This Annual Report
includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).
These statements are based on management’s beliefs and assumptions, and on information currently available to management.
Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set
forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking
statements also include statements in which words such as “expect,” “anticipate,” “intend,”
“plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking
statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company’s future
results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned
not to put undue reliance on any forward-looking statements.
ITEM 1 – BUSINESS
Corporate History
We were incorporated
on December 19, 2014 in the State of Nevada. On October 17, 2017, we acquired Eqova Life Sciences, a Nevada corporation (“
Eqova
”).
Eqova is a wholly-owned subsidiary through which we conduct our hemp oil product business.
Overview
With the acquisition
of Eqova, we are transitioning away from our software services business and shifted our focus to a new line of business. Eqova
is focused on the production and sale of hemp oil products through the medical practitioner market.
Eqova Life Sciences
On October 17, 2017,
we acquired Eqova through an exchange of shares of our Series A Convertible Preferred Stock for all of the outstanding equity interest
of Eqova. As part of the Exchange, we have brought on Eqova’s President and Director, Patrick Stiles, to serve as our President
and Chief Executive Officer and as a Director on our Board of Directors.
Eqova is a medically-focused
CBD company that develops clinical grade full spectrum hemp oil products, sold exclusively via partnerships with licensed medical
practitioners to use with their patients. To date, we know of no other hemp oil company exclusively focused on the practitioner
market, leaving it largely underserved. According to The Hemp Business Journal, the market for CBD products is projected to grow
by 700% by 2020 with annual sales reaching $2.1 billion. With a head start in a growing marketplace, we believe that Eqova provides
us with a prime growth opportunity with an established business.
Software Enterprise Platform Services
Our prior business,
until recently discontinued, was providing software enterprise platform services. During the year ended December 31, 2017, we sold
and marketed a cloud based software to detect advertising fraud on the internet. We had revenues of approximately $128,105 in the
year ended December 31, 2017, 94% of which was for these software services and came from a single customer, Take5. In March 2018,
we received the last payment from this customer. At this time, we have no customers for our software services and intend to discontinue
this line of business as we shift our focus solely to sales of our hemp oil products.
The Market
Hemp Oil and CBD Market
Eqova and our hemp
oil products are tailored primarily to the medical practitioner market. We believe this market is underserved and that other companies
are unable to provide products that match the quality and consistent servings/dosage of our products.
CBD.co – The Online Hemp Oil
Marketplace
We purchased the
domain “CBD.co” in November of 2017. This website is an online marketplace for all types of hemp products, with the
main focus on cannabidiol (CBD) products. Many online marketplaces do not allow CBD products on their platforms. CBD.co offers
manufacturers and consumers of hemp oil products a one-stop destination to sell and buy a wide variety of hemp oil products. CBD.co
will be a third-party marketplace for hemp oil products, allowing customers to buy products and leave reviews. We will seek to
monetize the website through commissions on sales made on the site and advertising revenue.
Our Mission
Our mission for
Eqova and our hemp oil products is to provide medical practitioners with superior products using standardized dosing and unique
delivery methods.
Hemp Oil Products
Eqova develops clinical
grade hemp oil products, sold primarily to licensed medical practitioners for use with their patients.
We produce and offer
the following products:
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CannaBio Salve – most often used to provide relief to tight or sore muscles and minor skin
irritations, this product contains full spectrum hemp oil, menthol and essential oils.
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CannaBio x25 (gel cap and liquid) – provides a daily serving of full spectrum hemp oil and
often used to target patients’ GI tract.
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CannaBio MuscleCalm – a topical rub with soothing amounts of menthol, most often used to
provide relief to tight or sore muscles.
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CannaBio Optimized – a liquid liposomal full spectrum hemp oil product designed to be fat
soluble for a high degree of bioavailability.
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CannaBio Pets – designed and marketed to provide relief to anxious, aging or inflamed pets.
[1]
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Eqova's products
are created using full spectrum hemp oil and other ingredients to achieve standardized dosing. These formulations combine the powerful
benefits of cannabinoids in standardized products, which are intended to be distributed to patients under the care of licensed
health practitioners. All Eqova products are carefully researched. We require our manufacturers to make our products in cGMP-compliant
labs located in the United States.
Since the beginning
of Eqova and this business in October 2017 through December 31, 2017, sales of our hemp oil products produced revenues of $7,605.
Patents and Intellectual Property
Rights
We have not filed
for any intellectual property protection. However, we rely on intellectual property law that may include a combination of copyright,
trade secret and confidentiality agreements to protect our intellectual property. Our employees and independent contractors will
be required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes
generated by them on our behalf are our property, and assigning to us any ownership that they may claim in those works. Despite
our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own. Unauthorized
use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may
adversely affect our business.
[1]
These statements have not been evaluated by the Food and Drug Administration. These products are not intended to diagnose, treat,
cure, or prevent any disease.
From
time to time, we may encounter disputes over rights and obligations concerning intellectual property. While we believe that our
product and service offerings do not infringe the intellectual property rights of any third party, we cannot assure you that we
will prevail in any intellectual property dispute. If we do not prevail in such disputes, we may lose some or all of our intellectual
property protection, be enjoined from further sales of the applications determined to infringe the rights of others, and/or be
forced to pay substantial royalties to a third party.
