Unless the context otherwise requires, all references in this report to “Cell MedX,” “the Company,” “we,” “us,” or “our” are to Cell MedX Corp., collectively with its wholly owned subsidiary Cell MedX (Canada) Corp.
The information in this Annual Report contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined from time to time, in other reports we file with the Securities and Exchange Commission.
The forward-looking statements in this Form 10-K for the fiscal year ended May 31, 2022, are subject to risks and uncertainties that could cause actual results to differ materially from the results expressed in or implied by the statements contained in this report. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate.
All forward-looking statements are made as of the date of the filing of this Form 10-K and we disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. We may, from time to time, make oral forward-looking statements. We strongly advise that the above paragraphs and the risk factors described in this Annual Report and in our other documents filed with the United States Securities and Exchange Commission should be read for a description of certain factors that could cause our actual results to materially differ from those in the oral forward-looking statements. We disclaim any intention or obligation to update or revise any oral or written forward-looking statements whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS.
GENERAL
We were incorporated under the laws of the State of Nevada on March 19, 2010. On April 26, 2016, we formed our wholly owned subsidiary, Cell MedX (Canada) Corp., (the “Subsidiary”) under the laws of the Province of British Columbia.
We are a biotech company focused on the discovery, development and commercialization of therapeutic and non-therapeutic products that promote general health, pain relief, wellness and alleviate complications associated with medical conditions including, but not limited to: diabetes, Parkinson’s disease, high blood pressure, neuropathy and kidney function. Our Subsidiary is engaged in development and manufacturing of therapeutic devices based on our proprietary eBalance® Technology, which harnesses power of microcurrents and their effects on human body.
BUSINESS OF CELL MEDX
eBalance® Technology Acquisition
We acquired our proprietary technology for the use of microcurrents for the treatment of diabetes and related ailments, which we call eBalance® Technology, on November 25, 2014, when we entered into a Technology Purchase Agreement with Jean Arnett and Bradley Hargreaves (the “Purchase Agreement”).
Pursuant to the Purchase Agreement, Ms. Arnett and Mr. Hargreaves sold to us all of their respective rights, title and interests in and to the eBalance® Technology. In consideration for the sale of the eBalance® Technology, we paid Ms. Arnett and Mr. Hargreaves a total of $100,000 and issued to each of Ms. Arnett and Mr. Hargreaves options for
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the purchase of up to 10,000,000 shares (20,000,000 shares in total) of our common stock at an initial exercise price of $0.05 per share (the “Options”) of which Options to acquire up to 2,500,000 shares of our common stock vested on August 26, 2015, and 2,484,145 of vested options were exercised in August of 2020 for total consideration to the Company of $124,243. Remaining Options were cancelled pursuant to a letter agreement with Ms. Arnett and Mr. Hargreaves, dated for reference September 26, 2016.
eBalance® Technology
eBalance® Technology is based on the science of bioelectric signals, their effect on epigenetic events within human body, and ability to modify and effect the behavior of cells, tissue, and organs. The eBalance® Systems utilize microcurrent electrical therapy (MEY) to deliver subsensory micro amperage current to the patient/user to support general wellness or provide temporary relief of pain. Based on this technology Cell MedX is developing a radically different and very promising family of devices whose core technology demarcates it from the approaches currently in use and those in the “future advance” pipeline as reflected in current medical literature.
eBalance® Technology is intended to expand the traditional healthcare model of managing various pathological diseases and ailments, such as diabetes, Parkinson’s disease, neuropathy, poor kidney function, high blood pressure, as well as others. eBalance® Technology became a cornerstone to the Company’s medical device systems, eBalance® Pro and eBalance® Home. eBalance® Pro System was designed for use by healthcare professionals in a clinical setting; eBalance® Home System, due to its simple interface and ease of use, enables patients to easily incorporate it into their lifestyles and continue to manage their symptoms in the comfort of their own home or while traveling.
A research and development plan adopted by the Company included a series of investigations that allowed the Company to move the eBalance® Device from a prototype stage through a series of refinements and enhancements to achieve the safety and efficacy objectives of the eBalance® Medical Device Systems and define a set of claims that were used for submission to the FDA’s rigorous Pre-Market Approval (PMA) process for 510(k) clearance, as well as to receive Health Canada Class II Medical Device System Certification for the eBalance® Home System and eBalance® Pro System. Both systems are intended to be used for temporary relief of pain associated with sore-aching muscles in the shoulder, waist, back, neck, upper extremities (arm) and lower extremities (leg) due to strain from exercise or normal household work activities and general relation. The Health Canada Certifications received for the eBalance® Home System and eBalance® Pro System in July and August 2020, respectively, allowed the Company to define marketing claims for the eBalance® products. The results of the clinical observational trial the Company finalized during its Fiscal 2018 year (the “Clinical Study”) on the effects of eBalance® technology confirmed that claims such as diabetes management, reductions in average blood sugar (HbA1C), improvement of other markers that denote the degree and quality of blood sugar control, pain management, blood pressure control, and alleviation of symptoms associated with Parkinson’s disease, among several other positive results, warrant further investigation of the eBalance® Systems. Due to the Company’s financial situation, the Company was forced to suspend further research of the eBalance® Technology, including the PMA process for 510(k) clearance, and is at risk of also defaulting on its Health Canada Class II Medical Device System Certification licenses that were issued for both eBalance® Home and eBalance® Pro Systems.
