Item 1. Business.
BUSINESS DESCRIPTION
Company Overview
BioNexus Gene Lab Corp., a Wyoming corporation, is an emerging molecular diagnostics company focused on the application of functional genomics to enable early diagnosis and personalized health management. Our focus is on developing and marketing safe, effective and non-invasive blood tests for early detection of diseases in order to minimize treatment cost and improve patient management. Our non-invasive blood tests analyze changes in ribonucleic acid (or RNA) to detect the risk potentiality of 11 different diseases. These diseases include eight cancers (nasopharyngeal, lung, liver, stomach, breast, cervical, prostate and colon), two bowel diseases (colitis and Crohn) and osteoarthritis. This unique blood based genomic biomarker approach is based on the scientific observation that circulating blood reflects, in a detectable way, what is occurring throughout the body currently.
The Company believes that its blood based genomic screening protocol for the risk of disease detection can be utilized in conjunction with other medical procedures for disease detection including blood tests, imaging and biopsies. We market our blood based genomic screening process to health care providers, such as doctors, laboratories and hospitals, which began in July 2017.
We were incorporated in the State of Wyoming on May 12, 2017. On August 23, 2017, we acquired all of the outstanding capital stock of Bionexus Gene Lab Sdn. Bhd. (formerly BGS Lab Sdn. Bhd.), a Malaysian corporation (“Subsidiary”). The Subsidiary was incorporated in Malaysia on April 7, 2015. Our corporate structure is depicted below:
BioNexus Gene Lab Corp.
(Wyoming company)
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100% owned
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Bionexus Gene Lab Sdn. Bdh
(Malaysian company)
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Our principal office address is Unit 02, Level 10, Tower B, Avenue 3, The Vertical Business Suite II, Bangar South, No. 8 Jalan Kerinchi, Kuala Lumpur, Malaysia, our lab is located at Lab 353, Chemical Science Centre, University Science Malaysia, George Town, Penang, Malaysia, and we have a blood collection center located at 1st floor, Lifecare Medical Centre, Kuala Lumpur, Malaysia. Our telephone number is (+60) 1221-26512 and web-site is www.bionexusgenelab.com
Acquisition of BGS Lab Sdn. Bhd.
On August 23, 2017, BioNexus Gene Lab Corp., a Wyoming company, acquired all of the capital stock of BGS Lab Sdn. Bhd. (now Bionexus Gene Lab Sdn. Bhd), a Malaysian company (“Subsidiary”), from its then existing shareholders. In connection with the transaction, the following shareholders of Subsidiary received the corresponding number of shares of our common stock; Soo Kow Lai, our Chairman, received 10,000,000 shares; Chi Yuen Leong, our President received 10,000,000 shares; Mr. Chan Chong Wong, our Chief Executive Officer received 10,000,000 shares; and Dr. Choong Chin Liew, our majority shareholder received 20,000,000 shares. In exchange, we received certain software, equipment, know-how, related inventory and technology relating to blood based genomic analysis and screening developed by Dr. Liew which has enabled us to conduct our current operations. The technology and related assets were previously acquired by the Subsidiary from Dr. Liew in June 2017 in exchange for Dr. Liew receiving 40% of the equity of the Subsidiary and the obligation to pay Dr. Liew the sum of approximately $354,930. The Company paid Dr. Liew the sum of $83,664 on January 23, 2018 and on February 15, 2018, Dr. Liew agreed to waive the remaining balance due to him by the Company which amounted to $271,266.
Development of the Blood Analysis Process.
Our company’s major shareholder, Dr. Liew, developed and tested a novel approach in blood based genomic analysis and screening by identifying biomarkers in RNA as opposed to deoxyribonucleic acid (or DNA) analysis. Through his extensive research and clinical trials, he has determined that communication occurs between cells in blood and tissue as blood circulates throughout the body and subtle changes occur in cells over time due to injury or disease. These cell-cell interactions induce changes in blood gene expression. Profiling these changes enables the Company to identify unique molecular signatures reflecting disease activity which can then be used to develop disease-specific molecular diagnostic assays. The Company uses disease-specific blood-based biomarkers as the basis for molecular diagnostics tests and to enable personalized health management through the development of systems biology tools and algorithms.
The Company focuses on developing and commercializing proprietary molecular diagnostic tests for early detection of diseases and personalized health management, with a primary focus on cardiovascular, diabetes and cancer-related indications. There is a constant and dynamic interaction of blood with cells, tissues and organs of the human body. Many clinical studies performed by Dr. Liew and others have demonstrated that blood gene expression profiles can be used to develop personalized signatures capable of differentiating patients with cancer from healthy patients across a broad spectrum of pathologies interaction between tumor cells and the immune system that has been referred to as immunoediting. Immunoediting is the response of the immune system to a tumor and comprises three stages: elimination (in which the immune system identifies cancerous and/or precancerous cells and attempts to eradicate them), equilibrium (in which the surviving tumor cells begin mutating rapidly), and escape (in which tumor cells proliferate uncontrollably, leading to tumor progression). Each of these stages induces leukocyte gene expression changes that constitute a unique, detectable molecular signature.
Dr. Liew began his research in 1962 and has published numerous articles in medical and peer review journals. His publications include the following;
Peripheral Blood Transcriptome Dynamically Reflects System-wide Biology: A Potential Diagnostic Tool. Liew CC, Ma J, Tang HC, Zheng R, Dempsey AA. Journal of Laboratory and Clinical Medicine (March 2006).
