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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10

(AMENDMENT NO. 2)  

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

 

 

 

 

Nexeon MedSystems Inc

(Exact Name of Registrant in its Charter)

 

 

Nevada   81-0756622

(State or other Jurisdiction

of Incorporation)

 

(IRS Employer

Identification No.)

 

 

1708 Jaggie Fox Way

Lexington, KY

  40511

(Address of principal executive offices)

 

(Zip Code)

 

844-919-9990

(Registrant’s telephone number)

 

Securities to be registered pursuant to Section 12(g) of the Act:

 

Common Stock, Par Value $0.001

(Title of Class)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer     ¨ Accelerated filer     ¨  
  Non-accelerated filer     ¨ Smaller reporting company  þ     

  

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TABLE OF CONTENTS

 

  Page No.
   
Explanatory Note 3
A Cautionary Note Regarding Forward-Looking Statements 3
Item 1. Business 4
Item 2. Financial Information 20
Item 3. Properties 25
Item 4. Security Ownership of Certain Beneficial Owners and Management 25
Item 5. Directors and Executive Officers 27
Item 6. Executive Compensation 32
Item 7. Certain Relationships and Related Transactions 35
Item 8. Legal Proceedings 37
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters 37
Item 10. Recent Sales of Unregistered Securities 39
Item 11. Description of Registrant’s Securities to be Registered 41
Item 12. Indemnification of Directors and Officers 43
Item 13. Financial Statements and Supplementary Data 43
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 43
Item 15. Financial Statements and Exhibits 44
Signatures 45

 

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EXPLANATORY NOTE

Nexeon MedSystems Inc is filing this General Form for Registration of Securities on Form 10, or this “registration statement,” to register its common stock, par value $0.001 per share (the “Common Stock”), pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”). Unless otherwise mentioned or unless the context expressly indicates otherwise, the terms “Company,” “we,” “us,” “our,” “Nexeon,” “Nexeon MedSystems” and similar terms refer to Nexeon MedSystems Inc.

 

 

A CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements.

 

While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results may vary from any estimates, predictions, projections, assumptions, or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

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ITEM 1. BUSINESS

 

General

 

Nexeon MedSystems Inc was incorporated in the State of Nevada on December 7, 2015. We are a development stage enterprise focusing on the development and commercialization of physician-driven, medical device innovations. We have never declared bankruptcy, have never been in receivership, and have never been involved in any legal action or proceedings. Since incorporation, we have not made any significant sale of assets or generated any form of revenue.

 

Implications of Emerging Growth Company Status

 

As a company with less than $1 billion in revenue in our last fiscal year, we are defined as an “emerging growth company” under the Jumpstart Our Business Startups (“JOBS”) Act.  We will retain “emerging growth company” status until the earliest of:

 

  The last day of the fiscal year during which our annual revenues are equal to or exceed $1 billion;
  The last day of the fiscal year following the fifth anniversary of our first sale of common stock pursuant to a registration statement filed under the Securities Act of 1933, as amended, which we refer to in this document as the Securities Act;
  The date on which we have issued more than $1 billion in nonconvertible debt in a previous three-year period; or
  The date on which we qualify as a large accelerated filer under Rule 12b-2 adopted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (i.e., an issuer with a public float of $700 million that has been filing reports with the U.S. Securities and Exchange Commission (“SEC”) under the Exchange Act for at least 12 months).
  As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to SEC reporting companies.  For so long as we remain an emerging growth company we will not be required to:
  Have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Wall Street Reform and Consumer Protection Act of 2002;
  Comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
  Submit certain executive compensation matters to stockholder non-binding advisory votes;
  Submit for stockholder approval golden parachute payments not previously approved;
  Disclose certain executive compensation related items, as we will be subject to the scaled disclosure requirements of a smaller reporting company with respect to executive compensation disclosure; and
  Present more than two years of audited financial statements and two years of selected financial data in a registration statement for our initial public offering of our securities.

 

Pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of The JOBS Act.  This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result, our financial statements may not be comparable to companies that comply with public company effective dates.  Section 107 of the JOBS Act provides that our decision to opt into the extended transition period for complying with new or revised accounting standards is irrevocable.

 

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Because the worldwide market value of our common stock held by non-affiliates, or public float, is below $75 million, we are also a “smaller reporting company” as defined under the Exchange Act.  Some of the foregoing reduced disclosure and other requirements are also available to us because we are a smaller reporting company and may continue to be available to us even after we are no longer an emerging growth company under the JOBS Act but remain a smaller reporting company under the Exchange Act.  As a smaller reporting company we are not required to:

 

  Have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and
  Present more than two years of audited financial statements in our registration statements and annual reports on Form 10-K and present any selected financial data in such registration statements and annual reports.

 

Merger 

 

On February 16, 2016, Nexeon was the surviving entity following a merger with Nexeon MedSystems, Inc. (“NXDE”) – a Delaware corporation. As a result of the merger, 100% of NXDE’s issued and outstanding preferred shares were converted into 1,659,946 shares of the Company’s Restricted Common Stock. All NXDE shares of Common Stock, Options, and Deferred Compensation Units were canceled. Also pursuant to the merger, the Company shall pay a Three Percent (3%) royalty (the “NXDE royalty”) to a limited liability company (“NXDE LLC”) formed in connection with the merger (of which the former NXDE shareholders are members) on Net Product Sales derived by the Company’s, or its affiliates’ or licensees’, commercialization of patents and intellectual property acquired by the Company through this merger (see the section titled “Certain Relationships and Related Transactions” for more information).

 

Chief among the assets secured by the Company in its merger with NXDE was a 100% ownership interest in a number of patents relating to a micro-perforated balloon catheter system for use in the treatment of restenosis associated with hemodialysis. Initially, the Company will focus on driving development and commercialization of the aforementioned medical device. As part of this process, the Company will license, a to-be formed, wholly-owned subsidiary known as Pulsus Medical LLC, (“Pulsus”). Pulsus will enter into various other sub-license agreements as well as development and supply agreements in order to enhance the technology as well as to expedite the development process. Additionally, the Company’s Officers and Directors, from time to time, will perform periodic due diligence on complimentary patents and companies, which it may acquire with an intent to develop and commercialize various medical technologies.

 

From inception until the date of this filing, we have had limited operating activities, primarily consisting of:

 

i. The incorporation of our Company;

 

ii. The acquisition of various assets from Rosellini Scientific LLC;

 

iii. The merger with NXDE;

 

iv. Establishment of our management team and Board of Directors;

 

v. Development of our business plan and establishment of the Company’s headquarter offices in Lexington, Kentucky;

 

  vi. Organization of a Regulation D, Rule 506 $2,500,000 Private Placement, which was extended to September 30, 2016;

 

  vii. Conversion of approximately $1,282,818 in Shareholder debt and $150,000 in cash contributions to Units of the Private Placement; and

 

  viii. The acquisition of additional intellectual property to add to the Company’s portfolio.

 

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Our business headquarters is located at 1708 Jaggie Fox Way, Lexington, KY 40511.

 

Our telephone number is 844-919-9990.

 

The Company’s website is www.nexeonmed.com . Neither the Company’s website, nor the information contained on or accessible through our website, are deemed to be incorporated by reference in, or considered part of, this registration statement.

 

Business Overview

 

The Company engages and collaborates with scientists across multiple disciplines in order to identify, validate, and develop high impact technologies that address areas of significant unmet needs in healthcare. Nexeon’s Officers and Directors include cross-disciplinary specialists with expertise in life sciences, computer and physical sciences as well as chemical and biomedical engineering, and have collectively been involved in the development of drugs, medical devices, and technologies with a wide range of applications.

 

Our Officers and Directors are establishing an international network of leading scientists, technologists, and entrepreneurs that management believes will afford the Company access to promising technologies, within various medical contexts, at a stage where such technologies are still being explored in the laboratories of their origin. The Company is focused on early-stage technologies that management believes show strong clinical and commercial potential.

 

As of the date of this registration statement, the Company’s core focus is furthering the development of a micro-perforated balloon catheter system for use in treatment of restenosis associated with hemodialysis.

 

On February 16, 2016, the Company merged with Nexeon MedSystems, Inc. (“NXDE”) – a Delaware corporation. The Company, a Nevada corporation, was the surviving entity. The Company converted 100% of NXDE’s issued and outstanding common and preferred stock into 1,659,946 shares of the Company’s common stock. In addition to the conversion of NXDE shares into common shares of the Company, the Company shall pay a limited liability company formed by the former shareholders of NXDE for the purpose of receiving a royalty equal to Three Percent (3%) (the “NXDE royalty”) of Net Product Sales received by the Company, its affiliates and licensees derived from the commercialization of patents or other intellectual property owned by NXDE prior to the merger. Those patents and other intellectual property serve as the basis for our balloon catheter product, which will be the first product we shall attempt to develop to commercialization.

 

We have made additional acquisitions of intellectual properties; however, we do not intend to further develop those products in the near future because of the anticipated development costs. For more information on those acquisitions see “Additional Acquisitions” below.

 

However, in the future, the Company intends to engage in strategic acquisitions of additional companies, patents, and intellectual properties that management believes are clinically and commercially compelling. The Company will focus on what management believes are early-stage, disruptive technologies that have a mix of (i) a high probability to secure state and federal grant funding, (ii) low regulatory hurdles for FDA approval, (iii) and unique synergies with our other core business segments. However, there can be no assurances that the Company will successfully identify, acquire, or commercialize any additional technologies or intellectual property.

 

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Our Market and Methodology

 

The U.S. is the world’s largest market for R&D investment with projected expenditure of $465 billion in 2014 – comprising approximately 2.8 percent of the country’s GDP. Over the course of 2014, the federal government was expected to fund $123 billion of this total, with $37 billion of this contributing towards an aggregate of $63 billion expected to be spent in the U.S. academic space. Several academic institutions exceeded $1 billion of annual research spending in 2012. Management believes the opportunity to secure funding for early-stage, physician- and scientist-driven solutions is available, but the process to commercialize that science has been complicated by regulations, business model development challenges, and venture capital issues.

 

It is management’s belief that Nexeon has assembled the infrastructure, knowledge, personnel, and business model to optimize the non-dilutive capital available from various government agencies to develop technologies from an international pool of scientific research. It is management’s opinion, that emphasizing a “Needs Driven/Business Model Driven” approach to translational medicine best expedites the commercialization process and aligns R&D with shareholder goals. We also believe that Nexeon’s cross-disciplinary approach is particularly well-suited to address a healthcare environment where the convergence of previously unrelated disciplines is becoming especially prominent.

 

It is management’s belief the investment by the U.S. federal government in research through the nation’s universities, federal laboratories, and non-profit institutions generates innovations and inventions with considerable commercial potential. While much of this research results in thousands of U.S. patent applications each year, many challenges exist in commercializing this university and federal research; thus, it is management’s opinion that only a fraction of the patents are actually licensed and/or monetized. It is our belief that the universities themselves lack the resources to attract investors and entrepreneurs, to identify marketable opportunities, to secure the required capital resources, and ultimately to transform the science into a profitable commercial product or service.

 

Management believes another major engine of scientific and technological innovation exists within private sector R&D departments. Corporations appear to contribute a substantial portion of the multi-billion dollar investment in the life sciences sectors. In management’s opinion, corporations have proven to be most successful in making incremental changes to commercially-available products and then deploying their sales and marketing resources to launch a successful product. The inertia of a large corporation, however, in management’s opinion, limits the ability to focus on early-stage research ideas and the necessary processes involved in identifying, supporting, and optimizing early projects. It is our belief that few internal innovation projects at these large corporations actually translate into more significant development projects.

 

Nexeon will adopt a development approach that management believes will enable the Company to identify, and ultimately to commercialize valuable but early-stage, technological advances in the medical space. Prior to seeking the acquisition of patents, licensure, and/or investing capital, Nexeon evaluates life science projects pursuant to the following criteria:

 

Assess and determine regulatory risk and timeline prior to design, build, and manufacturing optimization;
  Collect customer and key opinion leader’s information prior to acquisition or embarking on additional research;
  Determine clinical utility now, including reimbursement strategies;
  Identify funding partners prior to needing them.

 

Once the Company has evaluated a technology, Nexeon will endeavor to acquire the science and implement the appropriate project management to drive early-stage development. Management believes rigorous screening of prospective technologies will mitigate some of the risk inherent to acquisition of undeveloped technologies and will also minimize the time between the initial at-risk capital raise and preliminary inflection points in technology development.

 

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However, there can be no guarantee that the Company will identify and successfully acquire and commercialize any intellectual property or technologies in the future.

 

Pulsus Medical, LLC

 

Overview

 

Initially, the Company’s core focus will be on driving the development and commercialization of the intellectual property (IP) that will be held by a to-be formed, wholly-owned entity known as Pulsus Medical, LLC. This entity will continue the development of a micro-perforated balloon catheter system for use in treatment of restenosis associated with hemodialysis. The Company’s Chief Innovation Officer, Dr. Mark Bates MD, will serve as the Chief Executive Officer of Pulsus Medical, LLC.

 

Funding & Development

 

During 2015 Rosellini Scientific LLC, (“RSLLC”) the largest shareholder of Nexeon, has obtained from the National Institute of Health (“NIH”) pursuant to the Institute’s Small Business Innovative Research Program (“SBIR”) the award of Grant # 1R44HL129870-01, in the amount of $218,377. In addition on January 1, 2016, RSLLC obtained a Matching Funds award from the Kentucky SBIR Matching Funds Program funded by the Cabinet for Economic Development (CED), Office of Entrepreneurship. The Kentucky Science and Technology Corporation (KSTC) administer the Kentucky SBIR Matching Funds Program under a contract with the CED. The state of Kentucky’s award # KSTC-184-512-16-234, was in the amount of $150,000. RSLLC will make these funds available to Nexeon for use to finance the development and commercialization of the Pulsus medical device pursuant to the terms and conditions of the Grants. Upon successful completion of Phase I of the Grants, subject to the approval of both the Federal and State Agencies, RSLLC will assign Phase II of the Grants to Nexeon. An NIH SBIR Grant is a program consisting of three Phases and we are currently in Phase I. A description of three Phases is as follows:

 

  Phase I. The objective of this phase is to establish the technical merit and feasibility of proposed research or R&D efforts and to determine the quality of performance of the applicant (small business concern or SBC) before providing further Federal support in Phase II.(iv) Phase II Transition Rate Benchmark. Each agency must establish an a Small Business Administration (SBA) approved Phase II Transition Rate Benchmark and applicable time period. The benchmark rates and time periods are posted at www.sbir.gov. Agencies must seek approval for any subsequent changes from SBA.
     
  Phase II. The objective of this phase is to continue the research or R&D efforts initiated in Phase I. Funding will be based on the results of Phase I and the scientific and technical merit and commercial potential of the Phase II application. Only Phase I grantees are eligible to receive Phase II funding. Unless submitted as a Fast-Track application, Phase II applications may be submitted only after the Phase I award is made. NIH expects non Fast-Track Phase II applications to be submitted within the first six receipt dates following expiration of the Phase I budget period, i.e., normally 2 years beyond the expiration date of the Phase I award. In this case the NIH SBIR Grant was awarded as a Fast-Track Grant, which means the NIH Fast-Track application process expedites award decisions and funding of SBIR Phase II applications for scientifically meritorious projects that have a high potential for commercialization. The Fast-Track process allows Phase I and Phase II grant applications to be submitted and reviewed together. Fast-Track applications receive a single rating.
     
  Phase III. The objective of this phase, where appropriate, is for the SBC to pursue, with non-SBIR/STTR funds, the commercialization of the results of the research or R&D funded in Phases I and II.

 

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A summary of the material terms of an NIH SBIR Grant are as follows:

 

There are no cost principles specifically applicable to grants to for-profit organizations. Therefore, the cost principles for commercial organizations set forth in the FAR (48 CFR part 31.2) generally are used to determine allowable costs under NIH grants to for-profit organizations. As provided in those costs principles, allowable travel costs may not exceed those established by the Federal Trade Regulation (FTR). As provided in 45 CFR part 74.27(a), NIH does not allow for-profit organizations to be reimbursed for independent research and development (self-sponsored) costs. Facilities and administrative costs are allowable under awards to for-profit organizations. Except for grants awarded under the SBIR programs, under an NIH grant, no profit or fee will be provided to a for-profit organization, whether as a grantee or as a consortium participant. A profit or fee under a grant is not a cost, but is an amount in excess of actual allowable direct and facilities and administrative costs. In accordance with normal commercial practice, a profit/fee may be paid to a contractor under an NIH grant providing routine goods or services to the grantee.

 

Under the conditions specified in 45 CFR part 74.34, for-profit grantees are permitted to retain title to equipment purchased under a research grant though NIH reserves the right to order the transfer of equipment, including title, to NIH or an eligible third party named by the NIH awarding office when such third party is otherwise eligible under existing statutes. In keeping with the provisions of 45 CFR part 74.24, for-profit grantees must not use equipment acquired with NIH funds to provide services to non-Federal organizations for a fee to compete unfairly with private companies that provide equivalent services, unless the terms and conditions of the award provide otherwise, and any user charges shall be treated as program income and must be reported.

 

Intellectual property requirements set forth in 37 CFR part 401 apply to for-profit organizations, whether small businesses or large businesses. However, invention reporting requirements for for-profit organizations differ somewhat from those for non-profit organizations. When the grantee is a for-profit organization, assignment of invention rights to a third party does not require NIH approval, but ongoing reporting remains a requirement for each invention. Rights to data, including software developed under the terms of any funding agreement resulting from an NIH award, shall remain with the grantee except that any such copyrighted material shall be subject to a royalty-free, nonexclusive and irrevocable license to the Federal government to reproduce, publish or otherwise use the material, and to authorize others to do so for Federal purposes. In addition, under the SBIR programs, in contrast to awards to for-profit organizations under other support mechanisms, such data shall not be released outside the Federal government without the grantee's permission for a period of 4 years from completion of the project.

 

The requirements for non-Federal audits of for-profit organizations are specified in 45 CFR part 74.26(d). A for-profit organization is required to have a non-Federal audit if, during its fiscal year, it expended a total of $500,000 or more under one or more Health and Human Services (HHS) awards (as a direct grantee and/or under a consortium participant) and at least one of those awards is an HHS grant. 45 CFR part 74.26(d) incorporates the thresholds and deadlines of Office of Management and Budget (OMB) Circular A-133 but provides for-profit organizations two options regarding the type of audit that will satisfy the audit requirements. The grantee either may have (1) a financial-related audit in accordance with Government Auditing Standards or (2) an audit that meets the requirements of OMB Circular A-133. For-profit organizations expending less than $500,000 a year are not required to have an annual audit for that year but must make their grant-related records available to NIH or other designated officials for review or audit.

 

For both Phase I and Phase II SBIR awards, the research or R&D project activity must be performed in its entirety in the United States . (The United States is defined as the 50 States, the territories and possessions of the United States, the Commonwealth of Puerto Rico, the Federated States of Micronesia , the Republic of Palau, the Republic of the Marshall Islands , and the District of Columbia.)

 

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Generally, under SBIR Phase I awards, a minimum of two-thirds or 67 percent of the research or analytical effort must be carried out by the SBC. Payments, in the aggregate, to consultants, consortium participants and contractors for portions of the scientific/technical effort generally may not exceed 33 percent of the total requested amount. Generally under SBIR Phase II awards a minimum of one-half or 50 percent of the research or analytical effort must be carried out by the SBC. In addition, payments, in the aggregate, to consultants, consortium participants, and contractors for portions of the scientific/technical effort generally may not exceed 50 percent of the total requested amount.

 

For-profit organizations receiving SBIR awards generally are subject to the same public policy requirements as non-profit organizations. However, the requirements concerning disclosure of financial conflicts of interest do not apply to applications or awards under Phase I of the SBIR programs. The requirements do, however, apply to Phase II applications and awards.

 

NIH will not support market research, including studies of the literature that lead to a new or expanded statement of work, under the grant. For purposes of the SBIR programs, "market research" is the systematic gathering, editing, recording, computing, and analyzing of data about problems relating to the sale and distribution of the subject of the proposed research. It includes various types of research, such as the size of potential markets and potential sales volume, the identification of consumers most apt to purchase the products, and the advertising media most likely to stimulate their purchases. However, "market research" does not include activities under a research plan or protocol that include a survey of the public as part of the objectives of the project to determine the impact of the subject of the research on the behavior of individuals.

 

SBA SBIR Policy Directives provide program levels for SBIR programs based on statutory guidelines. However, these directives also give agencies discretion to exceed these levels when the proposed budget and requested period of support are fully justified and scientifically appropriate in relation to the proposed research. In general the levels are:

 

SBIR Phase I: $150,000 Total Costs; 6 months
SBIR Phase II: $1,000,000 Total Costs; 2 years

 

Some NIH Institue or Centers (ICS) offer Phase II SBIR awardees the opportunity to apply for Phase II Competing Renewal awards. These are available for those projects that require extraordinary time and effort in the R&D phase and may or may not require FDA approval for the development of such projects, including drugs, devices, vaccines, therapeutics, and medical implants related to the mission of the ICS. Only those small business concerns who have been awarded a Phase II are eligible to apply for the Phase II Competing Renewal award. Program levels are: SBIR Phase II Competing Renewals (Phase II "B"): $3,000,000; 3 years.

 

A reasonable profit or fee may be paid to a SBC receiving an award under Phase I or Phase II of the SBIR programs. The profit or fee is not considered a "cost" for purposes of determining allowable use, program income accountability, or audit thresholds. The profit or fee may be used by the SBC for any purpose, including additional effort under the SBIR award. It is intended to provide a reasonable profit consistent with normal profit margins for for-profit organizations for R&D work; however, the amount of the profit or fee normally will not exceed seven (7) percent of total costs (Direct, Facilities and Administrative) for each phase of the project. The profit or fee should be drawn from Payment Management System (PMS) in increments proportional to the draw-down of funds for direct and F&A costs. The profit or fee applies solely to the SBC receiving the SBIR award and not to any other participant; however, in accordance with normal commercial practice, the SBC may pay a profit or fee to a contractor providing routine goods or services to the SBC under the grant.

 

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If the applicant SBC has a currently effective Facilities and Administrative (F&A) cost rate(s) with a Federal agency, such rate(s) should be used when calculating proposed F&A costs for an NIH application. NIH ICs use the term F&A costs for all types of applicants and recipients; however, for-profit organizations will find that organizations external to NIH refer to these costs as indirect costs. (However, the rates(s) must be adjusted for Individual Research & Development (IR&D) expenses, which are not allowable under HHS awards.) If the applicant SBC does not have a currently effective negotiated indirect cost rate with a Federal agency, the applicant should propose estimated F&A costs at a rate not to exceed 40 percent of the total direct costs. However, SBCs are reminded that only actual F&A costs are to be charged to projects. (If awarded at a rate of 40 percent or less, the rate used to charge actual F&A costs to projects cannot exceed the awarded rate unless the SBC negotiates an indirect cost rate(s) with a Federal agency.) NIH will not negotiate indirect cost rates for Phase I awards.

 

If the applicant SBC has a currently effective negotiated indirect cost rate(s) with a Federal agency, such rate(s) should be used when calculating proposed F&A costs for an NIH application. (However, the rates(s) must be adjusted for IR&D expenses, which are not allowable under HHS awards.) If the applicant SBC does not have a currently effective negotiated indirect cost rate with a Federal agency, the applicant should propose an estimated F&A rate in the application. If the requested F&A cost rate is 40 percent of total direct costs or less, no further justification is required at the time of award, and F&A costs will be awarded at the requested rate. However, SBCs are reminded that only actual F&A costs may be charged to projects. If awarded at a rate of 40 percent or less of total direct costs, the rate used to charge actual F&A costs to projects cannot exceed the awarded rate unless the SBC negotiates an indirect cost rate(s) with the Defense Finance Accounting Service (DFAS). DFAS—the office authorized to negotiate indirect cost rates with SBC's receiving NIH SBIR awards—will negotiate indirect cost rates for SBCs receiving Phase II awards that requested a rate greater than 40 percent of total direct costs.

 

A summary of the material terms of the Kentucky NIH SBIR Matching Funds Grant are as follows:

 

The Kentucky SBIR Matching Funds Program provides matching funds up to $150,000 for Phase I and up to $500,000 for Phase II (not to exceed two years). These matching funds are to be used for new and additional work tasks that are complementary to your existing Federal SBIR award. Kentucky SBIR Matching Funds grants are awarded by a competitive selection process.

 

Companies from Kentucky and companies willing to move to Kentucky may apply and receive Kentucky Matching Funds grants. However, the distribution of funds for out-of-state applicants is contingent upon meeting all the requirements within the guidelines. These include: (1) Relocating your business to the state of Kentucky within 90 days of the date on the Kentucky SBIR Matching Funds Grant Agreement, (2) the recipient of the Kentucky SBIR Matching Funds is required to maintain the Kentucky-based status for a minimum of five years after receipt of the final disbursement of funds, and (3) at least 51% of the Kentucky SBIR Matching Funds grant amount must be spent in Kentucky. In addition at least 51% of the Company’s W-2 payroll must be paid to Kentucky residents. 

 

Potential Customers

 

It is management’s belief patients who have undergone hemodialysis grafts that require angioplasty may be potential customers for the micro-perforated balloon catheter system. There are 350,000 hemodialysis patients in the U.S. With the hemodialysis patient population estimated to reach over 500,000 by 2020 (Weinhandl et al. 2010), the number of patients requiring grafts will reach over 150,000 (30% of 500,000), and in management’s opinion, most of these grafts will eventually require stenosis intervention, which our balloon catheter can provide.

 

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Competitive Landscape

 

Management believes the main competition for Company’s intravascular drug delivery system includes those companies developing drug-coated balloons (“DCBs”). DCBs have a more mature technology with recent regulatory approvals being obtained and many other DCB platforms in clinical trials. However, it is our belief that the Company’s approach can co-exist with DCBs due to the ability to use our platform for high flow-rate applications, while DCBs may be more applicable to other bodily regions.

 

It is our belief that an advantage of this approach over DCBs is in the regulatory path. DCBs are packaged with a drug and, therefore, are considered combination products requiring Premarket Approval (“PMA”) through the FDA. The PMA process requires a two-phase clinical trial to prove the safety and efficacy of the device prior to marketing approval. The Company’s approach does not include a packaged drug; the drug is administrated separately. Therefore, the regulatory path is through the 510(k) with Special Controls route. While this approach will need to prove safety and efficacy with a clinical validation study, such a study is, in management’s experience, typically far less costly and time-consuming when compared to the full, two-phase study required by the PMA process.

