ITEM 1. BUSINESS
Corporate History
Zenosense, Inc. was incorporated on August 11, 2008 in the State of Nevada. Our authorized common stock currently consists of 500,000,000 authorized shares of common stock, with par value of $0.001.
The original purpose of the company was to acquire and to develop mineral properties and to engage in the exploration for gold and other mineral properties. On May 15, 2013, our mining lease expired and we lost our right to explore the mining property. We then became a shell company, as defined under the Securities and Exchange Act of 1934, as amended, until December 4, 2013, when we entered into the transaction with Sgenia described below.
In the summer of 2013, we started to look for a new business opportunity. We became interested in sensory technology devices for use in hospitals and health care environments. During the latter part of that year, we began to negotiate a license agreement with the developers of such technology (the “Sgenia Technology”), and in December 2013, we entered into a Development and Exclusive License Agreement (the “License Agreement”) with Sgenia Industrial, S.L. (“Sgenia”) and its subsidiaries Sgenia Soluciones, S.L. (“Sgenia Subsidiary”) and ZENON Biosystem, S.L. (“Zenon”), all of which are formed under the laws of Spain. Under the License Agreement product development to date include one to be used in the detection of methicillin resistant Staphylococcus aureus/Staphylococcus aureus (“MRSA/SA”) in the healthcare environment and another for use to detect lung cancer in patients. Under the terms of the License Agreement, we have provided Zenon with capital for the development of the devices that utilizes the Sgenia Technology (the “Sgenia Products”), in exchange for a worldwide, exclusive license to manufacture, market and sell the resulting products, subject to certain limitations and a royalty arrangement on a revenue sharing basis. The License Agreement gives us additional rights to improvements and developments to the Sgenia Products and future products using the Sgenia Technology. The Company is not currently funding any further development of the Sgenia Technology as certain milestones set forth in the License Agreement have not yet been achieved. Currently, we cannot estimate if and when those milestones will be met, and we have not sought financing for our funding obligations under the License Agreement at this time.
In May 2016, we were presented with the opportunity to participate with a third party in the development of a novel Point of Care medical diagnostic device targeting cardiac markers with the aim of developing a device for the rapid diagnosis of heart attack and cardiac related illnesses. On June 20, 2016, the Company entered into a joint venture arrangement by way of a Subscription and Shareholders’ Agreement (“MML SSA”) with a third party medical detection device developer (“Partner”) utilizing a joint venture vehicle, MIDS Medical Ltd (“MML”), a UK Limited company of which the Company owns a 40% interest awarded on July 1, 2016, in exchange for our participation in management and funding obligation to support MML during a Phase 1 and prospectively during a Phase 2 development of the Partner’s MIDS universal immunoassay detection technology platform (“MIDS”) and the development of a cardiac device (“MIDS Cardiac”) for use at the Point of Care (“POC”).
To date, our principal operations have been the management of our obligations under the MML SSA and the License Agreement, including the product review, budget determination and capital funding of the development of the MML and Sgenia Products.
In December 2013, we filed an amendment to our charter to change our name from “Braeden Valley Mines, Inc.” to “Zenosense, Inc.” and to increase the number of our authorized shares of Common Stock
from 50,000,000 shares to 500,000,000 shares. The amendments were approved by our stockholders in November 23, 2013 at the annual meeting of the stockholders. We also entered into capital contribution agreements to reduce the number of outstanding shares held by our prior management, converted some outstanding debt and raised initial working capital, in part to be able to finalize the License Agreement and make the initial development payment.
As a result of the change of our corporate name to Zenosense, Inc., the trading symbol of the company changed to “ZENO.”
Business
During the fiscal year ended December 31, 2016, we actively were engaged in the development of our Point of Care medical diagnostic business. Our core focus, through our joint venture entity, MML, is the development of a novel Point of Care medical diagnostic device targeting cardiac markers which can deliver a high sensitivity assay for the rapid diagnosis of heart attack and cardiac related illnesses. The trend toward greater POC testing is driven by the faster diagnostic benefits it provides. Other reasons have also emerged for the high demand of POC testing, including clinical staff shortages, an ageing population, long-term healthcare cost savings and a decrease in reliance on conventional laboratory services.
MML SSA
We entered into the MML SSA with the Partner, effective June 20, 2016, as subsequently amended on September 28, 2016 and January 31, 2017. These amendments primarily reflected changes in the timings of funds required under the development budget which included a change to the original plan to allow MML to explore a potential enhancement to the MIDS nanoparticle detection method and the exploration of the potential development of a “Magnetic Bridge” detection technique based on the MIDS technology. On January 19, 2017 MML submitted a patent application for this new detection method: "
Device and method for accurate measurement of magnetic particles in assay apparatus
". Under the terms of the SSA, we were was awarded a 40% equity interest in MML in exchange for management participation and providing funding to support MML during a Phase 1 and prospectively during a Phase 2 development of the Partner’s MIDS universal immunoassay detection technology. MML will have the right, under license, to use the MIDS Intellectual Property (“MIDS IP”) during the development and the MIDS IP will be transferred to MML in the event MML concludes a commercial deal for MIDS with a third party. At no time prior to a sale will the Company’s ownership interest in MML be an equity interest of less than 30%, unless the Company is in default. As a condition of the SSA, MML has entered into a Supply of Services Agreements under which it receives the services of key personnel related to the MIDS development.
Provided that each Phase 1 Payment is made within 14 days of falling due, the Company also has additional control rights over MML including representation on the board of directors, rights over the appointment and employment of senior management persons, indebtedness, major transactions, budget approval rights, accounting practices and general operational management supervisory rights. The SSA also provides for a Phase 1 contingency funding (the “Contingency”) to be available after March 31, 2017 in an aggregate amount of up to £45,000 (approximately $64,000) to be paid by the Company within 20 days of receiving a written notice from MML.
The SSA contains various provisions to govern the funding obligations of the Company: if any Phase 1 Payment is not made within 14 days of it falling due (“Default”), the Company’s shareholding in MML may be reduced to zero; if no Contingency is drawn during Phase 1 the Partner will be awarded an enduring 2.5% profit after tax right in MML (“Override”) which will increase to a 15% Override if the Company declines to fund Stage 2; if the Company declines to fund Phase 2 and any Contingency has been drawn, the Partner will be awarded a 15% Override decreased by 0.5% for each £7,500 tranche of Contingency drawn down during Phase 1. Any Override will convert on a ratio of 1% Override to 1% of ordinary shares in the event of a sale of MML.
The Company’s funding obligation for product development under Phase 1 is subject to an approved budget under the SSA, as amended. Through December 31, 2016, the Company has provided funding for the MML development of $292,500, and as of that date it has a potential future current obligation to fund approximately $357,500 through the remainder of 2017 for Phase 1 development. The budget may be modified, but only after agreement between us and our Partner. A Phase 2 development is envisaged and subject to the successful conclusion of Phase 1, the Company and the Partner will formulate a new budget at which point MML may independently elect to obtain funding for Phase 2 at MML’s option.
The License Agreement is governed by English law, and the venue for actions based on the SSA will be subject to the exclusive jurisdiction of the English courts.
Background of MML
MML has licensed in (from the Partner) a Point of Care (POC), universal immunoassay reader platform (“MIDS”) that intends to deliver gold standard laboratory analyzer levels of precision and sensitivity in a hand held device. The MIDS platform will initially be developed to read high sensitivity assays for the main cardiac biomarker troponin I (cTnI, and Troponin T, cTnT), a critical marker for myocardial infarction (“MI”, “Heart Attack”). A further aim is to create a system capable of testing a panel of up to three cardiac biomarkers from the same sample.
MML comprises of a small technical team with deep expertise and knowledge in the application of magnetism and electronics into immunoassay POC testing.
·
|
|
Dr. Nasser Djennati is a UMIST graduate with extensive experience in instrumentation design, analogue and digital electronics, IT, sensor design and specifically in magnetic nanoparticle applications within the medical POC device area. He has 20 years expertise in Hall Effect technology and magnetic field measurement and experience in the regulatory approvals process for Class II- a medical device products.
|
·
|
|
Dr. Andrew Mitchell is a UMIST graduate with a background in the Aerospace and Energy Generation Sectors. Andrew has a proven track record in design and implementation of a range of high specification, complex electronics and data communication systems operating to a strict safety and type approval standards.
|
MML’s team is supported by subcontracting companies expert in the fields of nano-magnetic sensor design and production, microfluidics and assay development.
MML’s board of directors includes Dr. Nasser Djennati, Dr. Andrew Mitchell and the Company’s Chief Executive Officer, Carlos Gil.
MML’s offices and laboratory are located at the UK Government supported Sci-Tech Daresbury campus in the UK. Sci-Tech Daresbury is internationally recognized for leading-edge scientific research and commercial development
.
Myocardial Infarction and Cardiac Markers
There are over 175,000 heart attacks in the UK each year,
equating to one every three minutes
1
. This means that each day, approximately 480 people will go to hospital after suffering a heart attack - equivalent to one person every three minutes
2
.
·
|
The number of heart attack survivors has doubled in the last 40 years as research and healthcare continues to improve.
|
·
|
A 2012 NHS report showed the mortality rate in England during 2002-10 fell by 50% in men and 53% in women
3
.
|
Time is of the essence when someone has had or is having a heart attack. Immediate action is critical to limit damage and optimize a better recovery for the patient
4.
Health care professionals refer to this time frame as the “Golden Hour,“
5
which described the critical one hour from the onset of a heart attack. Most deaths occur during this period if not treated properly
6
.
Clinical guidelines on chest pain of recent onset recommend taking a blood sample for troponin I or T measurement on initial assessment in hospital as the preferred biochemical markers to diagnose acute MI
7
. The guideline further recommends a second troponin measurement to be taken 10 to 12 hours after the onset of symptoms
8
.
This guidance offers the following guidelines for assessment in hospital for people with suspected ACS;
·
|
Take a resting 12-lead ECG and a blood sample for troponin I or T measurement on arrival in hospital
|
·
|
Carry out a physical examination
|
·
|
Take a detailed clinical history unless ST-Elevation Myocardial Infarction is confirmed from the resting 12-lead ECG
|
However, the diagnostic sensitivity of an ECG has been reported as only 55 – 75% for acute myocardial infarction
9
.
Cardiovascular diseases represent more than 30% of all deaths globally, which is larger than the combined deaths of other diseases such as cancer, diabetes, respiratory diseases and digestive diseases
10
.
Cardiac markers are biomarkers measured to evaluate heart function. They are used in the diagnosis and risk stratification of patients with chest pain and suspected acute coronary syndrome
11
.
·
|
A troponin test measures the levels troponin T or troponin I proteins in the blood
12
. These proteins are released when the heart muscle has been damaged, such as occurs with a heart attack
13
.
|
·
|
The more damage there is to the heart, the greater the amount of troponin there will be in the blood.
|
·
|
Troponins are preferred over traditional markers, such as CK-MB or myoglobin, due to their greater specificity and sensitivity
14
.
|
Death from cardiovascular diseases can be preventable with accurate early-stage diagnosis and subsequent proper treatment
15
.
