Item 1A. Risk Factors
Item
1A. Risk Factors
An
investment in our Common Stock involves a high degree of risk. You should carefully consider the following risks and all of the other
information contained in this Annual Report before deciding whether to invest in our Common Stock. If any of the following risks are
realized, our business, financial condition and results of operations could be materially and adversely affected. In that event, the
trading price of our Common Stock could decline, and you could lose all or part of your investment in our Common Stock. Additional risks
of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations.
Some statements in this Annual Report, including such statements in the following risk factors, constitute forward-looking statements.
See the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Risks
Related to our Business and Industry
We
have a history of operating losses, and there is no assurance that we will generate material revenues or become profitable in the near
future.
We
are a medical device company with a limited operating history. We are not profitable and have incurred losses since our inception.
To date we have not generated material revenue from the sale of products, and we do not anticipate that we will report operating
income in the foreseeable future. Our first product was removed from international markets as the Company withdrew its CE Mark by
2023. As of 2023, all commercialization and development efforts ceased of the first product. Our second and novel new product,
Glucotrack CBGM, has not been approved for marketing in the United States or internationally and is currently under preclinical
development. Our net losses for the years ended December 31, 2025 and 2024 were approximately $19.4 million and $22.6 million,
respectively, and we had an accumulated deficit of approximately $151.8 million as of December 31, 2025. We expect to continue to
incur losses for the foreseeable future, and these losses will likely increase as we develop and prepare to commercialize Glucotrack
CBGM. If we are not successful in developing, manufacturing and distributing Glucotrack CBGM, or if Glucotrack CBGM does not achieve
market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain
profitability in subsequent periods.
15
When
we evolve from a company primarily involved in development to a company also involved in commercialization, we may encounter
difficulties in managing our growth and expanding our operations successfully.
We
anticipate that, as our operations expand and, assuming that our development, testing, pre-clinical studies and human clinical trials
are successful, we will need to build and develop our marketing and sales capabilities. Maintaining and managing our future growth will
impose significant added responsibilities on members of our management team. We must be able to manage our development efforts effectively;
manage our clinical trials effectively; hire, train and integrate additional management, development, administrative and sales and marketing
personnel; improve managerial, development, operational and finance systems; and expand our facilities, all of which may impose a strain
on our administrative and operational infrastructure.
We
may have future capital needs and may not be able to obtain additional financing on acceptable terms.
Economic
and credit market conditions, the performance of our industry and our financial performance, as well as other factors, may constrain
our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness
outstanding from time to time will depend upon our future operating performance, the availability of credit, economic conditions and
financial, business and other factors, many of which are beyond our control.
We
may require additional financing to fund our operations and growth. The failure to secure additional financing could have an adverse
effect on our continued development or growth. None of our officers, directors or stockholders is required to provide any financing to
us.
Raising
additional capital may cause dilution to our existing stockholders and investors, restrict our operations, or require us to relinquish
rights to our products and/or product candidates on unfavorable terms to us.
We
will seek additional capital through a variety of means, including through private and public equity offerings and debt financings, collaborations,
strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the
sale of equity or convertible debt securities, or through the issuance of shares under other types of contracts, or upon the exercise
or conversion of outstanding options, warrants, convertible debt or other similar securities, the ownership interests of our stockholders
will be diluted, and the terms of such financings may include liquidation or other preferences, anti-dilution rights, conversion and
exercise price adjustments and other provisions that adversely affect the rights of our stockholders, including rights, preferences and
privileges that are senior to those of our holders of Common Stock in terms of the payment of dividends or in the event of a liquidation.
In addition, debt financing, if available, could include covenants limiting or restricting our ability to take certain actions, such
as incurring additional debt, making capital expenditures, entering into licensing arrangements or declaring dividends and may require
us to grant security interests in our assets. If we raise additional funds through collaborations, strategic alliances or marketing,
distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue
streams, product or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional
funds through equity or debt financing when needed, we may need to curtail or cease our operations.
16
Our
independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about
our ability to continue as a “going concern.”
We
may not have sufficient liquidity to meet our anticipated obligations over the next year from the issuance of the financial statements
contained in this Annual Report. We have incurred net losses and negative cash flows from our operations and comprehensive loss since
our inception and as of December 31, 2025, we had an accumulated deficit of $151.8 million. As of December 31, 2025, we had cash and
cash equivalents of $7.4 million. There are no assurances that we will be able to raise additional capital or do so on terms favorable
to us. Our recurring losses from operations and projected future cash flow requirements raise substantial doubt about our ability to
continue as a going concern without sufficient capital resources and we have included explanatory information in the notes to our financial
statements for the year ended December 31, 2025, with respect to this uncertainty, and the report of our independent registered public
accounting firm with respect to our audited financial statements for the year ended December 31, 2025 included an emphasis
of matter for this as well. Our consolidated financial statements do not include any adjustments that might result from the outcome of
this going concern uncertainty and have been prepared under the assumption that we will continue to operate as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Our
ability to continue as a going concern is dependent on our available cash, how well we manage that cash, and our operating requirements.
If we are unable to raise additional capital when needed, we could be forced to curtail operations or take other actions such as implementing
additional restructuring and cost reductions, disposing of one or more product lines and/or, selling or licensing intellectual property.
If we are unable to continue as a going concern, we may be forced to liquidate our assets, which would have an adverse impact on our
business and developmental activities. In such a scenario, the values we receive for our assets in liquidation or dissolution could be
significantly lower than the values reflected in our financial statements.
Economic
crises and market instability may materially and adversely affect the demand for our products, as well as our ability to obtain credit
or secure funds through sales of our stock, which may materially and adversely affect our business, financial condition and ability to
fund our operations.
Economic
crises may reduce the demand for new and innovative medical devices, resulting in delayed market acceptance of our products, if and when
they are approved. Such a delay could have a material adverse impact on our business, expected cash flows, results of operations and
financial condition. Additionally, we have funded our operations to date primarily through public and private sales of securities, including
Common Stock and other securities convertible into or exercisable for shares of our Common Stock. Economic turmoil and instability in
the world’s equity and credit markets may materially adversely affect our ability to sell additional securities and/or borrow cash.