 

Core Technology & Product Overview

 

The Company is developing an intravascular drug delivery system comprised of an inflatable, Micro-Perforated Catheter Balloon. This balloon will be comprised of carbon nanotubes embedded within the host nylon polymer for increased mechanical strength. The technology has demonstrated only a small amount of carbon nanotubes (<5% by weight) is needed within the polymer to provide the necessary mechanical reinforcement to withstand high pressure (>20 Atmospheres, “ATM”). While high-pressure (>20 ATM) balloons are currently available, they are made from stiffer polymers such as polyethylene terephthalate (“PET”) and are not perforated. Therefore, existing high-pressure balloons are not applicable.

 

The carbon nanotubes help maintain structural integrity of the Micro-Perforated Catheter Balloon during inflation and drug delivery while allowing a more compliant polymer, such as nylon, to be used. Anti-restenotic drugs, such as paclitaxel, can then be delivered using pulsed flow. The drug is introduced through the proximal shaft of the catheter balloon. The drug, and carrier medium, then fills up the catheter balloon and is released through the pores in the catheter balloon. The drug then exits the catheter balloon and is forced into the surround neointima for maximal therapeutic effect.

 

When compared to drug-coated catheter balloons and drug-eluting stents, management believes the Company’s approach is expected to provide the following benefits:

 

  No distal outflow occlusion due to no excipient needed
  Minimal downstream loss of drug
  Predictable depth and load of drug delivery
  Adjustable drug dosage based on clinical variables
  Ability to use wider range of drugs, including non-lipophilic drugs

 

Innovation

 

Current drug-coated balloons provide only passive drug delivery. In management’s opinion, this Micro-Perforated Catheter Balloon brings a much-needed, innovative improvement to intravascular drug delivery by enabling controllable pulsed flow delivery of anti-restenotic drugs to the diseased site. The specific innovations that are being developed include:

 

  Carbon nanotube-nylon composite materials and associated processing procedures to manufacture mechanically robust, micro-perforated catheter balloons
  An intravascular method that can deliver lipophilic and hydrophilic drugs

 

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Advantages of our Approach

 

While our approach reduces the need for follow up procedures by efficiently delivering anti-restenotic drugs, intravascularly, to direct the therapy immediately into the lesion. Currently, repeat angioplasty procedures are required to continually counter restenosis. The need for compliant materials to perform intravascular drug delivery within the AV Graft site (Arteriovenous Graft is when a synthetic tube connects an artery to a vein) eliminates the use of stents for this application. While drug-coated catheter balloons could potentially be used to treat blockages in proximity to the AV Graft, the high flow rate associated with such grafts have the potential to wash out the drug. 

 

Commercial Applications

 

The targeted clinical application is as an intervention for hemodialysis graft failures, particularly in delivering paclitaxel or similar anti-restenotic drugs. Pulsed-flow intravascular drug delivery can also potentially be applied to bodily sites where drug-eluting stents and drug-coated balloons are being used, including the superficial femoral artery in the thigh and the popliteal artery in the knee (Pastromas et al. 2014). Management believes the technology has the ability to deliver almost any type of drug, and that this approach not only has the potential to treat many blockages within the peripheral vasculature but may also transcend to other diseases such as cancer. It is management’s belief drugs that are difficult or impossible to take orally or drugs that lose efficacy when taken by standard intravenous delivery could potentially be used much more effectively with the Company’s intravascular delivery system. Management believes, this approach may not only extend or broaden the useful life of existing drugs, but it may also revive interest in abandoned drugs.

 

Marketing Plan

 

In management’s opinion, the most likely approach to getting this catheter balloon technology to the clinic is to partner with a major medical device manufacturer. Therefore, The Company’s initial marketing plans will involve approaching medical device companies with an interest in catheter balloon technology. Management believes the pre-clinical efforts will generate favorable data. The Company expects to present the data at relevant medical conferences such as the Annual Dialysis Conference and the International Society of Hemodialysis Congress. We also intend to publish our work in targeted medical and scientific journals, such as Hemodialysis International, to gain exposure. The key Management members of Nexeon have experience in building business relationships with the major medical device manufacturers. The inventor of our balloon technology and our Chief Innovation Officer, Dr. Mark Bates, has previously developed medical devices that have been adopted by potential medical device company partners including Boston Scientific and Cook Medical.

 

The Company cannot make any guarantees that it will successfully identify and engage a medical device manufacturer, that we will be able to present related data at relevant medical conferences, or publish our work in medical and scientific journals.

 

Revenue Stream

 

Management believes revenue generated will largely depend upon the success of the business relationship established with the medical device company partner. If a co-marketing arrangement is established, then revenue sharing would be the most likely option. If the technology is licensed, this could generate a royalty stream with possible upfront and milestone payments. Finally, if the technology is sold outright, then the Company could receive one or more payments associated with the acquisition. Transactions in this space vary depending on the quality of the data, the amount of IP, and the overall stage of development.

 

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In the event the Company is not able to partner or sell our technology to a strategic partner, then it will need to pursue revenue streams by scaling/transferring manufacturing and employing a sales force. In evaluating a revenue stream, management believes it is most important to consider the payer of the technology. In this case, the payers are the insurers who provide reimbursement and the hospital sourcing managers that decide which technologies to purchase and deploy in their facility. As a device manufacturer, we would initially market to the physician directly, which management believes should allow us to take advantage of locally negotiated rates. Management believes within one to two years, we would expect sourcing and supply chain departments will want to cut costs at their facilities, which generally means that a Group Purchasing Organization (“GPO”) will work with us to negotiate lower rates in exchange for higher volume of sales. In some instances, the GPO can also be viewed as a sales channel, because they will have contracts with facilities outside the reach of our direct sales force and can market our technology on our behalf.

 

Intellectual Property

 

The Patents directly associated with the development of a micro-perforated catheter balloon system for use in treatment of restenosis associated with hemodialysis are shown in the table below. These patents are foundational to the novel technology that will be developed and the Company will actively continue to file patent applications for newly developed IP. The Company is not relying on applications that are pending and may no longer maintain any of the existing foreign applications.

 

    PATENT            
PATENT   ISSUE   EXPIRATION        
NUMBER   DATE   DATE   STATUS   DESCRIPTION
                 
US 8187221   5/29/2012   7/11/2028   ISSUED   Nanotube-Reinforced balloons for delivering therapeutic agents within or beyond the wall of blood vessels, and methods of making and using same.
US 8257384   9/4/2012   11/20/2030   ISSUED   Interventional catheter for retrograde use having embolic protection capability and methods of use.
US 7837702   11/23/2010   12/21/2025   ISSUED   Interventional catheter for retrograde use having embolic protection capability and methods of use.

 

Production Plan

 

Production of the balloons will require contract manufacturing organizations (“CMOs”) that implement Good Manufacturing Practices (“GMP”) per FDA requirements. The balloon manufacturing partner, Interface Catheter Solutions, is well-versed in GMP procedures and it is management’s belief the manufacturing and testing procedures used in this effort will be readily scalable and GMP-compliant. Currently, Interface Catheter Solutions is a component vendor and no contract exists. We plan to use FDA-registered, GMP-compliant testing facilities at Nelson Laboratories to validate the biological safety of our materials. It is management’s belief these processes can be readily transferable to a strategic partner who could eventually market our catheter balloon.

 

Regulatory Plan

 

The Company will pursue US and EU regulatory approvals in parallel, with CE Marking expected prior to FDA approval. The first step in both the EU and US regulatory process is to implement a Quality Manage Systems (QMS). For EU approval, the QMS must be in accordance with Annex II or V of the Medical Devices Directive (MDD 93/42/EEC)., This is a set of quality standards that are promulgated for the manufacture of medical devices that meet certain safety standards. For US approval, we must meet the FDA Quality System Regulation (QSR) found in 21 CFR Part 820, which is commonly known as the FDA Good Manufacturing Practice (GMP). 

 

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US Regulatory Approval  

 

In the United States, the FDCA, FDA regulations and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. The FDA regulates the design, manufacturing, servicing, sale and distribution of medical devices, including molecular diagnostic test kits and instrumentation systems. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

 

Unless an exemption applies, each medical device we wish to distribute commercially in the United States will require marketing authorization from the FDA prior to distribution. The two primary types of FDA marketing authorization applicable to a device are premarket notification, also called 510(k) clearance, and premarket approval, also called PMA approval. The type of marketing authorization is generally linked to the classification of the device. The FDA classifies medical devices into one of three classes (Class I, II or III) based on the degree of risk the FDA determines to be associated with a device and the level of regulatory control deemed necessary to ensure the device’s safety and effectiveness. Devices requiring fewer controls because they are deemed to pose lower risk are placed in Class I or II. Class I devices are deemed to pose the least risk and are subject only to general controls applicable to all devices, such as requirements for device labeling, premarket notification and adherence to the FDA’s current Good Manufacturing Practices, or cGMP, known as the Quality System Regulations, or QSR. Class II devices are intermediate risk devices that are subject to general controls and may also be subject to special controls such as performance standards, product-specific guidance documents, special labeling requirements, patient registries or post-market surveillance. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special controls and include life sustaining, life-supporting or implantable devices, devices of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury.

 

Most Class I devices and some Class II devices are exempted by regulation from the 510(k) clearance requirement and can be marketed without prior authorization from the FDA. Some Class I devices that have not been so exempted and Class II devices are eligible for marketing through the 510(k) clearance pathway. By contrast, devices placed in Class III require PMA approval prior to commercial marketing. The PMA approval process is more stringent, time-consuming and expensive than the 510(k) clearance process; however, the 510(k) clearance process has also become increasingly stringent and expensive. We expect, without assurance, the FDA will consider our intravascular drug delivery device, drug eluting Micro-Perforated Catheter Balloon, to be a Class II device.

 

510(k) Clearance. To obtain 510(k) clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is “substantially equivalent” to a device legally marketed in the United States that is not subject to PMA approval, commonly known as the “predicate device.” A device is substantially equivalent if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics or (ii) different technological characteristics and the information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not raise different questions of safety or effectiveness. A showing of substantial equivalence sometimes, but not always, requires clinical data. Generally, the 510(k) clearance process can exceed 90 days and may extend to a year or more.

 

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Because of the number of existing FDA approved intravascular drug delivery devices, we expect the FDA will favorably consider our intravascular drug delivery system to be a Class II device, which allows approval through the 510(k) premarket notification process, but will require clinical data. Once the QMS is in place we will engage the FDA through the Pre-Submission Consulting process. Pre-Sub feedback will provide the necessary information and requirements to generate the Investigational Device Exemption (IDE) needed to run clinical studies. To obtain an IDE, we will first complete all FDA required device testing. Upon successful completion of this testing, we will gather all results into an IDE application submitted to the FDA. Once the FDA approves our IDE we will then conduct first clinical trials that will serve as a pilot study to evaluate the safety and efficacy of the system. Upon successful completion of the pilot study a follow on study of up to 100 patients will be proposed to the FDA. Following that clinical study, we will submit a 510(k) application to the FDA for completeness review. The FDA will then conduct facility inspections of all the major suppliers involved in the design and production of the device, which requires all parties to be compliant with FDA Quality System Regulations (“QSR). If the inspections are compliant, the FDA will issue a 510(k) approval letter for our intravascular drug delivery device. We expect this FDA approval process to require between 3 and 5 years. 

 

After a device has received 510(k) clearance for a specific intended use, any change or modification that significantly affects its safety or effectiveness, such as a significant change in the design, materials, method of manufacture or intended use, may require a new 510(k) clearance or PMA approval and payment of an FDA user fee. The determination as to whether or not a modification could significantly affect the device’s safety or effectiveness is initially left to the manufacturer using available FDA guidance; however, the FDA may review this determination to evaluate the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the modified device until 510(k) clearance or PMA approval is obtained. The manufacturer may also be subject to significant regulatory fines or penalties

 

Before we can submit a medical device for 510(k) clearance, we may have to perform a series of generally short studies over a period of months, including method comparison, reproducibility, interference and stability studies to ensure that users can perform the test successfully. Some of these studies may take place in clinical environments, but are not usually considered clinical trials. For PMA submissions, we would generally be required to conduct a longer clinical trial over a period of years that supports the clinical utility of the device and how the device will be used.

 

Although clinical investigations of most devices are subject to the investigational device exemption, or IDE, requirements, clinical investigations of diagnostic tests, including our products and products under development, are generally exempt from the IDE requirements. Thus, clinical investigations by intended users for intended uses of our products generally do not require the FDA’s prior approval but may require approval of an Institutional Review Board, or IRB, and written informed consent by the patient, provided the clinical evaluation testing is non-invasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject and is not used as a diagnostic procedure without confirmation by another medically established test or procedure. In addition, our products must be labeled per FDA regulations “for research use only-RUO” or “for investigational use only-IUO,” and distribution controls must be established to assure that our products distributed for research, method comparisons or clinical evaluation studies are used only for those purposes.

 

Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed. If the FDA determines that our promotional materials, training or other activities constitute promotion of an unapproved use, it could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

 

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Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. In particular we and our suppliers are required to comply with the Quality System Regulation (“QSR”), for the manufacture of our products and GMP for the manufacture of our drug coating and other regulations, which cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain marketing approval. The FDA enforces the GMP and QSR through unannounced inspections. We and our third-party manufacturers and suppliers have not yet been inspected by the FDA and will have to successfully complete such inspections before we receive regulatory approvals for our products. Failure by us or one of our suppliers, including the supplier of our drug coating, to comply with statutes and regulations administered by the FDA and other regulatory bodies, or failure to take adequate response to any observations, could result in, among other things, any of the following enforcement actions:

 

  warning letters or untitled letters;
  fines and civil penalties;
  unanticipated expenditures;
  delays in approving, or refusal to approve, our products;
  withdrawal or suspension of approval by the FDA or other regulatory bodies;
  product recall or seizure;
  orders for physician notification or device repair, replacement or refund;
  interruption of production;
  operating restrictions;
  injunctions; and
  criminal prosecution.

 

If any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements.

 

In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or efficacy of our products, and we will be required to report adverse events and malfunctions related to our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR or GMP, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties.

 

Further, healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely affect our operations. Also, the healthcare regulatory environment may change in a way that restricts our operations.

 

Foreign Regulatory Approval 

 

Outside of the United States, our ability to market our product candidates will be contingent also upon our receiving marketing authorizations from the appropriate foreign regulatory authorities, whether or not FDA approval has been obtained. The foreign regulatory approval process in most industrialized countries generally encompasses risks similar to those we will encounter in the FDA approval process. The requirements governing conduct of clinical trials and marketing authorizations, and the time required to obtain requisite approvals, may vary widely from country to country and differ from those required for FDA approval.

 

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In the European Union, we are required under the European Medical Device Directive (Council Directive 93/42/EEC) to affix the CE mark to certain of our products in order to sell the products in member countries of the European Union. The CE mark is an international symbol that represents adherence to certain essential principles of safety and effectiveness mandated in the European Medical Device Directive, which are referred to as the “essential requirements”. Once affixed, the CE mark enables a product to be sold within the European Economic Area, or EEA, which is composed of the 28 member states of the EU plus Norway, Iceland and Liechtenstein as well as other countries that accept the CE mark.

 

To demonstrate compliance with the essential requirements, we must undergo a conformity assessment procedure which varies according to the type of medical device and its classification. Except for low risk medical devices (Class I with no measuring function and which are not sterile) where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the essential requirements of the Medical Devices Directive, a conformity assessment procedure requires the intervention of an organization accredited by a member state of the EEA to conduct conformity assessments, or a notified body. Depending on the relevant conformity assessment procedure, the notified body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. The notified body issues a CE certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements. This certificate entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.

 

If we modify our devices, we may need to apply for permission to affix the CE mark to the modified product. Additionally, we may need to apply for a CE mark for any new products that we may develop in the future. Certain products regulated as medical devices according to EC-Directives are subject to vigilance requirements for reporting of adverse events.

 

We will be subject to additional regulations in other countries in which we market, sell and import our products, including Canada. We or our distributors must receive all necessary approvals or clearance prior to marketing and/or importing our products in those markets.

 

The International Standards Organization, or ISO, promulgates internationally recognized standards, including those for the requirements of quality systems. To support ISO certifications, surveillance audits are conducted by a notified body yearly and recertification audits every three years that assess continued compliance with the relevant ISO standards.

 

Other Regulatory Matters

 

Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the United States, sales, marketing and scientific/educational programs must also comply with state and federal fraud and abuse laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Health Care Reform Law, as amended by the Health Care and Education Affordability Reconciliation Act, or ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.

 

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The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive recordkeeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

 

The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines, imprisonment or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.

 

Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.   

 

Hurdles to Commercialization

 

The Company has two technical hurdles and two regulatory hurdles to overcome in bringing the product into clinical use and has established a team to address these hurdles with a goal to complete development of a commercialized product ready for market in the next 24 to 36 months.

 

First Technical Hurdle - Complete development of a polymer composite that is non-toxic, biocompatible, and extrudable. The key enabling technology for our catheter balloon is a carbon nanotube-based nylon polymer composite material (“CNT’s). CNT’s are difficult to efficiently disperse within a polymer material. The CNT’s tend to stick together and agglomerate within the polymer host material rather than being uniformly dispersed. To accomplish the development of this material we have engaged Zyvex Technologies, a third party vendor and a leading manufacturer of CNT composites with a proprietary CNT dispersion chemistry, Kentera, which they have used in the past to achieve effective dispersion of CNT’s within nylon polymer.

 

Second Technical Hurdle - Complete development of a microperforated catheter balloon that can withstand pressure greater than 20 atmospheres. Once CNT’s disperse within the nylon polymer host we must demonstrate the ability to extrude catheter balloons with the material. To accomplish the development of the catheter balloon, we intend to engage in the future Interface Catheter Solutions (“ICS”), a third party vendor focused on catheter balloon development and manufacturing. Dr. Mark Bates has prior experience working with ICS in forming catheter balloons from CNT-based polymer composites. His initial work with ICS demonstrated the ability to form and microperforate catheter balloons using the extrusion and balloon forming processes at ICS.

 

First Regulatory Hurdle - Demonstrate biological safety of the CNT-nylon composite. With the goal of using our catheter balloons intravascularly, we must demonstrate that the nanocomposite nylon catheter material is non-toxic and hemo-compatible. We will use toxicology and hemo-compatibility tests outlined by ISO 10993 standards for biological evaluation of medical devices. These tests will be performed on the composite materials before balloon forming and after balloon forming to assess whether any adverse reactions are attributable to the catheter balloon manufacturing procedure or whether the material prior to balloon forming is not biologically safe.

 

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Second Regulatory Hurdle - Achieve clearance utilizing FDA 510(k) regulations with Special Controls. We are required to achieve FDA clearance to market our catheter balloons, which will require an animal study followed by a clinical study. To help with both studies, in the future we will be engaging MedStar Health Research Institute in Washington, D.C. as consultants to assist us in obtaining FDA approval. See section titled “Business Overview - Regulatory Plan - US Regulatory Approval” for additional information.

 

Dependence on One or a Few Major Customers

 

As of the date of this registration statement, the Company has not generated any revenues and does not have any customer relationships. In the event, the Company secures regulatory approval to begin marketing and selling its device in the European Union, the United States, or both, it is possible that initially the Company may become dependent on one or a few major customers to generate the bulk of our revenue. However, the management believes the Company can diversify its customer base through the use of a sales force and distributor relationships.

 

Employees

 

As of the date of this registration statement, the Company has two full-time employees, two part-time employees, and two contractors. None of our employees or consultants are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

 

Other Investments

 

The Company currently owns minority holdings in three entities: 1) approximately a 10% equity interest in Nuviant Medical Inc, the largest shareholder of which is Rosellini Scientific LLC; 2) less than 1% equity interest in MicroTransponder Inc; and 3) 100% of the membership interest in Bellomed LLC, a non-operating subsidiary.

 

ITEM 2. FINANCIAL INFORMATION

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview  

 

Nexeon Medsystems, Inc. was incorporated on December 7, 2015. We are a development stage enterprise focusing on the development and commercialization of physician-driven medical device innovations for the treatment of cardiovascular disease. We have never declared bankruptcy, have never been in receivership, and have never been involved in any legal action or proceedings. Since incorporation, we have not made any significant sale of assets.

 

Our operations to date have been limited to organizing and staffing our Company, our merger with NXDE, which includes its IP portfolio, and organization of a private placement offering.

 

As of June 30, 2016, we had an accumulated deficit of $210,133. Our net loss was $143,890 and $209,218 for the three and six months ending June 30, 2016, respectively, compared with a net loss of $915 for the period between December 7, 2015 (inception) and December 31, 2015.  

 

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We expect the Company will continue to incur significant expenses and increasing operating losses in connection with our ongoing activities, particularly as we continue to invest in research and development and initiate the requisite clinical trials to receive regulatory approval for our medical devices in both the United States and European Union. Additionally, if and when we initiate a launch of one or more of our products, we expect to incur substantial commercialization expenses related to the manufacture and distribution, as well as sales and marketing, of these products. Furthermore, upon the effectiveness of this registration statement, the Company will be subject to additional costs associated with operating as a public company. Accordingly, we may need to obtain additional funding to continue operations. Such financing may not be available to us on acceptable terms, or at all. In the event we require additional capital and are unable to secure such funding, we could be forced to delay, reduce, or eliminate our research and development activities, as well as any future commercialization of our products.

 

Results of Operations

 

Our results of operations reflect the three and six months ended June 30, 2016.

 

Revenue

 

To date, the Company has not generated any revenues and has financed our operations with net proceeds from the private placement of our common stock and the receipt of certain non-dilutive research grant awards beginning during the three and six months ended June 30, 2016. The Company’s ability to generate revenues will depend heavily on the successful completion of the requisite clinical trials and studies necessary to achieve approval to begin marketing our contemplated medical devices from the relevant regulatory authorities in the United States and European Union. See the Sections titled “Business – Regulatory Approval Process and Government Regulation” above for more information relating to the regulatory approval process.

 

Research & Development Activities  

 

Research and Development (“R&D”) expenses consist of the costs associated with our research and discovery efforts related to the design and development of our proposed medical devices. Primarily, R&D expenses are expected to include, but may not be limited to:

 

Facilities, laboratory supplies, equipment and related expenses;
Employee-related expenses, which among other things includes salaries, benefits, travel, and stock-based compensation;
External R&D activities incurred under arrangements with third-parties such as contract research organizations, manufacturing organizations, consultants, and possibly a scientific advisory board; and
License fees and other costs associated with securing and protecting IP.

 

For the three and six months ended June 30, 2016, the Company’s research and development expenses were $16,590 and $16,590, respectively, primarily reflecting materials and supplies.

 

It is expected that the Company’s R&D activities and related expenses will increase significantly in the future as we increase the scope and rate of such efforts and begin more expensive development activities, including clinical trials and similar studies as required by the relevant regulatory authorities in our targeted jurisdictions (i.e. the United States and European Union).

 

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The successful completion of the requisite clinical trials and studies to bring our contemplated medical devices to the U.S. and E.U. markets is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the related efforts, nor can we make any assurances as to the period, if any, in which material net cash inflows from sales of our medical devices may commence. This uncertainty is due to the numerous risks and variables associated with developing and marketing medical devices, including, but not limited to:

 

The scope and degree of progress associated with our research and discovery efforts, as well as related development activities;
The extent of expenses incurred in conjunction with the foregoing activities;
The safety and efficacy of our medical device as compared to traditional treatment modalities;
Our ability to articulate successfully the benefits of our medical device to medical professionals who will be responsible for introducing patients to our product;
The results of anticipated clinical studies and trials as required by the relevant regulatory approval processes;
The terms and timing of potential regulatory approvals, if any; and
The expense of securing licenses to relevant IP and/or the expense of filing, prosecuting, defending, and enforcing patent claims and other IP rights that we either own outright or have licensed.

 

Unfavorable developments with respect to any of the foregoing could mean significant changes in the cost and timing associated with our ability to bring our medical device to market and begin generating revenues.

 

General & Administrative Expenses

 

General and administrative expenses generally consist of salaries and similar costs associated with employees, including stock-based compensation expense. This category of expenses may also include facility costs and professional fees related to (i) legal and patent services; (ii) capital formation; (iii) investor and public relations services; and (iv) consulting and accounting services.

 

For the three and six months ended June 30, 2016, the Company’s general and administrative expenses were $81,130 and $129,764, respectively.

 

It is expected that our general and administrative expenses will increase in the future as we expand our R&D activities in pursuit of regulatory approval for our contemplated medical device. Such a rise in expenses could result from:

 

Increased number of employees;
Expanded infrastructure;
Higher legal and compliance costs;
Increased complexity of our financial statements that could precipitate a rise in our bookkeeping and accounting costs;
Higher insurance premiums; or
Increased need for investor and public relation services.

 

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Liquidity and Capital Resources

 

Sources of Liquidity

 

To date, the Company has not generated any revenues. We have financed our operations to date through the private placement of our common stock and from loans from the Company's largest shareholder, Rosellini Scientific LLC. Through June 30, 2016, we have received $100,000 in net cash proceeds from the issuance of common stock from the private placement (see the Section titled “Recent Sales of Unregistered Securities” for more information). During the next Twelve (12) months, the Company will be seeking to raise an additional $3,000,000 in new capital via debt and/or equity financing, and/or via assignment of Federal Grants and matching funds from the State of Kentucky from the Company’s largest shareholder, Rosellini Scientific LLC. There can be no assurance that the Company will be successful in completing any new debt and/or equity financing or receive assignments of Grants. In the event that the Company is unable to secure needed financing or is unable to secure such financing on terms we find favorable, we may be forced to delay, limit, or terminate product development and/or future product commercialization.

 

Material changes in the financial condition from December 31, 2015 include the contribution on January 2, 2016 of various securities with a fair market value of $332,360 for 15,000,000 shares of the Company’s par value $.001 common stock. On February 16, 2016 the Company entered into a Merger Agreement with Nexeon MedSystems, Inc, issuing 2,481,428 shares of the Company’s par value $.001 common stock and assuming of $743,423 of the acquiree’s liabilities. In subsequent transactions, the Company converted $461,336 of assumed stockholder notes and accrued interest for 461,336 shares of the Company’s par value $.001 common stock. The Company initiated a private placement of its common stock effective February 1, 2016 through July 31, 2016. The offering was was extended through September 30 , 2016. The private placement is for the sale of 2,500,000 units at $1.00 per unit. One unit consists of one share of restricted common stock and one common stock warrant. The warrants have an exercise price of $2.00 per share and expire 36 months from the expiration date of the private placement. As of the date of this filing, $150,000 had been subscribed for in cash. 