1
https://www.bhf.org.uk/news-from-the-bhf/news-archive/2014/august/35-per-cent-more-heart-attacks
2
https://www.bhf.org.uk/news-from-the-bhf/news-archive/2014/august/35-per-cent-more-heart-attacks
3
http://www.nhs.uk/news/2012/01January/Pages/heart-attack-death-rate-reduction.aspx
4
http://www.justforhearts.org/2013/07/hour-after-heart-attack-golden-hour-after-heart-attack/
5
http://www.justforhearts.org/2013/07/hour-after-heart-attack-golden-hour-after-heart-attack/
6
http://www.justforhearts.org/2013/07/hour-after-heart-attack-golden-hour-after-heart-attack/
7
http://madox.org/horizon-scanning-reports/20110013/point-of-care-test-for-cardiac-troponin
8
http://madox.org/horizon-scanning-reports/20110013/point-of-care-test-for-cardiac-troponin
9
http://www.bivda.co.uk/GeneralInformation/Laboratory/tabid/66/articleType/ArticleView/articleId/127/Default.aspx
10
BCC Research (2013). HLC007H - Global Markets for Rapid Medical Diagnostic Kits
11
http://emedicine.medscape.com/article/811905-overview
12
http://www.nlm.nih.gov/medlineplus/ency/article/007452.htm
13
http://www.nlm.nih.gov/medlineplus/ency/article/007452.htm
14
Cardiac Biomarkers Technologies and Global Markets, 2014. BCC Research, BIO128A.
15
BCC Research (2013). HLC007H - Global Markets for Rapid Medical Diagnostic Kits
Troponin tests
Due to their increased sensitivity and specificity compared with CK-MB and other conventional biomarkers, troponins have been the preferred choice for the diagnosis of heart attacks
16
. The financial pressure on the NHS of patients occupying beds and requiring monitoring during a traditional 12–24 hour troponin test window is clear
17
.
Large cost savings can be made by reducing amount of time a patient would normally spend in A&E waiting for the results of a laboratory troponin test.
If MIDS Medical’s rapid POCT was introduced many patients could avoid undergoing further tests, and beds could be cleared faster. It is estimated it could save the NHS around £200 million a year
18
, notwithstanding that a MIDS POC troponin test would command a substantial premium in price over a standard laboratory troponin test.
Proposed MML Product Development
MML’s immunoassay diagnostic platform is being developed into a novel POC cardiac device, MIDS Cardiac, which aims to detect extremely low levels (nano-Tesla) of magnetic field disturbance caused by assay test particles. This is expected to enable high sensitivity assays, previously only available on central laboratory analyzers, in a POC setting, on a small, hand-held device. The system is fully automated from the point of application of a small finger-stick blood sample to a test strip - encompassing sample collection, pre-treatment, analyte specific reaction, signal production, signal reaction and final result.
The technology will incorporate microfluidic strip design, displacement flow immunoassay, magnetic nanoparticle manipulation and a double detection technique comprised of bespoke ‘Hall Effect’ sensors and an optical sensor, which, when combined, will increase the sensitivity and accuracy of the result. The platform’s microfluidic strip will include a sample deposition area, where antibody coated magnetic nanoparticles will be bonded onto the surface. These nanoparticles will only be dislodged if a biomarker is present within the patient’s sample. Upon displacement, the fluid containing the nanoparticles and biomarker will move downstream along the strip’s adapted channels towards collection/sensing areas. These areas will be placed into an external bias magnetic field, which will enable the Hall Effect sensors to detect any magnetic field disturbances caused by the nanoparticles. The level of displacement, and hence the biomarker’s presence, will also be quantified using an optical sensor at the sample deposition surface by taking a reading before and after the progression of the assay.
MIDS Cardiac will initially be developed using the main cardiac biomarker troponin I (cTnI), a critical marker for myocardial infarction. The aim is to create a system capable of testing a range of cardiac biomarkers from the same sample.
The MIDS technology’s aims to deliver certain key USPs as follows:
·
|
Improve the accuracy of immunoassay biomarker detection to provide quantitative measurements of samples, effectively combining the accuracy of high sensitivity cardiac biomarker assays performed on central laboratory analyzers (“CL”) with the speed and convenience of a POC, hand held device;
|
·
|
Rapid analytical time; 3 minutes for a single assay test, much faster than existing, less sensitive POC tests
19
and very much faster than CL analyzer tests;
|
·
|
Accuracy and sensitivity will permit the use, for the first time, of rapid HS cTnI tests able to rule / in rule out MI, at the POC;
|
·
|
Ability to use just a 5 ul (a small drop) of finger-stick blood for a single assay test on an easy to use microfluidic test strip, no other POC cTnI device can do this as they require venous draw
20
;
|
·
|
Ability to multiplex up to three assays on a single test strip using a <15ul finger stick blood sample in under 8 minutes; and
|
·
|
Very simple operation by relatively untrained operative - can be used very easily at first contact with patient delivering fully automated results with no requirement for expert interpretation by a highly skilled operative.
|
16
Cardiac Biomarkers Technologies and Global Markets, 2014. BCC Research, BIO128A.
17
Getting to the heart of point-of-care testing in A&E (2009). The Biomedical Scientist.
18
http://www.britishcardiacresearch.org/Treadmill%20-%20MailOnline.pdf
19
Amundson and Apple 2014
20
Amundson and Apple 2014
Market need
Emergency department
Patients presenting symptoms of acute coronary syndrome (ACS) represent a sizable proportion of total attendees in the emergency department
21
.
·
|
In the UK, around 700,000 patients attend hospital emergency departments each year with chest pains
22
.
|
The current standard policy for dealing with patients admitted in these circumstances is to take a troponin measurement on admission and then again 12 hours afterwards to rule out acute myocardial infarction
23
.
·
|
A typical district general hospital will see around 6,500 patients present with chest pain of suspected cardiac origin each year
24
.
|
·
|
NHS Glasgow had reported a lower number of 3,000 patients every year who come to the hospital as an emergency with chest pain
25
.
|
Approximately 70% of patients who are admitted to A&E with suspicion of ACS are later ruled out after further investigation
26
. Conversely, a significant number of patients with ACS are mistakenly discharged home from the emergency department, resulting in avoidable patient mortality
27
.
·
|
Approximately 2 to 4% of patients with an ACS are mistakenly discharged
28
.
|
·
|
Around 14,000 and 50,000 patients a year are wrongly sent home by doctors having suffered a mild heart attack that has been missed by current testing methods
29
.
|
·
|
Subsequently, medical litigation arising from missed diagnosis is increasing at the rate of 20%
30
.
|
A way of rapidly and accurately assessing risk status in suspected patients with ACS would benefit efficiency of the emergency department, patient care, and outcomes
31
.
Many of the existing practices, including current POC technologies available, lack the required sensitivity and accuracy to provide fully quantitative measurements; a pre requisite now demanded by healthcare professionals of future POC devices. Many use lateral flow systems that limit the ability of the technology to quantify and detect biomarkers requiring multiple reagents.
Cardiac Biomarker Market
The global market for in vitro diagnostic tests (both lab based and POC) for cardiac biomarkers was estimated at $3.1 billion in 2012 and nearly $4 billion in 2013. This market is predicted to reach $7.2 billion by 2018, at a compound annual growth rate (CAGR) of 12.8% over the five-year period from 2013 to 2018
32
. The main growth drivers will be new congestive heart failure (CHF) biomarkers, approvals of stroke biomarkers, the growing market in point-of-care testing and the rising awareness of medical care in China and other developing countries
33
.
The cardiac marker market is expected to be the fastest growing point of care market segment through to 2018
34
.
The U.S. has the largest share of the cardiac biomarker market, estimated at roughly $2.0 billion in 2013 with a CAGR of 9.6% forecast from 2013–2018, which will help the U.S. maintain its leading position in the market
35
.
In 2013, the European market was valued at about $800 million barely beating out China as the second-largest market behind the U.S.
21
http://ccforum.com/content/18/6/692
22
https://www.plymouth.ac.uk/news/2-million-study-to-check-if-chest-scans-can-cut-heart-attack-risk
23
Getting to the heart of point-of-care testing in A&E (2009). The Biomedical Scientist.
24
Getting to the heart of point-of-care testing in A&E (2009). The Biomedical Scientist.
25
NHS Great Glasgow and Clyde. (2014). Health News.
26
http://ccforum.com/content/18/6/692
27
http://ccforum.com/content/18/6/692
28
http://nihlibrary.ors.nih.gov/jw/POC/Uacs.htm
29
http://www.telegraph.co.uk/news/health/news/10842637/Thousands-of-womens-lives-to-be-saved-by-heart-attack-test.html
30
http://www.bivda.co.uk/GeneralInformation/Laboratory/tabid/66/articleType/ArticleView/articleId/127/Default.aspx
31
http://ccforum.com/content/18/6/692
32
Cardiac Biomarkers: Technologies and Global Markets, 2014. BCC Research, BIO128A.
33
Cardiac Biomarkers: Technologies and Global Markets, 2014. BCC Research, BIO128A.
34
BCC Research (2012). HLCO43C - Point of Care Diagnostics.
35
Cardiac Biomarkers: Technologies and Global Markets, 2014. BCC Research, BIO128A.
Development stage
Initial development has commenced on the MIDS project, including the specification of a bench rig designed to support first stage testing of a sample of Hall Effect Sensors already supplied to MML in order to examine their behavior in the detection of magnetic nanoparticles – the core MIDS technology – and to determine how these Hall Effect Sensors should be optimized prior to integration in a micro fluidic test strip.
Initial testing of 15.2 nm magnetite nanoparticles in 5 mg/ml aqueous solution has shown excellent linearity of average system output signal against sample drop volume and high levels of output signal, even at sample volumes down to 15 nanolitre size.
The next stage of the Phase 1 development program will be to develop a “Hybrid Strip” to be used in conjunction with a newly designed test rig, to simulate a final Lab-on-Chip design which is expected to result in greatly improved detection of low numbers of nano-particles.
Under our arrangement with MML, either MML or our Partner currently is responsible for determining the commercialization strategy. Therefore, they will be the primary party responsible for the regulatory approval process, other aspects of licensing, manufacturing or other production and marketing. The Company will have a secondary management and oversight role in the aspects of commercialization.
Sgenia License Agreement
We entered into the License Agreement, effective December 4, 2013, which was subsequently amended, with Sgenia, Sgenia Subsidiary and Zenon that was initially oriented towards the development of a MRSA/SA detection device. Because the License Agreement covered improvements and variations to the device and other devices based on the Sgenia Technology for use in the hospital and health care environments, the License Agreement was amended and specifically extended to include an additional product to be used for the detection of lung cancer in patients. In exchange for our funding the development of the Sgenia Products, we obtain a worldwide, exclusive license to manufacture, market and sell the resulting products, subject to certain limitations and a royalty arrangement on a revenue sharing basis.
