PRELIMINARY OFFERING CIRCULAR DATED FEBRUARY 8, 2018.
Bio Fil Inc.
2906 E Caley Avenue
Centennial, CO 80121
720-364-2476
http://www.biodegradablefilter.com (site under construction)
Up to 1,400,000 Shares at $10.00 per share for a Maximum Offering Amount of
$14,000,000. Minimum Subscription Amount 100 Shares.
We are offering a maximum of 1,400,000 shares of no par value common stock
(the "Shares" or our "Common Stock") at a price of $10.00 per share on a best
efforts basis with no minimum offering target other than a minimum subscription
amount of 100 Shares for a minimum purchase price of $1,000. No securities are
being offered by selling security holders. There are no arrangements to place
the funds received from the sale of any Shares in an escrow, trust, or similar
arrangement and the funds will be available to us following deposit into our
Company's bank account. Because there is no minimum offering target, funds
raised may not be sufficient to complete the plans of our Company as set forth
in "Use of Proceeds" on page 18. See "Plan of Distribution" on page 19 and
"Securities Offered" on page 23 for a description of our capital stock.
Price to Public Underwriting Proceeds to
Proceeds to
Discount Issuer(2) Other
And Persons
_________________________________________commissions(1)_____________________
Per share/unit: $10.00 0.00 $10.00 0.00
Total Minimum: $1,000 0.00 $1,000 0.00
Total Maximum: $14,000,000 0.00 $14,000,000 0.00
_____________
(1) We do not presently intend to use commissioned sales agents or
underwriters
but reserve the right to engage Broker-Dealers in the future who are members of
FINRA. See "Use of Proceeds" and "Plan of Distribution."
(2) Does not reflect any reduction for expenses of this offering estimated to
be up to $25,000, including legal, accounting and other costs of qualification
and registration in Colorado. See "Use of Proceeds" and "Plan of
Distribution."
Sales pursuant to this Offering Circular will begin as soon as practicable
after this Offering Circular has been qualified by the Securities and Exchange
Commission (the "SEC" or the "Commission") and will be made on continuous basis
as provided by Rule 251(d)(3)(i)(F) for up to one year following the date of
qualification by the SEC (the "Offering Period"). The Company is following the
"offering circular" disclosure format under SEC Regulation A for this
offering
circular.
Investing in the Shares is speculative and involves substantial risk. You
should purchase these securities only if you can afford a complete loss of your
investment. YOU SHOULD CAREFULLY REVIEW THE "RISK FACTORS" SECTION OF THIS
OFFERING CIRCULAR, BEGINNING ON PAGE 5, which contains a detailed discussion of
what we believe to be the material risks that you should consider before you
invest in our common stock.
The United States Securities and Exchange Commission does not pass upon the
merits of or give its approval to any securities offered or the terms of the
offering, nor does it pass upon the accuracy or completeness of any offering
circular or other solicitation materials. These securities are offered pursuant
to an exemption from registration with the Commission; however, the Commission
has not made an independent determination that the securities offered hereunder
are exempt from registration.
An offering statement pursuant to Regulation A relating to these securities has
been filed with the Securities and Exchange Commission. Information contained
in this Preliminary Offering Circular is subject to completion or amendment.
These securities may not be sold nor may offers to buy be accepted before the
offering statement filed with the Commission is qualified. This Preliminary
Offering Circular shall not constitute an offer to sell or the solicitation of
an offer to buy nor may there be any sales of these securities in any state in
which such offer, solicitation or sale would be unlawful before registration
or qualification under the laws of any such state. We may elect to satisfy our
obligation to deliver a Final Offering Circular by sending you a notice within
two business days after the completion of our sale to you that contains the
URL where the Final Offering Circular or the offering statement in which such
Final Offering Circular was filed may be obtained.
No person has been authorized to give any information or to make any
representations in connection with the offer made by this Offering Circular,
nor has any person been authorized to give any information or make any
representation other than those contained in this Offering Circular, and if
given or made, such information or representations must not be relied upon.
This Offering Circular does not constitute an offer to sell or solicitation of
an offer to buy in any jurisdiction in which such offer or solicitation would
be unlawful or to any person to whom it is unlawful to make such offer or
solicitation. The information contained in this Offering Circular is
accurate only as of its date, regardless of the time of its delivery or of any
sale or delivery of our securities. Neither the delivery of this Offering
Circular nor any sale or delivery of our securities shall, under any
circumstances, imply that there has been no change in our affairs since the
date of this Offering Circular. This Offering Circular will be updated and made
available for delivery to the extent required by the federal securities laws.
Investment in start-up businesses involves a high degree of risk, and investors
should not invest any funds in this offering unless they can afford to lose
their entire investment. In making an investment decision, investors must rely
on their own examination of the issuer and the terms of the offering, including
the merits and risks involved.
The company has not made any arrangements to place funds raised through this
offering in an escrow, trust or similar account. Any investor who purchases
securities in this offering will have no assurance that other purchasers will
invest in the offering. Accordingly, if our Company should file for bankruptcy
protection, or a petition for insolvency bankruptcy is filed by creditors
against our Company, investor funds will become part of the bankruptcy estate
and be administered according to applicable bankruptcy laws.
There is, at this time, no public market for any of our Company's securities.
The securities being offered by this Offering Circular have not been registered
under the securities act of 1933, as amended (the "Securities Act"), or
applicable state securities laws, and are being offered and sold in reliance on
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exemptions from the registration requirements of these laws. The securities
have not been approved or disapproved by the SEC or any state regulatory
authority nor has the SEC or any state regulatory authority passed upon or
endorsed the merits of the offering or the accuracy or adequacy of this
Offering Circular. Any representation to the contrary is unlawful.
Unless otherwise indicated, information and data contained in this Offering
Circular concerning the industry in which our Company plans to conduct
business are based on information from various public sources. Although we
believe that this information and data is generally reliable, such information
and data is inherently imprecise, and our estimates and expectations based on
such information and data involve a number of assumptions and limitations. As
a result, you are cautioned not to give undue weight to such information or
data or any estimates or expectations based thereon.
STATE LEGENDS
COLORADO
THESE SECURITIES ARE OFFERED PURSUANT TO A LIMITED OFFERING REGISTRATION
BY COORDINATION WITH THE COLORADO DIVISION OF SECURITIES. THESE SECURITIES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COLORADO DIVISION OF SECURITIES
NOR HAS THE DIVISION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE STATE OF COLORADO HAS INSTITUTED THIS LIMITED OFFERING REGISTRATION BY
COORDINATION PROCEDURE IN AN EFFORT TO SIMPLIFY AND EXPEDITE THE SMALL BUSINESS
CAPITAL FORMATION PROCESS. INVESTORS ARE ENCOURAGED TO ASK QUESTIONS OF AND
SEEK ADDITIONAL INFORMATION FROM THE ISSUER AND UNDERWRITER, IF ANY, OF THESE
SECURITIES.
Remainder of this page intentionally left blank.
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Table of Contents
Page
Offering Summary 4
Risk Factors 5
Description of Business 13
Use of Proceeds 18
Plan of Distribution 19
Dilution 20
Description of Property 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Securities Offered 23
Directors, Executive Officers and Significant Employees 23
Compensation of Directors and Executive Officers 25
Security Ownership of Management and Certain Shareholders 26
Interest of Management and Others in Certain Transactions 28
Section F/S 29
Part III: Exhibits 39
Signatures 39
Acknowledgement Adopting Typed Signature 39
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Offering Summary
The following summary highlights selected information contained in this
Offering Circular. This summary does not contain all the information that may
be important. Before investing in this offering, please review all information
carefully, ask any question that you would like answered and consult your own
counsel. References to "we", "us", "our", or "Company" mean Bio Fil Inc, a
Colorado corporation.
We believe there is a market need for a biodegradable cigarette filter, one
that we believe will break down significantly faster than the current filters
on market, and we believe we have developed a marketable process to produce a
biodegradable cigarette filter to fill this need. Our planned biodegradable
cigarette filter is completely made of organic materials, which we believe will
break down significantly faster than conventional filters on the market today,
thereby having less impact on the environment compared to conventional
cigarette filters. We believe that with widespread adoption, our planned
biodegradable cigarette filter could lead to significantly reduced cigarette
butt litter pollution around shorelines, waterways and on land, which is not
only aesthetically pleasing, but should also lead to lower cleanup costs and
could also have an ancillary benefit to wildlife that sometimes ingest
cigarette butts when non-degraded filters remain in the environment.
We are a start-up stage Company that is currently underfunded and requires
funding to implement our business plans. Our founder and CEO, Thuan Lu, has
applied for a United States patent to protect the intellectual property rights
of our biodegradable cigarette filter (Application Serial Number 15/795,572)
and all intellectual property rights associated with such patent application
have been assigned to our Company (See Exhibit 17.6). We believe our planned
biodegradable cigarette filter product has enormous potential, subject to the
increased risk of loss associated with our underfunded, start-up stage
status.
The principle purpose of this offering is to raise capital for the following
Company priorities: to reimburse our founder and CEO for equipment contributed
to the Company, raw materials purchased on behalf of the Company to conduct
research and development associated with the development of our planned
product, and for advances made on behalf of the Company for start-up costs,
including fees and legal costs associated with the U.S. patent application for
our planned product (altogether estimated at $75,000); to fund the process to
obtain approval from the U.S. Food and Drug Administration (FDA) for our
planned biodegradable cigarette filter product, which is expected to be time
consuming and expensive; to fund the continuing process of securing U.S. patent
protection for our planned product, if available, including a reserve to fund
potential litigation expenses for potential challenges to such intellectual
property; to fund the consumer appeal and product testing we expect to be
required to show the marketability of our planned product; to fund the search
and negotiations required to either source manufacturing capability from third
parties or develop our own manufacturing capabilities for our planned product;
to fund marketing activities to reach potential customers for our planned
product; and to fund working capital and reserves in order to ramp up our
resources as required to implement our business plans.
Because we are a start-up stage Company without a proven track record, without
FDA approval for our planned product, without an issued patent to protect the
intellectual property associated with our planned product, without the consumer
and product testing to indicate the viability of our planned product, and
without sourced or developed means to manufacture and bring our planned product
to market; investment in our Common Stock carries far more risk than investment
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in a more established company that has already funded some or all of such
activity. If we fail to raise the capital required to fund any of the Company
priorities listed above or we fail to obtain FDA approval for our planned
product; fail to receive patent protection for our planned product; fail to
obtain positive consumer appeal and product testing results; fail to either
sell/license our technology or source or develop reliable manufacturing
capability for our planned product; or fail to secure adequate customers for
our planned product; our business will likely fail and investors in this
offering could lose some or all of their investment.
There is currently no trading market for our Common Stock. The absence of an
active trading market will limit shareholders' ability to sell their shares.
