Our products are subject to regulation by numerous government agencies. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution, installation and servicing of our research, investigational, and commercially-distributed medical devices. These international, national, state, and local agencies set the legal requirements for ensuring our products are safe and effective. Virtually every activity associated with the manufacture and sale of our products are scrutinized on a defined basis and failure to implement and maintain a quality management system could subject us to civil and criminal penalties.
Our ViraTech UV-400 product was cleared by the FDA as a Class II medical device in November 2008. FDA clearance to sell our product as a Class II medical device provides invaluable credibility in the marketplace. By granting a listing, the FDA indicates it has reviewed all aspects of a product, including efficacy of the technology, independent test results and product safety to insure that the product complies with our claims. Few air purification products are listed by the FDA, and it is extremely important that we expend the resources necessary to maintain this listing as a Class II medical device with the FDA. The Company has concluded independent lab tests, which show the rates of inactivation on a MS-2 virus surrogate were comparable to the results shown with bacteria.
Class II devices have a lower potential safety risk to the patient, user, or caregiver, a full premarket analysis are not required for a Class II device. A premarket notification, known as a 510(k) submission, is required to demonstrate that the device is as safe and effective as a substantially equivalent medical device that has been legally marketed in the U.S. Once the FDA has notified us that the product file has been cleared, the medical device may be marketed and distributed in the U.S.
We do not manufacture the products that we sell and are therefore not subject to environmental laws that regulate the manufacture of products. The plants that manufacture our products may be subject to environmental regulations and will have to comply with such regulations in order to deliver marketable products to us. We may be required to comply with national and international environmental regulations related to shipping, storage and disposal of our products and our quality management system will ensure that we are in compliance with all relevant environmental laws.
We own the rights to U.S. Patent No. 6,939,397 with 43 claims covering innovative removable cartridge, housing, UV chamber, UV radiation source, and baffle technology. We also, through our RX Air subsidiary, own the rights to U.S. Patent No. US 6680028 B1, which covers air cleaning units containing an air filter, UV lights, and a photocatalytic filter. We also own a number of trademarks.
While a patent has been issued, we realize that (a) we will benefit from patents issued only if we are able to market our products in sufficient quantities of which there is no assurance; (b) substitutes for these patented items, if not already in existence, may be developed; (c) the granting of a patent is not a determination of the validity of a patent, such validity can be attacked in litigation or we or owner of the patent may be forced to institute legal proceedings to enforce validity; and (d) the costs of such litigation, if any, could be substantial and could adversely affect us.
As of September 30, 2015, we had 1 full-time employee, although we engage contractors as necessary and each of our officers and directors devotes a portion of their time to the affairs of our Company.
We are required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information with the Securities and Exchange Commission (the
“
SEC
”
). The public can obtain copies of these materials by visiting the SEC
’
s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549, by calling the SEC at 1-800-SEC-0330, or by accessing the SEC
’
s website at http://www.sec.gov. In addition, as soon as reasonably practicable after these materials are filed with or furnished to the SEC, we will make copies available to the public free of charge through our website, http://www.uvflutech.com. The information on our website is not incorporated into, and is not part of, this annual report.
With the exception of historical facts stated herein, the matters discussed in this report on Form 10-K are
“
forward looking
”
statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such
“
forward looking
”
statements include, but are not necessarily limited to statements regarding anticipated levels of future revenues and earnings from the operations of the Company, projected costs and expenses related to our operations, liquidity, capital resources, and availability of future equity capital on commercially reasonable terms. Factors that could cause actual results to differ materially are discussed below. We disclaim any intent or obligation to publicly update these
“
forward looking
”
statements, whether as a result of new information, future events, or otherwise.
An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.
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If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.
Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.
We have a limited operating history. As such, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
We cannot accurately predict future revenues or profitability in the emerging market for air purifiers.
The market for ultra violet indoor air purifiers is rapidly evolving. As is typical for a rapidly evolving industry, demand and market acceptance for recently introduced products are subject to a high level of uncertainty. Moreover, since the market for our products is evolving, it is difficult to predict the future growth rate, if any, and size of this market.