There can be no assurance that we will be able to raise additional working capital on acceptable terms or at all, and any failure to
do so may materially adversely affect our ability to continue operations.
Glucotrack
CBGM is not approved for sale in the United States or other jurisdictions.
We
will likely be required to undertake significant clinical trials to demonstrate to the FDA that Glucotrack CBGM is safe and effective
for its intended use (refer to “ Business – Regulatory Considerations ”). We may also be required to undertake
similar clinical trials by non-U.S. regulatory agencies, particularly for the European Union (CE Mark). Clinical trials for implantable
medical devices are expensive and uncertain processes that take years to complete. Failure can occur at any point in the process and
early positive results do not ensure that the entire clinical trial will be successful. Product candidates in clinical trials may fail
to show desired efficacy and safety traits despite early promising results. A number of companies in the medical device industry have
suffered significant setbacks in advanced clinical trials, even after their product candidates demonstrated promising results at earlier
points.
Positive
results from the limited safety and performance pre-clinical trials and first-in-human acute clinical studies that we have conducted
should not be relied upon as evidence that early-stage or large-scale clinical trials will succeed. Despite efforts to choose the proper
animal model reflecting our intended use, our pre-clinical animal trials and first-in-human acute clinical studies cannot be a guarantee
of clinical trial success because human physiology and anatomy are different. Because of the sample size, possible variation in methodology
or differences in physiology, the results of these pre-clinical trials may not be indicative of future results. We will be required to
demonstrate through multiple well-controlled clinical trials that Glucotrack CBGM or future product candidates, if any, are safe and
effective for their intended uses.
17
Further,
the Glucotrack CBGM or our future product candidates, if any, may not be cleared or approved, as the case may be, even if the clinical
data are satisfactory and support, in our view, its or their clearance or approval. The FDA or other non-U.S. regulatory authorities
may disagree with our trial design or interpretation of the clinical data. In addition, any of these regulatory authorities may change
requirements for the clearance or approval of a product candidate even after reviewing and providing comment on a protocol for a pivotal
clinical trial that has the potential to result in FDA approval. In addition, any of these regulatory authorities may also clear or approve
a product candidate for fewer or more limited patient populations than we request or may grant clearance or approval contingent on the
performance of costly post-marketing clinical trials. In addition, the FDA or other non-regulatory authorities may not approve the labeling
claims necessary or desirable for the successful commercialization of Glucotrack CBGM or our future product candidates, if any.
We
are highly dependent on the success of our primary product candidate, Glucotrack CBGM, and cannot give any assurance that it will receive
regulatory approval or clearance or be successfully commercialized.
We
are highly dependent on the success of our primary product candidate, Glucotrack CBGM. We cannot give any assurance that the FDA will
permit us to clinically test the device, nor can we give any assurance that the clinical trials will be successful or that Glucotrack
CBGM will receive regulatory clearance or approval or be successfully commercialized, for a number of reasons, including, without limitation,
the potential introduction by our competitors of more clinically-effective or cost-effective alternatives, failure in our sales and marketing
efforts, or the failure to obtain positive coverage determinations or reimbursement. Any failure to obtain approval to conduct clinical
trials, favorable clinical data, clearance or approval of or to successfully commercialize Glucotrack CBGM would have a material adverse
effect on our business.
If
our competitors develop and market products that are more effective, safer or less expensive than Glucotrack CBGM or our future product
candidates, if any, our commercial opportunities will be adversely affected.
The
life sciences industry is highly competitive, and we face significant competition from many medical device companies that are researching
and marketing products designed to address the needs of people suffering from diabetes. We are currently developing medical devices that
will compete with other medical devices that currently exist or are being developed. Some of our competitors have significantly greater
financial, manufacturing, marketing and product development resources than we do. Large medical device companies, in particular, have
extensive experience in clinical testing and in obtaining regulatory clearances or approvals for medical devices. These companies also
have significantly greater research and marketing capabilities than us. Some of the medical device companies that we expect to compete
with include Abbott Laboratories, DexCom, Medtronic, and Senseonics. In addition, many universities and private and public research institutions
are or may become active in research involving blood glucose measurement devices.
We
believe that our ability to successfully compete will depend on, among other things:
●
our
ability to have partners manufacture and sell commercial quantities of any approved products to the market;
●
acceptance
of product candidates by physicians and other health care providers;
●
the
results of our clinical trials;
●
our
ability to recruit and enroll patients for our clinical trials;
●
the
efficacy, safety, performance and reliability of our product candidates;
●
the
speed at which we develop product candidates or required iterations thereon;
●
our
ability to obtain prompt and favorable FDA review and approval of an IDE to conduct our clinical trials;
●
our
ability to obtain prompt and favorable IRB review and approval at each of our clinical sites;
●
our
ability to commercialize and market any of our product candidates that may receive regulatory clearance or approval;
●
our
ability to design and successfully execute appropriate clinical trials;
18
●
the
timing and scope of regulatory clearances or approvals;
●
appropriate
coverage and adequate levels of reimbursement under private and governmental health insurance plans, including Medicare; and
●
our
ability to protect intellectual property rights related to our products.
If
our competitors market products that are more effective, safer, easier to use or less expensive than Glucotrack CBGM or our future product
candidates, if any, or that reach the market sooner than Glucotrack CBGM or our future product candidates, if any, we may not achieve
commercial success. In addition, the medical device industry is characterized by rapid technological change. It may be difficult for
us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable
to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates
obsolete or less competitive.
A
number of medical device companies, medical researchers and pharmaceutical companies are also pursuing new delivery technologies, procedures,
drugs and other therapies for the monitoring, treatment and prevention of diabetes. If successful, these technologies could render glucose
monitoring devices, like the Glucotrack CBGM, obsolete. Technological breakthroughs in diabetes treatment or prevention could reduce
the potential market for Glucotrack CBGM, making it less competitive or obsolete altogether.
The
diabetes market is currently seeing increasing use of GLP-1 drugs for the treatment of obesity and Type 2 diabetes. While GLP-1s have
been used as a companion product in conjunction with CGM systems, such drugs could potentially compete with the Glucotrack CBGM and impact
successful commercialization particularly as it applies to patients with Type 2 diabetes not dependent on insulin as well as those with
pre-diabetes conditions.
