No legal proceedings are currently pending against or by OI.
On December 5, 2008, G. Richard Smith, as majority shareholder of OI, consented to OI’s execution of the Share Exchange Agreement.
RISK FACTORS
You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this offering that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Business
| · | WE NEED TO RECEIVE FDA PRODUCT APPROVAL TO MAXIMIZE OUR POTENTIAL GROWTH AND ACHIEVE OUR EXPECTED REVENUES AND OUR FAILURE TO RECEIVE THIS APPROVAL WILL CAUSE THE FAILURE TO GENERATE REVENUE. |
In order to maximize our potential revenues, we must receive FDA approval for the sale of our PNT product in the U.S. Currently, we perceive the U.S. as the largest single market for our PNT product. Further, the failure to receive FDA product approval has a substantial negative impact on our product sale in foreign markets. There is no assurance that we will ever receive FDA product approval. It is anticipated that the cost of performing the clinical patient studies currently required by the FDA on our PNT product will be approximately $6,500,000. (See “Government Regulation,” above, and “Management’s Discussion and Analysis of Financial Condition,” below.)
| · | WE MAY HAVE DIFFICULTY RAISING NECESSARY CAPITAL TO FUND OPERATIONS AND THE REQUIRED CLINICAL STUDIES. |
At present we have no agreement or arrangements to obtain the financing needed to fund our future operations and the clinical patient studies currently required by the FDA. If we do not obtain substantial funding in the short-term, we expect our operating expenses will continue to exceed our foreign sales revenues. Our successful long-term future is dependent on receiving substantial funding in the short-term. (See “Government Regulation,” above, and “Management’s Discussion and Analysis of Financial Condition,” below.)
| · | OVER THE PAST ELEVEN YEARS WE HAVE GENERATED A NET DEFICIT OF OVER $12,000,000 AND NEVER MADE A PROFIT IN ANY QUARTER. THERE IS NO ASSURANCE THAT WE WILL EVER GENERATE SUFFICIENT REVENUES TO BE PROFITABLE. |
When OI was organized in 1997, we thought that FDA approval could be achieved relatively quickly and with minimal expense, and that strategy proved unsuccessful. While waiting for FDA approval, in 2000 we adopted an agressive and expensive marketing plan for Europe which had some positive results, but not enough to cover our substantial foreign marketing expenses and our increased general and administrative expenses. Thus, from 1997 through September 30, 2006, we generated a net deficit of over $12,000,000. (See “Financial Statements.”) In the future we intend to keep our marketing and corporate expenses to a minimum until we have obtained sufficient funding to proceed with our clinical patient studies. However, there is no assurance we will ever generate sufficient revenues to be profitable.
| · | IF WE ARE NOT ABLE TO IMPLEMENT OUR STRATEGIES IN ACHIEVING OUR BUSINESS OBJECTIVES, OUR BUSINESS OPERATIONS AND FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED. |
Our business plan is based on circumstances currently prevailing and the basis and assumptions that certain circumstances will or will not occur, as well as the inherent risks and uncertainties involved in various stages of development. However, there is no assurance that we will be successful in implementing our strategies or that our strategies, even if implemented, will lead to the successful achievement of our objectives. If we are not able to successfully implement our strategies, our business operations and financial performance will be adversely affected, and it is unlikely our investors will ever profit from their investment.
| · | WE MAY HAVE DIFFICULTY DEFENDING OUR INTELLECTUAL PROPERTY RIGHTS FROM INFRINGEMENT RESULTING IN LAWSUITS REQUIRING US TO DEVOTE FINANCIAL AND MANAGEMENT RESOURCES THAT WOULD HAVE A NEGATIVE IMPACT ON OUR OPERATING RESULTS. |
We regard our trade secrets, patents and similar intellectual property as critical to our success. We rely on patent and trade secret law, as well as confidentiality and license agreements with certain of our suppliers, customers and others to protect our proprietary rights. No assurance can be given that our patents will not be challenged, invalidated, infringed or circumvented, or that our intellectual property rights will provide competitive advantages to us.
| · | WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS. |
We place substantial reliance upon the efforts and abilities of our executive officer, G. Richard Smith. The loss of his services, even for a short period of time, could have a material adverse effect on our business, operations, revenues or prospects. We do not maintain key man life insurance on the life of Mr. Smith.
| · | WE MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS. |
We have never paid any dividends and have not declared any dividends to date in 2008. The declaration, payment and amount of any future dividends will be made at the discretion of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Board of Directors considers relevant. Our Board of Directors does not intend to distribute dividends in the near future. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.
| · | MANAGEMENT EXERCISES SIGNIFICANT CONTROL OVER MATTERS REQUIRING SHAREHOLDER APPROVAL WHICH MAY RESULT IN THE DELAY OR PREVENTION OF A CHANGE IN OUR CONTROL. |
G. Richard Smith, our Chief Executive Officer and Chief Financial Officer, through his common stock ownership, currently has voting power equal to approximately 65.8% of our voting securities. As a result, management through such stock ownership exercises significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership in management may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by shareholders other than management.
| · | WE MAY INCUR SIGNIFICANT COSTS TO ENSURE COMPLIANCE WITH UNITED STATES CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS. |
We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
| · | WE MAY NOT BE ABLE TO MEET THE ACCELERATED FILING AND INTERNAL CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SECURITIES AND EXCHANGE COMMISSION RESULTING IN A POSSIBLE DECLINE IN THE PRICE OF OUR COMMON STOCK AND OUR INABILITY TO OBTAIN FUTURE FINANCING. |
As directed by Section 404 of the Sarbanes-Oxley Act, the Securities and Exchange Commission adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. While we will not be subject to these requirements for the fiscal year ended September 30, 2009, we will be subject to these requirements beginning October 1, 2009.