Scientific Foundations
The application of electromagnetic forces to human tissues to effect biologic change has been explored since the 19th century. Recent advances in molecular biology and imaging technology have allowed insight into the sources and downstream consequences of ion flows in complex organisms. Ion flows and transmembrane gradients produced by ion channels and pumps are key regulators of cell proliferation, migration, and differentiation.
In complement to the current focus on molecular genetics and stem cell biology, artificial modulation of bioelectrical signals in somatic tissues is a powerful modality that might result in profound advances in understanding and augmentation of regenerative capacity. Molecular bioelectricity and its role in cell-to-cell signaling and epigenetics (altering cell behavior without altering genes) provides a new pathway to discovery of technologies that can counteract the effects of many diseases.
Many cells in the human body are “electrically excitable” including those involved with production of chemical signals that affect blood sugar. One example of such a cell of the endocrine type is the L cell, which resides in the gut and secretes cell glucagon-like peptide-1 (GLP-1), glucagon-like peptide-2 (GLP-2), peptide YY (PYY) and oxyntomodulin. GLP-1 is an enteric hormone that stimulates insulin secretion and improves glycaemia in Type 2 diabetes. There is evidence that in Type 2 diabetes these cells become “unsynchronized”. Growing these cells in tissue
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culture and subjecting them to specific electrical signals can act to resynchronize their chemical activity and alter their behavior as a “dispersed” metabolic organ. This serves as an illustration of how endogenous ion flows may serve as key epigenetic regulators of cell behavior and suggests that bioelectric mechanisms might be harnessed at a whole organism level to cause functional regenerative changes. It is possible that eBalance® Technology may affect these processes, although that has yet to be established. We were planning to explore this hypothesis in greater detail during our future clinical trials, however, due to lack of funding, new clinical trials are not being planned
The eBalance® Systems deliver microcurrent energy as electrical pulses that pass through the skin to the underlying peripheral nerves to aid in the blocking of pain signals traveling to the brain. These support general relaxation, pain management and may offer additional clinical benefits, as observed in the Company’s Health Canada approved Clinical Study.
Market Opportunity - Diabetes and its Complications
Diabetes care is one of the main opportunities the Company sees for the use of its eBalance® Technology. Diabetes care was also a main objective of the Company’s first clinical observational trial. Diabetes is a severe and debilitating disease with profound consequences, both for the individual and for society. The complications of diabetes are devastating, and the economic costs of care comprise a substantial portion of health care budgets. Despite the best efforts of the scientific community to devise a cure, the incidence of diabetes is on the rise.
According to information published by the International Diabetes Federation (“IDF”) in its IDF Diabetes Atlas 9th Edition 2019 (www.diabetesatlas.org), in 2019, approximately 463 million adults (20-79 years) were living with diabetes; by 2045 this will rise to 700 million. A further 374 million people are at an increased risk of developing Type 2 diabetes.1
Diabetes mellitus (DM) is a heterogeneous group of metabolic disorders characterized by hyperglycemia (high blood sugar levels) with impaired metabolism of carbohydrate, fat and proteins resulting from defects in insulin secretion, insulin action, or both. Diabetes is one of the world’s oldest diseases with the syndrome being discovered centuries ago. The worldwide increase in the prevalence of diabetes has highlighted the need for increased research efforts into treatment options for both the disease itself and its associated complications.
Type 1 diabetes is caused by destruction of the insulin secreting (beta) cells of the pancreas. The pathogenesis involves autoimmune processes that lead to an absolute insulin deficiency. Type 2 diabetes is caused by a combination of genetic and non-genetic factors that result in insulin resistance and insulin deficiency. Non-genetic factors include increasing age, high caloric intake, obesity, central adiposity, sedentary lifestyle, and low birth weight. This group comprises approximately 90-95% of cases in the diabetes syndrome.
Chronic hyperglycemia leads to various metabolic, hormonal, and physiologic alterations in the body, which further develop a number of secondary complications, resulting in the major increases in morbidity and mortality seen with all types of diabetes. Diabetes dramatically increases the risk of cardiovascular problems, such as coronary artery disease, chest pain (angina), heart attack, stroke, narrowing of arteries (atherosclerosis) and high blood pressure.
High blood sugar over time can injure the walls of the tiny blood vessels (capillaries) that nourish nerves, especially in the legs, causing tingling, numbness, burning or pain. Gradually, all sensation can be lost. Nerve damage in the feet or poor blood flow to the feet increases the risk of various foot complications. In diabetics, minor wounds easily become serious infections, which may heal poorly. Severe damage might require toe, foot or leg amputation.
Diabetes can damage the blood vessels of the retina (diabetic retinopathy), potentially leading to blindness. It also increases the risk of other serious vision conditions, such as cataracts and glaucoma. Diabetic hypertension is a major contributor to kidney failure or irreversible end-stage kidney disease, which often requires dialysis or a kidney transplant.
