. Even if the Company’s product development efforts are
successful, it is uncertain when, if ever, the Company will
generate revenue from product sales. The Company operates in an
environment of rapid change in technology and substantial
competition from other pharmaceutical and biotechnology companies.
In addition, the Company is dependent upon the services of its
employees, consultants and other third parties.
Beginning in late 2019, the outbreak of a novel strain of virus
named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2),
or coronavirus, which causes coronavirus disease 2019, or COVID-19,
has evolved into a global pandemic. The extent of the impact of the
coronavirus outbreak on the Company’s business will depend on
certain developments, including the duration and spread of the
outbreak and the extent and severity of the impact on the Company’s
clinical trial activities, research activities and suppliers, all
of which are uncertain and cannot be predicted. At this point, the
extent to which the coronavirus outbreak may materially impact the
Company’s financial condition, liquidity or results of operations
is uncertain. The Company has expended and will continue to expend
substantial funds to complete the research, development and
clinical testing of product candidates. The Company also will be
required to expend additional funds to establish commercial-scale
manufacturing arrangements and to provide for the marketing and
distribution of products that receive regulatory approval. The
Company may require additional funds to commercialize its products.
The Company is unable to entirely fund these efforts with its
current financial resources. If adequate funds are unavailable on a
timely basis from operations or additional sources of financing,
the Company may have to delay, reduce the scope of or eliminate one
or more of its research or development programs which would
materially and adversely affect its business, financial condition
and operations.
There
have been no material changes in the accounting policies from those
disclosed in the financial statements and the related notes
included in the Form 10-K.
F-12
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash equivalents
The
Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be
cash equivalents. As of December 31, 2020, the Company had no cash
equivalents. Cash and cash equivalents are maintained at financial
institutions and, at times, balances may exceed federally insured
limits. The Company had no uninsured balances at December 31, 2020.
The Company has never experienced any losses related to these
balances.
Accounts Receivable
It is the Company's
policy to review accounts receivable at least on a monthly basis
for conductibility and follow up with customers accordingly.
Covid19 has slowed collection as our customers are in a mandated
pause. We do not have geographic concentration of customers.
Concentrations
At
December 31, 2020, there was no accounts receivable. For the year
ended December 31, 2020, one customer accounted for 21% of total
revenue. For the year ended December 31, 2019, two customers
accounted for 95% of total revenue. Revenue was all generated from
discontinued operations for the twelve months ending December 31,
2020 and 2019.
Inventory
Inventory consists of finished goods available for sale and raw
materials owned by the Company and are stated at the lower of cost
or market. As of December 31, 2020 and 2019, the Company had $-0-
and $175,304 of finished goods and $-0- and $312,511 of raw
material, respectively. The Company’s inventory relating to
discontinued operations consisted of the following at December 31,
2020 and 2019, respectively.
|
|
December 31,
2020
|
|
December 31,
2019
|
Finished goods
|
$
|
-
|
$
|
175,304
|
Raw material
|
$
|
-
|
$
|
312,511
|
|
$
|
-
|
$
|
487,815
|
Property and equipment
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using straight-line method
over the estimated useful life. New assets and expenditures that
extend the useful life of property or equipment are capitalized and
depreciated. Expenditures for ordinary repairs and maintenance are
charged to operations as incurred. The Company’s property and
equipment relating to continuing operations consisted of the
following at December 31, 2020 and 2019, respectively, and none
related to discontinued operations.
|
|
December 31,
2020
|
|
December 31,
2019
|
Equipment of
continuing operations
|
$
|
134,788
|
$
|
16,780
|
Less: accumulated
depreciation
|
$
|
30,694
|
$
|
14,543
|
|
$
|
104,094
|
$
|
2,237
|
Intangible Assets
As
required by generally accepted accounting principles, trademarks
and patents are amortized if they have a definite life, and not
amortized if they have an indefinite life and then they are tested
annually for impairment. The Company’s intangible assets relating
to continuing operations and discontinued operations consisted of
the following at December 31, 2020 and 2019, respectively.
F-13
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
December 31,
2020
|
|
December 31,
2019
|
Goodwill
|
$
|
2,458,233
|
$
|
-
|
Research in
progress
|
|
7,800,000
|
|
-
|
|
$
|
10,258,233
|
$
|
-
|
|
|
|
|
|
Intangible assets of
discontinued operations
|
$
|
-
|
$
|
715,432
|
Less: accumulated
amortization and impairment
|
|
-
|
|
664,898
|
|
$
|
-
|
$
|
50,534
|
Revenue Recognition
The
Company follows the guidance contained in Topic 606 (FASB ASC 606).
The core principle of Topic 606 (FASB ASC 606) is that an entity
should recognize revenue to depict the transfer of goods of
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services. The revenue recognition guidance contained in
Topic 606, to follow the five-step revenue recognition model along
with other guidance impacted by this standard: (1) identify the
contract with the customer; (2) identify the performance
obligations in the contract; (3) determine the transportation
price; (4) allocate the transportation price; (5) recognize revenue
when or as the entity satisfies a performance obligation. All
revenue was from operations that were divested.
Revenues are recognized when title for goods is transferred;
non-refundable fees and proceeds from irrevocable agreements
recognized when inflows or other enhancements of assets of the
Company are received.
Revenues from continuing operations recognized for twelve months
ended December 31, 2020 and 2019 amounted to $-0- and $-0-,
respectively. Revenues from discontinued operations recognized for
twelve months ended December 31, 2020 and 2019 amounted to $7,990
and $742,083, respectively.
Derivative Liabilities
The
Company assessed the classification of its derivative financial
instruments as of December 31, 2020, which consist of convertible
instruments and rights to shares of the Company’s common stock and
determined that such derivatives meet the criteria for liability
classification under ASC 815.
ASC
815 generally provides three criteria that, if met, require
companies to bifurcate conversion options from their host
instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances
in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the
economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative
instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles
with changes in fair value reported in earnings as they occur and
(c) a separate instrument with the same terms as the embedded
derivative instrument would be considered a derivative instrument
subject to the requirement of ASC 815. ASC 815 also provides an
exception to this rule when the host instrument is deemed to be
conventional, as described.
Fair Value Measurements
The
Company applies the guidance that is codified under ASC 820-10
related to assets and liabilities recognized or disclosed in the
financial statements at fair value on a recurring basis. ASC 820-10
defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. The
provisions of ASC 820-10 only apply to the Company’s investment
securities, which are carried at fair value.
F-14
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value Measurements (continued)
ASC
820-10 clarifies that fair value is an exit price, representing the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
based on the highest and best use of the asset or liability. As
such, fair value is a market-based measurement that is determined
based on assumptions that market participants would use in pricing
an asset or liability. ASC 820-10 requires valuation techniques to
measure fair value that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs are
prioritized as follows:
Fair Value Hierarchy
|
Inputs to Fair Value Methodology
|
Level 1
|
Quoted prices in active markets for identical assets or
liabilities
|
Level 2
|
Quoted prices for similar assets or liabilities; quoted markets
that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the financial instrument; inputs other than quoted prices
that are observable for the asset or liability; or inputs that are
derived principally from, or corroborated by, observable market
information
|
Level 3
|
Pricing models, discounted cash flow methodologies or similar
techniques and at least one significant model assumption is
unobservable or when the estimation of fair value requires
significant management judgment
|
The
Company categorizes a financial instrument in the fair value
hierarchy based on the lowest level of input that is significant to
its fair value measurement.
|
As
of December 31, 2020
|
|
Quoted Market
Prices in Active
Markets
(Level 1)
|
Internal Models with
Significant Observable
Market Parameters
(Level 2)
|
Internal Models with
Significant Unobservable
Market Parameters
(Level 3)
|
Total Fair Value
Reported in
Financial
Statements
|
Marketable
Securities
|
$-
|
$-
|
$-
|
$-
|
|
As
of December 31, 2019
|
|
Quoted Market
Prices in Active
Markets
(Level 1)
|
Internal Models with
Significant Observable
Market Parameters
(Level 2)
|
Internal Models with
Significant Unobservable
Market Parameters
(Level 3)
|
Total Fair Value
Reported in
Financial
Statements
|
Marketable
Securities
|
$213,745
|
$-
|
$-
|
$213,745
|
For
the twelve months ended December 31, 2020 and 2019 The Company
recorded unrealized gain (loss) on marketable securities of
$(104,705) and $113,748, respectively, and realized gain (loss) on
marketable securities of $(109,040) and $268,274, respectively.
