Item
1. Business
Change
to Fiscal Year End
On
September 30, 2021, the Board of Directors of the Company approved a change in the Company’s fiscal year end, moving from March
31 to December 31 of each year. This Form 10-K is a Transition Report and includes financial information from April 1, 2021 to December
31, 2021 (the “2021 Transition Period”).
Company
Overview
Unless
otherwise provided in this Transition Report, references to the “Company,” “we,” “us”, and “our”
refer to Malachite Innovations, Inc., a Nevada corporation formed on June 29, 2007 as Legend Mining Inc., and its consolidated subsidiaries.
On October 10, 2011, we completed a merger with our wholly-owned subsidiary, Stevia First Corp., whereby we changed our name from “Legend
Mining Inc.” to “Stevia First Corp.” On July 15, 2016, our Board of Directors and shareholders approved a name change
to “Vitality Biopharma, Inc.” On October 1, 2021, we completed a merger with our wholly-owned subsidiary, Malachite Innovations,
Inc., whereby we changed our name from “Vitality Biopharma, Inc.” to “Malachite Innovations, Inc.”
Malachite
Innovations is a company focused on improving the health and wellness of people and the planet. We seek to accomplish this objective
through the operation of two wholly-owned subsidiaries: (i) Graphium Biosciences, Inc. which is focused on developing new
innovations targeting the health and wellness of people, with a particular focus on advancing our broad portfolio of over 100
glycosylated cannabinoid prodrugs and (ii) Daedalus Ecosciences, Inc. which is focused on evaluating new innovations targeting the
health and wellness of the planet through an Environmental, Social and Governance (“ESG”) business strategy, with a particular
focus on deploying technological innovations and eco-friendly solutions to remedy difficult environmental situations in economically
challenged communities.
Our
corporate headquarters is located in Cleveland, Ohio. As of March 30, 2022, we employed three full-time employees, including one research
professional working in our office and laboratory space in Rocklin, California. We also have, in the past, engaged the services of scientific
and regulatory consultants to assist in our research and development activities, which is an approach that provides us with flexible
and experienced resources to advance our corporate objectives while maintaining a relatively lower overhead cost structure.
Graphium
Biosciences, Inc.
Cannaboside
Prodrugs
Our
cannabosides are cannabinoid-glycoside prodrugs, which were discovered through application of the Company’s proprietary enzymatic
bioprocessing technologies that are converted within the body after administration from an inactive molecule into a pharmacologically
active drug. Currently, the Company has produced more than 100 novel cannabosides, including glycosylated tetrahydrocannabinol (THC),
cannabidiol (CBD), cannabidivarin (CBDV) and cannabinol (CBN), that are covered by worldwide patents and patent applications for composition
of matter, method of production and method of use.
A
prodrug is a compound that, after administration, is metabolized into a pharmacologically active drug. Prodrugs are often designed to
improve drug properties and reduce known or expected toxicities and adverse side effects. By using our proprietary enzymatic bioprocessing
technologies, our clinical research team has developed a novel family of prodrugs by combining cannabinoid and glucose molecules. The
resulting compounds, known as cannabosides, have unique commercial applications and patentable compositions of matter, which are separate
and distinct from ordinary cannabinoids. The advantages of cannabosides may include: (i) administration in a convenient oral formulation,
(ii) targeted delivery with release in the colon or large intestine, (iii) improved stability with limited degradation or drug metabolism,
and (iv) delayed release enabling longer-lasting effects and fewer administrations by patients.
Our
proprietary glycosylation process, which results in adding one or more glucose molecules to compounds, may enable our new cannabosides
to act as prodrugs that achieve targeted delivery of the bioactive compounds of cannabinoids to the gastrointestinal tract. Glycosylated
compounds are generally more stable and water soluble, so upon ingestion, we believe they will remain intact and transit through the
esophagus, stomach and upper intestine with limited absorption or degradation from stomach acids. However, once the glycosylated compounds
reach the large intestine, we expect them to encounter glycoside hydrolase enzymes secreted by the human intestinal microbiota that will
cleave the polar glucose residues and release the active cannabinoid compound primarily in the large intestine or colon.
We
have focused our research and development activities on the glycosylation of cannabinoids given their well-known positive effects on
the human endocannabinoid system. Our research and development activities originally focused on the glycosylation of CBD and then later
expanded into the glycosylation of THC. The use of the cannabinoid THC has been shown to provide substantial anti-inflammatory benefits
on the human body, among other benefits, but is limited as a pharmaceutical option given its psychoactive and intoxicating properties.
However, by glycosylating THC, we have learned through initial animal studies that the binding of glucose and THC molecules restricts
the release of THC into the body’s digestive system until the prodrug reaches the large intestine, at which point the glycoside
hydrolase enzymes cleave the glucose from the prodrug and the THC is released in a targeted and restricted manner. Further, we have learned
through our initial animal studies that this targeted release of THC, which could be provided in very low doses to achieve physiologically
beneficial results, serves as an anti-inflammatory agent in the lower gastrointestinal tract and minimizes the amount of THC absorbed
into the blood stream, therefore avoiding the psychoactive and intoxicating properties that hinder the broader pharmaceutical use of
THC.
We
are developing our THC-glycoside prodrugs for the treatment of gastrointestinal diseases, including inflammatory bowel disease (IBD)
and irritable bowel syndrome (IBS) because of the targeted release described previously. IBD is a frequently chronic inflammatory condition
where parts of the digestive system become inflamed from an overactive immune response. The disease can lead to irreversible damage to
the gastrointestinal tract and may require surgery to remove affected areas of the intestine. Two major forms of the disease are Crohn’s
disease, which can affect any part of the digestive system, and ulcerative colitis, which often affects the colon or large intestine.
The disease is often unpredictable with periods of painful and debilitating symptoms followed by periods of remission with limited symptoms.
IBS has similar symptoms to IBD, including abdominal pain, but the underlying disease process is quite different. IBS is a functional
gastrointestinal disorder that commonly affects the large intestine and is characterized by abdominal cramping, diarrhea, constipation,
and pain. Currently, patients suffering from IBD are frequently prescribed anti-inflammatory drugs such as steroids, biologics and immunosuppressants,
and patients suffering from IBS are prescribed antibiotics, antidepressants and gastrointestinal motility compounds, all of which often
result in unwanted side effects.
Our
most promising THC-glycoside (VBX-100) is being developed as an oral prodrug for the treatment of IBD and IBS. VBX-100 was selected from
our THC-glycoside portfolio for compatibility with commercial production techniques and the optimal prodrug delivery profile that maximizes
intestinal anti-inflammatory properties while minimizing psychoactive or intoxicating effects. Initial pre-clinical studies on the efficacy
of VBX-100 in animal models have shown favorable outcomes, including reduced inflammation of the gastrointestinal tract and no measurable
systemic THC found in tissue examined using highly-sensitive testing equipment.
In
light of our limited financial resources and the significant capital and human resources needed to advance our drug development program
to a revenue-generating stage, we have determined
that the value of our cannaboside prodrug assets would likely be maximized through a strategic transaction such as (i) a spin-off
of our Graphium Biosciences subsidiary into a new publicly-traded company infused with sufficient funding to advance its drug development
program, or (ii) a sale of Graphium Biosciences or its drug development assets to a biotech partner with the resources necessary
to advance our drug development program. The Company is actively exploring both strategic alternatives for its drug
development assets to maximize shareholder value.
Government
Regulation
Due
to our development of pharmaceutical products, we are subject to extensive regulation by the FDA and other federal, state, and local
agencies. Also, since we are researching and developing cannabinoid-based products, we are subject to regulation by the U.S. Drug Enforcement
Administration (DEA). If we expand our clinical research, product development or commercialization activities outside of the United States
in the future, we anticipate that we would then be subject to additional regulation by the applicable foreign jurisdictions and governing
bodies, which may have different requirements.
The
FDA is the main regulatory body that controls pharmaceutical and biologic drugs in the United States, with additional layers of regulation
from other federal, state and local agencies. The Federal Food, Drug, and Cosmetic Act governs most of the requirements for the development
and marketing of our pharmaceutical products. The FDA’s drug approval process is extensive, generally including: pre-clinical animal
studies of drug safety, efficacy and dosing, submission and approval of an IND application, clinical studies in humans to determine safety,
efficacy and dosing (Phase 1 – 3 studies), submission and approval of a New Drug Application (NDA), and additional post-approval
requirements
The
DEA establishes procedures and monitors research and development activities of “controlled substances” subject to the Controlled
Substances Act. Our research and development activities focus on cannabinoids, particularly THC and CBD derived from the cannabis plant,
which the DEA has classified as Schedule I substances. Schedule I substances are defined as drugs with no currently accepted medical
use and a high potential for abuse. In May 2019, the DEA informed us that it had determined that they consider our VBX-100 prodrug a
Schedule I substance. As a result, any developing, testing, manufacturing, or clinical studies involving our VBX-100 prodrug, and by
inference potentially all of our THC-glycoside molecules, are required to be properly licensed by the DEA and adhere to strict diversion
control standards. Our current research and development efforts involving our THC-glycoside molecules are conducted at our Rocklin laboratory,
which holds a DEA-issued Controlled Substance Registration Certificate for “Research” that expires on May 31, 2022 and is
renewable on an annual basis. Our research and development activities are also approved by and operated in compliance with the State
of California’s Research Advisory Panel, which is a division of the California Department of Justice that oversees research performed
within the state using DEA Schedule I and II substances.
Orphan
Drug Designation
In
January 2018, we filed a request with the FDA’s Office of Orphan Products Development (OOPD) for an Orphan Drug Designation of
our VBX-100 prodrug for the treatment of pediatric ulcerative colitis. In March 2018, the OOPD denied our request based, in part, on
the FDA’s decision to no longer grant Orphan Drug Designation status to drugs for pediatric subpopulations of common diseases (i.e.,
diseases or conditions with an overall prevalence of over 200,000), unless the use of the drug in the pediatric subpopulation meets the
regulatory criteria for an orphan subset, or the disease in the pediatric subpopulation is considered a different disease from the disease
in the adult population.