 

Maturing Obligations  

 

Until such time, if ever, as the Company can generate substantial revenues, we expect to finance our cash needs through a combination of future debt and equity financing, as well as expected non-dilutive research grant awards. Besides certain grant awards, as described earlier in this section, the Company does not have any committed external source of funds. To the extent that the Company secures additional capital through the sale of convertible debt or equity securities, the ownership interest of our stockholders may be diluted, and the terms of any such securities we issue may include liquidation or other preferences that adversely affect the rights of common stockholders. In cases where the Company secures certain debt financing, if any such is available, we may become subject to certain covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures, or declaring dividends. In the event the Company is unable to secure needed financing, or is unable to secure such financing on terms we find favorable, we may be forced to delay, limit, or terminate product development and/or future commercialization of the same.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support, or other benefits.

 

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Critical Accounting Policies

 

Our management’s discussion and analysis of the Company’s financial condition and results of operations is based on our financial statements, which were prepared in conformity with generally accepted accounting principles. The preparation of our financial statements requires us to establish accounting policies and make estimates and assumptions that affect our reported amounts of assets and liabilities at the date of the financial statements. These financial statements include some estimates and assumptions that are based on informed judgments and estimates of management. We evaluate our policies and estimates on an on-going basis and discuss the development, selection and disclosure of critical accounting policies with the Board of Directors. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Our financial statements may differ based upon different estimates and assumptions.

 

The Company’s significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this registration statement. However, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

 

Fair Value Measurements

 

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates are comparable to rates of returns for instruments of similar credit risk.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

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The Company does not have any assets or liabilities measured at fair value on a recurring basis.

 

Property and Equipment

 

Property and equipment are stated at cost. Equipment is depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized based upon the lesser of the term of the lease or the useful life of the asset and such expense is included in depreciation expense. Repair and maintenance costs are expensed as incurred. The Company capitalizes all furniture and equipment with cost great than $500 and benefiting more than one accounting period in the period purchased.

 

Research and Development Expenses

 

Research and development expenses are charges to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical and regulatory expenses, payroll and other personnel expenses, materials, supplies, and consulting costs.

 

Income Taxes

 

The company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

ITEM 3. PROPERTIES

 

The Company does not currently own any property. As of the date of this registration statement, however, the Company leases approximately 400 sq. ft. of office space in Lexington, KY, for $5,700 per year.

 

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The table below sets forth the shares beneficially-owned, as of the date of this registration statement, by (i) each person, group, or entity known to our Company to be the beneficial owner of more than 5% of our voting securities; (ii) each Executive Officer and Director of our Company; and (iii) all Executive Officers and Directors as a group. The number of shares beneficially owned by each stockholder is determined pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934.

 

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Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.

 

In computing the percentage ownership for each individual and entity, the number of outstanding shares, in addition to the 18,844,764 shares issued and outstanding as of the date of this document, includes any and all shares subject to options or warrants held by that individual or entity that were exercisable on or within 60 days after the issuance date(s) of such options or warrants, and any shares that each individual or entity has the right to acquire beneficial ownership of within 60 days. These shares, however, are not considered outstanding for the purpose of computing the percentage ownership of any other stockholder. Each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned by them unless noted otherwise, subject to community property laws where applicable.

 

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Nexeon MedSystems Inc, 1708 Jaggie Fox Way, Lexington, KY, 40511.

 

   

Shares Beneficially

Owned Prior to Offering

Name and Address of Beneficial Owner   Number   Percent
                 
Beneficial Stockholders ( ≥ 5%):                
Rosellini Scientific, LLC     12,826,620  (2)       64.74 %
Elizabeth Rosellini     1,849,000  (4)       9.33 %
Mark Bates     1,175,212  (3)     5.93 %
Ralph Ballard     1,026,723  (1)     5.18
                 
Directors and Executive Officers:                
William Rosellini     12,826,620  (2)     64.74 %
Mark Bates     1,175,212  (3)     5.93 %
Ron Conquest     500,000       2.52 %
Elizabeth Rosellini     1,849,000  (4)     9.33 %
Christopher Miller     252,000       1.27 %
All Directors and Officers as a Group (5 persons)     16,602,832       83.80 %

____________

(1) The beneficial ownership of securities of the Company by Mr. Ballard consists of the following: (i) 1,398 shares of common stock owned by Mr. Ballard individually, (ii) 7,691 shares held by a Custodial IRA FBO Ralph Ballard, and (iii) 566,152 shares of common stock and 451,482 warrants to purchase 451,482 shares at a strike price of $2.00 per share with a term of 36 months held by Ballard Investments. Mr. Ballard has the power to vote and dispose of the shares held by Ballard Investments and the Custodial IRA. In addition, three trusts representing three of Mr. Ballard’s children hold a total of 427,075 shares of common stock and 427,075 warrants to purchase 427,075 shares of common stock at a strike price of $2.00 per share with a term of 36 months, divided between and issued to the three trusts. The three trusts are irrevocable trusts managed by an arms-length third party professional fiduciary. Mr. Ballard disclaims any beneficial ownership in the common stock and warrants issued to the three trusts and such shares are not included in the total shares beneficially owned by Mr. Ballard. See the section titled “Certain Relationship and Related Transactions” for more information.
   

 

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(2) Rosellini Scientific, LLC is wholly-owned by William Rosellini. Mr. Rosellini has the power to vote and dispose of the shares held by Rosellini Scientific, LLC. The total shares beneficially owned by Rosellini Scientific, LLC, as disclosed in the table above, is less than the total that has been issued to it because it has subsequently divested itself of a number of these shares through certain transactions. Rosellini Scientific, LLC was issued nonqualified options to purchase 252,000 shares of the Company’s common stock on April 1, 2016, subject to vesting over 36 months in monthly increments of 7,000 shares. The table above includes 49,000 shares issuable upon the exercise of outstanding stock options that are currently exercisable or will become exercisable within sixty (60) days. See the sections titled “Certain Relationships and Related Transactions” and “Executive Compensation” for more information.
   
(3) In addition to the 756,212 shares of common stock beneficially owned by Dr. Mark Bates, the Company has also issued him warrants to purchase 370,000 shares of the Company’s common stock with a strike price of $2.00 per share and a term of 36 months (see the section titled “Certain Relationship and Related Transactions” for more information). In his capacity as a Director, Dr. Bates was also issued non-qualified options to purchase 252,000 shares of the Company’s common stock on April 1, 2016, subject to vesting over 36 months in monthly increments of 7,000 shares. The table above includes 49,000 shares issuable upon the exercise of outstanding stock options that are currently exercisable or will become exercisable within sixty (60) days. See the sections titled “Certain Relationships and Related Transactions” and “Executive Compensation” for more information.
   
(4) In addition to the 1,800,000 shares of common stock beneficially owned by Dr. Elizabeth Rosellini, the Company has also issued non-qualified options to purchase 252,000 shares of the Company’s common stock on April 1, 2016, subject to vesting over 36 months in monthly increments of 7,000 shares. The table above includes 49,000 shares issuable upon the exercise of outstanding stock options that are currently exercisable or will become exercisable within sixty (60) days. See the sections titled “Certain Relationships and Related Transactions” and “Executive Compensation” for more information.

 

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth certain information about our executive officers and directors as of the date of this registration statement.

 

Name   Age   Positions and Offices
         
William Rosellini   36   Chief Executive Officer, Director
Mark Bates   56   Chief Innovation Officer, Director
Ron Conquest   71   Chief Operating Officer, Director
Elizabeth Rosellini   31   Vice President Clinical Affairs
Christopher Miller   47   Interim Chief Financial Officer

 

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Biographical Information

 

William Rosellini

 

William Rosellini has served as Chief Executive Officer and as a Director of the Company since inception on December 7, 2015. Since 2005, Mr. Rosellini has served as Chairman of Rosellini Scientific, LLC, which develops medical rehabilitation devices to support patients post-procedure. We believe that Mr. Rosellini is qualified to serve on our Board of Directors due to his role in founding the Company and in the development of its business strategy, as well as his experience developing medical devices. Mr. Rosellini received separate Masters Degrees in the fields of Regulatory Science and Regulatory Affairs, Computational Biology, Neuroscience, and Accounting. Additionally, Mr. Rosellini secured an MBA from the University of Texas at Dallas and a Juris Doctor from the Hofstra University School of Law. Mr. Rosellini currently serves as a member of the Board of Directors of Marathon Patent Group. Other than the foregoing, Mr. Rosellini does not currently, and has not for the last five years, served as a member of the Board of Directors for any other public companies. However, Mr. Rosellini, beginning in September 2014, is a Director and Chief Executive Officer of Nuviant Medical, Inc., a company which has acquired medical patents originating in Europe and which it is attempting to commercialize into two medical products. For a discussion of the conflicts of interest involved in Mr. Rosellini’s and other members of management’s other business endeavors see “Conflicts of Interest” below. 

 

Marathon Patent Group (NASDAQ:MARA) is a patent and patent rights acquisition and licensing company. It acquires patents and patent rights from patent holders ranging from individual inventors to Fortune 500 companies. It generates revenue with a diversified portfolio through actively managed licensing campaigns including litigation on infringed patents. William Rosellini is a director of Marathon and his holding company Rosellini Scientific is a minority shareholder of Marathon. The Marathon annual shareholder meeting electing officers and directors will occur in October 2016 and Mr. Rosellini is no longer standing for re-election. Our company develops and commercializes medical devices that from time to time involve technology that is protected by intellectual property in the form of patents. There are no conflicts between the two companies. In the event that in the future the Company should consider acquiring a patents or license from Marathon, Mr. Rosellini will abstain from voting on the matter at the Company’s Board of Directors meeting.  

 

Mark Bates

 

Dr. Mark C. Bates, MD, DSc.(hon), FACC, FSCAI, FSVM is the co-founder and Chief Innovation Officer for the Company and has been on the Board of Directors since his appointment in February 2016.  We believe he is qualified to serve on our Board of Directors because he was the founder of the acquired company (Nexeon MedSystems Inc, a Delaware corporation “NXDE”) where he was also the Board Chairman and CEO from November, 2004 through the date of merger with Nexeon.  Dr. Bates was responsible for leading NXDE through several important milestones including: manufacturing facility quality systems development and ISO certification, managing products through clinical trials, spinout and merger of the stent portfolio with CeloNova BioSciences in 2011, sale of an inventory saving system to BioSensors International in 2013, and the sale of a cell therapy regenerative medicine portfolio to Cook Medical in 2014.  Since 2011 he has been on the board of CeloNova BisoSciences, which recently sold their embolization portfolio to Boston Scientific.  Since 2001 he has been the co-director of a CAMC Vascular Center of Excellence in Charleston, WV and has more than 20 years of interventional cardiology and endovascular surgery experience during which time he has performed or supervised thousands of coronary and peripheral procedures.  In addition to the patents in our Company, Dr. Bates has been named as inventor or co-inventor on over 100 U.S. and Foreign Patents in the medical field, but not all of these patents have led to commercialization.  Over the past five years, Dr. Bates has stayed involved in teaching with a part-time faculty position as Professor of Medicine and Surgery at West Virginia University School of Medicine in Charleston, West Virginia. Dr. Bates does not currently, and has not for the last five years, served as a member of the Board of Directors for any other public companies. Dr. Bates is qualified to serve on our Board of Directors because, as a result of his past business endeavors over the last three decades.

 

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Ron Conquest

 

Mr. Conquest has served as the Chief Operating Officer and a Director of the Company since inception on December 7, 2015. Since 2009, Mr. Conquest has served as Chairman and CEO of WindGen Energy, Inc., which holds royalty agreements that will pay the company royalties for the sale of small wind turbines in the United States, Canada, the United Kingdom and the Republic of Ireland. WindGen Energy is currently delinquent in its SEC filings since 2012.

 

Mr. Conquest’s executive experience includes Chairman of the Board and CEO-level corporate management along with domestic and international corporate finance. Mr. Conquest’s corporate operating experience includes being responsible for the day-to-day operations, From January 1979 to December 1983 for RH Energy, Inc., an Oklahoma-based oil & gas Company with 200 employees; From January 1984 to December 1988 served American Medical Support, Inc., an Oklahoma-based multi-state medical oxygen company with 50 employees; From January 1989 to February 1999 Mr. Conquest was the Managing Director of Warwick Clarendon Investors and the Conquest Group involved in Boutique Investment Banking and Acquisitions and Mergers on both a National and International basis. From March 1999 to October 2001 he was employed by FTM Media, Inc., a California-based website development company with 100 employees; and from 2005 to 2009 GEM Distribution Systems, LLC, an Arizona-based candy and tobacco distribution company with 25 employees. Mr. Conquest became a Director of Nuviant Medical Inc from its inception 2014 to present. In September of 2015 to present Mr. Conquest became the Chief Operating Officer of Rosellini Scientific, LLC.

 

Mr. Conquest is qualified to serve on our Board of Directors because, as a result of his past business endeavors over the last four decades, we believe Mr. Conquest has gained significant insight into the challenges that entrepreneurs face in today’s competitive business environment and could help the Company navigate many of the challenges facing an early-stage company.

 

Mr. Conquest is currently a member of the Board of Directors of WindGen Energy, Inc. (WGEI.PK); besides this company, Mr. Conquest is not currently, and has not for the last five years, served as a member of the Board of Directors of any other public companies.

 

Elizabeth Rosellini

 

Elizabeth Rosellini, DDS has served as the Vice President of Clinical Affairs since Company inception on December 7, 2015. Between July 2013 and February 2014, Dr. Rosellini served as Chief Clinical Officer of Rosellini Scientific, LLC, which develops medical rehabilitation devices to support patients post-procedure.  Dr. Rosellini served on the early leadership teams of a number of portfolio projects initiated at Rosellini Scientific.  More specifically, she facilitated the spin out of Emeritus Clinical Solutions, Inc. (formerly known as Telemend Medical, Inc.), a clinical engineering company that optimizes delivery of medical devices and systems in hospitals and sub-acute care facilities, where she continued to serve as Chief Clinical Officer through May 2016.  Since 2013, Dr. Rosellini has wholly-owned and operated Rosellini Family Dental, PLLC, a mobile dental care and billing company that services nursing homes and assisted living facilities.  Also while at Rosellini Scientific, she served was part of the team that facilitated the spin out and foundation of Nuviant Medical, Inc., where she stayed on and served as Vice President of Business Development from November 2014 to February 2016.  Prior to spring 2013 when she shifted her focus and joined brother Will Rosellini in pursuit of the aforementioned entrepreneurial endeavors, Dr. Rosellini practiced as an associate dentist in various private practices in both Florida and Texas.  Dr. Rosellini holds a BA in Chemistry and Mathematics from the University of Texas at Austin (attended 2004-2007) as well as a Doctorate of Dental Surgery from Texas A&M University (attended 2007-2011), where she developed specific interest in and experience with research and development as related to the head and neck region.  She has unique experience with technical device development as well as co-morbidity management as related to cross-disciplinary approach to systemic healthcare treatment.

 

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Christopher Miller

 

Mr. Miller has served as Interim Chief Financial Officer (“CFO”) of the Company since December 2015. Since 2002, Mr. Miller has been providing financial and business development consulting and interim CFO services, with a focus on early-stage companies. From 2006 to 2008, Mr. Miller provided public company valuation, financial modeling and due diligence services to Doherty & Company, LLC, a Los Angeles based broker-dealer specializing in venture capital, private equity funding, mergers and acquisitions advisory and valuations for early-stage companies. From June 2009 to June 2010, Mr. Miller served as a member of the Board of Directors of WindGen Energy, Inc. (WGEI.PK). Other than the foregoing, Mr. Miller does not currently, and has not for the last five years, served as a member of the Board of Directors for any public companies.

 

Board Composition and Election of Directors

 

Our Board of Directors is currently comprised of three members. Pursuant to our Articles of Incorporation and Bylaws, Directors shall hold office until the next annual meeting of the stockholders and until his or her successor shall be elected and qualified. Directors may be removed, with or without cause and from time to time, as provided by Chapter 78 of the Nevada Revised Statues then in effect.

 

Director Independence

 

Our Board of Directors is currently composed of three members, none of whom qualify as independent Directors in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the Directors are not, and have not been for at least three years, one of our employees and that neither the Directors, nor any of their family members, have engaged in various types of business dealings with us. In addition, our Board of Directors has not made a subjective determination that no relationships exist, which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director, though such subjective determination is required by the NASDAQ rules. Had our Board of Directors made these determinations, our Board of Directors would have reviewed and discussed information provided by the Directors and us with regards to each Director’s business and personal activities and relationships as they may relate to us and our management.

 

Conflicts of Interest

 

Since we do not have an audit or compensation committee comprised of independent Directors, the functions that would have been performed by such committees are performed by our Board of Directors. The Board of Directors has not established an audit committee and does not have an audit committee financial expert, nor has the Board established a nominating committee. The Board is of the opinion that such committees are not necessary given the Company’s early stage of development, and to date, our Directors have been performing the functions of such committees. Thus, there is a potential conflict of interest in that our Directors have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.

 

Rosellini Scientific, LLC is a company wholly-owned by Mr. Rosellini which acquires interests in other companies such as Nexeon and Nuviant Medical Inc. in exchange for Rosellini Scientific assets. Rosellini Scientific will not acquire any such properties in the future that are not first offered to Nexeon and voted on by its Board of Directors with Mr. Rosellini abstaining. There has been no conflict of interest between Nexeon and Nuviant because Nexeon’s patents were acquired from NXDE, a company with which Mr. Rosellini had no affiliation and because the majority of Nuviant’s assets were acquired from a European company with which Mr. Rosellini had no affiliation prior to the acquisition of the assets by Nuviant.

 

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Rosellini Scientific LLC functions as the personal holding of Mr. Rosellini. In addition, Rosellini Scientific LLC is the source of Federal and State Grants all of which benefit and provide funding to the Company as disclosed herein. Mr. Rosellini’s work week averages 60 to 70 hours per week and approximately 20%, or 12 to 14 hours a week, are devoted to the business of Rosellini Scientific LLC. Regardless, Mr. Rosellini is devoting, at a minimum, in excess of 40 hours a week to the Company. Mr. Rosellini is fully aware of his fiduciary responsibilities and to the principles of the Corporate Opportunity Doctrine as they relate to the Company. There can be no assurance that a material conflict of interest will not occur in the future. In the event a potential conflict should occur, it will be fully disclosed to the Company’s Board of Directors for a determination by the Board as to the relevance and/or solution in order to avoid such potential conflict. As of the date of this Form 10 filing, Mr. Rosellini, to the best of his knowledge and belief, is unaware of any material conflicts.

 

Mr. Conquest’s work week averages 60 to 70 hours per week and approximately 10%, or 6 to 7 hours a week, are devoted to the business of Rosellini Scientific LLC. Regardless, Mr. Conquest is devoting, at a minimum, in excess of 40 hours a week to the Company. Mr. Conquest is fully aware of his fiduciary responsibilities and to the principles of the Corporate Opportunity Doctrine as they relate to the Company. There can be no assurance that a conflict of interest will not occur in the future. In the event a potential conflict should occur, it will be fully disclosed to the Company’s Board of Directors for a determination by the Board as to the relevance and/or solution in order to avoid such potential conflict. As of the date of this Form 10 filing, Mr. Conquest, to the best of his knowledge and belief, is unaware of any material conflicts.

 

All potential or actual conflicts of interest for all Nexeon Directors and officers have been approved by Nexeon’s Board of Directors (with abstention by the conflicted Director) pursuant to Nexeon’s Code of Business Conduct and Ethics. Such Board of Directors approval for conflict of interest transactions is consistent with Nevada corporate law statutes.

 

Family Relationships

 

Dr. Elizabeth Rosellini, the Company’s Vice President of Clinical Affairs is the sister of our CEO, Dr. William Rosellini. Other than the foregoing, there are no family relationships of any kind among our Named Executive Officers, Directors or persons nominated or chosen by us to become Officers or Named Executive Directors.

 

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ITEM 6. EXECUTIVE COMPENSATION

 

The tables below summarize all compensation awarded to, earned by, or paid to our Executive Officers for all services rendered in all capacities to us for the fiscal period(s) indicated.

 

Summary Executive Compensation

 

                                  Nonequity     Nonqualified              
                                  incentive     deferred              
                      Stock     Option     plan     compensation     All other        
          Salary     Bonus     Awards     Awards     compensation     earnings     compensation     Total  
Name and Position   Year     ($)     ($)     ($)     ($)     ($)     ($)     ($)     ($)  
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  
                                                                         
William Rosellini     2015     $     $       $     $     $     $     $     $  
President & CEO                                                                        
Mark Bates     2015                                                  
Chief Innovation Officer                                                                        
Ron Conquest     2015                                                  
Chief Operating Officer                                                                        
Elizabeth Rosellini     2015                                                  
Vice President of Clinical Affairs                                                                        
Christopher Miller     2015                   252                               252  
Interim Chief Financial Officer                                                                        

 

Outstanding Equity Awards at Fiscal Year End

 

As of December 31, 2015, the Company had no outstanding equity awards made to our executives.

 

On April 1, 2016, pursuant to the 2016 Omnibus Incentive Plan the Company issued non-qualified options to purchase 252,000 shares of the Company’s common stock, with an exercise price of $1.00 and a term of three years to each Rosellini Scientific, LLC (see “Employment Agreements” below for more information), Dr. Mark Bates, and Dr. Elizabeth Rosellini for services rendered to the Company since inception. The options vest in monthly increments of 7,000, and the three-year term of such options starts upon vesting.

 

Summary Director Compensation

 

The following table provides information with respect to the total compensation granted to our Directors as of December 31, 2015.

 

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Name  

Fees Earned or Paid in Cash

($)

    Stock Awards ($)     Option Awards ($)    

Non-Equity Incentive Plan Compensation

($)

   

Non-Qualified Deferred Compensation Earnings

($)

    All Other Compensation ($)    

Total

($)

 

 

 

                                                       
William Rosellini   $     $     $     $     $     $     $  
Mark Bates                                          
Ron Conquest                                          

 

On January 1, 2016, the Company entered into an Employment Agreement with Ron Conquest.

 

On May 1, 2016, the Company entered into a Director Services Agreement with Dr. Mark Bates.

 

Equity Incentive Plan  

 

The Company may, from time to time, issue certain equity awards pursuant to our 2016 Omnibus Incentive Plan (the “Plan”). The Plan was adopted by our Board of Directors in January 2016 and was subsequently approved by our shareholders. As of June 30, 2016, non-qualified options to purchase a total of 1,008,000 shares of the Company’s common stock were issued under this Plan, all with an exercise price of $1.00 per share. All of these shares were issued on April 1, 2016 and vest in monthly increments of 28,000 for three years. Each option has a three-year term starting on each date of vesting.

 

The Plan will be administered by a Committee of two or more non-employee Directors designated by the Board once outside Directors have been elected to the Board. In the interim the Board shall perform the requisite duties of the Committee with respect to awards made. The Committee currently determines to whom awards are made, the timing of any such awards, the type of securities, and number of shares covered by each award, as well as the terms, conditions, performance criteria, restrictions and other provisions of awards. The Committee has the authority to cancel or suspend awards, accelerate the vesting or extending the exercise period of any awards made pursuant to the Plan.

 

Shares Available under the 2016 Omnibus Incentive Plan

 

The maximum shares available for issuance under the Plan are 3,000,000, subject to adjustment as set forth in the Plan. Any shares subject to an award that expires, is cancelled or forfeited or is settled for cash shall, to the extent of such cancelation, forfeiture, expiration or cash settlement, again become available for awards under the Plan. The Committee can issue awards comprised of restricted stock, stock options, stock appreciation rights, stock units and other awards, as set forth in the Plan.

 

Transferability

 

Except as otherwise provided in the Plan, (i) during the lifetime of a Participant, only the Participant or the Participant’s guardian or legal representative may exercise an option or stock appreciation right, or receive payment with respect to any other award and (ii) no award may be sold, assigned, transferred, exchanged or encumbered, voluntarily or involuntarily, other than by will or the laws of descent and distribution.

 

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Change in Control

 

In the event of a merger, the surviving or successor entity (or its parent) may continue, assume or replace outstanding awards as of the date of the relevant transaction and such awards or replacements therefore shall remain outstanding and be governed by their respective terms. Such awards or replacements can be executed in part on the condition that the contractual obligations represented by the award are expressly assumed by the surviving or successor entity (or its parent) with appropriate adjustments to the number and type of securities subject to the award and the exercise price thereof so as to preserve the intrinsic value of the award existing at the time of the relevant transaction. Alternatively, the surviving or successor entity (or its parent) could issue to a Participant a comparable equity-based award that preserves the intrinsic value of the original award existing at the time of the relevant transaction and contains terms and conditions that are substantially similar to those of the award.

 

If and to the extent that outstanding awards under the Plan are not continued, assumed or replaced in connection with a merger or relevant corporate transaction, then all outstanding awards shall become fully vested and exercisable for such period of time prior to the effective date of the relevant transaction as is deemed fair and equitable by the Committee and shall terminate at the effective date of said transaction.

 

Amendment & Termination

 

The Plan shall remain in effect until all shares subject to it are distributed, all awards have expired or terminated, or the 10 th anniversary of the Plan’s effective date; however, our Board of Directors may terminate, suspend or amend the Plan at any time. The Company shall submit any amendment to the Plan to its stockholders for approval only to the extent required by applicable laws or regulations or the rules of any securities exchange on which the Company’s shares may then be listed. No termination, suspension, or amendment of the Plan may materially impair the rights of any Participant under a previously granted award without the Participant’s consent, unless such action is necessary to comply with applicable law or stock exchange rules.

 

Employment Agreements

 

On May 1, 2016, the Company executed a Director Services Agreement with Dr. Mark Bates MD. Pursuant to this agreement, Dr. Bates is entitled to receive an annual Director’s Fee in the form of 250,000 Nonqualified Stock Options, which vest quarterly over a three (3) year period. The term of the Options are four (4) years from each vesting period with a strike price of $1.00 per share. Beginning May 1, 2016 Dr. Bates also receives a fee of $3,500.00 per month for consulting services.  

 

On January 1, 2016, the Company executed an Employment Agreement with Ron Conquest in the capacity of Chief Operating Officer and Director. Pursuant to this agreement Mr. Conquest will receive an annual salary in the amount of $100,000. Starting October 1, 2016, Mr. Conquest will receive an annual salary of $140,000. Starting October 1, 2017, Mr. Conquest will receive an annual salary of $175,000. The Term of this Employment Agreement is four years. In the event Mr. Conquest is terminated without “cause” (as defined in his Employment Agreement), the Company will be required to pay his then existing salary and benefits for a period equal to fifty percent (50%) of the remaining Term of his Employment Agreement. In the event the Company terminates Mr. Conquest’s employment as a result of a change in control, the Company will be responsible to pay his then existing salary and benefits for the remaining Term of the agreement. The Company also reimburses Mr. Conquest and his spouse for his health insurance and all out of pocket expenses.