Our
product development activities could be delayed or stopped.
We
do not know whether our future clinical trials will begin on time, or at all, and whether ongoing and/or future clinical trials will
be completed on schedule, or at all.
The
commencement of future clinical trials could be substantially delayed or prevented by several factors, including:
●
the
failure to obtain sufficient funding to pay for all necessary clinical trials;
●
limited
number of, and competition for, suitable patients that meet the protocol’s inclusion criteria and do not meet any of the exclusion
criteria;
●
limited
number of, and competition for, suitable sites to conduct the clinical trials, and delay or failure to obtain FDA approval, if necessary,
to commence a clinical trial;
●
delay
or failure to obtain sufficient supplies of the product candidate for clinical trials;
●
requirements
to provide the medical device required in clinical trials at cost, which may require significant expenditures that we are unable
or unwilling to make;
●
delay
or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or
investigators; and
●
delay
or failure to obtain IRB approval or renewal of such approval to conduct a clinical trial at a prospective or accruing site, respectively.
19
The
completion of clinical trials in connection with our application for FDA approval could also be substantially delayed or prevented by
several factors, including:
●
delay
or failure to obtain FDA IDE approval or renewal of such approval to conduct a clinical trial;
●
slower
than expected rates of patient recruitment and enrollment;
●
failure
of patients to complete the clinical trial;
●
unforeseen
safety issues;
●
lack
of efficacy evidenced during clinical trials;
●
termination
of clinical trials by one or more clinical trial sites;
●
inability
or unwillingness of patients or medical investigators to follow clinical trial protocols;
●
inability
to monitor patients adequately during or after the clinical study period; and,
●
inability
to meet safety and efficacy endpoints required by the FDA for market clearance.
Our
clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, and/or the IRB for any given site
or us. Any failure or significant delay in completing clinical trials for the Glucotrack CBGM or future product candidates, if any, could
materially harm our financial results and the commercial prospects for our product candidates.
The
regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization
of Glucotrack CBGM or our future product candidates, if any.
The
research, testing, manufacturing, labeling, approval, selling, marketing and distribution of medical devices are subject to extensive
regulation by the FDA and other non-U.S. regulatory authorities, with regulations that differ from country to country. We are not permitted
to market our product candidates in the United States until we receive a clearance letter under Section 515 premarket approval from the
FDA. We have not submitted an application or premarket notification for or received marketing clearance or approval for our current product
candidate. Obtaining approval of any premarket approval can be a lengthy, expensive and uncertain process, particularly for Class III
devices under which our product candidate falls. In lieu of acting on a premarket notification, the FDA may seek additional information
or additional data which would further delay our ability to market the product candidate. In addition, failure to comply with FDA, non-U.S.
regulatory authorities or other applicable U.S. and non-U.S. regulatory requirements may, either before or after product clearance or
approval, if any, subject us to administrative or judicially imposed sanctions, including:
●
restrictions
on the products, manufacturers or manufacturing process;
●
adverse
inspectional observations (Form 483), warning letters or non-warning letters incorporating inspectional observations, i.e., so-called
“untitled letter”;
●
civil
and criminal penalties;
●
injunctions;
●
suspension
or withdrawal of regulatory clearances or approvals;
●
product
seizures, detentions or import bans;
●
voluntary
or mandatory product recalls and publicity requirements;
●
total
or partial suspension of production;
●
imposition
of restrictions on operations, including costly new manufacturing requirements; and
●
refusal
to clear or approve pending applications or premarket notifications.
20
Regulatory
approval of a Class III medical device is not guaranteed, and the approval will take several years when factoring in clinical trial timelines.
The FDA also has substantial discretion in the medical device clearance or approval processes. Despite the time and expense exerted,
failure can occur at any stage, and we could encounter problems that cause us to abandon clinical trials or to repeat or perform additional
pre-clinical studies and clinical trials. The number of pre-clinical studies and clinical trials that will be required for FDA clearance
or approval varies depending on the medical device candidate, the disease or condition that the medical device candidate is designed
to address and the regulations applicable to any particular medical device candidate. The FDA can delay, limit or deny clearance or approval
of a medical device candidate for many reasons, including:
●
a medical
device candidate may not be deemed safe or effective;
●
FDA
officials may not find the data from the clinical trials sufficient;
●
the
FDA might not approve our third-party manufacturer’s processes or facilities; or
●
the
FDA may change its clearance or approval policies or adopt new regulations.
Failure
to recruit and enroll patients for clinical trials may cause the development of our product candidates to be delayed.
We
may encounter delays if we are unable to recruit, enroll and retain enough patients to complete clinical trials. Patient enrollment depends
on many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites
and the eligibility criteria for the trial. Delays in patient enrollment are not unusual. Any such delays in planned patient enrollment
may result in increased costs, which could harm our ability to develop products.
The
terms of clearances or approvals and ongoing regulation of our products may limit how we manufacture and market our product candidates,
which could materially impair our ability to generate anticipated revenues.
Once
regulatory clearance or approval has been granted, the cleared or approved product and its manufacturer are subject to continual review.
Any cleared or approved product may only be promoted for its indicated uses. In addition, if the FDA or other non-U.S. regulatory authorities
clear or approve Glucotrack CBGM or our future product candidates, if any, the labeling, packaging, adverse event reporting, storage,
advertising and promotion for the product will be subject to extensive regulatory requirements. We, and the manufacturers of our products
also will be required to comply with the FDA’s Quality System Regulation, which includes requirements relating to quality control
and quality assurance, as well as the corresponding maintenance of records and documentation. Moreover, device manufacturers are required
to report adverse events by filing Medical Device Reports with the FDA, which are publicly available. Further, regulatory agencies must
approve our manufacturing facilities before they can be used to manufacture products, and these facilities are subject to ongoing regulatory
inspection. If we fail to comply with the regulatory requirements of the FDA and other non-U.S. regulatory authorities, or if previously
unknown problems with our products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or
judicially imposed sanctions, including:
●
restrictions
on the products, manufacturers or manufacturing process;
●
adverse
inspectional observations (Form 483), warning letters, or non-warning letters incorporating inspectional observations;
●
civil
or criminal penalties or fines;
●
injunctions;
21
●
product
seizures, detentions or import bans;
●
voluntary
or mandatory product recalls and publicity requirements;
●
suspension
or withdrawal of regulatory clearances or approvals;
●
total
or partial suspension of production;
●
imposition
of restrictions on operations, including costly new manufacturing requirements; and
●
refusal
to clear or approve pending applications or premarket notifications.