In
December 2019, we received a letter from the OOPD informing us that the FDA determined that the Company may be eligible for pediatric-subpopulation
designation because we submitted our original request for an Orphan Drug Designation before the guidance Clarification of Orphan Designation
of Drugs and Biologics for Pediatric Subpopulations of Common Diseases was finalized in July 2018.
Accordingly,
in May 2020, we filed a response letter with the OOPD addressing the other deficiencies noted in the Company’s original submission
in January 2018, which included, among other things (1) support for the prevalence of pediatric ulcerative colitis; (2) our scientific
rationale for the specific animal models used in our pre-clinical animal studies; and (3) more comprehensive supporting documentation
for the use of VBX-100 in pediatric patients with ulcerative colitis. In August 2020, we received a letter from the OOPD informing us
that it was unable to grant our request for an Orphan Drug Designation status because our VBX-100 prodrug was administered before and
after colitis was induced in our in vivo mouse studies, which resulted in the need for more scientific data to support the efficacy
of our VBX-100 prodrug in a treatment-only setting. As a result, we were advised to perform a second in vivo mouse study in which
our VBX-100 prodrug would be administered only after colitis was induced in order to provide a clear indication that the active drug
was released only after ulcerative colitis was present. In May 2021, we completed the treatment-only in vivo mouse study and filed
a supplemental response letter with the OOPD providing the requested in vivo treatment-only mouse study results in support of
our position that VBX-100 may be effective as a treatment for pediatric ulcerative colitis.
On
August 9, 2021, we received a letter from the OOPD stating that we have been granted Orphan Drug Designation for our glycosylated cannabinoid
VBX-100 for the treatment of pediatric ulcerative colitis. The Company is currently evaluating several regulatory pathways for the advancement
of its VBX-100 prodrug through pre-clinical and clinical studies, including leveraging the benefits of the Orphan Drug Designation granted
by the OOPD.
Intellectual
Property
In
September 2015, we filed our first provisional U.S. patent application entitled “Cannabinoid Glycoside Prodrugs and Methods of
Synthesis”, which described novel CBD-glycosides and THC-glycosides along with methods of production through enzymatic biosynthesis.
In October 2015, we filed our second provisional U.S. patent application that added CBDV-glycosides as additional cannabosides, plus
added numerous methods of use claims for our cannabinoid-glycosides. In July 2016, we filed our third provisional U.S. patent application
that greatly expanded on the cannabinoid substrates for glycosylation by adding (i) the phytocannabinoid cannabinol (CBN), (ii) the endocannabinoids
anandamide, 2-AG, 1-AG, and synaptamide, and (iii) the vanilloids capsaicin, vanillin, and curcumin. In September 2016, one year after
the filing of our first provisional patent, our non-provisional cannabinoid glycoside patent was filed, which included all prior material
plus additional data derived from our ongoing research and laboratory studies. Also, in September 2016, we filed an expanded international
patent application under the Patent Cooperation Treaty system, which included 79 patent claims covering nearly 200 individual compounds,
including our THC and CBD prodrugs. In March and April 2018, this application was filed for national and regional prosecution in major
pharmaceutical markets worldwide, including the United States, Canada, Mexico, Europe, China, Japan, Australia, New Zealand and Brazil.
In
May 2017, we filed a U.S. patent application entitled “Antimicrobial Compositions Comprising Cannabinoids and Methods of Using
the Same”, which described compositions and methods of use involving cannabinoid-glycosides that provide antimicrobial activity
to treat microbial infections in the intestines, including Clostridioides difficile (C. diff) infections. In May 2018,
one year after the filing of the provisional U.S. patent, we filed a non-provisional U.S. patent for the use of cannabinoid-glycosides
to deliver cannabinoids to the gastrointestinal tract to treat C. diff infections.
In
January 2020, the USPTO granted our first patent entitled “Kaurenoic Acid Glycoside Precursors and Methods of Synthesis”,
which demonstrates the validity of our glycosylation platform to produce novel and patentable glycoside molecules and serves as a foundational
building block for the Company’s subsequent research of glycosylated cannabinoids.
In
March 2020, we filed an international patent application under the Patent Cooperation Treaty system entitled “Novel Cannabinoid
Glycosides and Uses Thereof” that expands upon our 2016 patent filings covering glycosylated cannabinoids. Our new 2020 patent
filings cover additional novel CBD and THC-glycosides and include research data supporting the improved characteristics and commercial
production strategies for these new molecules.
In
December 2020, we filed a provisional U.S. patent application entitled “Continuous Enzymatic Perfusion Reactor System”, which
described our improved reactor system for the efficient enzymatic glycosylation of hydrophobic small molecules, including cannabinoids.
In
December 2021, Graphium Biosciences was granted a patent by the United State Patent and Trademark Office (USPTO) for its “Cannabinoid
Glycoside Prodrugs and Methods of Synthesis” that involves its invention of cannabinoid glycosides and methods of targeted delivery
for the treatment of gastrointestinal disorders, including inflammatory bowel disease (IBD) and irritable bowel syndrome (IBS). Based
on our PCT application filed in 2016, our granted patent covers the first 18 distinct cannabinoid glycosides based on cannabidiol (CBD),
tetrahydrocannabinol (THC), cannabidivarin (CBDV), and cannabinol (CBN), and serves as the cornerstone of our intellectual property portfolio
of cannabinoid prodrugs. Graphium Biosciences is also pursuing additional claims and patent rights through divisional applications for
this patent.
Also
in December 2021, Graphium Biosciences was granted a patent by the USPTO for its “Antimicrobial Composition Comprising Cannabinoids
and Methods of Using the Same” for the use of cannabinoids as antibiotics for the treatment of Clostridiodes difficile (C.
diff). Based on our PCT application filed in 2017, our granted patent covers the use of cannabidiol (CBD) or tetrahydrocannabinol
(THC) for the treatment of infections by C.diff, E. faecalis, S. pneumoniae, and others. Graphium Biosciences
is also pursuing additional claims and patent rights through division applications for this patent.
We
believe our intellectual property portfolio of cannabinoid-glycosides possess significant value and, as a result, we have allocated substantial
resources to ensure that our U.S. and international patents are properly filed and successfully prosecuted. As our research efforts involving
cannabinoid-glycosides continue to progress, we plan to develop and file additional patents to cover compositions of matter, methods
of production and methods of use to further expand our growing family of intellectual property assets and create long-term value for
our shareholders.
Daedalus
Ecosciences
Overview
Daedalus
Ecosciences is focused on creating shareholder value by addressing the health and wellness of the planet through an ESG-focused business strategy, with a particular focus on deploying technological innovations and eco-friendly solutions to remedy difficult
environmental situations in economically challenged communities.
Our
ESG business strategy is based on the foundational principle that sustainability and value creation are interconnected. Rather than evaluating
the merits of an opportunity based solely on the short-term direct profitability of a proposed business initiative, sustainable business
practice takes a holistic approach and considers the environmental, social and financial impacts of that initiative on a wide range of
stakeholders, including shareholders, the environment and local communities. We believe that a strong ESG proposition, properly capitalized,
will help us expand into and create value in new environmentally-focused markets. We also believe that a robust ESG business model
can enhance our investment returns by allocating capital to more promising and more sustainable opportunities.
A
stronger external-value proposition may enable the Company to achieve greater strategic freedom. Given that certain of the ESG business
initiatives under consideration may require governmental approvals or support, we believe that a focus on ESG core principles
can ease regulatory pressures and help reduce the Company’s risk of adverse government action. We also believe that a strong ESG
proposition can help us attract and retain quality employees, enhance employee motivation by instilling a sense of purpose, and increase
productivity overall.
The
Company will require additional capital to successfully pursue its ESG business strategy. While we believe there are an increasing number
of sources of financing available for ESG initiatives, there can be no assurance that the Company will successfully raise the needed
capital. We believe that a commitment to ESG business principles will allow us to generate strong financial returns for shareholders
while also creating long-term environmental and social benefits.
Initially,
we intend to focus our ESG business strategy on acquiring and developing businesses we believe have potential to conserve, protect and
re-purpose the natural environment in those areas in the U.S. that have been negatively impacted by mining. Our business development
strategy will initially focus on the following areas:
|
● |
Land
reclamation |
|
● |
Water
treatment and remediation |
|
● |
Carbon
footprint reduction |
|
● |
Water
usage and conservation |
|
● |
Renewable
energy usage |
|
● |
Recycling
and disposal practices |
|
● |
Green
products, technologies, and infrastructure |
|
● |
Relationship
with the U.S. Environmental Protection Agency (EPA) and other environmental regulatory bodies |
We
may also build, invest in or acquire companies that use blockchain, or distributed ledger technology, to account for
and verify voluntary-market carbon credits generated by increased usage of renewable resources or the decreased
usage of non-renewable resources to enable a more efficient and transparent global market for carbon credits. This may include
companies (i) developing innovative products or solutions to reduce or mitigate carbon emissions; (ii) developing technologies that
drive blockchain registry of credits or tokens; (iii) issuing tokens based on registry of carbon credits; and (iv) developing
exchange facilities for carbon credits.
We
believe that the Company is well-positioned from a managerial and operational perspective to pursue these business initiatives given
the experience of management in connection with other ventures successfully developing and executing various reclamation and
remediation programs at coal mines in Appalachia and creating profitable next-generation eco-friendly initiatives and stable jobs
in local communities previously reliant primarily on the highly cyclical coal mining industry.
In
March 2022, the Company entered into a non-binding letter of intent with the owners of Range Environmental Resources, Inc. (“Range”),
a West Virginia-based environmental services company operating throughout Appalachia, to purchase 80% of their shares in Range, a company
primarily focused on the reclamation of former coal mines, the remediation of non-compliant streams and waterways, and the reimagination
of challenging environmental situations into next generation industries and job-creating commercial activities. In addition to this proposed
transaction, Company management is actively pursuing a number of other ESG-focused investment opportunities to advance this mission with
a particular focus on some of the most challenging environmental situations in disadvantaged communities.