Under the License Agreement, as amended, based on our capital resources and the success of the research activities, we will fund the development of the Sgenia Products pursuant to a research and development plan proposed by Sgenia. Development includes the testing of a potential device. The funding will be provided on an advance basis, per month, based on three development stages during the period to be funded. In return, we will have the exclusive right to manufacture, formulate, package, market and sell the Sgenia Products world-wide, for 40 years, subject to a limitation on the inclusion of Spain. All intellectual property developed by Sgenia and/or Zenon at any time during the term related to the manufacturing, formulating and/or packaging processes shall be shared ownership and licensed to us on a royalty-free basis. Sgenia will also supply to us, at a negotiated price based on quantity, all of the requirements for the integrated circuits on microchips that are necessary for the operation of the Sgenia Products. Sgenia, Zenon and the Company will also work together to research and develop the Sgenia Products and establish written plans and reviewing committees for the management of the overall development project and commercialization of the Sgenia Products.
The Company’s funding obligation for product development is subject to an approved budget and achieving each stage of development. Through December 31, 2016, the Company provided funding for the Sgenia Products of approximately $769,787, and as of that date it has a potential future current obligation to fund approximately €656,000 euros through the remainder of 2016 and early part of 2017. The budget may be modified, but only after collaboration and approval by us in our sole discretion. As future products are determined, the Company will formulate new budget obligations and funding requirements.
In light of our current inability to fund our operations and fund the Sgenia license and the fact that the Sgenia research is delayed, we reviewed with Sgenia the development schedule and funding requirements for the initial products and requirements to develop the cancer sensory devices, and have agreed in principle to an alternative development schedule which would result in the lengthening of the developmental schedule for these products and an increase of the budget requirements. The schedule and funding will be finalized once we have obtained sufficient funding, for which we cannot give any assurance that we will be able to obtain.
Sgenia and Zenon are responsible for regulatory filings in jurisdictions selected by the Company, subject to the collaborative process and any regulatory approvals are jointly owned by the parties to the License Agreement.
The expenses of meeting the regulatory requirements will be borne by the Company, subject to its right to approve the regulatory budget, which is separate from the development funding budget.
In addition to providing the development and regulatory funding, the Company will also pay Zenon royalties for completed sales of the Sgenia Products, payable 60 days after each fiscal quarter of the Company (the “Royalties”). The Royalties will be 20% of net sales, which is calculated based on gross sales of the device and the installation and training for the Sgenia Products, less various expenses, including manufacturing, components acquired from Sgenia, commissions, refunds and discounts and sales taxes. If the Sgenia Products are sold by Sgenia or Zenon in Spain for original use in Spain, then the Royalties will be reduced. The Company also has the right to sublicense to other parties throughout the world, except in Spain if and when, if at all, Sgenia or Zenon seek to act as the distributor in that territory.
Sgenia and Zenon have granted the Company the first right to negotiate for a license to any improvements and variations of the Sgenia Products that are not currently included in the license or other commercial uses of the sensory technology that is based on the Sgenia patents for use in relation to hospital acquired infections, which currently are not licensed under the License Agreement, and for products developed for any other commercial uses for the sensory technology based on the patents held by Sgenia Soluciones and its affiliates.
The License Agreement may be terminated by either party if a party commits a material breach that is not cured in 90 days after the non-breaching party provides a notice of the breach. Upon the termination of the License Agreement for any reason other than the Company’s failure to cure a material breach, the Company has the right to dispose of any of the Sgenia Products then on hand, and to complete orders for Sgenia Products then on order.
All the parties have agreed to various collaboration obligations to assure and maintain the quality of the Sgenia Products, to oversee manufacturing, marketing and pricing and achieving marketing objectives. The obligations extend to the budgeting and expense of development of the Sgenia Products.
Sgenia will be the exclusive supplier of the integrated circuits for the Sgenia Products, which it will be responsible for manufacturing and imprinting with the necessary circuitry.
The Sgenia Products, once manufactured and distributed, may only be sold under the limited warranties of having been manufactured in accordance with specifications, practices and procedures established by the parties, to be free of material defects and free from contamination and to be manufactured and labeled in accordance with applicable health laws and regulations.
Sgenia is responsible for prosecuting, maintaining and protecting its patents and patent applications on which the Sgenia Products are based. The Company may request Sgenia to take action to stop competitive infringement of the Sgenia Products, and take over the responsibility for such action if Sgenia does not act, and retain any award achieved by Company action.
The License Agreement is governed by New York law, and the venue for actions based on the License Agreement is to be in New York.
Background of Sgenia
Sgenia and its subsidiaries are known for its sensor development and is a supplier of sensors related to the control of the Tokamak device used in a nuclear fusion research project. The Tokamak is one of several types of magnetic confinement devices, and is one of the most-researched candidates for producing controlled thermonuclear fusion power. Sgenia is a developer and supplier of the sensors, as well as the sensor technology, applied to the control system. Sgenia has also produced an algal contamination detector for use in water supply applications. The algal sensor scans for the volatile organic compounds (“VOCs”) emitted by the target algae. The VOCs form a unique “chemical signature” which may be detected to rapidly and effectively determine the presence or absence of the algae. The Sgenia detector is effectively an electronic “nose” that can “smell” this signature. This algae sensor system underwent a successful eighteen month trial and is under contract with a Madrid area water supplier in Spain. It is likely to be rolled out as a networked solution across the water company’s operations.
The Sgenia team of engineers and scientists are considered very skilled and have years of experience. The team that will be employed in the development of our product will include Mr. J. Lama, MBA, BSc, a materials engineer, Ms. M. I. Gil, a specialist in sensor technologies and advanced technical and software development and Mr. G. Roman Perez, a physicist. In addition, the team requires several biologists contracted to Zenon, including molecular biologists and biochemists specializing in bacterial physiology and genetics, clinical microbiology and molecular biology. The team’s combined skillset includes deep knowledge of the clinical genetics to be addressed in order to program and refine the sensory technology so that it can detect SA and ideally discriminate between MRSA and SA in the health care delivery environment and so that it can be used to detect lung cancer in patients. Variously, members of the team are business (biotechnology) management qualified, have co-authored numerous scientific publications, taught as professor, have experience of the practical clinical setting in hospital and have co-invented patents for others.
Lung Cancer
Lung cancer is a leading cause of cancer in both men and women in the United States, with an estimated 226,160 new cases and 164,770 deaths in 2012. The five year survival rate for lung cancer is 16%
36
, killing more people than breast, prostate and colon cancer combined
37
. The primary reason lung cancer is so deadly is that only 30% of diagnoses are made in the early stages (Stages I and II). Stage I lung cancer has a 70% cure rate, but by Stage III or later fewer than 25% of cases can be cured.
Consequently there is a huge need to find a solution to detect lung cancer at an early stage. In 2002 the National Lung Screening Trial (NLST) was launched, using Computed Tomography (CT) for rapid screening at low dose
38
. The study looked at 53,454 current or former heavy smokers from 33 medical centers in the US. Results were published in the New England Journal of Medicine on August 4, 2011 which reported that low-dose CT scanning was associated with a 20% decrease in deaths from lung cancer. However, there are a number of uncertainties and apparent limits of lung CT screening. These include
39
:
·
|
High rates of false positives – a non-calcified nodule of any size will be found in 50% of those screened and 98% of those will be false positives
|
·
|
Over diagnosis – cancers identified and treated which, if left alone, would not have impacted long-term morbidity or mortality
|
·
|
Radiation Risks – concern over the risks of radiation exposure associated with serial CT imaging and its role in the development of future lung or other cancer
|
·
|
Cost-effectiveness – the NLST found that the number of high-risk patients needed to be screened with CT to save one life from lung cancer was 320. Consequently, estimates of the cost of CT screening vary from as low as $19,000 up to about $169,000 per life-year saved
|
36
http://www.mayoclinic.org/documents/mc2985-1012-pdf/doc-20079003),
http://www.forbes.com/sites/matthewherper/2016/02/27/want-to-live-long-and-prosper-dont-smoke/).
38
http://en.wikipedia.org/wiki/National_Lung_Screening_Trial
39
http://www.mayoclinic.org/documents/mc2985-1012-pdf/doc-20079003
Healthcare –Associated Infections (HAI’s) and MRSA
HAI’s or infections acquired in healthcare settings are the most frequent adverse event in healthcare delivery worldwide, with hundreds of millions of patients affected by healthcare-associated infections, leading to significant mortality and financial losses for health systems. Of every 100 hospitalized patients at any given time, 7 in developed and 10 in developing countries will acquire at least one HAI
40
.
The Centers for Disease Control and Prevention (CDC), part of the US Department of Health and Human Sciences, estimate that one in every 20 patients treated in U.S. hospitals develop an HAI. Approximately 2 million HAIs are associated with nearly 100,000 deaths each year and directly responsible for at least 23,000 deaths per year in the United States alone (http://www.cdc.gov/drugresistance/threat-report-2013/pdf/ar-threats-2013-508.pdf#page=11).
The CDC takes the view that advanced molecular detection technologies, which can identify threats much faster than current practice, are not being used as widely as necessary in the United States, and that developing better diagnostic tools to rapidly and accurately find sources of contamination will improve antibiotic use
41
.
Recent studies suggest that implementing prevention practices can lead to up to a 70 per cent reduction in certain HAIs
42
43
. The financial benefit of using these prevention practices is estimated in a report released by CDC to be as high as $25.0 billion to $31.5 billion in medical cost savings in the United States
44
.
MRSA continues to account for a significant proportion of HAIs and is regarded as one of the most important causes of antimicrobial-resistant HAIs worldwide
45
.Furthermore, MRSA is becoming resistant to a growing number of antibiotics
46
.
Proposed Zenosense MRSA/SA Product
Under our license agreement, Sgenia will develop a MRSA/SA device for Zenosense based on the sensor platform already developed by Sgenia, but with modifications so that it can use a single low cost sensor to sample the air and continuously monitor for the airborne the VOC signatures emitted by MRSA/SA. The MRSA/SA VOC signatures are emitted when the bacteria has infected and expressed itself as a disease in the patient. We believe that MRSA/SA can be detected prior to the patient being obviously symptomatic, enabling an earlier intervention to contain and control its effect and spread.
Our MRSA/SA detection device is intended to be low cost because it will employ standard components, with the only proprietary elements being the Sgenia chip with its pre-loaded processing software. Essentially, the device is intended to work by utilizing a single standard sensor to continuously scan for the MRSA/SA signature spectrum of the VOC. In the proposed Sgenia developed MRSA/SA device a single sensor will perform the entire VOC spectrum scan, as Sgenia’s adaptive processing software enables it to perform an effectively infinite number of scans, creating tens of thousands of “virtual sensors” from a single sensor. The proposed product is being designed to eliminate the need for 8 to 32 sensors (as in competitor devices) with all the supporting processors, circuit boards and power supply, where each sensor is pre-set to detect a certain part of the MRSA/SA spectrum of VOCs. It is expected that our product will result in a huge cost saving compared to a product requiring an array of individual sensors.
At the detection stage the VOC detection will be electronically processed and will be pattern processed in a neural network on the patented applied for Sgenia hardware. The patent application was made on the January 17, 2013, under the reference P201330048with the title (translated from Spanish) “Method of Analysis of a gas and artificial nose”.