Governmental Controls, Approval and Licensing Requirements
Hemp Oil Products
A major obstacle
to our growth is the public perception that hemp and marijuana are the same thing. This perception drives much of the regulation
of hemp products. Although hemp and marijuana are both part of the cannabis family, they differ in cultivation, function, and application.
Despite the use of marijuana becoming more widely legalized, it is viewed by many regulators and many others as an illegal product.
Hemp, on the other hand, is used in a variety of other ways that include clothing, skin products, pet products, dietary supplements
(the use of CBD oil), and thousands of other applications. Hemp may be legally sold, however the inability of many to understand
the difference between hemp and marijuana often causes burdensome regulation and confusion among potential customers. Therefore,
we are affected by laws related to cannabis and marijuana, even though our products are not the direct targets of these laws.
Cannabis is
currently a Schedule I controlled substance under the Controlled Substance Act (“CSA”) and is, therefore, illegal under
federal law. Even in those states in which the use of cannabis has been legalized pursuant to state law, its use, possession
and/or cultivation remains a violation of federal law. A Schedule I controlled substance is defined as one that has no currently
accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The
U.S. Department of Justice (the “DOJ”) describes Schedule I controlled substances as “the most dangerous drugs
of all the drug schedules with potentially severe psychological or physical dependence.” If the federal government decides
to enforce the CSA in Colorado with respect to state-regulated cannabis activities in Colorado and other states, persons
that are charged with distributing, possessing with intent to distribute or growing cannabis could be subject to fines
and/or terms of imprisonment, the maximum being life imprisonment and a $50 million fine.
Notwithstanding
the CSA, 29 U.S. states, the District of Columbia and the U.S. territories of Guam and Puerto Rico allow their residents to use
medical cannabis. The states of Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Vermont (effective July
1, 2018) and Washington, and the District of Columbia, allow cannabis for adult recreational use. Such state and territorial
laws are in conflict with the federal CSA, which makes cannabis use and possession illegal at the federal level.
In light of such
conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively
stated that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding
by state-designated laws allowing the use and distribution of medical cannabis. For example, the prior DOJ Deputy Attorney
General of the Obama administration, James M. Cole, issued a memorandum (the “Cole Memo”) to all United States Attorneys
providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA. In addition, the Financial
Crimes Enforcement Network (“FinCEN”) provided guidelines (the “FinCEN Guidelines”) on February 14, 2014,
regarding how financial institutions can provide services to cannabis-related businesses consistent with their Bank Secrecy
Act (“BSA”) obligations.
Additional existing
and pending legislation provides, or seeks to provide, protection to persons acting in violation of federal law but in compliance
with state laws regarding cannabis. The Rohrabacher-Blumenauer Amendment (formerly known as the Rohrbacher-Farr Amendment)
to the Commerce, Justice, Science and Related Agencies Appropriations Bill, which funds the DOJ, since 2014 has prohibited the
DOJ from using funds to prevent states with laws authorizing the use, distribution, possession or cultivation of medical cannabis from
implementing such laws. On August 2016, the Ninth Circuit Court of Appeals ruled in
United States v. McIntosh
that
the Amendment bars the DOJ from spending funds on the prosecution of conduct that is allowed by state medical cannabis laws,
provided that such conduct is in strict compliance with applicable state law. The Rohrabacher-Blumenauer Amendment is currently
effective through September 30, 2018, but as an amendment to an appropriations bill, it must be renewed annually.
These developments
previously were met with a certain amount of optimism in the cannabis industry, but (i) neither the CARERS Act nor the
Respect State Marijuana Laws Act of 2017 have yet been adopted, (ii) the Rohrabacher-Blumenauer Amendment, being an amendment to
an appropriations bill that must be renewed annually, has not currently been renewed beyond September 30, 2018, and (iii) the ruling
in
United States v. McIntosh
is only applicable precedent in the Ninth Circuit.
Because of the discrepancy
between the laws in some states, which permit the distribution and sale of medical and recreational cannabis, from federal
law that prohibits any such activities, DOJ Deputy Attorney General James M. Cole issued the Cole Memo concerning cannabis enforcement
under the CSA.
At the time of its
issuance, the Cole Memo reiterated Congress’s determination that cannabis is a dangerous drug and that the illegal
distribution and sale of cannabis is a serious crime that provides a significant source of revenue to large-scale criminal
enterprises, gangs, and cartels. The Cole Memo noted that the DOJ was committed to enforcement of the CSA consistent with those
determinations. It also noted that the DOJ was committed to using its investigative and prosecutorial resources to address the
most significant threats in the most effective, consistent, and rational way. In furtherance of those objectives, the Cole Memo
provided guidance to DOJ attorneys and law enforcement to focus their enforcement resources on persons or organizations whose conduct
interferes with any one or more of the following important priorities (the “Enforcement Priorities”) in preventing:
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the distribution of cannabis to minors;
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revenue from the sale of cannabis from going to criminal enterprises, gangs, and cartels;
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the diversion of cannabis from states where it is legal under state law in some form
to other states;
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state-authorized cannabis activity from being used as a cover or pretext for the trafficking
of other illegal drugs or other illegal activity;
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violence and the use of firearms in the cultivation and distribution of cannabis;
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drugged driving and the exacerbation of other adverse public health consequences associated with cannabis use;
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the growing of cannabis on public lands and the attendant public safety and environmental
dangers posed by cannabis production on public lands; and
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cannabis possession or use on federal property.