The Peripheral Blood Transcriptome: New Insights into Disease and Risk Assessment. Mohr, S Liew CC. Trends in Molecular Medicine (October 2007).
DNA and RNA each consist of a single molecule and both are present in the blood. DNA is the carrier of human genetic information and is passed down from generation to generation. At conception, a person receives DNA from both parents. All of the cells in our bodies, except red blood cells, contain a copy of our DNA. Humans share about 99% of the same genetic code. However, it is the 1% of the genetic code that makes us all very distinct individuals. Historically, the study of DNA has been used to detect ancestry and inherited characteristics, including certain inherited diseases like Huntington Disease, Cystic Fibrosis and Down Syndrome, among others. It also is believed there is a genetic (DNA) pre-disposition to certain cancers, like breast cancer, colon cancer and gastric cancer.
While DNA is relatively static, RNA conversely is subject to change and is affected by an individual’s lifestyle, such as diet, alcohol, tobacco and/or drug use and exercise, along with exposure to environmental influences, such as pollutants and chemicals.
The distinctions between the characteristics of RNA and DNA are illustrated in the below table.
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-Static.
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-Dynamic.
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-Measures lifetime risk.
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-Measure current risk.
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-Repeated test does not
provide different result.
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-Repeated test provides
different result.
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-DNA does not change
with external factors.
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-Lifestyle and external factors
affect RNA expression.
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The Collection and Analysis Process.
Our process involves a simple blood draw. A nurse or technician of the health care provider draws 2.5 ml of blood from the patient using a RNAgard blood tube. The blood and a completed company form are couriered to our lab located at 353, Chemical Science Centre, USM, George Town. All blood samples are labelled with name and personal identity number and laboratory reference number on the tube where the blood sample is maintained for safekeeping.
At our lab, RNA is extracted using microcentrifuge and spectrophotometer. This step is followed by a quality control check on the RNA using microcentrifuge and bioanalyzer. The RNA then is purified (Biotinylated RNA will be mixed with purification beads and transferred to a U-bottom 96-well plate. Then, the plate will be placed onto a magnetic ring stand. Labeled cRNA will be captured when placed on the magnetic stand. The remaining solution will be removed and the captured pellet will be cleaned-up to obtain cRNA with high purity. Then, purified cRNA will be fragmented for hybridization) and hybridized onto a genechip (GeneChip 3’ IVT PLUS Reagent Kit will be used for preparing biotinylated target from purified total RNA samples suitable for hybridization to GeneChip arrays. Double-stranded cDNA will be synthesized from the total RNA using reverse transcriptase and oligo-dT primers. An in-vitro transcription (IVT) reaction is then done to produce biotin-labeled cRNA from the cDNA in a 16 hours incubation) and scanned through the affymetrix station (Once the overnight hybridization is completed, the Genechips will be washed with dedicated buffers and solutions to remove excess cRNAs and hybridization solutions. Washed chips will be stained with staining buffers to illuminate attached cRNAs. All these processes will be conducted in the fluidic station by following the given instructions. Specific experimental information is defined using AMDS software on a PC-compatible workstation. Stained chips are ready for scanning. The chips will be transferred into the scanner. The scan is automatically completed and the image is processed into data files.). The data collected from microarray analysis is analysed using our propriety software and algorithm calculation to generate the disease risk score report for the individual patient. A report is generated by our software and is forwarded to the health care provider for further consultation with the patient. This report can be used by patient and physician to plan future tests and therapies.
The process for effectuating RNA analysis depicted in the below pictures.
The raw data obtained will be analyzed and quality control processed by our lab in Malaysia using our proprietary software to calculate the risk analysis of 11 different diseases. We simplify the result into a graph which is contained in the patient booklet provided to the health care professional. A sample graph is depicted below.
In the above chart, NPC is Nasopharyngeal Cancer, ATDS is Ascending, Transverse, Descending and Sigmoid Colon Cancer, and OA is Osteoarthritis.
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The following cautionary text in contained in the results booklet which the Company provides to each patient:
This report/screening is not intended or implied to be substitute for professional medical advice, diagnostics or treatment. The content, including text, graphics and information in the report illustrate the risk score only. Bionexus Gene Lab Sdn Bhd makes no representation and assumes no responsibility for the accuracy of the information as such information and contents are subject to change without notice. You are encouraged to review any medical condition or treatment with your doctor.
The key proprietary aspect of our process is our proprietary algorithm software and the RNA extraction, preservation, quality control, hybridization, data analysis processes which was developed by Dr. Liew. We acquired the software and the technological processes in June 2017. The gene expression from a reference population representing a specific disease condition is filtered according to a quality assurance process based on repeatability data. This collected data is then analysed by our proprietary algorithm software and processes checked by the laboratory manager to ensure all the steps are followed in the deriving predictive model for each disease condition. Once these models have been established, they then can be applied to the data from a new sample to make risk prediction for this individual. Each disease/disorder has similar group of diseased/disordered genes which were identified through the years of research and clinical trials in Malaysia.
Business Development.
In April 2017, we began marketing our blood based genomic screening process to health care providers, such as clinics, laboratories and hospitals, all of which have a licensed doctor or staff. As mentioned above, the screening provides a risk analysis of 11 diseases, of which eight are different forms of cancer. In Malaysia, the cost for the analysis is not covered by health insurance. Thus, patients are required to pay for the costs of the services, which under our current pricing of $2,500 for the 11 disease panel for an individual plan. We do have different pricing for groups, like companies and associations.