Damage to the nerves that control digestion can cause problems with nausea, vomiting, diarrhea or constipation. For men, erectile dysfunction may be an issue. Diabetes may leave people more susceptible to a variety of skin disorders, including bacterial and fungal infections. Type 2 diabetes may increase the risk of Alzheimer's disease.
Expansion of Disease Focus
1 International Diabetes Federation. (2019). IDF Diabetes Atlas - Ninth Edition - https://www.diabetesatlas.org/en/
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Given the size of the market for diabetes control and management, the current eBalance® Technology has significant potential of success based solely on treating complications caused by diabetes. However, in order to capture a larger market share, the Company was looking into developing more specialized software/treatment options which would have allowed the Company to continue to grow its market share and ensure constant revenue streams. The Company was planning to commence development of specialized software to target other ailments such as gout, hypertension, heart disease, neurological disorders, and depression, among others. As of the date of this Annual Report on Form 10-K, the Company’s lack of funding and unfavorable financial position made it impossible to roll out such expansion, and management felt it necessary to stop all further research and development of eBalance® Technology until the Company is financially stable and has secured substantial financing to support its day-to-day operations and further research opportunities. As of the date of this Annual Report on Form 10-K, the Company is unable to provide any assurance that its attempts to raise additional capital will be successful.
Empirical Modeling
The first-in-human observations took place over many years and were carefully documented. The results of these observations lead to the belief that a specific device with a specific set of bioelectric signals of known waveform, frequency, amplitude, pulse, and duration, accompanied by sensing circuits that respond to fluctuations in the body’s response, in a closed feedback loop, produced cumulative effects that led to remarkable global effects in functional aspects of living in a person who had lived with Type 1 diabetes since age 10. Research and development involving patients with longstanding Type 2 diabetes, yielded findings of a similar nature in a limited time frame. These observations were followed by broader observational studies by Cell MedX.
Effects observed in these observational studies include subjective reports of diminished fatigue, improved cognition, diminished neuropathic limb pain, improved sleep, reduction in swelling of extremities, improved skin appearance in color and texture, and a reduction in visual disturbance. Objective measures included healing of wounds, control of blood pressure leading to discontinuation or reduction of medication, and greatly improved control of blood sugars with remarkable diminution in HbA1C (which reflects average blood sugar over months). Remarkably, in the context of Type 1 Diabetes with other potential variables remaining the same, insulin requirements diminished to a considerable degree.
Clinical Trials
During January through March 2015, a preliminary Pilot Trial (the “Pilot Trial”) was conducted which was designed to examine the short-term metabolic impact of a single treatment with eBalance® Technology on two diabetic subjects. Pre- and post-treatment blood samples from each subject were sent for extensive metabolic pathway analysis at the University of Alberta Metabolomics Unit.
From those studies we observed alterations in several pathways, which are known to be deficient in persons with diabetes. The results of the Pilot Trial were notable in that significant shifts in metabolites related to blood sugar handling and disposal occurred in a very short time frame, with the only intervening variable being a 10-minute treatment with eBalance® Technology.
The findings from the Pilot Trial were then used to inform further experimentation, including selection of metabolic end points for testing during a Phase IB clinical trial, which we started preparations for in July 2015. Due to shortage in available funding, the Phase IB clinical Trial was cancelled.
During the fourth quarter of our fiscal 2016 we engaged Nutrasource Diagnostics Inc. (“Nutrasource”) with Dr. Richard Tytus of Hamilton Medical Research Group as the Lead Investigator, to commence observational clinical trial in Canada (“Clinical Study”) to assess and quantify eBalance® technology’s ability to alter key metabolic pathways while targeting improved blood sugar control.
Based on finalized investigational protocol, which received Health Canada’s approval on January 12, 2017, the Clinical Study was structured to assess the impact of three months of the eBalance® therapy, as an adjunct treatment, on HbA1c in thirty (30) Type 1 and Type 2 diabetics. The secondary endpoints of the Clinical Study were defined to observe changes from baseline and medical history of each Clinical Study subject in the following:
·Insulin sensitivity
·Diabetic neuropathy
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·Diabetic foot pain and numbness
·Wound healing
·Blood pressure
·Kidney function
·Any other changes reported by patients
In-patient phase of the Clinical Study was completed on July 24, 2017, and a final clinical report was submitted to Health Canada for final approval on January 19, 2018.
All 30 subjects (100%) taking part in the Clinical Study followed through to completion. The treatment was considered safe for the purposes of the Clinical Study. There were no significant treatment-related adverse events or negative abnormalities in routine hematology, biochemistry, vital signs or physical findings for the duration of the Clinical Study.
The Clinical Study resulted in clinically significant improvement in several biometric markers, including HbA1c and secondary efficacy endpoints as noted above.