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However, on January
4, 2018, the U.S. Attorney General, Jeff Sessions, issued a memorandum for all U.S. Attorneys (the “Sessions Memo”)
stating that the Cole Memo was rescinded effective immediately. In particular, Mr. Sessions stated that “prosecutors should
follow the well-established principles that govern all federal prosecutions,” which require “federal prosecutors deciding
which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney
General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes
on the community.” The Sessions Memo went on to state that given the DOJ’s well-established general principles, “previous
nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.”
It is unclear at
this time whether the Sessions Memo indicates that the Trump administration will strongly enforce the federal laws applicable to cannabis or
what types of activities will be targeted for enforcement. However, a significant change in the federal government’s enforcement
policy with respect to current federal laws applicable to cannabis could cause significant financial damage to us. We
do not currently cultivate, distribute or sell cannabis, but our hemp oil products are closely tied to the cannabis industry.
Although the Sessions
Memo has rescinded the Cole Memo and it is unclear at this time what the ultimate impact of that rescission will have on our business,
if any, we intend to continue to conduct rigorous due diligence to verify the legality of all activities that we engage in and
ensure that our activities do not interfere with any of the Enforcement Priorities set forth in the Cole Memo.
Competition
Hemp Oil Products
Currently, we face
competition from a number of other companies providing hemp-based products. We expect that many other companies will recognize
the market potential of hemp products and enter into the marketplace as competitors. As states continue to legalize marijuana and
the public gains a better understanding of hemp products, we expect many new companies will enter into the hemp business in the
near future.
There are many wholesalers
and retailers of CBD oil. However, we believe we can continue to distinguish ourselves by targeting the medical practitioner market
and providing high-quality products with consistently reliable dosage.
Employees
As of the date hereof,
we do not have any employees other than our officers and directors and one employee. Our officers and directors will continue to
work for us for the foreseeable future. We anticipate hiring appropriate personnel on an as-needed basis, and utilizing the services
of independent contractors as needed.
ITEM 1A. – RISK FACTORS.
As a smaller reporting
company we are not required to provide a statement of risk factors. Nonetheless, we are voluntarily providing risk factors herein.
Any investment in
our common stock involves a high degree of risk. You should consider carefully the following information, together with the other
information contained in this Annual Report, before you decide to buy our common stock. If one or more of the following events
actually occurs, our business will suffer, and as a result our financial condition or results of operations will be adversely affected.
In this case, the market price, if any, of our common stock could decline, and you could lose all or part of your investment in
our common stock.
We are providing
services to an industry that is heavily regulated and, in some respects, illegal under federal law and the laws of most states.
We face risks in developing our product candidates and services and eventually bringing them to market. We also face risks that
our business model may become obsolete. The following risks are material risks that we face. If any of these risks occur, our business,
our ability to achieve revenues, our operating results and our financial condition could be seriously harmed.
Risk Factors Related to the Business
of the Company
We have a limited operating
history, we are not profitable, and we do not expect to be profitable in the near future. There is no assurance our future operations
will result in revenues sufficient to obtain or sustain profitability. If we cannot generate sufficient revenues to operate profitably,
we may suspend or cease operations.
We were incorporated
on December 19, 2014 and we have not fully developed our proposed business operations and have not yet experienced significant
revenue. We have a limited operating history upon which an evaluation of our future success or failure can be made, and we recently
shifted focus to a new line of business with the acquisition of Eqova. Our ability to continue as a going concern is dependent
upon our ability to obtain adequate financing and to reach profitable levels of operations. In that regard we have no proven history
of performance, earnings or success.
Our net loss from
inception to December 31, 2017, was $7,683,382, of which most is due to interest expense, change in value of derivative instruments
and professional fees in connection with our formation and initial stock offering. Based on our cash position of $81,653 as of
December 31, 2017, we will need to raise additional capital from the sale of our stock or debt. Such funding may not be available,
or may be available only on terms which are not beneficial and/or acceptable to us.
Our ability
to maintain profitability and positive cash flow is dependent upon our ability to attract new customers who will buy our products
and services, and our ability to generate sufficient revenue through the sale of those products and services.
Based upon current
plans, we expect to incur operating losses in future periods because we will be incurring expenses that may exceed revenues. We
cannot guarantee that we will be successful in generating sufficient revenues in the future. In the event we cannot generate sufficient
revenues and/or secure additional financing, we may be forced to cease operations.
We have received all or nearly
all of our revenues from one major customer during the past two years and we have terminated our relationship with this customer;
if our new business does not replace the lost revenues, our revenues will decline and have a substantial effect on our financial
performance.
During the years
ended December 31, 2017 and 2016, we received 94% and 100%, respectively, of our revenues from one customer. We did not have a
written or oral agreement with this customer and we have terminated our relationship with this customer as we shift the focus of
our business away from software services to hemp oil products. Our financial success now depends solely on our ability to sell
hemp oil products through Eqova. From the acquisition of Eqova in October 2017 through December 31, 2017, sales of our hemp oil
products generated revenues of $7,605. If we are unable to further grow this business and generate sufficient sales, our financial
performance will decline and we may not be able to fund our business.
Negative press from being in the hemp/cannabis
space could have a material adverse effect on our business, financial condition, and results of operations.