Management plans to seek market maker(s) to sponsor our securities and,
subject to availability of funds and FINRA requirements, plans to evaluate the
possibility of having our Common Stock listed on an Over the Counter (OTC)
market or other alternative trading platform. However, we may never become
listed and/or an active trading market for our Common Stock may not develop if
we do become listed on an OTC market or other alternative trading platform.
Risk Factors
Material Risks Associated with Our Business
Investing in Securities of a Start-Up Company like ours is very risky. You
should be able to bear a complete loss of your investment. You should carefully
consider the following factors, including those listed below and elsewhere in
this Offering Circular.
The Company is a Start-Up stage business subject to increased risk compared to
established companies with a proven track record.
Potential investors should evaluate our Company in light of the expenses,
delays, uncertainties, and complications typically encountered by high-risk,
start-up stage ventures, many of which may be beyond our control. Our Company
was formed on January 13, 2017 and our activities to date have centered upon
overall strategy (especially finance), team development, preparation of our
business plans and this Offering Circular. Accordingly, you only have knowledge
of our limited operating history and the description of our business plans
described in this Offering Circular upon which to evaluate our prospects. Such
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered in the establishment of a new business in a highly
competitive industry, where FDA approval for our planned product is required
but has not yet been obtained, there is not yet an issued patent to protect the
intellectual property associated with our planned product, there has been no
material consumer and product testing to indicate the viability of our planned
product, and where we have not sourced or developed means to manufacture and
bring our planned product to market, all in light of the risks associated with
our current undercapitalized financial condition. If materially less than all
funds authorized to be raised pursuant to this offering are received, we may
have insufficient means to implement our plans, and early investors will be at
heightened risk of loss of their initial investments. The market potential of
our Company's planned product is not yet proven. Our Company's historical
financial data are of little or no value in predicting future results. Business
risks of our Company include, but are not limited to the following:
* Lack of historical operations or any profitability;
* Current lack of sufficient capital;
* Lack of FDA approval for our planned product;
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* Lack of consumer and product testing to indicate the viability of our
planned product;
* Unanticipated problems, delays, and expenses relating to implementation of
technology and manufacturing of our proposed products;
* Marketing difficulties; and
* Uncertain market acceptance
We face intense competition which may adversely affect investors in this
offering.
The tobacco products accessory industry, of which cigarette filters are a part,
is intensely competitive with relatively low barriers to entry. Just as with
other start-up companies, we will compete with international, national and
smaller regional or local companies. Many of our potential competitors have
longer operating histories, greater name recognition, and substantially greater
financial, technical, marketing, management, service, support and other
resources than we do. Therefore, they may be able to respond more quickly than
us to new or changing opportunities, standards or customer requirements. Our
competitors also offer a broader range of products. In addition, access to
offshore manufacturing is also making it easier for new companies to enter the
markets in which we expect to compete. A simple search for "biodegradable
cigarette filter" on the United States Patent and Trademark Office (USPTO
www.uspto.gov) patent application database produced six results that appear to
be from three different inventor groups including RJR Reynolds Tobacco Co. and
Greenbutts, LLC so we are aware that there are other direct competitors.
Generally speaking all our competitors:
* have significantly greater financial resources than we do;
* have broader market presence;
* have a longer operating history;
* have greater distribution capabilities;
* have stronger brand recognition; and/or
* spend substantially more on product advertising.
The greater capabilities of our competitors in these areas may enable them to
better withstand any downturns in the tobacco products accessory industry,
compete more effectively on the basis of price and production and more quickly
develop new products. Our revenues, profitability and financial condition
could be materially adversely affected as a result of such competition.
We expect that our product will be subject to regulation by the U.S. Food and
Drug Administration (FDA) and potentially other regulatory bodies outside the
U.S.
We expect that our product will be subject to regulation by the FDA. The FDA
may make changes to their regulations or procedures that adversely affect us.
The process of getting approval from the FDA for our product is expected to be
expensive and time consuming and could necessitate extensive testing beyond our
expectations. Due to our currently undercapitalized condition, we have not yet
engaged experts to advise us on the requirements and expense necessary for FDA
approval, and we plan to use proceeds from this offering to do so. It is
possible we will be unable to obtain approval for our product, in which case it
is likely that investors in this offering would lose their entire investment.
We may also desire to file future product submissions to the FDA or
applications for future expansions of indications for use of our product(s).
These may not be approved or may be delayed beyond assumptions made in
planning, thus adversely impacting revenue generation and our ability to
promote and sell planned products. The same risks are applicable to submissions
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to foreign regulatory bodies that may have authority over our proposed products
in their jurisdictions.
Our planned product may never achieve market acceptance, which would adversely
affect our business.
We cannot predict whether our product will ever achieve market acceptance. We
have been told that we need to conduct independent consumer and product testing
before any major tobacco companies will seriously consider purchasing our
planned biodegradable cigarette filter. Due to our currently undercapitalized
condition, we have not yet engaged experts to advise us on the requirements and
expense necessary for such independent consumer and product testing, and we
plan to use proceeds from this offering to do so. It is possible that we will
fail to achieve consumer and customer acceptance of our product, in which case
investors in this offering would likely lose their entire investment. A number
of factors may limit the market acceptance of our product, including:
* Consumer tastes and acceptance of our product;
* Full market launch relative to competitive products;
* Availability of alternative or competitive products;
* The cost of our product relative to any alternative or competitive
products; and/or
* The extent and success of the marketing efforts by our competitors.
Any failure to obtain and protect our intellectual property rights and avoid
infringing the intellectual property rights of third parties could undermine
our competitive position.
Our founder and CEO, Thuan Lu, has applied for a United States patent to
protect the intellectual property rights of our planned biodegradable cigarette
filter (Application Serial Number 15/795,572) and all intellectual property
rights associated with such patent application have been assigned to our
Company (See Exhibit 17.6). We believe that our ability to obtain a patent and
protect this technology is critical to our success. We plan to rely primarily
on patent, trademark, trade secret, copyright law and other contractual
restrictions to protect our intellectual property. Nevertheless, these afford
only limited protection and there can be no assurance that the actions we take
to protect our intellectual property rights will be effective in preventing or
even impacting competitive threats. If we resort to legal proceedings to
enforce our proprietary rights, the proceedings could be burdensome and
expensive and we cannot assure you that we would be successful in such
litigation. An adverse determination in any such litigation could materially
impair our intellectual property rights and our business, prospects and
reputation. Our competitors or other companies may independently develop
technologies that are substantially equivalent or superior to our technology
and third parties may design around our technology to produce competitive '
offerings. The use of our technology or similar technology by others could
reduce or eliminate any competitive advantage we have, cause us to lose sales
or otherwise harm our business. In addition, at the present time, we have no
insurance coverage against litigation costs, and we may not be able to obtain
such coverage or obtain such coverage at an acceptable cost. Any failure by us
to adequately protect our intellectual property rights could have a material
adverse effect on our business, financial condition or operating results.
In addition, third parties could reverse engineer, copy or otherwise
misappropriate our proprietary rights and benefit from reproducing or copying
our products in jurisdictions outside the U.S., which could have a material
adverse effect on our ability to market and sell our product outside the U.S.
market. We do not currently plan to seek other patent protection outside the
U.S., but we may do so if we believe the business opportunity outside the U.S.
justifies the cost.
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If our product is found to violate third party proprietary rights, we may be
required to reengineer our planned product or seek to obtain licenses from
third parties in order to offer our planned products without substantial
reengineering. Any efforts to reengineer our planned product or obtain licenses
from third parties may not be successful and, in any case, would be likely to
substantially increase our costs and have a material adverse effect on our
business, operating results and financial condition. We may not be able to
obtain licenses from third parties if it is found that our planned product
violates other patents. Furthermore, the costs associated with defending
intellectual property claims from third parties could be burdensome and have a
material adverse effect on our business, operating results and financial
condition. Product development is inherently uncertain in a rapidly evolving
environment in which there may be numerous patent applications pending with
regard to similar products, many of which are confidential when filed.
Additional funding may not be available for our future capital needs and
commitments, which could have an adverse affect on our business.
The Company may require additional funds beyond those raised from this offering
for working capital, to develop and market our planned product, new products
and otherwise to meet our business objectives. Any one of the foregoing
factors, among others, could cause us to require additional funds or otherwise
cause our cash requirements in the future to materially increase. In that case,
we would likely seek additional funding through collaborative arrangements and
public or private financing, including equity financing. We cannot guarantee
that additional funding will be available on acceptable terms, or at all. If we
issue more stock to raise funds in the future, investor ownership may be
diluted. If adequate funds are not available, we may be required to take one or
more of the following actions, any of which could have a material adverse
effect on our business, financial condition or operating results:
* Delay, reduce the scope of, or eliminate one or more of our planned
consumer appeal and product testing programs;
* Forfeit our rights to existing and/or future intellectual property
rights;
* Obtain funds through arrangements with collaborators or others that may
require us to relinquish rights to certain of our intellectual property
or products that we would otherwise seek to develop or commercialize on our
own;
* License the rights to such products on terms that are not favorable to
us; or
* Issue additional shares of our stock or incur substantial debt.
We are subject to several production-related risks that could jeopardize our
ability to manufacture and bring our planned product to market.
In order to successfully bring products to market and realize sales and
revenue, we will be required to manufacture or source and deliver high quality
products in a timely manner. We may not be able to anticipate and/or address
production-related risks, many of which are beyond our control. Among others,
the following production-related risk factors could have a negative effect on
our ability to successfully manufacture or outsource and bring our planned
product to market:
* Scheduling and transportation difficulties;
* Substandard product quality, which would likely result in higher warranty,
product liability and costs associated with product recall or refusal of
delivery of substandard products;
* Delays in development and/or delivery of new products;
* Changes in the cost or availability of raw materials;
8
* Changes in the availability or cost of labor or third party business
partners such as vendors, manufacturers, and distributors;
* Currency fluctuations if we utilize third party business partners outside
the United States; and
* Changes in laws and regulations, including but not limited to, changes in
the regulation of and enforcement of tobacco-related laws, changes in tax
rates, accounting standards, environmental, safety, occupational, health and
safety, consumer laws and regulations.
We will likely rely on third parties over whom we have no control to
manufacture and bring our planned product to market.