Diabetes
The Clinical Study, tested the effectiveness of the eBalance® therapy as an adjunct treatment for diabetes and related complications in Type 1 and Type 2 diabetics over three months. The results of the Clinical Study showed that after three months of eBalance® treatments, average fasting blood glucose levels declined by 12.3% from 10.5 to 9.2 millimoles per litre. Plasma insulin declined by 46.7% from 168 to 78 picomoles per liter. These results indicate that, on average, the blood glucose uptake was increased and that less insulin was required to achieve that uptake. HbA1c levels declined by 0.16% from 8.36% to 8.20%. A longer double-blind, placebo-controlled study may be conducted in the future to determine if HbA1c levels would be further reduced as improving HbA1c by just 1% for individuals with Type 1 or Type 2 diabetes lowers their risk of combined microvascular complications by 25%.2
One of the largest diabetes clinical trials ever conducted, the UK Prospective Diabetes Study (UKPDS) showed that for every 1% reduction in HbA1c, the relative risk for:
·Microvascular complications decreased by 37%;
·Heart Failure decreased by 16%;
·Diabetes-related deaths decreased by 21%; and
·Myocardial infarction decreased by 14%.3
Blood pressure
After seven weeks of treatments, systolic pressure, the higher amount of pressure in the arteries during the contraction of the heart muscle, declined by 9.6% from 142 to 128 millimeters of mercury and stabilized at the lower level through to the end of the Clinical Study. During the same period, diastolic pressure, the pressure in the arteries when the heart muscle is between beats, and which is usually represented by a lower number, declined by 10.4% from 78 to 70 millimeters of mercury and also remained at the lower level. The Company has been encouraged to undertake further studies on subjects with higher blood pressures to determine if a proportional effect is obtained.
Pain and numbness
Neuropathy is nerve damage that can occur with diabetes as a result of high blood glucose levels and high blood pressure. The damage most often affects the extremities and causes pain, tingling or numbness in the hands, arms, legs and feet. Only two subjects suffered from pain at the beginning of the Clinical Study and both reported feeling either less pain or reduced coldness or numbness in their extremities. These findings support the Company’s in-house informal observation and testing results with a number of people who have used eBalance® device. Future studies may recruit subjects who are experiencing pain and loss of feeling.
2 Diabetes Control and Complications Trial (DCCT): https://www.niddk.nih.gov/about-niddk/research-areas/diabetes/blood-glucose-control-studies-type-1-diabetes-dcct-edic.
3 The UK Prospective Diabetes Study (UKPDS): clinical and therapeutic implications for type 2 diabetes (UKPDS): https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2014359/
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Kidney function (Nephropathy)
Nephropathy is damage caused to the small blood vessels in the kidneys by high blood glucose levels and high blood pressure that prevents them from functioning properly or even causes them to fail completely. When the blood vessels in the kidneys are injured, the kidneys cannot clean the blood properly. The body will retain more water and salt than it should, which can result in weight gain and edema. The decrease in eGFR (estimated glomerular filtration rate) observed in the Clinical Study and a reduction in edema seen in our informal testing may warrant further investigation to assess the effect of eBalance® treatments on kidney function in diabetics.
Product Development
On October 1, 2015, we entered into a development agreement with Mr. Claudio Tassi (the “Development Agreement”) for the development of the first eBalance® Professional Series Device (the “Prototype”). Based on the Development Agreement we agreed to pay Bioformed Aestetic SL (“Bio4Med”), a company Mr. Tassi is a director of, $12,848 (EURO €12,000) and, upon successful completion of the development of the first eBalance® Prototype, to issue to Mr. Tassi 100,000 shares of our common stock. We received the first Prototype in November 2015.
On December 4, 2015, we executed a non-binding letter of intent (“LOI”) with Mr. Tassi and Bio4Med. The LOI contemplated that (i) we will enter into a technology development and license agreements with Mr. Tassi and Bio4Med to continue development of therapeutic devices based on the eBalance® Technology; (ii) upon approval of the first Prototype, we will place an order for the production of 25 devises; and (iii) Mr. Tassi will provide his services for an initial term of four months commencing on December 4, 2015.
On December 15, 2015, as contemplated under the LOI, we ordered the first batch which consisted of 25 eBalance® Pro devices with the same configuration as the original Prototype, which were manufactured in early 2016. These devices were designed as a stand-alone unit, controlled by proprietary software installed in an external computer specifically designed to be used with the eBalance® device. Once internally tested, the devices were distributed to selected clinics and practitioners as well as used directly by the Company in our in-house observations to see the effects of the eBalance® Therapy on the human body.
After several months of testing, we received a feedback from the clinicians and participants, which allowed for further refinement of the devices, which were limited to aesthetics and ease of use. The Company ordered from Bio4Med 20 units of the second generation eBalance® device, which were received in December 2016. These devices were also distributed to practitioners for observations and further testing.
In early 2017 the management decided to discontinue negotiations with Bio4Med on technology development and license agreements, as contemplated under the LOI, and chose to move manufacturing of the eBalance® devices to Canada. The decision to move to Canada was the outcome of further research we had done on potential markets, tax implications of manufacturing the devices in Europe versus in Canada, cross border transfer pricing, availability of raw material and the control of the production processes. As such, in the fourth quarter of our Fiscal 2017, we entered into a production agreement with an ISO 9001 certified manufacturing facility in Coquitlam, BC, and selected other local suppliers for sourcing essential components.