In November 2017, we expanded our marketing efforts to companies, business organizations and insurance agents. As a result of these efforts, during November and December 2017, we entered into arrangements with two companies in Kuala Lumpur to screen their employees pursuant to which each company paid us $50,000. The companies have 32 and 55 employees respectively. We completed the screening process of these two companies by first calendar quarter 2019. We continue to market our services to other local companies in the Kuala Lumpur metropolitan area.
As of December 31, 2018, we have 3 centres, 2 in Kuala Lumpur recommending our blood based genomic screening protocol to their patients. Of these centres, Lifecare Medical Centre, Clinic Lee in Kuala Lumpur and Osel Clinic in George Town (Malaysia) account for approximately 30% of our patient population from July 2017 through December 31, 2018. We believe that there are over 500 clinics and hospitals located in the greater Kuala Lumpur metropolitan area.
Our goal is to have a large percentage of health care providers in the greater Kuala Lumpur metropolitan area refer patients to us for our screening protocol. Once we have established our brand and reputation in Kuala Lumpur, we intend to expend to other large cities in Malaysia, followed by an expansion to large metropolitan areas other countries in Asia Pacific, such as Indonesia, Taiwan and Singapore. However, we do not foresee expansion beyond Malaysia until fiscal year 2021 and beyond.
Our existing equipment and personnel are sufficient to handle up to 16 patients a day. If our daily patient count increases above 16 patients, we will be required to hire another laboratory technician and purchase and install an additional semi-automatic affymetrix station equipment estimate to be $120,000.
For health care providers, we pay a referral fee of between 20%. Typically, the patient, while in the offices of the health care provider, completes a form which identifies the name, address and other contact information of the patient.
Competition and Our Competitive Strengths.
While the Company believes that there is no similar commercialized blood based genomic screening for 11 diseases using RNA analysis, it believes that its blood based genomic screening protocol for disease detection could be utilized in conjunction with other medical procedures for disease diagnostics including lab (blood, urine or other body fluids) tests, imaging and biopsies. As such, the Company does not consider it to be in competition with these other medical procedures which have been industry standards for many years.
Disease detection for cancer, for example, are numerous and is dependent on the type of cancer tested. Information from the National Cancer Institute provides the following information;
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Genetic testing, also known as DNA testing, allows the determination of bloodlines and the genetic diagnosis of vulnerabilities to inherited diseases. In humans, genetic testing can be used to determine a child’s parentage or in general a person’s ancestry;
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Lab tests. High or low levels of certain substances in your body can be a sign of cancer. So, lab tests of the blood, urine, or other body fluids that measure these substances can help doctors make a diagnosis. However, abnormal lab results are not a sure sign of cancer. Lab tests are an important tool, but doctors cannot rely on them alone to diagnose cancer. Current tumour markers available in many countries including Malaysia are CEA, CA 19-9, CA 125, PSA, AFP, β-hCG, CA 27.29. All are NOT suitable for screening and diagnostic use because of low sensitivity, specificity and predictive value. Source: American Family Physician (2003) Vol 68 (6)
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Imaging Procedures. Imaging procedures create pictures of areas inside your body that help the doctor see whether a tumor is present. These pictures can be made in several ways, including a CT Scan, Nuclear Scan, MRI, PET Scan, among others.
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Biopsies. In most cases, doctors need to do a biopsy to make a diagnosis of cancer. A biopsy is a procedure in which the doctor removes a sample of tissue. A pathologist then looks at the tissue under a microscope to see if it is cancer.
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We however believe that we have a number of competitive strengths compared these other health diagnostic tools are as follows:
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Our screening is non-invasive (other than a simple blood draw), unlike biopsies;
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In one test, we can screen for 11 diseases unlike conventional diagnostics;
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Non-DNA blood tests for diseases like cancer are not dispositive and detect only elevated levels of proteins or other substances which are caused by cancer;
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DNA blood tests are limited to certain types of inherited diseases, Huntington Disease, Cystic Fibrosis and Down Syndrome, among others. Such inherited disease(s) may or may not happen in a person’ life time;
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MRI exams are uncomfortable and require fasting prior to testing, and implants in the body will distort result;
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Most importantly, our screening provides a predictive risk assessment for developing the 11 diseases. Most other disease detection procedures detect diseases already present in the body, and in most cases in the final stages of the disease making it difficult to treat or reverse. With our screening, patients are able to monitor the development of these diseases in the future through further medical testing, including using our protocol. In addition, patients are able to make adjustments to their lifestyles in an effort to reduce the potentiality of these diseases. Lifestyle adjustments may include reduction or changes to food, tobacco and alcohol intake, change of working environment and the implementation of exercise programs, among other changes.
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Our Growth Strategy
We will look to grow and expand our business by further penetrating the Kuala Lumpur market and expand our marketing efforts elsewhere in Malaysia. We believe that an increase in our marketing and promotional efforts will correlate to increased revenues and the expansion of our business. Our growth and expansion strategy for the next 6-12 months is as follows:
• Continue to leverage our relationships with healthcare providers. To date, we have relied upon the efforts of management and their relationships with health care providers to create the initial interest in our blood based genomic screening. These relationships have been located primarily in the Kuala Lumpur market. We will continue to use our relationships with providers in the Kuala Lumpur market and elsewhere in Malaysia to increase sales and product awareness.
• Allocate more capital resources to our marketing efforts. Apart from sales through existing relationships with health care providers, we intend to allocate more capital resources to marketing and promotion. As part of these efforts, we have shortlisted one part-time commission-based Marketing Director last year and she has scheduled to commence work in February 2020. She will be tasked with contacting insurance agencies, hospitals and clinics in the Kuala Lumpur area and other health care providers to create awareness of our services.