Competition
The
Company’s Graphium Biosciences subsidiary operates in a highly competitive and dynamic market environment, frequently against much
larger and better capitalized competitors. Currently, Graphium Biosciences’ cannabinoid prodrug development program competes against
many well-capitalized, multinational pharmaceutical drug manufacturers that are developing, producing and marketing pharmaceutical drugs
for the treatment of IBD and IBS. Additionally, an increasing number of cannabinoid drug manufacturers are entering the market with cannabinoid-based
drug development programs to treat a wide range of diseases, which could include IBD and IBS. Our expectation is that competition from
traditional pharmaceutical drug developers and non-traditional cannabinoid-based drug developers will continue to increase over the next
12 months.
The
Company’s Daedalus Ecosciences subsidiary is focused on a large and growing marketplace of ESG business initiatives, and therefore,
is anticipated to face competition from a variety of operating businesses and investment funds who are developing business plans and
operating strategies to satisfy the increasing demand of ESG investments in the marketplace.
Going
Concern
Since
inception, the Company has funded its operations primarily through equity and debt financings. During the nine months ended December
31, 2021, the Company incurred a net loss of $1,712,969 and used $1,365,744 of cash in our operating activities. At December 31, 2021,
we had negative working capital of $(390,333) and had no revenue during the nine months ended December 31, 2021. These factors raise
substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date that the
financial statements which are a part of this Transition Report on Form 10-K are issued. However, based on the availability of an equity financing
line via an executed securities purchase agreement and additional debt financing via a revolving credit facility, the Company believes
it will have enough funds to ensure continuing operations as a stand-alone entity for a period of at least one year from the issuance
of these consolidated financial statements. No assurance can be given that any future financing or capital, if needed, will be available
or, if available, that it will be on terms that are satisfactory to the Company. If we cannot raise the capital or financing we need
to continue our operations, our business could fail.
Employees
As
of March 30, 2022, we employed three full-time employees, including one research professional working in our office and laboratory space
in Rocklin, California. We also have engaged the services of scientific and regulatory consultants to assist with our research and development
activities, which is an approach that provides us with flexible and highly-experienced resources to advance our clinical efforts while
maintaining a relatively lower and variable overhead cost structure.
General
Information
We
maintain a corporate website at: www.malachiteinnovations.com. Information contained on our website is not incorporated by reference
in this Transition Report. We file reports with the Securities and Exchange Commission (SEC) and make available free-of-charge through
our website our annual reports, quarterly reports, current reports, proxy and information statements and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act).
Item
1A. Risk Factors
The
following risk factors should be considered carefully in addition to the other information contained in this Transition Report. This
Transition Report contains forward-looking statements. Our business, financial condition, results of operations and stock price could
be materially adversely affected by any of these risks.
Risks
Related to Our Business
We
have a history of operating losses and expect to continue to incur losses. We may never become profitable. The Company’s
independent registered public accounting firm has issued a report questioning our ability to continue as a going
concern.
For
the nine months ended December 31, 2021, the Company incurred a net loss of $1,712,969 and used $1,365,744 of cash in our operating activities.
We have incurred losses since inception, resulting in an accumulated deficit of $49,140,678 as of December 31, 2021. These factors raise
substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date that the
financial statements which are a part of this Transition Report on Form 10-K are issued. In addition, the Company’s independent
registered public accounting firm, in their report on the Company’s December 31, 2021 audited financial statements, raised substantial
doubt about the Company’s ability to continue as a going concern. We expect to incur further losses as we continue to develop our
business. We have not yet received significant revenues from sales of products or services and have recurring losses from operations.
We
expect to incur substantial losses for the near future, and we may never achieve or maintain profitability. Even if we succeed in obtaining
regulatory approval to market our glycosolated cannabinoid prodrugs, we may still incur losses for the foreseeable future. We also expect
to experience negative cash flow for the near future, as we plan to use all available resources to fund our operations and if we proceed
with an expansion of our corporate strategy as discussed elsewhere in this Transition Report, to make significant capital expenditures.
As a result, we would need to generate significant revenues if we are to achieve and maintain profitability. We may not be able to generate
these revenues or achieve profitability. Our failure to achieve or maintain profitability could negatively impact the value of our common
stock and you could lose some or all of your investment.
We
will need to raise substantial additional capital to operate our business. If we cannot obtain the capital we need to continue our operations,
our business could fail.
We
will need to raise additional funds in order to continue operating our business beyond the near term. Since inception, we have primarily
funded our operations through equity and debt financings. If we do issue equity or convertible debt securities to raise additional funds
or to fund, in whole or in part, acquisitions in furtherance of our business strategy, our existing stockholders may experience substantial
dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders.
If we incur additional debt, it would increase our leverage relative to our earnings, if any, or to our equity capitalization, requiring
us to pay additional interest expense. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities
and future cash commitments. If we pursue capital through alternative sources, such as collaborations or other similar arrangements,
we may be forced to relinquish rights to our proprietary glycosolated cannabinoid compounds, technology or other intellectual property
or marketing rights, which could result in our receipt of only a portion of any revenue that may be generated from a partnered product
or business. We also may raise funds by selling some or all of our assets. Regardless of the manner in which we seek to raise capital,
we may incur substantial costs in those pursuits, including investment banking fees, legal fees, accounting fees, printing and distribution
expenses and other related costs.
For
the 12 months following December 31, 2021, we expect our total operating expenditures to be approximately $1,800,000 (not including any
capital expenditures). However, our estimate of total expenditures could increase if we encounter unanticipated difficulties. In addition,
our estimates of the amount of cash necessary to fund our business may prove to be wrong and we could spend our available financial resources
much faster than we currently expect. Further, our operational expenses may increase substantially during our current fiscal year if
we pursue an expansion of our current operational goals and research and development activities. If we cannot raise the money that we
need in order to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations
and/or forego other attractive business opportunities that may arise. If any of these were to occur, there is a substantial risk that
our business would fail. Sources of additional funds may not be available on acceptable terms or at all. In addition, weak economic and
capital market conditions could result in increased difficulties in raising capital for our operations. We may not be able to raise money
through the sale of our equity securities or through borrowing funds on terms we find acceptable, or at all. If we cannot raise the funds
that we need, we will be unable to continue our operations, and our stockholders could lose their entire investment in the Company.
Our
limited operating experience could make our operations inefficient or ineffective.
We
have only a limited operating history upon which to base an evaluation of our current business and future prospects and how we will respond
to competitive, financial or technological challenges. In order to conserve our cash resources, we have significantly scaled back our
glycosolated cannabinoid product research and development efforts such that we are almost exclusively focused on exploring strategic
alternatives for that business. In addition, because of our limited operating history, we have limited insight into trends that may emerge
and affect our pharmaceutical drug business and nascent ESG business, and limited experience responding to such trends. We may make errors
in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and difficulties frequently
encountered by early-stage companies in evolving markets. We may not be able to successfully address any or all of these risks and uncertainties.
Failure to adequately do so could cause our business, results of operations and financial condition to suffer or fail.
The
coronavirus pandemic is adversely affecting and will continue to adversely affect our current business.
Since
inception, the Company has funded its operations primarily through equity and debt financings. In the event that the coronavirus pandemic
has an adverse financial effect on our potential sources of financing, our operations would be negatively affected. The coronavirus pandemic
may also make it more difficult for us to pursue capital through alternative sources, such as pharmaceutical drug collaborations or other
similar arrangements, since potential strategic partners may be either suffering financially or operationally as a result of the coronavirus
pandemic or are focused on the development of treatment therapies or vaccines for the coronavirus. The duration and breadth of the coronavirus
pandemic is uncertain and the ultimate impact cannot be reasonably estimated at this time.
We
may not be able to manage our expansion of operations effectively.
Assuming
we are able to attract additional capital, we intend to expand our operations. To manage this growth, we may need to expand our facilities,
augment our operational, financial and management systems and hire and train qualified personnel. Our management will also be required
to develop new relationships with customers, suppliers and other third parties. Our current and planned operations, personnel, systems,
and internal procedures and controls may not be adequate to support our future growth. If we are unable to manage our growth effectively,
we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.
If
we are unable to hire and retain qualified personnel, we may not be able to implement our business plan.
As
of March 30, 2022, we employed three full-time employees, including one professional dedicated to glycosolated cannabinoid research and
development. Attracting and retaining personnel will be critical to our success. We may not be able to attract and retain the qualified
personnel necessary for the development of our business. In addition, we may have difficulty recruiting necessary personnel as a result
of our limited operating history. The loss of key personnel or the failure to recruit necessary additional personnel could impede the
achievement of our business objectives.
We
may choose to hire part-time employees or use consultants. As a result, certain of our employees, officers, directors and consultants
may from time to time serve as officers, directors and consultants of other companies. In fact, our current CEO, Michael Cavanaugh, currently
serves as Chief Investment Officer of Tower 1 Partnership, LLC, an investment firm focused on private and public investments in a variety
of industries and manager of several affiliated investment partnerships. These other companies may have interests in conflict with ours.
In
addition, we expect to rely on independent organizations, advisors and consultants to provide certain services. The services of these
independent organizations, advisors and consultants may not be available to us on a timely basis when needed or on acceptable terms,
and if they are not available, we may not be able to find qualified replacements. If we are unable to retain the services of qualified
personnel, independent organizations, advisors and consultants, we may not be able to implement our business plan.
Cyber
incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss.
We
depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of
third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure,
or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary
information and sensitive or confidential data. As an early stage company without significant investments in data security protection,
we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or
to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of
them, could have adverse consequences on our business and lead to financial loss.
Risks
Related to Our Prodrug Business
If
we are unable to market and distribute our products effectively, we may be unable to generate significant revenue.