One of the complexities of selling and delivering our planned product is
anticipated to be the need to negotiate and maintain numerous contracts with
various third parties. We expect to depend on third parties to supply raw
materials, manufacture our planned products and/or produce components of our
planned products that are assembled elsewhere (which assembly may be undertaken
by a third party). Currently, the Company does not have any supply contracts
with such third party manufacturers and suppliers. As a result, we are not
assured of an uninterrupted supply of materials or products (or components
thereof) nor do we have in place quality and price protections. If we do enter
into contracts with third party manufacturers and/or suppliers we may not be
able to offset any interruption or decrease in supplies or components or be
able to find suitable alternative third party manufacturers or suppliers in a
timely manner, at acceptable prices or at all. The recent past severe recession
affected the ability of vendors and other third party partners to access funds
to enable them to fund their operating and capital budgets. If another
recession occurs, manufacturers, suppliers and other third party business
partners may experience significant disruptions to their businesses and
operations that, in turn, could negatively impact our business operations and
financial performance. Any disruption in the supply of material and components
from such third parties could result in a loss of sales, an increase in
production costs, claims against us from customers, and damage to our
reputation, any of which could have a material adverse effect on our
business.
Manufacturing and bringing products to market involves the potential for
product recalls, product liability and other claims against us.
We will likely be subject to international, national, state and potentially
local consumer product safety and other laws and regulations concerning
consumer products generally and cigarette manufacturers specifically, and more
restrictive laws and regulations may be adopted in the future. The tobacco
industry in general has historically been subject to frequent product liability
claims and we expect tobacco accessory products carry a high risk of such
claims due to the close association with tobacco products. Any significant
defects in our designs, products or failure in our quality control procedures
may result in, among other things, delay in time-to-market, loss of sales and
market acceptance, costs associated with product recall or repurchase, product
liability claims, and damage to our reputation. The costs we may incur in
correcting any product or design defects may be substantial. Additionally,
errors, defects or other performance problems could result in financial damages
to our customers, which could result in litigation. Product liability
litigation, even if we were to prevail, would be time consuming for management
9
and costly to defend. We do not presently maintain product liability insurance,
and any product liability insurance we may obtain in the future may not be
adequate to cover such claims.
We need to retain and recruit key officers, employees, and consultants to
manage our growth effectively.
Our success depends heavily upon the skills of our executive management team,
and upon their ability to identify, hire, and retain additional management,
sales, and financial personnel. If we were to lose the services of our founder
and CEO, our prospects may be materially adversely affected.
Management believes that further expansion of our operations will be required
in order to address potential market opportunities and produce meaningful
profits. Such expansion may place a significant strain on our Company's
management, operations and financial resources. An increase in the number of
employees, our market penetration and our planned product
development activities would result in increased responsibilities for
management. Management will be required to successfully maintain relationships
with various industry participants and customers, and other third parties and
to maintain control over our strategic direction. Our current personnel,
systems, procedures and controls may not be adequate to support our future
operations. Management may not be able to identify, hire, train, motivate or
manage required personnel or successfully identify and exploit existing and
potential market opportunities. Any failure to effectively manage expected
growth and address these growth-related issues could have a material adverse
effect on our business.
Competition from illicit sources may have an adverse effect on our ability to
market, manufacture set prices and could damage any brand equity we may
develop.
Illicit trade and trafficking in the form of counterfeit products, smuggled
genuine products and locally manufactured products on which applicable taxes
are evaded, represent a significant and growing threat to the legitimate
tobacco accessory products industry. Factors such as increasing levels of
taxation, price increases, lack of law enforcement, weak border control,
regulatory restrictions such as plain packaging or graphic health warnings,
display bans, taste or ingredient restrictions are encouraging more adult
tobacco consumers to switch to illegal cheaper tobacco products and accessories
and providing greater rewards for counterfeiters and smugglers. Illicit trade
can have an adverse effect on market, manufacture, set prices and could damage
any brand equity we may develop, which in turn could lead to a competitive
disadvantage. Illicit trade can also potentially damage our reputation,
undermine our planned marketing and distribution, negatively impact any brand
image we develop and may lead to commoditization of our planned product. This
could have an adverse effect on our business, results of operations and
financial condition.
The tobacco industry generally faces increasing tobacco control and regulation
which may have an impact on overall sales volume and profit associated with
tobacco and tobacco accessory products such as our planned biodegradable
cigarette filter.
The advertising, sale and consumption of tobacco products have been, and
continue to be, subject to increasingly stringent regulatory regimes. These
restrictions have been introduced by both regulation and voluntary agreements
and may impact our ability to sell our planned product, maintain or build brand
equity, communicate with adult tobacco consumers, apply strategic pricing
decisions, launch future products and innovations, enter new markets, and may
impact adult tobacco consumers' ability to differentiate products; these
restrictions may also reduce adult tobacco consumer acceptability of new
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product specifications, and, may contribute to the growth of illicit tobacco
and tobacco accessory products. Any of the foregoing could have an adverse
effect on our business, results of operations and financial condition.
Increased scope and severity of compliance regimes introduced by new regulation
could lead to higher costs and greater complexity, and potential reputational
damage, product recall, regulatory sanctions or fines in connection with
inadvertent breach of such regulations. Even when proven untrue, there are
often financial costs and reputational impacts in defending against such
claims, in particular, considering the speed and spread of any accusations
through social media.
Most regulation or potential regulatory initiatives can typically be
categorized as follows:
* Place: including regulations restricting smoking in private, public and
workplaces (e.g., public place smoking bans);
* Product: including regulations on the use of ingredients, product design
and attributes (e.g., ceilings regarding tar, nicotine and carbon
monoxide yields, as well as restrictions on flavors); product safety
regulations and regulatory product disclosure requirements (e.g., in
relation to ingredients and emissions);
* Packaging and labeling: including regulations on health warnings and other
government-mandated messages; restrictions on the use of certain
descriptors and brand names; requirements on pack shape, size, weight and
color and mandatory plain packaging;
* Sponsorship, promotion and advertising: including partial or total bans on
tobacco advertising, marketing, promotions and sponsorship and
restrictions on brand sharing and stretching (the latter refers to the
creation of an association between a tobacco product and a non-tobacco product
by the use of tobacco branding on the non-tobacco product);
* Purchase: including regulations on the manner in which tobacco products are
sold, such as type of outlet (e.g., supermarkets and vending machines) and how
they are sold (e.g., above the counter versus beneath the counter); and
* Price: including regulations which have implications on the prices which
manufacturers can charge for their tobacco products (e.g., excise and minimum
prices).
The enactment of unduly onerous and restrictive regulation in the tobacco
industry in general and the tobacco accessory industry in particular, may
adversely affect our business, results of operations and financial condition.
11
Significant and/or unexpected increases in tobacco-related taxes have been
proposed or enacted and are likely to continue to be proposed or enacted in
numerous jurisdictions. These changes may result in a decline in overall sales
volume for cigarettes and consequently, our planned biodegradable cigarette
filter product.
Tobacco products are subject to high levels of taxation, including excise
taxes, sales taxes, import duties and levies in most markets in which we plan
to operate. In many of these markets, taxes are generally increasing but the
rate of increase varies between markets and between different types of tobacco
and tobacco related products. Increases in tobacco excise taxes may be caused
by a number of factors, including fiscal pressures, health policy objectives
and increased lobbying pressure from anti-tobacco advocates. Significant or
unexpected increases in tobacco taxes, the introduction of laws establishing
minimum retail selling prices, changes in relative tax rates for different
tobacco or tobacco related products or adjustments to excise structures, may
result in an increase in illicit trade, a decline in overall sales volume for
cigarettes and consequently our planned biodegradable cigarette filter product
and may have an adverse effect on our business, results of operations and
financial condition. Increases in tobacco-related taxes, the introduction of
new tobacco-related taxes or changes to excise structures could limit our
ability to set adequate prices for our planned product.
The Company is controlled and will continue to be controlled by current
management following this offering, which increases risks associated with
potential conflicts of interest.
The Company is currently owned and will continue to be owned by current
management after this offering is completed. Current management will therefore
continue to have the ability to elect and remove members of the Company's board
of directors (the "Board"), and, as a result, will have the ability to approve
or reject a sale or merger of our Company, unilaterally amend the Articles of
Incorporation and Bylaws at will, and impede a merger, consolidation, takeover
or other business consolidation, or discourage a potential acquirer from making
a tender offer for our Common Stock. Current management will also be in a
position to influence their own compensation and to approve affiliated
transactions as well as all other matters requiring approval of our Company's
shareholders. Current management intends to act fairly and in full compliance
with their fiduciary obligations; however, there can be no assurance that the
Company will not, as a result of the conflict of interest described above,
possibly enter into arrangements under terms less favorable than they could
have obtained had they been dealing with unrelated parties.
The actual use of proceeds from this offering could be applied differently than
as described in "Use of Proceeds" in order to address changed circumstances
and opportunities.
The net cash proceeds from this offering are projected to be used for the
purposes described in "Use of Proceeds." If our Board deems it to be in our
best interest to address changed circumstances and opportunities, we reserve
the right to use the funds obtained from investors differently than as
described in this Offering Circular. As a result, our success will be
substantially dependent upon the discretion and judgment of the Board with
respect to the application and allocation of the net proceeds from this
offering. You will be entrusting your funds to the Board, upon whose judgment
and discretion you must depend, with only limited information concerning the
Board's specific intentions.
12
Arbitrary purchase price for the Common Stock to be issued in this offering.
The purchase price of the Common Stock to be issued in this offering has been
arbitrarily determined by our management and does not necessarily bear any
relationship to our assets, book value, net worth, earnings, actual results of
operations or any other established criteria. Among the factors considered in
determining such purchase price were an evaluation of our prospects, the
potential for a reasonable return on investment to new investors and the
projected cost to implement our business plans. The current holders of Common
Stock consisting of our founder and other management personnel paid a lower
dollar amount for their Common Stock than the purchase price set forth in this
Offering Circular which will result in immediate dilution of the book value of
our Common Stock to investors in this offering. You may not be able to sell
your Units for an amount equal to your purchase price or any other amount in
the future.
Investors will not easily be able to liquidate their investment.
There is currently no public market for our Common Stock, and no public market
will result from this offering. Management plans to seek market maker(s) to
sponsor our securities and, subject to availability of funds and FINRA
requirements, plans to evaluate the possibility of having our Common Stock
listed on an Over the Counter (OTC) market or other alternative trading
platform. However, we may never become listed or an active trading market for
the our Common Stock may not develop if we do become listed on an OTC market or
other alternative trading platform. Accordingly, purchasers may not easily be
able to liquidate their investment.
The Company does not currently intend to pay dividends.
Management has no present intention of paying dividends to any of our
shareholders and does not anticipate this will change anytime soon.
There are additional risks.
This offering is highly speculative and risky. The risks described herein are
not intended to be inclusive of all risks associated with this offering.
Additional risks may exist or may develop in the future. Prospective investors
must consider the risks stated herein, as well as other possible risks of which
we are not presently aware before investing in this offering. Prospective
investors are also strongly encouraged to obtain independent legal and
accounting advice regarding the merits and risks of this offering.