In
addition, the FDA and other non-U.S. regulatory authorities, including the EU and each of the EU member countries individually, may change
their policies and enact additional regulations that could prevent or delay regulatory clearance or approval of our product candidates.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
action, either in the United States or abroad. If we are not able to maintain regulatory compliance, we will likely not be permitted
to market future product candidates and may not achieve or sustain profitability.
Even
if we receive regulatory clearance or approval to market Glucotrack CBGM or our future product candidates, if any, the market may not
be receptive to our products.
Even
if Glucotrack CBGM or our future product candidates, if any, obtain regulatory clearance or approval, resulting products may not gain
market acceptance among physicians, patients, health care payors or the medical community. We believe that the degree of market acceptance
will depend on a number of factors, including:
●
timing
of market introduction of competitive products;
●
safety
and efficacy of our product;
●
prevalence
and severity of any side effects;
●
potential
advantages or disadvantages over alternative treatments;
●
strength
of marketing, sales, and distribution support;
●
price
of our product candidates, both in absolute terms and relative to alternative treatments; and
●
availability
of coverage and reimbursement from government and other third-party payors.
If
the Glucotrack CBGM or our future product candidates, if any, fail to achieve sufficient reimbursement and coverage, we may not be able
to generate significant revenue or achieve or sustain profitability.
The
reimbursement status and coverage of newly cleared or approved medical devices is uncertain, and failure to obtain adequate coverage
and adequate reimbursement could limit our ability to market Glucotrack CBGM or future product candidates, if any, and may inhibit our
ability to generate revenue from Glucotrack CBGM or our future product candidates, if any, that may be cleared or approved.
The commercial success
of Glucotrack CBGM or our future product candidates, if any, in both domestic and international markets will depend in part on the availability
of coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs,
managed care organizations and other third-party payors. Government and other third-party payors are increasingly attempting to contain
health care costs by limiting both coverage and the level of reimbursement for new products and, as a result, they may not cover or provide
adequate payment for Glucotrack CBGM or our future product candidates, if any. These payors may conclude that our products are not as
safe or effective as existing devices or that the overall cost of using one of our devices exceeds the overall cost of the competing
device, and third-party payors may not approve Glucotrack CBGM or our future product candidates, if any, for coverage and adequate reimbursement.
Furthermore, deficit reduction and austerity measures in the United States and abroad may put further pressure on governments to limit
coverage of, and reimbursement for, our products. The failure to obtain coverage and adequate reimbursement for Glucotrack CBGM or our
future product candidates, if any, or health care cost containment initiatives that limit or restrict reimbursement for such products,
may reduce any future product revenue.
22
We
may not obtain insurance coverage to adequately cover all significant risk exposures.
We
will be exposed to liabilities that are unique to the products we provide. We currently maintain commercial general liability and property
insurance, but there can be no assurance that we will acquire or maintain insurance for certain risks, that the amount of our insurance
coverage will be adequate to cover all claims or liabilities or that we will not be forced to bear substantial costs resulting from risks
and uncertainties of business. It is also not possible to obtain insurance to protect against all operational risks and liabilities.
The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business,
financial condition and results of operations.
If
product liability lawsuits are brought against us, we may incur substantial liabilities.
We
face a potential risk of product liability as a result of any of the products that we offer for sale. For example, we may be sued if
any product we sell allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or
sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state or
federal consumer protection laws or regulations. If we cannot successfully defend ourselves against product liability claims, we may
incur substantial liabilities. Even successful defense would require significant financial and managerial resources. Regardless of the
merits or eventual outcome, liability claims may result in:
●
decreased
demand for products that we may offer for sale;
●
injury
to our reputation;
●
costs
to defend the related litigation;
●
a
diversion of management’s time and our resources;
●
substantial
monetary awards to trial participants or patients;
●
product
recalls, withdrawals or labeling, marketing or promotional restrictions; and
●
a
decline in our stock price.
Our
inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of products we develop. We currently do not maintain product
liability insurance in the United States and maintain product liability insurance in Australia up to $10.0 Million AUS Dollars per
claim and in the aggregate. Regardless of whether we maintain product liability insurance coverage in any jurisdiction, including
Australia or in the future the United States, we may be required to pay amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient
capital to pay such amounts.
23
If
we fail to attract and retain key management and scientific personnel, we may be unable to successfully develop or commercialize Glucotrack
CBGM or our future product candidates, if any.
We
will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully
pursue our research, development and commercialization efforts for Glucotrack CBGM or our future product candidates, if any. Our success
depends on our continued ability to attract, retain and motivate highly qualified management and pre-clinical and clinical personnel.
The loss of the services of any of our executive and senior management could delay or prevent the development or commercialization of
Glucotrack CBGM or our future product candidates, if any. At present, we do not have executive insurance policies with respect to any
of our employees. We will need to hire additional personnel as we continue to expand our research and development activities and build
a sales and marketing function.
We
may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for qualified
personnel among medical device and other businesses. If we are not able to attract and retain the necessary personnel to accomplish our
business objectives, we may experience constraints that will significantly impede the achievement of our research and development objectives,
our ability to raise additional capital and our ability to implement our business strategy. In particular, if we lose any members of
our executive or senior management teams, we may not be able to find suitable replacements in a timely fashion or at all and our business
may be harmed as a result.
We
rely on third parties to manufacture and supply our product.
We
do not own or operate manufacturing facilities for clinical or commercial production of Glucotrack CBGM, other than a research and prototyping
lab. We, therefore, lack the internal capability to manufacture the Glucotrack CBGM on a commercial scale.
If
our manufacturing partners are unable to produce our products in the amounts, timing or pricing that we require, we may not be able to
establish a contract and obtain a sufficient alternative supply from another supplier on a timely basis and in the quantities or pricing
we require. We expect to depend on third-party contract manufacturers for the foreseeable future.