The hemp plant
and the cannabis/marijuana plant are both part of the same
cannabis sativa
genus/species of plant, except that hemp,
by definition, has less than 0.3% tetrahydrocannabinol (“THC”) content and is legal under federal and state laws, but
the same plant with a higher THC content is cannabis/marijuana, which is legal under certain state laws, but which is not legal
under federal law. The similarities between these plants can cause confusion, and our activities with legal hemp may
be incorrectly perceived as us being involved in federally illegal cannabis/marijuana. Also, despite growing support for the cannabis/marijuana
industry and legalization of cannabis/marijuana in certain U.S. states, many individuals and businesses remain opposed to the cannabis/marijuana
industry. Any negative press resulting from any incorrect perception that we have entered into the cannabis/marijuana space could
result in a loss of current or future business. It could also adversely affect the public’s perception of us and lead to
reluctance by new parties to do business with us or to own our common stock. We cannot assure you that additional business partners,
including but not limited to financial institutions and customers, will not attempt to end or curtail their relationships with
us. Any such negative press or cessation of business could have a material adverse effect on our business, financial condition,
and results of operations.
Any business-related cannabinoid
production is dependent on laws pertaining to the hemp/cannabis industry
.
As of December 31,
2017, there were (i) 34 states in the United States and the District of Columbia that have legalized hemp, (ii) 29 states
and the District of Columbia that allow their citizens to use medical cannabis/marijuana and, (iii) 9 states and the District of
Columbia that have legalized cannabis/marijuana for adult recreational use. Many other states are considering similar legislation.
Conversely, under the federal Controlled Substance Act (the “CSA”), the policies and regulations of the federal government
and its agencies are that cannabis/marijuana has no medical benefit and a range of activities are prohibited, including cultivation,
possession, personal use, and interstate distribution of cannabis/marijuana. In the event the U.S. Department of Justice (the “DOJ”)
begins strict enforcement of the CSA in states that have laws legalizing medical and/or adult recreational cannabis/marijuana,
there may be a direct and adverse impact to any future business or prospects that we may have in the cannabis/marijuana business.
Even in those jurisdictions in which the manufacture and use of medical cannabis/marijuana has been legalized at the state level,
the possession, use, and cultivation of cannabis/marijuana all remain violations of federal law that are punishable by imprisonment
and substantial fines. Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in
violating these federal controlled substance laws, or conspire with another to violate them.
For example, the
California Bureau of Cannabis Control sent 900 warning letters to marijuana shops suspected of operating without a state license.
The Bureau also issued a cease-and-desist letter to the operator of an online directory of marijuana dispensaries, products and
delivery services. The letter threatened fines and criminal penalties if the company did not remove the listings for unlicensed
marijuana businesses. Likewise, if we unknowingly do business with unlicensed entities or list them on our website, we may be subject
to similar regulatory action that would halt our operations and affect our financial performance.
Local, state, federal,
and international hemp and cannabis/marijuana laws and regulations are broad in scope and subject to evolving interpretations,
which could require us to incur substantial costs associated with compliance requirements. In addition, violations of these laws,
or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. In addition,
it is possible that cannabinoid-related regulations may be enacted in the future that will be directly applicable to our business.
It is also possible that the federal government will begin strictly enforcing existing laws, which may limit the legal uses of
the hemp plant and its derivatives and extracts, such as cannabinoids. However, our work in hemp would continue
since hemp research, development, and commercialization activities are permitted under applicable federal and state laws,
rules, and regulations. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can
we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated,
could have on our activities in the legal hemp industry.
Our competitors may
develop products that are less expensive, safer or otherwise more appealing, which may diminish or eliminate the commercial success
of any potential product that we may commercialize.
If our competitors
market products that are less expensive, safer or otherwise more appealing than our potential products, or that reach the market
before our potential products, we may not achieve commercial success. The market may choose to continue utilizing existing products
for any number of reasons, including familiarity with or pricing of these existing products. The failure of any of our products
to compete with products marketed by our competitors would impair our ability to generate revenue, which would have a material
adverse effect on our future business, financial condition, results of operations, and cash flows. Our competitors may:
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develop and market products that are less expensive, safer, or otherwise more appealing than our
products;
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commercialize competing products before we or our partners can launch our products; and
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initiate or withstand substantial price competition more successfully than we can.
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In addition, several
websites compete with our CBD.co website. Many of these other websites have been around longer than CBD.co and have much higher
traffic than CBD.co. Developing a website is relatively inexpensive compared to other business ventures and we may face substantial
competition from established websites and other nascent online CBD market platforms. If we are unable to develop CBD.co to rank
higher in search results, to be more user friendly and to provide better information and products than our competitors, we may
not be able to attract sufficient traffic to achieve significant revenue through product sales or advertising on CBD.co.
Our CBD products have high costs
and could hurt our profitability.
The production of
CBD products is expensive. The uncertain regulatory environment and lack of established producers and manufacturers of CBD and
CBD products can make it difficult to find CBD at reasonable prices. This industry differs from our software services that we have
provided in the past, and the margins are not comparable. If we are not able to manage the costs and find affordable sources of
CBD, our results of operations will be adversely affected.
Because our officers and directors
have other outside business activities and will have limited time to spend on our business, our operations may be sporadic, which
may result in periodic interruptions or suspensions of operations
.