We
currently have no sales, marketing or distribution capabilities with respect to our prodrug business. As noted elsewhere in this Transition
Report, we are focused on exploring strategic alternatives with respect to this line of business, which could include a sale of this
business or the sale of shares of Graphium Biosciences to a third-party. Notwithstanding the foregoing initiative, we may decide to build
sales, marketing or distribution capabilities internally or pursue collaborative arrangements for the sales and marketing of our products,
including steps necessary to commercialize our pharmaceutical products. Any such collaborative arrangements may not provide us with the
sales and marketing benefits we expect. To the extent that we decide not to, or are unable to, enter into successful collaborative arrangements
with respect to the sales and marketing of our cannabinoid products, significant capital expenditures, management resources and time
will be required to establish and develop an in-house marketing and sales force with appropriate expertise. We may be unable to establish
or maintain relationships with third party collaborators or develop in-house sales and distribution capabilities. To the extent that
we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties
and there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be successful in
gaining market acceptance of any approved product. If we are not successful in commercializing any product approved in the future, either
on our own or through third parties, our business, financial condition and results of operations could be materially adversely affected.
We
may seek orphan drug status for our products for the treatment of certain diseases or conditions, but we may be unable to obtain such
designation or to maintain the benefits associated with orphan drug status, including market exclusivity, which may cause our revenue,
if any, to be reduced.
Regulatory
authorities in some jurisdictions, including the United States and European Union, may designate drugs for relatively small patient populations
as orphan drugs. The FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition that affects fewer
than 200,000 individuals annually in the United States, or, if the disease or condition affects more than 200,000 individuals annually
in the United States, if there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales
in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products grants Orphan Drug Designation to
promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating
conditions affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended
for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without
incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing
the drug.
In
the United States, Orphan Drug Designation entitles a party to financial incentives, such as opportunities for grant funding towards
clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product receives
the first FDA approval for the indication for which it has orphan designation, the product is entitled to seven years of market exclusivity,
which means the FDA may not approve any other application for the same drug for the same indication for a period of seven years, except
in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug exclusivity
does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease
or condition. In the European Union, Orphan Drug Designation also entitles a party to financial incentives such as reduction of fees
or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the Orphan Drug
Designation criteria are no longer met, including where it is shown that the product is sufficiently profitable so that market exclusivity
is no longer justified.
As
a result, even if our products receive orphan exclusivity, the FDA or European Medicines Agency (EMA) can still approve other drugs that
have a different active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan exclusivity if we are
unable to manufacture sufficient supply of our products or the EMA could reduce the term of exclusivity if our products are sufficiently
profitable.
While
we have received orphan drug designation for our VBX-100 prodrug for the treatment of pediatric ulcerative colitis, exclusive marketing
rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may
be lost if the FDA or EMA later determines that the request for designation was materially defective or if the manufacturer is unable
to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
We
are dependent on the success of our products, which are still in pre-clinical development and will require significant capital resources
and years of clinical development effort.
We
currently have no pharmaceutical products on the market, and our product candidates are still in pre-clinical development. Our business
depends on the successful clinical development, regulatory approval and commercialization of our product candidates, and additional pre-clinical
testing and substantial clinical development and regulatory approval efforts will be required before we are permitted to commence commercialization,
if ever. Any clinical trials and manufacturing and marketing of product candidates will be subject to extensive and rigorous review and
regulation by numerous government authorities in the United States and other jurisdictions where we intend to test and, if approved,
market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we would need
to demonstrate through pre-clinical testing and clinical trials that the product candidate is safe and effective for use in each target
indication, and potentially in specific patient populations. This process can take many years and may include post-marketing studies
and surveillance, which would require the expenditures of substantial resources beyond our current resources. Of the large number of
drugs in development for approval in the United States and the European Union, only a small percentage successfully complete the FDA
or EMA regulatory approval processes, as applicable, and are commercialized. Accordingly, even if we are able to obtain the requisite
financing to continue to fund our research, development and clinical programs, we are not certain that any of our product candidates
will be successfully developed or commercialized.
Because
the results of pre-clinical testing are not necessarily predictive of future results, our products may not have favorable results in
their clinical trials.
Any
positive results from our pre-clinical testing of our products may not necessarily be predictive of the results from clinical trials
in humans. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after
achieving positive results in pre-clinical development, and we cannot be certain that we will not face similar setbacks. Moreover, pre-clinical
and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates
performed satisfactorily in pre-clinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. If we fail to
produce positive results in our clinical trials, the development timeline and regulatory approval and commercialization prospects for
our products and, correspondingly, our business and financial prospects, would be materially adversely affected.
Failures
or delays in the completion of our pre-clinical studies or the commencement and completion of our clinical trials could result in increased
costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.
To
date, we have not completed our pre-clinical animal studies or commenced any clinical trials. Successful completion of such pre-clinical
animal studies and clinical trials is a prerequisite to submitting an NDA to the FDA or a marketing authorization application (MAA) to
the EMA. Clinical trials are expensive, difficult to design and implement, can take many years to complete and their outcomes are uncertain.
A product candidate can unexpectedly fail at any stage of clinical development. The historic failure rate for product candidates is high
due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The commencement and completion
of clinical trials can be delayed or prevented for a number of reasons, including, among others:
●
delays in reaching or failing to reach agreement on acceptable terms with prospective clinical trial sites, the terms of which can be
subject to extensive negotiation and may vary significantly among different clinical trial sites;
●
delays or inability in manufacturing or obtaining sufficient quantity or quality of a product candidate or other materials necessary
to conduct clinical trials due to regulatory and manufacturing constraints, including delays or an inability to hire appropriate staff
or consultants with requisite expertise in chemistry and manufacturing controls for pharmaceutical products;
●
difficulties obtaining Institutional Review Board (IRB), DEA or comparable foreign regulatory authority, or ethics committee approval
to conduct a clinical trial at a prospective site or sites;
●
challenges in recruiting and enrolling patients to participate in clinical trials, including the size and nature of the patient population,
the proximity of patients to clinical trial sites, eligibility criteria for the clinical trial, the nature of the clinical trial protocol,
the availability of approved effective treatments for the relevant indication and competition from other clinical trial programs for
similar indications;
●
severe or unexpected toxicities or drug-related side effects experienced by patients in our clinical trials or by individuals using drugs
similar to our product candidates;
●
DEA or comparable foreign regulatory authority-related recordkeeping, reporting or security violations at a clinical trial site, leading
the DEA, state authorities or comparable foreign regulatory authorities to suspend or revoke the site’s controlled substance license
and causing a delay or termination of planned or ongoing clinical trials;
●
regulatory concerns with cannabinoid products generally and the potential for abuse of those products;
●
difficulties retaining patients who have enrolled in a clinical trial who may withdraw due to lack of efficacy, side effects, personal
issues or loss of interest;
●
ambiguous or negative interim results; or
●
lack of adequate funding to continue the clinical trial.
In
addition, a clinical trial may be suspended or terminated by us, the FDA, IRBs, ethics committees, data safety monitoring boards or other
foreign regulatory authorities overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including,
among others:
●
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical trial protocols;
●
inspection of the clinical trial operations, clinical trial sites, or drug manufacturing facilities by the FDA, the DEA, the EMA or other
foreign regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including the
imposition of a clinical hold;
●
unforeseen safety issues, including any safety issues that could be identified in our ongoing toxicology studies;
●
adverse side effects or lack of effectiveness; and
●
changes in government regulations or administrative actions.
We
intend to focus on prodrugs for certain indications, and may fail to capitalize on other product candidates or other indications that
may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and managerial resources, we have reduced the scope of our research program and have limited that research
to our proprietary products for certain indications, which concentrates the risk of product failure in the event the products prove to
be unsafe, ineffective or inadequate for clinical development or commercialization. As a result, we may forego or delay pursuit of opportunities
with other product candidates or for other indications that could later prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on proprietary
research and development programs relating to our products may not yield any commercially viable products. If we do not accurately evaluate
the commercial potential or target market for our products, we may relinquish valuable rights to our products through collaboration,
licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and
commercialization rights to our products.
The
regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory 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.
We
are not permitted to market our product candidates in the United States or the European Union until we receive approval of an NDA from
the FDA or an MAA from the EMA, respectively, or in any foreign countries until we receive the requisite approval from such countries.
Prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our product candidates we will need to complete our ongoing
pre-clinical studies, as well as Phase 1, Phase 2 and Phase 3 clinical trials. We are still conducting pre-clinical studies and have
not yet commenced our clinical program or tested any product in humans. Successfully initiating and completing our clinical program and
obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain process, and the FDA or EMA may delay, limit or deny
approval of our product candidates for many reasons, including, among others, because:
●
we may not be able to demonstrate that our product candidates are safe and effective in treating patients to the satisfaction of the
FDA or EMA;
●
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or EMA for marketing
approval;
●
the FDA or EMA may disagree with the number, design, size, conduct or implementation of our clinical trials;
●
the FDA or EMA may require that we conduct additional clinical trials;
●
the FDA or EMA or other applicable foreign regulatory authorities may not approve the formulation, labeling or specifications of our
product candidates;
●
the contract research organizations, or CROs, and other contractors that we may retain to conduct our clinical trials may take actions
outside of our control that materially adversely impact our clinical trials;
●
the FDA or EMA may find the data from pre-clinical studies and clinical trials insufficient to demonstrate that our products’ clinical
and other benefits outweigh their safety risks;
●
the FDA or EMA may disagree with our interpretation of data from our pre-clinical studies and clinical trials;
●
the FDA or EMA may not accept data generated at our clinical trial sites or may disagree with us over whether to accept efficacy results
from clinical trial sites outside the United States where the standard of care is potentially different from that in the United States;
●
if and when our NDAs or MAAs are submitted to the FDA or EMA, as applicable, the regulatory agency may have difficulties scheduling the
necessary review meetings in a timely manner, may recommend against approval of our application or may recommend or require, as a condition
of approval, additional pre-clinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;
●
the FDA may require development of a Risk Evaluation and Mitigation Strategy (REMS), which would use risk minimization strategies beyond
the professional labeling to ensure that the benefits of certain prescription drugs outweigh their risks, as a condition of approval
or post-approval, and the EMA may grant only conditional approval or impose specific obligations as a condition for marketing authorization,
or may require us to conduct post-authorization safety studies;
●
the FDA, EMA, DEA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities of third-party
manufacturers with which we contract;
●
the DEA or other applicable foreign regulatory agency may establish quotas that limit the quantities of controlled substances available
to our manufacturers; or
●
the FDA or EMA may change their approval policies or adopt new regulations.