Glucotrack
CBGM does, and our future product candidates, if any, likely will require precise, high quality manufacturing. Any of our contract manufacturers
will be subject to ongoing periodic unannounced inspections by the FDA and other non-U.S. regulatory authorities to ensure strict compliance
with quality system regulations, including current good manufacturing practices and other applicable government regulations and corresponding
standards. If our contract manufacturers fail to achieve and maintain high manufacturing standards in compliance with quality system
regulations, we may experience manufacturing errors resulting in patient injury or death, product recalls or withdrawals, delays or interruptions
of production or failures in product testing or delivery, delay or prevention of filing or approval of marketing applications for our
products, cost overruns or other problems that could seriously harm our business.
Any
performance failure on the part of our third-party manufacturers could delay clinical development or regulatory clearance or approval
of our product candidates or commercialization of our future product candidates, if any, depriving us of potential product revenue and
resulting in additional losses. In addition, our dependence on a third-party for manufacturing may adversely affect our future profit
margins. Our ability to replace an existing manufacturer may be difficult because the number of potential manufacturers is limited and
the FDA must approve any replacement manufacturer before it can begin manufacturing our product candidates. Such approval would require
additional non-clinical testing and compliance inspections. It may be difficult or impossible for us to identify and engage a replacement
manufacturer on acceptable terms in a timely manner, or at all.
Independent
clinical investigators and contract research organizations that we may engage to conduct our clinical trials may not be diligent, careful
or timely.
We
will depend on independent clinical investigators to conduct our clinical trials. Contract research organizations may also assist us
in the collection and analysis of data. These investigators and contract research organizations will not be our employees and we will
not be able to control, other than by contract, the amount of resources spent on our endeavors, including time that they devote to products
that we develop. If independent investigators fail to devote sufficient resources to the clinical trials, or if their performance is
substandard, it will delay the approval or clearance and commercialization of any products that we develop. Further, the FDA requires
that we comply with standards, commonly referred to as good clinical practice, for conducting, recording and reporting clinical trials
to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects
are protected. If our independent clinical investigators and contract research organizations fail to comply with good clinical practice,
the results of our clinical trials could be called into question and the clinical development of our product candidates could be delayed.
Failure of clinical investigators or contract research organizations to meet their obligations to us or comply with federal regulations
could adversely affect the clinical development of our product candidates and harm our business.
24
Our
business may become subject to economic, political, regulatory and other risks associated with international operations, which could
harm our business.
Our
business is subject to risks associated with conducting business internationally. Accordingly, our future results could be harmed by
a variety of factors, including:
●
difficulties
in compliance with non-U.S. laws and regulations;
●
changes
in non-U.S. regulations and customs;
●
changes
in non-U.S. currency exchange rates and currency controls;
●
changes
in a specific country or region’s political or economic environment;
●
trade
protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;
●
negative
consequences from changes in tax laws; and
●
difficulties
associated with staffing and managing foreign operations, including differing labor relations.
The
funding that we received through the Israeli Innovation Authority (“IIA”) for research and development activities restricts
our ability to manufacture products or to transfer technology outside of Israel of its first product which we have taken off the market
and no longer have available for sale.
In
2023, the Company abandoned pursuit of its Israeli originated first generation product development programs, including the
abandonment of any associated intellectual property and intangible assets. The Company is solely focused on its second product,
which is uniquely designed and patented, under product and clinical development efforts in the United States. The Company’s Israeli subsidiary is in the process of dissolution and does not conduct any operating activities.
On
March 4, 2004, the IIA agreed to provide us with a grant of 420,000 New Israeli Shekels (“NIS”), or approximately $93 thousand
at an exchange rate of 4.502 NIS/dollar (the exchange rate in effect on such date), for our plan to develop a non-invasive blood glucose
monitor (the “development plan”). This grant constituted 60% of our research and development budget for the development plan
at that time. Due to our acceptance of this grant, we are subject to the provisions of the Israeli Law for the Encouragement of Industrial
Research and Development, 1984 (the “R&D Law”). Among other things, the R&D Law restricts the ability to sell or
transfer rights in technology or know-how developed with IIA funding or transfer any Means of Control (as defined in the R&D Law)
of us to non-Israeli entities. The Industrial Research and Development Committee at the IIA (the “research committee”) may,
under special circumstances, approve the transfer outside of Israel of rights in technology or know-how developed with IIA funding subject
to certain conditions, including the condition that certain payments be made to the IIA. Additionally, products developed with IIA funding
outside of Israel cannot be manufactured without the approval of a research committee. The restrictions regarding the sale or transfer
of technology or manufacturing rights out of Israel could have a material adverse effect on the ability to enter into strategic alliances
or enter into merger or acquisition transactions in the future that provide for the sale or transfer of technology or manufacturing rights.
25
Our
results of operations could be adversely affected by general conditions in the global economy and in the global financial markets.
Factors
such as geopolitical events (including the ongoing wars in Iran, Ukraine and Israel and the risk of increased tensions between China
and Taiwan), inflationary pressures, public health crises, and U.S. election cycles, and changes in government administration and policies
have caused extreme volatility and disruptions in the capital and credit markets in recent years. Uncertainty or unfavorable global economic
conditions could result in a variety of impacts to our business, including adversely impacting our ability to raise additional capital
when needed on acceptable terms, if at all.
Risks
Related to Owning our Common Stock
We
have never declared or paid any cash dividends on our Common Stock and do not anticipate paying any dividends on our Common Stock in
the foreseeable future.
We
have never declared or paid any cash dividends on our Common Stock and do not anticipate paying any dividends on our Common Stock in
the foreseeable future. Any cash that might be available for payment of dividends will be used to expand our business. Payments of any
cash dividends in the future will depend on our financial condition, results of operation and capital requirements, as well as other
factors deemed relevant to our Board of Directors.
If
we are unable to continue to satisfy the applicable continued listing requirements of Nasdaq, our Common Stock could be delisted, and
we and our stockholders could face significant material adverse consequences. In addition, Nasdaq has recently proposed a new $5 million market value of listed securities requirement that we may not satisfy and therefore
could cause our Common Stock to be delisted by Nasdaq on an imminent basis, if approved by the SEC.