The patent application description refers to: a method that allows the use of a single sensor to act as an unlimited number of sensors: a method of analysis of a gas through an artificial bio-inspired “nose” of general application that uses strategies for adaptive modulation of the sensor's parameters to fit the detection purpose of the nose. This enables an artificial nose of smaller dimensions than one with multiple sensors resulting in good portability, a wide range of applicability and reduced production costs.
The proposed device will also be designed to effectively “learn” to identify the MRSA/SA VOC signature. The VOC signature is referenced to parameters in Sgenia’s software so as to enable continual scanning across the MRSA/SA VOC spectrum to recognize the VOC patterns and contamination positioning - the system will be designed to be able to discriminate between bacterial VOCs and contamination. The algorithmic software will be protected as an Industrial Secret by FPGA (Field Programmable Gate Array) “lock and key” encryption on Sgenia’s chip.
The device is intended to be produced in two forms: 1) a low cost wearable / bed positioned device, powered by a rechargeable battery to be positioned on the person; patients and medical staff, and in the event of any infection, the MRSA device will detect the VOCs produced by the infected person and express an audio/visual alarm; and 2) an adapted, fixed device positioned in the room, mains powered, with culture-amplification of any MRSA/SA presence, to monitor the room volume, which would be network monitored.
The device is intended to detect MRSA or SA. In the event of a positive detection further personal, conventional tests would be used to discriminate between MRSA and SA, as both infections require specific treatment. The MRSA/SA VOC detection range is estimated to correlate to an approximate 3 meter “bubble” around an infected patient, ideal for a wearable device. However, it is our intention to explore during the development program whether MRSA versus SA VOC signatures can be discriminated by the device. The Sgenia detection technology is very sensitive. If the VOC signature of the genetically different MRSA can be separated from the signature of SA, there is a prospect that such a discriminatory device can be developed.
A prototype device was created, which in the laboratory setting successfully achieved a sensibility detection rate greater than 95% on cultured headspace in a series of tests over a two week period in a clinical setting. The next major developmental step is to progress to Quartz Crystal Microbalance sensor testing, sensitivity testing against VOC biomarkers, assessment of accuracy and repeatability, and review the sensitivity to temperature, humidity and gas interference factors. This developmental step will be difficult to achieve in a technical sense, and if this is not successful, the design of the device may have to be altered or it may be determined that the device cannot be manufactured and used on a commercial scale. At this time it is early to formulate a conclusion about the device.
40
http://www.who.int/gpsc/country_work/gpsc_ccisc_fact_sheet_en.pdf?ua=1
41
http://www.cdc.gov/drugresistance/threat-report-2013/pdf/ar-threats-2013-508.pdf#page=27
42
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=17
43
http://medicalworldamericas.com/hospital-acquired-infections/
44
http://www.cdc.gov/hai/pdfs/hai/scott_costpaper.pdf
45
http://www.ecdc.europa.eu/en/publications/Publications/annual-epidemiological-report-2013.pdf
46
http://www.pewhealth.org/reports-analysis/issue-briefs/mrsa-a-deadly-pathogen-with-fewer-and-fewer-treatment-options-85899380134
Proposed Zenosense Cancer Detection Product
As a result of the work performed by Zenon for the MRSA/SA product and based on the Sgenia Technology, an additional product has been developed intended for use in detecting lung cancer in patients. The Company believes that a cost-effective lung cancer detector that analyzes exhaled breath could meet or exceed the accuracy of low dose Computed Tomography (CT) scanning. The Company further believes that such a device will have wide appeal and be in significant demand for the early detection of lung cancer.
The lung cancer detection device incorporates components designed to filter out the VOCs that must be excluded for optimized detection of target VOC biomarkers found in exhaled breath and associated with the incidence of lung cancer. These components and their elements include molecular sieves incorporated in complementary layered and mixed sensor structures to screen incoming VOCs, and a nanometric sensing mesh to maximize the detective area. Zenon has developed new metal oxide materials and combinations of metal oxides, a complementary quartz crystal sensor employing a gas sorbent substrate and a micro gas chromatography chip for pre-detection screening. All components are of a relatively low cost consistent with the Company's intent to create cost effective products.
Zenon manufactured prototype devices and, thereafter, entered into a collaboration agreement for a lung cancer detection trial in December 2015. The agreement for the trial is with a large university hospital and several associated hospitals located in the region of Madrid, Spain. The trial aims to identify certain distinctive volatile organic compounds in exhaled breath, using standard laboratory instruments and techniques, alongside the Zenon lung cancer detection devices. Standard techniques will be used to identify lung cancer biomarkers previously determined to be of interest, and the Zenon devices will be tested as to their ability to detect those biomarkers. The results will be analyzed to determine the relative efficacy of the devices to detect lung cancer.
The initial trial is expected to take nine months and was scheduled for 2016. However, the trial commenced only in a limited capacity primarily due to Zenon failing to complete certain milestones in Stage One of the development plan. The Company believes this has impacted its ability to raise further funds to progress the development. We have received confirmation from Zenon that they can still proceed as planned once we secure adequate funding however this will be subject to cooperation and agreement from certain relevant hospitals which at this time cannot be relied upon. The trial is designed to examine samples from a 400 subject population split into four groups to cover apparently healthy smokers, non-smokers, and those with diagnosed lung cancer and Chronic Obstructive Pulmonary Disease. Initially a total of three hospitals will be involved in the trial, the collaborating university hospital and two hospitals associated with it; the trial has been approved by the ethics committee of the university hospital which allows participation by any public hospital in Spain without further approvals. The intention, given this opportunity, is to considerably increase the size of the trial beyond the 400 subject population, subject to positive initial results. The costs to the Company associated with the 400 subject trial are expected to be lower than the amount set out in its development budget previously approved by the Company in July 2015 due to several factors. First, as a result of the hospital collaboration and the use of their equipment, there will no longer be a requirement to purchase SIFT/MA (or PTRMS) equipment resulting in a saving of approximately $269,000 as set out in the July budget. Secondly, there has been a significant strengthening of the United States Dollar which at this point also results in a significant reduction in the budget due to costs being paid in Euros.
During 2016 the Company only provided minimal development funding to Zenon under the Company’s License Agreement with Sgenia because of Zenon’s not completing Stage One of the development plan. The funds provided were to maintain the development project, and to assist Zenon in its efforts to complete Stage One and to begin work on Stage Two, in the expectation that the development project would progress once full funding was available. During 2016, the Company focused much of its efforts on trying to raise those funds.
Highlights of the development work in 2014 and 2015 included:
·
|
A new sensor for MRSA was manufactured and tested (in-vivo) with 20 selected subjects, half of whom were carrying MRSA. There was no improvement of results and the target of 95% sensibility has not been achieved.
|
·
|
A series of ten new nanosensors for the lung cancer device were manufactured and a final prototype of the lung cancer device was finished and two devices were manufactured. These two devices are intended to be used in the testing of patients during the hospital trial.
|
·
|
Development of the algorithms to improve pattern recognition.
|
·
|
Approval of the Ethical Committee to allow testing in three national hospitals in Spain.
|
·
|
Preparation for and assessment of applying for intellectual property protection.
|
Potential Revenue Lines
The Company currently does not generate any revenue. The potential for any revenue is dependent on the development of the MML and Sgenia Products, for which no assurance can be given. If the development of the MML and Sgenia Products is successful, the Company believes that its principal sources of revenues will be from sales of the Sgenia Products and service fees from the training of personnel in the use of the Sgenia Products. There is no assurance that a marketable product will be developed, approved by regulatory authorities, manufactured or successfully distributed and sold. There can be no assurance that the Company will be able to generate any revenues in the future. The Company will need substantial funding for all the phases of its business plan before it is able to generate any revenues. The Company has no identified sources of capital for all aspects of its financial needs under the current business plan.
Sgenia Manufacturing and Supplies
Under the License Agreement, the Company has the right to manufacture the Sgenia Products. The development plan of the Sgenia Products includes the obligation of the developer to create the manufacturing design and provide it to the Company for use by the selected product manufacture. The manufacturing design is to be provided on a royalty free basis. The Company and Sgenia and Zenon will collaborate on the manufacturing design, process and selection of manufacturer. Neither the Company nor Sgenia and Zenon have manufactured devices similar to the proposed Sgenia Products, therefore there can be no assurance that they will be successful in their designing of a product that can be manufactured on a commercial scale.
One of the essential components in the Sgenia Products is a microchip that carries the integrated circuits necessary for their operation. Sgenia and Zenon will provide the necessary microchip integrated circuit with the required microprocessing circuitry, which will be imprinted by Sgenia and Zenon at their facilities with the circuitry based on the intellectual property of Sgenia. Sgenia and Zenon will supply the chip to the Company on an as required basis, from time to time, at fixed, negotiated prices depending on the quantities ordered. Sgenia and Zenon have only obtained microchips on a test basis, to date, and therefore there can be no assurance of their ability to obtain the necessary quantities of the microchips and imprint them at their facilities in commercial quantities at the necessary quality level. While we believe Sgenia and Zenon will be able to adequately supply the Company requirements for this component, if they fail in their obligation, then under the terms of the License Agreement the Company has the right to obtain the microchip component from other suppliers and obtain the design of the circuitry from Sgenia and Zenon for our own manufacture of the microchips. No assurance can be given that in the event of a default by Sgenia and Zenon that the Company will be able to obtain the circuitry and to be able to continue to produce the Sgenia Products.
The Company plans to subcontract commercial manufacturing of the Sgenia Products. It is anticipated that a number of the parts will be standard electronic components that are readily available in the manufacturing market. For those components that are not obtained from open sources and not obtained from Sgenia and Zenon, the Company believes that there are numerous manufacturers throughout the world that are capable of producing the necessary additional parts that will comprise the Sgenia Products and that are capable of assembling the Sgenia Products, at a high quality level and efficient rate of production for prices that will work commercially within the projected pricing of the Sgenia Products. Notwithstanding this belief, there is no assurance that the Company will be able to locate all the necessary parts or be able to locate a competent manufacturer to assemble the devices at prices and quality levels to ensure product acceptance in the market.
MML Manufacturing and Sales
The MML technology is in development, design having taken place in mind for manufacturing, but with no manufacturing planned as yet. With the exception of the Sgenia specific microchip supply, any MML manufactured products will be subject to broadly the same risks as above. In addition, MML will rely on the supply of a bespoke nano-magnetic sensor from a particular chosen manufacturer. If required, there is no assurance a suitable alternative supplier can be found, as there are a limited number of suppliers in this field.
Regulation
The Company expects that both the MML and Sgenia Products (together the “Products”) will be subject to differing levels of regulation in each of their intended markets. Regulation will be oriented towards the efficacy of the Products for their intended purpose, in the healthcare environment and safety. Currently, the first market being contemplated for the MML Products is outside of the United States, followed by the United States and for the Sgenia products the United States. This will require obtaining approvals from the U.S. Federal Food and Drug Administration (the “FDA”) in advance of the manufacture and marketing and sale of the Sgenia Products. The Food, Drug, and Cosmetic Act (“FD&C Act”) and other federal and state statutes and regulations govern the research, design, development, preclinical and clinical testing, manufacturing, safety, approval or clearance, labeling, packaging, storage, record keeping, servicing, promotion, import and export, and distribution of medical devices.