Because our officers
and directors have other outside business activities and will only be devoting between 20-75% of their time, or 8-30 hours per
week each, to our operations, our operations may be sporadic and occur at times which are convenient for them. These outside interests
may deter from our development. In the event they are unable to fulfill any aspect of their duties, we may experience a shortfall
or complete lack of sales resulting in little or no profits and eventual closure of the business.
Our auditors have substantial
doubt about our ability to continue as a going concern.
Our financial statements
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Our auditor’s report reflects that our ability to continue as a going concern is dependent
upon our ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating
revenues. If we are unable to continue as a going concern, our stockholders will lose their investment. We will be required to
seek additional capital to fund future growth and expansion. No assurance can be given that such financing will be available or,
if available, that it will be on commercially favorable terms. Moreover, favorable financing may be dilutive to our stockholders.
Our controlling stockholders have significant influence
over the Company.
Our officers and
directors own stock representing approximately 34% of shareholder votes. As a result they will possess a significant influence
over our affairs and may have the effect of delaying or preventing a future change in control, impeding a merger, consolidation,
takeover or other business combination or discouraging a potential acquirer from making a tender offer or otherwise attempting
to obtain control of the company, which in turn could materially and adversely affect the market price of our common stock. Our
minority shareholders will be unable to affect the outcome of stockholder voting as long as our officers and directors retain a
controlling interest.
Our current officers and directors
may set salaries and perquisites in the future, which the Company is unable to support with its current assets.
At present, Mr.
Stiles and Mr. Bossung are each being paid $140,000 per year. Mr. Stiles and Mr. Bossung have deferred a portion of their salary
and are being paid $9,000 per month until the Company can afford their full salary. Mr. Covely, through a company he owns, is being
paid for programming hours and hosting fees at amounts that vary monthly based on hours worked and the type of work performed.
Although Mr. Stiles,
Mr. Covely and Mr. Bossung have written employment or services agreements, our officers and directors may decide to award themselves
higher salaries and other benefits. We do not have significant revenues, and there is no guarantee that we will have significant
revenue in the near future. If we do not increase our revenues, we will be unable to support any higher salaries or other benefits
for management, which may cause us to cease operations.
We may engage in strategic transactions
that fail to enhance stockholder value.
From time to time,
we may consider possible strategic transactions, including the potential acquisitions or licensing of products or technologies
or acquisition of companies, and other alternatives with the goal of maximizing stockholder value. We may never complete a strategic
transaction, and in the event that we do complete a strategic transaction, such as the acquisition of ShareRails, implementation
of such transactions may impair stockholder value or otherwise adversely affect our business. Any such transaction may require
us to incur non-recurring or other charges and may pose significant integration challenges and/or management and business disruptions,
any of which could harm our results of operation and business prospects.
We may not be able to gain or
sustain market acceptance for our products and services.
Failure to establish
a brand and presence in the marketplace on a timely basis could adversely affect our financial condition and results of operations.
Moreover, there can be no assurance that we will successfully complete our development and introduction of new products and services
or that any such products and services will achieve acceptance in the marketplace. We may also fail to develop and deploy new products
and services on a timely basis.
The market for products and services
in the hemp oil business is highly competitive, and we may not be able to compete successfully.
The market for our
hemp oil products is competitive and evolving. There is no material aspect of our business that is protected by patents, copyrights,
trademarks, or trade names, and we face strong competition from larger companies that may offer similar products and services to
ours. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing
and other resources and larger client bases than us, and there can be no assurance that we will be able to successfully compete
against these or other competitors.
Some of our competitors
are vertically integrated with their supply chain and can grow, process and market their own products. This may give them more
control over pricing and their final products. Some of them also have been mentioned in the national news, have doctor endorsements
and a brand presence that we cannot match at this time.
Given the rapid
changes affecting the global, national, and regional economies generally and the medical marijuana and recreational marijuana industries,
in particular, we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on
our ability to keep pace with any changes in our markets, particularly, legal and regulatory changes. Our success will also depend
on our ability to respond to, among other things, changes in the economy, market conditions, and competitive pressures. Any failure
by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition and results
of operations.
We have incurred costs in completing
the transaction with Eqova Life Sciences and failure to successfully integrate Eqova Life Sciences will have an adverse impact
on our financial position and prevent us from obtaining the benefits that the transaction would have given us.
We have recently
completed our acquisition of Eqova. Our executives have spent considerable time and incurred legal and accounting costs in acquiring
Eqova. If we are unable to fully integrate Eqova into our business or maintain Eqova’s customer base, we will not be able
to acquire the technologies, partnerships and potential customers that the transaction was intended given us. The increase in acquisition
and integration costs without the corresponding benefit will have an adverse impact on our financial statements and foreclose potential
revenue-producing opportunities in the near future.
Our success is highly dependent
on our ability to penetrate the market for hemp oil products as well as the growth and expansion of that market.
The market for hemp
oil products and related services like ours is relatively new, rapidly evolving and unproven. It is difficult to predict customer
adoption and renewal rates, customer demand for our products, the size, growth rate and expansion of these markets, the entry of
competitive products or the success of existing competitive products. Our ability to penetrate the existing market and any expansion
of the emerging market depends on a number of factors, including the cost, performance and perceived value associated with our
product, as well as customers’ willingness to adopt new products. Furthermore, many potential customers have made significant
investments in other products and may be unwilling to invest in our products. If we are unable to compete and sell our products,
our business, results of operations and financial condition would be adversely affected.