• Increase focus on corporate clients. To date, we have entered into arrangements with two corporate clients for screening on their employees. We intend to solicit more corporate clients in the Kuala Lumpur area and elsewhere in Malaysia by attending meeting with various trade associations in Malaysia and events conducted by Chambers of Commerce in major cities in Malaysia. We commenced these efforts in the third calendar quarter of 2019 and are ongoing. These efforts will be undertaken by the officers of the Company.
• Expand to other regions in Malaysia. We intend to reach other large cities in Malaysian, such as Penang, Ipoh, Seremban, Melaka, Johor Bahru and Kuantan.
Regulatory Matters
We are unaware of and do not anticipate having to expend significant resources to comply with any governmental regulations. We are subject to the laws and regulations of those jurisdictions in wellness operation and advertising materials circulation. Generally, business licensing requirements, income taxes and payroll taxes are applicable to all types of business operations. The development and operation of our business is not subject to special regulatory and/or supervisory requirements. In 2007, the Malaysian Parliament passed the Pathology Laboratory Bill of 2007 (“Pathology Act”), subject to the finalization of the underlying regulations. Since the passage of the Pathology Act, the Malaysian government has not implemented the legislation. Currently, we are only required an operating permit from local council, which we have received. However, we cannot predict whether we would be able to comply with the Pathology Act and its regulations, if implemented.
Employees
As of the date of this this filing, we have five full-time employee and four officers who work part-time for the Company. Management does not plan to hire additional employees at this time, other than Marketing Director. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe we have good relations with our employees.
Currently, we have not entered into an employment agreement with any of our officers. The Company presently does not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, the Company may adopt plans in the future. Management does not plan to hire additional employees at this time.
Our Intellectual Property.
We do not have any patents protecting our blood based genomic screening process. Instead, we rely on trade secrets and know-how using the process developed by Dr. Liew. There is no assurance that others will not independently develop the same or similar technology or obtain unauthorized access to our trade secrets, know-how and other unpatented technology. To protect our rights in these areas, we require all employees that work in our lab to enter into strict confidentiality agreements. Presently, we have one lab manager and 2 casual lab technicians. These agreements may not provide meaningful protection for our unpatented technology in the event of an unauthorized use, misappropriation or disclosure. While we have attempted to protect the unpatented proprietary technology that we develop or acquire, and will continue to attempt to protect future proprietary technology through patents, copyrights and trade secrets, we believe that our success will depend, to a large extent, upon continued innovation and technological expertise.
In general, the level of protection afforded by a patent is directly proportional to the ability of the patent owner to protect and enforce those rights through legal action. Since our financial resources are limited, and patent litigation can be both expensive and time consuming, there can be no assurance that we will be able to successfully prosecute an infringement claim in the event that a competitor develops a technology or introduces a product that infringes on one or more of our patents or patent applications. There can be no assurance that our competitors will not independently develop other technologies that render our proposed products obsolete. In general, we believe the best protection of our proprietary technology will come from market position, technical innovation, speed-to-market, and product performance. There is no assurance that we will realize any benefit from our intellectual property rights.
Product Liability.
Due to nature of the Company’s business, the Company may face claims for product liability resulting from the inaccurate or erroneous diagnosis using our screening process. Presently, the Company does not maintain any product liability insurance to cover any claims for an erroneous diagnosis.
Item 1A. Risk Factors
RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following known material risks and uncertainties in addition to other information in this Form 10-K in evaluating our company and its business before purchasing shares of our company’s common stock. You could lose all or part of your investment due to any of these risks.
Risk Factors Relating to Our Business
WE HAVE LIMITED OPERATING HISTORY AND LIMITED BUSINESS GROWTH. We have been operational since April 2017; therefore, we have had limited operations which makes it difficult to evaluate our business and our prospects. In addition, to date, we have not experienced substantial growth in our business. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small operating company trying to expand its business enterprise and the highly competitive environment in which we will operate. Consequently, there can be no assurance that the business of the Company will grow in the future. Moreover, because of our limited operating history, it is difficult to extrapolate any meaningful projections about the Company’s future.
THE EFFICACY OF OUR BLOOD SCREENING PROCESS HAS NOT SUPPORTED BY ANY INDEPENDENT STUDIES OR TESTS. Our blood screening process, which was commercially launched in April 2017, has been developed by Dr. Choong Chin Liew, our largest shareholders. Dr. Liew has spent many years developing and testing various aspects of his current protocols and has published numerous articles concerning his blood screening protocols. Nonetheless, these protocols and procedures have not been the subject of a wide scale independent study or studies proving the efficacy of our testing protocols.
As a result, it is conceivable, that despite Dr. Liew’s efforts, our current blood based genomic screening process may not be as efficacious as we believe, which in effect would yield false positive or false negative test results. Inaccurate test results in turn could lead to significant financial exposure to the Company. The exposure would arise from claims by patients for a misdiagnosis of current or perceived current medical conditions. Claims for a false positive diagnosis could include increased medical costs arising from more medical tests and physician examinations in response to the false positive diagnosis. Claims for false negative diagnosis could include claims for loss of life and pain and suffering arising from the failure to diagnose a current medical condition. While we inform patients that our diagnostics are merely one of many tools employed in a health care diagnoses, these claims could be substantial and cause a material adverse impact on our business.