In
order to remain listed on Nasdaq, we must satisfy minimum financial and other continued listing requirements and standards, including
those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price,
and certain corporate governance requirements (the “Nasdaq Listing Rules”).
For
example, Nasdaq Listing Rule 5550(b)(1) requires companies listed on Nasdaq to maintain a minimum of $2,500,000 in stockholders’
equity for continued listing (the “Minimum Stockholders’ Equity Requirement”). On May 21, 2024, the Nasdaq Qualifications
Listing Staff (the “Staff”) notified us that our Form 10-Q for the period ended March 31, 2024, indicated that we no longer
met the Minimum Stockholders’ Equity Requirement. Failure to meet the Minimum Stockholders’ Equity Requirement is a basis
for delisting our Common Stock.
Because
we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq as
set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”), at the time we were notified about the non-compliance
with the Minimum Stockholders’ Equity Requirement, we were not eligible to submit a plan to regain compliance with the Staff. However,
we timely requested a hearing before the Nasdaq hearings panel and paid the fee, which resulted in a stay of any suspension or delisting
action pending the hearing. The hearing took place on July 9, 2024, and on August 5, 2024, we received the decision of the panel, and
they granted us an extension until November 18, 2024 to regain compliance with the Minimum Stockholders’ Equity Requirement.
On
November 19, 2024, the Company received a compliance letter (the “Compliance Letter”) from Nasdaq, informing the Company
that it had regained compliance with the Minimum Stockholders’ Equity Requirement. The Compliance Letter noted, that because the
Company’s bid price had closed below the minimum required by the Bid Price Rule following the November Offering (defined blow),
the Panel had determined to impose on the Company a Discretionary Panel Monitor, pursuant to Listing Rule 5815(d)(4)(B), for a period
of one year from the date of the Compliance Letter, to ensure that the Company maintained long-term compliance with the Minimum Stockholders’
Equity Requirement, the Bid Price Rule, and all other Nasdaq Listing Rules.
On
December 31, 2024, Nasdaq notified us that for at least the last 30 consecutive business days, the bid price for our Common Stock had
closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to the Bid Price Rule.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had a compliance period of 180 calendar days, or until June 30, 2025, to regain
compliance with the Bid Price Rule. On February 3, 2025, the Company implemented a reverse stock split at a ratio of 1-for-20 to regain
compliance with the Bid Price Rule. On April 2, 2025, we received a letter from Nasdaq notifying us that as a result of non-compliance
with the Bid Price Rule, Nasdaq Staff had determined to delist our securities. We timely submitted a hearing request to the hearings
panel on April 9, 2025, and paid the fee, which resulted in a stay of any suspension or delisting action pending the hearing. The hearing
took place on May 13, 2025, and on June 2, 2025, we received the decision of the panel granting us an extension until July 3, 2025, to
regain compliance with the Bid Price Rule. On June 13, 2025, the Company implemented a reverse stock split at a ratio of 1-for-60 to
regain compliance with the Bid Price Rule.
On
July 18, 2025, we received notice from Nasdaq that we had regained compliance with the Bid Price Rule. The Panel retained jurisdiction
over the Company through September 29, 2025. On November 5, 2025, the Company was notified by Nasdaq Staff that the Company was in compliance
with all Nasdaq Listing Rules.
In
addition to the foregoing requirements, Nasdaq has recently proposed a new listing requirement that would require each Nasdaq listed
issuer to maintain a minimum market value of listed securities of at least $5 million. Under this proposal, if the value of an issuer’s
listed securities, as measured by each applicable trading day’s closing price, continues to be less than $5 million for a period
of 30 consecutive trading days, the issuer’s securities would immediately be delisted, with no compliance or cure period. The proposed
rule would also preclude an issuer’s ability to seek stay of delisting during any appeals process, and would preclude Nasdaq hearings
panels from reversing the delisting determination to situations where there was an error and the company never actually failed to satisfy
the requirement. The panel would also not be able to consider any facts indicating that issuer subsequently regained compliance with
the requirement or grant an issuer any additional time to regain compliance. The proposed rule is subject to review and approval by the
SEC, and it is unknown whether the SEC will approve the proposal. If approved by the SEC, the rule could become effective on an imminent
basis. Our Common Stock currently trades at levels that are below the $5 million aggregate market value threshold proposed by Nasdaq.
As such, if this proposal is approved by the SEC, our Common Stock could be imminently delisted by Nasdaq on this basis.
We
may be required to monitor our market value of listed securities closely and, if necessary, take actions such as issuing additional securities,
raising additional capital or undertaking other corporate actions to seek to maintain compliance, any of which could dilute our existing
shareholders, increase our costs, or divert management’s attention. The risk of a rapid loss of Nasdaq listing, or an actual delisting,
could adversely affect investor confidence, the liquidity and trading price of our Common Stock, and our ability to access the capital
markets, and could have a material adverse effect on our business, financial condition and results of operations.
There
can be no assurance that we will be able to continue to maintain compliance with the Nasdaq Listing Rules. If we are not able to comply
with applicable Nasdaq Listing Rules, our shares of Common Stock will be subject to delisting.
26
If
Nasdaq delists our Common Stock from trading on its exchange for failure to meet comply with the Bid Price Rule, or any other Nasdaq
Listing Rules, we and our stockholders could face significant material adverse consequences including, but not limited to:
●
a
limited availability of market quotations for our securities;
●
a
reduction in liquidity and market price of our Common Stock;
●
a
reduction in the number of investors willing to hold or acquire our Common Stock, which could negatively impact our ability to raise
equity financing;
●
a
determination that our Common Stock is a “penny stock,” which will require brokers trading in our Common Stock to adhere
to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Common
Stock;
●
a
limited amount of analyst coverage; and
●
a
decreased ability to issue additional securities or obtain additional financing in the future.
We
had identified a material weakness in our internal control over financial reporting, and we may not be able to successfully implement
remedial measures.
We
identified material weaknesses related to our internal control over financial reporting as of December 31, 2024 and concluded that internal
control over financial reporting as at December 31, 2025 were not effective. The ineffectiveness of the Company’s internal control
over financial reporting was due to identification of material weaknesses related to lack of sufficient internal accounting personnel,
segregation of duties, and lack of sufficient internal controls (including IT general controls) that encompass the Company as a whole
with respect to entity and transaction level controls in order to ensure complete documentation of complex and non-routine transactions
and adequate financial reporting.