These securities are classified as trading.
The
Company did not have any Level 2 or Level 3 assets or liabilities
as of December 31, 2020, except for its convertible notes payable ,
in process Research and Development. The carrying amounts of these
assets and liabilities at December 31, 2020 approximate their
respective fair value based on the Company’s incremental borrowing
rate.
Cash
is as of December 31, 2020 and 2019 is classified as Level 1 within
our fair value hierarchy.
F-15
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Convertible Instruments
The
Company evaluates and accounts for conversion options embedded in
its convertible instruments in accordance with professional
standards for “Accounting for Derivative Instruments and Hedging
Activities.”
Professional standards generally provide three criteria that, if
met, require companies to bifurcate conversion options from their
host instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances
in which (a) the economic characteristics and risks of the embedded
derivative instruments are not clearly and closely related to the
economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative
instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles
with changes in fair value reported in earnings as they occur and
(c) a separate instrument with the same terms as the embedded
derivative instrument would be considered a derivative instrument.
Professional standards also provide an exception to this rule when
the host instrument is deemed to be conventional as defined under
professional standards as “The Meaning of “Conventional Convertible
Debt Instrument.”
The
Company accounts for convertible instruments (when it has
determined that the embedded conversion options should not be
bifurcated from their host instruments) in accordance with
professional standards when “Accounting for Convertible Securities
with Beneficial Conversion Features,” as those professional
standards pertain to “Certain Convertible Instruments.”
Accordingly, the Company records, when necessary, discounts to
convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the
fair value of the underlying common stock at the commitment date of
the note transaction and the effective conversion price embedded in
the note. Debt discounts under these arrangements are amortized
over the term of the related debt to their earliest date of
redemption. The Company also records when necessary deemed
dividends for the intrinsic value of conversion options embedded in
preferred shares based upon the differences between the fair value
of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the
note.
ASC
815-40 provides that, among other things, generally, if an event is
not within the entity’s control could or require net cash
settlement, then the contract shall be classified as an asset or a
liability.
Income Taxes
The
Company follows Section 740-10, Income tax (“ASC 740-10”) Fair
Value Measurements and Disclosures of the FASB Accounting Standards
Codification, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are based on
the differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. Deferred tax
assets are reduced by a valuation allowance to the extent
management concludes it is more likely than not that the assets
will not be realized. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
the Statements of Operations in the period that includes the
enactment date.
The
Company recognizes deferred tax assets to the extent that the
Company believes that these assets are more likely than not to be
realized. In making such a determination, the Company considers all
available positive and negative evidence, including reversals of
any existing taxable temporary differences, projected future
taxable income, tax planning strategies, and the results of recent
operations. If the Company determines that it would be able to
realize a deferred tax asset in the future in excess of any
recorded amount, the Company would make an adjustment to the
deferred tax asset valuation allowance, which would reduce the
provision for income taxes.
The
Company adopted section 740-10-25 of the FASB Accounting Standards
Codification (“Section 740-10-25”). Section 740-10-25 addresses the
determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements. Under Section 740-10-25, the Company may recognize the
tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based
on the largest benefit that has a greater than fifty percent (50%)
likelihood of being realized upon ultimate settlement. Section
740-10-25 also provides guidance on de-recognition, classification,
interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures. The Company had no
liabilities for unrecognized income tax benefits according to the
provisions of Section 740-10-25.
F-16
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject
the Company to concentrations of credit risk, consist primarily of
cash and cash equivalents. The Company places its cash and
temporary cash investments with credit quality institutions. At
times, such amounts may be in excess of the FDIC insurance limit.
The Company had $0 and $240,769 allowance for doubtful accounts at
December 31, 2020 and 2019, respectively and had $0 accounts
receivable at December 31, 2020 and $240,769 at December 31, 2019,
all was related to discontinued operations.
Net Loss per Common Share
Net
loss per common share is computed pursuant to section 260-10-45
Earnings Per Share (“ASC 260-10”) of the FASB Accounting Standards
Codification. Basic net loss per share is computed by dividing net
loss by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is
computed by dividing net loss by the weighted average number of
shares of common stock outstanding and the member potentially
outstanding during each period. In periods when a net loss is
experienced, only basic net loss per share is calculated because to
do otherwise would be anti-dilutive.
There
were common share equivalents 32,556,727 at December 31, 2020 and
16,295,498 at December 31, 2019. For the year ended December 31,
2020 and 2019 these potential shares were excluded from the shares
used to calculate diluted earnings per share as their inclusion
would reduce net loss per share.
Stock Based Compensation
All
stock-based payments to employees and to nonemployee directors for
their services as directors, including any grants of restricted
stock and stock options, are measured at fair value on the grant
date and recognized in the statements of operations as compensation
or other expense over the relevant service period. Stock-based
payments to nonemployees are recognized as an expense over the
period of performance. Such payments are measured at fair value at
the earlier of the date a performance commitment is reached, or the
date performance is completed. In addition, for awards that vest
immediately and are non-forfeitable the measurement date is the
date the award is issued. The Company accounts for stock options
issued to non-employees based on the estimated fair value of the
awards using the Black-Scholes option pricing model in accordance
with ASC 505-50, Equity-Based Payment to
Non-employees. Stock-based compensation expense related to
stock options granted to non-employees is recognized as the stock
options vest. The Company believes that the fair value of the stock
options is more reliably measurable than the fair value of the
services received. Stock options granted to non-employees are
recorded at their fair value on the measurement date and are
subject to periodic adjustments as such options vest and at the end
of each reporting period, and the resulting change in value, if
any, is recognized in the Company’s statements of operations and
comprehensive loss during the period the related services are
rendered.
Cost of Sales
Cost
of sales includes the purchase cost of products sold and all costs
associated with getting the products to the customers including
buying and transportation costs.
F-17
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
The
Company accounts for research and development costs in accordance
with the Accounting Standards Codification subtopic 730-10,
Research and Development (“ASC 730-10”). Under ASC 730-10, all
research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are
expensed as incurred. Third-party research and development costs
are expensed when the contracted work has been performed or as
milestone results have been achieved. Company-sponsored research
and development costs related to both present and future products
are expensed in the period incurred. For the twelve months ended
December 31, 2020 and 2019 The Company incurred research and
development expenses of $426,708 and $-0- from continuing
operations, respectively. For the twelve months ended December 31,
2020 and 2019 the Company incurred research and development
expenses of $377,416 and $2,452,506 from discontinued operations,
respectively. The Company has entered into various agreements with
CROs. The Company’s research and development accruals are estimated
based on the level of services performed, progress of the studies,
including the phase or completion of events, and contracted costs.
The estimated costs of research and development provided, but not
yet invoiced, are included in accrued liabilities on the balance
sheet. If the actual timing of the performance of services or the
level of effort varies from the original estimates, the Company
will adjust the accrual accordingly. Payments made to CROs under
these arrangements in advance of the performance of the related
services are recorded as prepaid expenses and other current assets
until the services are rendered.
Shipping Costs
Shipping and handling costs billed to customers are recorded in
sales. Shipping costs incurred by the company are recorded in
general and administrative expenses.