On October 16, 2017, we entered into a production development agreement (the “Development Agreement”) with Western Robotics Ltd. (“Western Robotics”) with an objective to enhance our eBalance® device based on the findings from the Clinical Study and the Company’s ongoing in-house observations. The Company paid Western Robotics CAD$250,000 for the initial re-engineering of the eBalance® devices.
During the 3rd quarter of our Fiscal 2019, we completed manufacturing of the first batch of the Canadian-built eBalance® devices. The new eBalance® Devices were certified by LabTest Certification Inc. as Class A (professional use) and Class B (in-home use) devices, and conform to CSA, CE and UL standards for electrical safety and emission standards, and are eligible to bear the LabTest Certification Mark with adjacent indicators “C” and “US”.
Majority of the eBalance® devices manufactured in the third quarter of our Fiscal 2019 were used for further in-house observations as well as for promotional and introductory material.
The successful completion of the first batch of Canadian-built eBalance® Systems allowed the Company to continue manufacturing, research and development, along with testing of the eBalance® Systems. As of the date of this Annual Report, the Company’s products based on eBalance® Technology include two Health Canada Class II Medical Device
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Systems - the eBalance® Pro System, and eBalance® Home System. Due to the financial difficulties the Company faces, the Company was required to stop any further research and development, and the management decided to let its MDSAP certification lapse, which will most likely result in the Company losing the Medical Device Licenses granted for its eBalance® Home and Pro systems.
eBalance® Home and Pro Systems
The eBalance® Home and Pro Systems include the eBalance® Console which acts as the central controller for three pre-programmed microcurrent algorithms (Wellness, Pain Management, and Dual) referred to as Treatment Options. In eBalance® Pro System the Treatments are administered to patients using Hand Bars, Foot Plates, and/or Pen Probes. The eBalance® Pro System is designed for Professional Use by Healthcare practitioners in a clinical setting. The Hand Bars and Foot Plates are used for general wellness and pain management while the Pen Probes are used in localized pain management. In eBalance® Home System the Treatments are administered using Hand Bars and Foot Plates and are controlled by the eBalance® Console. The eBalance® Home System is for Home Use and is available without a prescription.
Research and development, including FDA and MDSAP audits are costly, and require large financing. Currently, we do not have the required financing in place, and therefore we stopped all our plans to progress eBalance® Home and Pro Systems to market. We are continuing our efforts to raise capital through debt or equity financing or a combination of both, however, as of the date of this Annual Report on Form 10-K have not been successful in securing additional funds. We are also considering other alternatives to financing through joint-venturing and/or licensing further development of the eBalance® Technology.
Medical Device Regulations and Government Approvals
The manufacture, packaging, marketing and importing of medical devices is heavily regulated in the United States, Canada and Europe. Further, we expect that any other countries in which we may seek to sell or market devices based on the eBalance® Technology will similarly have an extensive regulatory environment.
The U.S. Food and Drug Administration’s (FDA) Center for Devices and Radiological Health (CDRH) is responsible for regulating firms that manufacture, repackage, re-label and/or import medical devices sold in the United States. Health Canada’s Health Products and Food Branch Inspectorate is responsible for regulating the manufacture, labeling, packaging, distribution and import of medical devices sold in Canada.
At the end of February 2020, we completed an audit required for certification of our quality management systems (“QMS”) under Stage 2 Medical Device Single Audit Program (“MDSAP”) and under ISO 13485:2016 standard. The audit was carried out by BSI Group Canada Inc. (“BSI”) and included the following:
-The effectiveness of our QMS incorporating the applicable regulatory requirements outlined by ISO13485:2016 standard and as required under MDSAP;
-Product/process-related technologies;
-Adequate technical documentation for our eBalance® device in relation to ISO13485:2016 standard and MDSAP; and
-Our ability to comply with these requirements.
The assessment report was finalized in mid-March 2020, and on March 31, 2020, the Company received Certificate No. FM 716345, certifying that the Company operates a Quality Management System which complies with the requirements of ISO 13485:2016 for design, development and manufacture of microcurrent therapeutic devices for wellness and pain relief, and on June 2, 2020, received a certificate #MDSAP 716274.
Following the receipt of ISO and MDSAP certificates, we filed two separate applications for Class II Medical Device Licenses for the eBalance® Pro System and the eBalance® Home System with Health Canada. On July 17, 2020, Health Canada issued a Class II Medical Device License #104925 for our eBalance® Home System, and on August 18, 2020, issued a Class II Medical Device License #105044 for our eBalance® Pro System.
In order to keep the Class II Medical Licenses valid, the Company is required to go through annual MDSAP audits, for which, as at the date of this Annual Report on Form 10-K, the Company did not have adequate financing. Therefore we are at risk of losing our Class II Medical Device Licenses.
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Prior to selling our eBalance® Home and Pro Systems for the treatment in the United States, the Company will be required to apply for an approval from the FDA. We were in the process of completing the necessary documentation and testing required for the 510(K) submission to the FDA, however, due to the financial situation of the Company, the process was stopped, and will most likely result in our application expiring.