 

The Company currently does not have formal employment agreements with its Chief Executive Officer, William Rosellini, its Chief Innovation Officer, Dr. Mark Bates MD (in his executive capacity); Christopher Miller, Interim Chief Financial Officer, or its Vice President of Clinical Affairs, Dr. Elizabeth Rosellini DDS.

 

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Pursuant to the Contribution Agreement between the Company and Rosellini Scientific, LLC, any compensation paid by the Company for William Rosellini’s services will be made directly to his wholly-owned company, Rosellini Scientific, LLC. The Company has issued 252,000 Nonqualified Stock Options to Rosellini Scientific LLC providing his services in his capacity as CEO and Director, 252,000 Nonqualified Stock Options to Dr. Elizabeth Rosellini DDS in her capacity as Vice President of Clinical Affairs, and 252,000 Nonqualified Stock Options to Dr. Mark Bates in his capacity as Chief Innovation Officer and Director.

 

Except as expressly indicated otherwise herein, the Company currently does not provide a salary or other compensation to certain of the foregoing individuals; however, the Board of Directors may decide, at its discretion, to enter into one or more employment agreements with these individuals contemplating the payment of salaries and other compensation at some point in the immediate future.

 

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

On February 16, 2016, the Company merged with Nexeon MedSystems, Inc. (“NXDE”) – a Delaware corporation. The Company, a Nevada corporation, was the surviving entity. The Company converted 100% of NXDE’s issued and outstanding common and preferred stock into 1,659,946 shares of the Company’s common stock. In addition to the conversion of NXDE shares into common shares of the Company, the Company shall pay a limited liability company formed by the former shareholders of NXDE for the purpose of receiving a royalty equal to Three Percent (3%) (the “NXDE royalty”) of Net Product Sales received by the Company, its affiliates and licensees derived from the commercialization of patents or other intellectual property owned by NXDE prior to the merger. Our Chief Innovation Officer and Director, Dr. Mark Bates, was the Chief Executive Officer of NXDE and received 392,831 shares of the Company’s common stock in the foregoing transaction.

 

As part of the Merger Agreement with NXDE, Dr. Mark Bates, M.D, the Company’s Chief Innovation Officer, and Director, received a total of 386,212 shares of the Company’s Common Stock upon conversion of the NXDE preferred shares, and converted $370,000 of debt owed to him by NXDE into 370,000 shares of our common stock and warrants to purchase 370,000 additional shares of common stock at a strike price of $2.00 per share and with a term of 36 months. In addition, Dr. Bates contributed $202,825 of accrued interest on his debt, which will be reflected as additional paid in capital to the Company during the first quarter of 2016.  Dr. Bates, beginning May 1, 2016, will receive a monthly consulting fee of $3,500.00. 

 

As part of the Merger Agreement with NXDE, Mr. Ralph Ballard, who was a co-founder and Director of NXDE, received a total of 123,759 shares of the Company’s Common Stock upon conversion of the NXDE preferred shares, which were divided as follows: 1,398 shares to Mr. Ballard personally, 7,691 shares to a Custodial IRA FBO Ralph Ballard, and 114,670 shares to Ballard Investments. In addition, as part of the Merger Agreement with NXDE, Mr. Ballard converted $451,482 of debt owed to him by NXDE and received 451,482 shares of our common stock and warrants to purchase 451,482 shares at a strike price of $2.00 per share with a term of 36 months, which shares and warrants were issued to Ballard Investments. Mr. Ballard has the power to vote and dispose of the shares held by his IRA and Ballard Investments. In addition, three trusts representing three of Mr. Ballard’s children converted a total of $427,075 of debt and received 427,075 shares of our common stock and warrants to purchase 427,075 shares of common stock at a strike price of $2.00 per share with a term of 36 months, divided between and issued to the three trusts. The three trusts are irrevocable trusts managed by an arms-length third party professional fiduciary. Mr. Ballard disclaims any beneficial ownership in the common stock and warrants issued to the three trusts.

 

Subsequent to the Merger, three additional NXDE Shareholders converted a total of $34,261 in debt for 34,261 shares of our common stock and warrants to purchase 34,261 shares of our common stock at a strike price of $2.00 per share with a term of 36 months.

 

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Subsequent to the Merger, Rosellini Scientific LLC exchanged a $175,000 promissory note with a term of five years bearing an annual interest rate of 8%, payable to Rosellini Scientific by Emeritus Clinical Solutions, Inc., a Delaware corporation, to the Company, in return for 175,000 shares of the Company’s common stock and warrants to purchase 175,000 shares of common stock with a strike price of $2.00 per share with a term of 36 months. This transaction was rescinded as of June 30, 2016 and the shares were returned.

 

On December 15, 2015, the Company issued 500,000 shares of its common stock to its Chief Operating Officer, Ron Conquest, for the sum of $500 at the par value of $0.001. 212,000 shares of the 500,000 shares became vested upon issue and the remaining 288,000 shares shall vest over a 36 month period at the rate of 8,000 shares per month.

 

On January 2, 2016, the Company issued 252,000 shares of common stock to Christopher Miller, with a par value of $0.001, for certain accounting and budget-related services rendered as well as serving as Interim CFO until such time as a permanent CFO is hired. The shares vest over a 36 month period at the rate of 7,000 shares per month.

 

On January 2, 2016, the Company issued 1,800,000 shares of its common stock to its Vice President of Clinical Affairs, Dr. Elizabeth Rosellini DDS (the sister of our CEO), in return for 214 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation, and 60,000 shares of common stock of Nuviant Medical, Inc., a Nevada corporation.

 

On January 2, 2016, the Company entered into a Contribution Agreement with Rosellini Scientific, LLC – a company controlled by our CEO, William Rosellini – and its wholly-owned subsidiary Belltower Associates, LLC (collectively, Rosellini Scientific, LLC and Belltower Associates, LLC are hereinafter referred to as “RS”). Under this agreement, the Company issued 13,200,000 shares of its common stock in return for, among other consideration:

 

i. RS’s agreement to an assignment (subject to regulatory transfer approval) to the Company of Phase II, should it be granted of the Federal NIH/SBIR awarded Grant #1R44HL129870-01; and 

 

ii. 1,675,000 shares of common stock of Nuviant Medical, Inc. (“Nuviant”), which, in addition to the shares acquired from Dr. Elizabeth Rosellini, represents an approximately 9.54% ownership interests in Nuviant; and

 

iii. 167 shares of common stock of MicroTransponder, Inc., a Delaware corporation, representing an approximately 1.6% ownership interests in the entity; and

 

iv. 175 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation.

 

Between March and August 2016, the Company issued 150,000 shares of its common stock and warrants to purchase 150,000 shares of its common stock with a strike price of $2.00 per share and a term of 36 months, realizing aggregate proceeds of $150,000.

 

On April 1, 2016, pursuant to the 2016 Omnibus Incentive Plan, the Company issued non-qualified options to purchase 252,000 shares of common stock, with an exercise price of $1.00 with a term of three years to each of the following: Rosellini Scientific, LLC; Dr. Mark Bates MD; Dr. Elizabeth Rosellini DDS; and Sheneka Rains (a consultant) for services rendered to the Company since inception as well as ongoing services to be provided from time to time. The options vest in monthly increments of 7,000, with a three-year term for each option beginning upon each date of vesting.

 

On June 1, 2016, pursuant to the 2016 Omnibus Incentive Plan, the Company issued Dr. Melanie McWade PhD Incentive Stock Options to purchase 252,000 shares of its common stock with an exercise price of $1.00. The options vest in monthly increments of 7,000 with a three-year term for each option beginning upon each date of vesting.

 

The Company has a note payable with a two stockholders in the amount of $10,000 each, which bear interest at the rate of 12% per annum and mature March 31, 2018.

 

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In accounting for the contribution of assets regarding the transactions with Elizabeth Rosellini and Rosellini Scientific, the Company recorded the assets received at fair value in accordance with ASC 845, Non-monetary transactions. Prior to the contribution Elizabeth Rosellini and Rosellini Scientific were not related parties of the Company, but became related parties through the issuance of the 15,000,000 shares and a controlling interest in the company. For the Nuviant Medical, Inc, and the MicroTransponder, Inc. common stock, the amount at which the assets were acquired from the related persons were based on the fair market value as determined by an appraisal report establishing a fair market value for each private company’s common stock of $0.10 and $416 per share respectively. The valuation reports are prepared by a qualified third party independent appraiser in accordance with the AICPA’s Statement on Standards for Valuations No. 1 and the AICPA’s “Practice Aid”, Valuation of Privately-Held Company Equity Securities Issued as Compensation. The amount at which the Emeritus Clinical Solutions, Inc. stock was acquired was based on the most-recent third party transaction of $204.08 per share. Assets acquired by the related persons within the last two years include the Nuviant Medical Inc. common stock. The cost of the 1,675,000 common shares of Nuviant Medical Inc. to the related party and acquired from Rosellini Scientific, LLC was $1,675 or approximately $.001 per share. The cost of the 60,000 common shares of Nuviant Medical Inc. to the related party and acquired from Elizabeth Rosellini was $6,000 or approximately $0.010 per share. The cost of the 175 shares of Emeritus Clinical Solutions, Inc. common stock to the related party and acquired from William Rosellini (Rosellini Scientific, LLC) was $0.175 at par value $.001. The cost of the 214 shares of Emeritus Clinical Solutions, Inc. common stock to the related party and acquired from Elizabeth Rosellini was $0.214 at par value $.001.

 

Unless otherwise stated, the issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated there under, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or contracts relating to compensation as provided under Rule 701. 

 

The recipients of the securities in the foregoing transactions represented their intentions to acquire the securities for investment only and not with a view to the resale or distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had access, through their relationships with the Company, to information about Nexeon MedSystems Inc.

 

ITEM 8. LEGAL PROCEEDINGS

 

There are no pending legal proceedings to which the Company is a party or in which any Director, Officer, or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder, is a party adverse to the Company or has a material interest adverse to the Company.

 

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

There is no established public trading market in the Company’s common stock. Our securities are not listed for trading on any national securities exchange nor are bid or ask quotations reported by any over-the-counter quotation service.

 

Equity Compensation Plans

 

The Company and shareholders have approved the 2016 Omnibus Incentive Plan. Pursuant to the plan the Company has, on a case-by-case basis, elected to partially compensate certain Employees, Officers, Directors and Consultants with the issuance of shares of the company’s common stock, or options to purchase the same. See the Sections titled “Executive Compensation”; “Certain Relationships and Related Parties Transactions”; “Description of Registrant’s Securities to be Registered”; and “Recent Sale of Unregistered Securities” for more information.

 

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Holders

 

As of the date of this registration statement there were 18,844,764 shares of common stock outstanding, which were held by approximately 100 shareholders of record. As of the date of this registration statement, we have no present commitments to issue shares of our capital stock to any 5% holder, Director, or nominee.

 

Dividends

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings for use in the operation of our business and do not intend to declare or pay any cash dividends in the foreseeable future. Any further determination to pay dividends on our capital stock will be at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our Board of Directors considers relevant.

 

Rule 144

 

As of the date of this registration statement, we have issued 18,844,764 shares of our common stock. These shares are currently restricted from trading under Rule 144. In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144.

 

If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

 

In general, under Rule 144 as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this registration statement, a number of shares that does not exceed the greater of:

 

1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this Offering; or

 

The average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Rule 701

 

Rule 701 of the Securities Act allows for the resale of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the requirements relating to holding periods, volume and public information. Any of the Company’s employees, consultants or advisors, other than our affiliates, who purchased shares from us under a written compensatory plan or contract, may be entitled to rely on the resale provisions of Rule 701. However, all holders of Rule 701 shares are required to wait until 90 days after the effective date of this registration statement before selling shares in reliance upon Rule 701.

 

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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

 

Set forth below is an enumeration of all securities issued by the Company since December 7, 2015, (inception) that have not been registered under the Securities Act.

 

On February 16, 2016, the Company merged with Nexeon MedSystems, Inc. (“NXDE”) – a Delaware corporation. The Company, a Nevada corporation, was the surviving entity. The Company converted 100% of NXDE’s issued and outstanding common and preferred stock into 1,659,946 shares of the Company’s common stock.

 

This merger was unanimously approved at a meeting of NXDE’s common and preferred shareholders, all of whom are “Accredited Investors” as defined by Rule 501 of SEC Regulation D. Based on these facts, we believe the issuance of Company common stock to the NXDE common and preferred shareholders qualifies as a Section 4(2) exemption from registration. 

 

As part of the Merger Agreement with NXDE, Dr. Mark Bates, M.D, the Company’s Chief Innovation Officer, and Director, received a total of 386,212 shares of the Company’s Common Stock upon conversion of the NXDE preferred shares, and converted $370,000 of debt owed to him by NXDE into 370,000 shares of our common stock and warrants to purchase 370,000 additional shares of common stock at a strike price of $2.00 per share and with a term of 36 months. In addition, Dr. Bates contributed $202,825 of accrued interest on his debt, which will be reflected as additional paid in capital to the Company during the first quarter of 2016.  Dr. Bates, beginning May 1, 2016, will receive a monthly consulting fee of $3,500.00. 

 

As part of the Merger Agreement with NXDE, Mr. Ralph Ballard, who was a co-founder and Director of NXDE, received a total of 123,759 shares of the Company’s Common Stock upon conversion of the NXDE preferred shares, which were divided as follows: 1,398 shares to Mr. Ballard personally, 7,691 shares to a Custodial IRA FBO Ralph Ballard, and 114,670 shares to Ballard Investments. In addition, as part of the Merger Agreement with NXDE, Mr. Ballard converted $451,482 of debt owed to him by NXDE and received 451,482 shares of our common stock and warrants to purchase 451,482 shares at a strike price of $2.00 per share with a term of 36 months, which shares and warrants were issued to Ballard Investments. Mr. Ballard has the power to vote and dispose of the shares held by his IRA and Ballard Investments. In addition, three trusts representing three of Mr. Ballard’s children converted a total of $427,075 of debt and received 427,075 shares of our common stock and warrants to purchase 427,075 shares of common stock at a strike price of $2.00 per share with a term of 36 months, divided between and issued to the three trusts. The three trusts are irrevocable trusts managed by an arms-length third party professional fiduciary. Mr. Ballard disclaims any beneficial ownership in the common stock and warrants issued to the three trusts.

 

Subsequent to the Merger, three additional NXDE Shareholders converted a total of $34,261 in debt for 34,261 shares of our common stock and warrants to purchase 34,261 shares of our common stock at a strike price of $2.00 per share with a term of 36 months.

 

Subsequent to the Merger, Rosellini Scientific LLC exchanged a $175,000 promissory note with a term of five years bearing an annual interest rate of 8%, payable to Rosellini Scientific by Emeritus Clinical Solutions, Inc., a Delaware corporation, to the Company, in return for 175,000 shares of the Company’s common stock and warrants to purchase 175,000 shares of common stock with a strike price of $2.00 per share with a term of 36 months. This transaction was rescinded as of June 30, 2016 and the shares were returned.

 

On December 15, 2015, the Company issued 500,000 shares of its common stock to its Chief Operating Officer, Ron Conquest, for the sum of $500 at the par value of $0.001. 212,000 shares of the 500,000 shares became vested upon issue and the remaining 288,000 shares shall vest over a 36 month period at the rate of 8,000 shares per month.

 

On January 1, 2016, the Company issued 252,000 shares of common stock to Christopher Miller, with a par value of $0.001, for certain accounting and budget-related services rendered as well as serving as Interim CFO until such time as a permanent CFO is hired. The shares vest over a 36 month period at the rate of 7,000 shares per month.

 

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On January 2, 2016, the Company issued 1,800,000 shares of its common stock to its Vice President of Clinical Affairs, Dr. Elizabeth Rosellini DDS (the sister of our CEO), in return for 214 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation, and 60,000 shares of common stock of Nuviant Medical, Inc., a Nevada corporation.

 

On January 2, 2016, the Company entered into a Contribution Agreement with Rosellini Scientific, LLC – a company controlled by our CEO, William Rosellini – and its wholly-owned subsidiary Belltower Associates, LLC (collectively, Rosellini Scientific, LLC and Belltower Associates, LLC are hereinafter referred to as “RS”). Under this agreement, the Company issued 13,200,000 shares of its common stock in return for, among other consideration:

 

i. RS’s agreement to an assignment (subject to regulatory transfer approval) to the Company of Phase II, should it be granted of the Federal NIH/SBIR awarded Grant #1R44HL129870-01; and 

 

ii. 1,675,000 shares of common stock of Nuviant Medical, Inc. (“Nuviant”), which, in addition to the shares acquired from Dr. Elizabeth Rosellini, represents an approximately 9.54% ownership interests in Nuviant; and

 

iii. 167 shares of common stock of MicroTransponder, Inc., a Delaware corporation, representing an approximately 1.6% ownership interests in the entity; and

 

iv. 175 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation.

 

Between March and April of 2016, the Company issued 100,000 shares of its common stock and warrants to purchase 100,000 shares of its common stock with a strike price of $2.00 per share and a term of 36 months, realizing aggregate proceeds of $100,000.

 

On April 1, 2016, pursuant to the 2016 Omnibus Incentive Plan, the Company issued non-qualified options to purchase 252,000 shares of common stock, with an exercise price of $1.00 with a term of three years to each of the following: Rosellini Scientific, LLC (see “Employment Agreements” below for more information); Dr. Mark Bates MD; Dr. Elizabeth Rosellini DDS; and Sheneka Rains (a consultant) for services rendered to the Company since inception as well as ongoing services to be provided from time to time. The options vest in monthly increments of 7,000, with a three-year term for each option beginning upon each date of vesting.

 

Sheneka Rains primary function is to plan, lead, and manage medical device programs, utilizing multi-disciplined product development teams. Projects span portions of the entire development life-cycle, from concept/feasibility, to detailed design, and on to manufacturing transition and launch, as well as post launch support. Her responsibility is to lead the overall program planning, staffing, project execution, cost control, risk management, primary client relationship duties and working under the oversight of the group’s Advisory Board for that particular project.

 

On June 1, 2016, pursuant to the 2016 Omnibus Incentive Plan, the Company issued Dr. Melanie McWade PhD Incentive Stock Options to purchase 252,000 shares of its common stock with an exercise price of $1.00. The options vest in monthly increments of 7,000 with a three-year term for each option beginning upon each date of vesting.

 

Unless otherwise stated, the issuance of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated there under, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or contracts relating to compensation as provided under Rule 701. 

 

The recipients of the securities in the foregoing transactions represented their intentions to acquire the securities for investment only and not with a view to the resale or distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had access, through their relationships with the Company, to information about Nexeon MedSystems Inc.

 

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ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

 

General

 

Our authorized capital stock consists of 75,000,000 shares of common stock with a par value of $0.001. As of the Effective Date of this registration statement, there are 18,844,764 shares of our common stock and zero shares of preferred stock authorized.

 

We are registering on this registration statement only our common stock, the terms of which are described below. However, we also describe the terms of additional securities which the Company has outstanding as of the date of this registration statement.

 

Common Stock

 

The following description of certain matters relating to our securities does not purport to be complete and is subject in all respects to the applicable laws of the State of Nevada and the laws of the jurisdictions of the individual states and the Securities and Exchange Commission, as the case may be. Each share of our Common Stock is entitled to one vote at all meetings of our stockholders. Our stockholders are not permitted to cumulate votes in the election of Directors. All shares of our Common Stock are equal to each other with respect to liquidation rights and dividend rights. 

 

In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to receive, on a pro rata basis, all of our assets remaining after satisfaction of all liabilities and preferences of outstanding preferred stock, if any.

 

Except as otherwise required by Nevada law, holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of Directors, can elect all of the Directors to be elected, if they so choose, and in such event, the holders of the remaining shares will not be able to elect any of our Directors.

 

Preferred Stock

 

As of the date of this registration statement, the Company has zero shares of preferred stock authorized.

 

Share Purchase Warrants, Options, & Other Convertible Securities

 

As of the date of this registration statement, the Company had warrants outstanding to purchase an aggregate of 1,432,818 shares of our common stock. All of these warrants have a strike price of $2.00 per share and a term of 36 months.

 

On April 1, 2016 the Company issued, pursuant to its 2016 Omnibus Incentive Plan, Nonqualified Stock Options to purchase an aggregate of 1,008,000 shares of our Common Stock at an exercise price of $1.00 per share. Aggregately, these options shall vest in monthly increments of 28,000 for three years following the issuance date. These options have a three-year term, which begins with each date of vesting. In addition on June 1, 2016 the Company issued to an employee, pursuant to its 2016 Omnibus Incentive Plan, 252,000 Incentive Stock Options to purchase shares of our Common Stock at an exercise price of $1.00 per share. These options shall vest in monthly increments of 7,000 for three years following the issuance date. These options have a three-year term, which begins with each date of vesting.

 

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Dividend Policy

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings for use in the operation of our business and do not intend to declare or pay any cash dividends in the foreseeable future. Any further determination to pay dividends on our capital stock will be at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors considers relevant.

 

Market for Our Shares of Common Stock

 

As of the date of this registration statement, there is no public market for our securities. There has been no public trading of our securities, and, therefore, no high and low bid pricing.

 

We plan to contact a market maker immediately following the completion of the Offering and apply to have the shares quoted on the OTC Markets (“OTCQB”). The OTCQB is a regulated quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter securities. The OTCQB is not an issuer listing service, market or exchange. Although the OTCQB does not have any listing requirements to be eligible for quotation on the OTCQB, issuers must remain current in their filings with the SEC. Market makers are not permitted to begin quotation of a security of an issuer that does not meet this requirement. Securities already quoted on the OTCQB that become delinquent in their required filings will be removed following a 30- or 60-day grace period if they do not make their required filing during that time.

 

We cannot guarantee that our application will be accepted or approved and our stock listed and quoted for sale. As of the date of this filing, there have been no discussions or understandings between the Company and any market maker regarding participation in a future trading market for our securities. 

 

Anti-Takeover Provisions

 

In the future, we may become subject to Nevada’s control share law. A corporation is subject to Nevada’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and if it does business in Nevada or through an affiliated corporation. The law focuses on the acquisition of a “controlling interest”, which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of Directors: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others.

 

The effect of the control share law is that the acquiring entity, and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring entity once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring entity, then those shares do not become permanent non-voting shares. The acquiring entity is free to sell its shares to others.

 

If the buyers of those shares themselves do not acquire a controlling interest, then the control share law does not govern their shares. If control shares are accorded full voting rights and the acquiring entity has acquired control shares with a majority or more of the voting power, then any stockholder of record, other than an acquiring entity, who has not voted in favor of approval of voting rights is entitled to demand fair value for such stockholder’s shares. Nevada’s control share law may have the effect of discouraging takeovers of the Company.

 

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In addition to the control share law, Nevada has a business combination law that prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after the “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s Board of Directors approves the combination in advance.

 

For purposes of Nevada law, an “interested stockholder” is any person who is: (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.

 

The effect of Nevada’s business combination law is to discourage parties potentially interested in taking control of our Company from doing so if it cannot obtain the approval of our Board of Directors.

 

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

Our Officers and Directors are indemnified as provided by the Nevada Revised Statutes (“NRS”) and our bylaws. Under the NRS, unless modified by a corporation's Articles of Incorporation, a Director is not liable to a corporation, its stockholders, or creditors for damages unless the Director's action or failure constituted a breach of fiduciary duty and such breach involved intentional misconduct, fraud, or a knowing violation of law. Our bylaws provide that we will indemnify our Directors and Officers to the fullest extent permissible under Nevada law if such person acted in good faith and in a manner which such person reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action, had no reasonable cause to believe such conduct was unlawful. The Company has entered into Indemnification Agreements with each of its Directors a copy of which is attached hereto as Exhibit 10.07

 

The Company may purchase and maintain Directors and Officers Liability Insurance or make other financial arrangements on behalf of any individual entitled to indemnity. Our bylaws also provide that we will advance all expenses incurred to any person entitled to indemnity upon receipt of an undertaking by, or on behalf of, such person to repay said amounts should it be ultimately determined that the person was not entitled to indemnification.

 

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The Company’s financial statements for the period from December 7, 2015, (inception) through December 31, 2015, and for NXDE for the years ending December 31, 2014, and December 31, 2015, have been audited by Paritz & Company P.A., an independently-registered, public accounting firm. The financial statements have been prepared in accordance with generally accepted accounting principles and are included at the end of this registration statement. In addition, included herein is an unaudited pro forma Statement of Operations for the Six Months ended June 30, 2016. An unaudited interim financial statement as of and for the three and six months ended June 30, 2016 is also included herewith.

 

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

The Company has not had any disagreements with our auditors on any matters of accounting principles, practices, or financial statement disclosure.

 

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ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

 

Financial Statements:

 

Description
 
Nexeon MedSystems Inc, a Nevada corporation:
Audited Financial Statements for the period beginning at inception of December 7, 2015 ending December 31, 2015
Nexeon MedSystems, Inc, a Delaware corporation:
Audited Financial Statements for the periods ending December 31, 2014, and December 31, 2015 for Nexeon MedSystems Inc, a Delaware corporation.
Nexeon MedSystems Inc, a Nevada corporation:
Pro Forma Statement of Operations for the Six Months Ended June 30, 2016.
Nexeon MedSystems Inc, a Nevada corporation:
Financial Statements as of June 30, 2016, (unaudited) and December 31, 2015

 

Exhibits  

 

The following Exhibits are filed as part of this registration statement.

 

Exhibit

Number

  Description
     
3.01 **   Articles of Incorporation as filed with the Nevada Secretary of State
3.02 **   Certificate of Amendment to the Articles of Incorporation filed with the Nevada Secretary of State
3.03 * *   Articles of Merger filed with the Nevada Secretary of State
3.04 * *   Certificate of Merger filed with the Delaware Secretary of State
3.05 * *   By-laws
4.01 *   2016 Omnibus Incentive Plan
4.02 * *   2016 Omnibus Incentive Plan - Form of Stock Option Award Agreement
10.01 *   Agreement and Plan of Merger dated February 8, 2016 between Nexeon MedSystems, Inc., a Delaware corporation, and Nexeon MedSystems Inc, a Nevada corporation
10.02 **   Contribution Agreement between the Company and Rosellini Scientific, LLC dated January 2, 2016
10.03 **   Contribution Agreement between the Company and Elizabeth Rosellini dated January 2, 2016
1 0.04 **   Executive Services Agreement between the Company and Ronald Conquest dated January 1, 2016
10.05 **   Director Services Agreement between the Company and Dr. Mark Bates MD dated May 1, 2016
10.06 **   Form of Director Indemnification Agreement
14.01 **   Code of Business Conduct and Ethics

_____________

*   Filed herewith.