WE MAY FACE PRODUCT LIABILITY CLAIMS. Due to the nature of our business, we may face claims for product liability. These claims may arise from the inaccurate or erroneous diagnosis of patient information or the mix-up of patient information whereby a patient receives the wrong diagnostic information. While we feel confident in our accuracy of our diagnostic analysis and the procedures which we have implemented to ensure the safeguard of patient information, we cannot provide assurances that product liability claims will arise in the future.
Moreover, litigation or adverse publicity resulting from these allegations could materially and adversely affect our business, regardless of whether the allegations are valid or whether we are liable. Currently we have no product liability insurance coverage, and even if there was such coverage, there would be no assurance that such coverage would be sufficient to properly protect us. Further, claims of this type, whether substantiated or not, may divert our financial and management resources from revenue generating activities and the business operation.
Presently, we do not have insurance to cover any product liability claims. This lack of insurance may cause a material adverse impact on the Company if product liability claims arise.
INEFFECTIVE RISK MANAGEMENT POLICIES AND PROCEDURES. The Company relies on a combination of technical and human factors to protect the Company against risks. Its policies, procedures and practices are used to identify, monitor and control a variety of risks, including risks related to human error and hardware and software errors. The administration and results of each test are reviewed by a physician and a scientist in Malaysia before the results are released to the patient. The Company’s standard of operations has been developed internally primarily by Dr. Liew. These risk-management methods may not adequately prevent losses and may not protect us against all risks, in which case our business, economic conditions, operations and cash flows may be materially adversely affected.
We have risk-management policies, control systems and compliance manuals in place; however, there is no guarantee that such policies, systems, and manuals will be effectively applied in every circumstance by our staff For example; employees could override the system technology and theoretically waive requirements, thereby exposing our company to the risk of compromised test result.
WE WILL NEED ADDITIONAL FINANCING IN ORDER TO GROW OUR BUSINESS. We do not have significant assets with which to expand our business. We intend to expand our business through increased marketing efforts in Malaysia and elsewhere of our blood based genomic screening process. These additional expenditures are intended to be funded from cash on hand and, if necessary, third party sources, including the incurring of debt and/or the sale of additional equity securities. In addition to requiring additional financing to fund expansion, the Company may require additional financing to fund working capital and operating losses in the future should the need arise. The incurrence of debt creates additional financial leverage and therefore an increase in the financial risk of the Company’s operations. The sale of additional equity securities will be dilutive to the interests of current equity holders. In addition, there can be no assurance that such additional financing, whether debt or equity, will be available to the Company or that it will be available on acceptable commercial terms. Any inability to secure such additional financing on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of the Company.
AS WE UNDERTAKE OUR BUSINESS, WE WILL BE SUBJECT TO COMPLIANCE WITH POTENTIAL GOVERNMENT REGULATION THAT MAY INCREASE IN THE FUTURE. Currently, there are no governmental regulations that materially restrict our screening business. Pathology Laboratory Bill of 2007 (“Pathology Act”) has been passed by the Malaysian Parliament, however, since 2007, the government has not implemented the regulations underlying the legislation nor has the government enforced the Pathology Act. Any such regulations could establish criteria for the various classes and specialties of laboratories, the organization and management system of the laboratory, the qualification and experience of the person-in-charge, the qualification and competence of pathologists, scientific and technical staff engaged to conduct tests, and the standards of laboratory practice. We cannot predict whether we would be able to comply with the Pathology Act and its regulations, if implemented. In addition, there also is a risk that the regulations arising from the Pathology Act or new legislation or regulations could increase our costs of doing business or otherwise prevent us from carrying out the expansion of our business. Accordingly, our business may be harmed if we are no able to comply with any future governmental legislation or regulations, including the Pathology Act.
OUR BLOOD BASED GENOMIC SCREENING PROCESS MAY NOT ACHIEVE COMMERCIAL SUCCESSES IN THE MARKETPLACE. Our blood based genomic screening process may not be acceptable in the marketplace for a variety of factors. One factor may be that doctors and hospitals may be loathed to recommend our screening process as it may be deemed competitive to existing health care services that are offered by doctors and hospitals. Another factor may be that patients could be fearful of learning potentially negative health results and as a consequence, may not subscribe to our screening process. The occurrence of either of these factors may impact the successful reception of our product in the marketplace and negatively impair our further revenue potential.
BUSINESS DISRUPTIONS COULD SERIOUSLY HARM OUR FUTURE REVENUE AND FINANCIAL CONDITION AND INCREASE OUR COSTS AND EXPENSES. Our operations could be subject to power shortages, telecommunications failures, wildfires, water shortages, floods, earthquakes, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Unfavorable global economic conditions could adversely affect our business, financial condition, or results of operations.
We do not carry insurance for all categories of risk that our business may encounter. Although we intend to obtain some form of business interruption insurance in the future, there can be no assurance that we will secure adequate insurance coverage or that any such insurance coverage will be sufficient to protect our operations to significant potential liability in the future. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations.
OUR SOFTWARE IS HIGHLY COMPLEX AND MAY CONTAIN UNDETECTED ERRORS. Our proprietary software underlying our diagnosis is highly complex and may contain undetected errors or vulnerabilities, some of which may only be discovered after a diagnosis. This may result in an inaccurate diagnosis which could expose us to substantial liability due to the misdiagnosis. Any errors or vulnerabilities discovered in our software could result in damage to our reputation, loss of clients, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY. Our proprietary software is an essential asset of our business. To establish and protect our intellectual property rights, we rely primarily upon a trade secrets, and to a lesser extent, contractual provisions with current and future employees. Further, our software is not patent protected nor is it copyrighted. Resultantly, our efforts to protect our intellectual property may not be sufficient or effective. If these measures do not protect our intellectual property rights, third parties could use the Company’s technology, and its ability to compete in the market would be reduced significantly.