Recently Issued Accounting Standards
In
March 2019, the FASB issued ASU 2019-01, Leases (Topic 842)
Codification Improvements, which provides clarification on
implementation issues associated with adopting ASU 2016-02. The
implementation issues noted in ASU 2019-01 include determining the
fair value of the underlying asset by lessors that are not
manufacturers or dealers, presentation on the statement of cash
flows for sales-type and direct financing leases, and transition
disclosures related to Topic 250, Accounting Changes and Error
Corrections. We will apply the guidance, if applicable, as of
January 1, 2019, the date we adopted ASU 2016-02. Refer to the
discussion of ASU 2016-02 below for the impact on our financial
position, results of operations, cash flows, or presentation
thereof. In February 2016, FASB issued an update 2016-02 and
created Topic 842, Leases. Topic 842 effects any entity that enters
into a lease arrangement with another person. The guidance in this
update supersedes Topic 840. The main difference between previous
GAAP and Topic 842 is the recognition of accounting policies for
leases classified as operating leases under previous GAAP. The
amendments in this update for public business entities that file
with the Securities and Exchange Commission are effective for
fiscal years beginning after Dec. 15, 2018 and the interim periods
within that year with early application permitted for all entities.
The Company adopted the lease accounting model as described in
Topic 842 for the fiscal year begins on January 1, 2019 and it had
no impact on date of adoptions
The
Company has a long-term operating lease, and the long-term
operating lease took effect in April 2020 (see note 17).
In
November 2018, the FASB issued ASU 2018-18, Collaborative
Arrangements (Topic 818): Clarifying the Interaction Between Topic
808 and Topic 606, which clarifies when transactions between
participants in a collaborative arrangement are within the scope of
the FASB’s revenue standard, Topic 606. The standard is effective
for fiscal years beginning after December 15, 2019 and interim
periods within those fiscal years, with early adoption permitted.
We will adopt this standard on its effective date of January 1,
2020. We do not expect the adoption of this ASU to have a material
impact on our consolidated financial position, results of
operations, cash flows, or presentation thereof.
In
October 2018, the FASB issued ASU 2018-17, Targeted Improvements
to Related Party Guidance for Variable Interest Entities, that
changes the guidance for determining whether a decision-making fee
paid to a decision makers and service providers are variable
interests. The guidance is effective for fiscal years beginning
after December 15, 2019 and interim periods within those fiscal
years, with early adoption permitted. We will adopt this standard
on its effective date of January 1, 2020. We do not expect the
adoption of this ASU to have a material impact on our consolidated
financial position, results of operations, cash flows, or
presentation thereof.
F-18
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 5: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards (continued)
In
August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill
and Other-Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract. ASU 2018-15 aligns the
requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. The standard is effective
for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years, with early adoption
permitted. We will adopt this standard on its effective date of
January 1, 2020. We are currently evaluating the impact of this ASU
on our financial position, results of operations, cash flows, or
presentation thereof.
In
August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, “Fair Value
Measurement (Topic 820): Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement.” This ASU
eliminates, adds and modifies certain disclosure requirements for
fair value measurements as part of its disclosure framework
project. The standard is effective for all entities for financial
statements issued for fiscal years beginning after December 15,
2019, and interim periods within those fiscal years. Early adoption
is permitted. The adoption of this guidance is not expected to have
a material impact on the Company’s financial statements.
Other
recent accounting pronouncements issued by the FASB and the SEC did
not or are not believed by management to have a material impact on
the Company’s present or future consolidated financial
statements.
NOTE 6: PREPAID EXPENSES
Prepaid expenses consist of the following as of December 31, 2020
and 2019:
|
|
December 31,
2020
|
|
December 31,
2019
|
Prepaid insurance
|
$
|
45,983
|
$
|
67,734
|
Prepaid
services/inventory
|
|
209,940
|
|
9,872
|
|
$
|
255,923
|
$
|
77,606
|
For
the year ended December 31, 2020 and 2019 the Company recognized
amortization of prepaid expense of $120,559 and $111,929,
respectively.
NOTE 7: MARKETABLE
SECURITIES
The
Company received marketable securities, 10,300,000 fully paid
ordinary unrestricted shares in Impression Healthcare Limited
(Australian Company), traded on Australian Security Exchange by the
code IHL as part of the agreement and letter of intent (LOI). As of
December 31, 2019 the Company still had 4,925,000 shares. The
Company categorize these securities as trading securities and
report them at fair value, with unrealized gains and losses
included in earnings. On December 31, 2019 the stock price was A$
0.062 per share as quoted on asx.com.au and exchange rate of $0.7
AUD/USD as quoted on oanda.com and had FMV $213,745. On April 14,
2020 the Company entered into deed of settlement and release with
Impression Healthcare Limited and transferred 4,925,000 held shares
back to Impression Healthcare Limited by way of sale and purchase,
with the total amount payable by Impression Healthcare Limited to
Axim for completion of the sale and purchase and transfer being the
aggregate amount of $1. During the twelve months ended December 31,
2020 and 2019 The Company recorded unrealized gain (loss) on
marketable securities of $(104,705) and $113,748, respectively, and
realized gain (loss) on marketable securities of $(109,040) and
$268,274, respectively.
F-19
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 8: INVESTMENT IN JOINT VENTURE-RELATED PARTY
On
June 11, 2019 the Company entered into operating agreement as 1/3
member of KAM Industries, LLC, a Wyoming Limited Company. On June
18, 2019 KAM Industries LLC, entered into Joint Venture Agreement
to receive a percentage of the industrial hemp harvest yield on a
parcel of land in Wayne County, North Carolina owned by FarmShare,
LLC with whom KAM contracted to purchase a percentage of the hemp
harvest for the 2019 growing season. Once the hemp is harvested
from the 2019 growing season The Company will get its 1/3 share at
no additional cost. The agreement then expires unless renewed for
2020 with an additional payment. The Company paid $27,490 for 33.3%
of KAM Industries, LLC and recorded $0 as current asset as of
December 31, 2020. This investment is counted by using cost method
of accounting. An officer in KAM Industries, LLC is the Company’s
CEO.
As of
December 31, 2020, Farm Share, LLC is in the middle of the
processing of the entire 2019 crop. During the virus shut down the
extraction laboratories were not considered essential, but they
were back in business as of June 11, 2020. We have concluded the
asset is impaired due to COVID-19 restrictions. The Company’s
investment in joint venture-related party relating to discontinued
operations consisted of the following at December 31, 2020 and
2019, respectively.
|
|
December 31,
2020
|
|
December 31,
2019
|
Investment in Joint
Venture - Related Party
|
$
|
-
|
$
|
27,490
|
NOTE 9: PROMISSORY NOTE
Non-Related Party
On
August 8, 2014 the Company entered into a Promissory Note Agreement
with CanChew Biotechnologies, LLC (CCB), a related party (the
owners of CCB also own a majority of the outstanding shares of the
Company), under which it borrowed $1,000,000 to fund working
capital. The original loan was a demand note bearing interest at
the rate of 7% per annum, which amount, along with principal, was
payable upon demand. The demand note was amended effective January
1, 2015 to reduce the annual interest rate to 3%. All other terms
and conditions shall remain in full force and effect. The Company
is in discussions to have the demand note modified or exchanged for
a longer term, fixed maturity note.
On May 6,
2020 (the “Effective Date”), AXIM Biotechnologies, Inc., a Nevada
corporation (the “Company”), entered into an Agreement (the
“Separation Agreement”). Pursuant to the Separation Agreement, the
Company transferred 100% of its interest in CanCo and CanChew to an
entity designated by Dr. Anastassov. In consideration for the
transfers set forth above, any and all indebtedness owed by the
Company to CanChew, totaling approximately $2.61 million, was
satisfied and paid in its entirety.
For
the year ended December 31, 2020 and 2019 the Company recognized
interest expense of $9,076 and $26,400, respectively on this note
all was related to discontinued operations.
On
December 31, 2019, Sapphire Biotech, Inc. had entered into a Debt
Exchange Agreement whereas the Company assumed three (3) loans
totaling $128,375 of Debt owned by Sapphire Diagnostics, LLC which
had an interest rate of 6% per annum. In the same Debt Exchange
Agreement, the Company assumed four (4) additional loans made to
Sapphire in 2019, which had an interest rate of 6% per annum. All
seven (7) loans totaling $310,000, plus the aggregate interest
accrued thereon of $14,218 making the face value of the new note
$324,218. As of December 31, 2020, the
principal and accrued interest balances were $324,218 and $19,507,
respectively.