In respect of the MRSA/SA device, because it is not based on in vitro analysis, the Company does not believe it will be subject to the FDA guidance relating to the analytical and clinical performance of nucleic acid-based in vitro diagnostic devices (“IVDs”) intended for the detection and differentiation of MRSA and SA, which was issued in 2011. That regulation is oriented to culture based, blood sample based analytics in laboratory settings. Notwithstanding that, we anticipate that our Sgenia Products will be regulated as a medical device.
Under the License Agreement, Sgenia and Zenon are responsible for obtaining the required regulatory approvals for the Sgenia Products. We have the right of notice and to participate in the regulatory process, and we will be responsible for funding the associated expenses. Sgenia and Zenon, as well as ourselves, have not ever before sought regulatory approval from the FDA or any other agency for any medical devices, including those in Europe. We plan to engage professionals to help or take over the regulatory process, which will add expense to our development costs that we cannot estimate at this time. There is no assurance that we will be able to pursue regulatory approval or obtain the necessary licensing.
Under the SSA, MML will be solely responsible for obtaining the required regulatory approvals for the MML Products.
FDA Regulation
Unless an exemption applies, we believe that each medical device that we plan to commercially distribute in the U.S. will require prior pre-market notification and 510(k) clearance from the FDA. Although we cannot determine with certainty at this time because the Products are still in the development stage, we believe that they will be categorized as either a Class I or Class II device.
The FDA classifies medical devices into one of three classes. Devices being placed in Class I or II require fewer controls because they are deemed to pose lower risk. Class I devices are subject to general controls such as labeling, pre-market notification, and adherence to the FDA’s Quality System Regulation (a set of current good manufacturing practice requirements put forth by the FDA, which governs the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation and servicing of finished devices) (“QSR”). Class II devices are subject to special controls such as performance standards, post-market surveillance, FDA guidelines, as well as general controls. Some Class I and Class II devices are exempted by regulation from the premarket notification, or 510(k), clearance requirement or the requirement of compliance with certain provisions of the QSR. Devices will be placed in Class III and will require approval of a PMA application (i) if insufficient information exists to determine that the application of general controls or special controls of the device are sufficient to provide reasonable assurance of safety and effectiveness, or (ii) if they are life-sustaining, life-supporting or implantable devices, or (iii) if the FDA deems these devices to be “not substantially equivalent” either to a previously 510(k) cleared device or to a “pre-amendment” Class III device in commercial distribution before May 28, 1976, for which PMA applications have not been required.
Clinical trials are sometimes required for a 510(k) clearance. These trials generally require submission of an application for an Investigational Device Exemption (“IDE”) to the FDA. An IDE application must be supported by appropriate data, such as laboratory testing results, and a testing protocol that is scientifically sound. The IDE application must be approved in advance by the FDA, unless the product is deemed a non-significant risk device and eligible for more abbreviated IDE requirements. The FDA’s approval of an IDE allows clinical testing to go forward, but does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and effectiveness, even if the trial meets its intended success criteria.
Any clinical trials must be conducted in accordance with the FDA’s IDE regulations that govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.
The withdrawal of previously received approvals or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and results of operations.
After a device is approved or cleared and placed in commercial distribution, numerous regulatory requirements apply. These include:
·
|
establishment registration and device listing;
|
·
|
QSR, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures;
|
·
|
labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling;
|
·
|
medical device reporting regulations, which require that manufacturers report to the FDA if a device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; and
|
·
|
corrections and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FD&C Act that may present a risk to health.
|
The FDA enforces regulatory requirements by conducting periodic, unannounced inspections and market surveillance. Inspections may include the manufacturing facilities of our subcontractors. Thus, we must continue to spend time, money, and effort to maintain compliance.
Failure to comply with applicable regulatory requirements may result in enforcement action by the FDA, which may lead to any of the following sanctions:
·
|
fines and civil penalties;
|
·
|
unanticipated expenditures;
|
·
|
delays in approving or refusal to approve our applications, including supplements;
|
·
|
withdrawal of FDA approval;
|
·
|
product recall or seizure;
|
·
|
interruption of production;
|
·
|
operating restrictions;
|
Contract manufacturers, specification developers, and some suppliers of components will be required to manufacture the Segnia and MML's Products in compliance with current Good Manufacturing Practices (“cGMP”) requirements set forth in the QSR. The QSR requires a quality system for the design, manufacture, packaging, labeling, storage, installation and servicing of marketed devices, and includes extensive requirements with respect to quality management and organization, device design, equipment, purchase and handling of components, production and process controls, packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and record keeping. The FDA enforces the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors. We expect that subcontractors’ manufacturing facilities will be subject to domestic and international regulatory inspection and review. If the FDA believes contract manufacturers or regulated suppliers are not in compliance with these requirements, it can shut down the manufacturing operations of contract manufacturers, require recall of products, refuse to approve new marketing applications, institute legal proceedings to detain or seize products, enjoin future violations, or assess civil and criminal penalties against us or our officers or other employees. Any such action by the FDA would have a material adverse effect on our business. We cannot assure you that we or MML will be able to comply with all applicable FDA regulations.
Non-FDA United States Government Regulation
The advertising of our products will be subject to both FDA and Federal Trade Commission regulations. In addition, the sale and marketing of medical devices are subject to a complex system of federal and state laws and regulations intended to deter, detect, and respond to fraud and abuse in the healthcare system. These laws and regulations restrict and may prohibit pricing, discounting, commissions and other commercial practices that may be typical outside of the healthcare business. In particular, anti-kickback and self-referral laws and regulations will limit our flexibility in crafting promotional programs and other financial arrangements in connection with the sale of our products and related services, especially with respect to customers seeking reimbursement, if available, through Medicare or Medicaid and other government programs. Sanctions for violating federal laws include criminal and civil penalties that range from punitive sanctions, damage assessments, money penalties, imprisonment, denial of Medicare and Medicaid payments, or exclusion from the Medicare and Medicaid programs, or both. These laws also impose an affirmative duty on those receiving Medicare or Medicaid funding to ensure that they do not employ or contract with persons excluded from the Medicare and other government programs.
Many states have adopted or are considering legislative proposals similar to the federal fraud and abuse laws, some of which extend beyond the Medicare and Medicaid programs. These state laws typically impose criminal and civil penalties similar to the federal laws.
In the ordinary course of their business, medical device manufacturers and suppliers have been and are subject regularly to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. Federal and state legislation has increased funding for investigations and enforcement actions, which have increased dramatically over the past several years. This trend is expected to continue. Private enforcement of healthcare fraud also has increased, due in large part to amendments to the Civil False Claims Act in 1986 that were designed to encourage private persons to sue on behalf of the government. These whistleblower suits by private persons, known as qui tam relaters, may be filed by almost anyone, including physicians and their employees and patients, our employees, and even competitors.
International Device Regulation
The medical device regulatory process for international distribution is subject to government regulations that will vary by country from those having few or no regulations to those having extensive pre-market controls and pre-market acceptance.
In the EU, for example, medical devices require a Conformité Européenne (“CE”) Mark in order to be placed in the market. The CE Mark certifies that a product has met EU consumer safety, health and environmental requirements. CE marking requires meeting the conditions of the European Directive which relates to the medical device to be approved. These directives generally regulate the design, manufacture, clinical trials, labeling, and post-market surveillance reporting activities for medical devices. Once the CE mark has been duly applied to a device, the manufacturer may commercially distribute the product in all countries that are members of the European Union, and in several other countries that recognize the CE Mark, such as Switzerland and Turkey. Similar to the US, once the device has received the CE mark, companies are required to report certain serious adverse events, are required to conduct post-market surveillance, and in some countries are required to register or list the products.
The CE mark allows manufacturers to place products on the market and permits free movement of goods. The manufacturer/product owner and its authorized representative in the EU are responsible for all aspects of the product assessment, testing, documentation, declaration of conformity and CE marking, even where a formal processing agent, the notified body, is required, as in the case of non-European based manufacturers. In all cases the manufacturer and representative assume the full responsibility and liability even when using the services of a consultant or test laboratory. Liability is not transferrable to third parties, including the notified body which is required for processing the certification. Generally, there is strict liability applied to medical devices subject to the CE marking by directive 85/374/EEC, and testing and reporting does not change or reduce this liability.
The European Commission has proposed a new regulatory scheme for medical devices. The proposals, which are currently being discussed by the Council of the European Union, will impose significant additional obligations on medical device companies. The changes being proposed will increase from the current regulation stricter requirements for clinical evidence and pre-market assessment of safety and performance, new classifications to indicate risk levels, requirements for third party testing by government accredited groups for some types of medical devices, and tightened and streamlined quality management system assessment procedures. Additionally, the new regulations will require clinical evidence as well as analytical performance levels, the details of which are yet to be provided. If additional provisions proposed by the European Parliament are included in the new regulatory scheme, then there will be involvement of the European Medicines Agency (EMA) in regulation of some types of medical devices, in the qualification and monitoring of notified bodies (NBs), and enhancing the roles of other bodies, including a new Medical Devices Coordination Group (MDCG). The European Parliament’s proposed revisions would impose enhanced competence requirements for NBs and “special notified bodies” (SNBs) for specific categories of devices. Although the extent of the proposed regulations is currently uncertain the medical device industry anticipates that there will be significant changes under these initiatives to the regulation of medical devices which will increase the time and costs for obtaining CE marking.
To facilitate CE Mark approval, it may be beneficial or necessary to complete the International Organization for Standardization (“ISO”) certification process for the Company’s comprehensive management system for the design and manufacture of medical devices.
Sgenia Marketing and Customers
We intend to seek as our first customers the distributors of medical devices and hospitals. The use of medical device distributors is an efficient way to market and to place our device into the mix of products available to health care providers and to gain immediate exposure to the end users based on a distributor’s network of clients. We also will seek entry directly with hospitals, hospital medical clinical chains and cancer centers, as they are the most likely to be interested in our products. The Company currently does not have any distribution agreements or other arrangements of any kind in place and has not done any marketing to any distributors or specific end users. There can be no assurance given that the Company will be able to establish any distribution agreements or arrangements, or that health care providers will be interested in our products.
As a supplement to the use of distributors, we plan to use other forms of direct sales, presentations and appointments with healthcare associations and distributors in the healthcare industry to generate recognition and acceptance of our products. We also plan to use print media and brochures in conjunction with our distribution and sales efforts.
We plan to use trade shows, demonstration opportunities and similar venues to increase brand awareness and product understanding and recognition. These venues can also foster valuable business partnerships. Generally, these trade shows are held on a regular annual basis and attract the important companies and users within the industry, which will provide a valuable venue for the Company to showcase the company and its products.