** Previously filed with Form 10 filed on July 6, 2016.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Nexeon MedSystems Inc
   
   

Date: September 9, 2016

 By: /s/ Ron Conquest
    Ron Conquest
Chief Operating Officer, Director

 

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Nexeon MedSystems Inc

(A Nevada Corporation)

Financial Statements

For the Year Ended December 31, 2015 

December 31, 2015

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Board of Directors and Stockholders’

Nexeon MedSystems, Inc.

 

We have audited the accompanying balance sheets of Nexeon MedSystems, Inc. as of December 31, 2015 and the related statements of operations, changes in stockholders’ deficit and cash flows for the period from December 7, 2015 (Inception) to December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nexeon MedSystems, Inc. as of December 31, 2015, and the results of its operations and cash flows for the period from December 7, 2015 (Inception) to December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As discussed in Note 2 the Company has has not commenced operations and has an accumulated a deficit of $915 as of December 31, 2015. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern.  Management plans are also discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

  /S/ Paritz & Company, P.A.

 

Hackensack, New Jersey

June 30, 2016

 

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Nexeon MedSystems Inc

Balance Sheet

December 31, 2015 

 

Assets        
         
Current Assets        
Cash and cash equivalents   $  
         
Total Assets   $  
         
Liabilities and Stockholders’ Deficit        
         
Current Liabilities        
Due to related party   $ 415  
         
Total Liabilities   $ 415  
         
Commitments and Contingencies      
         
Stockholders' Deficit        
Preferred Stock - 25,000,000 shares authorized $.001 par value; no shares issued and outstanding        
Common Stock - 75,000,000 shares authorized $.001 par value; 500,000 issued and outstanding     500  
Additional paid-in capital      
Accumulated deficit     (915 )
         
Total Stockholders' Deficit     (415 )
         
Total Liabilities and Stockholders' Deficit   $  

 

The Accompanying Notes are an Integral Part of the Financial Statements

 

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Nexeon MedSystems Inc

Statement of Operations

From Inception December 7, 2015 through December 31, 2015

 

Revenues   $  
         
General and administrative expenses     915  
         
Net loss before provision for taxes   $ (915 )
Provision for taxes      
         
Net loss   $ (915 )
         
Income per share        
Basic and diluted loss per share   $ (0.00 )
         
Weighted average common shares outstanding - basic and diluted     500,000  

 

The Accompanying Notes are an Integral Part of the Financial Statements

 

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Nexeon MedSystems Inc

Statement of Changes to Stockholders’ Deficit

Inception, December 7, 2015 through December 31, 2015

 

               Additional               Total  
      Common Stock       Paid In       Accumulated       Stockholders'  
      Shares       Amount       Capital       Deficit       (Deficit)  
                                         
Inception, December 7, 2015         $     $     $     $  
                                         
Issuance of common stock to founder     500,000       500                   500  
                                         
Net loss for the period from inception through December 31, 2015                       (915 )     (915 )
                                         
Balance, December 31, 2015     500,000     $ 500     $     $ (915 )   $ (415 )

 

The Accompanying Notes are an Integral Part of the Financial Statements

 

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Nexeon MedSystems Inc

Statement of Cash Flows

Inception, December 7, 2015 through December 31, 2015

 

Cash flows from operating activities:        
Net Loss   $ (915 )
         
Net cash used by operating activities     (915 )
         
Cash flows from financing activities:        
Proceeds from issuance of common stock     500  
Proceeds from related party loan     415  
         
Net cash provided by financing activities     915  
         
Net increase (decrease) in cash and cash equivalents      
Cash and cash equivalents at beginning of period      
         
Cash and cash equivalents at end of period   $  
         
Non-cash investing and financing activities:        
Issuance of common stock for reduction in accrued liability      
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid during period for interest   $  
Cash paid during period for taxes   $  

 

The Accompanying Notes are an Integral Part of the Financial Statements

 

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Nexeon MedSystems Inc

Notes to Financial Statements

 

 

Note 1

Nature of Organization

 

Operations

 

Nexeon MedSystems Inc (the “Company”) was incorporated in the State of Nevada on December 7, 2015. The Company’s primary purpose is to acquire an existing medical device development company.

 

Note 2

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. However, the Company has not commenced operations and has an accumulated a deficit of $915 as of December 31, 2015. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.

 

Management expects to seek potential business opportunities for merger or acquisition of existing companies. Currently the Company has yet to locate any merger of acquisition candidates. Management is not currently limiting their search for merger or acquisition candidates to any industry or locations. Management, while not especially experienced in matters relating to public company management, will rely upon their own efforts and, to a much lesser extent, the efforts of the Company’s shareholders, in accomplishing the business purposes of the Company.

 

Note 3

Summary of Significant Accounting Policies

 

Development Stage Company

 

The company is considered to be in the development stage as defined in ASC 915 “Development Stage Entities.” The company is devoting substantially all of its efforts to the development of its business plans. The company has elected to adopt early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements; and does not present or disclose inception-to-date information and other remaining disclosure requirements of Topic 915.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

 

 

Note 3

Summary of Significant Accounting Policies

(Continued) 

 

Per Share Data

 

Net loss per share (EPS) of Common Stock is computed based upon the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock. Basic and diluted EPS were the same for the period from inception through December 31, 2015, as the Company had no potentially dilutive securities.

 

Income Taxes

 

The company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

All tax positions are first analyzed to determine if the weight of available evidence indicates that it is more likely than not that the position will be sustained under audit, including resolution of any related appeals or litigation processes. After the initial analysis, the tax benefit is measured as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

 

If the Company is required to pay interest on the underpayment of income taxes, the Company recognizes interest expense in the first period the interest becomes due according to the provisions of the relevant tax law.

 

If the Company is subject to payment of penalties, the Company recognizes an expense for the amount of the statutory penalty in the period when the position is taken on the income tax return. If the penalty was not recognized in the period when the position was initially taken, the expense is recognized in the period when the Company changes its judgment about meeting minimum statutory thresholds related to the initial position taken.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

 

 

Note 3

Summary of Significant Accounting Policies

(Continued) 

 

Start-up Costs

 

In accordance with ASC 720, “Start-up Costs”, the company expenses all costs incurred in connection with the start-up and organization of the company.

 

Fair Value Measurements

 

The company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The company has no assets or liabilities valued at fair value on a recurring basis

 

Recently Issued Accounting Pronouncements

 

On June 10, 2014, FASB issued ASU No. 2014-10, Development Stage Entities . The update removes the definition of a development stage entity from FASB ASC 915 and eliminates the requirement for development stage entities to present inception-to-date information on the statements of operations, cash flows and members’ equity. The Company early adopted this standard for the period covered herein.

 

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern . The amendments require management to perform interim and annual assessments of an entity’s ability to continue as a going concern and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The standard applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact that this new guidance will have on its financial statements.

 

Other than as noted above the Company has not implemented any pronouncements that had material impact on the financial statements and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

 

 

Note 4

Income Taxes

 

The reconciliation of income tax benefit at the U.S. statutory rate of 34% for the period from inception to December 31, 2015 to the company’s effective tax rate is as follows: 

 

Tax benefit at U.S. statutory rate   $ (365 )
Change in valuation allowance     365  
    $  

 

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets at December 31, 2015 are as follows:

 

Deferred tax assets:        
Net operating loss   $ 365  
Valuation allowance     (365 )
    $  

 

Change in valuation allowance:

 

Balance, December 7, 2015   $  
Increase in valuation allowance     (365 )
Balance, December 31, 2015   $ (365 )

 

The Company has approximately $915 of net operating losses (“NOL”) carryovers to offset taxable income, if any, in future years which expire in fiscal 2035. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax asset relating to NOLs period because it is more likely than not that all of the deferred tax asset will not be realized.

 

Note 5

Equity

 

Common and Preferred Stock

The Company’s Articles of Incorporation authorize 75,000,000 shares of Common Stock $0.001 par value and 25,000,000 shares of Preferred Stock $0.001 par value. The Articles of Incorporation were amended on February 22, 2016 to cancel the authorization of Preferred Stock.

 

On December 7, 2015 the Company issued 500,000 shares to the Company’s founder at par.

 

 

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Nexeon MedSystems Inc

Notes to Financial Statements

 

 

Note 6

Related Party Transactions

 

During the period from inception to December 31, 2015, the Company's chief operating officer loan $415 to the Company. The loan is non-interest bearing with no set terms of repayment.

 

On January 1, 2016, the Company executed a four year Employment Agreement with Ron Conquest in the capacity of Chief Operating Officer and Director. Pursuant to this agreement Mr. Conquest will receive an annual salary in the amount of $100,000. Starting October 1, 2016, Mr. Conquest will receive an annual salary of $140,000. Starting October 1, 2017, Mr. Conquest will receive an annual salary of $175,000. In the event Mr. Conquest is terminated without "cause" (as defined in his Employment Agreement), the Company will be required to pay his then existing salary and benefits for a period equal to fifty percent (50%) of the remaining Term of his Employment Agreement. In the event the Company terminates Mr. Conquest's employment as a result of a change in control, the Company will be responsible to pay his then existing salary and benefits for the remaining Term of the agreement.  

 

Note 7

Subsequent Events

 

During January 2016, the Company entered into agreements with two parties for the issuance of an aggregate of 15,000,000 shares of common stock valued at $322,360 in exchange for 1,735,000 shares of common stock in Nuviant Medical Inc., a Nevada corporation, 389 shares of common stock in Telemend Medical, Inc., a Delaware corporation, 167 shares of common stock in MicroTransponder Inc., a Delaware corporation, the assignment of one Federal NIH Grant in the amount of $218,377 and one State of Kentucky Matching Funds Grant in the amount of $150,000 along with the option to purchase, for no additional consideration, all of the common stock or membership interests owned or controlled by Rosellini Scientific, LLC, to be exercised no later than September 30, 2016, of three Delaware limited liability companies and two Delaware corporations.

 

The Company initiated a private placement of its common stock effective February 1, 2016 through July 31, 2016. The private placement is for the sale of 2,500,000 units at $1.00 per unit. One unit consists of one share of restricted common stock and one common stock warrant. The warrants have an exercise price of $2.00 per share and expire 36 months from the expiration date of the private placement. To date $100,000 has been subscribed for in cash.

 

On February 16, 2016, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Nexeon MedSystems, Inc (a Delaware company) ("NXDE"), pursuant to which the NXDE was merged with and into the Company, with the Company continuing as the surviving entity. The transaction is being accounting for as a business combination. The foregoing transaction is referred to herein as the Merger. In exchange for 100% of the issued and outstanding preferred stock of NXDE, immediately prior to the closing of the Merger, the Company issued 1,659,943 shares of common stock to the Preferred Stockholders of NXDE. In addition, the merger agreement provides for the conversion of $645,000 of debt and $379,307 of accrued interest relating to the debt of NXDE under the provisions of a private placement of the the Company referred to above and provides for a Royalty Agreement with the shareholders of the Company.

 

On January 1, 2016, the Company issued 252,000 shares of common stock to Christopher Miller, with a par value of $0.001, for certain accounting and budget-related services rendered as well as serving as Interim CFO until such time as a permanent CFO is hired. The shares vest over a 36 month period at the rate of 7,000 shares per month.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

 

 

Note 7

Subsequent Events

(Continued) 

 

On April 1, 2016, the Company issued warrants to purchase 370,000 shares of common stock to the Company's Chairman and Chief Innovation Officer at a strike price of $2 per share over a term of 36 months.

 

On April 1, 2016, the Company issued non-qualified options to purchase 252,000 shares of common stock each to an entity owned by the Company's chief executive officer, the Company's chairman, and to the Company's vice president of clinical affairs. The options are subject to vesting over 36 months in monthly increments of 7,000.

 

The Company has evaluated subsequent events through June 30, 2016, which is the date the financial statements are available to be issued.

 

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Nexeon MedSystems, Inc.

(A Delaware Corporation)

Financial Statements

December 31, 2015 and 2014

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Board of Directors and Stockholders’

Nexeon MedSystems, Inc.

 

We have audited the accompanying balance sheets of Nexeon MedSystems, Inc. as of December 31, 2015 and 2014 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years ended December 31, 2015 and 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nexeon MedSystems, Inc. as of December 31, 2015 and 2014, and the results of its operations and cash flows for the years ended December 31, 2015 and 2014 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As discussed in Note 2 the Company has losses from operations and has an accumulated a deficit of $16,944,713 and a working capital deficiency of $1,352,563 as of December 31, 2015. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern.  Management plans are also discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

  /S/ Paritz & Company, P.A.

 

Hackensack, New Jersey

June 30, 2016

 

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Nexeon MedSystems, Inc.

Balance Sheets

 

    December 31,  
    2015     2014  
Assets            
             
Current Assets            
Cash and cash equivalents   $ 8     $ 6,897  
                 
Total Current Assets     8       6,897  
                 
Property and equipment, net     10,638       13,727  
                 
Total Assets   $ 10,646     $ 20,624  
                 
Liabilities and Stockholders’ Deficit                
                 
Current Liabilities                
Accounts payable   $ 227,453     $ 162,256  
Accrued liabilities     17,489       9,493  
Accrued interest payable - stockholders     537,629       424,488  
Notes payable to stockholders - current portion     570,000       570,000  
                 
Total Liabilities   $ 1,352,571     $ 1,166,237  
                 
Notes payable to stockholders - long term     400,000       355,000  
                 
Stockholders' Deficit                
Preferred Stock, Series A - 11,000,000 authorized $.0001 par value; 10,222,137 issued and outstanding     1,022       1,022  
Preferred Stock, Series B - 3,000,000 authorized $.0001 par value; 815,034 issued and outstanding     81       81  
Common Stock - 3,000,000 shares authorized $.0001 par value; 1,795,500 issued and outstanding     180       180  
Additional paid-in capital     15,201,505       15,201,505  
Accumulated deficit     (16,944,713 )     (16,703,401 )
                 
Total Stockholders' Deficit     (1,741,925 )     (1,500,613 )
                 
Total Liabilities and Stockholders' Deficit   $ 10,646     $ 20,624  

 

The Accompanying Notes are an Integral Part of the Financial Statements

 

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Nexeon MedSystems, Inc.

Statements of Operations

 

    For the Years ended December 31,  
    2015     2014  
             
Revenue   $     $ 50,000  
                 
General and administrative expenses     (125,018 )     (214,004 )
                 
Loss from Operations     (125,018 )     (164,004 )
                 
Other Income (Expense)                
Interest expense - related parties     (116,294 )     (109,576 )
                 
Loss before provision for taxes   $ (241,312 )   $ (273,580 )
Income tax provision            
                 
Net loss     (241,312 )     (273,580 )
                 
Income per share                
Basic and diluted loss per share   $ (0.13 )   $ (0.15 )
                 
Weighted average common shares outstanding - basic and diluted     1,795,000       1,795,000  

 

The Accompanying Notes are an Integral Part of the Financial Statements 

 

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Nexeon MedSystems, Inc.

Statements of Changes to Stockholder's Deficit

For the Years Ended December 31, 2015 and 2014 

 

                                                       
    Preferred Stock     Preferred Stock                 Additional     Accumu-     Total  
    Series A     Series B     Common Stock     Paid-in     lated     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Equity(Deficit)  
                                                                         
Balance, December 31, 2013     10,222,137     $ 1,022       815,034     $ 81       1,795,500     $ 180     $ 15,201,505     $ (16,429,821 )   $ (1,227,033 )
                                                                         
Net loss for the year                                               (273,580 )     (273,580 )
                                                                         
Balance, December 31, 2014     10,222,137       1,022       815,034       81       1,795,500       180       15,201,505       (16,703,401 )     (1,500,613 )
                                                                         
Net loss for the year                                               (241,312 )     (241,312 )
                                                                         
Balance, December 31, 2015     10,222,137     $ 1,022       815,034     $ 81     1,795,500   $ 180   $ 15,201,505   $ (16,944,713 )   $ (1,741,925 )

The Accompanying Notes are an Integral Part of the Financial Statements

 

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Nexeon MedSystems, Inc.

Statements of Cash Flows

 

    For the Years Ended December 31,  
    2015     2014  
Cash flows from operating activities:                
Net Loss   $ (241,312 )   $ (273,580 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     3,089       3,390  
Change in operating liabilities:                
Accounts payable     65,196       65,061  
Accrued liabilities     7,997       7,020  
Accrued interest - stockholders     113,141       107,718  
Net cash used in operating activities     (51,889 )     (90,391 )
                 
Cash flows from financing activities:                
Proceeds from stockholder notes payable     45,000       20,000  
Net cash provided by financing activities     45,000       20,000  
                 
Net decrease in cash and cash equivalents     (6,889 )     (70,391 )
Cash and cash equivalents at beginning of year     6,897       77,288  
                 
Cash and cash equivalents at end of year   $ 8     $ 6,897  
                 
Supplemental Disclosure of Cash Flow Information:                
Cash paid during year for interest   $     $  
Cash paid during year for taxes   $     $  

 

The Accompanying Notes are an Integral Part of the Financial Statements

 

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Nexeon MedSystems, Inc.

Notes to Financial Statements

 

 

Note 1

Nature of Organization

 

Operations

 

Nexeon MedSystems, Inc. (the “Company”) was incorporated in the State of Delaware on September 11, 2008. The Company’s primary purpose is the development and commercialization of a unique series of breakthrough therapies for people with cardiovascular disease.

 

Note 2

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. The Company has losses from operations and has an accumulated a deficit of $16,944,713 as of December 31, 2015 and a working capital deficiency of $1,352,563 as of December 31, 2015. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

Management will seek potential business opportunities for merger or acquisition of existing companies. The Company identified a merger candidate in November 2015 and completed a merger on February 16, 2016. Management, while not especially experienced in matters relating to public company management, will rely upon their own efforts and that of its Board of Directors in accomplishing the business purposes of the Company. Management began in the first quarter of 2016 to form new capital in the form of an SEC Regulation D, Rule 506 Private Placement in the amount of $2,500,000 offering shares and warrants of the Company’s Common Stock.

 

Note 3

Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

 

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Nexeon MedSystems, Inc.

Notes to Financial Statements

 

 

Note 3

Summary of Significant Accounting Policies

(Continued) 

 

Fair Value Measurements

 

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our credit obligations with stockholders approximate fair value because the effective yields on these obligations, which include contractual interest rates are comparable to rates of returns for instruments of similar credit risk.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The Company does not have any assets or liabilities measured at fair value on a recurring basis.

 

Property and Equipment

 

Property and equipment are stated at cost. Equipment is depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized based upon the lesser of the term of the lease or the useful life of the asset and such expense is included in depreciation expense. Repair and maintenance costs are expensed as incurred. The Company capitalizes all furniture and equipment with cost great than $500 and benefiting more than one accounting period in the period purchased.

 

Research and Development Expenses

 

Research and development expenses are charges to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical and regulatory expenses, payroll and other personnel expenses, materials, supplies, and consulting costs.

 

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Nexeon MedSystems, Inc.

Notes to Financial Statements

 

 

Note 3

Summary of Significant Accounting Policies

(Continued) 

 

Revenue Recognition

 

In accordance with ASC Topic 605 “Revenue Recognition”, revenue should not be recognized until it is realized or realizable and earned. Revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. During the year ended December 31, 2014, the Company recognized revenue from the sale and assignment of certain patent rights to a third party.

 

Advertising expense

 

The Company’s policy is to expense advertising costs as the costs are incurred.

 

Per Share Data

 

Net loss per share (EPS) of Common Stock is computed based upon the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock. Basic and diluted EPS were the same for the period from inception through December 31, 2015, as the Company had no dilutive securities.

 

Income Taxes

 

The company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented

 

Recently Issued Accounting Pronouncements

 

On June 10, 2014, FASB issued ASU No. 2014-10, Development Stage Entities . The update removes the definition of a development stage entity from FASB ASC 915 and eliminates the requirement for development stage entities to present inception-to-date information on the statements of operations, cash flows and members’ equity. The Company early adopted this standard for the period covered herein.

 

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Nexeon MedSystems, Inc.

Notes to Financial Statements

 

 

Note 3

Summary of Significant Accounting Policies

(Continued) 

 

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern . The amendments require management to perform interim and annual assessments of an entity’s ability to continue as a going concern and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The standard applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact that this new guidance will have on its financial statements.

 

Other than as noted above the Company has not implemented any pronouncements that had material impact on the financial statements and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

Note 4

Property and Equipment

 

Property and equipment consists principally of office equipment and furniture, and is stated at a cost of $33,887 at December 31, 2015 and 2014 net of accumulated depreciation $23,249 and $20,160 at December 31, 2015 and 2014 respectively. Depreciation expense totaled $3,089 and $3,390 for the years ended December 31, 2015 and 2014, respectively.

 

The equipment is being depreciated on the straight-line bases over the estimated useful lives of the asset of 4-5 years.

 

Note 5

Commitments and Contingencies

 

The Company currently leases approximately 400 square feet of office space located at 1708 Jaggie Fox Way, Lexington, Kentucky, 40511 for a monthly rate of $475.

 

Note 6

Related Party Transactions

 

 

The Company has loans from various stockholders and related entities of the stockholders in the aggregate amount of $970,000 and $925,000 at December 31, 2015 and 2014, respectively. The loans bear interest at 12% per annum. As of December 31, 2015 and 2014, accrued interest outstanding on the stockholder loans was $537,629 and $424,488, respectively.

 

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Nexeon MedSystems, Inc.

Notes to Financial Statements

 

 

Note 6

Related Party Transactions

(Continued) 

 

The loans mature as follows:

 

    Years Ended  
   

December 31,

2015

   

December 31,

2014

 
             
Past due   $ 550,000     $ 550,000  
March 31, 2015     20,000       20,000  
March 31, 2018     400,000       355,000  

 

Classified on Balance Sheet:

 

    Years Ended  
   

December 31,

2015

   

December 31,

2014

 
             
Current   570,000      $ 570,000   
Long-term     400,000       355,000  

 

Note 7

Income Taxes

 

The reconciliation of income tax benefit at the U.S. statutory rate of 34% for the years ended December 31, 2015 and 2014 to the Company’s effective tax rate is as follows:

 

    Years Ended  
   

December 31,

2015

   

December 31,

2014

 
             
U.S. federal statutory rate     (34 )%     (34 )%
State income tax, net of federal benefit     (6 )%     (6 )%
Change in valuation allowance     (40 )%     (40 )%
Income Tax provision (benefit)     0 %     0 %

 

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Nexeon MedSystems, Inc.

Notes to Financial Statements

 

 

Note 7

Income Taxes

(Continued) 

 

The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of December 31, 2015 and 2014 are as follows:

 

    Years Ended  
   

December 31,

2015

   

December 31,

2014

 
             
Deferred Tax Assets:                
Net operating losses   $ 2,470,000     $ 2,315,000  
Less: Valuation allowance     (2,470,000 )     (2,315,000 )
    $     $  

 

As of December 31, 2015, the Company had approximately $6,170,000 of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2029.  Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.  

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.

  

The Company files U.S. federal and state of Kentucky and California tax returns that are subject to audit by tax authorities beginning with the year ended December 31, 2012. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.

 

Note 8

Equity

 

Common and Preferred Stock

The Company’s Articles of Incorporation authorize 3,000,000 shares of Common Stock $0.0001 par value and 14,000,000 shares of Preferred Stock $0.0001 par value. As of December 31, 2015 and 2014, 11,000,000 shares of Preferred Stock were designated as Series A Preferred Stock and 3,000,000 shares of preferred stock were designated as Series B Preferred Stock.

 

As of December 31, 2015 and 2014, the Company had 1,795,500 shares of common stock issued and outstanding consisting of 1,535,750 shares of unrestricted common stock and 259,750 shares of restricted common stock. The Company had 10,222,137 shares of Series A Preferred Stock issued and outstanding as of December 31, 2015 and 2014 and 815,034 shares of Series B Preferred Stock issued and outstanding as of December 31, 2015 and 2014.

 

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Nexeon MedSystems, Inc.

Notes to Financial Statements

 

 

Note 9

Subsequent Events

 

On February 16, 2016, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Nexeon MedSystems, Inc (a Nevada company) ("NXNV"), pursuant to which the the Company was merged with and into NXNV, with NXNV continuing as the surviving entity. The transaction is being accounting for as a business combination. The foregoing transaction is referred to herein as the Merger. In exchange for 100% of the issued and outstanding preferred stock of the Company, immediately prior to the closing of the Merger, NXNV issued 1,659,946 shares of common stock to the Preferred Stockholders of the Company. As a result of the Merger, the stockholders of the Company acquired 9.67% of NXNV's issued and outstanding common stock. In addition, the merger agreement provides for the conversion of $645,000 of debt and $379,307 of accrued interest relating to the debt of the Company under the provisions of a private placement of the NXNV and provides for a Royalty Agreement with the shareholders of the Company.

 

The Company has evaluated subsequent events through June 30, 2016, which is the date the financial statements were available to be issued. 

 

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Nexeon MedSystems Inc

Pro Forma Statement of Operations

For the Six Months Ended June 30, 2016 

Unaudited

 

 

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Nexeon MedSystems Inc

Unaudited Pro Forma Statement of Operations

For the Six Months Ended June 30, 2016

 

    Nexeon     Nexeon                  
    MedSystems Inc     MedSystems, Inc.     Pro Forma         Pro Forma  
    Nevada     Delaware     Adjustments     Notes   Combined  
                             
Revenue   $     $     $         $  
                                     
Depreciation and amortization     60,344       257             60,601  
General and administrative expenses     129,767       14,793                 144,560  
Research and development expense     16,590                       16,590  
                                     
Loss from Operations     (206,701 )     (15,051 )             (221,751 )
                                     
Other Expense                                    
Interest expense - stockholders     (2,518 )     (374 )               (2,892 )
                                     
Loss before provision of taxes   $ (209,218 )   $ (15,425 )   $       $ (224,643 )
Provision for taxes                            
                                     
Net loss   $ (209,218 )   $ (15,425 )   $         (224,643 )
                                     
Loss per share                                    
Basic and diluted loss per share   $ (0.01 )                       $ (0.01 )
                                     
Weighted average common shares     17,895,927                     (a)     18,233,428  

 

The Accompanying Notes are an Integral Part of the Pro Forma Financial Statements

 

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Nexeon MedSystems Inc

Unaudited Pro Forma Financial Statements

Notes to the Financial Statements

 

 

Note 1

Basis of Presentation

 

The unaudited pro forma combined financial statements are based on Nexeon MedSystems Inc's (NXNV), a Nevada corporation, and Nexeon MedSystems, Inc.'s (NXDE), a Delaware corporation, historical consolidated financial statements as adjusted to give effect to the Merger as described below. The unaudited pro forma combined statements of operations for the twelve months ended June 30, 2016 give effect to the NXDE Company Merger as if it had occurred on January 1, 2016.