During the fiscal year ended December 31, 2025, management identified and began implementing corrective actions to remediate these material
weaknesses. These actions include implementing enhanced IT system access controls and data backup procedures, hiring additional accounting
personnel to improve segregation of duties, engaging third‑party valuation and technical accounting experts, and initiating the
implementation of an enterprise resource planning system designed to automate user roles, permissions, and approval workflows. Management
intends to continue these remediation efforts during fiscal year 2026; however, these initiatives may not fully remediate all material
weaknesses in our internal control over financial reporting.
Further,
there can be no assurance that we will not suffer from other material weaknesses or significant deficiencies in the future. If we fail
to remediate these material weaknesses or fail to otherwise maintain effective internal controls over financial reporting in the future,
such failure could result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected
on a timely basis and which could cause investors and other users to lose confidence in our financial statements, limit our ability to
raise capital and have a negative effect on the trading price of our Common Stock. Additionally, failure to remediate the material weakness
or otherwise maintain effective internal controls over financial reporting may also negatively impact our operating results and financial
condition, impair our ability to timely file our periodic and other reports with the SEC, subject us to additional litigation and regulatory
actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.
The
market price and trading volume of our Common Stock has been volatile and may continue to be volatile due to numerous circumstances beyond
our control, and stockholders could lose all or part of their investment.
The
market price and trading volume of our Common Stock has been and may continue to be highly volatile. Our stock price and trading volume
could be subject to wide fluctuations in response to a variety of factors, including, without limitation:
●
results
of trials or studies;
●
the
announcement of new products or product enhancements by us or our competitors;
●
developments
concerning intellectual property rights and regulatory approvals;
●
variations
in our and our competitors’ results of operations;
27
●
changes
in earnings estimates or recommendations by securities analysts, if the Common Stock is covered by analysts;
●
developments
in the medical device industry;
●
the
results of product liability or intellectual property lawsuits;
●
sales,
or the perception that future sales may occur, of equity securities or issuance of debt;
●
future
issuances of Common Stock or other securities;
●
the
addition or departure of key personnel;
●
changes
in state, provincial, or federal regulations affecting us and our industry;
●
economic,
political, and other external factors;
●
announcements
by us or our competitors of acquisitions, investments or strategic alliances; and
●
general
market conditions and other factors, including factors unrelated to our operating performance.
In
addition, the stock market in general, and the market for medical device companies in particular, have experienced extreme price and
volume fluctuations. Continued or renewed market fluctuations could result in extreme volatility in the price of our Common Stock, which
could cause a decline in the value of the Common Stock.
We
have a substantial number of convertible securities outstanding and the exercise of our outstanding warrants could have a dilutive
effect on our Common Stock.
We have a substantial number of convertible securities outstanding, including warrants exercisable for shares of our Common Stock. The
issuance of shares upon the exercise of these warrants would result in dilution to our existing stockholders and could adversely affect
the market price of our Common Stock. The trading price of our Common Stock fluctuates and may not be sufficient to induce warrant holders
to exercise their warrants. If the warrants are “out of the money,” meaning the exercise price exceeds the market price of
our Common Stock, warrant holders are unlikely to exercise their warrants
Our
charter documents, Delaware law, and our commercial contracts may contain provisions that may discourage an acquisition of us by others
and may prevent attempts by our stockholders to replace or remove our current management.
Provisions
in our charter documents, as well as provisions of the Delaware General Corporation Law (“DGCL”), could have an impact on
the trading price of our Common Stock by making it more difficult for a third party to acquire us at a price favorable to our stockholders.
For example, our charter documents include provisions prohibiting the use of cumulative voting for the election of directors; authorizing
the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued by
our board of directors without stockholder approval to defend against a takeover attempt; and establishing advance notice requirements
for nominations for election to our Board or for proposing matters that can be acted upon at stockholder meetings.
In
addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our Board or current management.
We are subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an
interested stockholder, unless such transactions are approved by our Board. This provision could have the effect of delaying or preventing
a change of control, whether or not it is desired by or beneficial to our stockholders, which could also affect the price that some investors
are willing to pay for our Common Stock.
Finally,
commercial contracts that we enter into with our vendors and customers in the course of our business operations may contain provisions
with respect to changes in control that could provide for termination rights or otherwise have a negative impact on our business or results
of operations if a stockholder were to acquire a significant percentage of our outstanding stock.
28
Risks
Related to Intellectual Property
If
we are unable to obtain and enforce patent protection for our products, our business could be materially harmed.
Our
success depends, among other things, on our ability to protect proprietary methods and technologies that we develop under the patent
and other intellectual property laws of the United States and other countries, so that we can prevent others from unlawfully using our
inventions and proprietary information. However, we may not hold proprietary rights to some patents required for us to commercialize
proposed products. For this and other reasons, we may be unable to secure desired patent rights, thereby losing desired exclusivity.
Although we do not believe that we need any licenses for Glucotrack CBGM, we may need to obtain licenses in the future for other products
or in certain circumstances, such as if one of our patents were declared invalid in the future. If such licenses are not available to
us on acceptable terms, we will not be able to market the affected products or conduct the desired activities, unless we successfully
challenge the validity, enforceability or infringement of the third-party patent or otherwise circumvent the third-party patent.
Our
strategy depends on our ability to rapidly identify and seek patent protection for our discoveries. The process of obtaining patent protection
is expensive and time-consuming. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and
use information that we regard as proprietary.
The
issuance of a patent does not guarantee that it is valid or enforceable. Any patents we have obtained, or which we may obtain in the
future, may be challenged, invalidated, unenforceable or circumvented. Moreover, the United States Patent and Trademark Office (the “USPTO”)
may commence interference proceedings involving our patents or patent applications. Any challenge to, finding of unenforceability or
invalidation or circumvention of our patents or patent applications would be costly, would require significant time and attention of
our management and could have a material adverse effect on our business. In addition, court decisions may introduce uncertainty in the
enforceability or scope of patents owned by medical device companies.