Description of Business
Bio Fil Inc is a start-up company that was incorporated in the State of
Colorado on January 13, 2017. Our principal office is located at
2906 E. Caley Ave., Centennial, CO 80121 and our current phone number is
720-364-2476. If we raise adequate capital in this offering, we plan to
investigate options to lease a commercial office location for our principal
office to support expansion and may also investigate options to lease or
acquire a manufacturing facility.
Our activities since inception have consisted of the following: incorporation
in the state of Colorado (including the preparation of formation
documentation); overall strategy planning (especially finance), team
development, preparation of our business plans and this Offering Circular.
Thuan Lu, our founder and CEO, has applied for a patent to protect the
intellectual property rights associated with a biodegradable cigarette filter
he developed on his own time with his own resources (Application Serial Number
15/795,572). All intellectual property rights associated with this patent
application have been assigned to our Company. Our Company was formed to
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develop and commercialize the process developed by Mr. Lu to produce a
biodegradable cigarette filter. We anticipate this will either involve the sale
or license of our intellectual property, or the sourcing or direct development
of manufacturing and bringing our planned biodegradable cigarette filter
product to market for sale primarily to tobacco companies to be integrated into
their filtered cigarette products.
As of the date of this Offering Circular, the Company has no paid full-time
employees. Our three executive officers are currently unpaid and only Mr. Lu,
our CEO, currently devotes any significant part-time duties to our Company's
operations. It is anticipated that if adequate funds are raised in this
offering, our Executive Officers will devote progressively more time to our
business, eventually becoming full-time paid employees. We do not currently
have employment, consulting, confidentiality or non-competition agreements in
place with any employees. We may enter into employment and/or consulting,
confidentiality, and/or non-competition agreements with our current executive
officers and any key employees hired in the future at reasonable, market-based
compensation levels, depending on the success of this offering.
We have not filed for bankruptcy protection nor have we ever been involved in
receivership or similar proceedings. We are not presently involved in any legal
proceedings material to the business or financial condition of the Company. We
have not been involved in any material reclassification, merger, consolidation,
or purchase or sale of a significant amount of assets not in the ordinary
course of business. Depending on the success of this offering and the
implementation of our business plans, we may lease or purchase facilities
and/or equipment or enter into contracts with third parties in order to
manufacture our planned biodegradable cigarette filter. Our anticipated use of
proceeds of this offering in support of our business plans, including spending
priorities, are discussed in more detail in "Use of Proceeds."
We plan to generally use the net proceeds from this offering in the following
order of priority: to reimburse our founder and CEO for equipment contributed
to the Company, raw materials purchased on behalf of the Company to conduct
research and development associated with the development of our planned
product, and for advances made on behalf of the Company for start-up costs,
including fees and legal costs associated with the U.S. patent application for
our planned product (altogether estimated at $75,000); to fund the process to
obtain approval from the FDA for our planned biodegradable cigarette filter
product; to fund the continuing process of securing U.S. patent protection for
our planned product, if available, including a reserve to fund potential
litigation expenses for potential challenges to such intellectual property; to
fund the consumer appeal and product testing we expect to be required to show
the marketability of our planned product; to fund the search and negotiations
required to either source manufacturing capability from third parties or
develop our own manufacturing capabilities for our planned product; to fund
marketing activities to reach potential customers for our planned product; and
to fund working capital and reserves in order to ramp up our resources as
required to implement our business plans.
Background Information
Unless otherwise cited, all references to the manufacture of cigarette filters
as well as information regarding the market for cigarettes, cigarette filters
and statistics regarding litter of and environmental impact of cigarette
filters herein comes from Wikipedia contributors. Cigarette filter, Wikipedia,
The Free Encyclopedia. Available at: https://en.wikipedia.org/w/index.php?title
=Cigarette_filter&oldid=795190134, last accessed January 11, 2018.
14
Conventional cigarettes typically have a substantially cylindrical rod shaped
structure and include a charge, roll or column of smokable material, such as
shredded tobacco (e.g., in cut filler form), surrounded by a paper wrapper,
thereby forming a so-called "smokable rod" or "tobacco rod." Normally, a
cigarette also has a cylindrical filter element aligned in an end-to-end
relationship with the tobacco rod. The filter element is commonly made of
cellulose acetate fibers (typically as many as 12,000 fibers) bonded to each
other by triacetin circumscribed by a paper material known as a "plug wrap."
Certain filter elements can also incorporate polyhydric alcohols. Typically,
the filter element is attached to one end of the tobacco rod using a
circumscribing wrapping material known as "tipping paper." After smoking, the
spent filters are sometimes improperly discarded in the environment. The
cellulose acetate filaments tend to degrade slower than tobacco and/or the
paper parts of the cigarette, due to the highly entangled nature of the fibers,
solvent bonding between the fibers, and the slow degradability of the cellulose
acetate polymer. Typically, the time required for a cigarette filter to break
down is 10-15 years, and it is estimated that every year worldwide
approximately 4.5 trillion cigarette butts are discarded, much of that directly
into the surrounding environment as litter. It is estimated that between 22-36%
percent of all visible waste along U.S. shorelines, waterways, and on land is
made up by cigarette butts. See, Schneider JE, Peterson NA, Kiss N, et al
Tobacco litter costs and public policy: a framework and methodology for
considering the use of fees to offset abatement costs; Tobacco Control 2011;
20; i36-i41, http://tobaccocontrol.bmj.com/content/20/Suppl_1/i36?sid=21007f69-
d4e3-4f8e-8f4f-61f1e6178970, last accessed January 11, 2018.
Anticipated Market Need
We believe there is a market need for a biodegradable cigarette filter, one
that we believe will break down significantly faster than the current filters
on market, and we believe we have developed a marketable process to produce a
biodegradable cigarette filter to fill this need. Our planned biodegradable
cigarette filter is completely made of organic materials which we believe,
based solely on the limited experience of trying prototypes of our planned
product among certain of our officers and a select group of friends, will break
down significantly faster than conventional filters on the market today,
thereby having less impact on the environment compared to conventional
cigarette filters. We believe that with widespread adoption, our planned
biodegradable cigarette filter could lead to significantly reduced cigarette
butt litter pollution around shorelines, waterways and on land, which is not
only aesthetically pleasing, but should also lead to lower cleanup costs.
Because or planned biodegradable cigarette are expected to break down
significantly faster than conventional filters on the market today, we believe
widespread adoption of our planned product may also have an ancillary benefit
to wildlife that sometimes ingest cigarette butts when non-degraded cigarette
filters remain in the environment.
While we have not conducted any tests to confirm our hypothesis, we expect that
there may even be some degree of health benefits to smokers resulting from
using our planned biodegradable cigarette filters. While smoking undoubtedly
presents serious health hazards, a significant portion of these health problems
result from tar and other chemicals entering the lungs of smokers. We believe,
our planned biodegradable cigarette filters may capture a larger amount of tar
and other ingredients compared to conventional cigarette filters. So while
smoking cessation is clearly the best way to address health issues related to
smoking, a person who is not able to do this may still experience some degree
of benefit when smoking cigarettes that have our planned biodegradable
cigarette filters. Based solely on the limited experience of trying prototypes
of our planned product among certain of our officers and a select group of
friends, we believe our planned biodegradable filter shows a minimal reduction
in flavor compared to conventional cigarette filters.
15
According to the Center for Marine Conservation, cigarette butt litter accounts
for one in every five items collected on clean-up efforts, making it the most
prevalent form of litter on the planet. See, Cigarette Filter Fact Sheet,
Lansing Community College Website, https://www.lcc.edu/tobaccofree/
environmental/, last accessed January 11, 2018.
Globally, approximately 4.3 trillion cigarette butts are discarded every year,
much of that directly into the environment as litter. Id. Smokers in the U.S.
account for over 250 billion cigarette butts, in the U.K. 200 tons of cigarette
butts are discarded, and Australian smokers account for over 7 billion
cigarette butts annually. Id. In most Western countries cigarette butt waste
accounts for up to 50% of all litter. Id.
* There are 1 billion smokers in the world today, and if current trends
continue, that number is expected to increase to 1.6 billion by the year 2025.
See, Terry Martin, Shocking Global Cigarette Litter Facts, How Cigarette
Toxins Pollute the Environment, last updated September 10, 2016, available at
https://www.verywell.com/world-cigarette-litter-facts-that-will-shock-you-
2824735, last accessed January 11, 2018.
* Worldwide, approximately 10 million cigarettes are purchased a minute, 15
billion are sold each day, and upwards of 5 trillion are produced and used on
an annual basis. Id.
* Most cigarette filters are made of cellulose acetate, which, while natural
organic material and technically will break down, takes a very long time to
degrade. It is estimated that, depending on the conditions present, it can
take between 18 months to 10 years for a conventional cellulose acetate filter
to decompose. Id.
It's estimated that trillions of filters make their way into our environment as
discarded waste yearly.
Economic & Environmental Impact of Cigarette Butt Litter
We believe when it comes to cigarette litter, we all pay. Cigarette butt
litter necessitates additional sidewalk and street sweeping, greenway and
park maintenance, storm drain cleaning, and increased maintenance of
stormwater filters. Business owners bear the expense of cigarette butt
litter cleanup around entrances, exits, sidewalks, and parking lots.
Excessive cigarette butt litter may result in a decline in a city's foot
traffic, tourism, commercial and residential development. In fact, it is
estimated that the presence of litter in a community decreases property values
by a little over 7%. See, The Problem and Facts, Keep America Beautiful.org,
available at https://www.kab.org/cigarette-litter-prevention/problem-and-
facts, last accessed January 11, 2018. Focusing on small improvements, like
reducing cigarette butt litter, may contribute to safer and more economically
vibrant communities.
Cigarette butt litter is prevalent in recreation areas and public spaces.
Tobacco litter represents nearly 34.4% of all litter in outdoor recreation
areas such as picnic areas, hiking trails, parks, etc. decreasing the appeal of
these natural areas. See, Keep America Beautiful, Inc. 2009 National Visible
Litter Survey and Litter Cost Study, available at https://www.kab.org/sites/
default/files/News%20%26%20Info_Research_2009_NationalVisibleLitterSurveyand
CostStudy_Final.pdf, last accessed January 11, 2018.
32% of litter collected from storm drains is tobacco products. Id. It is
estimated that 80% of cigarette butts on the ground find their way into our
water systems and detract from the quality of our drinking water and harm our
oceans. See, Cigarette Filter Fact Sheet, Lansing Community College Website,
Supra. Cigarette butts have been found in the stomachs of fish, whales, birds
16
and other marine and land based wildlife which leads to ingestion of hazardous
chemicals and digestive blockages.