The
Company has received working capital advances from CanChew totaling
$0 and $1,526,603 as of December 31, 2020 and 2019 respectively.
The advances are payable on demand, all was related to discontinued
operations.
The
Company owes $5,000 to the chairman of the board of the Company for
a working capital advance of $5,000 made in May of 2014, all was
related to discontinued operations.
Under
an agreement Mr. Changoer received on March 20, 2018 the Company
issued 50,000 restrictive shares of its common stock and recorded
$235,000 of compensation expenses in the accompanying consolidated
financial statements to account for the issuance of the incentive
shares. As of December 31, 2020 and 2019, the total outstanding
balance was $60,000 and $23,696 respectively for consulting fees to
Mr. Changoer.
F-20
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 9: PROMISSORY NOTE (CONTINUED)
On
September 25, 2018, the Company amended Independent Director
Compensation agreement. Under the agreement in lieu of the share
compensation due to independent director of the Company for his
annual service ending May 23, Dr. Philip A. Van Damme shall receive
cash compensation of $20,000. Started from August 1, 2019 the
company has been paying monthly clinical trial fee of $5,000. As of
December 31, 2020 and 2019, the total outstanding balance was
$25,000 and $9,377 respectively.
Effective January 1, 2019 the company entered into a thirty-months
consulting agreement with the chairman of the board which pays a
monthly consulting fee of $20,000. The company has also been paying
a monthly bonus fee of 15,000; this additional fee is on a month to
month basis at the discretion of management. As of December 31,
2020 and 2019, the total outstanding balance was $210,000 and
$35,000 respectively for consulting fees.
On May 6,
2020 (the “Effective Date”), AXIM Biotechnologies, Inc., a Nevada
corporation (the “Company”), entered into an Agreement (the
“Separation Agreement”) by and among the Company, CanChew License
Company (“CanCo”), CanChew Biotechnologies, LLC (“CanChew”),
Medical Marijuana, Inc., Dr. George A. Anastassov (“Dr.
Anastassov”), Dr. Philip A. Van Damme (“Dr. Van Damme”), Lekhram
Changoer (“Mr. Changoer”), Sanammad Foundation, Netherlands and
Sanammad Foundation, US (collectively, the “Sanammad Parties”),
pursuant to which, among other matters as described herein, Drs.
Anastassov and Van Damme and Mr. Changoer resigned as members of
the Company’s Board of Directors.
Pursuant
to the Separation Agreement, the Company transferred and assigned
to an entity designated by Dr. Anastassov all of the Company’s
cannabis-related intellectual property other than the inventions
and discoveries described in that certain cannabis-related patent
application filed by the Company’s wholly-owned subsidiary,
Sapphire Biotech, Inc. (water-soluble cannabinoid molecules). The
Company also transferred 100% of its interest in CanCo and CanChew
to an entity designated by Dr. Anastassov. In consideration for the
transfers set forth above, any and all indebtedness owed by the
Company to CanChew, totaling approximately $2.61 million, was
satisfied and paid in its entirety.
In
addition, in consideration for the payment by the Company of
$65,000, the Company purchased 100% of the issued and outstanding
500,000 shares of Series B Preferred Stock held by the Sanammad
Parties. Such shares shall be retired to treasury of the Company.
The Sanammad Parties also agreed to forfeit and assign back to
treasury, for no consideration, a total of 18,570,356 shares of the
Company’s common stock.
In
addition, each of Drs. Anastassov and Van Damme and Mr. Changoer
have agreed to subject the shares of the Company’s common stock
held by each of them to lock-up and leak-out restrictions, as
follows: they shall not sell shares for a period of 12 months
following the Effective Date and, thereafter, subject to a daily
volume limitation of 5%, on an aggregate basis among them.
Further,
the Company terminated the Consulting Agreement of Dr. Anastassov
and the Employment Agreements for each of Dr. Van Damme and Mr.
Changoer. In connection with the termination of Dr. Anastassov’s
Consulting Agreement, the Company agreed to pay severance in the
amount of $35,000 for March 2020 and $20,000 per month thereafter
through July 2021 (the termination date contemplated by the
Consulting Agreement). Commencing for the April 2020, the Company
may, in its sole discretion, pay the $20,000 severance obligation
by the issuance of shares of the Company’s common stock registered
pursuant to the Registration Statement on Form S-8 filed with the
Commission on May 29, 2015 (“S-8 Shares”). If the gross cash
proceeds from the sale of any S-8 Shares issued in lieu of cash
severance is less than $20,000, as determined 20 days after
issuance of such S-8 Shares, then the Company has agreed to issue
additional shares that would serve to “true-up” the value of the
shares to the $20,000 monthly severance obligation; provided,
however, that if 30 days after the date the severance payment is
due the gross proceeds from the sale of S-8 Shares is less than
$20,000, the Company must pay the shortfall in cash. In addition,
for each month that Dr. Anastassov is entitled to receive
severance, he shall receive S-8 Shares in an amount equal to the
lesser of (a) 150,000 S-8 Shares, or (b) S-8 Shares valued at
$15,000 based upon the closing price of the Company’s common stock
as of the due date of the severance payment obligation. In
connection with the termination of the Employment Agreements of Dr.
Van Damme and Mr. Changoer, Mr. Changoer’s severance payments shall
be $20,000 per month for 12 months, commencing April 2020 (paid in
arrears) and Dr. Van Damme’s severance payments shall be $5,000 per
month for 12 months, similarly commencing April 2020 and paid in
arrears. The Company has the right to pay each of Dr. Van Damme’s
and Mr. Changoer’s monthly severance payments in S-8 shares in lieu
of cash subject to the same terms and restrictions (including
true-up terms) as set forth above for Dr. Anastassov. As of
December 31, 2020, the accrued severance payment was $225,000 to
Dr. Anastassov, $60,000 to Mr. Changoer and $25,000 to Dr. Van
Damme
As of
December 31, 2020, the total accrued severance payment was $73,142,
including $73,142 true-up adjustment, resulting in a loss of
$73,142 accounted as loss on debt extinguishment related to
discontinued operations.
F-21
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 9: PROMISSORY NOTE (CONTINUED)
The
Company retains the right to prepay the severance obligations to
Drs. Anastassov and Van Damme and Mr. Changoer, without
penalty.
No claims
were alleged by the Company against any party, and no claims were
alleged against the Company. However, in connection with the
transactions described above, the parties entered into a general
mutual release of all claims.
NOTE 10: RELATED PARTY TRANSACTIONS
Related Party
The
company has an employment agreement with Catlina Valencia at a rate
of 15,000 per month commencing March 17, 2020 .The agreement can be
terminated with 30 days’ notice by either party
The
company has a consulting agreement with Glycodots LLC whereby it
will provide the services of Dr. Sergei A. Svarovsky at a rate of 15,000 per month
commencing March 17, 2020 .The agreement can be terminated with 30
days’ notice by either party
Purchase
of Promissory Note and Forbearance Agreement
Effective May 4, 2020, the Company acquired from TL-66, a
California limited liability company (“Seller”), a promissory note
issued to Seller by Dr. Anastassov (“Maker”) dated December 1,
2017, with a face value of $350,000 and a remaining balance due of
approximately $100,000 (the “Note”). The purchase price for the
Note was $100,000 payable by the Company issuing Seller One Million
(1,000,000) restricted shares of the Company’s Common Stock.
Effective May 6, 2020, the Company and Maker entered into a
Forbearance Agreement whereby the Company agreed to forbear from
making any collection efforts on the Note for a period of 24 months
so long as Maker has not breached the Separation Agreement.
Following 24 months, if there has been no breach of the Separation
Agreement by Maker, repayment of the Note, including all principal
and unpaid interest, will be waived in full. As of May, 4, 2020 the
carrying value of the note receivable was $102,567, the value of
the common stock to be issued was $135,000, resulting in a loss of
$32,433 accounted as loss on debt extinguishment related to
discontinued operations. The balance of the Note Receivable as of
December 31, 2020 and 2019 is $102,567 and $0, including interest
accrued thereon of $675 and $0, respectively.