We also plan to offer training in the use of the Sgenia Products. We believe that this will be necessary not only at the initial installation of the devices but on an ongoing basis as personnel at the health care facilities in which our products are being used changes over time. We anticipate being able to charge for the initial and on-going training, and anticipate it being an important, supplemental revenue source.
For our MRSA/SA product, we also anticipate having to provide certain consulting services with respect to the environment design and installation of our products. Although installation will be the responsibility of the end user, the placement of a device can be important in its efficiency to detect MRSA/SA. We plan on charging separately for this service.
Being able to offer training on an ongoing basis and installation consulting will be an additional marketing tool because most medical device users do not want to be unable to obtain training for their personnel on a regular basis or mis-install a device so as to get the full benefit of their capital commitment in medical devices. The assurance that we will be able to help them get the full benefits of their devices, in terms of placement and use, will provide the end user comfort in that they will have the necessary support from the device manufacturer and seller.
Competition
The Company is aware of a number of companies attempting to develop lung cancer detection devices and other detection technologies that are based similar “electronic nose” principles
to
the Sgenia Products. At this time there are a number of producers of MRSA/SA detection devices that rely on blood, swab and DNA testing rather than e-nose technologies. Because hospital acquired infections are such a growing problem and deadly in many instances, it is likely that there will be other entrants into the market for developing and selling detection systems, whether based on in vitro or other technologies. We anticipate that many of these companies, including those identified above, will be better capitalized, have established market presence and have internal development teams able to develop new and different products in competition with the product anticipated to be developed under the License Agreement. Moreover, such companies have an established market presence with products that have received FDA approval and are perceived by health care providers to be working to solve the problem. Therefore, the Company, in marketing its product, will have to overcome the established positions of then current products and establish a reputation among its customers that the Sgenia Product is reliable, cost effective and problem solving.
The POC cardiac testing market proposed to be addressed by the MML MIDS technology, particularly POC troponin testing in the first instance, is serviced by a number of international companies which have devices in the market. However, in the Company’s considered view, none of these products achieve the levels of sensitivity and accuracy that are required to conduct true high sensitivity troponin tests at the POC. As far as the Company is aware a nano-magnetic detection technology as embodied in the MIDS system and proposed to achieve the required levels of sensitivity and accuracy to perform high sensitivity troponin tests is not available in the market.
Intellectual Property
MIDS Technology
The MIDS technology platform, which MML has under license, is protected by patent applications that are now in the national phase in key geographic areas and already granted in China.
• PCT application number PCT/GB2011/050749
• EP application number 11724436.8
• USA application number 13809367
• China application number 201180025701.5 (Granted)
• India application number 9624/CHENP/2012
MML will have the right, under license, to use the MIDS Intellectual Property (“MIDS IP”) during the development and the MIDS IP will be transferred to MML in the event MML concludes a commercial deal for MIDS with a third party.
In January, 2017 MML submitted a UK Intellectual Property Office patent application for an additional MIDS detection method: "
Device and method for accurate measurement of magnetic particles in assay apparatus
". The method is a variation of the magnetic detection method whereby the magnetic detection is carried out by a Hall Sensor in a "Magnetic Bridge" structure.
Sgenia License Agreement
The Company will not have any ownership rights in the underlying technology on which the Sgenia Product relies, but will only have a license agreement with respect to the products derived therefrom and within the scope of the license. If Sgenia or Zenon ceases operations, then under the terms of the License Agreement, the Company will have the right to copies of the underlying technology to use for the term of the license arrangement for the manufacture and marketing of the Sgenia Products. The Company will have joint ownership in the manufacturing designs and processes and in the regulatory permits. In the future, the Company may develop trademarks and service marks in connection with its business, which it will own and which it will seek to protect by usage and registration.
Employees
We currently have one employee/officer and one director, Mr. Carlos Jose Gil. We currently have engaged various consultants to help with various accounting, business and public reporting tasks at an at-will basis for the fiscal year of 2016.
We have not generated any revenues and have incurred losses for the period since inception, there is uncertainty about whether we will be able to continue as a going concern and, as a result, a possibility that shareholders may lose some or all of their investment in our Company.
We did not generate any revenues for the year ended December 31, 2016 and had a net loss of $249,362. We have had no revenues and have a total accumulated deficit of $1,560,392, since inception. We anticipate generating losses for at least the next 18 months and thereafter, as our principal activity will be funding the development, regulatory approval and manufacturing of the Sgenia Products without sales or other revenue making operations and funding our interest in MML. Therefore, we may be unable to continue operations in the future as a going concern. We will need a substantial amount of financing, and if financing is available, it may involve issuing securities senior to our common stock. In addition, in the event we do not raise additional capital, there is a likelihood that our growth will be restricted and we may be forced to scale back or curtail implementing our business plan. Without adequate capital, we may be in default under our funding obligations under the License Agreement. If we fail to fully fund the development expenses, the funds previously invested in development will be lost. If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in the Company.
Our auditors have expressed doubt about our ability to continue as a going concern.
The independent registered public accounting firm for the Company issued its report in connection with our audited financial statements for the years ended December 31, 2016 and 2015, subject to the opinion that substantial doubt exists as to whether we can continue as a going concern. Because we have been issued an opinion by our auditors that substantial doubt exists as to whether we can continue as a going concern, it may be more difficult to attract investors. If we are not able to continue our business as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or a part of their investment.
RISKS RELATED TO OUR MANAGEMENT AND CORPORATE GOVERNANCE
We have no independent directors, which poses a significant risk for us from a corporate governance perspective.
Our single executive officer, namely Mr. Carlos Gil, serves as our chief executive officer, president, chief financial officer, treasurer and secretary, and as a dingle director. Our director and executive officer is required to make interested party decisions, such as the approval of related party transactions, their level of compensation, and oversight of our accounting function. Our director and executive officer also exercises control over all matters requiring stockholder approval, including the nomination of directors and the approval of significant corporate transactions. We have chosen not to implement various corporate governance measures, the absence of which may cause stockholders to have more limited protections against transactions implemented by our board of directors, conflicts of interest and similar matters. Stockholders should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
We may find it difficult to attract senior management in the absence of Directors and Officers Insurance
.
We do not presently maintain directors and officers insurance. This may deter or preclude persons from joining our management or cause them to demand additional compensation to join our management.
We will need to increase our size, and may experience difficulties in managing growth.
We are a smaller reporting company with no direct employees as of December 31, 2016. We hope to experience a period of expansion in headcount, facilities, infrastructure and overhead to develop our diagnostic businesses and to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional independent contractors and managers. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively. Inability to manage future growth could have a material adverse effect on our business, financial results or operations.
Our business is headquartered in Spain and our officer and director is not resident in the United States; accordingly it may be difficult to enforce any liabilities against him.
If an event occurs that gives rise to any liability on the part of our officer and director is not resident in the United States, including liabilities arising under the US securities laws, stockholders would likely have difficulty in enforcing such liabilities. Stockholders may not be able to obtain jurisdiction in the United States over such non-resident officers and directors, and any judgment obtained against such persons in the United States may not be recognized or enforceable in the foreign jurisdiction where such person's assets are located.
RISKS RELATED TO OUR POINT MRSA AND LUNG CANCER DETECTION BUSINESS
The Company will need a substantial amount of capital to fulfill its obligation under the License Agreement.
Under the License Agreement and for the implementation of our business plan, the Company's capital requirements will be significant over the longer term. The Company does not have any commercial products at this time, and, therefore, it is not currently generating any revenues or cash flow to fund its operations. There can be no assurance that the Company will be able to generate revenues from operations in the future, which will be sufficient to fund its business activities. In connection with the License Agreement, the Company has determined that currently it is required to raise at least €656,000 to support the development of the Sgenia Products through the current budget period anticipated to end during the first quarter of 2017 (subject to the completion of each phase by Zenon). Thereafter, the Company will need to raise additional funds to continue development, as needed, obtain regulatory approvals, manufacture, market and distribute the Sgenia Products. Therefore, the Company plans from time to time over the next 36 months, if not also thereafter, to seek additional equity capital to fund its business development and operations. There is no assurance that it will be able to obtain financing in the amounts required or on terms acceptable to the Company. If financing is not obtained, then the Company may not be able to fulfill its obligations under the License Agreement and may lose its license arrangement with Sgenia and Zenon. Any funds provided to Sgenia and Zenon or spent on other aspects of product development, regulatory approval, manufacturing design and components, as well as marketing, will be lost in the event that the License Agreement is terminated. The Company has no current arrangements with respect to additional financing. There can be no assurance that any sources of additional financing will be available to the Company on acceptable terms, or at all.
We are dependent on the continuing innovation and input from Sgenia.
The success of our business initially depends on the success of Sgenia and its technologies, and if a development of a licensed and marketable product is achieved, continued innovation and technological maintenance by Sgenia. Although the Company and Sgenia and Zenon will collaborate in the research and development of Sgenia technologies, we do not have any ownership interest or corporate control over Sgenia or Zenon and their respective day-to-day operations. We have certain collaborative rights through various joint committees to influence the process and results of the licensing arrangements, but only for some do we have the final determinative power. If there is a breakdown of cooperation or if Sgenia fails to retain its innovation talents or continue its operation, these will have a material adverse effect on our business, operating results and financial condition and the License Agreement may be terminated, in which case we would lose our rights thereunder.
The Sgenia technologies are not yet verified in practice or on a commercial scale in the medical field.
The success of our Company depends on whether Sgenia and Zenon can successfully apply its technologies to develop MRSA/SA and lung cancer detection devices. Although the Sgenia technologies have been deployed in other arenas, for the type of sensory detection that is contemplated for Sgenia Products, they are in the early stages of development and their application is not certain. The technologies that we hope to rely on have not been tested in a commercial setting or manufactured on a commercial scale for medical uses. There is no assurance that Sgenia will be able to fully develop commercial products that produce the anticipated objective of MRSA/SA and lung cancer detection, on a timely basis or at all. There is no assurance that we will be able to successfully obtain regulatory approval, manufacture, promote and sell the Sgenia Products. You should understand that your investment is in a development-stage technology company, with no assurances of an ability to develop a commercial product or obtain commercial revenues, and such revenues may be insufficient for our operations to continue.
Laboratory conditions differ from commercial manufacturing conditions and field conditions, which could affect the effectiveness of our product. Failures to effectively move from laboratory to the field would harm our business
.
Observations and developments that may be achievable under laboratory circumstances may not be able to be replicated in the testing environment, in commercial manufacturing facilities, or in the use of products in the field. The efficacy of the end products that is likely to be used in commercial settings, such as hospitals and other medical care environments, is not currently verified in a larger testing context. No assurance can be given that the devices will successfully detect the bacteria that causes MRSA/SA or lung cancer. Additionally, no assurance can be given that our devices will be superior to current methods of detecting MRSA/SA or lung cancer. The inability of our development stage products to be manufactured in contract manufacturing facilities or meet the demands of users in the field would harm our business and business prospects.
Test results may not be favorable.