Our success depends on our ability
to sell our products and establish relationships with medical practitioners.
We need to establish
sales partners with medical practitioners and resellers. To the extent we do identify such partners, we will need to negotiate
the terms of a commercial agreement with them under which the partner would distribute our products. We cannot be certain that
we will be able to negotiate commercially-attractive terms with any partner, if at all, or convince them of the benefits our products
provide. There can be no assurance that our sales partners will comply with the terms of our commercial agreements with them or
will continue to work with us when our commercial agreements with them expire or are up for renewal. If we are unable to maintain
our relationships with these partners, or these partners fail to live up to their contractual obligations, our business, results
of operations and financial condition could be harmed.
Economic uncertainties or downturns
could materially adversely affect our business.
Current or future
economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general
economy including conditions resulting from changes in gross domestic product growth, the continued sovereign debt crisis, financial
and credit market fluctuations, political deadlock, natural catastrophes, warfare and terrorist attacks on the United States, Europe,
the Asia Pacific region or elsewhere, could cause a decrease in business investments.
General worldwide
economic conditions have experienced a significant downturn and continue to remain unstable. These conditions make it extremely
difficult for us to forecast and plan future business activities accurately, and they could cause our potential customers to reevaluate
their decisions to purchase our product, which could delay and lengthen our sales cycles or result in cancellations of planned
purchases. Furthermore, during challenging economic times our potential customers may tighten their advertising budgets which may
impact their spend on local inventory based digital marketing products. To the extent purchases of our products are perceived by
potential customers to be discretionary, sales of our products may never occur. Also, customers may choose to seek other methods
to achieve the benefits our products provide.
We cannot predict
the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry.
If the economic conditions of the general economy or industries in which we operate do not improve, or worsen from present levels,
our business, results of operations, financial condition and cash flows could be adversely affected.
We are dependent on the services
of key personnel and failure to attract qualified management could limit our growth and negatively impact our results of operations.
We are highly dependent
on the principal members of our management team, including our Chief Executive Officer, Patrick Stiles, and our Chief Financial
Officer, William Bossung. Our enterprise software line of business has depended almost entirely on Fred Covely, our Chief Technology
Officer. At this time, we do not know of the availability of such experienced management personnel or how much it may cost to attract
and retain such personnel. The loss of the services of any member of senior management or the inability to hire experienced technical
or programing personnel could have a material adverse effect on our financial condition and results of operations.
Other companies may claim that
we have infringed upon their intellectual property or proprietary rights.
We do not believe
that our products and services violate third-party intellectual property rights; however, we have not had an independent party
conduct a study of possible patent infringements. Nevertheless, we cannot guarantee that claims relating to violation of such rights
will not be asserted by third parties. If any of our products or services are found to violate third-party intellectual property
rights, we may be required to expend significant funds to re-engineer or cause to be re-engineered one or more of those products
or services to avoid infringement, or seek to obtain licenses from third parties to continue offering our products and services
without substantial re-engineering, and such efforts may not be successful.
In addition, future
patents may be issued to third parties upon which our products and services may infringe. We may incur substantial costs in defending
against claims under any such patents. Furthermore, parties making such claims may be able to obtain injunctive or other equitable
relief, which effectively could block our ability to further develop or commercialize some or all of our products or services in
the United States or abroad, and could result in the award of substantial damages against us. In the event of a claim of infringement,
we may be required to obtain one or more licenses from third parties. There can be no assurance that we will be able to obtain
such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any such license could be costly and
have a material adverse effect on our business.
Our success depends on our ability
to protect our proprietary technology.
Our success depends,
to a significant degree, upon the protection of our proprietary technology, and that of any licensors. Legal fees and other expenses
necessary to obtain and maintain appropriate patent protection could be material. Currently, no material aspect of our business
is protected by registered patents, copyrights or trademarks. Insufficient funding may inhibit our ability to obtain and maintain
such protection. Additionally, if we must resort to legal proceedings to enforce our intellectual property rights, the proceedings
could be burdensome and expensive, and could involve a high degree of risk to our proprietary rights if we are unsuccessful in,
or cannot afford to pursue, such proceedings.
We may also rely
on trademarks, trade secrets and contract law to protect certain of our proprietary technology. There can be no assurance that
any trademarks will be approved, that such contract will not be breached, or that if breached, we will have adequate remedies.
Furthermore, there can be no assurance that any of our trade secrets will not become known or independently discovered by third
parties.
Our future growth may be inhibited
by the failure to implement new technologies.
Our future growth
is partially tied to our ability to improve our knowledge and implementation of mobile, AI, machine learning, and other advanced
technologies in a retail environment, which is a rapidly changing market. The inability to successfully implement commercially
technologies in response to market conditions in a manner that is responsive to our customers’ requirements could have a
material adverse effect on our business.
Our payment processing merchant
is located abroad and this may cause problems in receiving payments for our products.
We currently use
a payment processing merchant who is located outside of the United States. This merchant often holds our money for weeks before
sending it to us. If we are delayed in receiving our funds or the merchant refuses to forward our sales proceeds, our financial
condition could be adversely affected. Because the merchant is located abroad, we may not have any way to enforce our arrangement
and force the merchant to provide give us our money.