NOTE 11: DUE TO FIRST INSURANCE FUNDING
On
June 25, 2019, the Company renewed its D&O and EPLI insurance
policy with total premiums, taxes and fees for $97,000 and $6,849
respectively. A cash down payment of $20,850 was paid on July 16,
2019. Under the terms of the insurance financing, payments of
$9,501, which include interest at the rate of 7.2% per annum, are
due each month for nine months commencing on July 25, 2019.
On
October 22, 2019, the Company renewed its CL Products Liability
insurance policy with total premiums, taxes and fees for $18,864. A
cash down payment of $1,886 was paid on October 24, 2019. Under the
terms of the insurance financing, payment of $1,945, which include
interest at the rate of 7.451% per annum, are due each month for
nine months commencing on November 22, 2019.
On
June 25, 2020, the Company renewed its D&O insurance policy
with total premiums, taxes and fees for $93,357. A cash down
payment of $18,671 was paid on July 6, 2020. Under the terms of the
insurance financing, payments of $8,456, which include interest at
the rate of 4.6% per annum, are due each month for nine months
commencing on July 25, 2020.
The
total outstanding due to First Insurance Funding as of December 31,
2020 and 2019 is $25,369 and $42,121; respectively.
F-22
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 12: CONVERTIBLE NOTES PAYABLE
The
following table summarizes convertible note payable- shareholder as
of December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
December 31,
2019
|
Convertible note
payable, due on July 1, 2028, interest at 3.5% p.a.
|
$
|
-
|
$
|
45,000
|
Accrued interest
|
|
-
|
|
5,578
|
|
$
|
-
|
$
|
50,578
|
The
Convertible Note (“Note”) bears interest at the rate of 3.5% per
annum, payable annually beginning on July 1, 2017, and matures on
July 1, 2028. The Note is convertible, in whole or in part at any
time at the option of the holder, into the Company’s common stock
at a conversion price of $0.01, provided however, the holder of the
Note is not permitted to convert an amount of the Note that would
result in the holder and its affiliates owning more than 4.9% of
the Company’s outstanding common stock. On July 10, 2020 the holder
converted $51,414 of convertible note, which included $6,414
interest, into 5,141,377 shares of the Company’s common stock,
resulting in a loss of $171,889 accounted as loss on debt
extinguishment. The balance of the Note as of December 31, 2020 and
2019 is $-0- and $50,578, including interest accrued thereon of
$-0- and $5,578, respectively.
The
following table summarizes convertible note payable of related
party as of December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
December 31,
2019
|
Convertible note payable, due on November 1, 2026, interest at 3.5%
p.a.
|
$
|
4,000,000
|
$
|
4,000,000
|
Accrued interest
|
|
158,648
|
|
93,333
|
Convertible note
payable, net
|
$
|
4,158,648
|
$
|
4,093,333
|
In
2018 the Company extinguished debt with Investor. Investor had
proposed a financing transaction pursuant to which the Company will
satisfy and retire the Original Note and Original Note current
balance in simultaneous exchange for and upon delivery by the
Company of a (1) new Convertible Promissory Note in the principal
amount of $4,000,000 (the “Exchange Note”), and (2) 400,000 shares
of the Company’s restricted common stock (the “Origination
Shares”).
Simultaneously, a third-party Investor and the Company entered in
Debt Exchange Agreement with Medical Marijuana Inc. As part of this
agreement Investor will exchange and deliver the AXIM note to
Medical Marijuana in exchange for a Convertible Promissory note.
Axim consented to the transfer and assignment of the Axim Note in
exchange for the issuance by the Medical Marijuana of the Exchange
Note. The interest on this note is payable bi-annually every May 1
and November 1. On May 1, 2019 the Company paid accrued interest of
$60,278.
In
2020 the Company was authorized to apply the accounts receivable of
$75,074 due from Kannaway towards its accrued interest.
On
May 1, 2020, the Company agreed to modify its existing convertible
note with a principal balance of $4 million, 3.5% interest rate
convertible note with the current holder of that note. There were
two changes to the existing agreement – (a) the conversion price
was reduced from the $1.50 conversion price in the original Note to
$0.25 cents in the modified Note and (b) the term of the note was
extended from the original maturity date of November 1, 2021, to
November 1, 2026. The Company’s stock closed trading on the day of
the modification at $0.13 per share. The amendment of this
convertible Note was also evaluated under ASC Topic 470-50-40,
“Debt Modifications and Extinguishments.” Based on the guidance,
the instruments were determined to be substantially different due
to the change in the conversion price being substantial, and debt
extinguishment accounting was applied. The fair value of the
modified convertible note was not different than the carrying value
of the original note as such no extinguishment loss was recorded,
The Note prior to the amendment of approximately $4 million, and
the fair value of the Note and embedded derivatives after the
amendment of approximately $4 million. There were no unamortized
debt issuance costs and the debt discount associated with the
original 2018 Note.
As of
December 31, 2020 and 2019, the balance of secured convertible note
was $4,158,648 and $4,093,333 which included $158,648 and $93,333
accrued interest respectively.
F-23
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 12: CONVERTIBLE NOTES PAYABLE (CONTINUED)
The
following table summarizes convertible note payable as of December
31, 2020 and 2019:
|
|
December 31,
2020
|
|
December 31,
2019
|
Convertible note
payable, due on October 1, 2029, interest at 3.5% p.a.
|
$
|
484,478
|
$
|
484,478
|
Convertible note payable, due on October 1, 2029, interest at 3.5%
p.a.
|
|
1,000,000
|
|
1,000,000
|
Convertible note payable, due on December 31, 2034, interest at 3%
p.a.
|
|
190,000
|
|
-
|
Convertible note payable, due on July 21, 2032, interest at 3.5%
p.a.
|
|
609,835
|
|
-
|
Accrued interest (The accrued interest and principal are both
included in the captions titled “convertible note payable” in the
balance sheet)
|
|
236,148
|
|
168,208
|
Total
|
|
2,520,461
|
|
1,652,686
|
Less: unamortized
debt discount/finance premium costs
|
|
(843,673)
|
|
(739,732)
|
Convertible note
payable, net
|
$
|
1,676,788
|
$
|
912,954
|
|
|
|
|
|
On
September 16, 2016, we entered into a convertible note purchase
agreement (the “Convertible Note Purchase Agreement” or
“Agreement”) with a third-party investor. Under the terms of the
Convertible Note Purchase Agreement the investor may acquire up to
$5,000,000 of convertible notes from the Company. With various
closings, under terms acceptable to the Company and the investor as
of the time of each closing. Pursuant to the Agreement, on
September 16, 2016 the investor provided the Company with $850,000
secured convertible note financing pursuant to four (4) Secured
Convertible Promissory Notes (the “Notes”). Each of the Notes
matures on October 1, 2029, and pay 3.5% compounded interest paid
bi-annually. The Note are secured by the assets of the Company, may
not be pre-paid without the consent of the holder, and are
convertible at the option of the holder into shares of the Company
common stock at a conversion price equal to $0.2201 per share.
As of
December 31, 2020 and 2019, the balance of secured convertible
notes was $556,420 and $539,227, which included $71,942 and $54,749
accrued interest, respectively.