Zenon has commenced only limited hospital testing in 2016 on one of the proposed Sgenia Products, designed for detecting lung cancer. No assurance can be given that adequate future testing will be completed; and no assurance can be given that the device will be able to detect lung cancer at the levels of sensitivity and specificity that we believe will be required in a commercial product, despite encouraging laboratory test results. We cannot predict whether or not our product will equal or be superior in comparison to other devices and methods used to diagnose lung cancer in a patient. Further research and development is required to establish this, which will incur additional and unpredictable costs. If the proposed Lung Cancer Sgenia product is abandoned, we will lose the value of our investment in that proposed Sgenia Product, and this will result in limited prospects for the Company.
The Sgenia Products will be subject to regulatory approval and monitoring as they are marketed, and there is no assurance that Sgenia and Zenon will be able to obtain the necessary licensing and we will be able to maintain that license.
For the Sgenia Products to be sold in the United States, unless they will qualify for an exception, will have to be licensed under of the Food and Drug Act and the regulations of the United States FDA. We believe licensing would be under the 510(k) process, but there is no assurance that the Sgenia Products will be able to qualify for this procedure; consequently they may have to be licensed under a more complicated regulatory regime. The 510(k) process is one by which the efficacy of the product will be reviewed and verified, based on the underlying science and possible clinical testing. There is no assurance that the necessary regulatory approval of the Sgenia Products will be obtained. If obtained, the Company and its manufacturers will have to comply with various good manufacturing requirements, labeling and other regulation, both at the federal and state levels. If not approved, the proposed products may have to be redesigned, if that is determined possible. The Company expects that the regulatory requirements will cause a considerable expense and obstacle to having a marketable product, and may delay the anticipated launch of the product. Such delay may stretch into years. Additionally, if the Company does not adhere to the legal requirements for the manufacture and marketing of the products, the regulatory approval may be terminated, and the Company may be subject to different kinds of penalties and sanctions.
The Company will have to comply with regulatory approval processes in other countries where it might want to sell the Sgenia Products. The European Union has a comprehensive approval process that is similar in scope and testing to that of the US, although in some respects it may be considered faster and more cost effective. However, there may be changes to the current regulation which will increase the time period and compliance requirements for the CE mark, and correspondingly increase the cost of approval, manufacturing and marketing devices in the EU and other countries the adopt the CE mark for their markets.
Sgenia, Zenon and the Company do not have prior experience in seeking or obtaining regulatory approval in any jurisdiction for medical devices. This lack of experience may prevent or make more expensive our obtaining any necessary regulatory approval.
Sgenia and Zenon, as well as ourselves, have not sought regulatory approval before the FDA or any other US or EU regulatory agency having authority over the development, testing, manufacturing or sale of medical devices. There is no assurance that we, ourselves, will be able to pursue regulatory approval or obtain the necessary licensing. We may have to engage professionals to help or take over the regulatory process, which will add expense to our development costs, which we cannot estimate at this time. We may not be able to fund this additional cost, in which case the development expense will be lost.
We will rely on subcontractors to manufacture the Sgenia Products, and market launch could be adversely affected if the subcontractors decline to or unable to manufacture our designs.
Although we will be responsible for the manufacturing, marketing and selling of the Sgenia Products, we will not manufacture any products directly. Our business model contemplates outsourcing the manufacturing process to subcontractors. It is not guaranteed that we will be able to find competent subcontractors that have the technical and manufacturing capacity to produce the Sgenia Products at a profitable price for us. Any reluctance or inability by subcontractors to manufacture our designs could adversely affect the market acceptance of our designs.
We will rely on Sgenia and Zenon for a critical component, which if we are not able to purchase from them or obtain the underlying technology according to the License Agreement, we will not be able to manufacture the Sgenia Products.
The Sgenia Products rely on certain patents and intellectual property held exclusively by Sgenia. The License Agreement provides that Sgenia and Zenon will obtain microchips and imprint them with critical circuitry that is essential to the operations of the Sgenia Products and provide this component to us at negotiated prices, as we need it from time to time for our manufacturing of the Sgenia Products. If we are not able to obtain the microchips in the quantity and quality needed, on a timely basis, then we will not be able to manufacture the Sgenia Products. There is no assurance that Sgenia and Zenon will be able to produce the microchips. Although we have the right to obtain the technology to produce our own microchips in the event that Sgenia terminates its business or breaches the License Agreement, there is no assurance that we will be able to obtain that technology from Sgenia and if obtained to produce the microchips. The inability to obtain these microchips will cause us irreparable harm, and investors likely will lose their investment in the Company.
To successfully implement our business plan, we will need to hire new personnel to establish and implement the manufacturing, marketing and sales plans for the Sgenia Products.
The Company does not have any full-time employees, and our current executive officer is providing his services on a part-time, as needed basis. In the future, we will need to hire employees to further our new business venture. Specifically, we will need employees to monitor the development of the Sgenia Products and to help design the manufacturing protocols and establish a manufacturing plan for the Sgenia Products. Although Sgenia and Zenon are responsible for the regulatory approval, we will need our employees to participate in the regulatory process. Additionally, we will need employees to identify and monitor the selected manufacturers, establish marketing plans and implement sales. Since we have the worldwide exclusive license to manufacture, market and sell the Sgenia Products, we might need to set up offices in different countries and hire talent from different countries to implement our business plans. Our ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial, sales, marketing and customer service personnel is uncertain. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to attract and retain necessary technical, managerial, sales, marketing and service personnel could have a material adverse effect on our business, operating results and financial condition.
The strategic relationships we rely on may not be developed, and if developed, may not be successful.
To successfully manufacture, market and sell the Sgenia Products in the international market, we need to develop strategic relationships with supply chain companies, distribution companies, regional providers, hospitals, healthcare professionals and others to help establish our market presence and enhance the efforts of our own market penetration, business development, implementation, manufacturing, and sales. These relationships are expected to, but may not, succeed. There can be no assurance that these relationships will develop and mature, or that any of our existing relationships will be successful or that potential competitors will not develop more substantial relationships with attractive partners. Our inability to successfully implement our strategy of building valuable strategic relationships could harm our business.
The complexity and technicality of our products could result in unforeseen delays or expenses from undetected defects or errors in our technology designs, which could reduce the market acceptance for our new products, damage our reputation with prospective customers and adversely affect our operating costs.
Highly complex and technical products such as our proposed detection device may contain defects and errors when they are first introduced or as new versions are released. We may in the future experience the occurrence of defects, errors and bugs in our products. If any of our proprietary features contain defects or errors when first introduced or as new versions are released, we may be unable to correct these problems or result in unreasonable delays in their use by our end-users. Consequently, our reputation may be damaged and hospitals may be reluctant to buy or use our products in the future. Market reputational damage is also likely to harm our ability to attract new customers and negatively impact our financial results. In addition, defects or errors could interrupt or delay pending sales while corrections are undertaken. These problems in installed devices may also result in claims against us by the hospital, healthcare professional and patients, with resulting damages for breach of contract and tort liabilities. Claims where we are found liable or otherwise, which may be regardless of our responsibility for such failure, could cause us to incur substantial costs in defending against such lawsuits and the payment of settlements.
Until the Company has developed and launched the Sgenia Products at commercial levels, there is uncertainty of market acceptance and the efficacy of the commercialization strategy.
As the Company is a start-up, company, it has not yet launched any of its products at a commercial level. Until it has consistent, proven sales, there is uncertainty of the product acceptance in the intended markets and the ability of the Company to commercialize any of its products. Until then, the Company believes it will have to fund its operations from capital rather than revenues. If there are no, or only low levels of, product acceptance and sales, the Company will have to alter its business plan. As is typical of any new business concept, demand and market acceptance for newly introduced products and services is subject to great uncertainty. Achieving market acceptance will require the Company to undertake substantial marketing efforts and to make significant expenditures to create awareness of and demand for its products. The Company has limited marketing experience and limited financial, personnel and other resources to undertake extensive marketing activities. The Company's efforts will be subject to all of the risks associated with the commercialization of new products, including unanticipated delays, expenses, technical problems or difficulties and technological obsolescence due to changing technology and the evolution of industry standards. There can be no assurance that markets for the Company's products will not be limited, or that the Company's strategies will result in successful product commercialization or in initial or continued market acceptance for the Sgenia Products.
We may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us to pay significant damages and could limit our ability to use certain technologies.
The success of the Sgenia Products depends on Sgenia maintaining and obtaining the necessary patents and its ability to protect its intellectual property worldwide. There can be no assurance as to the breadth or degree of protection which existing or future patents, if any, and other trade secrets may afford the Company under the terms of the License Agreement, that any patent applications that may be made in the future will result in issued patents, that the Company's future trademarks, if any, will be upheld if challenged, or that competitors will not develop similar or superior methods or products outside the protection of any patent issued in relation to the Sgenia Products.
Although the Company believes, based on representations in the License Agreement, that the intellectual property Sgenia is using in developing Sgenia Products does not infringe any patents, trademarks, or violate proprietary rights of others, it is possible that its existing intellectual property may not be valid or that infringement of existing or future patents, trademarks or proprietary rights may occur. In the event the Sgenia Products infringe patents or proprietary rights of others, Sgenia and the Company may be required to modify the design of the Sgenia Products, change the name of its products or obtain a license. There can be no assurance that Sgenia and the Company will be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do any of the foregoing could have a material adverse effect upon the Company. In addition, there can be no assurance that either Sgenia or the Company will have the financial or other resources necessary to defend a patent infringement or proprietary rights violation action. Moreover, if the Company's products infringe patents, trademarks or proprietary rights of others, the Company could, under certain circumstances, become liable for damages, which also could have a material adverse effect on the Company.
Both Sgenia and the Company rely on proprietary know-how and employ various methods to protect the source codes, concepts, ideas and documentation of their respective intellectual property and proprietary technologies. However, such methods may not afford complete protection, and there can be no assurance that others will not independently develop similar know-how or obtain access to Sgenia’s or the Company's know-how or software codes, concepts, ideas and documentation. Although the Company has and expects to have confidentiality agreements with its employees and appropriate vendors, there can be no assurance that such arrangements will adequately protect the Company's trade secrets or those on which it relies owned by others.
SPECIFIC RISKS RELATED TO OUR MML JOINT VENTURE BUSINESS
MML is subject to broadly the same risks, where relevant, as our Sgenia Products related business. These include those risks related to development, testing, manufacturing, regulatory approval, commercialization and market acceptance and intellectual property rights, among others. In addition the below risk factors should be considered by investors in the Company.
Our MIDS Medical Shareholders and Subscription Agreement contains a term that protects each joint venture partner against insolvency of the other, which could result in the Company’s loss of its interest in MML.
In the event of an insolvency event (defined as the inability of either joint venture partner to pay its debts as they fall due) affecting the Company, its interest in MML could be transferred to the other partner for a nominal sum.
The Company will require an unknown, substantial amount of capital to fund MML through a second phase of development which, if not raised and invested in MML, may reduce its interest in MML.