Any
of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully
market our products.
Even
if our products receive regulatory approval, they may still face future development and regulatory difficulties.
If
we seek and obtain regulatory approval for any of our products, such approval would be subject to extensive ongoing requirements by the
DEA, FDA, EMA and other foreign regulatory authorities related to the manufacture, quality control, further development, labeling, packaging,
storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market
information. The safety profile of any product will continue to be closely monitored by the FDA, EMA and other comparable foreign regulatory
authorities. If the FDA, EMA or any other comparable foreign regulatory authority becomes aware of new safety information after approval
of any of our product candidates, these regulatory authorities may require labeling changes or establishment of a REMS, impose significant
restrictions on a product’s indicated uses or marketing, impose ongoing requirements for potentially costly post-approval studies
or post-market surveillance, or impose a recall.
In
addition, manufacturers of therapeutic products and their facilities are subject to continual review and periodic inspections by the
FDA, the EMA and other comparable foreign regulatory authorities for compliance with current good manufacturing practices (cGMP) regulations.
Our current facilities and staff have never undergone such an inspection, and we currently rely upon outside consultants and advisors
to provide guidance on chemistry and manufacturing controls for pharmaceutical products. Further, manufacturers of controlled substances
must obtain and maintain necessary DEA and state registrations and registrations with applicable foreign regulatory authorities and must
establish and maintain processes to ensure compliance with DEA and state requirements and requirements of applicable foreign regulatory
authorities governing, among other things, the storage, handling, security, recordkeeping and reporting for controlled substances. If
we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing
facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, our product
candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory
agency may, among other things:
●
issue untitled letters or warning letters;
●
mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
●
require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required
due dates for specific actions and penalties for noncompliance;
●
seek an injunction or impose civil or criminal penalties or monetary fines;
●
suspend or withdraw regulatory approval;
●
suspend any ongoing clinical trials;
●
refuse to approve pending applications or supplements to applications filed by us; or
●
require us to initiate a product recall.
The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and may otherwise
have a material adverse effect on our business, financial condition and results of operations.
Our
products will be subject to controlled substance laws and regulations; failure to receive necessary approvals may delay the launch of
our products and failure to comply with these laws and regulations may adversely affect the results of our business operations.
Our
products will contain controlled substances as defined in the federal Controlled Substances Act of 1970 (CSA). Controlled substances
that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain
registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA.
The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition
have a high potential for abuse, have no currently “accepted medical use” in the United States, lack accepted safety for
use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical products approved for
use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential
for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are
subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for
importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new
prescription.
While
cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain cannabis or cannabis
extracts must be placed in Schedules II - V, since approval by the FDA satisfies the “accepted medical use” requirement.
If and when our products receive FDA approval, the DEA will make a scheduling determination and place them in a schedule other than Schedule
I in order for it to be prescribed to patients in the United States. If approved by the FDA, we expect the finished dosage forms of our
products to be listed by the DEA as a Schedule II, III, IV or V controlled substance. Consequently, their manufacture, importation, exportation,
domestic distribution, storage, sale and legitimate use will be subject to a significant degree of regulation by the DEA. The scheduling
process may take additional time after FDA approval, thereby significantly delaying the launch of our products. Furthermore, if the FDA,
DEA or any foreign regulatory authority determines that our products may have potential for abuse, it may require us to generate more
clinical data than that which is currently anticipated, which could increase the cost and/or delay the launch of our products.
Because
our products will contain compounds considered to be Schedule I substances, to conduct pre-clinical studies and clinical trials with
our products in the United States prior to approval, each of our research sites must submit a research protocol to the DEA and obtain
and maintain a DEA researcher registration that will allow those sites to procure necessary materials from suppliers, and to handle and
dispense our products. If the DEA delays or denies the grant of a research registration to one or more research sites, the pre-clinical
studies or clinical trials could be significantly delayed, and we could lose and be required to replace clinical trial sites, resulting
in additional costs.
We
will also need to identify wholesale distributors with the appropriate DEA registrations and authority to distribute our products to
pharmacies and other healthcare providers, and these distributors would need to obtain Schedule II through V distribution registrations.
The failure to obtain, or delay in obtaining, or the loss of any of those registrations could result in increased costs to us. If our
products are Schedule II drugs, pharmacies would have to maintain enhanced security with alarms and monitoring systems and they must
adhere to recordkeeping and inventory requirements. Furthermore, state and federal enforcement actions, regulatory requirements, and
legislation intended to reduce prescription drug abuse, such as the requirement that physicians consult a state prescription drug monitoring
program, may make physicians less willing to prescribe, and pharmacies to dispense, Schedule II products.
We
may manufacture the commercial supply of our products, or necessary raw materials, outside of the United States. If our products are
each approved by the FDA and classified as a Schedule II or III substance, an importer can import that product for commercial purposes
if it obtains from the DEA an importer registration and files an application with the DEA for an import permit for each importation.
The DEA provides annual assessments/estimates to the International Narcotics Control Board which guides the DEA in the amounts of controlled
substances that the DEA authorizes to be imported. The failure to identify an importer or obtain the necessary import authority, including
specific quantities, could affect the availability of our products and have a material adverse effect on our business, results of operations
and financial condition. In addition, an application for a Schedule II importer registration must be published in the Federal Register,
and there is a waiting period for third-party comments to be submitted.
Individual
states have also established controlled substance laws and regulations. Although state-controlled substance laws often mirror federal
law, states may schedule our product candidates in a different manner. While some states automatically schedule a drug based on federal
action, other states schedule drugs through rulemaking or a legislative action. State scheduling may delay commercial sale of any product
for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness
of such product. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to obtain,
handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements
could lead to enforcement actions and sanctions by the states in addition to those from the DEA or otherwise arising under federal law.
We
currently face, and will continue to face, significant competition in our pharmaceutical business.
Our
major competitors for the development of pharmaceutical products related to cannabinoids and inflammatory disorders include major pharmaceutical
companies, smaller companies, and academic research groups that are devoted to biological or pharmaceutical research either independently
or by providing contract research services. A number of multinational pharmaceutical companies are developing products in similar therapeutic
areas, including, but not limited to, Biogen, Teva Neuroscience, Pfizer, Endo Pharmaceuticals, Genzyme, Novartis, Bayer Healthcare, and
additional companies such as Jazz Pharmaceuticals, Arena Pharmaceuticals, Corbus Pharmaceuticals, Trait Biosciences, and Zynerba Pharmaceuticals
are developing cannabinoid pharmaceuticals for treatment of various clinical indications and commercial applications.
Failure
to obtain regulatory approval in jurisdictions outside the United States and the European Union would prevent our product candidates
from being marketed in those jurisdictions.
In
order to market and sell our products in jurisdictions other than the United States and the European Union, we must obtain separate marketing
approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the United States and
the European Union generally includes all of the risks associated with obtaining FDA and EMA approval, but can involve additional testing.
We may need to partner with third parties in order to obtain approvals outside the United States and the European Union. In addition,
in many countries worldwide, it is required that the product be approved for reimbursement before the product can be approved for sale
in that country. We may not obtain approvals from regulatory authorities outside the United States and the European Union on a timely
basis, if at all. Even if we were to receive approval in the United States or the European Union, approval by the FDA or the EMA does
not ensure approval by regulatory authorities in other countries or jurisdictions. Similarly, approval by one regulatory authority outside
the United States and the European Union would not ensure approval by regulatory authorities in other countries or jurisdictions or by
the FDA or the EMA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products
in any market. If we are unable to obtain approval of our product candidates by regulatory authorities in other foreign jurisdictions,
the commercial prospects of those product candidates may be significantly diminished and our business prospects could decline.
Healthcare
legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty
and cost for us to obtain marketing approval of and commercialize our product candidates.
In
the United States there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system
that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities or affect our
ability to profitably sell any product candidates for which we obtain marketing approval.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act,
among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also
contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against healthcare fraud and abuse, add new transparency requirements for the healthcare and health insurance industries,
impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms, any of which
could negatively impact our business. We expect that the Affordable Care Act, as well as other healthcare reform measures that have been
and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that
we receive for any approved product, and could negatively impact our future revenues. Any reduction in reimbursement from Medicare or
other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures
or other healthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.
Even
if we are able to commercialize our products, the products may not receive coverage and adequate reimbursement from third-party payors,
which could harm our business.
The
availability of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments.
Sales of our products, if approved, will depend substantially on the extent to which the costs of these products will be paid by health
maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration
authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to
limited levels, we may not be able to successfully commercialize our products. Even if coverage is provided, the approved reimbursement
amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, established
the Medicare Part D program and provided authority for limiting the number of drugs that will be covered in any therapeutic class thereunder.
The Medicare Modernization Act, including its cost reduction initiatives, could decrease the coverage and reimbursement rate that we
receive for any of our approved products. Furthermore, private payors often follow Medicare coverage policies and payment limitations
in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act
may result in a similar reduction in payments from private payors.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the
principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services (CMS),
an agency within the U.S. Department of Health and Human Services (HHS), as CMS decides whether and to what extent a new medicine will
be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.
The
intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination
administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable under
Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular
product may be uncertain.