On
October 20, 2016 a third-party investor provided the Company with
$1,000,000 secured convertible note financing pursuant to three (3)
Secured Convertible Promissory Notes (the “Notes”). Each of the
Notes mature on October 1, 2029 and pay 3.5% compounded interest
paid bi-annually. The Notes are secured by the assets of the
Company, may not be pre-paid without the consent of the holder, and
are convertible at the option of the holder into shares of the
Company’s common stock at a fixed conversion price equal of $0.2201
per share. The investor paid cash of $500,000 for one of the Notes
and issued to the Company two (2) secured promissory notes of
$250,000 each for two (2) Convertible Notes of $250,000 each. The
two secured promissory notes issued by the investor (totaling
$500,000) as payment for two (2) secured Notes totaling $500,000
mature on February 1, 2017 ($250,000) and March 1, 2017 ($250,000),
bear interest at the rate of 1% per annum, are full recourse and
additionally secured by 10,486,303 shares of Medical Marijuana,
Inc. (Pink Sheets symbol: MJNA) and were valued at $858,828 based
upon the closing price of MJNA on October 20, 2016. A debt discount
was recorded related to beneficial conversion feature inn
connection with this convertible note of $499,318, related to the
beneficial conversion feature of the note to be amortized over the
life of the note or until the note is converted or repaid. As of
December 31, 2020 and 2019, this note has not been converted and
the balance of secured convertible notes was $1,148,944 and
$1,113,458, which included $148,944 and $113,458 accrued interest,
respectively.
On
December 31, 2019, Sapphire Biotech, Inc. entered into a
Convertible Note Purchase Agreement whereas the Company issued a
convertible note with a face value of $190,000 with a compounding
interest rate of 3% per annum, the interest shall be payable
annually beginning on December 31, 2020 until the maturity date of
December 31, 2034, at which time all principal and interest accrued
thereon shall be due and payable. The Convertible Note is secured
by substantially all the Company’s tangible and intangible assets.
In addition, the Convertible Note includes various non-financial
covenants including the Company may not enter into any agreement,
arrangement or understanding of any kind that would result in a
transaction, or series of transactions, that would result in the
sale of 50% or more of the Company’s capital stock without the
prior approval of the holder.
F-24
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 12: CONVERTIBLE NOTES PAYABLE (CONTINUED)
Upon
issuance, the Convertible Note was convertible into shares of the
Company’s common stock at $1.90 per share. At December 31, 2019,
the Company determined that the Convertible Note contained a
beneficial conversion feature for which a full discount was
recorded on the Convertible Note. The fair market value of the
Company’s common stock was based upon the estimated per share
acquisition price per the pending acquisition of the Company. The
discount of $190,000 will be amortized using the effective interest
method and will be fully amortized by December 31, 2034.
On
March 17, 2020 the Company entered into a Share Exchange Agreement
(“Agreement”) with Sapphire Biotech, Inc., a Delaware corporation
(“Sapphire”) and all of the Sapphire stockholders (collectively,
the “Sapphire Stockholders”). Following the closing of the
transaction, Sapphire will become a wholly owned subsidiary of
AXIM. Under the terms of the Agreement, the Company intends to
assume the convertible notes in the principal amounts of $190,000.
After the acquisition, the Convertible Note was able to convert
6,000,000 shares of Axim’s common stock. Upon assumption of the
note, the Company recorded a beneficial conversion feature of
$190,000. As of December 31, 2020 and 2019, the balance of secured
convertible note was $195,716 and $-0-, which included $5,716 and
$-0- accrued interest respectively.
On
July 21, 2020 the Company entered into convertible note purchase
agreement with Cross & Company, the Company owed to Cross &
Company $609,835 of aggregated payments and desired to satisfy the
amount due in full by issuing to Cross & Company a convertible
promissory note. The convertible note matures on July 21, 2032 and
incurred 3.5% compounded interest paid annually. The Note are
secured by the assets of the Company, may not be pre-paid without
the consent of the holder, and are convertible at the option of the
holder into shares of the Company common stock at a conversion
price equal to $0.37. Notwithstanding the foregoing, holder shall
not be permitted to convert the note, or portion thereof, if such
conversion would result in beneficial ownership by holder and its
affiliates of more than 4.9% of the debtor’s outstanding common
stock as of the date of conversion. The Company determined that
that the conversion of the amounts due into a long-term convertible
note resulted in a debt extinguishment due to the change in the
fair values exceeding 10%. Accordingly the loss of $823,497 was
included in the statement of operations as loss on debt
extinguishment. As of December 31, 2020 and 2019, the balance of
secured convertible note was $619,381 and $-0-, which included
$9,546 and $-0- accrued interest respectively.
During the twelve months ended December 31, 2020 and 2019, the
Company amortized the debt discount on all the notes of $86,059 and
$75,272, respectively, to other expenses. As of December 31, 2020
and 2019, unamortized debt discount was $843,673 and $739,732,
respectively.
NOTE 13: STOCK INCENTIVE PLAN
On
May 29, 2015 the Company adopted its 2015 Stock Incentive Plan.
Under the Plan the Company may issue up to 10,000,000 S-8 shares to
officers, employees, directors or consultants for services rendered
to the Company or its affiliates or to incentivize such parties to
continue to render services. S-8 shares are registered immediately
upon the filing of the Plan and are unrestricted shares that are
free-trading upon issuance. There were 9,806,000 shares available
for issuance under the Plan as of December 31, 2020. On January 2,
2019, John Huemoeller the CEO was granted the option to purchase 2
million shares of Axim Common stock under the plan at a purchase
price of $0.75 per share. 1 million options vested immediately and
1 million options vest at the end of 2019. The Company recorded
compensation expense of $-0- and $1,820,000 in 2020 and 2019.
On
May 13, 2020, Alim Seit-Nebi the Chief Technology Officer and
Co-Founder of Sapphire Biotechnology was granted the options to
purchase 1 million shares of Axim common stock under the plan at
the exercise price of $0.126 per share. One third of the options
will vest six months from the date of grant, one third of the
options will vest one year from the date of grant, and the
remaining one third of the options will vest two years from the
date of grant.
On
May 13, 2020, Dr. Douglas Lake the Chief Clinical Officer and
Co-Founder of Sapphire Biotechnology was granted the options to
purchase 2 million shares of Axim common stock under the plan at
the exercise price of $0.126 per share. One third of the options
will vest six months from the date of grant, one third of the
options will vest one year from the date of grant, and the
remaining one third of the options will vest two years from the
date of grant.
On
May 13, 2020, Timothy R, Scott the Director of Axim Biotechnology
was granted the options to purchase 0.5 million shares of Axim
common stock under the plan at the exercise price of $0.126 per
share. One third of the options vested immediately, one third of
the options will vest six months from the date of grant, and the
remaining one third of the options will vest twelve months from the
date of grant.
F-25
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 13: STOCK INCENTIVE PLAN (CONTINUED)
On
May 13, 2020, Robert Cunningham the Director of Axim Biotechnology
was granted the options to purchase 0.5 million shares of Axim
common stock under the plan at the exercise price of $0.126 per
share. One third of the options vested immediately, one third of
the options will vest six months from the date of grant, and the
remaining one third of the options will vest twelve months from the
date of grant.
On
May 13, 2020, Maurico Bellora the Director of Axim Biotechnology
was granted the options to purchase 0.5 million shares of Axim
common stock under the plan at the purchase price of $0.126 per
share. One third of the options vested immediately, one third of
the options will vest six months from the date of grant, and the
remaining one third of the options will vest twelve months from the
date of grant.
On
September 10, 2020, Noel C. Gillespie the Senior Patent Attorney of
Axim Biotechnology was granted the options to purchase 0.5 million
shares of Axim common stock under the plan at the purchase price of
$0.61 per share. One third of the options vested immediately, one
third of the options will vest one year from the date of grant, and
the remaining one third of the options will vest two years from the
date of grant.
For
the twelve months ended December 31, 2020 and 2019 the Company
recorded compensation expense of $1,947,745 and $1,820,000,
respectively.
NOTE 14: STOCKHOLDERS’ DEFICIT
Preferred
Stock
The
Company has authorized 5,000,000 shares of preferred stock, with a
par value of $0.0001 per share. Of the 5,000,000 authorized
preferred shares, 4,000,000 are undesignated “blank check”
preferred stock. The Company may issue such preferred shares and
designate the rights, privileges and preferences of such shares at
the time of designation and issuance. As of December 31, 2020, and
2019 there are -0- and -0- shares of undesignated preferred shares
issued and outstanding, respectively.
There
are zero shares issued and outstanding of Series A and Series B
Preferred stock as of December 31, 2020.