 

On February 16, 2016, the NXDE entered into an Agreement and Plan of Merger (“Merger Agreement”) NXNV, pursuant to which the NXDE was merged with and into NXNV, with NXNV continuing as the surviving entity. The transaction is being accounting for as a business combination. The foregoing transaction is referred to herein as the Merger. In exchange for 100% of the issued and outstanding preferred stock of the NXDE, immediately prior to the closing of the Merger, NXNV issued 1,659,943 shares of common stock to the Preferred Stockholders of the NXDE. As a result of the Merger, the stockholders of the NXDE acquired 9.67% of NXNV's issued and outstanding common stock. In addition, the merger agreement provides for the conversion of debt of the Company under the provisions of the private placement of the Company and provides for a Royalty Agreement with the shareholders of the Company. The Royalty Agreement is for 3% of net product sales and has a term coinciding with the term of the Company’s portfolio.

 

Pursuant to the Merger Agreement, approximately $645,000 of stockholder loans and $176,482 of accrued interest related to those loans will be converted to common stock and warrants. $202,825 in accrued interest related to those loans was contributed and the liability was cancelled. As a result of the conversion of notes and contribution of accrued interest, the Company’s liability for promissory notes payable was reduced in the amount of $1,024,307. The preliminary purchase price of $2,684,253 is allocated to intangible assets, intellectual property, that was transferred to NXNV via the Merger.

 

Note 2

Preliminary Purchase Price Allocation

 

The preliminary purchase price of $2,684,253 is allocated to intangible assets, intellectual property, that was transferred to NXNV via the Merger.

 

The following table shows the preliminary allocation of the purchase price of the identified assets, liabilities assumed.

 

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Nexeon MedSystems Inc

Unaudited Pro Forma Financial Statements

Notes to the Financial Statements

 

 

Note 2

Preliminary Purchase Price Allocation

(Continued) 

 

Total Purchase Price   $ 2,684,253  
Cash and cash equivalents      
Property and equipment, net     10,381  
Intangible assets, net     2,684,253  
Total identifiable assets     2,694,634  
Accounts payable     (242,614 )
Accrued Liabilities     (17,489 )
Accrued interest payable – stockholders     (158,322 )
Notes payable – stockholders     (325,000 )
Total liabilities assumed     (743,425 )
Total pro forma good will     733,044  

 

Note 3

Pro Forma Adjustments 

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information and are directly attributable to the Merger:

 

(a) The computation of pro forma weighted average common outstanding takes into account issued and outstanding shares prior to the transaction and shares issued as part of the transactions as if they were issued at the beginning of the period presented. A reconciliation of the shares included in the computation is as follows:

 

    For the Six Months Ended  
    June 30, 2016  
         
Shares of NXNV outstanding prior to the Merger     15,752,000  
Shares of NXNV issued to stockholders in exchange for NXDE preferred shares     1,659,946  
Shares of NXNV issued for NXDE notes and accrued interest     821,482  
      18,233,428  

 

 

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Nexeon MedSystems Inc

(A Nevada Corporation)

Financial Statements

June 30, 2016 

(Unaudited)

 

 

 

 

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Nexeon MedSystems Inc

Consolidated Balance Sheet 

(Unaudited)

 

 

      June 30, 2016       December 31, 2015  
Assets                
                 
Current Assets                
Cash and cash equivalents   $ 20,208     $  
Pre-paid expenses     5,000          
Total Current Assets   $ 25,208          
                 
Property and equipment, net     9,689        
Investments     322,360        
Intangible assets, net     2,624,601        
Goodwill     733,044        
Total Assets   $ 3,714,903     $  
                 
Liabilities and Stockholders’ Equity                
                 
Current Liabilities                
Accounts payable     277,354        
Accrued liabilities     17,705        
Due to related party     27,637       415  
Accrued interest payable - stockholder     3,182        
Notes payable stockholders     20,000        
Total Liabilities   $ 345,878     $ 415  
                 
Stockholders' Equity                
Common Stock - 75,000,000 shares authorized, $.001 par value; 18,794,764 and 500,000 issued and outstanding at June 30, 2016 and December 31, 2015, respectively     18,795       500  
Additional paid-in capital     3,560,362        
Accumulated deficit     (210,133 )     (915 )
Total Stockholders' Equity     3,369,024       (415 )
                 
Total Liabilities and Stockholders' Equity   $ 3,714,903     $  

 

The Accompanying Notes are an Integral Part of the Financial Statements 

 

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Nexeon MedSystems Inc

Consolidated Statement of Operations

(Unaudited)

 

    Three Months     Six Months  
    Ended     Ended  
    June 30, 2016     June 30, 2016  
             
Revenues   $     $  
                 
Depreciation and amortization     44,917       60,344  
General and administrative expenses     81,130       129,767  
Research and development expenses     16,590       16,590  
                 
Loss from operations     (142,637 )     (206,701 )
                 
Other Expense                
Interest expense - stockholders     (1,253 )     (2,518 )
                 
Loss before provision for taxes   $ (143,890 )   $ (209,218 )
Provision for taxes            
                 
Net loss   $ (143,890 )   $ (209,218 )
                 
Loss per share                
Basic and diluted loss per share   $ (0.01 )   $ (0.01 )
Weighted average common shares outstanding - basic and diluted     18,794,764       17,895,927  

 

The Accompanying Notes are an Integral Part of the Financial Statements 

 

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Nexeon MedSystems Inc

Consolidated Statement of Cash Flows

(Unaudited)

 

 

    Six Months  
    Ended  
    June 30, 2016  
         
Cash flows from operating activities:        
Net Loss   $ (209,218 )
Adjustment to Reconcile Net Loss to  Net Cash used in Operating Activities:        
Depreciation and amortization     60,344  
Pre-paid expenses     (5,000 )
Stock-based compensation     10,456  
Change in operating liabilities:        
Accounts payable     34,991  
Accrued liabilities     216  
Accrued interest     1,197  
Net cash used in operating activities     (107,014 )
         
Cash flows from financing activities        
Proceeds from issuance of common stock     100,000  
Proceeds from loan to related party     27,222  
Net cash provided by financing activities     127,222  
         
Net increase in cash and cash equivalents     20,208  
Cash and cash equivalents at beginning of period      
         
Cash and cash equivalents at end of period   $ 20,208  
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid during period for interest   $  
Cash paid during period for taxes   $  
         
Supplemental Disclosure of  Non-Cash Activities:        
Rescission of common stock issued for contribution of note receivable   $ (175,000 )
Common stock issued for acquisition   $ 2,684,253  
Common stock issued for conversion of shareholder notes and accrued interest   $ 461,336  
Common stock issued for investments   $ 322,360  

 

The Accompanying Notes are an Integral Part of the Financial Statements 

 

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Table of Contents  

 

Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 1

Nature of Organization

 

Operations

 

Nexeon MedSystems Inc (the “Company”) was incorporated in the State of Nevada on December 7, 2015. The Company’s primary purpose is to commercialize the drug-eluting balloon technology acquired in the Merger as well as acquire medical device manufacturing capability.

 

Note 2

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as June 30, 2016 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended June 30, 2016 and the six months ended June 30, 2016 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included elsewhere in this filing for the period ended December 31, 2015.

 

Note 3

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. However, the Company has not commenced operations and has an accumulated a deficit of $210,133 as of June 30, 2016. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.

 

Management expects to seek potential business opportunities for merger or acquisition of existing companies. Management is not currently limiting their search for merger or acquisition candidates to any industry or locations. Management, while not especially experienced in matters relating to public company management, will rely upon their own efforts and, to a much lesser extent, the efforts of the Company’s shareholders, in accomplishing the business purposes of the Company.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 4

Acquisition

 

On February 16, 2016, the NXDE entered into an Agreement and Plan of Merger (“Merger Agreement”) with NXNV, pursuant to which the NXDE was acquired by NXNV, with NXNV continuing as the surviving entity. The transaction is being accounted for as a business combination. The primary reason for the acquisition of the acquiree was to acquire unique intellectual property owned by the acquiree and technical knowledge retained by the acquiree and to further develop these technologies for potential commercialization.

 

The foregoing transaction is referred to herein as the Merger. In exchange for 100% of the issued and outstanding preferred stock of NXDE, immediately prior to the closing of the Merger, NXNV issued 1,659,946 shares of common stock to the Preferred Stockholders of the NXDE. As a result of the Merger, the stockholders of the NXDE acquired 9.67% of NXNV's issued and outstanding common stock as of the effective date of the Merger. In addition, the Merger Agreement provides for the conversion of debt of the NXDE under the provisions of the private placement of the NXNV. The Merger Agreement further provides for the payment of a Royalty to an LLC to be formed by the former preferred shareholders of NXDE. The Royalty payment is equal to 3% of net product sales made by NXNV that directly result from the Patent portfolio of NXDE. The term of the Royalty payment coincides with the term of the Patents in the NXDE Patent portfolio.

 

The acquiree in the merger transaction is Nexeon MedSystems Inc, a Delaware corporation a private company, primarily engaged in the development and commercialization of a unique series of breakthrough therapies for people with cardiovascular disease. The date of Merger was February 16, 2016 and 100% of the equity voting interest was acquired.

 

The primary reason for the acquisition of the acquiree was to acquire unique intellectual property owned by the acquiree and technical knowledge retained by the acquiree and to further develop these technologies for potential commercialization.

The aggregate fair market value of the consideration issued, $2,684,253, was determined through the combination of the arms-length negotiated price with the acquiree of $1.00 for each common share par value $.001 common stock of the acquirer and transferred for each dollar of acquiree's stockholder's notes payable and accrued interest in the amount of $645,000 in stockholder's notes payable and $176,482 of associated accrued interest. $202,825 of accrued interest related to the acquiree's stockholder's notes was contributed as part of the consideration and 1,659,946 shares of the Company's par value $.001 common stock, with an arms-length negotiated price with the acquiree of $1.00 per share was transferred for all the issued and outstanding common and preferred series A preferred series B stock of the acquiree.

 

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Table of Contents  

 

Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 4

Acquisition (Continued)

 

The following table shows the preliminary allocation of the purchase price of the identified assets acquired and liabilities assumed.

Total Purchase Price   $ 2,684,253  
Cash and cash equivalents      
Property and equipment, net     10,381  
Intangible assets, net     2,684,253  
    Total identifiable assets     2,694,634  
Accounts payable     (242,614 )
Accrued Liabilities     (17,489 )
Accrued interest payable – stockholders     (158,322 )
Notes payable – stockholders     (325,000 )
     Total liabilities assumed     (743,425 )
     Total pro forma goodwill     733,044  
         

 

Note 5

Summary of Significant Accounting Policies

 

Development Stage Company

 

The company is considered to be in the development stage as defined in ASC 915 “Development Stage Entities.” The company is devoting substantially all of its efforts to the development of its business plans. The company has elected to adopt early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements; and does not present or disclose inception-to-date information and other remaining disclosure requirements of Topic 915.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

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Table of Contents  

 

Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 5

Summary of Significant Accounting Policies (Continued)

 

Income Taxes

 

The company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

All tax positions are first analyzed to determine if the weight of available evidence indicates that it is more likely than not that the position will be sustained under audit, including resolution of any related appeals or litigation processes. After the initial analysis, the tax benefit is measured as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

 

If the Company is required to pay interest on the underpayment of income taxes, the Company recognizes interest expense in the first period the interest becomes due according to the provisions of the relevant tax law.

 

If the Company is subject to payment of penalties, the Company recognizes an expense for the amount of the statutory penalty in the period when the position is taken on the income tax return. If the penalty was not recognized in the period when the position was initially taken, the expense is recognized in the period when the Company changes its judgment about meeting minimum statutory thresholds related to the initial position taken.

 

Fair Value Measurements

 

The company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 5

Summary of Significant Accounting Policies (Continued)

 

Fair Value Measurements (Continued)

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

The company has no assets or liabilities valued at fair value on a recurring basis

 

Principals of Consolidation

 

The consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary. All material inter-company accounts, transactions, and profits have been eliminated in consolidation

 

Investments in Non-consolidated Subsidiaries

 

Investments in non-consolidated entities are accounted for using the equity method or cost basis depending upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. When the equity method is used, investments are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceed its carrying amount, the investment balance is reduced to zero and additional losses are not provided for. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. The company accounts for its investments in Nuviant Medical Inc., MicroTransponder Inc., and Emeritus Clinical Solutions, Inc., formerly known as Telemend Medical, Inc. (see Note 7) under the cost method due to the lack of significant influence.

 

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Table of Contents  

 

Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 5

Summary of Significant Accounting Policies (Continued)

 

Long-lived Assets

 

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. The Company did not recognize any impairment losses during the three months ended June 30, 2016.

 

Common Stock Purchase Warrants and Other Derivative Financial Instruments

 

The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 ("Contracts in Entity's Own Equity"). We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants at each reporting date to determine whether a change in classification between assets and liabilities is required .

 

Research and Development

 

The Company expenses all research and development costs as incurred.  

 

Note 6

Income Taxes

 

The Company has approximately $210,133 of net operating losses (“NOL”) carryovers to offset taxable income, if any, in future years which expire in fiscal 2035. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax asset relating to NOLs period because it is more likely than not that all of the deferred tax asset will not be realized.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 7

Equity

 

Common and Preferred Stock

 

The Company’s Articles of Incorporation authorize 75,000,000 shares of Common Stock $0.001 par value and 25,000,000 shares of Preferred Stock $0.001 par value. The Articles of Incorporation were amended on February 22, 2016 to cancel the authorization of Preferred Stock.

 

On December 7, 2015 the Company issued 500,000 shares for proceeds of $500 to the Company’s Chief Operating Officer and Director.

 

On January 1, 2016 Christopher Miller was granted 252,000 shares immediately upon his execution of the Executive Employment Agreement with the Company. The shares vest at the rate of 7,000 shares per month over a term of 36 months from the grant date.

 

On January 2, 2016 the NXNV issued 13,200,000 shares of the Company’s Common Stock in exchange for 1,735,000 shares of common stock in Nuviant Medical Inc., a Nevada corporation, 389 shares of common stock in Emeritus Clinical Solutions, Inc., a Delaware corporation, 167 shares of common stock in MicroTransponder Inc., a Delaware corporation, the assignment of one Federal NIH Grant in the amount of $218,377 and one State of Kentucky Matching Funds Grant in the amount of $150,000. Rosellini Scientific granted the exclusive option to the Company, to be exercised no later than September 31, 2016, to acquire all of the owned or controlled interests on the date at which the Company exercises its option to acquire such interest in NeuroTek Medical, Inc., a Delaware corporation. There shall be no additional consideration payable upon the exercise of such option by the Company.

 

On January 2, 2016, the Company issued 1,800,000 shares of its common stock to its Vice President of Clinical Affairs, Dr. Elizabeth Rosellini DDS (the sister of our CEO), in return for 214 shares of common stock of Emeritus Clinical Solutions, Inc., a Delaware corporation, and 60,000 shares of common stock of Nuviant Medical, Inc., a Nevada corporation. 

 

In exchange for 100% of the issued and outstanding preferred stock and common stock of the NXDE, immediately prior to the closing of the Merger, NXNV issued 1,659,946 shares of common stock to the Preferred Stockholders of the NXDE.

 

During the period, the Company exchanged 1,282,818 units pursuant to the shares of common stock and 1,282,818 warrants to purchase one share of the Company’s common stock for $950,000 in NXDE stockholder notes and $332,818 in accrued interest related to those loans.

The Company initiated a private placement of its common stock effective February 1, 2016 through July 31, 2016. The offering was was extended through September 30 , 2016. The private placement is for the sale of 2,500,000 units at $1.00 per unit. One unit consists of one share of restricted common stock and one common stock warrant. The warrants have an exercise price of $2.00 per share and expire 36 months from the expiration date of the private placement. As of June 30, 2016, $100,000 had been subscribed for in cash.

 

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Table of Contents  

 

Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 7

Equity (Continued)

 

Common and Preferred Stock (Continued)

 

As part of the Merger Agreement and the Private Placement, the Company issued 1,282,818 warrants to purchase the Company’s common stock as part of the exchange for $950,000 in NXDE stockholder notes and $332,818 in accrued interest related to those loans. As part of the Private Placement, as of June 30, 2016, the Company issued 100,000 in warrants to subscribers purchasing $100,000 in units of the offering. The warrants provide the holders the right to acquire one share of the Company's common stock par value $.001 for $2.00 exercisable for a period of three years from the acquisition date. The warrants have limited transferability to an affiliate of the holder only, cannot be sold as a warrant and do not contain a cashless exercise provisions. The warrants do not include any terms or contracts to issue additional shares, have no liquidation preferences or participation rights. As of the June 30, 2016 reporting period no warrants have been exercised.

The Company may, from time to time, issue certain equity awards pursuant to our 2016 Omnibus Incentive Plan (the “Plan”). The Plan was adopted by our Board of Directors in January 2016 and was subsequently approved by our shareholders. During the six months ended June 30, 2016, the Company issued stock options to purchase a total of 1,260,000 shares of the Company’s common stock were issued under this Plan, all with an exercise price of $1.00 per share. The options vest in equal monthly increments with a three-year term for each option beginning upon each date of vesting. The options were valued at $230,336 using the Black-Scholes option pricing model with the following assumptions:

 

Risk-free interest rate   0.93%
Expected life    3 years
Expected dividends   0.00%
Expected volatility   38.24%
Fair value of Company's common stock   $1.00

 

As part of the Private Placement a note receivable in the amount of $175,000 issued by Emeritus Clinical Solutions, Inc., a Delaware corporation, was contributed by an existing stockholder and director of the Company in exchange for 175,000 common shares of the Company. This transaction was rescinded as of June 30, 2016 and the shares were returned.

 

Note 8

Related Party Transactions

 

On December 7, 2015 the Company issued 500,000 shares for proceeds of $500 to the Company’s Chief Operating Officer and Director.

 

On January 1, 2016 Christopher Miller was granted 252,000 shares immediately upon his execution of the Executive Employment Agreement with the Company. The shares vest at the rate of 7,000 shares per month over a term of 36 months.

 

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Nexeon MedSystems Inc

Notes to Financial Statements

June 30, 2016

(Unaudited)

 

 

Note 8

Related Party Transactions (Continued)

 

On April 1, 2016, pursuant to the 2016 Omnibus Incentive Plan, the Company issued non-qualified options to purchase 252,000 shares of common stock, with an exercise price of $1.00 with a term of three years to each of the following: Rosellini Scientific, LLC (see “Employment Agreements” below for more information); Dr. Mark Bates MD; Dr. Elizabeth Rosellini DDS; and Sheneka Rains (a consultant) for services rendered to the Company since inception as well as ongoing services to be provided from time to time. The options vest in monthly increments of 7,000, with a three-year term for each option beginning upon each date of vesting.

 

As of June 30, 2016, the Company's chief operating officer loaned $415 to the Company. The loan is non-interest bearing with no set terms of repayment.

 

As of June 30, 2016, $27,222 is due and payable to Rosellini Scientific, LLC, the largest shareholder in the Company. The loan is non-interest bearing with no set terms of repayment.

 

The Company has a note payable with a two stockholders in the amount of $10,000 each, which bear interest at the rate of 12% per annum and mature March 31, 2018.

 

Note 9

Subsequent Events

 

The Company initiated a private placement of its common stock effective February 1, 2016 through July 31, 2016. The offering was extended through September 30, 2016 . The private placement is for the sale of 2,500,000 units at $1.00 per unit. One unit consists of one share of restricted common stock and one common stock warrant. The warrants have an exercise price of $2.00 per share and expire 36 months from the expiration date of the private placement. To date $150,000 has been subscribed for in cash.

 

F- 42

 

EXHIBIT 10.01

 

AGREEMENT AND PLAN OF MERGER 

 

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into this 8th day of February, 2016, by and between Nexeon MedSystems, Inc., a Delaware Corporation (“NXDE”), and Nexeon MedSystems Inc, a Nevada corporation (“NXNV”). Together, NXDE and NXNV are the “Parties”.

 

Recitals

 

A. NXDE is a corporation duly organized and validly existing under the laws of the State of Delaware and, as of the date hereof, has authorized capital consisting of 17,000,000 shares of Common Stock with a par value of $0.0001 per share, of which 1,529,000 shares are issued and outstanding; and 14,000,000 shares of Preferred Stock par value $0.0001 per share, of which 10,222,137 shares of Series A Preferred Shares, and 832,034 shares of Series B Preferred Shares are issued and outstanding. Additionally, NXDE has 80,000 outstanding options which shall be [1] terminated at the Effective Time and 604,212 Deferred Compensation Units outstanding, all of which will be terminated [2] at the Effective Time.

 

B. NXNV is a corporation duly organized and validly existing under the laws of the State of Nevada and, as of the date hereof, has authorized capital consisting of 75,000,000 shares of Common Stock with a par value of $.001 per share, of which 15,000,000 shares are issued and outstanding.

 

C. Each Party’s Board of Directors believes it is in its and its stockholders’ best interests that NXDE merge with and into NXNV through a statutory merger (the “ Merger ”) and, in furtherance thereof, have approved the Merger.

 

D. Pursuant to the Merger all of NXDE’s issued and outstanding shares of (i) Series A Preferred Stock (the “ Series A Preferred Shares ”), and (ii) Series B Preferred Stock (the “ Series B Preferred Shares and, together with the Series A Preferred Stock, the NXDE Preferred Shares ”, each having a par value of $0.0001 per share, will be converted into the right to receive shares of NXNV Common Stock , par value $0.001 per share (“ NXNV Common Shares ”).

 

 

Now, Therefore, for and in consideration of the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt, adequacy and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

Definitions

 

Material Adverse Effect ” or “ Material Adverse Change ” means any effect or change that would be materially adverse to the business of either Party or to the ability of any Party to consummate timely the transactions contemplated hereby: provided, that none of the following shall be deemed to constitute and none of the following shall be taken into account in determining whether there has been a Material Adverse Effect or Material Adverse Change: (a) any adverse change, event, development or effect arising from or relating to (1) general business or economic conditions, including such conditions related to the business of the either Party, (2), national or international social or political conditions, including the engagement of the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack on the United States, or any of its territories, possessions or diplomatic or consular offices or upon the military installation, equipment or personnel of the United States, (3) financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or market index, (4) changes in GAAP, (5) changes in laws, rules, regulations, orders or other binding directives issued by any Government Authority or (6) the taking of any action contemplated by this Agreement and any agreements contemplated hereby; (b) any existing event, occurrence or circumstances with respect to which NXNV and NXDE have actual knowledge as of the date hereof; and (c) any adverse change in or effect of the business of the Company that is cured by the Effective Time or the termination of this Agreement.

 

1
 

 

Net Product Sales ”means all cash and non-cash consideration from the sale of Products less the following items directly attributable to the Sale of such Products and borne by Surviving Corporation (as defined below), its affiliates or licensees as the seller: (a) discounts and rebates actually granted; (b) sales, value added, use and other taxes and government charges actually paid, excluding income taxes; (c) import and export duties actually paid; (d) freight, transport, packing and transit insurance charges actually paid or allowed; and (e) other amounts actually refunded, allowed or credited due to rejections or returns, but not exceeding the original invoiced amount.

 

“Patents” means (a) the patents and patent applications listed on Exhibit A, all patents resulting from the patent applications listed on Exhibit A, and all continuations, continuations-in-part, divisions, extensions, substitutions, re-issues, re-examinations, and renewals of any of the foregoing, and (b) any patents arising from any applications filed after the Effective Time and that claim priority from any of the patents or patent applications in subsection (a) priority.

 

“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture and unincorporated organization, and any other business entity or Governmental Authority.

 

“Products” means all products developed by the Surviving Corporation using the Patents.

 

“Quarterly Payment Deadline” means the day that is 30 days after the last day of any particular Quarter.

 

“Sell, Sale or Sold” means any transfer or other disposition of Products or for which consideration is received by the Surviving Corporation, its affiliates or licensees. A Sale of Products will be deemed completed at the time the Surviving Corporation or its affiliates or licensees receives such compensation. On or before each Quarterly Payment Deadline, Surviving Corporation shall report to the entity formed by NXDE to receive royalty payments the identification of each Product for which royalty payments are due in that quarter, the name of any licensee or affiliate making such sales, the Net Product Sales proceeds received in that quarter by Surviving Corporation, its licensees and affiliates, and the royalties due from such sales.

 

2
 

 

Merger

 

§ 1.1 Surviving Corporation. In accordance with the terms and conditions of this Agreement, including without limitation, the conditions precedent set forth in Article VI hereof, NXDE shall be merged with and into NXNV (the “Merger”) effective as of the Effective Time (as defined in 1.2 below). NXNV shall be the surviving corporate entity (the “Surviving Corporation”) and shall continue its corporate existence under the laws of the State of Nevada. The name of the Surviving Corporation shall continue to be “Nexeon MedSystems Inc”, a Nevada corporation.

 

§ 1.2 Effective Time. The Parties will cause the Merger to be consummated by filing a Certificate of Merger (or like instrument) with the Secretary of State of Delaware and the Nevada Secretary of State in accordance with the corporate laws of the State of Delaware and Nevada. The Merger shall become effective upon the issuance of a Certificate of Merger by the Nevada Secretary of State. The date and time when the Merger becomes effective is referred to herein as the “Effective Time.”

 

§ 1.3 Succession and Assumption. Immediately as of the Effective Time, by virtue of the Merger and without any action by NXNV or NXDE: (a) NXNV shall succeed to all present and future rights, titles, privileges, powers and franchises of NXNV and NXDE, and (b) NXNV shall assume any and all liabilities, duties and obligations of NXDE and NXNV, as they exist immediately prior to the Effective Time.

 

§ 1.4 Articles of Incorporation. As of the Effective Time, the Articles of Incorporation of NXNV in effect immediately prior to the Effective Time shall become the Articles of Incorporation of the Surviving Corporation, until thereafter amended as provided by law.

 

§ 1.5 Bylaws. At the Effective Time, the Bylaws of NXNV in effect immediately prior to the Effective Time shall become the Bylaws of the Surviving Corporation, until thereafter amended as provided by law.

 

§ 1.6 Officers and Directors. At the Effective Time, the directors of NXNV shall consist of five members: two (2) of the directors shall be appointed by the former directors of NXDE, one of whom shall be Dr. Mark Bates with the other to be a yet to be determined individual; and three (3) of the directors shall have be elected by NXNV shareholders, who shall be William Rosellini, Ronald Conquest, and a yet to be determined individual. Thereafter, the full board of directors shall elect the officers of NXNV.