Outside
the United States, particularly in member states of the European Union, the pricing of prescription drugs is subject to governmental
control. In these countries, pricing negotiations or the successful completion of health technology assessment procedures with governmental
authorities can take considerable 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. Certain countries
allow companies to fix their own prices for medicines, but monitor and control company profits. 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 European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states,
can further reduce prices. 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 candidates to other available therapies in order to obtain or maintain reimbursement or
pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement
levels within the country of publication and other countries. If reimbursement of any product candidate approved for marketing is unavailable
or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations
or prospects could be adversely affected.
Our
relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare
laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished
profits and future earnings.
Healthcare
providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for
which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable
fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships
through which we market, sell and distribute our products for which we obtain marketing approval. As a pharmaceutical company, even though
we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain
federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable
to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our ability to operate
include the following:
●
the U.S. federal healthcare Anti-Kickback Statute impacts our marketing practices, educational programs, pricing policies and relationships
with healthcare providers or other entities, by prohibiting, among other things, persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral
of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal
healthcare program such as Medicare and Medicaid;
●
federal civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through civil
whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal
government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent (including through impermissible
promotion of our products for off-label uses) or making a false statement or record to avoid, decrease or conceal an obligation to pay
money to the federal government;
●
the U.S. federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program and also created federal criminal laws that prohibit knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for
healthcare benefits, items or services;
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HIPAA, and the rules and regulations promulgated thereunder, establish federal standards for maintaining the privacy and security of
certain patient health information known as Protected Health Information (PHI). As amended by the Health Information Technology for Economic
and Clinical Health Act (HITECH), HIPAA establishes federal standards for administrative, technical and physical safeguards relevant
to the electronic transmission of PHI and imposes notification obligations in the event of a breach of the privacy or security of PHI.
In addition to adhering to the requirements of HIPAA, entities considered “covered entities” under HIPAA (such as health
plans, healthcare clearinghouses, and certain healthcare providers) are required to obtain assurances in the form of a written contract
from certain business associates to which they transmit PHI (or who create, receive, transmit or maintain PHI on the covered entity’s
behalf) to ensure that the privacy and security of such information is maintained in accordance with HIPAA requirements. HITECH made
changes to HIPAA including extending the reach of HIPAA beyond HIPAA covered entities to business associates, increased the maximum civil
monetary penalties for violations of HIPAA, and granted enforcement authority to state attorneys general. Failure to comply with HIPAA/HITECH
can result in civil and criminal liability, including civil monetary penalties, fines and imprisonment;
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the U.S. federal physician payment transparency requirements under the Affordable Care Act require applicable manufacturers of covered
drugs, devices, biologics and medical supplies to report annually to HHS information related to payments and other transfers of value
to physicians, certain other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians
and certain other healthcare providers and their immediate family members and applicable group purchasing organizations; and
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analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. Some
state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to
payments and other transfers of value to physicians and certain other healthcare providers or marketing expenditures. Additionally, state
and foreign laws govern the privacy and security of health information in certain circumstances, many of which differ from each other
in significant ways and often are not preempted by HIPAA/HITECH, thus complicating compliance efforts.
Comparable
laws and regulations exist in the countries within the European Economic Area (EEA). Although such laws are partially based upon European
Union law, they may vary from country to country. Healthcare specific, as well as general European Union and national laws, regulations
and industry codes constrain, for example, our interactions with government officials and healthcare practitioners, and the handling
of healthcare data. Non-compliance with any of these laws or regulations could lead to criminal or civil liability.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current
or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations
are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant
civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such
as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or
entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal,
civil or administrative sanctions, including exclusions from government funded healthcare programs.
Also,
the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries
from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal control policies
and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, licensees or agents.
Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact
on our business, results of operations and reputation.
Our
products, if approved, may be unable to achieve broad market acceptance and, consequently, limit our ability to generate revenue from
new products.
Even
when product development is successful and regulatory approval has been obtained, our ability to generate significant revenue depends
on the acceptance of our products by physicians and patients. The market acceptance of any product depends on a number of factors, including
the indication statement and warnings approved by regulatory authorities in the product label, continued demonstration of efficacy and
safety in commercial use, physicians’ willingness to prescribe the product, reimbursement from third-party payors such as government
healthcare systems and insurance companies, the price of the product, the nature of any post-approval risk management plans mandated
by regulatory authorities, competition, and marketing and distribution support. Any factor preventing or limiting the market acceptance
of our product candidates could have a material adverse effect on our business, results of operations and financial condition.
If
we receive regulatory approvals, we may market our products in multiple jurisdictions where we have limited or no operating experience
and may be subject to increased business and economic risks that could affect our financial results.
If
we receive regulatory approvals, we may market our products in jurisdictions where we have limited or no experience in marketing, developing
and distributing our products. Certain markets have substantial legal and regulatory complexities that we may not have experience navigating.
We are subject to a variety of risks inherent in doing business internationally, including risks related to the legal and regulatory
environment in non-U.S. jurisdictions, including with respect to privacy and data security, trade control laws and unexpected changes
in laws, regulatory requirements and enforcement, as well as risks related to fluctuations in currency exchange rates and political,
social and economic instability in foreign countries. In addition, controlled substance legislation may differ in other jurisdictions
and could restrict our ability to market our products internationally. If we are unable to manage our international operations successfully,
our financial results could be adversely affected.
Our
products will contain controlled substances, the use of which may generate public controversy.
Since
our products will contain controlled substances, their regulatory approval may generate public controversy. Political and social pressures
and adverse publicity could lead to delays in approval of, and increased expenses for, our products. These pressures could also limit
or restrict the introduction and marketing of our products. Adverse publicity from cannabis misuse or adverse side effects from cannabis
or other cannabinoid products may adversely affect the commercial success or market penetration achievable by our products. The nature
of our business attracts a high level of public and media interest, and in the event of any resultant adverse publicity, our reputation
may be harmed.
If
we fail to protect or enforce our intellectual property rights or secure rights to the intellectual property of others, the value of
our intellectual property rights would diminish.
We
expect to continue to develop our intellectual property portfolio as we increase our research and development efforts. We may be unable
to obtain patents or other protection for any technologies we develop, because such technologies are not coverable by patents or other
forms of registered intellectual property, because third parties file patents covering the same claims earlier than we do, or for other
reasons. If we are able to obtain issued patents, we cannot predict the degree and range of protection any patents will afford us against
competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents. Others may obtain patents
claiming aspects similar to those covered by our patents and patent applications, which may limit the efficacy of the protections afforded
by any patents we may obtain.
Our
success will also depend upon the skills, knowledge and experience of our personnel, our consultants and advisors as well as our licensors
and contractors. To help protect any proprietary know-how we develop and any inventions for which patents may be unobtainable or difficult
to obtain, we expect to rely on trade secret protection and confidentiality agreements. To this end, we expect to require 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.
If
we infringe the rights of third parties we could be prevented from selling products and forced to pay damages or defend against litigation.
If
our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial
costs. In that case, we could be required to:
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obtain
licenses from such third parties, which may not be available on commercially reasonable terms, if at all; |
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redesign
our products or processes to avoid infringement, which may not be feasible; |
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stop
using the subject matter claimed in the patents held by others; |
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pay
damages; and/or |
|
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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. |
Any
of these outcomes could divert management attention and other resources and could significantly harm our operations and financial condition.
We
may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.
If
we are able to develop and commercialize our proposed products, we could become subject to product liability claims. If we are not able
to successfully defend against such claims, we may incur substantial liabilities or be required to limit commercialization of our proposed
products. If we are unable to obtain 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, alone or with collaborators. Even if our agreements
with any future collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should
any claim arise.
Government
regulation of our products could increase our costs, prevent us from offering certain products or cause us to recall products.
The
processing, formulation, manufacturing, packaging, labeling, advertising and distribution of our products is subject to regulation by
one or more federal agencies, and various agencies of the states and localities in which our products are manufactured and sold. These
government regulatory agencies may attempt to regulate any of our products that fall within their jurisdiction. Such regulatory agencies
may not accept the evidence of safety for any new ingredients that we may want to market, may determine that a particular product or
product ingredient presents an unacceptable health risk, may determine that a particular statement of nutritional support that we want
to use is an unacceptable drug claim or an unauthorized version of a food “health claim,” may determine that a particular
product is an unapproved new drug, or may determine that particular claims are not adequately supported by available scientific evidence.
Such a determination would prevent us from marketing particular products or using certain statements of nutritional support on our products.
We also may be unable to disseminate third-party literature that supports our products if the third-party literature fails to satisfy
certain requirements.
In
addition, a government regulatory agency could require us to remove a particular product from the market. Any product recall or removal
would result in additional costs to us, including lost revenues from any products that we are required to remove from the market, any
of which could be material. Any such product recalls or removals could lead to liability, substantial costs and reduced growth prospects.
If
any of our products contain plants, herbs or other substances not recognized as safe by a government regulatory agency, we may not be
able to market or sell such products in that jurisdiction. Any such prohibition could materially adversely affect our results of operations
and financial condition. Further, if more stringent statutes are enacted, or if more stringent regulations are promulgated, we may not
be able to comply with such statutes or regulations without incurring substantial expense, or at all.
We
are not able to predict the nature of future laws, regulations, repeals or interpretations or to predict the effect additional governmental
regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require reformulation
of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping
requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific
substantiation, or other new requirements. Any such developments could involve substantial additional costs to us, which we may not be
able to fund, and could have a material adverse effect on our business operations and financial condition.
We
use hazardous materials in our prodrug business and may use such materials in our ESG business in the future. Any claims relating to
improper handling, storage or disposal of these materials could be time consuming and costly.
Our
cannabinoid research and development efforts and manufacturing processes may involve the controlled storage, use and disposal of certain
hazardous materials and waste products. The same may be true for out ESG business. We and our suppliers and other collaborators are subject
to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products.
Even if we and these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental contamination
or injury from hazardous materials cannot be eliminated. We may not be able to obtain and maintain insurance on acceptable terms, or
at all, to cover costs associated with any such accidental contamination. In the event of such an accident, we could be held liable for
any damages that result, and any liability could exceed the limits or fall outside the coverage of any insurance we may obtain and exceed
our financial resources. We may incur significant costs to comply with current or future environmental laws and regulations.