Series C Convertible Preferred
Stock
On
August 17, 2016 the Company designated up to 500,000 shares of a
new Series C Convertible Preferred Stock (Series C Preferred
Stock). The holders of the Series C Preferred are entitled to elect
four members to the Company’s board of directors and are entitled
to cast 100 votes per share on all other matters presented to the
shareholders for a vote. Each share of Series C Convertible
Preferred is convertible into one share of the Company’s common
stock. The Series C Convertible Preferred designation contains a
number of protective and restrictive covenants that restrict the
Company from taking a number of actions without the prior approval
of the holders of the Series C Preferred or the unanimous vote of
all four Series C Directors. If at any time there are four Series C
Directors, one such director must be independent as that term is
defined in the Series C designation. Any challenge to the
independence of a Series C Director is a right conferred only upon
the holders of the Series B Convertible Preferred Stock and may
only be made by the holders of the Series B Convertible Preferred
Stock.
On
August 18, 2016 the Company issued all 500,000 shares of its newly
designated Series C Preferred Stock to MJNA Investment Holdings,
LLC in exchange for cash of $65,000. As the holders of the Series C
Preferred Stock, MJNA Investment Holdings, LLC has designated Dr.
Timothy R. Scott, John W. Huemoeller II, Robert Cunningham and
Blake Schroeder as their four Series C Directors.
On February 20, 2019, MJNA
Investment Holdings LLC (“Seller”) sold its 500,000 shares of AXIM
Biotechnologies, Inc.’s, a Nevada corporation (the “Company”)
Series C Preferred Stock to Juniper & Ivy Corporation, a Nevada
corporation (“Purchaser”) for a purchase price of $500,000 (the
“Purchase Price”) pursuant to a Preferred Stock Purchase Agreement
(the “Purchase Agreement”). Payment of the Purchase Price was made
as follows (i) a $65,000 payment made by check payable to Seller,
which Purchaser borrowed from an unrelated third-party and which
has no recourse against the Series C Preferred Stock or assets of
Purchaser (the “Loan”), and (ii) the issuance by Purchaser to
Seller of a promissory note, face value, $435,000, which has no
recourse against the Series C Preferred Stock or assets of
Purchaser (the “Note”). The Company’s Chief Executive Officer John
W. Huemoeller II is the President of Purchaser. Mr. Huemoeller
provided a personal guaranty for the Loan and the Note.
F-26
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 14: STOCKHOLDERS’ DEFICIT (CONTINUED)
The
holders of the Series C Preferred Stock are entitled to elect four
members to the Company’s Board of Directors and are entitled to
cast 100 votes per share on all other matters presented to the
shareholders for a vote. As a result of this transaction, a change
in control has occurred.
Effective April 2, 2019, Blake N. Schroeder resigned as a member of
the Company’s Board of Directors. Mr. Schroeder’s resignation was
not because of any disagreements with the Company on matters
relating to its operations, policies and practices.
On
April 3, 2019 pursuant to the Company’s Amended and Restated
Bylaws, the holder of the Company’s Series C Preferred Stock
appointed Mauricio Javier Gatto-Bellora to fill the director seat
vacated by the resignation of Mr. Schroeder.
On
July 21, 2020 pursuant to the Company’s Amended and Restated
Bylaws, the holder of the Company’s Series C Preferred Stock
appointed Peter O’Rourke to fill one of the vacant positions on
board created by the resignations of Dr. George Anastassov, Lekhram
Changoer, and Dr. Philip Van Damme.
Common
Stock
The
Company has authorized 300,000,000 shares of common stock, with a
par value of $0.0001 per share. As of December 31, 2020, and 2019,
the Company had 125,327,579 and 64,854,539 shares of common stock
issued and outstanding, respectively.
2020
Transactions:
During the period between January 1, 2020 and December 31, 2020 the
Company issued total 17,292,751 shares valued $3,309,130 pursuant
to the Company’s Registration Statement on Form S-3. The Company
received $3,309,130 in cash.
On
January 13, 2020 the Company issued 250,000 restricted shares of
its common stock to third party valued at $50,000, which were
carried on the books as stock to be issued.
On
January 23, 2020 and February 26, 2020 the Company issued 600,000,
and 62,839 restricted shares of its common stock to third party
valued at $262,500, and $25,000 pursuant to the stock purchase
agreement for certain services, recorded as advertising and
promotion expense and License, permits & Patents,
respectively.
On March 17, 2020 the
company acquired 100% of the issued and outstanding shares of
Sapphire by means of a share exchange with the Sapphire
Stockholders in exchange for 54,000,000 restricted shares of its
common stock at valued $7,506,000.
On
April 21, 2020 the Company issued 1,176,470 restricted shares of
its common stock to third party valued at $100,000 pursuant to the
stock purchase agreement. The cash was received in 2020.
On
May 6, 2020, the Company entered into an agreement with Sanammad
Foundation, the Sanammad Parties agreed to forfeit and assign back
to treasury, for no consideration, a total of 18,570,356 shares of
the Company’s common stock, for which the fair value was
$2,562,709, however for accounting purpose this transaction
recording at par value adjustment to additional paid in capital.
This transaction is related to the divesture of the previous
operations to Sanammad.
On
May 22, 2020 the Company issued 190,810 and 286,215 S-8 shares
valued at $60,000 and $90,000 pursuant to the Company’s
Registration Statement on Form S-8 for severance fees.
On
June 10, 2020 and June 24, 2020 the Company issued 2,173,913 and
625,000 restricted shares of its common stock to third party valued
at $500,000 and $100,000 pursuant to the stock purchase agreement.
The cash was received in 2020, respectively.
On
July 1, 2020 the Company issued 185,185 and 370,370 restricted
shares of its common stock to third party valued at $25,000 and
$50,000 pursuant to the stock purchase agreement. The cash was
received in 2020, respectively.
On
July 2, 2020 and July 9, 2020 the Company issued 714,285 and
1,785,714 restricted shares of its common stock to third party
valued at $100,000 and $250,000 pursuant to the stock purchase
agreement. The cash was received in 2020, respectively.
F-27
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 14: STOCKHOLDERS’ DEFICIT (CONTINUED)
On
July 10, 2020 the Company issued 5,141,377 restricted shares of its
common stock in exchange for the conversion of $51,414 of a
convertible note payable, which included $6,414 in interest.
On
July 10, 2020 the Company issued 142,857 and 357,153 restricted
shares of its common stock to third party valued at $20,000 and
$50,000 pursuant to the stock purchase agreement. The cash was
received in 2020, respectively.
On
July 10, 2020 the Company issued 250,000 and 107,143 restricted
shares of its common stock to third party valued at $35,000 and
$15,000 pursuant to the stock purchase agreement. The cash was
received in 2020, respectively.
On
July 14, 2020 the Company issued 200,000 restricted shares of its
common stock to third party valued at $23,630 pursuant to the stock
purchase agreement. The cash was received in 2020,
respectively.
On
July 21, 2020 the Company entered into convertible note purchase
agreement with Cross & Company, the Company owed to Cross &
Company $609,835 of aggregated True-Up payments due to subscription
price adjustment and desired to satisfy the amount due in full by
issuing to Cross & Company a convertible promissory note (see
note 12).
On
July 22, 2020 the Company issued 65,359 and 130,719 restricted
shares of its common stock to third party valued at $20,000 and
$40,000 pursuant to the stock purchase agreement. The cash was
received in 2020, respectively.
On
July 22, 2020 the Company issued 163,398 and 326,797 restricted
shares of its common stock to third party valued at $50,000 and
$100,000 pursuant to the stock purchase agreement. The cash was
received in 2020, respectively.
On
July 22, 2020 the Company issued 816,993 and 65,359 restricted
shares of its common stock to third party valued at $250,000 and
$20,000 pursuant to the stock purchase agreement. The cash was
received in 2020, respectively.