In addition, we may not be effective in policing unauthorized use of our intellectual property. Even if we do detect violations, we may need to engage in litigation to enforce our intellectual property rights. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert our management’s attention. In addition, our efforts may be met with defenses and counterclaims challenging the validity and enforceability of our intellectual property rights or may result in a court determining that our intellectual property rights are unenforceable. If we are unable to cost-effectively protect our intellectual property rights, then our business could be harmed.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY CLAIMS, WHICH ARE EXTREMELY COSTLY TO DEFEND, COULD REQUIRE US TO PAY SIGNIFICANT DAMAGES AND COULD LIMIT OUR ABILITY TO USE CERTAIN TECHNOLOGIES IN THE FUTURE. Companies in bio-medical or bio-technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. To the extent we gain greater public recognition, we may face a higher risk of being the subject of intellectual property claims. Third-party intellectual property rights may cover significant aspects of our technologies or business methods or block us from expanding our offerings. Any intellectual property claims against us, with or without merit, could be time consuming and expensive to settle or litigate and could divert the attention of our management. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters.
In addition, some of our competitors have extensive portfolios of issued patents. Many potential litigants, including some of our competitors and patent holding companies, have the ability to dedicate substantial resources to enforcing their intellectual property rights. Any claims successfully brought against us could subject us to significant liability for damages and we may be required to stop using technology or other intellectual property alleged to be in violation of a third party’s rights. We also might be required to seek a license for third-party intellectual property. Even if a license is available, we could be required to pay significant royalties or submit to unreasonable terms, which would increase our operating expenses. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. If we cannot license or develop technology for any allegedly infringing aspect of our business, we would be forced to limit our service and may be unable to compete effectively. Any of these results could harm our business.
WE FACE COMPETITION FROM OTHER LABORATORIES AND OUR OPERATING RESULTS WILL SUFFER IF WE FAIL TO COMPETE EFFECTIVELY. We believe there are a limited number of companies worldwide that specialize in RNA blood analysis to detect disease. However, there are a few laboratories in universities and research institutions that are attempting to extend their researches from DNA into RNA screening. If they have some breakthrough and they could be our potential competitors. Many of our potential competitors may have strong financial and resources, such as sophisticated research capabilities and development staff than we do. Their discovery and development of novel protocol that could make our genomic screening obsolete even though with FDA and European Union certification. As a result of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing screening process for the cancer, inflammation, osteoarthritis and many more indications.
In addition, smaller or early-stage companies also may prove to be significant competitors, particularly through collaborative arrangements with large, established companies. In addition, many universities and private and public research institutes may become active in our target disease areas.
If our competitors market products that are more effective, safer or less expensive or that reach the market sooner than our future products, if any, we may not achieve commercial success. In addition, because of our limited resources, it may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.
WE MAY INCUR SIGNIFICANT COSTS TO BE A PUBLIC COMPANY TO ENSURE COMPLIANCE WITH U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND WE MAY NOT BE ABLE TO ABSORB SUCH COSTS. We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect these costs to approximate $50,000 per year, consisting of $25,000 in legal, $20,000 in audit and $5,000 for EDGAR filing and transfer agent fees. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We may not be able to cover these costs from our operations and may need to raise or borrow additional funds. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. In addition, we may not be able to absorb these costs of being a public company which will negatively affect our business operations.
OUR OFFICERS AND DIRECTORS MAY HAVE A CONFLICT OF INTEREST WITH THE MINORITY SHAREHOLDERS AT SOME TIME IN THE FUTURE. SINCE THE MAJORITY OF OUR SHARES OF COMMON STOCK ARE OWNED BY OUR OFFICERS AND DIRECTORS AND A KEY CONSULTANT, OUR OTHER STOCKHOLDERS MAY NOT BE ABLE TO INFLUENCE CONTROL OF THE COMPANY OR DECISION MAKING BY MANAGEMENT OF THE COMPANY. Our Officers and Directors beneficially own approximately 40% of our outstanding common stock. The interests of our Officers and Directors may not be, at all times, the same as that of our other shareholders. Our Officers and Directors are not simply passive investors but are also executives of the Company, their interests as executives may, at times be adverse to those of passive investors. Where those conflicts exist, our shareholders will be dependent upon our directors exercising, in a manner fair to all of our shareholders, their fiduciary duties as officers or as member of the Company’s Board of Directors. Also, our directors will have the ability to control the outcome of most corporate actions requiring shareholder approval, including the sale of all or substantially all of our assets and amendments to our articles of incorporation. This concentration of ownership may also have the effect of delaying, deferring or preventing a change of control of us, which may be disadvantageous to minority shareholders.
BECAUSE OUR OFFICERS AND DIRECTORS MAY IN FUTURE HAVE OUTSIDE BUSINESS ACTIVITIES, THERE IS A POTENTIAL CONFLICT OF INTEREST, INCLUDING THE AMOUNT OF TIME THEY WILL BE ABLE TO DEDICATE TO THE COMPANY. Currently our officers, who are also directors, have been working on promoting business for the Company. A potential conflict of interest may arise in the future that may cause our business to fail, including conflicts of interest in allocating their time to our company and their other business interests. While our officers have verbally agreed to devote sufficient time and attention to the affairs of the Company, we have no written arrangement with our officers regarding this matter. As a result, we may face conflicts between business decisions that they may have to make regarding our operations and that of their other business interests.
