Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
This
Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives,
expectations and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as applicable to all forward-looking
statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Annual Report
on Form 10-K.
We
might not be able to continue as a going concern.
Our consolidated financial statements as of
March 31, 2024 have been prepared under the assumption that we will continue as a going concern twelve months from the date of
issuance of this Report. At March 31, 2024, we had cash and cash equivalents of $9.2 million and an accumulated deficit of $65.9
million. In February 2024, we completed a public offering of common stock for net proceeds to us of approximately $10.3 million. In
May 2023, we completed a public offering of common stock and warrants for net proceeds to us of approximately $9.7 million. Even
with these offering proceeds, we do not believe that our cash and cash equivalents would be sufficient to fund our operations for
the period of 12 months from the date of issuance of this report, and we would need to raise additional capital. As a result of
our expected operating losses and cash burn for the foreseeable future and recurring losses from operations, if we are unable to
raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding our ability to maintain
liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability to continue as a going
concern. If we cannot continue as a viable entity, our stockholders would likely lose most or all of their investment in us.
If
we are unable to generate sustainable operating profit and sufficient cash flows, then our future success will depend on our ability
to raise capital. We intend to seek additional financing and evaluate financing alternatives in order to meet our cash requirements for
the foreseeable future. We cannot be certain that raising additional capital, whether through selling additional debt or equity securities
or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue
additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock,
and our current stockholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be
required to curtail our current product development programs, cut operating costs, forego future development and other opportunities
or even terminate our operations.
We
are a developmental stage medical device company and have a history of significant operating losses; we expect to continue to incur operating
losses, and we may never achieve or maintain profitability.
As
a development-stage enterprise, we do not currently have revenues to generate cash flows to cover operating expenses. Since our inception,
we have incurred operating losses in each year due to costs incurred in connection with research and development activities and general
and administrative expenses associated with our operations. For the years ended March 31, 2024 and, 2023, we incurred net losses of approximately
$17.5 million and $13.9 million, respectively. As a result, we need to raise additional capital in the future, which may or may not be
available to us at all or only on unfavorable terms.
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We
expect to incur losses for the foreseeable future as we continue the development of, and seek regulatory clearance and approvals for,
our insulin pump. As our MODD1 insulin pump is currently our only product, if it fails to gain regulatory approval and market acceptance,
we will not be able to generate any revenue, or explore other opportunities to enhance stockholder value, such as through a sale. If
we fail to generate revenue and eventually become profitable, or if we are unable to fund our continuing losses, our stockholders could
lose all or a substantial part of their investment.
We
will need substantial additional funding to complete subsequent phases of the development of our insulin pump product candidate and to
operate our business and such funding may not be available or, if it is available, such financing is likely to substantially dilute our
existing stockholders.
The discovery, development, and commercialization
of new medical devices, such as our insulin pump, entails significant costs. We have completed the engineering and mechanical development
of our insulin pump and cartridge, and submitted the product to the FDA for clearance. In addition, we have also implemented a production-level
manufacturing process, including purchasing required equipment for low-level manufacturing. We will continue to refine our insulin pump
to, among other things, meet the general needs and preferences of the Almost Pumper marketplace and the guidelines of third-party payors.
To enable us to accomplish these and other related items and continue to operate our business, we will need to raise substantial additional
capital and/or enter into strategic partnerships or joint ventures to enable us to:
●
seek European regulatory approvals with appropriate clinical studies;
●
expand and continue to improve our manufacturing and commercialization capabilities;
●
develop, test, and, if
approved, market our product candidate;
●
acquire or license additional
internal systems and other infrastructure; and
●
hire and support additional management, administrative, sales and marketing,
and technical personnel.
Until
we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we expect to finance
our cash needs primarily through public or private equity offerings, debt financings or through the establishment of possible strategic
alliances. We may in the future seek additional capital from public or private offerings of our capital stock or borrow additional amounts
under new credit lines or from other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders
may experience dilution, we may incur significant financing costs, and the new equity or debt securities may have rights, preferences
and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaborations, licensing,
joint ventures, strategic alliances, partnership arrangements or other similar arrangements, it may be necessary to relinquish valuable
rights to the MODD1 pump or our potential future products or proprietary technologies or grant licenses on terms that are not favorable
to us.
We cannot be certain that additional funding will
be available on acceptable terms, or at all. If we are not able to secure additional equity funding when needed, we may have to delay,
reduce the scope of, or eliminate one or more of our post-market clinical studies, development programs or future commercialization initiatives.
In addition, any additional equity funding that we do obtain will dilute the ownership held by our existing equity holders. The amount
of this dilution may be substantially increased if the trading price of our common stock is lower at the time of any financing. Regardless,
the economic dilution to stockholders will be significant if our stock price does not increase significantly, or if the effective price
of any sale is below the price paid by a particular stockholder. Any debt financing that we obtain in the future could involve substantial
restrictions on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential sources for
such financing that we will require, and we do not have commitments from any third parties to provide any future debt financing. If we
fail to obtain funding as needed, we may be forced to cease or scale back operations, and our business, prospects, results of operations,
financial condition and stock price would be adversely affected.
We
have a limited operating history and historical financial information upon which you may evaluate our performance.