Third Party Payers / Private Insurers
Reimbursement for medical devices through Medicare and Medicaid in the U.S., and through health protectorates in other nations, is not guaranteed. Third party private payers or private insurers typically follow the lead of government healthcare providers. A decision as to whether a device or treatment is covered involves extensive negotiations and is typically predicated on the concept of health cost savings. If the device can be shown to reduce health care costs through prevention of expensive complications of diabetes, such applications for approvals would be more favorably reviewed.
Marketing Plans
The Company intended to commence its marketing plans for eBalance® Home and eBalance® Pro Systems in Canada in the fall of 2021 by engaging authorized dealers and distributors of medical equipment to market its eBalance® Pro System to professional and institutional users. The eBalance® Home System was to be marketed through authorized dealers as well as in-house sales force. Due to the Company’s financial situation, the Company was not able to realize its marketing plans in its fiscal 2022, and up to the date of the filing of this Annual Report on Form 10-K. In the US, the Company cannot market its eBalance® Systems until such time as both eBalance® Systems receive FDA 510(k) clearance.
On March 21, 2019, the Company entered into an exclusive worldwide distribution agreement (the “Agreement”) with Live Current Media, Inc. (“LIVC”) for worldwide distribution rights to eBalance® devices in an end-user market (the “Direct Rights”). John da Costa, Cell MedX’s director and COO, was a director of LIVC until his resignation in April of 2022, Mr. David Jeffs, a son of Mr. Richard Jeffs, Cell MedX’s largest shareholder, is a director and President of LIVC. LIVC paid an initial one-time fee of $250,000. In order to maintain the exclusivity, LIVC will be required to order a minimum of 2,000 devices by the end of a 24-month period from the date the eBalance® device receives its 510K clearance from the FDA (the “Initial Term”). The Company agreed to sell the eBalance® devices to LIVC at a 20% discount to the regular retail price in place at the time of the order (the “License Fee”), with 50% of the License Fee payable at the time of placing an order, and remaining 50% payable on the specified delivery date of the devices. In addition, the Company agreed that during the Initial Term the License Fee for the eBalance® devices will be fixed at CAD$2,400 per device. In addition to the License Fee, LIVC was required to pay a monthly recurring fee per each eBalance® device equal to 50% of the regular monthly home-use fee set by the Company. Following the Initial Term, the minimum monthly fee was to be $100,000.
On January 29, 2020, the Company reacquired the Direct Rights from LIVC in exchange for a royalty on all sales of the eBalance® device up to an aggregate $507,500 calculated as follows:
1.$25 per eBalance® device sold, not to exceed 3,500 eBalance® devices; and
2.$5 per month for each eBalance® device generating recurring monthly revenue, up to an aggregate royalty of $420,000.
Should the recurring monthly fee be cancelled due to a change in the Company’s distribution model, the royalty will be replaced by a one-time payment of $145 per eBalance® device sold up to an aggregate of $507,500.
In addition to the royalty, the Company issued to LIVC share purchase warrants (the “Warrants”) entitling LIVC to purchase up to two million shares of the Company’s common stock as follows:
1.1,000,000 shares at $0.50 per share (the “$0.50 Warrant”) expiring on March 12, 2023
2.1,000,000 shares at $1.00 per share (the “$1.00 Warrant”) expiring on March 12, 2023
As at the date of this Annual Report on Form 10-K, these above warrants expired unexercised.
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Competition
The market for treatments that assist in the control and management of diabetes, its complications, as well as other ailments, including pain management, are highly competitive. However, since the Company’s eBalance® Pro and eBalance® Home Systems are based on the microcurrent therapy, which is not yet widely accepted in traditional medicine, direct competition for these Systems is not well defined.
Indirect competitors include a multitude of pharmaceutical companies that produce various drugs to maintain and prevent diabetes related complications; companies producing glucose monitoring devices, other pharmaceuticals to treat diseases and symptoms.
Competitors in electrical/microcurrent therapies include BodiHealth Systems, focusing on pain relief market in US; Electromedical Products International, Inc., the company that developed Alpha-Stim® PPM, which treats and alleviates acute, chronic or postoperative pain using microcurrent therapy, and several other companies currently involved in the microcurrent and electrical current therapies.
Patents/Trademarks/Licenses/Franchises/Concessions/Royalty Agreements or Labor Contracts
The Company’s eBalance® Technology is not patented.
On August 10, 2021, the Canadian Intellectual Property Office approved the Company’s EBALANCE trademark application number 1867918, which the Company filed on November 14, 2017, and issued a certificate of registration number 1,104,935 registering the trademark EBALANCE in the name of the Company. Earlier, on May 8, 2019, the European Union approved the Company’s eBalance® trademark application and issued certificate of registration number 017997155 registering the trademark eBalance® in the name of the Company. The eBalance® trademark was also registered in the U.K., bearing the registration number UK00003345540. On March 15, 2022, United States Patent and Trademarks Office issued a certificate of registration number 6,669,175 registering the trademark EBALANCE in the name of the Company.