Risks
Related to our ESG Business Strategy
If
we are unable to identify and acquire businesses or assets in furtheranceof our ESG business strategy, we may be unable to generate significant
revenue.
We
currently have no ESG business operations or ESG-related assets, nor have we ever had such operations. Initially, we intend to focus
our ESG business strategy on acquiring and developing businesses we believe have potential to conserve, protect and re-purpose the natural
environment in those areas in the U.S. that have been negatively impacted by mining or other extractive operations. Although we intend
to acquire businesses and assets that will generate revenue in the immediate- or near-term, there can no assurance that we will be able
to do so, or to do so on terms that are acceptable to us, or in a manner that will provide us with the revenue we expect.
Our
consideration of sustainability and ESG criteria as the pre-eminent part of our business and investment strategy will limit the types
and number of business opportunities available to the Company and may result in the Company engaging in industry sectors that underperform
the market as a whole, or forgoing opportunities to invest available capital in businesses that might otherwise be advantageous to buy.
If we are not successful in acquiring or developing desirable ESG-related businesses or assets which fit within our business strategy
or if those assets do not generate sufficient revenue, our business, financial condition and results of operations could be materially
adversely affected.
Our
ESG business strategy is new, untested and may not be successful.
Our
ESG business strategy is qualitative and subjective by nature, and there is no guarantee that the factors we utilize in making capital
and other resource allocation decisions or any judgment exercised by our management or Board will reflect the opinions of any particular
shareholder, and the criteria utilized by the Company may differ from the criteria that any particular shareholder considers relevant
in evaluating a company’s sustainability or ESG practices. In making allocation and investment decisions, Company management will
be dependent upon information and data obtained through voluntary or third-party reporting that may be incomplete, inaccurate or unavailable,
or present conflicting information and data with respect to a particular opportunity, which in each case could cause the Company to incorrectly
assess a potential target’s business practices with respect to its sustainability and ESG practices. Socially and environmentally-responsible
norms differ by region. In implementing its ESG business strategy, management will seek to exclude businesses deemed to be fundamentally
misaligned with the Company’s sustainability principles. In addition, as a result of the Company’s engagement activities,
the Company may make an investment in activities or companies that do not currently engage in sustainability or ESG practices that meet
criteria established by the Company in an effort to improve such target’s ESG practices. Successful application of the Company’s
ESG business strategy and management’s engagement efforts will depend on management’s skill in properly identifying and analyzing
material ESG issues, and there can be no assurance that the strategy or techniques employed will be successful.
We
have limited experience operating an environmental business and may be subject to increased business and economic risks that could affect
our financial results.
We
have limited or no experience operating an ESG business and investing strategy. While our CEO has previous experience working with environmental
services firms, no other member of the Company’s management team has experience operating a business engaged in sustainable operations.
If we are unable to manage our ESG-related operations successfully, our financial results could be adversely affected.
We
may be unable to obtain the financing we need to pursue our ESG business strategy and any future financing we receive may be less favorable
to us than our current financing arrangements, either of which may adversely affect our ability to expand our operations.
ESG-
and sustainability-related projects and businesses we may seek to acquire or develop will require substantial capital investment. Our
access to capital on acceptable or favorable terms to us is necessary for the success of our ESG business strategy, particularly in enhancing
our portfolio through M&A activities. Our attempts to obtain the necessary future financing may not be successful or on favorable
terms. Our ability to arrange for financing on a substantially non-recourse or limited recourse basis, and the costs of such financing,
are dependent on numerous factors, including general economic conditions, conditions in the global capital and credit markets, investor
confidence, the success of our business, the credit quality of the businesses being financed, and the continued existence of tax laws
which are conducive to raising capital for these types of activities. If we are not able to obtain financing on a substantially non-recourse
or limited recourse basis, we may have to finance them using recourse capital such as direct equity investments or the incurrence of
additional debt by us. Also, in the absence of favorable financing options, we may decide not to develop or acquire facilities or businesses
from third parties. Any of these alternatives could have a material adverse effect on our growth prospects.
We
may also need additional financing to implement our ESG business strategic plan. For example, our cash flow from operations and existing
liquidity facilities may not be adequate to finance any acquisitions we may want to pursue or new technologies we may want to develop
or acquire. Financing for acquisitions or technology development activities may not be available on terms we find acceptable.
Unfavorable
legislative changes could affect our financial results.
Most
of the types of environmental assets we are considering purchasing are subject to environmental regulations and we expect such regulatory
conditions to influence the assumptions we will make regarding future revenues and expenses. If those regulatory conditions change, our
revenues may be decreased and our expenses could increase, adversely affecting our financial results.
The
reduction or elimination of government incentives could adversely affect our business, financial condition, future results and cash flows.
Our
planned ESG business strategy may benefit in the future from public policies and government incentives that support renewable energy
and enhance the economic feasibility of sustainability-based projects in regions where we operate. Such policies and incentives include
tax credits, accelerated depreciation tax benefits, renewable portfolio standards, carbon trading mechanisms, rebates, and may include
similar or other incentives to end users, distributors, or other participants in the energy or mining industry. Some of these measures
have been implemented at the federal level, while others have been implemented by different states within the United States. The availability
and continuation of these public policies and government incentives are likely to have a significant effect on the economics and viability
of our ESG business. Any changes to such public policies, or any reduction in or elimination or expiration of such government incentives
could affect us in different ways. For example, policies supporting or deregulating the exploration, production and use of fossil fuels
may create regulatory uncertainty in the renewable energy industry. Any of the foregoing outcomes could have a material adverse effect
on our business, financial condition, future results, and cash flows.
We
may decide not to implement, or may not be successful in implementing, one or more elements of our multi-year ESG strategic plan, and
the plan as implemented may not achieve its goal of enhancing shareholder value through the long-term growth of our Company
We
are implementing a multi-year strategic plan to develop a business engaged in a number of complimentary ESG businesses in the United
States which will permit us to explore synergistic growth opportunities utilizing our core competence.
There
are uncertainties and risks associated with our strategic plan, including with respect to implementation and outcome. We may decide to
change, or to not implement, one or more elements of the plan over time or we may not be successful in implementing one or more elements
of the plan, in each case for a number of reasons. For example, we may face significant challenges and risks expanding into the ESG business
including:
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our
ability to compete with the large number of other companies pursuing similar business opportunities in the ESG field, many of which
already have established businesses in these areas and/or have greater financial, strategic, technological or other resources than
we have; |
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our
ability to obtain financing on terms we consider acceptable, or at all, which we may need, for example, to develop new projects,
to obtain any technology, personnel, intellectual property, or to acquire one or more existing businesses as a platform for our expansion,
or to fund internal research and development; |
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our
ability to provide services or products that keep pace with rapidly changing technology, customer preferences, equipment costs, increasing
raw materials and transportation costs, market conditions and other factors that are unknown to us now that will impact these markets;
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our
ability to manage the risks and uncertainties associated with our operating the facilities and projects in this line of business,
including the variability of revenues and profitability of such projects; |
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our
ability to devote the amount of management time and other resources required to implement this plan; and |
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our
ability to recruit appropriate employees and labor market challenges. |
Apart
from the risks associated with implementing the plan, the plan itself will expose us to other risks and uncertainties once implemented.
Expanding our customer base may expose us to customers with different credit profiles than our current customers. Expanding our geographic
base will subject us to risks associated with doing business in new foreign countries in which we will have to learn the business and
political environment. In addition, expanding into new technologies will expose us to new risks and uncertainties that are unknown to
us now in addition to the risks and uncertainties that may be similar to those we now face. The success of the plan, once implemented,
will depend, among other things, on our ability to manage these risks effectively.
The
trading price of our common stock could decline if securities, industry analysts or our investors disagree with our strategic plan or
the way we implement it. Accordingly, there is no assurance that the plan will enhance shareholder value through long-term growth of
the Company to the extent currently anticipated by our management or at all.
We
may engage in a business combination with one target business that has relationships with entities that may be affiliated with our sponsor,
executive officers, directors or initial shareholder which may raise potential conflicts of interest.
In
carrying our ESG business strategy, we may decide to acquire a business affiliated with our executive officers, directors or our largest
shareholder. We would pursue a transaction with an affiliated entity if we determined that such affiliated entity met our criteria and
guidelines for a business combination and such transaction was approved by a majority of our independent and disinterested directors.
We may not obtain an opinion from an independent investment banking firm or another independent entity regarding the fairness to the
Company from a financial point of view of a business combination with a business affiliated with our executive officers, directors or
largest shareholder. In the event of a transaction with an affiliated entity, potential conflicts of interest may exist and, as a result,
the terms of the transaction may not be as advantageous to our public shareholders as they would be absent any conflicts of interest.
We
may not be able to successfully conclude the transactions, integrate companies, which we may acquire in the future, which could materially
and adversely affect our business, financial condition, future results and cash flow.
Our
strategy is to develop our ESG business primarily through acquisitions. Integrating acquisitions is often costly, and we may not be able
to successfully integrate our acquired businesses with our existing operations without substantial costs, delays or other adverse operational
or financial consequences. Completion of M&A transactions may be subject to fulfilling conditions and receiving regulatory approval.
Integrating our acquired companies involves a number of risks that could materially and adversely affect our business, including:
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failure
of the acquired companies to achieve the results we expect; |
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inability
to retain key personnel of the acquired companies; |
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risks
associated with unanticipated events or liabilities; and |
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the
difficulty of establishing and maintaining uniform standards, controls, procedures and policies, including accounting controls and
procedures. |
If
any of our acquired companies suffers customer dissatisfaction or performance problems, this could adversely affect the reputation of
our group of companies and could materially and adversely affect our business, financial condition, future results and cash flow.
Concentration
of customers, specific projects and regions may expose us to heightened financial exposure.