Our
pending patent applications may not result in issued patents. The patent position of medical device companies, including us, is generally
uncertain and involves complex legal and factual considerations. The standards that the USPTO and its foreign counterparts use to grant
patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject
matter and scope of claims granted or allowable in medical device patents. Accordingly, we do not know the degree of future protection
for our proprietary rights or the breadth of claims that will be allowed in any patents issued to us or to others. The legal systems
of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not protect our rights
to the same extent as the laws of the United States. Therefore, the enforceability or scope of our patents in the United States or in
foreign countries cannot be predicted with certainty, and, as a result, any patents that we own may not provide sufficient protection
against competitors. We may not be able to obtain or maintain patent protection for our pending patent applications or those we may file
in the future.
While
the Company has obtained issued patents, we cannot assure you that any patents that will issue, that may issue or that may be licensed
to us will be enforceable or valid or will not expire prior to the commercialization of our product candidates, thus allowing others
to more effectively compete with us. Therefore, any patents that we own may not adequately protect our product candidates or our future
products.
29
If
we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could
be adversely affected.
In
addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential
and proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we will seek to enter into
confidentiality and non-disclosure agreements with our employees, consultants and collaborators upon the commencement of their relationships
with us. These agreements generally require that all confidential information developed by the individual or made known to the individual
by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements
with employees also generally provide and will generally provide that any inventions conceived by the individual in the course of rendering
services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with
whom we have these agreements may not comply with their terms. In the event of unauthorized use or disclosure of our trade secrets or
proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for trade secrets or
other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third
parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.
Adequate
remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of trade secrets
would impair our competitive position and may materially harm our business, financial condition and results of operations.
Our
commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third
parties.
Other
entities may have or obtain patents or proprietary rights that could limit our ability to manufacture, use, sell, offer for sale or import
products or impair our competitive position. In addition, to the extent that a third party develops new technology that covers our products,
we may be required to obtain licenses to that technology, which licenses may not be available on commercially reasonable terms, if at
all. If licenses are not available on acceptable terms, we will not be able to market the affected products or conduct the desired activities
unless we successfully challenge the validity, enforceability or infringement of the third-party patent or circumvent the third-party
patent, which would be costly and would require significant time and attention of our management. Third parties may have or obtain valid
and enforceable patents or proprietary rights that could block us from developing products using our technology. Our failure to obtain
a license to any technology that we require may materially harm our business, financial condition and results of operations.
If
we become involved in patent litigation or other proceedings related to a determination of rights, we could incur substantial costs and
expenses, substantial liability for damages or be required to stop our product development and commercialization efforts.
Third
parties may sue us for infringing their patent rights. Likewise, we may need to resort to litigation to enforce a patent issued or licensed
to us or to determine the scope and validity of proprietary rights of others. In addition, a third party may claim that we have improperly
obtained or used our confidential or proprietary information. The cost to us of any litigation or other proceeding relating to intellectual
property rights, even if resolved in our favor, could be substantial, and the litigation would divert management’s efforts. Some
of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially
greater resources. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue
our operations.
If
any parties successfully claim that our creation or use of proprietary technologies infringes upon their intellectual property rights,
we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’
patent rights. In addition to any damages we might have to pay, a court could require us to stop the infringing activity or obtain a
license. Any license required under any patent may not be made available on commercially acceptable terms, if at all. In addition, such
licenses are likely to be non-exclusive and, therefore, our competitors may have access to the same technology. If we fail to obtain
a required license and are unable to design technology that does not infringe upon a patent belonging to a third party, we may be unable
to effectively market some of our technology and products, which could limit our ability to generate revenues or achieve profitability
and possibly prevent us from generating revenue sufficient to sustain operations.
30
Security
threats to our information technology infrastructure could expose us to liability and damage our reputation and business.
It
is essential to our business strategy that our technology and network infrastructure remain secure and are perceived by our customers
and corporate partners to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks
by hackers and other security threats. We may face cyber-attacks that attempt to penetrate our network security, sabotage or otherwise
disable our research, products and services, misappropriate our or our customers’ and partners’ proprietary information,
which may include personally identifiable information, or cause interruptions of our internal systems and services.
Additionally,
there are a number of state, federal and international laws protecting the privacy and security of health information and personal data.
For example, HIPAA imposes limitations on the use and disclosure of an individual’s healthcare information by healthcare providers,
healthcare clearinghouses and health insurance plans, or, collectively, covered entities, and also grants individuals rights with respect
to their health information. HIPAA also imposes compliance obligations and corresponding penalties for non-compliance on individuals
and entities that provide services to healthcare providers and other covered entities. As part of the ARRA, the privacy and security
provisions of HIPAA were amended. ARRA also made significant increases in the penalties for improper use or disclosure of an individual’s
health information under HIPAA and extended enforcement authority to state attorneys general. As amended by ARRA and subsequently by
the final omnibus rule adopted in 2013, HIPAA also imposes notification requirements on covered entities in the event that certain health
information has been inappropriately accessed or disclosed as well as notification requirements to individuals, federal regulators and
in some cases, notification to local and national media. Notification is not required under HIPAA if the health information that is improperly
used or disclosed is deemed secured in accordance with encryption or other standards developed by the U.S. Department of Health and Human
Services. Most states have laws requiring notification of affected individuals and/or state regulators in the event of a breach of personal
information, which is a broader class of information than the health information protected by HIPAA. Many state laws impose significant
data security requirements, such as encryption or mandatory contractual terms, to ensure ongoing protection of personal information.
Activities outside of the United States implicate local and national data protection standards, impose additional compliance requirements,
and generate additional risks of enforcement for non-compliance. We may be required to expend significant capital and other resources
to ensure ongoing compliance with applicable privacy and data security laws, to protect against security breaches and hackers or to alleviate
problems caused by such breaches.
If
we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and
product could be significantly diminished.
We
also rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants,
outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information.
These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event
of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary
information. For example, the FDA, as part of its transparency initiative, is currently considering whether to make additional information
publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information,
and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret
protection could adversely affect our competitive business position.
We
may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants
do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees
or consultants have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.
Litigation may be necessary to defend against these claims. If we fail to defend any such claims, in addition to paying monetary damages,
we could lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful
in defending against these claims, litigation could result in substantial costs and be a distraction to management.
31