On September 6, 2018, the Company entered into an IP Royalty Agreement with an IP Vendor. Pursuant to the IP Royalty Agreement the Company agreed to acquire certain additional developments and improvements for its eBalance® devices that were developed by the IP Vendor in exchange for a perpetual royalty of USD$350 or CAD$350, depending on the currency the revenue is generated in, for each device sold, distributed, or licensed whether through a distributor, sales representative or by the Company itself.
Also on September 6, 2018, the Company entered into a Royalty Agreement with Mr. Richard Jeffs, the Company’s major shareholder. Pursuant to the Royalty Agreement, the Company agreed to pay Mr. Jeffs, in perpetuity, a 10% royalty on the revenue the Company receives from its distributors or end-users introduced to the Company by Mr. Jeffs.
Number of Total Employees and Number of Full Time Employees
We currently have no employees other than our executive officers, who provide their services as independent consultants. We contract for the services of medical and technical staff we require to administer our observational studies and the clinical trials, as well as other consultants on “as needed” basis.
ITEM 1A. RISK FACTORS.
There is a high degree of risk associated with buying our common stock. Prospective investors should carefully read this Annual Report on Form 10-K and consider the following risk factors when deciding whether to purchase our shares. These are speculative stocks and should be purchased by only those who can afford to lose their entire investment.
The risk factors outlined below are some of the known, substantial, material and potential risks that could adversely affect our business, financial condition, operating results and common share value. We cannot assure that we will successfully address these or any unknown risks and a failure to do so can have a negative impact on your investment. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.
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Risks Associated with our Company and our Industry
We operate in a highly competitive market. We face competition from large, well established medical device manufacturers and pharmaceutical companies in the market for treatment of pain and management of diabetes and related ailments. Many of these companies are very well accepted by health practitioners and have significant resources, and we may not be able to compete effectively.
The market for treatment and management of diabetes and related ailments is intensely competitive, subject to rapid change and significantly affected by new product introductions. We compete indirectly with pharmaceutical and medical device companies, such as Bayer Corp., Becton Dickinson Corp., LifeScan Inc., a division of Johnson & Johnson, the MediSense Inc., and TheraSense Inc. These competitors’ products are based on traditional healthcare model and are well accepted by health practitioners and patients. If these companies decide to penetrate our target market they could threaten our position in the market.
We are subject to numerous governmental regulations which can increase our costs of developing the eBalance® Technology and products based on this technology.
Our products are subject to rigorous regulation by the FDA, Health Canada and numerous international, supranational, federal, and state authorities. The process of obtaining regulatory approvals to market a medical device can be costly and time-consuming, and approvals may not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, our products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues, and in substantial additional costs. In addition, no assurance can be given that we will remain in compliance with applicable FDA, Health Canada and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, advertising, and post-marketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns.
Changes in the health care regulatory environment may adversely affect our business.
A number of the provisions of the U.S. Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 and its amendments changed access to health care products and services and established new fees for the medical device industry. Future rulemaking could increase rebates, reduce prices or the rate of price increases for health care products and services, or require additional reporting and disclosure. We cannot predict the timing or impact of any future rulemaking.
Inability to protect and enforce our intellectual property rights could adversely affect our financial results.
Intellectual property rights, including patents, trade secrets, confidential information, trademarks, tradenames, and other forms of trade dress, are important to our business. An inability to defend, protect and enforce our intellectual property rights could adversely affect our financial results, even if we are successful in developing and marketing products based on the eBalance® Technology. In addition, an adverse outcome in any litigation or interference proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. In addition, a finding that any of our intellectual property rights are invalid could allow our competitors to compete more easily and cost-effectively. Thus, an unfavorable outcome in any patent litigation or interference proceeding could have a material adverse effect on our business, financial condition, or results of operations.
The cost to us of any patent litigation or interference proceeding could be substantial. Uncertainties resulting from the initiation and continuation of patent litigation or interference proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and interference proceedings could also absorb significant management time.
Competitors' intellectual property may prevent us from selling our products or have a material adverse effect on our future profitability and financial condition.
Competitors may claim that our technology infringes upon their intellectual property. Resolving an intellectual property infringement claim can be costly and time consuming and may require us to enter into license agreements.
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We cannot guarantee that we would be able to obtain license agreements on commercially reasonable terms. A successful claim of patent or other intellectual property infringement could subject us to significant damages or an injunction preventing the manufacture, sale or use of our product. Any of these events could have a material adverse effect on our profitability and financial condition.
Our research and development efforts may not result in the development of commercially successful products based on our eBalance® Technology, which may hinder our profitability and future growth.
We continue to further research our eBalance® Technology and develop products based on the technology. In order to develop commercially marketable products, we will be required to commit substantial efforts, funds, and other resources to research and development. A high rate of failure is inherent in the research and development of new products and technologies. We must make ongoing substantial expenditures without any assurance that our efforts will be commercially successful.
Failure can occur at any point in the process, including after significant funds have been invested. Planned products may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others.
Even if we successfully develop marketable products or commercially develop our current technology, we may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors' innovations.
Innovations may not be accepted quickly in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or whether our products under development will be launched, whether we will be able to develop, license, or otherwise acquire new products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause our products to become obsolete, causing our revenues and operating results to suffer.
New products and technological advances by our competitors may negatively affect our results of operations.