 

Conversion of Stock

 

§ 2.1 Conversion of Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof:

 

(a) the number of shares of Common Stock of NXNV, $0.001 par value per share (the “NXNV Common Stock”), authorized immediately prior to the Effective Time shall continue to represent the same number of authorized shares of the Surviving Corporation Common Stock; the number of shares of Preferred Stock of NXNV, $0.001 par value per share (the “NXNV Preferred Stock”) authorized prior to the Effective Time shall continue to represent the same number of authorized shares of the Surviving Corporation Preferred Stock; and

 

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(b) the total number of shares of the NXDE Preferred Shares issued and outstanding prior to the Effective Time, shall be converted into the right to receive 1,659.943 fully paid and non-assessable NXNV Common Stock (the “Preferred Conversion Consideration”). No such shares of NXDE Preferred Shares shall be converted to Preferred Stock of the Surviving Corporation. The total number of shares received in the Merger, shall be allocated to each NXDE Shareholder pursuant to the list of current NXDE shareholders. The list of those NXDE shareholders, along with the number of shares of NXNV Common Stock, which each NXDE Shareholder will receive, is attached hereto as Exhibit B. Each share of NXDE’s Common Shares issued and outstanding immediately prior to the Effective Time will be cancelled and extinguished without conversion.

 

(c) all such NXDE Preferred Shares, when so converted, will no longer be outstanding and will automatically be canceled and retired and will cease to exist, and the holder of a certificate (“ NXDE Preferred Stock Certificate ”) that, immediately prior to the Effective Time, represented outstanding NXDE Preferred Shares will cease to have any rights with respect thereto, except the right to receive, upon the surrender of such NXDE Preferred Stock Certificate: (i) the Preferred Conversion Consideration, and (ii) cash in lieu of fractional shares under Section ‎2.2 (collectively, the “ Merger Consideration ”).

 

§ 2.2 Fractional Shares. In lieu of issuing fractional shares of the Surviving Corporation in exchange for NXDE Stock, the Surviving Corporation shall cause to be paid to each person or entity entitled thereto an amount equal to $1.00 for each fractional share of the Surviving Corporation’s Common Stock resulting from the conversion of NXDE Stock into stock of the Surviving Corporation pursuant to §2.1 hereof.

 

§ 2.3 Closing of Transfer Books. At the Effective Time, the stock transfer books of NXNV and NXDE shall be closed and no transfer of shares of NXDE shall thereafter be made. After the Effective Time, certificates previously representing shares of NXDE Common Stock and shares of both Series A and Series B NXDE Preferred Stock shall be cancelled and exchanged for shares of Common Stock of the Surviving Corporation as provided in §2.4 hereof.

 

§ 2.4 Exchange of NXDE Stock. As soon as practicable after the Effective Time, the Surviving Corporation shall mail to each holder of record of NXDE Stock, immediately prior to the Effective Time, a form letter of transmittal for return to the Surviving Corporation, or its stock transfer Agent, containing instructions for use in effecting the surrender of certificates of NXDE Stock for certificates of Common Stock in the Surviving Corporation. Upon the proper surrender of such certificates, the record holder thereof shall be issued the number of fully paid and non-assessable shares of the Surviving Corporation’s Common Stock as such holder is entitled to receive under §§2.1 and 2.2 hereof. Thereafter such NXDE surrendered certificates shall be cancelled and of no further force or effect. Until surrendered, each certificate of NXDE Stock shall represent solely the right to receive shares of the Surviving Corporation into which the NXDE Stock shall have been converted pursuant to §§2.1 and 2.2 hereof.

 

NXDE and its Shareholders understand and accept without qualification that the shares of NXNV Common Stock received pursuant to this Agreement have not been registered with the Securities and Exchange Commission (SEC) or any state securities regulatory authority, and that standard restrictions on the unregistered shares of NXNV Common Stock will apply to each and every NXDE Shareholder receiving shares a part of this Merger or Debt Conversion. Each Stock Certificate issued by NXNV shall bear a legend indicating that the shares are non-transferrable until the standard NXNV and SEC conditions for enabling transferability have been met.

 

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§ 2.5 Dissenting Shares. Any holders of shares of NXDE Stock outstanding immediately prior to the Effective Time who have properly perfected their statutory dissenters rights in accordance with Section 262 of The Business Corporation Law of Delaware shall receive payment for their shares after the Effective Time from the Surviving Corporation, but only after the amount of such payment has been agreed upon or finally determined pursuant to such provisions of Section 262 of Business Corporation Law of Delaware.

 

§ 2.6 Additional Consideration. Prior to the Effective Time, NXDE shall spin-off any rights to the royalties in this Section 2.6 to a newly formed limited liability company (“NXDE LLC”). As additional consideration to the shareholders of NXDE, the Surviving Corporation shall pay NXDE LLC a royalty equal to Three Percent (3%) (the “NXDE Royalty”) of Net Product Sales received by the Surviving Corporation, its affiliates and licensees after the merger and derived from the commercialization of patents or other intellectual property owned by NXDE prior to the merger. A comprehensive list, agreed to by NXNV and NXDE of any and all such patents and intellectual property is attached hereto as Exhibit A and by this reference incorporated herein.

 

§ 2.7 Tax Treatment . The Parties intend that the Merger constitute a tax free reorganization under Code Section 368.

 

§ 2.8 Conversion/Assumption/Payment of Certain Notes Payable to Stockholders . At the Effective Time, any NXDE shareholder owed any sum of money by NXDE shall have the right to convert their debt to participation in the NXNV Private Placement dated February 1, 2016 (the “Offering”) pursuant to the terms and conditions of the Offering as set forth in the NXNV Private Placement Memorandum. The debt exchange rate shall be One Dollar ($1.00) of NXDE shareholder debt for One (1) Unit of the Offering. Any amount owed to an NXDE shareholder not converted into shares of NXNV Common Stock shall be represented by a promissory note entered into at the Effective Time by and between NXNV and the NXDE shareholder or their affiliates. The principal and interest of the promissory note shall be due and payable Two (2) years from the Effective Date and shall accrue interest at the rate of Seven Percent (7%) per annum.

 

Representations and Warranties of NXDE

 

NXDE hereby represents and warrants to NXNV as follows:

 

§ 3.1 Corporate Organization. NXDE is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted.

 

§ 3.2 Capitalization of NXDE. As of the date hereof, the authorized capital stock of NXDE consists of 17,000,000 shares of Common Stock, par value of $0.0001 per share, of which there are issued and outstanding 1,529,000 shares of such Common Stock. As of the date hereof, the authorized capital stock of NXDE consists of 14,000,000 shares of Preferred Stock, par value of $0.0001 per share, of which there are issued and outstanding 10,222,137 shares of Series A Preferred Stock and 832,034 shares of Series B Preferred Stock. All of such outstanding shares have been validly issued and are fully paid and non-assessable with no personal liability attaching to the ownership thereof. Prior to the Effective Time, there were 80,000 Stock Options, all of which will be terminated at or prior to the Effective Time and 604,212 Deferred Compensation Units of NXDE, all of which will be terminated at the Effective Time.

 

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§ 3.3 Authorization. NXDE has the necessary corporate power and authority to enter into this Agreement, which has been duly authorized by its board of directors and shareholders. This Agreement is a legal, valid, and binding obligation of NXDE.

 

§ 3.4 No Violation. Neither the execution and delivery of this Agreement by NXDE, the performance by NXDE of its obligations hereunder nor the consummation by it of the transactions contemplated hereby will (i) violate any provision of the Articles of Incorporation or Bylaws of NXDE; (ii) constitute a default under or cause the acceleration of the maturity of any debt or obligation, which, individually or in the aggregate with all other such debts and obligations, is material to NXDE taken as a whole; or (iii) to the best of the knowledge and belief of NXDE, violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority to which NXDE is subject, which would have a material adverse effect on the financial condition, business, or operations of NXDE, taken as a whole.

 

§ 3.5 Litigation. Except as set forth on Schedule 3.5 [3] , to the best of the knowledge and belief of NXDE, there is no action, proceeding or investigation pending or threatened against or involving NXDE or any properties or rights of NXDE, to specifically include any patents issued or pending in which NXDE has an ownership interest, which, if determined adversely, could materially and adversely affect the financial condition, business, or operations of NXDE taken as a whole. NXDE is not in violation of any order, judgment, injunction, or decree outstanding against it, the effect of which would be materially adverse to the financial condition, business, or operations of NXDE, taken as a whole.

 

§ 3.6 Financial Statements. NXDE heretofore has delivered to NXNV true and complete copies of the audited historical consolidated financial statements of NXDE as of December 31, 2010 and the unaudited consolidated financial statements for the periods ending December 31, 2011 through December 31, 2015. Such financial statements of NXDE delivered to NXNV were prepared in accordance with generally accepted accounting principles applied on a consistent basis and present fairly the financial position, results of operations, and changes in financial position of NXDE as of the dates and for the periods indicated herein above. As of the date of such financial statements, NXDE did not have any liabilities or obligations (absolute, accrued, contingent or otherwise) material to NXDE taken as a whole, which were not reflected on such financial statements. Since the date of such financial statements, NXDE has not incurred any liabilities material to NXDE taken as a whole, except (i) liabilities incurred in the ordinary course of business and consistent with past practices; (ii) liabilities disclosed on such financial statements; and (iii) liabilities incurred in connection with this Merger or as otherwise permitted by this Agreement.

 

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§ 3.7 Title to Properties. NXDE has good and marketable title to any and all of its material properties and assets (real, person and mixed, tangible and intangible) including without limitation, all the properties and assets which it purports to own as reflected on its financial statements furnished to NXNV, and specifically with respect to patents issued or pending in which NXDE has an ownership interest.

 

§ 3.8 No ERISA Issues. NXDE has no plan or agreement filed under the Employment Retirement Income Security Act which will cause any assumed or ongoing liability to Surviving Corporation.

 

Representations and Warranties of NXNV

 

NXNV hereby represents and warrants to NXDE as follows:

 

§ 4.1 Corporate Organization. NXNV is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada with all requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as it is now being conducted.

 

§ 4.2 Capitalization of NXNV. As of the date hereof, the authorized capital stock of NXNV consists of 75,000,000 shares of Common Stock, par value of $0.001 per share, and there are 15,500,000 shares Common stock issued and outstanding, and there are no shares of Preferred Stock authorized or issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and non-assessable with no personal liability attaching to the ownership thereof. As of the date hereof, there are no outstanding options, warrants, subscriptions, or other rights obligating of NXNV to issue any shares of its capital stock or other securities convertible into any shares of its capital stock.

 

§ 4.3 Authorization. NXNV has the necessary corporate power and authority to enter into this Agreement and this Agreement has been duly authorized by its board of directors and shareholders. This Agreement is a legal, valid, and binding obligation of NXNV.

 

§ 4.4 No Violation. Neither the execution and delivery of this Agreement by NXNV, the performance by NXNV of its obligations hereunder nor the consummation by it of the transactions contemplated hereby will: (i) violate any provision of the Articles of Incorporation or Bylaws of NXNV; (ii) constitute a default under or cause the acceleration of the maturity of any debt or obligation, which, individually or in the aggregate with all other such debts and obligations, is material to NXNV, taken as a whole; or (iii) to the best knowledge of NXNV, violate any statute or law or any judgment, decree, order, regulation, or rule of any court or governmental authority to which NXNV is subject, which would have a material adverse effect on the financial condition, business, or operations of NXNV, taken as a whole.

 

§ 4.5 Litigation. To the best of the knowledge and belief of NXNV, there is no action, proceeding or investigation pending or threatened against or involving NXNV or any properties or rights of NXNV, which, if determined adversely, could materially and adversely affect the financial condition, business, or operations of NXNV, taken as a whole. NXNV is not in violation of any order, judgment, injunction or decree outstanding against it the effect of which would be materially adverse to the financial condition, business, or operations of NXNV, taken as a whole.

 

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§ 4.6 Financial Statements. NXNV heretofore has delivered to NXDE true and complete copies of its balance sheet as of December 7, 2015 and a Performa balance sheet as of January 2, 2016. Such financial statements of NXNV delivered to NXDE were prepared in accordance with generally accepted accounting principles applied on a consistent basis and present fairly the financial position, and changes in financial position of NXNV as of the dates and for the periods set forth herein above. As of the date of such financial statements, NXNV did not have any liabilities or obligations (absolute, accrued, contingent or otherwise) material to NXNV, taken as a whole, which were not reflected on such financial statements. Since the date of such financial statements, NXNV has not incurred any liabilities material to NXNV, taken as a whole, except: (i) liabilities incurred in the ordinary course of business and consistent with past practices; (ii) liabilities disclosed on such financial statements; and (iii) liabilities incurred in connection with this Merger or as otherwise permitted by this Agreement.

 

§ 4.7 Title to Properties. NXNV has good and marketable title to any and all of its material properties and assets (real, person and mixed, tangible and intangible) including without limitation, all the properties and assets, which it purports to own as reflected on its financial statements furnished to NXDE.

 

Covenants

 

§ 5.1 Conduct of Business Prior to the Effective Time. Each of NXNV and NXDE agrees that prior to the Effective Time:

 

(a) each of their respective businesses shall be conducted only in the ordinary course;

 

(b) except as required in connection with this Merger, it shall not: (i) amend its Articles of Incorporation or Bylaws; (ii) change the number of authorized shares of its capital stock; or (iii) declare, set aside, or pay any dividend or other distribution or payment in cash, stock, or property in respect of the shares of its capital stock;

 

(c) it shall not: (i) issue, grant or sell any shares or rights of any kind to acquire any shares of its capital stock; (ii) acquire any assets or enter into any other transaction, other than in the ordinary course of business; (iii) dispose of, encumber or mortgage any assets or properties which are material to it taken as a whole other than in the ordinary course of business; (iv) waive, release, grant or transfer any rights of value or modify or change in any material respect any existing license, lease, contract or other document other than in the ordinary course of business; or (v) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing; and

 

(d) it shall use its best efforts to preserve intact its business organization, to keep available the service of its present officers and key employees, and to preserve the goodwill of those having business relationships with it.

 

§ 5.2 Compliance with Laws. Each of NXNV and NXDE shall duly comply in all material respects with all laws applicable to it and its properties, operations, business and assets.

 

§ 5.3 Access to Properties and Records. Each of NXNV and NXDE shall, upon reasonable request, afford to the other's accountants, counsel and other authorized representatives, full access during normal business hours throughout the period prior to the Effective Time to all of its properties, books, contracts, commitments and records.

 

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§ 5.4 Further Actions. Subject to the terms and conditions hereof, NXNV and NXDE each agree to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including without limitation, using all reasonable efforts: (i) to obtain all necessary waivers, consents and approvals, to give all notices and to effect all necessary registrations and filings; and (ii) to defend any lawsuits or other legal proceedings, whether judicial or administrative and whether brought derivatively or on behalf of third parties challenging this Agreement or the consummation of the transactions contemplated hereby.

 

Conditions Precedent

 

§ 6.1 Conditions to the Obligation of NXDE to Effect this Merger. Each and every obligation of NXDE under this Agreement to be performed on or before the Effective Time shall be subject to the fulfillment by NXNV of the following additional conditions:

 

(a) NXNV shall have performed in all material respects its obligations under this Agreement required to be performed by it on or prior to the Effective Time pursuant to the terms hereof;

 

(b) the representations and warranties of NXNV contained in this Agreement shall be true and correct in all material respects at and as of the Effective Time as if made at and as of such time, except as affected by the transactions contemplated hereby;

 

(c) there shall have been no material adverse change in the business, assets, financial condition or results of operations of NXNV, taken as a whole, since the date of the financial statements furnished to NXDE;

 

(d) NXNV shall have furnished such certificates of its officers to evidence its compliance with the conditions set forth herein as may be reasonably requested by NXDE;

 

(e) the shareholders of NXDE shall have approved the Merger; and

 

(f) NXNV shall have executed and delivered to NXDE LLC that certain Royalty Agreement covering the NXDE Royalty in the form attached hereto as Exhibit D.

 

§ 6.2 Conditions to the Obligation of NXNV to Effect this Merger. Each and every obligation of NXNV under this Agreement to be performed on or before the Effective Time shall be subject to the fulfillment by NXNV of the following additional conditions:

 

(a) NXDE shall have performed in all material respects its obligations under this Agreement required to be performed by it on or prior to the Effective Time pursuant to the terms hereof;

 

(b) the representations and warranties of NXDE contained in this Agreement shall be true and correct in all material respects at and as of the Effective Time as if made at and as of such time, except as affected by the transactions contemplated hereby;

 

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(c) there shall have been no material adverse change in the business, assets, financial condition or results of operations of NXDE taken as a whole since the date of the financial statements furnished to NXNV, the conversion of debt to NXNV shares of Common Stock prior to or simultaneous to the Effective Time notwithstanding;

 

(d) NXDE shall have furnished such certificates of its officers to evidence its compliance with the conditions set forth herein as may be reasonably requested by NXNV.

 

(e) NXDE shall have delivered to NXNV all books and records necessary to accomplish the transfer of all assets owned by NXDE prior to the merger, including without limitation all accounting and intellectual property hard and electronic files.

 

(f) NXDE shall have terminated any and all options, warrants, deferred compensation units, issued and outstanding immediately prior to the Effective Time, and any and all other rights to equity of any kind or nature whatsoever of NXDE,

 

(g) at the Effective Time, Mark Bakes shall convert any and all debt owed to him by NXDE to shares of NXNV’s Common Stock and Ralph Ballard and his affiliates shall convert any and all debt, less the sum of $150,000, owed to him and his affiliates by NXDE to shares of NXNV’s Common Stock. At the Effective Time, Ralph Ballard shall receive a promissory note in the amount of $150,000 payable to him or his affiliates by NXNV on terms acceptable to both parties.

 

Termination

 

§ 7.1 Termination. This Agreement may be terminated if and only if the NXNV and NXDE Shareholders fail to approve this Agreement.

 

§ 7.2 Effect of Termination. In the event of the termination of this Agreement by either NXNV or NXDE, as provided above:

 

(a) this Agreement shall be void and of no further effect, and there shall be no liability by reason of this Agreement or the termination thereof on the part of either NXNV or NXDE, or on the part of their respective directors, officers, employees, agents or shareholders; and

 

(b) all information received by either party hereto with respect to the business of the other party or its divisions, affiliates or associates (other than information which is a matter of public knowledge or which has heretofore been or is hereafter published in any publication for public distribution or filed as public information with any governmental authority) shall not at any time be used for the advantage of, or disclosed to third parties for any reason whatsoever.

 

Miscellaneous

 

§ 8.1 Amendment. This Agreement may be amended by the parties hereto by action taken by their respective board of directors at any time prior to the Effective Time, but no such amendment shall (i) alter the amount or change the form of consideration into which shares of NXDE Stock are to be converted as provided in 2.1 and 2.2 hereof, or (ii) alter or change any of the terms and conditions of this Agreement if such alteration or change would adversely affect the holders of any class of capital stock of NXNV or NXDE. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

 

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§ 8.2 Fees and Expenses. Except as otherwise provided herein, the parties hereto shall bear their own costs and expenses incurred in connection herewith and with the transactions contemplated hereby, whether the Effective Time occurs or this Agreement shall be terminated. NXNV and NXDE agree to indemnify and hold the other harmless from any claim (together with costs and expenses, including attorneys fees, incurred in connection with such claims) for compensation by any person, firm or corporation claiming to have been requested, authorized or employed to act as lender, broker or agent in connection with the subject matter of this Agreement or negotiations leading thereto.

 

§ 8.3 Assignment. No party shall assign this Agreement or any of its rights and obligations hereunder without the prior written consent of the other party.

 

§ 8.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, legal representatives, successors and permitted assigns.

 

§ 8.5 Notices. Any notice, demand or request required or permitted to be given under any provision of this Agreement shall be in writing and delivered personally or by registered or certified mail (return receipt requested, with postage prepaid) to the following address, or to such other address as either party may request by notice in writing to the other party:

 

(a) If to NXNV:

 

Mr. Ron Conquest, COO

Nexeon MedSystems Inc

1708 Jaggie Fox Way

Lexington, KY 40511

480-203-9999

 

(b) If to NXDE:

 

Dr. Mark Bates, M.D., Director

C/O Ms. Amy J. Tawney, Esq

600 Quamer Street

Charleston, WV 25301

304-347-1123

 

§ 8.6 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof, superseding any and all prior agreements, understandings, negotiations and discussions. No amendment, alteration, modification or waiver of this Agreement shall be binding unless evidenced by an instrument in writing signed on behalf of each of the parties hereto.

 

§ 8.7 Construction. The captions and headings of this Agreement are for convenience and reference only, and shall not control or affect the meaning or construction of this Agreement. Use of the masculine gender shall also be deemed to refer to the feminine gender and neuter gender and the singular to the plural unless the context clearly requires otherwise.

 

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§ 8.8 Choice of Law. This Agreement shall be construed, governed, and enforced in accordance with the laws of the State of Nevada.

 

§ 8.9 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereof and this Agreement shall be construed in all respects as if such invalid or unenforceable provision was omitted. The invalidity or unenforceability of any provision of this Agreement to any person or circumstance shall not affect the validity or enforceability of such provision as it may apply to any other persons or circumstances.

 

§ 8.10 Waiver. The failure in one or more instances of a party to insist upon performance of any of the terms, conditions and covenants set forth in this Agreement, or the failure of a party to exercise any right or privilege conferred by this Agreement, shall not be construed thereafter as waiving their right to insist upon the performance of such terms, conditions and covenants or the right to exercise such rights and privileges, which rights shall continue and remain in full force and effect as if no forbearance had occurred.

 

§ 8.11 Attorney Fees. In the event it becomes necessary for either party to file a suit to enforce this Agreement or any provision contained herein, and either party prevails in such action, then such party shall be entitled to recover, in addition to all other remedies or damages, reasonable attorney fees and court costs incurred in such suit.

 

§ 8.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original instrument, but all of which together will constitute for all purposes one and the same instrument.

 

§ 8.13 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereby, unless the context requires otherwise. The word “including” shall mean including without limitation.

 

In Witness Whereof , the parties hereto have executed this Agreement as of the date first above written.

 

    

NEXEON MEDSYSTEMS, INC., a Delaware corporation

     
Attest:  

By:

 

/s/ Mark Bates

     Dr. Mark Bates, M.D., CEO
/s/    
Secretary    

 

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     NEXEON MEDSYSTEMS INC, a Nevada corporation
      
Attest:  

By:

 

/s/ William Rosellini

     William Rosellini, CEO
/s/    
Secretary    

 

 

 

 

 

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EXHIBIT A

 

NEXEON PATENT PORTFOLIO

NANOTUBE-REINFORCED BALLOONS FOR DELIVERING PATENTS

# Patent/App # Title
1 US 8187221 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
2 US 13/455,919 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
3 US 13/455,973 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
4 AU2009269104 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
5 CA2730273A1 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
6 CN102176932 A THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
7 EP2313121 A2 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
8 JP2011527601 A THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
9 JP5481479 B2 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME
10 WO2010005575 THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS,  AND METHODS  OF MAKING  AND USING SAME

 

IRIS FILTER-SHEATH CATHETER SYSTEM FOR EMBOLISM PROTECTION PATENTS

 

11 US 8257384 INTERVENTIONAL CATHETER FOR RETROGRADE USE HAVING EMBOLIC PROTECTION CAPABILITY AND METHODS OF USE
12 US 7837702 INTERVENTIONAL CATHETER FOR RETROGRADE USE HAVING EMBOLIC PROTECTION CAPABILITY AND METHODS OF USE
13 US 20130253570 APPARATUS AND METHODS FOR FILTERING EMBOLI DURING PERCUTANEOUS AORTIC VALVE PROCEDURES AND REPAIR PROCEDURES WITH FILTRATION SYSTEM COUPLED IN-SITU TO DISTAL END OF SHEATH
14 US 20130253571 APPARATUS AND METHODS FOR FILTERING EMBOLI DURING PERCUTANEOUS AORTIC VALVE PROCEDURES AND REPAIR PROCEDURES WITH FILTRATION SYSTEM COUPLED IN-SITU TO DISTAL END OF SHEATH

 

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EXHIBIT D

 

ROYALTY AGREEMENT

 

This ROYALTY Agreement (this “ Agreement ”) is entered into as of February __, 2016 by and between Nexeon Shareholder Royalty Group LLC, a West Virginia limited liability company, (“NSRG”) and Nexeon MedSystems, Inc., a Nevada corporation (the “Company”). NSRG and the Company are collectively referred to herein as the “Parties”, and each individually, a “Party”.

 

WHEREAS, The Company and Nexeon MedSystems, Inc., a Delaware corporation (“NXDE”) have entered into a Merger Agreement dated February 8th, 2016, whereby NXDE will merge with and into the Company and on the Effective Date of said Merger, the preferred shares of NXDE will be converted into the right to receive shares of common stock of the Company and a royalty equal to Three Percent (3%) of Net Product Sales received by the Company, its affiliates and licensees after the merger and derived from the commercialization of patents or other intellectual property owned by NXDE prior to the merger (the “Royalty”) ;

 

WHEREAS, the shareholders of NXDE transferred their interest in the Royalty to NSRG; and

 

WHEREAS, This Agreement sets forth the terms and conditions for the payment of the Royalty.

 

Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties hereby agree as follows.

 

Section 1. Definitions .

 

Adverse Consequences ” means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses and fees, including court costs and reasonable attorneys’ fees and expenses.

 

Affiliate ” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended.

 

Cash ” means cash and cash equivalents (including marketable securities and short-term investments) calculated in accordance with GAAP.

 

Code ” means the Internal Revenue Code of 1986, as amended.

 

Confidential Information ” means any information concerning the business and affairs of the Company that is not already generally available to the public.

 

Contract Quarter ” means the three-month periods ending on March 31, June 30, September 30 and December 31, or any stub period thereof at the commencement of the Agreement.

 

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Contract Year ” means the 12-month periods ending on December 31 st , or any stub period thereof at the commencement of the Agreement.

 

GAAP ” means United States generally accepted accounting principles as in effect from time to time, consistently applied.

 

Governmental Authority ” means any government, state, commonwealth or any subdivision thereof, whether domestic, foreign or multinational, or any agency, authority, bureau, commission, department or similar body or instrumentality thereof, or any governmental court or tribunal.

 

Gross Consideration ” means all cash and non-cash consideration (e.g., securities).