Our business goal is to commercialize a process to produce a biodegradable
filter to replace those that are currently used in cigarette manufacturing
today. We do not plan to be directly involved in cigarette manufacturing. We
anticipate this will either involve the sale or license of our intellectual
property, or the sourcing or direct development of manufacturing capabilities
to bring our planned biodegradable cigarette filter product to market for sale
primarily to tobacco companies to be integrated into their filtered cigarette
products (and potentially to sell direct to tobacco specialty retailers,
although we anticipate this would be a very small fraction of the total market
potential for our planned product).
Select Market Data
During 2016, approximately 258 billion cigarettes were sold in the United
States. See, Centers for Disease Control and Prevention (CDC), Economic Trends
in Tobacco, Cigarette Sales, available at https://www.cdc.gov/tobacco/data_
statistics/fact_sheets/economics/econ_facts/index.htm, last accessed January
11, 2018. Four companies - Philip Morris USA, Reynolds American Inc., ITG
Brands, and Liggett, accounted for approximately 92% of U.S. cigarette sales
and imports accounted for approximately 8% of U.S. cigarette sales in 2015.
Id.
The U.S. Market
According to the CDC, below is the percentage of adults aged 18 years or older
who were current cigarette smokers in the United States in 2015 from CDC,
Current Cigarette Smoking Among Adults in the United States, available at
https://www.cdc.gov/tobacco/data_statistics/fact_sheets/adult_data/cig_smoking/
index.htm. last accessed January 11, 2018.
* 15.1% of all adults (36.5 million people): 16.7% of males, 13.6% of
females
* Nearly 22 of every 100 non-Hispanic American Indians/Alaska Natives
(21.9%)
* About 20 of every 100 non-Hispanic multiple race individuals (20.2%)
* Nearly 17 of every 100 non-Hispanic Blacks (16.7%)
* Nearly 17 of every 100 non-Hispanic Whites (16.6%)
* About 10 of every 100 Hispanics (10.1%)
* 7 of every 100 non-Hispanic Asians (7.0%)
Each day, more than 3,200 people younger than 18 years of age smoke their first
cigarette and an estimated 2,100 youth and young adults who have been
occasional smokers become daily cigarette smokers. CDC, Youth and Tobacco
Use, available at https://www.cdc.gov/tobacco/data_statistics/fact_sheets/youth_
data/tobacco_use/index.htm. last accessed January 11, 2018. During 2016, more than
258 billion cigarettes were sold in the United States. See, Centers for Disease
Control and Prevention (CDC), Economic Trends in Tobacco, Cigarette Sales,
available at https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/
econ_facts/index.htm, last accessed January 11, 2018.
World Market
Statistic show that revenues of the cigarette industry is over $800 billion
annually. See, BusinessWire, $816 Billion Cigarette Market: Global Industry
Trends, Share, Size, Growth, Opportunity and Forecast 2017 - 2022 - Research
and Markets, February 21, 2017, available at https://www.businesswire.com/news/
home/20170221006223/en/816-Billion-Cigarette-Market-Global-Industry-Trends,
17
last accessed January 11, 2018. Globally, over 5 trillion cigarettes were
produced in 2015. See, Martin Supra. While the percentage of people smoking may
be declining, the number of smokers and cigarettes produced keep rising due to
population growth. It is expected that by 2025, the number of smokers worldwide
will be approximately 1.6 billion up from approximately 1 billion in 2015.
Id.
Competitive Analysis
We believe our primary competitor groups (the first two of which are also
potential customers for our planned product) include the following:
1. Cigarette Companies.
To try to convince cigarette companies, such as Philip Morris USA, Reynolds
American Inc., ITG Brands, and Liggett, to switch to our planned biodegradable
cigarette filters, we plan to:
* Keep prices very competitive to what they are paying now; and
* Emphasize the potential marketing benefits and positive publicity potential
of our planned biodegradable cigarette filters including benefits to society
such as:
* potential for aesthetic benefit of reduced litter/pollution associated
with our planned product;
* potential for reduced clean-up costs associated with our planned product;
* potential for reduced environmental contagions associated with our planned
product;
* potential health benefits associated with our planned product; and
* potential benefits to wildlife associated with our planned product.
2. Current Cigarette Filter Manufacturing Companies.
We expect to face competition from existing cigarette filter manufacturing
companies, such as Celanese Corporation and Eastman Chemicals Company, who we
anticipate will fight to retain their market share. In conjunction with
planning to market our planned product directly to cigarette manufacturing
companies, we also plan to approach cigarette filter manufacturing companies to
gauge their interest in a potential sale or license of our technology/process,
or potentially partnering with us to develop a new biodegradable line of
products. A simple search for "biodegradable cigarette filter" on the United
States Patent and Trademark Office (USPTO www.uspto.gov) patent application
database produced six results that appear to be from three different inventor
groups including RJR Reynolds Tobacco Co. and Greenbutts, LLC so we are aware
that there are other direct competitors and potential technology sale or
license candidates.
3. Electronic Cigarettes
A number of electronic products, such as electronic cigarettes (e-cigarettes),
electronic cigars (e-cigars), and electronic pipes (e-pipes), have been
introduced in the marketplace in recent years. Electronic cigarette use has
been on the rise in the United States and it is expected to continue rising
over time and may eventually become a significant competitive threat to
conventional cigarettes.
We believe electronic cigarette industry has yet to have a significant impact
on the traditional cigarette market for a variety of reasons, including:
18
* A market perception that electronic cigarettes are not safe as a result of
several well publicized incidents of explosions linked to defective
batteries.
* The liquids used in e-cigarettes are poisonous if ingested, especially to
toddlers and children; who might drink the liquid because of the pleasant
smell.
* We believe that e-cigarettes don't deliver an equivalent nicotine
"buzz"
compared to conventional cigarettes.
* Currently, e-cigarettes are considerably more expensive than conventional
cigarettes.
We believe that a high percentage of smokers in the world are in low to middle
income brackets. To many worldwide smokers, buying one electronic cigarette
could equal a few weeks or even months of their income. As a result, the volume
of e-cigarette usage is very low in third-world countries and we expect that
trend to continue for the foreseeable future.
Use of Proceeds
We estimate that, at a per share price of $10.00, the net proceeds from the
sale of up to 1,400,000 shares of our Common Stock in this offering will be up
to approximately $13,975,000, after deducting the estimated offering expenses
of approximately $25,000. We do not presently intend to use commissioned sales
agents or underwriters, but we do reserve the right to engage Broker-Dealers in
the future who are members of FINRA. In the event we engage the services of a
Broker-Dealer or underwriter post-qualification of this offering, the Company
will file a post-qualification amended Offering Statement disclosing the terms
and conditions of the engagement with any such Broker-Dealer or underwriter and
update any existing investors accordingly. For purposes of estimating the fees
associated with a potential future engagement of one or more Broker-Dealer(s)
or underwriter(s), we have assumed we may pay fees and commissions totaling up
to 10%. Any amount allocated to pay Broker-Dealer(s) or underwriters that go
unused would be re-allocated to general administrative, working capital and
reserves.
The principle purpose of this offering is to raise capital for the following
Company priorities: to reimburse our founder and CEO for equipment contributed
to the Company, raw materials purchased on behalf of the Company to conduct
research and development associated with the development of our planned
product, and for advances made on behalf of the Company for start-up costs,
including fees and legal costs associated with the U.S. patent application for
our planned product (altogether estimated at $75,000); to fund the process to
obtain approval from the U.S. Food and Drug Administration (FDA) for our
planned biodegradable cigarette filter product, which is expected to be time
consuming and expensive; to fund the continuing process of securing U.S. patent
protection for our planned product, if available, including a reserve to fund
potential litigation expenses for potential challenges to such intellectual
property; to fund the consumer appeal and product testing we expect to be
required to show the marketability of our planned product; to fund the search
and negotiations required to either source manufacturing capability from third
parties or develop our own manufacturing capabilities for our planned product;
to fund marketing activities to reach potential customers for our planned
product; and to fund working capital and reserves in order to ramp up our
resources as required to implement our business plans.
19
Assuming we raise the maximum offering amount, we expect to use the proceeds
as follows:
USE AMOUNT
PERCENTAGE
1. Reimburse our founder and CEO $75,000 Below 1%
2. FDA approval process $1,000,000 Approximately 7%
3. Patent process (including litigation
reserve) $500,000 Approximately 4%
4. Consumer appeal and product testing $1,500,000 Approximately 11%
5. Source or develop manufacturing capabilities $5,000,000 Approximately 37%
6. Marketing activities $1,000,000 Approximately 7%
7. Other regulatory expenses $300,000 Approximately 2%
8. Fees and commissions to Broker-Dealer(s) $1,400,000 Approximately 10%
9. Expenses of this offering $25,000 Below 1%
10. Manufacturing supplies $775,000 Approximately 5%
11. General administrative, working capital and
reserves $2,500,000 Approximately 18%
To the extent we raise less than the maximum offering amount, after paying
offering expenses (which may include fees and commissions to Broker-Dealers)
and reimbursing our founder and CEO, we plan to prioritize funding FDA approval
and patent process funding requirements, followed by consumer appeal and
product testing. The amounts estimated above are the maximum estimated funding
requirement amounts over an estimated period of up to three years to allow time
for us to obtain FDA approval and enable us to build manufacturing
capabilities. We expect that actual funding requirements may be materially
different from such maximum estimates and could be substantially reduced if
management pursues different objectives to address changed circumstances
(which
could include pursuing a strategy to sell or license our intellectual
property
or source our manufacturing needs from third parties). In the event that we
raise substantially more capital than needed to implement our plans, we
anticipate we would declare dividends or offer to repurchase shares of common
stock from investors pro-rata (or a combination of such strategies) to return
excess funds to shareholders. The general administrative, working capital and
reserves category includes potential payments to our officers and directors.
Currently our officers and directors are unpaid and we have no current
agreement(s) or understanding in place regarding any payments to our officers
or directors other than the Company's obligation to reimburse our founder and
CEO for equipment contributed to the Company, raw materials purchased on behalf
of the Company to conduct research and development associated with the
development of our planned product, and for advances made on behalf of the
Company for start-up costs, including fees and legal costs associated with the
U.S. patent application for our planned product (altogether estimated at
$75,000). It is anticipated that if adequate funds are raised in this offering,
our executive officers will devote progressively more time to our business,
eventually becoming full-time paid employees. We expect that we will set any
salaries or fees paid to our officers or directors at reasonable, market-
based levels.
We reserve the right to use the funds obtained from investors differently than
as described in this offering Circular if management deems it to be in our best
interest to address changed circumstances and opportunities. As a result, our
success will be substantially dependent upon the discretion and judgment of our
management with respect to the application and allocation of the net proceeds
from this offering. You will be entrusting your funds to management, upon whose
judgment and discretion you must depend, with only limited information
concerning management's specific intentions.