Risks Related To Our Common Stock
The market price of our common
stock may be volatile and may be affected by market conditions beyond our control.
The market price
of our common stock is subject to significant fluctuations in response to, among other factors:
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variations in our operating results and market conditions specific to technology companies;
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changes in financial estimates or recommendations by securities analysts;
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announcements of innovations or new products or services by us or our competitors;
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the emergence of new competitors;
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operating and market price performance of other companies that investors deem comparable;
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changes in our board or management;
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sales or purchases of our common stock by insiders;
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commencement of, or involvement in, litigation;
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changes in governmental regulations; and
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general economic conditions and slow or negative growth of related markets.
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In addition, if
the market for stocks in our industry or the stock market in general, experiences a loss of investor confidence, the market price
of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of
the foregoing occurs, it could cause the price of our common stock to fall and may expose us to lawsuits that, even if unsuccessful,
could be costly to defend and a distraction to the board of directors and management.
If we are unable to pay the costs
associated with being a public, reporting company, we may be forced to discontinue operations.
Our common stock
is quoted on the OTC Pink tier of the marketplace maintained by OTC Markets Group, Inc.. We expect to have significant costs associated
with being a public, reporting company, which may raise substantial doubt about our ability to sell our equity securities and/or
continue as a going concern. Our ability to continue as a going concern will depend on positive cash flow, if any, from future
operations and on our ability to raise additional funds through equity or debt financing. If we are unable to achieve the necessary
product sales or raise or obtain needed funding to cover the costs of operating as a public, reporting company, we may be forced
to discontinue operations.
Our common stock is listed for
quotation on the OTC Pink tier of the marketplace maintained by OTC Markets Group, Inc., which may make it more difficult for investors
to resell their shares due to suitability requirements.
Our common stock
is currently quoted on the OTC Pink tier of the marketplace maintained by OTC Markets Group, Inc. Broker-dealers often decline
to trade in over-the-counter stocks given the market for such securities are often limited, the stocks are more volatile, and the
risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential
investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose
of their shares. This could cause our stock price to decline.
We recently moved
down to the OTC Pink tier from the OTCQB tier. We may be unable to restore eligibility for quotation of our common stock on the
OTCQB tier and this will have a negative impact on our market price. The OTC Pink marketplace also does not provide as much liquidity
as the OTCQB. Many broker-dealers will not trade or recommend OTC Pink stocks for their clients. Because the OTCQB generally
increases transparency by maintaining higher reporting standards and requirements and imposing management certification and compliance
requirements, broker-dealers are more likely to trade stocks on the OTCQB marketplace and national exchanges.
Our principal stockholders have
the ability to exert significant control in matters requiring stockholder approval and could delay, deter, or prevent a change
in control of our company.
Patrick Stiles,
William Bossung and Fred Covely collectively have beneficial ownership of our common and preferred stock with over 33% of the shareholder
votes. As a result, they have the ability to influence matters affecting our shareholders, including the election of our directors,
the acquisition or disposition of our assets, and the future issuance of our shares. Because they control such shares, investors
may find it difficult to replace our management if they disagree with the way our business is being operated. Because the influence
by these shareholders could result in management making decisions that are in the best interest of those shareholders and not in
the best interest of the investors, you may lose some or all of the value of your investment in our common stock. Investors who
purchase our common stock should be willing to entrust all aspects of operational control to our current management team.
We do not intend to pay dividends
in the foreseeable future.
We do not intend
to pay any dividends in the foreseeable future. We do not plan on making any cash distributions in the manner of a dividend or
otherwise. Our Board presently intends to follow a policy of retaining earnings, if any.
Future sales and issuances of
our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders
and could cause our stock price to decline.
Future sales and
issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders.
We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner
as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted.
New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our common
stock.
In addition, changing
laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies,
increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards
are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in
practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend
to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general
and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory
or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings
against us and our business may be adversely affected.
We also expect that
being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors
could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve
on our audit committee and compensation committee, and qualified executive officers.
As a result of disclosure
of information in this annual report and in filings required of a public company, our business and financial condition will become
more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties.
If such claims are successful, our business and results of operations could be adversely affected, and even if the claims do not
result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert
the resources of our management and adversely affect our business and results of operations.
The market for penny stocks has suffered in recent
years from patterns of fraud and abuse
Stockholders should
be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of
fraud and abuse. Such patterns include:
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control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced salespersons;
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excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and,
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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 consequential investor losses.
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Our management is aware of the abuses
that have occurred historically in the penny stock market. Although we do not expect to be 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. The occurrence of these patterns or practices
could increase the volatility of our share price.
Due to the lack of a developed
trading market for our securities, you may have difficulty selling your shares.
Our stock currently
trades on the OTC Pink tier maintained by OTC Markets Group, Inc. There currently is a very limited public trading market for our
common stock. The lack of a developed public trading market for our shares may have a negative effect on your ability to sell your
shares in the future and it also may have a negative effect on the price, if any, for which you may be able to sell your shares.
As a result an investment in the shares may be illiquid in nature and investors could lose some or all of their investment.
Our status as an “emerging
growth company” under the JOBS Act OF 2012 may make it more difficult to raise capital when we need to do it.
Because of the exemptions
from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended
transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and
it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business
with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in
our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations
may be materially and adversely affected.