Under the MIDS Medical Shareholders and Subscription Agreement and for the implementation of the MML business plan the Company contemplates it will fund a phase 2 of development. Accordingly the Company's capital requirements will be significant over the short and medium term. The Company does not have any commercial products at this time, and, therefore, it is not currently generating any revenues or cash flow to fund its operations. There can be no assurance that the Company will be able to generate revenues from operations in the future, which will be sufficient to fund its MML business activities. In connection with the MIDS Medical Shareholders and Subscription Agreement the Company has determined that currently it is required to raise up to an estimated €1,000,000 to support a MML phase 2 development. If financing is not obtained, then the Company may not be able to exercise its opportunity to fund phase 2 under the MIDS Medical Shareholders and Subscription Agreement and may lose part of its 40% interest in any value generated by MML. Furthermore, MML has the right to choose to independently fund Phase 2, which would have the same effect.
MML is dependent on patents and other intellectual property right protections. The failure to obtain or maintain patent protection could have a material adverse effect on the MML business, financial condition and results of operations.
MML seeks to protect its intellectual property rights through a combination of patent filings, trademark registrations, confidentiality agreements and inventions agreements. However, no assurance can be given that such measures will be sufficient to protect our intellectual property rights. If MML cannot protect its rights, it may lose its competitive advantage. Moreover, if it is determined that its products infringe on the intellectual property rights of third parties, MML may be prevented from marketing or licensing its intellectual properties to others.
The failure to protect MML patents, trademarks and trade names, may have a material adverse effect on its business, financial condition and operating results. Litigation may be required to enforce its intellectual property rights, protect its trade secrets or determine the validity and scope of proprietary rights of others. Any action it may take to protect its intellectual property rights could be costly and could absorb significant amounts of our and MML’s management’s time and attention. In addition, as a result of any such litigation, we and MML could lose any proprietary rights we have. If any of the foregoing occurs, we and MML may be unable to execute our business plan and investors could lose their investment.
The MML intellectual properties may become obsolete if it is unable to stay abreast of technological developments.
The biomedical industry is characterized by rapid and continuous scientific and technological development. If we are unable to stay abreast of such developments, its technologies may become obsolete. MML lacks the substantial research and development resources of some of its competitors. This may limit its ability to remain technologically competitive.
The development of MML products and technology is uncertain.
MML’s development efforts are subject to unanticipated delays, expenses or technical or other problems, as well as the possible insufficiency of funding to complete development. In addition to having the necessary funding, MML’s success will depend upon its products and technologies being differentiated from similar products and technologies and then meeting acceptable cost and performance criteria and timely introduction into the marketplace. MML’s proposed products and technologies may never be successfully developed, and even if developed, they may not satisfactorily perform the functions for which they are designed. Additionally, these products may not meet applicable price or performance objectives. Unanticipated technical or other problems may accrue which would result in increased costs or material delays in their development or commercialization. If development activities are unsuccessful, MML may need to delay, reduce the scope of or eliminate some or all of its development program and significant monies and management time invested may be rendered unproductive and worthless. Diagnostic devices must be tested for safety and performance in laboratory and clinical trials before regulatory clearance for marketing is achieved. Such studies are costly, time consuming and unpredictable. Clinical trials may not be successful and marketing authorization may not be granted which may result in MML not being profitable, or trigger dissolution of partnerships or collaborative relationships. The outcome of early clinical trials may not be predictive of the success of later clinical trials. Failed clinical trials may result in considerable investments of time and money being rendered unproductive and worthless.
Additionally, unanticipated trial costs or delays could cause substantial additional expenditure that is not reimbursed by a partner, may cause MML to miss milestones which may trigger a financial payment or cause MML or a partner to delay or modify its plans significantly. This would harm MML’s business, financial condition and results of operations.
MML will rely on third parties to support product delivery.
Under the current business plan, MML may not manufacture or self-distribute its products. Consequently, MML will rely on third parties for the manufacture and distribution of its products on an ongoing basis. Any failure on their part would disrupt product delivery and availability. To the extent MML is able to enter into collaborative or strategic arrangements with respect to its products, it will be exposed to risks and uncertainties related to those arrangements which it will attempt to manage, as far as possible, by contractual arrangement. However, the customer or partner will generally make the key decisions on product choice, regulatory approvals, product launch, product manufacture and marketing and promotion. Decisions made by a partner with respect to the commercialization of the products MML develops with them will significantly affect the extent and timing of revenues to MML. For example, a partner may choose not to launch new products MML develop, may choose to launch the products in a limited number of jurisdictions, may delay the launch of products, may undertake only limited sales and marketing efforts to commercialize the products, all of which would have a material adverse effect on MML’s business and financial position. Collaborative arrangements, licensing agreements or strategic alliances will subject MML to a number of risks, including the risk that:
·
|
MML do not control the amount and timing of resources that our strategic partners may devote to its products;
|
·
|
MML do not control the decision to pursue or amend a product, the timing of development activities, product launches and extent of marketing and sales activities;
|
·
|
MML partners may experience financial difficulties;
|
·
|
business combinations or significant changes in a partner’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;
|
·
|
a collaborator could independently move forward with a competing product developed either independently or in collaboration with others, including MML’s competitors; and
|
·
|
collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of developing MML’s products.
|
GENERAL BUSINESS RISK FACTORS
We may not be able to manage growth and expansion effectively.
Rapid growth of our business may significantly strain our management, operational and technical resources. If we are successful in obtaining rapid market penetration of our products, we will be required to manufacture and deliver large volumes of quality products to our customers on a timely basis at a reasonable cost. Our strategy is to create partnerships with manufacturers. This could potentially strain our operational, management and financial systems and controls.
The Company has paid no cash dividends to date.
The Company has paid no cash dividends on its common stock to date. Payment of dividends on the common stock is within the discretion of the board of directors and will depend upon the Company's earnings, its capital requirements and financial condition, and other relevant factors. The Company does not currently intend to declare any dividends on its common stock in the foreseeable future.
There is not now or may never be an active market for our common stock.
We are providing no assurances of any kind or nature whatsoever that an active market for our common stock will ever develop. We have been a public registered company since August 2012 and have been issued a trading symbol, but there have been very infrequent trades in our common stock. Investors should understand that there may be no market or alternative exit strategy for them to recover or liquidate their investments in the common stock of the Company. Accordingly, investors must be prepared to bear the entire economic risk of an investment in the common stock for an indefinite period of time. If a public or private market ever develops for our common stock, we anticipate that our then financial condition, product offerings, and product roll out strategy and implementation will greatly impact the value of the stock, which may not reflect our business prospects.
We are subject to the reporting requirements of the United States securities laws, which will require expenditure of capital and other resources.
We are a public reporting company subject to the information and reporting requirements of the Securities Exchange Act of 1934 and other federal securities laws, including, without limitation, compliance with the Sarbanes-Oxley Act of 2002. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders will cause our expenses to be substantially higher than they would otherwise be if we were privately-held. It will be difficult, costly, and time-consuming for us to develop and implement internal controls and reporting procedures required by Sarbanes-Oxley Act of 2002, and we will require additional staff and third-party assistance to develop and implement appropriate internal controls and procedures. If we fail to or are unable to comply with Sarbanes, we will not be able to obtain independent accountant certifications that the Sarbanes-Oxley Act of 2002 requires publicly-traded companies to obtain.
The price of our common stock may be volatile and the value of your investment could decline.
The common stock of technology related and medical device companies have historically experienced high levels of volatility. The trading price of our common stock may fluctuate substantially. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:
·
|
announcements of new offerings, products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;
|
·
|
price and volume fluctuations in the overall stock market from time to time;
|
·
|
significant volatility in the market price and trading volume of technology companies in general;
|
·
|
whether our results of operations meet the expectations of securities analysts or investors;
|
·
|
actual or anticipated changes in the expectations of investors or securities analysts;
|
·
|
litigation involving us, our industry, or both;
|
·
|
regulatory developments in the United States, foreign countries, or both;
|
·
|
general economic conditions and trends;
|
·
|
departures of key employees; and
|
·
|
an adverse impact on the company from any of the other risks cited herein.
|
The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, results of operations and financial condition.
We currently have outstanding promissory notes that may be convertible into our common stock, which if converted may result in a large increase in our outstanding common stock and result in a downward pressure on the market price of our common stock.
To finance our operations, we entered into a number of promissory notes in each of the last three years. These notes can be converted, at prices of $0.007 and $0.07 per share, into shares of common stock of the Company. As of the date of this report, the Company has issued an aggregate amount of 3,406,042 shares of common stock through conversions of these notes. If the balance of these convertible notes were to be converted in full, it would increase the outstanding shares of common stock by approximately 22,149,386 shares. The effect of the issuance of these shares will therefore be a substantial dilution to the current shareholders. In addition the conversion prices of $0.007 and $0.07 per share could result in substantial downward pressure on the price of the common stock in the market place. Investors should evaluate the Company and its ability to fund its operations and their investment in light of the currently outstanding promissory notes.
We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to furnish a report by our management on our internal control over financial reporting at the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company” as defined in the JOBS Act. When required, such report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company.” At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.
Our common stock is traded on OTC Markets (Ticker: ZEN.QB) and our shares are characterized as a penny stock. As such, we are subject to the risks associated with "penny stocks". Regulations relating to "penny stocks" limit the ability of our stockholders to sell their shares and, as a result, our stockholders may have to hold their shares indefinitely.
Our common stock is deemed to be "penny stock" as that term is defined in Regulation Section 240.3a51-1 of the Securities and Exchange Commission. Penny stocks are stocks: (a) with a price of less than U.S. $5.00 per share; (b) that are not traded on a "recognized" national exchange; (c) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ - where listed stocks must still meet requirement (a) above); or (d) in issuers with net tangible assets of less than U.S. $2,000,000 (if the issuer has been in continuous operation for at least three years) or U.S. $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than U.S. $6,000,000 for the last three years.
Section 15(g) of the United States Securities Exchange Act of 1934 and Regulation 240.15g(c)2 of the Securities and Exchange Commission require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in our Common Stock are urged to obtain and read such disclosure carefully before purchasing any common shares that are deemed to be "penny stock".
Moreover, Regulation 240.15g-9 of the Securities and Exchange Commission requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker dealer to: (a) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (b) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (c) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (d) receive a signed and dated copy of such statement from the investor confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of them. Stockholders should be aware that the market for penny stocks is susceptible to patterns of fraud and abuse. Such patterns include:
(i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
(iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons;
(iv) excessive and undisclosed bid-ask differential and mark-ups by selling broker-dealers; and
(v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
Although we are not in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
Adverse economic conditions may harm our business.
Market and economic conditions have been challenging worldwide. Continuing concerns have led to increased market volatility and diminished expectations for world economies. These factors may include fluctuations in foreign exchange rates, inflation, interest rates, rate of economic growth, taxation laws, consumer spending, unemployment rates, government fiscal, monetary and regulatory policies and consumer and business sentiment. Any of these factors have the potential to cause costs to increase or revenues to decline. Continued turbulence in the international markets and economies may adversely affect our ability to enter into or maintain collaborative arrangements, the behavior and financial condition of our current and any future customers and partners and the spending patterns of users of the products we are developing. This may adversely impact demand for our services and for products developed by us.