Because of our lack of an operating history and the emerging nature of the markets in which we compete, we are is unable to accurately forecast our revenues or our profitability. The market for our products and the long-term acceptance of our products are uncertain, and our ability to attract and retain qualified personnel with industry expertise, particularly sales and marketing personnel, is uncertain. To the extent we are unsuccessful in increasing revenues, we may be required to appropriately adjust spending to compensate for any unexpected revenue shortfall, or to reduce our operating expenses, causing us to forego potential revenue generating activities, either of which could have a material adverse effect on our business, results of operations and financial condition.
We have incurred losses in prior periods and may incur losses in the future.
We incurred net losses of $946,666 for our fiscal year ended September 30, 2015. As of September 30, 2015, we had an accumulated deficit of $5,252,463. We have not achieved profitability in any period, and we expect to continue to incur net losses for the foreseeable future. Should we continue to incur net losses in future periods, we may not be able to increase the number of employees or our investment in capital equipment, sales and marketing programs and research and development in accordance with present plans. Continuation of net losses may also require us to secure additional financing sooner than expected. Such financing may not be available in sufficient amounts, or on terms acceptable to us and may dilute existing shareholders.
We will require additional capital in the future in order to maintain and expand our operations. Failure to obtain required capital would adversely affect our business.
Until such time as we become profitable, we will be required to obtain additional financing or capital investments in order to maintain and expand our operations and take advantage of future business opportunities. Obtaining additional financing will be subject to, among other factors, market conditions, industry trends, investor sentiment and investor acceptance of our business plan and management. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. There are no assurances that we will be able to raise cash from equity or debt financing efforts or that, even if raised, such cash would be sufficient to satisfy our anticipated capital requirements. Further, there is no assurance concerning the terms on which such capital might be available. Failure to obtain financing sufficient to meet our anticipated capital requirements could have a material adverse effect on our business, operating results and financial condition.
If our products do not achieve greater market acceptance, or if alternative brands are developed and gain market traction, our business would be adversely affected.
Our success is dependent upon the successful development and marketing of our products. Our future success depends on increased market acceptance of our air purifier product lines. The air purification community may not embrace our product line. Acceptance of our products will depend on several factors, including cost, product effectiveness, convenience, strategic partnerships and reliability. We also cannot be sure that our business model will gain wide acceptance among retailers or the air purifier community. If the market fails to continue to develop, or develops more slowly than we expect, our business, results of operations and financial condition will be adversely affected. Moreover, if new air purifier brands are developed, our prospective products and current technologies could become less competitive or obsolete. Any of these factors could have a material and adverse impact on our growth and profitability.
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The markets in which we operate are very competitive, and many of our competitors and potential competitors are larger, more established and better capitalized than we are.
Although air purification technology is a rapidly emerging technology, the market for these products is highly competitive and we expect that competition will continue to intensify. Our products compete broadly with other current companies offering air purification technology, including companies that offer UV air purification technology, such as 3M Corporation and Sears. These products compete directly with the products offered by us.
Many competitors have longer operating histories, larger customer bases, and greater financial, research and development, technical, marketing and sales, and personnel resources than we have. Given their capital resources, the larger companies with whom we compete or may compete in the future, are in a better position to substantially increase their manufacturing capacity, research and development efforts or to withstand any significant reduction in orders by customers in our markets. Such larger companies typically have broader and more diverse product lines and market focus and thus are not as susceptible to downturns in a particular market. In addition, some of our competitors have been in operation much longer than we have been and therefore may have more longstanding and established relationships with current and potential customers.
Because we are small and do not have much capital, we must limit our activities. Our relative lack of capital and resources will adversely affect our ability to compete with large entities that market air purifier products. We compete against other air purifier manufacturers and retailers, some of which sell their products globally, and some of these providers have considerably greater resources and abilities than we have. These competitors may have greater marketing and sales capacity, established sales and distribution networks, significant goodwill and global name recognition. Furthermore, it may become necessary for us to reduce our prices in response to competition. A reduction in prices of our products could adversely affect our revenues and profitability.
In addition, other entities not currently offering products similar to us may enter the market. Any delays in the general market acceptance of our products may harm our competitive position. Any such delay would allow our competitors additional time to improve their service or product offerings, and provide time for new competitors to develop. Increased competition may result in pricing pressures, reduced operating margins and loss of market share, which could have an adverse effect on our business, operating results and financial condition.
Inability of our officers and directors to manage the growth of the business may limit our success.