On
July 24, 2020 359,524 shares for the purchase of prepaid marketing
expenses valued at $302,000
On
August 4, 2020 the Company issued 141,243 restricted shares of its
common stock to third party valued at $50,000 pursuant to the stock
purchase agreement. The cash was received in 2020.
On
August 6, 2020 the Company issued 148,166 and 166,686 S-8 shares
valued at $120,000 and $135,000 pursuant to the Company’s
Registration Statement on Form S-8 for severance fees.
On
August 12, 2020 the Company issued 414,419 restricted shares of its
common stock to third party valued at $76,690 pursuant to the stock
purchase agreement for certain services, recorded as commission
fees.
On
December 7, 2020 the Company issued 130,609 S-8 shares of its
common stock to third party value at $75,000 pursuant to the
Company’s Registration Statement on Form S-8 for severance
fees.
2019
Transactions:
During the period between January 1, 2019 and December 31, 2020 the
Company issued total 2,500,000 shares valued $2,514,375 pursuant to
the Company’s Registration Statement on Form S-3. The Company
received $2,514,375 in cash
On
March 12, 2019 and July 11, 2019 the Company issued 239,521, and
687,285 restricted shares of its common stock to third party valued
at $400,000, and $500,000 pursuant to the stock purchase agreement.
The cash was received in 2018 and 2019 respectively.
On
May 23, 2019 and August 1, 2019 the Company issued 19,668, and
6,055 shares of its common stock to its Advisory board valued at
$48,500, and $7,500 respectively, which were carried on the books
as stock to be issued. These amounts were recorded as consulting
expense.
On
December 2, 2019 and December 17, 2019 the Company issued 888,888,
and 930,232 restricted shares of its common stock to third party
valued at $200,000, and $200,000 pursuant to the stock purchase
agreement. The cash was received in 2019.
F-28
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 15: STOCK OPTIONS
Options to purchase common
stock are granted at the discretion of the Board of Directors, a
committee thereof or, subject to defined limitations, an executive
officer of the Company to whom such authority has been delegated.
Options granted to date generally have a contractual life of ten
years.
The
stock option activity for the year ended December 31, 2020 and 2019
is as follows:
|
Options Outstanding
|
|
Weighted Average
Exercise Price
|
Outstanding at
December 31, 2018
|
-
|
|
-
|
Granted
|
2,000,000
|
|
$0.75
|
Exercised
|
-
|
|
-
|
Expired or
canceled
|
-
|
|
-
|
Outstanding at
December 31, 2019
|
2,000,000
|
|
0.75
|
Granted
|
8,300,000
|
|
0.27
|
Exercised
|
-
|
|
-
|
Expired or
canceled
|
-
|
|
-
|
Outstanding at
December 31, 2020
|
10,300,000
|
|
$
0.36
|
The
following table summarizes the changes in options outstanding,
option exercisability and the related prices for the shares of the
Company’s common stock issued to employees and consultants under a
stock option plan at December 31,:
As
of December 31, 2020
|
Options Outstanding
|
Options Exercisable
|
Weighted
Average
Exercise
Price ($)
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise
Price ($)
|
Number
Exercisable
|
Weighted
Average
Exercise
Price ($)
|
$0.36
|
10,300,000
|
9.80
|
$0.36
|
7,466,662
|
$0.36
|
|
|
|
As of December 31,
2019
|
Options Outstanding
|
Options Exercisable
|
Weighted
Average
Exercise
Price ($)
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise
Price ($)
|
Number
Exercisable
|
Weighted
Average
Exercise
Price ($)
|
$0.75
|
2,000,000
|
10
|
$0.75
|
2,000,000
|
$0.75
|
F-29
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 15: STOCK OPTIONS (CONTINUED)
The
Company determined the value of share-based compensation for
options vested using the Black-Scholes fair value option-pricing
model with the following weighted average assumptions:
|
|
December 31,
2020
|
|
December 31,
2019
|
Expected life
(years)
|
|
10
|
|
10
|
Risk-free interest
rate (%)
|
|
0.61
|
|
2.66
|
Expected volatility
(%)
|
|
230
|
|
318
|
Dividend yield
(%)
|
|
-
|
|
-
|
Weighted average fair
value of shares at grant date
|
$
|
0.61
|
$
|
0.91
|
|
|
|
|
|
For
the twelve months ended December 31, 2020 and 2019 stock-based
compensation expense related to vested options was $1,947,745 and
$1,820,000, respectively.
NOTE 16: DISCONTINUED OPERATIONS
During May 2020 the Company decided to discontinue most of its
operating activities pursuant to the Separation Agreement entered
into by and among the Company, CanChew License Company (“CanCo”),
CanChew Biotechnologies, LLC (“CanChew”), Medical Marijuana, Inc.,
Dr. George A. Anastassov (“Dr. Anastassov”), Dr. Philip A. Van
Damme (“Dr. Van Damme”), Lekhram Changoer (“Mr. Changoer”),
Sanammad Foundation, Netherlands and Sanammad Foundation, US
(collectively, the “Sanammad Parties”). (see Note 1)
Pursuant to the terms of the Purchase Agreement dated as of May 6,
2020, Sanammad Parties agreed to acquire from the Company
substantially all of its assets and its wholly-owned subsidiaries
and to assume certain liabilities and its wholly-owned
subsidiaries. Sanammad Parties agreed to pay a purchase price of
$2,609,100 reflected in amount due Canchew were deemed paid in
full. The sale, which was completed on May 6, 2020, did not include
the Company’s cash and certain other excluded assets and
liabilities.
The
assets sold and liabilities transferred in the transaction were the
sole revenue generating assets of the Company. The results of
operations associated with the assets sold have been reclassified
into discontinued operations for periods prior to the completion of
the transaction.
The
following is a summary of assets and liabilities sold, stock
retired and gain recognized, in connection with the sale of assets
to Sanammad parties:
Other
current assets
|
$
|
5,000
|
Total
current assets
|
$
|
510,017
|
Intangible assets, net of amortization
|
$
|
47,375
|
Total
asset
|
$
|
562,392
|
|
|
|
Notes payable
|
$
|
880,000
|
Accounts payable and accrued expenses
|
$
|
210,640
|
Due
to Canchew
|
$
|
1,526,603
|
Stock
retired
|
$
|
1,857
|
Total liabilities and
equity
|
|
2,619,100
|
|
|
|
The gain on sale of
assets was reported during the period was determined as
follows:
|
|
|
Loss on sale of assets
|
$
|
562,392
|
Gain on sale of
liabilities
|
$
|
2,619,100
|
|
|
|
Net gain from sale of
assets and liabilities
|
$
|
2,056,708
|
The
resulting gain from the sale will be fully offset by existing net
operating loss carryforwards available to the Company.
F-30
AXIM BIOTECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020 and 2019
NOTE 16: DISCONTINUED OPERATIONS (CONTINUED)
For
the twelve months ended December 31, 2020 and 2019 the Company
recognized interest expense of $13,957 and $26,400,
respectively.
Additionally, the operating results and cash flows related to
assets sold on May 06, 2020 are included in discontinued operations
in the consolidated statements of operations and consolidated
statements of cash flows for the twelve months ended December 31,
2020 and 2019.
As of
December 31, 2020 and 2019, the Company has separately reported the
asset and liabilities of the discontinued operations in the
unaudited condensed consolidated balance sheet in accordance with
the provision of ASC 205-20. The asset and liabilities have been
reflected as discontinued operations, and consist of the
following:
|
|
December 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
Current asset of
discontinued operations
|
|
|
|
|
Accounts
receivable
|
$
|
-
|
$
|
315,843
|
Inventory
|
|
-
|
|
487,814
|
Loan receivable
|
|
-
|
|
5,000
|
Total current assets of discontinued operations
|
$
|
-
|
$
|
808,657
|
|
|
|
|
|
Noncurrent assets of discontinued operations
|
|
|
|
|
Other assets
|
$
|
-
|
$
|
50,534
|
Total noncurrent
assets of discontinued operations
|
$
|
-
|
$
|
50,534
|
|
|
|
|
|
Current
liabilities of discontinued operations
|
|