Our
ESG business may be heavily dependent on a single or limited number of customers. The financial performance of our ESG businesses depends
on the ability of each customer to perform its obligations, possibly under a long-term agreement between the parties. Our financial results
could be materially and adversely affected if any of our ESG customers fail to fulfill its contractual obligations and we are unable
to find other customers in the marketplace to purchase at the same level of profitability. We cannot assure that such performance failures
by our customers will not occur, or that if they do occur, such failures will not adversely affect the cash flows or profitability of
our businesses. Moreover, there can be no assurance that we will be able to enter into replacement agreements on favorable terms or at
all.
Although
we have identified general criteria and guidelines that we believe are important in evaluating prospective target ESG businesses, we
may enter into business combinations that do not have attributes entirely consistent with our general criteria and guidelines.
Although
we have identified general criteria and guidelines for evaluating prospective target ESG businesses, it is possible that we may not acquire
or enter into transactions with a target business which will not have all of these positive attributes. If shareholder approval of the
transaction is required by applicable law or other requirements, or we decide to obtain shareholder approval for business or other reasons,
it may be more difficult for us to attain shareholder approval of those business combinations if the target business does not meet our
general criteria and guidelines.
We
may make future acquisitions or form partnerships and joint ventures that may involve numerous risks that could impact our financial
condition, results of operations and cash flows.
Our
ESG business strategy may include expanding our scope of products and services organically or through selective acquisitions, investments
or creating partnerships and joint ventures. We may selectively acquire other businesses, product or service lines, assets or technologies
that are complementary to our business. We may be unable to find or consummate future acquisitions at acceptable prices and terms, or
we may be unable to integrate existing or future acquisitions effectively and efficiently and may need to divest those acquisitions.
We expect to continually evaluate potential acquisition opportunities in the ordinary course of business. Acquisitions involve numerous
risks, including among others:
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our
evaluation of the synergies and/or long-term benefits of an acquired business; |
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integration
difficulties, including challenges and costs associated with implementing systems, processes and controls to comply with the requirements
of a publicly-traded company; |
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diverting
management’s attention; |
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litigation
arising from acquisition activity; |
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potential
increased debt leverage; |
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potential
issuance of dilutive equity securities; |
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entering
markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
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unanticipated
costs and exposure to undisclosed or unforeseen liabilities or operating challenges; |
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potential
goodwill or other intangible asset impairments; |
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potential
loss of key employees and customers of the acquired businesses, product or service lines, assets or technologies; |
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our
ability to properly establish and maintain effective internal controls over an acquired company; and |
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increasing
demands on our operational and IT systems. |
The
success of acquisitions of businesses, new technologies and products, or arrangements with third parties is not always predictable and
we may not be successful in realizing our objectives as anticipated. Furthermore, any future credit facility we may have may contain
certain covenants that limit, or that may have the effect of limiting, among other things, the payment of dividends, acquisitions, capital
expenditures, the sale of assets and the incurrence of additional indebtedness.
We
could be exposed to significant liability for violations of hazardous substances laws because of the use or presence of such substances
at our facilities or properties.
Our
ESG business operations will be subject to numerous federal, regional, state and local statutory and regulatory standards relating to
the generation, handling, transportation, use, storage, treatment and disposal of hazardous substances. If any hazardous substances are
found to have been released into the environment at or by one of our facilities or on one of our properties in concentrations that exceed
regulatory limits, we could become liable for the investigation and removal of those substances, regardless of their source and time
of release. If we fail to comply with these laws, ordinances or regulations (or any change thereto), we could be subject to civil or
criminal liability, the imposition of liens or fines, and cessation of operations, large expenditures to bring our operations into compliance
or other sanctions. Furthermore, under certain federal and states laws in the United States, we can be held liable for the cleanup of
releases of hazardous substances at any of our current or former facilities or at any other locations where we arranged for disposal
of those substances, even if we did not cause the release at that location or if the release complied with applicable law at the time
it occurred. Liability under these laws can be joint and several. The cost of any remediation activities in connection with a spill or
other release of such substances could be significant and could expose us to significant liability.
Our
operations could be adversely impacted by climate change.
Our
ESG operations may be susceptible to losses and interruptions caused by extreme weather conditions such as droughts, hurricanes, floods,
wildfires, and water or other natural resource shortages, occurrences of which may increase in frequency and severity as a result of
climate change. Climate change may also produce general changes in weather or other environmental conditions, including temperature or
precipitation levels. To the extent weather conditions continue to be impacted by climate change, our ESG operations and facilities may
be adversely impacted in a manner that we could not predict which may in turn adversely impact our results of operations. In addition,
the potential physical effects of climate change, such as increased frequency and severity of storms, floods, and other climatic events,
could disrupt our operations and cause us to incur significant costs to prepare for or respond to these effects.
If
we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements
and our activities may be restricted, which may make it difficult for us to carry out our ESG business strategy.
If
we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including: (i) restrictions
on the nature of our investments; and (ii) restrictions on the issuance of securities, each of which may make it difficult for us to
carry out our planned ESG business strategy.
In
addition, we may have imposed upon us burdensome requirements, including: (X) registration as an investment company with the SEC; (Y)
adoption of a specific form of corporate structure; and (Z) reporting, record keeping, voting, proxy and disclosure requirements and
other rules and regulations that we are currently not subject to.
If
we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional
expenses for which we have not allotted funds and may hinder our ability to carry out our ESG business strategy.
In
order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must
ensure that we are engaged primarily in a business other than investing, reinvesting or trading of securities and that our activities
do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our
assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will include identifying and
completing business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to
buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to
be a passive investor.
We
do not believe that our principal activities will subject us to the Investment Company Act.
Risks
Related to our Common Stock
Our
common stock is illiquid and the price of our common stock may be negatively impacted by any negative operational results and factors
unrelated to our operations.
Our
common stock is quoted on the OTC and trading on the OTC is frequently highly volatile, with low trading volume. We have experienced
significant fluctuations in the price and trading volume of our common stock, which may be caused by factors relating to our business
and operational results and/or factors unrelated to the Company, including general market conditions. An active market for our common
stock may never develop, in which case it could be difficult for stockholders to sell their common stock. The market price of our common
stock could continue to fluctuate substantially.
Trading
of our stock is restricted by the SEC’s “penny stock” regulations and certain FINRA rules, which may limit a stockholder’s
ability to buy and sell our common stock.
Our
securities are covered by certain “penny stock” rules, which impose additional sales practice requirements on broker-dealers
who sell low-priced securities to persons other than established customers and accredited investors. For transactions covered by these
rules, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written
consent to the transaction prior to sale, among other things. These rules may affect the ability of broker-dealers and holders to sell
our common stock and may negatively impact the level of trading activity for our common stock. To the extent our common stock remains
subject to the penny stock regulations, such regulations may discourage investor interest in and adversely affect the market liquidity
of our common stock.
The
Financial Industry Regulatory Authority (FINRA) has adopted rules that require a broker-dealer, when recommending an investment to a
customer, to have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative
low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit an investor’s
ability to buy and sell our common stock and could have an adverse effect on the market for our shares.
If
we issue and sell additional shares of our common stock in the future, our existing stockholders will be diluted and our stock price
could fall.
Our
articles of incorporation authorize the issuance of up to 1,000,000,000 shares of common stock, of which, as of March 30, 2022, 51,450,147
shares were outstanding and 15,732,544 shares were reserved for issuance under our stock incentive plan or other outstanding options
or warrants. As a result, we have a large number of shares of common stock that are authorized for issuance and are not outstanding or
otherwise reserved, and could be issued at the discretion of our Board of Directors. We expect to seek additional financing in the future
in order to fund our operations, and if we issue additional shares of common stock or securities convertible into common stock, our existing
stockholders will be diluted. Our Board of Directors may also choose to issue shares of our common stock or securities convertible into
or exercisable for our common stock to acquire assets or companies, for compensation to employees, officers, directors, consultants and
advisors, to fund capital expenditures and to enter into strategic partnerships. Additionally, shares of common stock could be issued
for anti-takeover purposes or to delay or prevent changes in control or management of the Company. Our Board of Directors may determine
to issue shares of our common stock on terms that our stockholders do not believe enhance stockholder value, or that may ultimately have
an adverse effect on our business or the trading price of our common stock. Further, the issuance of any such shares may cause further
dilution to the ownership interest of our current stockholders, reduce the book value per share of our common stock and may contribute
to a reduction in the market price for our common stock.
Our
principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters
subject to stockholder approval.
Certain
of our executive officers, directors and stockholders own a significant percentage of our outstanding capital stock. As of March 30,
2022, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned
approximately 42.1% of our outstanding shares of common stock. Accordingly, our directors, executive officers and certain stockholders
have significant influence over our affairs due to their substantial stock ownership coupled with their positions on our management team.
For example, these stockholders may be able to control or influence elections of directors, amendments of our organizational documents,
or approval of any merger, sale of assets, or other major corporate transaction. This concentration of ownership may prevent or discourage
unsolicited acquisition proposals or offers for our common stock that some of our stockholders may believe is in their best interest.
We
are subject to the reporting requirements of federal securities laws, compliance with which involves significant time, expense and expertise.
We
are a public reporting company and are subject to the information and reporting requirements of the Exchange Act and other federal securities
laws, including the obligations imposed by the Sarbanes-Oxley Act of 2002. The ongoing costs associated with preparing and filing annual,
quarterly and current reports, proxy statements and other information with the SEC in the ordinary course, as well as preparing and filing
audited financial statements, are significant and may cause unexpected increases in operational expenses. Our present management team
is relatively small and may be unable to manage the ongoing costs and compliance effectively. It may be time consuming, difficult and
costly for us to hire additional financial reporting, accounting and other finance staff in order to build and retain a management team
with adequate expertise and experience in operating a public company.
We
have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
The
continued operation and expansion of our business will require substantial funding. We have paid no cash dividends on any of our capital
stock to date and we currently intend to retain our available cash to fund the development and growth of our business. Any determination
to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, financial
condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any return to stockholders will therefore
be limited to the appreciation of their stock, which may never occur.