Plan of Distribution
We are offering a maximum of 1,400,000 shares of common stock at a price of
$10.00 per share on a best efforts basis with no minimum offering target other
20
than a minimum subscription amount of 100 shares of common stock for a minimum
purchase price of $1,000. No securities are being offered by selling security
holders. There are no arrangements to place the funds received in an escrow,
trust, or similar arrangement and the funds will be available to us immediately
following deposit into our Company's bank account. Because there is no minimum
offering target, funds raised may not be sufficient to complete the plans of
our Company as set forth in "Use of Proceeds" in this Offering Circular. Any
investor who purchases securities in this offering will have no assurance that
other purchasers will invest in this offering. Accordingly, should we file for
bankruptcy protection or a petition for insolvency bankruptcy is filed by
creditors against us, investor funds may become part of the bankruptcy estate
and administered according to the bankruptcy laws.
We do not presently intend to use commissioned sales agents or underwriters but
reserve the right to engage Broker-Dealers in the future who are members of
FINRA. In the event we engage the services of a Broker-Dealer or underwriter
post-qualification of this offering, the Company will file a post-qualification
amended Offering Statement disclosing the terms and conditions of the
engagement with any such Broker-Dealer or underwriter and update any existing
investors accordingly.
Sales pursuant to this Offering Circular will begin as soon as practicable
after this Offering Circular has been qualified by the SEC and will be made on
a continuous basis as provided by Rule 251(d)(3)(i)(F) for up to one year
following the date of qualification by the SEC. Our officers and directors will
participate in the offer and sale of shares of our Common Stock, and rely on
the safe harbor from broker-dealer registration set out in Rule 3a4-1 under the
Securities Exchange Act of 1934. We believe such persons will also meet
exemptions from the definitions of "broker-dealer" and "sales representative"
contained in Sections 11-51-201(2) and (4) of the Colorado Securities Act, as
amended, because our officers and directors will primarily perform substantial
duties for or on behalf of our Company otherwise than in connection with
transactions in our own securities and such individual's will not receive any
compensation based, in whole or in part, upon the amount of purchases or
sales of our own securities.
In order to subscribe to purchase our Common Stock, a prospective Investor
must complete, sign and deliver an executed Subscription Agreement and either wire
or mail funds for the applicable subscription amount in accordance with the
instructions included in the Subscription Agreement. We reserve the right to
reject any prospective investor's subscription, in whole or in part, for any
reason. If any prospective investor's subscription is rejected, all applicable
funds received from such prospective investor will be returned without interest
or deduction. We plan to engage Mountain Shares Transfer Company as our
transfer agent before this Offering Circular is qualified to track ownership,
transfers and issue formal certificates for our Shares to investors in this
offering.
There are no agreements currently in place to limit or restrict the sale of our
Common Stock during the Offering Period nor any agreements with any party to
stabilize any potential market for our Common Stock.
21
Dilution
Start-up and early-stage companies typically sell shares of its capital stock
to its founders and early employees at a very low cash cost, because they are,
in effect, putting their "sweat equity" into the business in the form of time
and strategic planning with no or very little compensation expected until the
prospects for such companies improve. When a typical start-up or early-stage
company seeks cash from outside investors, the new investors usually pay a much
larger sum for their shares than the founders, early employees or earlier
investors paid for their shares, which means that the cash value of the new
investors stake is diluted because each share of the same class is worth the
same amount, and the new investor has paid more for the shares than the
founders, early employees or earlier investors did for theirs.
As of the date of this Offering Circular, we currently have 5,013,000 shares of
no par value Common Stock outstanding that has been issued to a total of three
shareholders. As of the date of this Offering Circular, no options, warrants
or other convertible securities have been authorized or issued by us.
The following table summarizes the differences between the existing (founding)
shareholders and the new investors with respect to the projected number of
shares of Common Stock purchased, the total consideration paid, and the average
price per share paid, assuming the maximum offering amount is purchased:
Maximum Offering:
Shares Purchased Total Consideration Average Price Per
Number Percent Amount Percent Share
Founders 5,013,000 78.2% $ 113 >0.01% $ 0.0002
New investors 1,400,000 21.8% $14,000,000 99.99% $10.00
Total 6,413,000 100.0% $14,000,113 100% $ 2.18
The following table summarizes the differences between the existing (founding)
hareholders and the new investors with respect to the number of shares of
Common Stock purchased, the total consideration paid, and the average price per
share paid, assuming 50% of the offering amount is purchased:
50% of Offering:
Shares Purchased Total Consideration Average Price Per
Number Percent Amount Percent Share
Founders 5,013,000 81.7% $ 113 >0.01% $ 0.0002
New investors 700,000 12.3% $7,000,000 99.99% $
10.00
Total 5,713,000 100.0% $7,000,113 100% $ 1.23
Description of Property
We do not own any real estate. We currently utilize a rent-free home office
space in a residential single family home as our principal office, located at
2906 E. Caley Ave., Centennial, CO 80121. If we raise adequate capital in this
offering, we plan to investigate options to lease a commercial office location
for our principal office to support expansion and may also investigate options
to lease or acquire a manufacturing facility, although we have no current
commitments to do so.
22
Management's Discussion and Analysis of Financial Condition and Results of
Operations
You should read the following discussion and analysis of our financial
condition and results of our operations together with our financial
statementsand related notes appearing at the end of this Offering Circular. This
discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties; including, without
limitation, statements preceded by qualifiers such as "plans, expects,
anticipates, projects, believes," and other statements indicating opinion or
future application as well as the negative expression of such words. Any such
opinion about future prospects is based upon a number of assumptions that may
or may not have been specifically discussed. Many of these statements represent
risk factors that may or may not quantify or qualify underlying risk. Actual
results and the timing of events may differ materially from those contained in
these forward-looking statements due to a number of factors, including those
discussed in the section entitled "Risk Factors" and elsewhere in this
Offering
Circular.
We are a start-up stage company with limited operating history:
Bio Fil Inc was formed by filing Articles of Incorporation with the State of
Colorado on January 13th, 2017 and our activities to date have centered upon
overall strategy (especially finance), team development, preparation of our
business plans and this Offering Circular. Accordingly, we have a very limited
operating history and that limited history and the description of our business
plans described in this Offering Circular provide you with limited information
upon which to evaluate our prospects. Such prospects must be considered in
light of the risks, expenses and difficulties frequently encountered in the
establishment of a new business in a highly competitive industry, where FDA
approval for our planned product is required but has not yet been obtained,
there is not yet an issued patent to protect the intellectual property
associated with our planned product, there has been no material consumer and
product testing to indicate the viability of our planned product, and where we
have not sourced or developed means to manufacture and bring our planned
product to market, and the risks associated with our current undercapitalized
financial condition.
Operating Results
Since inception, the Company has devoted substantially all of its efforts to
business planning, team development, and raising capital. Accordingly, the
Company is considered to be in the start-up or developmental stage, because we
have been devoting substantially all of our efforts to establishing our
business and planned principal operations have not commenced. As a result, we
have yet to produce a product or generate any sales or revenue.
Liquidity and Capital Resources.
As of the date of this Offering Circular, we have $113 in cash and total
liabilities of $75,000. As of the date of this Offering Circular, we have
incurred total expenses since inception of $71,770, related entirely to
research and development and advancing our U.S. patent application. All our
expenses to date have been advanced by our founder and CEO, Thuan Lu. In
management's opinion, our cash position is insufficient to maintain our
operations at our current level for the next twelve months if we are unable
to raise capital from this offering or an alternate source yet to be identified.
Plan of Operations
We hope to raise up to $14,000,000 through this offering. Management believes
that such funds will be sufficient to fund the Company's expected expenses over
23
the next six months and potentially for 36 months or more as we implement our
business plans. Depending on the success of this offering, we plan to fund, to
the fullest extent possible, reimbursement to our founder and CEO for equipment
contributed to the Company, raw materials purchased on behalf of the Company to
conduct research and development associated with the development of our planned
product, and for advances made on behalf of the Company for start-up costs,
including fees and legal costs associated with the U.S. patent application for
our planned product (altogether estimated at $75,000), the payment to
professional service providers to assist us with the process of obtaiing
approval from the FDA for our planned product and the process of securing U.S.
patent protection for our planned product (including a reserve for potential
challenges to our intellectual property). The next order of priority identified
by management is to fund consumer appeal and product testing. To the extent
we have remaining funds available, we plan to fund the search and negotiations
required to either source manufacturing capability from third parties or
develop our own manufacturing capabilities for our planned product and to fund
marketing activities to reach potential customers for our planned product.
Management plans to allocate any remaining unused funds to working capital
and reserves.
If less than the maximum offering amount is raised in this offering, management
has generally identified alternate plans to commercialize the process to
produce our planned biodegradable cigarette filter product which may include
the sale or license of our intellectual property (potentially on terms less
favorable than anticipated), seek to obtain funds through arrangements with
collaborators, or source our manufacturing needs from third parties rather
than develop our own manufacturing capabilities.
Trend Information:
Because we were recently formed and have been devoting substantially all of our
efforts to establishing our business, planned principal operations have not
commenced. As a result, we have yet to generate any sales or revenue and we are
unable to identify any recent trends or uncertainties in production, sale,
inventory, the state of the order book, costs, or selling prices during or
since the end of the last financial year. For the same reason, for the current
year, we are unable to identify any known trends, uncertainties, demands,
commitments or events based on our business that are reasonably likely to have
a material effect on our net sales, revenue, income, profitability, liquidity
or capital resources, or be able to analyze whether such trends, uncertainties,
demands, commitments or events would cause the limited reported financial
information in this offering to not necessarily be indicative of future
operating results or financial condition. Potential investors are encouraged
to read the sections titled "Risk Factors" and "Description of Business."
Securities Offered
The following is a summary of the rights of our capital stock as provided in
our Articles of Incorporation and Bylaws. For more detailed information, please
see our Articles of Incorporation and Bylaws, which have been filed as
exhibits to the offering statement of which this Offering Circular is a part.
Our authorized capital stock consists of 10,000,000 shares of no par value
Common Stock. As of the date of this Offering Circular, there are 5,013,000
shares of our Common Stock issued and outstanding. There is no preferred
stock authorized or issued.
Each shareholder of our Common Stock is entitled to a pro-rata share of any
dividends declared and payable to holders of our Common Stock. The holders of
24
our Common Stock are entitled to one vote for each share of record on all
matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of our directors or any other matter. Therefore, the
holders of more than 50% of the Common Stock, acting in concert, are entitled
to determine the election of our directors or the outcome of any other matters.