 

Material Adverse Effect ” or “ Material Adverse Change ” means any effect or change that would be materially adverse to the business of the Company or to the ability of any Party to consummate timely the transactions contemplated hereby; provided that none of the following shall be deemed to constitute, and none of the following shall be taken into account in determining whether there has been, a Material Adverse Effect or Material Adverse Change: (a) any adverse change, event, development or effect arising from or relating to (1) general business or economic conditions, including such conditions related to the business of the Company, (2) national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (3) financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index), (4) changes in GAAP, (5) changes in laws, rules, regulations, orders or other binding directives issued by any Governmental Authority or (6) the taking of any action contemplated by this Agreement and the other agreements contemplated hereby, (b) any existing event, occurrence or circumstance with respect to which the Parties have actual knowledge as of the date hereof, and (c) any adverse change in or effect on the business of the Company that is cured by before the earlier of (i) the Closing Date and (ii) the date on which this Agreement is terminated pursuant to Section 9.

 

Net Product Sales ” means the Gross Consideration from the Sale of Products less the following items directly attributable to the Sale of such Products and Collaboration Products that are specifically identified on the invoice for such Sale and borne by the Company, its Affiliates, or licensees as the seller: (a) discounts and rebates actually granted; (b) sales, value added, use and other taxes and government charges actually paid, excluding income taxes; (c) import and export duties actually paid; (d) freight, transport, packing and transit insurance charges actually paid or allowed; and (e) other amounts actually refunded, allowed or credited due to rejections or returns, but not exceeding the original invoiced amount. Additionally, if the Company, its Affiliates or licensees use a Product for its own internal purposes or otherwise in a situation that does not involve a Sale for which a royalty is paid under Section 2(b), then Net Product Sales shall also include an amount equal to the customary sale price charged to a third party for the same Product, except for a reasonable quantity used internally solely for testing or quality control purposes, marketing or demonstration purposes, or seeking governmental approval (e.g., U.S. Food and Drug Administration clinical trial). If there is no customary sale price, then the Net Product Sales shall be an amount equal to the fair market value.

 

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Ordinary Course of Business ” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

 

“Patents” means (a) the patents and patent applications listed in Exhibit A , all patents resulting from the patent applications listed in Exhibit A and all continuations, continuations-in-part, divisions, extensions, substitutions, re-issues, re-examinations and renewals of any of the foregoing, and (b) any patents issuing from any applications filed after the Closing Date and that claim priority from any of the patents or patent applications identified in subsection (a) or from which any of the patents or patent applications identified in subsection (a) claim priority.

 

Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity or any Governmental Authority.

 

Products ” means all products developed by the Company as a direct result of the use of one or more of the Patents.

 

Quarterly Payment Deadline ” means the day that is 30 days after the last day of any particular Contract Quarter.

 

Sell, Sale or Sold ” means any transfer or other disposition of Products for which consideration is received by the Company, its Affiliates or licensees. A Sale of Products will be deemed completed at the time the Company or its Affiliate or its licensee receives such consideration.

 

Securities Act ” means the Securities Act of 1933, as amended.

 

Subsidiary ” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons own a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation). The term “Subsidiary” shall include all Subsidiaries of such Subsidiary.

 

Section 2. The Royalty .

 

(a) Basic Transaction . On and subject to the terms and conditions of this Agreement, the Company hereby grants to NSRG a royalty (the “Royalty”) attributed to the Net Product Sales by the Company pursuant to the terms and conditions provided for in this Agreement.

 

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(b) Royalty Payments . Buyer agrees to pay to NSRG a running royalty equal to Three Percent (3.0%) of Net Product Sales for each Product sold in each Contract Quarter, payable on or before the Quarterly Payment Deadline for such Contract Quarter.

 

(c) Quarterly Payment and Milestone Reports . On or before each Quarterly Payment Deadline, the Company will deliver to NSRG’s Representative a true and accurate report, certified by an officer of the Company, giving such particulars of the business conducted by the Company, its Affiliates and its licensees and licensees (including copies of reports provided by licensees and licensees and Affiliates of the Company) during the preceding Contract Quarter as necessary for NSRG’s Representative to account for the Company’s payments hereunder, even if no payments are due ( “Quarterly Report ”). The Quarterly Report shall include:

 

(i) The identification of each Product for which a Royalty payment has become payable under this Agreement and the period covered by the report;

 

(ii) The name of any Affiliates and licensees or licensees whose activities are also covered by the report;

 

(iii) Net Product Sales segregated on a product-by-product basis, and a country-by-country basis, or an affirmative statement that no Sales were made. The report shall also itemize the permitted deductions from the Gross Consideration used to arrive at the resulting Net Product Sales, on a product-by-product and country-by-country basis;

 

(iv) The applicable royalty rate;

 

(v) If any consideration was received in currencies other than U.S. dollars, the report shall describe the currency exchange calculations; and

 

(vi) Any changes in accounting methodologies used to account for and calculate the items included in the report since the previous report.

 

(d) Closing . The closing of this Agreement (the “ Closing ”) shall take place simultaneously with the Effective Time of the Merger by and between the Company and NXDE.

 

Section 3. Representations and Warranties Concerning Transaction .

 

(a) Company’s Representations and Warranties . The Company hereby represents and warrants to NSRG that the statements contained in this Section 3(a) are true, correct, and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3(a)) with respect to itself.

 

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(i) Organization of Company . The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of the State of Nevada.

 

(ii) Authorization of Transaction . The Company has full power and authority (including full entity power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of The Company, enforceable in accordance with its terms and conditions. The Company does not need to give any notice to, make any filing with or obtain any authorization, consent or approval of any Governmental Authority in order to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by the Company.

 

(iii) Non-contravention . Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Governmental Authority to which the Company is subject or any provision of its governing documents, or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, the right to accelerate, terminate, modify, cancel or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Company is a party or by which it is bound or to which any of its assets is subject.

 

(iv) Brokers’ Fees . The Company has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.

 

(b) NSRG’s Representations and Warranties . NSRG hereby represents and warrants to the Company that the statements contained in this Section 3(b) are true, correct, and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3(b)).

 

(i) Organization of NSRG . NSRG is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation.

 

(ii) Authorization of Transaction . NSRG has the full power and authority (including full corporate or other entity power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of NSRG, enforceable in accordance with its terms and conditions. NSRG need not give any notice to, make any filing with or obtain any authorization, consent or approval of any Governmental Authority in order to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by NSRG.

 

(iii) Non-contravention . Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Governmental Authority to which NSRG is subject or any provision of its governing documents or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which NSRG is a party or by which it is bound or to which any of its assets is subject.

 

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(iv) Brokers’ Fees . NSRG has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.

 

Section 4. Pre-Closing Covenants . The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing.

 

(a) General . Each of the Parties will use its reasonable best efforts to take all actions and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement.

 

(b) Notices and Consents . The parties will give, any notices to third parties, including any Governmental Authority, and shall use their reasonable best efforts to obtain any third party consents.

 

Section 5. Post-Closing Covenants . The Parties agree as follows with respect to the period following the Closing.

 

(a) General . In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party.

 

(b) Litigation Support . In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction on or prior to the Closing Date involving the Company, each of the other Parties shall cooperate with him, her or it and his, her or its counsel in the defense or contest, make available his, her or its personnel, and provide such testimony and access to his, her or its books and records as shall be necessary in connection with the defense or contest, all at the sole cost and expense of the contesting or defending Party

 

(c) Transition . NSRG will not take any action that is designed or intended to have the effect of discouraging any licensor, customer, supplier or other business associate of the Company from maintaining the same business relationships with the Company after the Closing as it maintained with the Company prior to the Closing.

 

(d) Diligent Commercialization . The Company by itself or through its Affiliates will use diligent efforts to make Products commercially available. Without limiting the foregoing, the Company will maintain a bona fide, funded, ongoing and active research, development, manufacturing, regulatory, marketing or sales program (all as commercially reasonable) to make Products available to the public as soon as commercially practicable.

 

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(e) Withdrawal from Paying Patent Costs . Following the Closing Date, the Company shall pay for all future expenses for the prosecution and maintenance of the Patents. If at any time Buyer and/or Company wishes to cease paying for any costs for a particular Patent or for patent prosecution in a particular jurisdiction, the Company must give NSRG’s Representative at least ninety (90) days prior written notice and the Company will continue to be obligated to pay for the patent costs, which reasonably accrue during said notice period. Thereafter, NSRG shall have the right to require the Company to transfer such Patent to NSRG for no additional consideration.

 

(f) Records .

 

(i) Maintenance of Records . For a period of three (3) years after the Contract Quarter to which the records pertain, the Company agrees that it and its Affiliates and licensees will each keep complete and accurate records of their Sales and Net Product Sales in sufficient detail to enable such payments to be determined and audited.

 

(ii) Auditing . The Company and its Affiliates will permit NSRG’s Representative, at NSRG Representative’s sole expense, to periodically examine books, ledgers, and records during regular business hours, at the Company’s or its Affiliate’s or its licensee’s place of business, on at least thirty (30) days advance written notice, to the extent necessary to verify any payment or report required under the Agreement. For each license, the Company shall obtain such audit rights for NSRG’s Representative or itself. If the Company obtains such audit rights for itself, it will promptly conduct an audit of the licensee’s records upon NSRG Representative’s request, and the Company will furnish to NSRG’s Representative a copy of the findings from such audit. No more than one audit of the Company, each Affiliate, and each licensee shall be conducted under this Section 6(f) (ii) in any calendar year. If any amounts due NSRG have been underpaid, then the Company shall immediately pay NSRG’s Representative the amount of such underpayment plus accrued interest equal to 1.0% per month. If the amount of underpayment is equal to or greater than five percent (5%) of the total amount due for the records so examined, the Company will pay the cost of such audit. Such audits may, at NSRG Representative’s sole discretion, consist of a self-audit conducted by the Company at the Company’s expense and certified in writing by an authorized officer of the Company. All information examined pursuant to this Section 6(f) (ii) shall be deemed to be the Confidential Information of the Company.

 

(g) Abandonment . If the Company wishes to abandon any Patent, it shall provide NSRG’s Representative ninety (90) days prior written notice of the desired abandonment. The Company shall not abandon any such Patent except upon the prior written consent of NSRG’s Representative. On NSRG Representative’s request, which may be provided at any time after the notice of desired abandonment, the Company shall assign to NSRG any such Patent the Company wishes to abandon. Effective as of the date of the assignment, such Patent shall no longer be subject to a Royalty payment to NSRG unless the Company retains any Products developed from such abandoned Patent prior to abandonment.

 

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(h) Failure to Pay the Royalty and Other Events of Default . Upon the occurrence of any of the following events (a “Termination Event”), NSRG shall have the right but not the obligation, to require the Company to transfer one or more of the Patents and/or Products, as applicable, to NSRG for the consideration set forth below:

 

(i) Failure of the Company to pay the Royalty to NSRG within sixty (60) days of the Quarterly Payment Deadline;

 

(ii) the Company fails to prosecute or maintain the Patents

 

(iii) the Company becomes insolvent or admits inability to pay its debts generally as they become due;

 

(iv) the Company becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, which is not fully stayed within ninety (90) days or is not dismissed or vacated within ninety (90) days after filing;

 

(v) the Company is dissolved or liquidated or takes any corporate action for such purpose;

 

(vi) the Company makes a general assignment for the benefit of creditors; or

 

(vii) the Company has a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.

 

Upon the occurrence of a Termination Event set forth in Section 5(h)(iii) through (vii), NSRG shall have the right, but not the obligation, to require the Company to transfer all of the Patents to NSRG for consideration equal to the development costs expended by Rosellini Scientific LLC or its Affiliates under the Joint Venture Agreement and any other development costs expended by the Company after the Effective Date of the Merger for the development of the Patents and Products (excluding any non-dilutive grant funding). Upon the occurrence of a Termination Event set forth in Section (h)(i) and (ii), NSRG shall have the right, but not the obligation, to require the Company to transfer the Patent or Patents to which the Royalty payments have not been paid or the Patent or Patents that the Company fails to prosecute and maintain for no additional consideration.

 

Section 6. Miscellaneous.

 

(i) Press Releases and Public Announcements . No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the Company and NSRG’s Representative; provided, however , that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure).

 

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(j) No Third-Party Beneficiaries . This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

 

(k) Entire Agreement . This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.

 

(l) Succession and Assignment . This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of Buyer and Seller Representative; provided , however , that Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder).

 

(m) Counterparts . This Agreement may be executed in one or more counterparts (including by means of facsimile), each of which shall be deemed an original but all of which together will constitute one and the same instrument.

 

(n) Headings . The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

 

(o) Notices . All notices, requests, demands, claims and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given (i) when delivered personally to the recipient, (ii) one business day after being sent to the recipient by reputable overnight courier service (charges prepaid), (iii) one business day after being sent to the recipient by facsimile transmission or electronic mail or (iv) four business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below:

 

If to NSRG Representative:

 

Mark C. Bates, M.D.

526 Camino de Orchidia

Encinitas, California 92024

 

With a copy that shall not constitute notice to:

 

Bowles Rice LLP600 Quarrier Street

Charleston, WV 25301

Attention: Amy Tawney

Facsimile: (304) 343-3058

Email: atawney@bowlesrice.com

 

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If to the Company:

 

Ron Conquest, COO

Nexeon MedSystems Inc

1708 Jaggie Fox Way

Lexington, Kentucky, 40511

 

With a copy that shall not constitute notice to:

 

Arthur E. Fillmore, II, JD

AEGIS Professional Services

1712 Main Street, Suite 340

Kansas City, MO 64108

(816) 929-8623 (direct)

(816) 582-1719 (cell)

afillmore@aegisps.com

 

Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

 

(p) Governing Law . This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Nevada without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Nevada .

 

(q) Amendments and Waivers . No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties hereto. No waiver by any Party of any provision of this Agreement or any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless the same shall be in writing and signed by the Party making such waiver, nor shall such waiver be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

 

(r) Severability . Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

 

(s) Expenses . Each Party hereto will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. Without limiting the generality of the foregoing, all transfer, documentary, sales, use, stamp, registration and other such taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with the consummation of the transactions contemplated by this Agreement shall be paid by the Company when due.

 

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(t) Construction . The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated there under, unless the context requires otherwise. The word “including” shall mean including without limitation.

 

(u) NSRG Representative .

 

(i) NSRG hereby irrevocably appoints Mark C. Bates, M.D. (“ NSRG Representative ”) to act with respect to all matters relating to this Agreement, including, but not limited to, the consideration, administration, and certification of any matters arising out of any communications with the Company, and any amendment to this Agreement and generally the performance of all acts expressly required or permitted to be performed by the NSRG Representative pursuant hereto.

 

(ii) The Company shall have the right to deal exclusively with the NSRG Representative with respect to all matters contemplated and addressed by this Agreement concerning NSRG, and the Company shall not have any liability to NSRG for any acts or omissions of the NSRG Representative, or any acts or omissions of the Company at the direction of the NSRG Representative.

 

(iii) The NSRG Representative will have no liability to NSRG with respect to actions taken or omitted to be taken in his capacity as NSRG Representative, except with respect to any liability resulting solely from NSRG Representative’s gross negligence or willful misconduct. NSRG further agrees to hold the NSRG Representative harmless from and indemnify NSRG Representative for any loss, damage, liability and expense incurred or threatened to be incurred for actions taken or omitted to be taken in his capacity as NSRG Representative, except to the extent such result solely from the gross negligence or willful misconduct of the NSRG Representative.

 

(iv) In the event that Mark C. Bates, M.D. is no longer willing to serve as the NSRG Representative, the Manager of NSRG shall designate his successor and notify the Company in writing.

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

 

  The Company:
   
NEXEON MEDSYSTEMS INC
     
   
By:

  William Rosellini, CEO

 

 

 

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   Nexeon Shareholders Royalty Group LLC:
   
     
By:

  Mark Bates, Manager
   
   

 

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Exhibit A

 

List of Patents

 

TITLE: APPARATUS FOR THE DELIVERY OF DRUGS OR GENE THERAPY INTO A PATIENT’S VASCULATURE AND METHODS OF USE

 

INVENTORS: BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-0201 09/648,257 08/25/00 6,740,331 (05/25/04)  

Issued

·    MF Due: 11/25/15

 
PCT 104559-0210 PCT/US01/041857 08/20/01   WO 2002/015962 A3 (2/28/02) Completed  
EP 104559-0230 01 96 4644.7 08/20/01  

EP1381411

01/21/2004

·    Awaiting Examination

·    Annuity Due 8/31/13

Vossius & Partner

YRef.: H1948 EP

T: +49-(0)89-413 04-0

F: +49-(0)89-413-04-111

info@vossiusandpartner.com

US 104559-0202 10/822,037 04/08/04 7,648,495 (01/19/10)

US-2004-0193137 A1

(9/30/04)

Issued

·    MF Due: 7/19/17 and 7/19/21

 

 

 

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TITLE: IMPLANTABLE DEVICE FOR TREATING DISEASE STATES AND METHODS OF USING SAME

 

INVENTORS: BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-0301 10/864,936 06/09/04 7,651,696 (01/26/10) US-2005-0064009 A1 (3/24/05)

Issued

·     MF Due: 7/26/13, 7/26/17 and 7/26/21

 
PCT 104559-0310 PCT/US05/019934 06/07/05   WO 2005/123044 A2 (12/29/05) Completed  
EP 104559-0330 05757409.7 12/14/06   1761204 (3/14/07) ·     Awaiting Examination

Vossius & Partner

YRef.: M3322 EP

T: +49-(0)89-413 04-0

F: +49-(0)89-413-04-111

info@vossiusandpartner.com

JP 104559-0340 2007-527641 12/08/06 5097546 (9/28/12) WO 2002/15962 A2 (2/28/02) ·     Annuity due 9/28/15

Shusaku Yamamoto

YRef.: F1-06M22C81

T.: +81-6-6949-3910

F: +81-6-6949-3915

shupatnt@shupat.gr.jp

 

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TITLE: INTERVENTIONAL CATHETER FOR RETROGRADE USE HAVING EMBOLIC PROTECTION CAPABILITY AND METHODS OF USE

 

INVENTOR(S): BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-0601 11/315,463 12/21/05 7,837,702 (11/23/10) US-2007-0142858-A1 (6/21/07)

Issued

·     MF Due: 5/23/14, 5/23/18 and 5/23/22

 
US 104559-0602 12/945,729 11/12/10 8,257,384 (09/04/12) US-2011-0098739-A1 (4/28/11)

Issued

·        MF due 3/4/16

  • Broadening Reissue Due 9/4/14
 
US 104559-0603 13/584,517 08/13/12   US-2012-0310272-A1 (12/6/12)

Pending

  • Awaiting 1 st OA
 
PCT 104559-0610 PCT/US06/048921 12/20/06   WO 2007/075959 (7/5/07) Completed  
EP 104559-0630 EP 06 847 981.5 12/20/06   EP1968687 (9/17/2008)

Pending

·     Awaiting
examiner action

·     Awaiting issuance of Suppl EP search report

·     Annuity due 12/31/13

JD Munich

Y/Ref No.: J101901PCEP

T: 49 89 206042-243

F: 49 89 206042-293

3
 

 

 

TITLE: METHODS AND APPARATUS FOR TREATING AN INJURED NERVE PATHWAY

 

INVENTOR(S): BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-0701 10/977,593 10/29/04 7,842,304 (11/30/10) 2006-0093641-A1 (5/4/06)

Issued

·     MF Due: 5/30/14, 5/30/18 and 5/30/22

 
US 104559-0702 12/950,769 11/19/10   2011-0066169-A1 (3/17/11)

Pending

·     Resp OA filed 6/6/13

·     Awaiting
further Examiner action

 
PCT 104559-0710 PCT/US05/038876 10/26/05   WO 2006/050063 (12/21/07) Expired  

 

 

4
 

 

 

TITLE: APPARATUS AND METHODS FOR RENAL STENTING

 

INVENTOR(S): BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-0901 11/125,448 05/09/05   2006-0253186-A1 (11/9/06)

Pending

·     RCE filed 7/17/13

·     Awaiting further Action

 
PCT 104559-0910 PCT/US06/017986 05/09/06   WO 2006/122152 (11/16/2006) Completed  
AU 104559-0915 2006244070 05/09/06 2006244070 (03/31/2012)   Granted

Davies Collision Cave

Y/Ref.: 30434803/RSH

Tele: +61 3 9254 2777

Fax: +61 3 9254 2770

JP 104559-0940 2008-511289 05/09/06 4990887 (05/11/2012)   Granted

K. Yoshida & Assoc.

Y/Ref.: P19975

Tele: +81-3-3508-9866

Fax: +81-3-3595-0076

 

 

TITLE: APPARATUS AND METHODS FOR RENAL STENTING

 

INVENTOR(S): BATES, Mark C.

 

EP 104559-0930 06770151.6 05/09/06   1885285 (2/13/08)

Pending

·     Awaiting Examiner Action

TBK Patent

Y/Ref.: EP 53495

Tele: +49 (0)89 544690

Fax: +49(0)89 54469290

postoffice@tbk-patent.de

 

5
 

 

 

TITLE: RADIOPAQUE-BALLOON MICROCATHETER AND METHODS OF MANUFACTURE

 

INVENTOR(S): BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-1001 11/267,226 11/03/05   2007-0100279 A1 (5/3/07)

Abandoned

3/28/12

 
PCT 104559-1010 PCT/US06/042804 11/01/06   WO 2007/056058 (10/4/07) Completed  
EP 104559-1030 06836811.7 11/01/06   EP1948289 (07/30/2008) Abandoned

JD Munich

Y/Ref.: J101827PCEP

T: 49 89 206042-243

F: 49 89 206042-293

JP 104559-1040 2008-539025 11/01/06     ·     Awaiting Examiner Action

Orion IP

Y/Ref.: 0171160001

T: 81 42 753 9038

F: 81 42 759 7393

CN 104559-1025 200680050295.7 11/01/06    

Pending

·     Awaiting examiner action

JD Shanghai

T: 86 21 2201 8062

F: 86 21 5298 6569

 

 

6
 

 

 

TITLE: NANOTUBE-REINFORCED BALLOONS FOR DELIVERING THERAPEUTIC AGENTS WITHIN OR BEYOND THE WALL OF BLOOD VESSELS, AND METHODS OF MAKING AND USING SAME

 

INVENTOR(S): BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-1301 12/172,168 07/11/08 8,187,221 (05/29/12) 2010-0010470-A1 (01/14/10)

Issued

·     MF due 11/29/15

·     Broadening Reissue due 5/29/14

 
US 104559-1302 13/455,919 04/25/12   US2012-0209250-A1 (08/16/12)

Pending

·     Resp Final OA due 08/06/13 (Final)

·     Instructions to Abandon received 6/11/13

 
US 104559-1303 13/455,973 04/25/12   US2012-0209251-A1 (08/16/12)

Pending

·     RCE filed 07/08/13

·     Awaiting further OA

 
EP 104559-1330 09771434.9      

Pending

·     Resp filed 3/8/13

·     Awaiting further Action

·     DIV appl due 11/14/14

JD Munich

Ref: 102615PCEP

 

 

7
 

 

 

PCT 104559-1310 PCT/US09/004006 07/09/09   WO 2010/005572 (01/14/2010) Completed  
CA 104559-1320 2,730,273 07/09/09    

Pending

·     Request for Exam due 7/9/14

Osler, Hoskin, and Harcourt LLP

Ref: PCA21204

AU 104559-1315 2009269104 07/09/09    

Pending

·     Request for Exam due 7/9/14

·     Annuity due 7/9/14

 
CN 104559-1325 200980134724.2 07/09/09    

Pending

·     Response 1 st Action due 7/29/13 (FA insts sent 6/12/13)

 
JP 104559-1340 2011-517421 07/09/09    

Pending

·     Awaiting 1 st Action

 

 

 

8
 

 

 

TITLE: INTERVENTIONAL DEVICES FORMED USING COMPOSITIONS INCLUDING METAL-COATED NANOTUBES DISPERSED IN POLYMERS, AND METHODS OF MAKING AND USING SAME

 

INVENTOR(S): BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-1401 12/342,013 12/22/08   2010-0158193-A1 (06/24/10)

Abandoned

·     Client’s Inst e-mail 7/24/13

 

 

TITLE: INTERVENTIONAL DEVICES INCLUDING DILUTE NANOTUBE-POLYMER COMPOSITIONS, AND METHODS OF MAKING AND USING SAME

 

INVENTOR(S): D’AQUANNI, Peter; BATES, Mark C.; STALKER, Kent; PHILLIPS, Jason

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-1500 61/098,624 09/19/08     Expired  
US 104559-1501 13/051,351 03/18/11    

Abandoned

·     Client’s Inst e-mail 7/24/13

 
PCT 104559-1510 PCT/US09/05224 09/18/09   WO 2010/033231 (03/25/2010) Completed  

 

 

9
 

 

 

TITLE: APPARATUS AND METHODS FOR RENAL STENTING USING INTERVENTIONAL DEVICES WITH RADIOPAQUE MARKERS

 

INVENTOR(S): BATES, Mark C.

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
 

104559-1900

 

012212-0018-999

        Unfiled  

 

TITLE: APPARATUS AND METHODS FOR FILTERING EMBOLI DURING PERCUTANEOUS AORTIC VALVE REPLACEMENT AND REPAIR PROCEDURES WITH FILTRATION SYSTEM COUPLED IN-SITU TO DISTAL END OF SHEATH

 

INVENTOR(S):

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US 104559-1600 61/613,890 3/21/12    

Expired

 

n/a
US 104559-1601 13/802,374 3/13/13    

Pending

 

·     Awaiting 1 st OA

n/a
PCT 104559-1610 PCT/US2013/030931 03/13/13    

Pending

 

·     Nat. Stage deadline 9/21/14

 
AU 104559-1615            
CA 104559-1620         To Be Filed  
CN 104559-1625         To Be Filed  
EP 104559-1630         To Be Filed  
JP 104559-1640         To Be Filed  

 

 

10
 

 

 

TITLE: APPARATUS AND METHODS FOR FILTERING EMBOLI DURING PERCUTANEOUS AORTIC VALVE REPLACEMENT AND REPAIR PROCEDURES WITH FILTRATION SYSTEM COUPLED IN-SITU TO DISTAL END OF SHEATH

 

INVENTOR(S):

 

COUNTRY Docket No. Serial No. Filing Date Patent No./ Date Publication No./Date Status Foreign Assoc. Information
US

104559-1700

 

(Current F&L Matter No. 104559-0128)

61/618,896 3/21/12     Expired n/a
US 104559-1701 13/802,314 3/13/13    

Pending

 

·     Awaiting 1 st OA

n/a
PCT 104559-1710 PCT/US2013/030943 3/13/13    

Pending

 

·     Nat. Stage deadline 9/21/14

 
AU 104559-1715         To Be Filed  
CA 104559-1720         To Be Filed  
CN 104559-1725         To Be Filed  
EP 104559-1730         To Be Filed  
JP 104559-1740         To Be Filed  

 

 

11