BECAUSE OUR MANAGEMENT DOES NOT HAVE PRIOR EXPERIENCE RUNNING A PUBLIC COMPANY, WE MAY HAVE TO HIRE INDIVIDUALS OR SUSPEND OR CEASE OPERATIONS.
Because our management has limited prior experience in running a public company, including the preparation of reports under the Securities Act of 1934, we may have to hire additional experienced personnel to assist us with the preparation thereof. If we need the additional experienced personnel and we do not hire them, we could fail in our plan of operations and have to suspend operations or cease operations entirely.
INDEPENDENT AUDIT COMMITTEE. Although the common stock is not listed on any national securities exchange, for purposes of independence we use the definition of independence applied by NASDAQ. Currently, BGLC has no independent audit committee. The full board of directors’ functions as audit committee and is comprised of three directors, one of whom is considered to be “independent” in accordance with the requirements set forth in NASDAQ Listing Rule 5605(a)(2). An independent audit committee plays a crucial role in the corporate governance process, assessing our Company’s processes relating to our risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the board of directors from being independent from management in its judgments and decisions and its ability to pursue the responsibilities of an audit committee without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors, the management of the business could be compromised. An independent audit committee is required for listing on any national securities exchange; therefore, until such time as we meet the audit committee independence requirements of a national securities exchange, we will be ineligible for listing on any national securities exchange.
POTENTIAL DATA BREACHES. If we are successful, our services will generate and process a large quantity of personal health condition data. We face risks inherent in handling large volumes of data and in protecting the security of such data. In particular, we face a number of challenges relating to data inter-connected with regional labs, including:
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protecting the data in and hosted on our system, including against hacking on our system by outside parties or our employees;
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addressing concerns related to privacy and sharing, safety, security and others;
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complying with applicable laws, rules and regulations relating to the collection, use, disclosure of personal information, including any requests from regulatory and government authorities relating to such data;
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Any systems failure or security breach or lapse that results in the release of user data could harm our reputation and brand and, consequently, our business, in addition to exposing us to potential legal liability.
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As we expand our operations, we may be subject to these laws in other jurisdictions where our customers and other participants are located. The laws, rules and regulations of other jurisdictions may impose more stringent or conflicting requirements and penalties than those in Malaysia, compliance with which could require significant resources and costs. Our privacy policies and practices concerning the collection, use and disclosure of user data are posted on our websites. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or privacy protection-related laws, rules and regulations could result in proceedings or actions against us by authorities or others. These proceedings or actions may subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and severely disrupt our business.
CROSS-BORDER OPERATIONS. As we plan to continue expanding our existing cross-border operations into existing and other markets, we will face risks associated with expanding into markets in which we have limited or no experience and in which our company may be less well-known. We may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively in these new markets. The expansion of our cross-border business will also expose us to risks relating to staffing and managing cross-border operations, increased costs to protect intellectual property, tariffs and other trade barriers, differing and potentially adverse tax consequences, increased and conflicting regulatory compliance requirements, lack of acceptance of our service offerings, challenges caused by distance, language and cultural differences, exchange rate risk and political instability. Accordingly, any efforts we make to expand our cross-border operations may not be successful, which could limit our ability to grow our revenue, net income and profitability.
RISKS RELATED TO DOING BUSINESS IN ASIA PACIFIC REGION. Changes in the political and economic policies of the local government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies. Accordingly, our financial condition and results of operations are affected to a significant extent by economic, political and legal developments in Asia Pacific region.
The Asia Pacific economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. In addition, the government continues to play a significant role in regulating industry development by imposing industrial policies. The government also exercises significant control over economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.
The local government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our businesses, financial condition and results of operations.
YOU MAY EXPERIENCE DIFFICULTIES IN EFFECTING SERVICE OF LEGAL PROCESS, ENFORCING FOREIGN JUDGMENTS OR BRINGING ORIGINAL ACTIONS IN MALAYSIA BASED ON UNITED STATES OR OTHER FOREIGN LAWS AGAINST US OR OUR MANAGEMENT. Our operating subsidiary is incorporated in Malaysia and conducts substantially all of our operations in Asia Pacific. All of our executive officers and directors reside outside the United States and all of their assets are located outside of the United States. As a result, it may be difficult or impossible for shareholders to bring an action against us or against these individuals in Malaysia in the event that you believe that your rights have been infringed under the securities laws of the United States or otherwise. Even if you are successful in bringing an action of this kind, the laws of Malaysia may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in Malaysia of judgments obtained in the United States, although the courts of Malaysia will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. The rights of shareholders to take legal action against us and our directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent governed by the common law of Malaysia. The common law of Malaysia is derived in part from comparatively limited judicial precedent in Malaysia as well as from English common law, which provides persuasive, but not binding, authority in a court in Malaysia. The rights of our shareholders and the fiduciary responsibilities of our directors under Malaysian law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, Malaysia has a less developed body of securities laws than the United States and provides significantly less protection to investors. As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Risks Related to Our Common Stock
SALES OF OUR COMMON STOCK IN RELIANCE ON RULE 144 MAY REDUCE PRICES IN THAT MARKET BY A MATERIAL AMOUNT. A significant number of the outstanding shares of our common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted securities, those shares may be resold only pursuant to an effective registration statement or pursuant to the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that an affiliate (i.e., an officer, director or control person) who has held restricted securities for a prescribed period may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed 1.0% of the issuer’s outstanding common stock. The alternative limitation on the number of shares that may be sold by an affiliate, which is related to the average weekly trading volume during the four calendar weeks prior to the sale is not available to stockholders of companies whose securities are not traded on an “automated quotation system”; because the OTC-QB Market is not such a system, market-based volume limitations are not available for holders of our securities selling under Rule 144.