While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. In the event that we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.
In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the Securities and Exchange Commission, which could also adversely affect the market price of our common stock and our ability to secure additional financing as needed.
Risks Related to Our Securities
| · | OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR COST TO US AND HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS. |
Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s written promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us which we will be unable to recoup.
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act of 1933 (the “Securities Act”) and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develop.
| · | OUR SHARES OF COMMON STOCK MAY BE VERY THINLY TRADED, OR NOT AT ALL, THE PRICE MAY NOT REFLECT OUR VALUE AND THERE CAN BE NO ASSURANCE THAT THERE WILL BE AN ACTIVE MARKET FOR OUR SHARES OF COMMON STOCK EITHER NOW OR IN THE FUTURE. |
We have a trading symbol for our common stock, CYTC, which permits our shares to be quoted on the OTCBB. However, our stock has not yet traded and our shares of common stock may be very thinly traded in the future, and the price, if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.
| · | SALES OF OUR CURRENTLY ISSUED AND OUTSTANDING STOCK MAY BECOME FREELY TRADEABLE PURSUANT TO RULE 144 AND MAY DILUTE THE MARKET FOR YOUR SHARES AND HAVE A DEPRESSIVE EFFECT ON THE PRICE OF THE SHARES OF OUR COMMON STOCK. |
68,000,000 of our outstanding 80,200,000 shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act. As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that an “affiliated” person, such as Mr. Smith, who has held our restricted securities for a period of at least one year from the date of this Form 8-K filing, may, under certain conditions, sell every three months in brokerage transactions, a number of shares that does not exceed the greater of 1% of an OTCBB company’s outstanding shares of common stock. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the restricted securities have been held by the owner for a period of one year from the date of this Form 8-K filing. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.
| · | THE MARKET FOR PENNY STOCKS HAS EXPERIENCED NUMEROUS FRAUDS AND ABUSES WHICH COULD ADVERSELY IMPACT INVESTORS IN OUR STOCK. |
We believe that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
| a. | Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
| b. | Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
| c. | “Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; |
| d. | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
| e. | Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
We believe that many of these abuses have occurred with respect to the promotion of low price stock companies that lacked experienced management, adequate financial resources, an adequate business plan and/or marketable and successful business or product.
| · | OUR CONTROLLING STOCKHOLDERS MAY TAKE ACTIONS THAT CONFLICT WITH YOUR INTERESTS. |
G. Richard Smith, our sole officer and director, beneficially owns approximately 65.8% of our common stock pursuant to the terms of the Share Exchange Agreement. In this case, Mr. Smith will be able to exercise control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions, and he will have significant control over our management and policies. The directors elected by Mr. Smith will be able to significantly influence decisions affecting our capital structure. This control may have the effect of delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in their best interest. For example, Mr. Smith will be able to control the sale or other disposition of our operating businesses and subsidiaries to another entity.
| · | OUR BOARD OF DIRECTORS HAS THE AUTHORITY, WITHOUT STOCKHOLDER APPROVAL, TO ISSUE SHARES OF “BLANK CHECK” PREFERRED STOCK WITH TERMS THAT MAY NOT BE VIEWED AS BENEFICIAL TO COMMON STOCKHOLDERS, AND WHICH MAY ADVERSELY AFFECT COMMON STOCKHOLDERS |
Our articles of incorporation allow us to issue shares of preferred stock without any vote by our stockholders. Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of preferred stock that would grant to holders the preferred right to vote on decisions submitted for a vote of the stockholders, to a priority on distribution of our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock, and similar rights and priorities over our common stock.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS
Revenues in year 2008 increased by 76.8% ($49,399) and General and Administrative Expenses decreased by 57.8% ($346,499), but total expenses far exceeded revenues in the 2008 fiscal year ending September 30. The primary reason for the decrease in General and Administrative Expenses in year 2008 was we had eight full-time consultants and employees in the first quarter of fiscal year 2007, whereas we had only two full time consultants in year 2008 and neither received their entire compensation. In fact, our President received no compensation in 2007 or 2008. He is entitled to receive an annual salary of $180,000. In 2008, our Legal and Professional Fees decreased by 76.5% ($80,073) from 2007 because we paid an investment banking consultant $75,000 in 2007.
Liquidity and Capital Resources
We suffered a severe liquidity shortage in 2007 and 2008. From January 2007 to September 30, 2008, we have borrowed a total of $440,860, including $260,860 from our President and other related parties. These loans bear annual interest from 12% to 18% and all of the loans are due on demand or prior to September 30, 2009. Our interest expense increased by 38.4% ($12,062) from 2007 to 2008. Without substantial funding in the near future, our liquidity shortage will become critical. We are hopeful we will be able to obtain substantial funding in the first half of the 2009 fiscal year, but we presently have no agreements or arrangements to obtain any such funding.
Over the next three years, we must obtain at least $8,000,000 of funding to finance our two planned patient clinical studies and a minimum level of administrative staff. If such funding is not obtained, it is unlikely we will receive FDA approval for the sale of our product in the U.S. Without FDA approval it is unlikely our foreign sales will be able to sustain our company.