The holders of our Common Stock are entitled to receive dividends when and if
declared by our Board from legally available funds. Our Board has the sole
discretion to declare and pay any dividends. In the event of our liquidation,
dissolution or winding up, the holders of Common Stock are entitled to share
pro-rata in all assets remaining available for distribution to them after
payment of our liabilities and after provision has been made for any
preferences owed to each class of stock, if any, having any preference in
relation to our common stock. Holders of our Common Stock have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to our Common Stock. As of the date of this Offering Circular, we
have not authorized or issued any options or warrants convertible into any
shares of our capital stock.
Directors, Executive Officers and Significant Employees
The Directors and Executive Officers as of the date of this Offering Circular
are as follows:
Name Position Age Term of Office Approximate hours
per week
for part time employees
Thuan Lu Chief Executive
Officer, Chief
Financial Officer,
Secretary, Treasurer
and Director 44 01/13/17 - present 10
Peter Pham Chief Operating
Officer, President
and Director 57 01/13/17 - present >1
Bao Ho Executive Vice
President of
Marketing and
Director 34 01/13/17 - present >1
Tu Huynh Director 35 01/13/17 - present >1
Jennifer
Casabona Director 34 01/13/17 - present >1
Our Directors are elected at our Company's annual meeting of shareholders and
our officers are appointed annually at an annual meeting of the Board that
typically meets immediately following the annual shareholders' meeting. No
arrangement or understanding exists among our Executive Officers, Directors or
any other persons pursuant to which any person was or is to be selected to his
or her office or position.
25
The only familial relationships between any of our Executive Officers and
Directors is that Jennifer Casabona is Than Lu's first cousin.
Summary of relevant business experience of our Executive Officers and
Directors
Thuan Lu, Company Founder, CEO, CFO, Secretary, Treasurer and Director
From 1998 to 2004, Mr. Lu worked as a real estate agent. In 2003, Mr. Lu
started an insurance agency and worked as an agent and broker in the insurance
industry from 2003 to 2016. Mr. Lu also owned and managed nail salons, a travel
agency, and provides bookkeeping on a consulting basis for businesses in the
Vietnamese community.
Mr. Lu earned his Bachelor of Science degree in Business Administration, with a
Minor in Economics, from the University of Colorado at Boulder. He is fluent in
English and Vietnamese, and also has a limited ability to converse in a non-
Mandarin Chinese dialect.
Peter Pham, President, Chief Operating Officer and a Director
Mr. Pham is currently self-employed and has been over the past five years.
He owns, operates, and manages various businesses including restaurants and a
landscaping company. Mr. Pham has a BS in Business Administration from the
University of Hue.
Bao Ho, Executive Vice President of Marketing
For more than the past five years to the present, Mr. Ho provides various
consulting services to government agencies including: the Department of
Homeland Security, Department of Justice, and the Department of Defense.
Mr. Ho has a BS in Finance from the University of Denver, Colorado.
Tu Huynh, Director
For more than the past five years to the present, Mr. Huynh has worked as a
Data Analyst for Precision Discovery in Colorado. Mr. Huynh earned his Masters
degree in Applied Mathematics from the University of Denver in 2006.
Jennifer Casabona, Director
Ms. Casabona is a graduate of Loyola University, New Orleans, earning a
Bachelors of Arts in Communications emphasizing Broadcast Production, along
with a Minor in English Writing in 2000. Prior to joining the Company, she
worked mainly in the food services industry. Most of her experience is through
working for and managing her family's restaurant business, learning the trade
in several areas. She has also done some freelance photography and writing
since graduating college, including being published as a columnist in the
Palisade Tribune in 2012.
To the best of our knowledge, over the past five years there have been no legal
proceedings involving any of our Executive Officers and Directors with respect
to federal bankruptcy laws or any state insolvency law filed by or against, or
a receiver, fiscal agent, or similar officer appointed by a court for the
business or property of any of our Executive Officers and Directors, nor has
any partnership in which any of our Executive Officers and Directors was
general partner at or within two years before the time of such filing, or any
corporation or business association of which any of our Executive Officers and
Directors was an executive officer at or within two years before the time of
such filing.
To the best of our knowledge, none of our Executive Officers or Directors has
been convicted in a criminal proceeding (excluding traffic violations and other
minor offenses).
26
Compensation of Directors and Executive Officers
The annual compensation for each of our Directors and Executive Officers of the
Company since inception is as follows:
Name Capacities in which Cash Other Total
compensation was received Compensation $ Compensation $ Compensation $
Thuan Lu Chief Executive Officer,
Chief Financial Officer,
Secretary, Treasurer and
Director 0.00 0.00 0.00
Peter Pham Chief Operating Officer,
President and Director 0.00 0.00 0.00
Bao Ho Executive Vice President
of Marketing and Director 0.00 0.00 0.00
Tu Huynh Director 0.00 0.00 0.00
Jennifer
Casabona Director 0.00 0.00 0.00
Since inception to the date of this Offering Circular, no compensation has been
paid to any of our Executive Officers or Directors for their services. It is
anticipated that if adequate funds are raised in this offering, our Executive
Officers will devote progressively more time to our business, eventually
becoming full-time paid employees. Similarly, if adequate funds are raised in
this offering, we may consider paying a reasonable market-based rate to our
non-employee Directors. We do not currently have employment agreements in place
with any employees. We may enter into employment agreements with our Executive
Officers and any key employees hired in the future at reasonable, market-based
compensation levels, depending on the success of this offering. Additionally,
Executive Officers and Directors are entitled to be reimbursed for any expenses
incurred on behalf of our Company.
As of the date of this Offering Circular, we do not have a stock option or any
other equity incentive plan in place. Depending on the success of this
offering, we may consider establishing some form of incentive plan for our
Officers, Directors and employees in the future.
27
Security Ownership of Management and Certain Securityholders
The following table sets forth the ownership, as of the date of this Offering
Circular, of our Common Stock by all the Executive Officers and Directors as a
group, individually naming each Director or Executive Officer who beneficially
owns more than 10% of any class of our voting securities, as well as any other
shareholder who beneficially owns more than 10% of any class of our voting
securities as such beneficial ownership would be calculated if we were subject
to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as amended. To the
best of our knowledge, the persons named in the table below have sole voting
and investment power with respect to such shares of our Common Stock.
Applicable percentages are based upon 5,013,000 shares of our Common Stock
outstanding as of the date of this Offering Circular.
Remainder of this page intentionally left blank.
28
Title of Class Name and address Amount and nature Amount and nature Percent
of beneficial owner of beneficial of beneficial of
ownership ownership acquirable class
Common Stock Thuan Lu
Bio Fil Inc
2906 E Caley Ave.
Centennial, CO 80121 5,000,000 n/a 99.7%
Common Stock Peter Pham
Bio Fil Inc
2906 E Caley Ave.
Centennial, CO 80121 3,000 n/a >0.01%
Common Stock Bao Ho
Bio Fil Inc
2906 E Caley Ave.
Centennial, CO 80121 10,000 n/a 0.2%
Common Stock Tu Huynh
Bio Fil Inc
2906 E Caley Ave.
Centennial, CO 80121 -0- n/a -0-
Common Stock Jennifer Casabona
Bio Fil Inc
2906 E Caley Ave.
Centennial, CO 80121 -0- n/a -0-
Common Stock All Executive Officers
and Directors as a group
Bio Fil Inc
2906 E Caley Ave.
Centennial, CO 80121 5,013,000 n/a 100%
29
Interest of Management and Others in Certain Transactions
As discussed in the Financial Statements and Use of Proceeds, the founder,
CEO and a Director of our Company, Thuan Lu, has contributed equipment to the
Company, advanced the cost of raw materials purchased on behalf of the
Company to conduct research and development associated with the development of our
planned product, and made advances on behalf of the Company for start-up costs,
including fees and legal costs associated with the U.S. patent application for
our planned product. Our Company is obligated to reimburse Mr. Lu for such
expenses incurred on behalf of the Company, which amount is estimated at
$75,000 because Mr. Lu does not have all the receipts associated with the
purchase of raw materials for research and development.
Our Company is currently majority owned and will continue to be majority owned
by current management after this offering is completed. Due to this majority
ownership, management will have the ability to elect and remove our Board and,
as a result, will have the ability to approve or reject a sale or merger of our
Company, unilaterally amend the Articles of Incorporation and Bylaws at will,
and impede a merger, consolidation, takeover or other business consolidation,
or discourage a potential acquirer from making a tender offer for our Common
Stock. Management will also be in a position to influence their own
compensation and to approve affiliated transactions as well as all other
matters that may require approval of our Company's shareholders. Management
intends to act fairly and in full compliance with their fiduciary obligations;
however, there can be no assurance that the Company has not previously and
will not in the future, as a result of the potential conflicts of interest
described above, possibly enter into arrangements under terms less favorable
than they could have obtained had they been dealing with unrelated parties.
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30
Section F/S
Unaudited Financial Statements
Bio Fil, Inc
Financial Statements for the
Year Ended December 31, 2017
Index to Financial Statements PAGE
Unaudited Balance Sheets - Year Ended December 31, 2017 33
Unaudited Statements of Operations - Year Ended December 31, 2017 34
Unaudited Statements of Stockholder's Deficit - Year Ended December 31, 2017 35
Unaudited Statements of Cash Flows - Year Ended December 31, 2017 36
Notes to Unaudited Financial Statements 37
32
Bio Fil, Inc
(a Development Stage Company)
Unaudited Balance Sheets
For the Year Ended
December 31, 2017
Assets
Current Assets
Cash $ 113
Total Current Assets 113
Patent, net $ -
Fixed Assets
Equipment 3,800
Accumulated depreciation (570)
Total Fixed Assets 3,230
Total Assets $ 3,343
Liabilities
Current Liabilities
Accounts Payable $ -
Due to related parties 75,000
Total Current Liabilities 75,000
Total Liabilities 75,000
Stockholders' equity
Common stock, no par value,10,000,000 shares authorized
and 5,013,000 shares issued to founders -
Additional paid-in capital 113
Retained Deficit (71,770)
Total Stockholders' Deficit (71,657)
Total Liabilities and Stockholders' Deficit $ 3,343
The accompanying notes are an integral part of these financial statements.
33
Bio Fil, Inc
(a Development Stage Company)
Unaudited Statements of Operations
For the Year Ended
December 31, 2017
Income $ -
Cost of Sales -
Gross Margin -
Operating Expenses
Impairment of Research and Development contributed
to company by founder 71,200
Depreciation Expense 570
Total Operating Expenses 71,770
Loss from Operations (71,770)
Other Income (Expenses)
Other Income -
Total Other Expenses -
Net Loss before Income Taxes (71,770)
Let Loss $ (71,770)
Net Loss per Common Share - Basic and Diluted $ (0.01)
Weighted Average Number of Common Shares Outstanding -
Basic and Diluted 5,013,000
The accompanying notes are an integral part of these financial statements.