Our products face intense competition from our competitors. Competitors' products may be safer, more effective, more effectively marketed or sold, or have lower prices or superior performance features than our products. We cannot predict with certainty the timing or impact of the introduction of competitors' products.
Significant safety concerns could arise for our products, which could have a material adverse effect on our revenues and financial condition.
Health care products typically receive regulatory approval based on data obtained in controlled clinical trials of limited duration. Following regulatory approval, these products will be used over longer periods of time in many patients. Investigators may also conduct additional, and perhaps more extensive, studies. If new safety issues are reported, we may be required to amend the conditions of use for a product. For example, we may be required to provide additional warnings on a product's label or narrow its approved intended use, either of which could reduce the product's market acceptance. If serious safety issues arise with our product, sales of the product could be halted by us or by regulatory authorities. Safety issues affecting suppliers' or competitors' products also may reduce the market acceptance of our products.
Inability to attract and maintain key personnel may cause our business to fail.
Success depends on the acquisition of key personnel. We will have to compete with other companies both within and outside the healthcare industry to recruit and retain competent employees and consultants. If we cannot maintain qualified personnel to meet the needs of our anticipated growth, we could face material adverse effects on our business and financial condition.
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We are recently formed, lack operating history and to date have generated only minimal revenues. If we cannot increase our revenues to start generating profits, our investors may lose their entire investment.
We are a recently formed company and to date have generated only minimal revenues. No profits have been made to date and if we fail to make any then we may fail as a business and an investment in our common stock will be worth nothing. We have a limited operating history and thus our progress as well as potential future success cannot be reasonably estimated. Success has yet to be proven and financial losses should be expected to continue in the near future and at least until such time that we enter commercial production of devices based on the eBalance® Technology, of which there is no assurance. As a new business, we face all the risks of a ‘start-up’ venture including unforeseen costs, expenses, problems, and management limitations and difficulties. Since inception, we have accumulated deficit of $9,657,735 and there is no guarantee, that we may ever be able to turn a profit or locate additional opportunities, hire additional management and other personnel.
We need to acquire additional financing, or our business will fail.
We must obtain additional capital, or our business will fail. In order to continue development of our eBalance® Technology and to successfully complete observational and clinical trials, we must secure more funds. Currently, we have limited resources and have already accumulated a deficit. We do not have immediate sources of financing. Financing may be subject to numerous factors including investor sentiment, acceptance of our technology and so on. We may also have to borrow large sums of money that require substantial capital and interest payments.
Risks related to our stock
We expect to raise additional capital through the offering of more shares, which will result in dilution to our current shareholders.
Raising additional capital through future offerings of common stock is expected to be necessary for our Company to continue. However, there is no guarantee that we will be successful in raising additional capital. Issuance of additional stock will increase the total number of shares issued and outstanding resulting in decrease of the percentage interest held by each of our shareholders.
There is a limited market for our common stock meaning that our shareholders may not be able to resell their shares.
Our common stock currently has a limited market which may restrict shareholders’ ability to resell their stock or use their stock as collateral. Thus, the shareholders may have to sell their shares privately which may prove exceedingly difficult. Private sales are more difficult and often give lower than anticipated prices.
Should a larger public market develop for our stock, future sales of shares may negatively affect their market price.
Even if a larger market develops, the shares may be sparsely traded and have wide share price fluctuations. Liquidity may be low despite there being a market, making it difficult to get a return on the investment. The price also depends on potential investor’s feelings regarding the results of our operations, the competition of other companies’ shares, our ability to generate future revenues, and market perception about future of microcurrent technologies.
Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.
Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:
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·contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
·contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws;
·contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
·contains a toll-free telephone number for inquiries on disciplinary actions;
·defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
·contains such other information and is in such form, including language, type, size, and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
We have not paid nor anticipate paying cash dividends on our common stock.
We have not declared any dividends on our common stock during the past two fiscal years or at any time in our history. The Nevada Revised Statutes (the “NRS”), provide certain limitations on our ability to declare dividends. Section 78.288 of Chapter 78 of the NRS prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:
(a)we would not be able to pay our debts as they become due in the usual course of business; or
(b)except as may be allowed by our Articles of Incorporation, our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution.
We do not expect to declare any dividends in the foreseeable future as we expect to spend any funds legally available for the payment of dividends on the development of our business.
We are an OTC reporting issuer under applicable Canadian securities laws. The British Columbia Securities Commission has issued a cease trade order in respect of our securities for failing to comply with our reporting obligations under applicable Canadian securities laws.
As an “OTC reporting issuer” under applicable Canadian securities laws, we are required to make periodic filings with applicable Canadian securities authorities, including annual and interim financial statements and management’s discussion & analysis relating to those periods. Due to a lack of sufficient funds, we were late filing our Annual Report for the fiscal year ended May 31, 2022, and we have not yet made the required filings for the interim periods ended August 31, 2022, November 30, 2022 and February 28, 2023. On October 11, 2022, the British Columbia Securities Commission issued a cease trade order in respect of our securities. As a result of this order, holders of our securities in Canada will not be able to trade in our securities until the order is revoked.