We expect to grow as we execute our business strategy. Rapid growth would place a significant strain on our management and operational resources. In addition, we expect the demands on our infrastructure and technical support resources to grow along with our customer base, and if we are successful in implementing our marketing strategy, it could experience difficulties responding to demand for our products and technical support in a timely manner and in accordance with market expectations. These demands may require the addition of new management personnel or the development of additional expertise by existing management personnel. There can be no assurance that our networks, procedures or controls will be adequate to support our operations or that management will be able to keep pace with such growth. Failure to manage growth effectively could have a material adverse effect on our business, operating results and financial condition.
As we expand, management will be faced with new challenges due to increases in operating expenses and risks related to expansion.
As our business grows and expands, we will spend substantial financial and other resources on developing and introducing new products and expanding our sales and marketing organization, strategic relationships and operating infrastructure. If our business and revenues grow, we expect that our cost of revenues, sales and marketing expenses, general and administrative expenses, operations and customer support expenses will increase.
If we fail to integrate our recent acquisitions with our operations, our business could suffer.
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We acquired air purification technology and products from AmAirpure, Inc. in 2009, and in the future we may acquire more air purification technologies, businesses or assets. The integration of acquired businesses, technologies or assets requires significant effort and entails risks. We may find it difficult to integrate operations of acquired businesses as personnel may leave and licensees, distributors or suppliers may terminate their arrangements or demand amended terms to these arrangements. Additionally, our management may have their attention diverted while trying to integrate businesses or assets that may be acquired. If we are not able to successfully integrate any businesses or assets that we acquire, we may not realize the anticipated benefits of these acquisitions.
Our success depends on our ability to capitalize on our strategic relationships and partnerships with suppliers, distributors, purchasers and users of our products.
We will rely on strategic relationships with third parties to expand our distribution channels and to undertake joint product development and marketing efforts. Our ability to increase sales depends on marketing our products through new and existing strategic relationships. We intend to partner with established existing suppliers and distributors in order to reach target markets such as the medical, healthcare, hospitality, food service and lodging markets. The termination of one or more of our strategic relationships may have a material adverse effect on our business, operating results and financial condition.
Our intellectual property may not protect our products, and/or our products may infringe on the intellectual property rights of third parties.
We regard our trademarks, trade secrets and similar intellectual property as critical to our success and attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to forestall infringement. Despite precautions implemented by us, unauthorized third parties may copy certain portions of our products or reverse engineer or obtain and use information regarded by us as proprietary. We do not know if a patent will issue on the patent application or whether any future patent applications will be issued with the scope of the claims sought by us, or whether any patents received by us will be challenged or invalidated. In addition, many other organizations are engaged in research and product development efforts that may overlap with our products. Such organizations may currently have, or may obtain in the future, legally blocking proprietary rights, including patent rights, in one or more products or methods under development or consideration by us. These rights may prevent us from commercializing products, or may require us to obtain a license from the organizations to use the technology. We may not be able to obtain any such licenses that may be required on reasonable financial terms, if at all, and cannot be sure that the patents underlying any such licenses will be valid or enforceable. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States. Our means of protecting our proprietary rights in the United States or abroad may not be adequate and competitors may independently develop similar technology and products. Third parties may infringe or misappropriate our copyright, trademarks and similar proprietary rights. In addition, other parties may assert infringement claims against us. We cannot be certain that our products do not infringe issued patents that may relate to our products. We may be subject to legal proceedings and claims from time to time in the ordinary course of business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties. Intellectual property litigation is expensive and time consuming and may divert management
’
s attention away from running our business which may have a material adverse effect on our business, operating results and financial condition.
The value of our technology may be vulnerable to the discovery of unknown technological defects.
Our products depend on complex technology. Complex technology often contains defects, particularly when first introduced or when new versions are released. Although we conduct extensive testing, there is a possibility that technology defects may not be detected until after the product has been released. Although we have not experienced any material technology defects to date, it is possible that despite testing, defects may occur in the products. The defects may result in damage to our reputation or increase costs, cause us to lose revenue or delay market acceptance or divert our development resources, any of which may have a material adverse effect on our business, operating results and financial condition.
Government and private insurance plans may not adequately reimburse patients for our products, which could result in reductions in sales or selling prices for our products.