Pursuant to the provisions of Rule 144, there is no limit on the number of restricted securities that may be sold by a non-affiliate (i.e., a stockholder who has not been an officer, director or control person for at least 90 consecutive days before the date of the proposed sale) after the restricted securities have been held by the owner for a prescribed period, although there may be other limitations and/or criteria to satisfy. A sale pursuant to Rule 144 or pursuant to any other exemption from the Securities Act, if available, or pursuant to registration of shares of our common stock held by our stockholders, may reduce the price of our common stock in any market that may develop.
YOU MAY NOT BE ABLE TO LIQUIDATE YOUR INVESTMENT SINCE THERE IS NO ASSURANCE THAT A PUBLIC MARKET WILL DEVELOP FOR OUR COMMON STOCK OR THAT OUR COMMON STOCK WILL EVER BE APPROVED FOR TRADING ON A RECOGNIZED EXCHANGE. There is no established public trading market for our securities. Although we intend to be quoted on the OTC-QB Market in the United States, our shares are not and have not been quoted on any exchange or quotation system. We cannot assure you that a market maker will agree to file the necessary documents with the FINRA, nor can there be any assurance that such an application for quotation will be approved or that a regular trading market will develop or that if developed, will be sustained. In the absence of a trading market, an investor may be unable to liquidate its investment, which will result in the loss of your investment.
OUR COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK. Under U.S. federal securities legislation, our common stock will constitute “penny stock”. Penny stock is any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a potential investor’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve an investor’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination. Brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
IN THE FUTURE, WE MAY ISSUE ADDITIONAL COMMON AND PREFERRED SHARES, WHICH WOULD REDUCE INVESTORS’ PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE. Our Articles of Incorporation authorize the issuance of 300,000,000 shares of common stock. As of the date of this filing, the Company had 102,730,891 shares of common stock outstanding. Accordingly, we may issue up to an additional 197,269,109 shares of common stock. In addition, we have the right to issue 30,000,000 shares of preferred stock. The preferred stock is known as “blank check” as the Board of Directors is authorized to set the rights, privileges and preference of the preferred stock. The future issuance of common stock and preferred may result in substantial dilution in the percentage of our common stock held by our then existing shareholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock or preferred stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.
UPON EFFECTIVENESS OF THIS REGISTRATION STATEMENT, WE WILL NOT BE A FULLY REPORTING COMPANY UNDER SECTION 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934, RATHER WE WILL BE SUBJECT TO THE REPORTING REQUIREMENTS OF SECTION 15(D) OF THE EXCHANGE ACT WHICH IS LESS RESTRICTIVE ON US AND OUR INSIDERS.
In order for us to become a fully reporting company under Section 12(g) of the Exchange Act, we will have to file a Registration Statement on Form 8-A. If we do not become subject to Section 12 of the Exchange Act, we will be subject to Section 15(d) of the Exchange Act, and as such we will not be required to comply with (i) the proxy statement requirements which means shareholders may have less notice of pending matters, and (ii) the Williams Act which requires disclosure of persons or groups that acquire 5% of a company’s publicly traded stock and also regulates tender offers. In addition, our officer, director and 10% stockholder will not be required to submit reports to the SEC on their stock ownership and stock trading activity. These reports include Form 3, 4 and 5. Therefore, as a shareholder, less information and disclosure concerning these matters will be available to you.
WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK, OUR STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES UNLESS THEY SELL THEM. We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE WHICH MAY SUBJECT US TO SECURITIES LITIGATION THEREBY DIVERTING OUR RESOURCES WHICH MAY AFFECT OUR PROFITABILITY AND RESULTS OF OPERATION. The market price for our common stock is likely to be highly volatile as the stock market in general and the market for Internet-related stocks.
The following factors will add to our common stock price’s volatility:
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fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
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changes in estimates of our financial results or recommendations by securities analysts;
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changes in market valuations of similar companies;
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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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regulatory developments in Malaysia or other countries wherein we expect to conduct business;
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litigation involving our company, our general industry or both;
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investors’ general perception of us; and
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changes in general economic, industry and market conditions.
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Many of these factors are beyond our control. These factors may decrease the market price of our common stock, regardless of our operating performance. In the past, plaintiffs have initiated securities class action litigation against a company following periods of volatility in the market price of its securities. In the future, we may be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO EMERGING GROWTH COMPANIES MAY MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS. We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
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have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
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disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.
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In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We will remain an emerging growth company for up to five full fiscal years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any January 31 before that time, we would cease to be an emerging growth company as of the following December 31, or if our annual revenues exceed $1 billion, we would cease to be an emerging growth company the following fiscal year, or if we issue more than $1 billion in non-convertible debt in a three-year period, we would cease to be an emerging growth company immediately.
Notwithstanding the above, we are also currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, nor a majority-owned subsidiary of a parent company that is not a smaller reporting company, and has a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. If we are still considered a “smaller reporting company” at such time as we cease to be an “emerging growth company,” we will be subject to increased disclosure requirements. However, the disclosure requirements will still be less than they would be if we were not considered either an “emerging growth company” or a “smaller reporting company.” Specifically, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2015; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in its SEC filings due to its status as an “emerging growth company” or “smaller reporting company” may make us less attractive to investors given that it will be harder for investors to analyze the Company’s results of operations and financial prospects and, as a result, it may be difficult for us to raise additional capital as and when we need it.