NOTE 1 – COMPANY BACKGROUND

The Company’s predecessor, Cardax Pharmaceuticals, Inc. (“Holdings”), was incorporated in the State of Delaware on March 23, 2006.

Cardax, Inc. (the “Company”) (OTCQB:CDXI) is a development stage biopharmaceutical company primarily focused on the development of pharmaceuticals for chronic diseases driven by inflammation. The Company also has a commercial business unit that markets dietary supplements for inflammatory health. CDX-101, the Company’s astaxanthin pharmaceutical candidate, is being developed for cardiovascular inflammation and dyslipidemia, with a target initial indication of severe hypertriglyceridemia. CDX-301, the Company’s zeaxanthin pharmaceutical candidate, is being developed for macular degeneration, with a target initial indication of Stargardt disease. The Company’s pharmaceutical candidates are currently in pre-clinical development, including the planning of IND enabling studies. ZanthoSyn® is a physician recommended astaxanthin dietary supplement for inflammatory health. The Company sells ZanthoSyn® primarily through wholesale and e-commerce channels. The safety and efficacy of the Company’s products have not been directly evaluated in clinical trials or confirmed by the FDA.

Going concern matters

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company incurred net losses of $5,093,037 and $4,024,222 for the years ended December 31, 2019 and 2018, respectively. The Company has incurred losses since inception resulting in an accumulated deficit of $67,036,355 as of December 31, 2019 and has had negative cash flows from operating activities since inception. The Company expects that its marketing program for ZanthoSyn® will continue to focus on outreach to physicians, healthcare professionals, retail personnel, and consumers, and anticipates further losses in the development of its consumer business. The Company also plans to advance the research and development of its pharmaceutical candidates and anticipates further losses in the development of its pharmaceutical business. The Company’s ability to access the capital markets is unknown during the coronavirus disease 2019 (“COVID-19”) pandemic, which may limit or prevent the funding of its operations and related obligations. As a result of these and other factors, management has determined there is substantial doubt about the Company’s ability to continue as a going concern.

The Company needs to raise additional capital to carry out its business plan. During the year ended December 31, 2019, the Company raised additional capital to carry out its business plan. As part of the Company’s efforts, it raised an additional $3,360,000 in gross proceeds through the issuance of $245,000 in shares of common stock and $3,115,000 in debt instruments. In accordance with U.S. GAAP, derivative liabilities of $827,314 and beneficial conversion features of $350,446 were recognized in connection with convertible notes outstanding as of December 31, 2019; however, these are non-cash amounts and do not directly impact our liquidity or capital needs.

The Company filed a registration statement on Form S-1 on August 14, 2019, as amended September 27, 2019 and November 22, 2019, for a proposed $15 million public offering of common stock and warrants; however, there can be no assurance that the proposed public offering will be consummated. In addition, the Company may need to continue to obtain short-term debt financing on terms and conditions that may not otherwise be acceptable.

As of the date hereof, the Company has outstanding promissory notes (including notes payable, convertible notes payable, and secured convertible notes payable) that are (i) due June 30, 2020 in the aggregate principal amount of $2,403,176, (ii) due September 16, 2020 in the aggregate principal amount of $500,000, and (iii) due January 11, 2022 in the aggregate principal amount of $1,000,000. The Company’s ability to repay any and all of these notes as they become due if not otherwise repaid or converted on or prior to the maturity dates described above is uncertain and will be based on the Company’s ability to raise additional capital, generate additional revenues, and/or modify the terms of such debt instruments to the extent necessary.

The Company’s continued ability to raise additional capital through future equity and debt securities issuances is unknown. Obtaining additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.