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Our ability to sell our products will depend in some part on the extent to which reimbursement for the cost of our products will be available from government health administration authorities, private health insurers and other organizations. In November 2008, the U.S. Food and Drug Administration (
“
FDA
”
) cleared our ViraTech UV-400 product as a Class II medical device, and we believe that certain purchasers of our product may generally qualify for reimbursement of some of the costs of purchasing our product, subject to the terms and conditions of their insurance plan or Medicare or Medicaid. Third party payers such as insurance companies are increasingly challenging the prices charged for medical products and can, without notice, deny coverage for treatments that may include the use of our products. Therefore, even if a product is cleared for marketing, we cannot be assured that reimbursement will be allowed for the product, that the reimbursement amount will be adequate or, that the reimbursement amount, even if initially adequate, will not subsequently be reduced. Additionally, future legislation or regulations concerning the healthcare industry or third party or governmental coverage and reimbursement, particularly legislation or regulation limiting consumers
’
reimbursement rights, may harm our business.
As we develop new products, those products will generally not qualify for reimbursement, if at all, until they are cleared for marketing and until they are approved for reimbursement under policies of insurance, Medicare and Medicaid. We do not file claims and bill governmental programs or other third party payers directly for reimbursement for our products. However, we are still subject to laws and regulations relating to governmental reimbursement programs, particularly Medicaid and Medicare.
Failure to comply with anti-kickback and fraud regulations could result in substantial penalties and changes in our business operations.
The federal Anti-Kickback Law prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. The U.S. government has interpreted this law broadly to apply to the marketing and sales activities of manufacturers and distributors like us. Many states and other governments have adopted laws similar to the federal Anti-Kickback Law. We are also subject to other federal and state fraud laws applicable to payment from any third party payer. These laws prohibit persons from knowingly and willfully filing false claims or executing a scheme to defraud any healthcare benefit program, including private third party payers. These laws may apply to manufacturers and distributors who provide information on coverage, coding, and reimbursement of their products to persons who do bill third party payers. Any violation of these laws and regulations could result in civil and criminal penalties (including fines), increased legal expenses and exclusions from governmental reimbursement programs, all of which could have a material adverse effect upon our business, financial conditions and results of operations.
Complying with Food and Drug Administration, or FDA, and other regulations is an expensive and time-consuming process, and any failure to comply could have a materially adverse effect
on our business, financial condition, or results of operations.
Based on the intended use of some of our products, our products can be subject to significant federal government regulation. Those regulations could restrict the sale and/or marketing of some of our products. The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our anti-microbial products are subject to regulation by federal and state governmental agencies in the United States and other countries, including the FDA and the U.S. Federal Trade Commission (
“
FTC
”
). We note that failure to comply with FDA regulations can result in adverse governmental enforcement action including civil and criminal action, injunctions, recalls, seizures and fines. Any action of this type by the FDA may materially adversely affect our ability to market our products.
Likewise, failure to comply with FTC rules and standards could result in significant fines, injunctions, cease and desist orders, advertising limitations, and a variety of other enforcement sanctions available to the FTC. FTC would take action if it deemed advertising to be false or misleading. In particular, representations made about our products must be backed by
”
competent and reliable scientific evidence
”
sufficient to support the claims made for the product. FTC would deem the failure of such an advertisement or labeling to be backed by that kind of evidence false FTC and the dissemination of it to be deemed an unfair or deceptive practice. Any enforcement action by the FTC could materially adversely affect our ability to market our products.
We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business. They could include, however, requirements for the redesign of our products, the recall or discontinuance of certain products, additional record keeping and reporting, expanded documentation of the scientific support or performance of certain products, and/or changes in labels and advertising. Any of these requirements could have a material adverse effect on the company.
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Product sales, introductions or modifications may be delayed or canceled as a result of FDA regulations or similar foreign regulations, which could cause our sales and profits to decline.
Before we can market or sell a new medical device in the United States, we must obtain FDA clearance, which can be a lengthy and time-consuming process and thus very costly. We will have to receive clearance from the FDA to market our products in the United States under Section 510(k) of the Federal Food, Drug, and Cosmetic Act or our products must be found to be exempt from the Section 510(k) clearance process.