34
Bio Fil, Inc
(a Development Stage Company)
Unaudited Statements of Stockholder's Deficit
For the Year Ended December 31, 2017
Total
Common Stock Additional Stockholders'
Stockholders'
Shares Amount Paid-In Capital Deficit
Deficit
Balance, January 13, 2017 - $ - $ - $ - $
-
Shares issued to founder for
patent and $100 cash 5,000,000 - 100 - 100
Shares issued to two
other founders for $13 cash 13,000 - 13 - 13
Net loss for year ended
December 31, 2017 - - (71,770)
(71,770)
Balance, December 31, 2017 5,013,000 $ 113 $ (71,770) $
(71,770)
The accompanying notes are an integral part of these financial statements.
35
Bio Fil, Inc
(a Development Stage Company)
Unaudited Cash Flows
For the Year Ended
December 31, 2017
Cash Flows from Operating Activities
Net Loss $ (71,770)
Adjustment to reconcile net loss from operations:
Depreciation 570
Changes in Operating Assets and Liabilities
Accounts Receivable -
Inventory -
Royalty payable -
Due to related parties 75,000
Net Cash Used in Operating Activities 3,800
Cash Flows from Investing Activities
Purchases of property and equipment (3,800)
Net Cash Provided by Investing Activities (3,800)
Cash Flows from Financing Activities
Issuance of Common Stock for cash 113
Note payable
Net Cash Provided by Financing Activities 113
Net Increase (Decrease) in Cash 113
Cash at Beginning of Period -
Cash at End of Period $ 113
Supplemental Cash Flow Information:
Income Taxes Paid $ -
Interest Paid $ -
The accompanying notes are an integral part of these financial statements.
36
Bio Fil, Inc
Notes to Unaudited Combined Financial Statements
December 31, 2017
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Bio Fil, Inc, a Colorado corporation, was initially formed on January 13,
2017.
We believe there is a market need for a biodegradable cigarette filter, one
that we believe will break down significantly faster than the current filters
on market, and we believe we have developed a marketable process to produce a
biodegradable cigarette filter to fill this need. Our planned biodegradable
cigarette filter is completely made of organic materials which we believe
will break down significantly faster than conventional filters on the market
today, thereby having less impact on the environment compared to conventional
cigarette filters. We believe that with widespread adoption, our biodegradable
cigarette filter could lead to significantly reduced cigarette butt litter
pollution around shorelines, waterways and on land, which is not only
aesthetically pleasing, but should also lead to lower cleanup costs. Because
our planned biodegradable cigarette filter is expected to break down
significantly faster than conventional filters on the market today, we
believe widespread adoption of our planned product may also have an ancillary
benefit to wildlife that sometimes ingest cigarette butts if less non-degraded
cigarette filters remain in the environment.
BioFil filters work like traditional filters to trap tar and other chemicals
produced by burning tobacco, accordingly, we believe there are no particular
health differences to the filters currently used now. We also believe the
cost to manufacture and produce our planned biodegradable cigarette filters will
be comparable to traditional cigarette filters - so they are not expected to
have a significant effect on the bottom line of potential customers to replace the
filter currently in use. Because our planned product is expected to break
down so much faster than the filters currently used, our planned product is also
expected to have a positive economic impact on businesses, cities, parks and
open-space areas - by causing less trash build-up and litter in both urban
and rural areas.
We are not involved in cigarette manufacturing. We plan to only produce
cigarette filters and filter tubes to provide to cigarette manufacturing
companies, cigarette filter companies, and, perhaps to cigarette stores
for use with personal tobacco products - nationwide and internationally.
The Company's accounting year end is December 31.
Basis of Presentation
These financial statements are presented in United States dollars and have
been prepared in accordance with United States generally accepted accounting
principles. These financial statements have been prepared by management of
the Company in consultation with a certified public accountant as to compliance
with generally accepted accounting principles and have not been audited.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates. Significant estimates
include estimated useful lives and potential impairment of property and
equipment, estimate of fair value of share based payments and derivative
instruments and recorded debt discount, valuation of deferred tax assets
and valuation of in-kind contribution of services and interest.
37
Bio Fil, Inc
Notes to Unaudited Combined Financial Statements
December 31, 2017
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents. At December
31, 2017, cash equivalents totaled $113.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major additions
and improvements are capitalized and minor replacements, maintenance, and
repairs are charged to expense as incurred. When property and equipment is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations for the respective period. Over $3,800 in assets and
equipment were contributed by the company's founder on January 7, 2017 and
are being depreciated over 5 years. the estimated useful lives of the related
assets using the straight-line method for financial statement purposes. The
Company uses other depreciation methods (generally accelerated) for tax
purposes whereappropriate. The estimated useful lives for significant
property and equipmentcategories are as follows:
Computer equipment 3 years
Furniture and Equipment 5 years
Depreciation expense for December 31, 2017 is $570.
Net Loss per Share
Net loss per common share is computed by dividing net loss by the weighted
average common shares outstanding during the period as defined by Financial
Accounting Standards, ASC Topic 260, "Earnings per Share". Basic earnings per
common share ("EPS") calculations are determined by dividing net income by
the weighted average number of shares of common stock outstanding during the
year. Diluted earnings per common share calculations are determined by dividing
net income by the weighted average number of common shares and dilutive common
share equivalents outstanding.
Revenue Recognition
We recognize revenue when the four revenue recognition criteria are met, as
follows:
* Persuasive evidence of an arrangement exists - our customary practice
is to obtain written evidence, typically in the form of a sales contract
or purchase order;
* Delivery - when custody is transferred to our customers either upon
shipment to or receipt at our customers' locations, with no right of
return or further obligations, such as installation;
* The price is fixed or determinable - prices are typically fixed at the
time the order is placed and no price protections or variables are
offered; and
* Collectability is reasonably assured - we typically work with
businesses with which we have a long standing relationship, as well
as monitoring and evaluating customers' ability to pay.
Refunds and returns, which are minimal, are recorded as a reduction of
revenue. Payments received by customers prior to our satisfying the above
criteria are recorded as unearned income in the unaudited combined balance
sheets.
38
Bio Fil, Inc
Notes to Unaudited Combined Financial Statements
December 31, 2017
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The Company applies the accounting guidance under Financial Accounting
Standards Board ("FASB") ASC 820- 10, "Fair Value Measurements," as well as
certain related FASB staff positions. This guidance defines fair value as the
price that would be received from selling an asset or being paid to transfer
a liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and
liabilities required to be recorded at fair value, the Company considers the
principal or most advantageous market in which it would transact business and
considers assumptions that marketplace participants would use when pricing
the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance.
The guidance also establishes a fair value hierarchy for measurements of fair
value as follows:
* Level 1 - quoted market prices in active markets for identical assets
or liabilities.
* Level 2 - inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices in active markets for
similar assets or liabilities, quoted prices for identical or similar
assets or liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
* Level 3 - unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
Recent Accounting Pronouncements
In June 2014, FASB issued Accounting Standards Update ("ASU") No. 2014-10,
"Development Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest Entities
Guidance in Topic 810, Consolidation." The update removes all incremental
financial reporting requirements from GAAP for development stage entities,
including the removal of Topic 915 from the FASB Accounting Standards
Codification. In addition, the update adds an example disclosure in Risks and
Uncertainties (Topic 275) to illustrate one way that an entity that has not
begun planned principal operations could provide information about the risks
and uncertainties related to the Company's current activities. Furthermore,
the update removes an exception provided to development stage entities in
Consolidations (Topic 810) for determining whether an entity is a variable
interest entity - which may change the consolidation analysis, consolidation
decision, and disclosure requirements for a company that has an interest in a
company in the development stage. The update is effective for the annual
reporting periods beginning after December 15, 2014, including interim
periodstherein. Early application with the first annual reporting period or
interim period for which the entity's financial statements have not yet been
issued (Public business entities) or made available for issuance (other
entities). The Company adopted this pronouncement for the year ended December
31, 2014.
NOTE 3 - RELATED PARTY TRANSACTION
Due to related parties balance of $75,000 is due to our founder in exchange
for raw materials purchased to do Research and Development and $3,800 of
contributed equipment. The equipment and Research and Development materials
are properly valued at historical cost since they were contributed by a related
party. The Research and Development Materials currently have no value going
forward so they were expensed and the contributed equipment was capitalized
at historical cost to the founder since he is a related party to the company.
The Company will be required to pay back the $75,000 owed to the founder.
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NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Upon Inception the Company issued 5 million shares of Common Stock to the
founder in exchange for total rights to a patent application and $100 cash.
The patent application is now owned by the Company and was booked at the
historical cost to the founder of $0 Dollars. The Company also issued
13,000 shares of Common Stock to two other founders for $13 cash upon
inception.
NOTE 4 - STOCKHOLDERS' DEFICIT
The Company has authorized 10 million shares of no par value common stock and
has outstanding at September 30, 2017 a total of 5,013,000 shares with 5
million issued to the founder at inception in exchange for a patent
application and $100 cash and 13,000 shares issued to two additional founders
for $13 cash at inception (10,000 to one founder and 3,000 to the third founder).
NOTE 5 - PATENTS
Our founder contributed a patent application to the Company in exchange for
shares. The patent application is valued at historical cost due to the
related party transaction. Historical cost for the patent application is near
zero sothe asset remains at zero but is held and owned by the Company and is
expected to be utilized going forward.
NOTE 6 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing date of these
financial statements and has disclosed that there are no such events that are
material to the financial statements to be disclosed.
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Part III: Exhibits
Index to Exhibits
Description Item Exhibit#
Charter and bylaws 17.2 17.2
Subscription Agreement 17.4 17.4
Description of IP Assignment 17.6 17.6
Fortis Law Partners Opinion re legality 17.12 17.12
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer certifies that it
hasreasonable grounds to believe that it meets all of the requirements for
filingon Form 1-A and has duly caused this offering statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Centennial, State of Colorado, on February 8, 2018 (date).
(Exact name of issuer as
specified in its charter):
Bio Fil, Inc
By: ___________Thuan Lu___________
CEO, CFO, CAO, Secretary, Treasurer and Director
This offering statement has been signed by the following persons in the
capacities and on the dates indicated.
(Signature): /s/ Thuan Lu
(Title): Chief Executive Officer, Chief Financial Officer
(Principal Financial Officer, Principal Accounting
Officer), Secretary, Treasurer and Director.
(Date): February 8, 2018
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SIGNATURE OF OTHER DIRECTORS:
(Signature): /s/ Peter Pham
(Title): President, COO and Director
(Date): February 8, 2018
(Signature): /s/ Bao Ho
(Title): Executive Vice President of Marketing and Director
(Date): February 8, 2018
(Signature): /s/ Tu Huynh
(Title): Director
(Date): February 8, 2018
(Signature): /s/ Jennifer Casabona
(Title): Director
(Date): February 8, 2018
42