Our internal controls may be inadequate,
which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is
responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule
13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive
and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a
material effect on the financial statements. Our internal controls may be inadequate or ineffective, which could cause our financial
reporting to be unreliable and lead to misinformation being disseminated to the public.
We will incur ongoing costs and
expenses for SEC reporting and compliance, without increased revenue we may not be able to remain in compliance, making it difficult
for investors to sell their shares, if at all.
Going forward, we
will have ongoing SEC compliance and reporting obligations. Such ongoing obligations will require the Company to expend additional
amounts on compliance, legal and auditing costs. In order for us to remain in compliance, we will require increased revenues to
cover the cost of these filings, which could comprise a substantial portion of our available cash resources. If we are unable to
generate sufficient revenues to remain in compliance, it may be difficult for you to resell any shares you may purchase, if at
all.
We have outstanding convertible
debt, which, if repaid will require a significant amount of capital, or if converted into our common stock could have a material
adverse effect on our stock price.
We have entered
into various convertible promissory notes with an aggregate outstanding balance of $322,910 as of December 31, 2017. The convertible
promissory notes are convertible into our common stock at various conversion prices. See “Note 7 – Convertible Debt”
in the Notes to the Financial Statements.
Repayment of the
notes must be done at a premium to the then-outstanding balance. If, rather than repay these notes, we allow them to convert into
our common stock after six months, the stock could be sold into the open market at the time of conversion can cause the price for
our common stock to decline.
We have the right to issue additional
common stock without consent of stockholders. This would have the effect of diluting investors’ ownership and could decrease
the value of their investment.
At a Special Meeting
on March 23, 2018, our shareholders approved the increase of our authorized common stock to 4,000,000,000 shares. Our Board of
Directors chose to increase our authorized shares of common stock to 2,500,000,000 shares, reserving the right to further increase
the authorized shares up to the amount approved by the shareholders. Of these authorized shares, 469,012,760 shares are issued
and outstanding as of May 22, 2018. An additional 10,956,250 shares of common stock may be issued and outstanding if all of our
currently outstanding warrants were exercised and converted into common stock, and an additional 1,876,055,739 shares if all of
our currently outstanding shares of Series A Convertible Preferred Stock were converted into common stock. Therefore, we are authorized
to issue up to an additional 143,975,251 unissued shares of our common stock, not taking into consideration shares of our common
stock to be issued upon any conversion of our convertible notes, that may be issued by us for any purpose without the further consent
or vote of our stockholders that would dilute stockholders’ percentage ownership of our company.
Our officers and directors can
sell some of their stock, which may have a negative effect on our stock price and ability to raise additional capital, and may
make it difficult for investors to sell their stock at any price.
Our officers and
directors, as a group, are the beneficial owners of 237,070,010 shares of our common stock, representing approximately 34% of our
total issued shares. Each individual officer and director may be able to sell up to 1% of our outstanding stock (currently approximately
4,690,127 shares) every 90 days in the open market pursuant to Rule 144, which may have a negative effect on our stock price and
may prevent us from obtaining additional capital. In addition, if our officers and directors are selling their stock into the open
market, it may make it difficult or impossible for investors to sell their stock at any price.
Our common stock is governed under
The Securities Enforcement and Penny Stock Reform Act of 1990.
The Securities Enforcement
and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades
in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity
security listed on NASDAQ and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000,
if such issuer has been in continuous operation for three years, (ii) net tangible assets of at least $5,000,000, if such
issuer has been in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000,
if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require
the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and
the risks associated therewith.
The forward looking statements
contained in this annual report may prove incorrect.
This Annual Report
contains certain forward-looking statements, including among others: (i) anticipated trends in our financial condition and results
of operations; (ii) our business strategy for expanding distribution; and (iii) our ability to distinguish ourselves from our current
and future competitors. These forward-looking statements are based largely on our current expectations and are subject to a number
of risks and uncertainties. Actual results could differ materially from these forward-looking statements. In addition to the other
risks described elsewhere in this “Risk Factors” discussion, important factors to consider in evaluating such forward-looking
statements include: (i) changes to external competitive market factors or in our internal budgeting process which might impact
trends in our results of operations; (ii) anticipated working capital or other cash requirements; (iii) changes in our business
strategy or an inability to execute our strategy due to unanticipated changes in the biotechnology industry; and (iv) various competitive
factors that may prevent us from competing successfully in the marketplace. In light of these risks and uncertainties, many of
which are described in greater detail elsewhere in this “Risk Factors” discussion, there can be no assurance that the
events predicted in forward-looking statements contained in this annual report will, in fact, transpire.
SPECIAL NOTE ABOUT FORWARD-LOOKING
STATEMENTS
We have made forward-looking
statements in this Annual Report, including the sections entitled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Business,” that are based on our management’s beliefs and assumptions
and on information currently available to our management. Forward-looking statements include the information concerning our possible
or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential
growth opportunities, the effects of future regulation, and the effects of competition. Forward-looking statements include all
statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,”
“expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions.
These statements are only predictions and involve known and unknown risks and uncertainties, including the risks outlined under
“Risk Factors” and elsewhere in this annual report.
Although we believe
that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, events, levels
of activity, performance or achievement. We are not under any duty to update any of the forward-looking statements after the date
of this annual report to conform these statements to actual results, unless required by law.