Any new product introduction or existing product modification could be subjected to a lengthier, more rigorous FDA examination process. For example, in certain cases we may need to conduct clinical trials of a new product before submitting a 510(k) notice. Additionally, we may be required to obtain premarket approvals for our products. The requirements of these more rigorous processes could delay product introductions and increase the costs associated with FDA compliance. Marketing and sale of our products outside the United States are also subject to regulatory clearances and approvals, and if we fail to obtain these regulatory approvals, our sales could suffer.
We cannot assure you that any new products we develop will receive required regulatory approvals from U.S. or foreign regulatory agencies.
We are subject to substantial regulation related to quality standards applicable to our manufacturing and quality processes. Our failure to comply with these standards could have an adverse effect on our business, financial condition, or results of operations.
The FDA regulates the approval, manufacturing, and sales and marketing of our products in the U.S. Although we outsource the manufacture of our products and do not currently manufacture any products currently, our manufacturers may be required to register with the FDA and may be subject to periodic inspection by the FDA for compliance with the FDA
’
s Quality System Regulation (
“
QSR
”
) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require our manufacturers to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. Failure to comply with current governmental regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions, product shortages or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace, and/or manufacturing quality issues with respect to our products could lead to product recalls or related field actions, withdrawals, and/or declining sales.
Our profitability and success is subject to risks associated with potential general economic downturn.
Our product like most consumer products can be affected by the economy, production capabilities and competition. A limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.
A limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.
Although our common stock is quoted on the OTC Link operated by OTC Markets Group, Inc., on the OTC Pink exchange, under the symbol
“
UVFT,
”
there is currently no active public trading market for our common stock. No assurance can be given that an active market will develop or that a stockholder will ever be able to liquidate our shares of common stock without considerable delay, if at all. Many brokerage firms may not be willing to effect transactions in our securities. Furthermore, our future stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, lack of available credit, interest rates or international currency fluctuations may adversely affect the future market price and liquidity of our common stock.
Our common stock may be subject to the penny stock rules which may make it more difficult to sell our common stock.
Because our common stock is not listed on any national securities exchange, trading in our common stock is also subject to the regulations regarding trading in
“
penny stocks,
”
which those securities are trading for less than $5.00 per share. The following is a list of the general restrictions on the sale of penny stocks:
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Before the sale of penny stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable to invest in penny stocks. To make that determination, a broker-dealer must obtain, from a prospective investor, information regarding the purchaser
’
s financial condition and investment experience and objectives. Subsequently, the broker-dealer must deliver to the purchaser a written statement setting forth the basis of the suitability finding and obtain the purchaser
’
s signature on such statement.
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A broker-dealer must obtain from the purchaser an agreement to purchase the securities. This agreement must be obtained for every purchase until the purchaser becomes an
“
established customer.
”
A broker-dealer may not affect a purchase of a penny stock less than two business days after a broker-dealer sends such agreement to the purchaser.
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The Securities Exchange Act of 1934, or the Exchange Act, requires that before effecting any transaction in any penny stock, a broker-dealer must provide the purchaser with a
“
risk disclosure document
”
that contains, among other things, a description of the penny stock market and how it functions and the risks associated with such investment. These disclosure rules are applicable to both purchases and sales by investors.
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A dealer that sells penny stock must send to the purchaser, within ten days after the end of each calendar month, a written account statement including prescribed information relating to the security.
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These requirements can severely limit the liquidity of securities in the secondary market because few brokers or dealers are likely to be willing to undertake these compliance activities. As a result of our common stock not being listed on a national securities exchange and the rules and restrictions regarding penny stock transactions, an investor
’
s ability to sell to a third party and our ability to raise additional capital may be limited. We make no guarantee that our market-makers will continue to make a market in our common stock, or that any market for our common stock will continue.
We cannot guarantee that investors will be paid any dividends.
We have never declared or paid dividends on our common stock. We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.
Nevada law and our articles of incorporation authorize us to issue shares of stock, which shares may cause substantial dilution to our existing shareholders and/or have rights and preferences greater than our common stock.
Pursuant to our Articles of Incorporation, we have, as of the date of this Report, 150,000,000 shares of common stock authorized. As of the date of this Report, we have 132,267,712 shares of common stock issued and outstanding. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which if issued could cause substantial dilution to our then shareholders.