You
should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that,
like us, are in their early stages of development. We may not successfully address these risks and uncertainties or successfully complete
our studies and/or implement our existing and new products. If we fail to do so, it could materially harm our business and impair the
value of our common stock. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business, conducting
research, and developing new products. These include, but are not limited to, inadequate funding, failure to obtain regulatory approval,
unforeseen research issues, lack of consumer, physician or third-party payor acceptance, competition, sluggish product development, and
inadequate sales and marketing. The failure by us to meet any of these conditions would have a materially adverse effect upon us and
may force us to reduce or curtail operations. No assurance can be given that we can or will ever operate profitably.
The
amount of financing we require will depend on a number of factors, many of which are beyond our control. Our results of operations, financial
condition and stock price are likely to be adversely affected if our funding requirements increase or are otherwise greater than we expect.
Our
future funding requirements will depend on many factors, including, but not limited to:
●
the testing costs for our
insulin pump product candidate and other development activities conducted by us directly, and our ability to successfully conclude
the studies and activities and achieve favorable results;
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●
our ability to attract
future strategic partners to pay for or share costs related to our product development efforts;
●
the costs and timing of
seeking and obtaining regulatory clearance and approvals for our product candidate;
●
the costs of filing, prosecuting,
maintaining and enforcing any patents and other intellectual property rights that we may have and defending against potential claims
of infringement;
●
decisions to hire additional
scientific, engineering or administrative personnel or consultants;
●
our ability to manage administrative
and other costs of our operations; and
●
the presence or absence
of adverse developments in our research program.
If
any of these factors cause our funding needs to be greater than expected, our operations, financial condition, ability to continue operations
and stock price may be adversely affected.
Our
future cash requirements may differ significantly from our current estimates.
Our
cash requirements may differ significantly from our estimates from time to time, depending on a number of factors, including:
●
the costs and results of
our clinical studies regarding our insulin pump product candidate;
●
the time and costs involved
in obtaining regulatory clearance and approvals;
●
whether we are able to
obtain funding under future licensing agreements, strategic partnerships, or other collaborative relationships, if any;
●
the costs of compliance
with laws, regulations, or judicial decisions applicable to us; and
●
the
costs of general and administrative infrastructure required to manage our business and protect corporate assets and stockholder interests.
If
we fail to raise additional funds on a timely basis, we will need to scale back our business plans, which would adversely affect our
business, prospects, results of operations, financial condition, and stock price, and we may even be forced to discontinue our operations
and liquidate our assets.
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Technological
breakthroughs in diabetes monitoring, treatment or prevention could render our insulin pump obsolete.
The
diabetes treatment market is subject to rapid technological change and product innovation. Our insulin pump is based on our proprietary
technology, but a number of companies, medical researchers and existing pharmaceutical companies are pursuing new delivery devices, delivery
technologies, sensing technologies, procedures, drugs and other therapeutics for the monitoring, treatment and/or prevention of insulin-dependent
diabetes. Any technological breakthroughs in diabetes monitoring, treatment or prevention could render our insulin pump obsolete, which,
since our insulin pump is our only product candidate, would have a material adverse effect on our business, our insulin pump is our only
product candidate, would have a material adverse effect on our business, prospects, results of operations and financial condition and
could result in stockholders losing their entire investment.
Any
failure to attract and retain skilled directors, executives, employees and consultants could impair our product development and commercialization
activities.
Our
business depends on the skills, performance, and dedication of our directors, executive officers and key engineering, scientific and
technical advisors. Many of our current engineering or scientific advisors are independent contractors and are either self-employed or
employed by other organizations. As a result, they may have conflicts of interest or other commitments, such as consulting or advisory
contracts with other organizations, which may affect their ability to provide services to us in a timely manner. We will need to recruit
additional directors, executive management employees, and advisers, particularly engineering, scientific and technical personnel, which
will require additional financial resources. In addition, there is currently intense competition for skilled directors, executives and
employees with relevant engineering, scientific and technical expertise, and this competition is likely to continue. If we are unable
to attract and retain persons with sufficient engineering, scientific, technical and managerial experience, we may be forced to limit
or delay our product development activities or may experience difficulties in successfully conducting our business, which would adversely
affect our business, prospects, results of operations and financial condition.
Our
operations are substantially dependent upon key personnel.
Our
performance is substantially dependent on the continued services and performance of our senior management and certain other key personnel.
The loss of services of any of our executive officers or other key employees could have a material adverse effect on our business, financial
condition and results of operations. In addition, any future expansion of our business will depend on our ability to identify, attract,
hire, train, retain and motivate other highly skilled managerial, marketing, customer service and manufacturing personnel, and our inability
to do so could have a material adverse effect on our business, financial condition and results of operations.
We
are dependent on the performance and continued engagement of our Chairman, President and Principal Financial Officer.
We
are dependent on the performance and continued engagement of Paul DiPerna, our chairman, president and principal financial officer. Although
we believe we will be able to engage qualified personnel for such purposes, an inability to do so could materially adversely affect our
ability to market, sell, and enhance our products. While Mr. DiPerna is currently devoting his full-time working efforts to us, other
employees and consultants may only be available to us on a part-time basis. The loss of one or more of our key employees, especially
Mr. DiPerna, or our inability to hire and retain other qualified employees, including but not limited to research and development, sales,
manufacturing, and administrative support staff, could have a material adverse effect on our business, prospects, results of operations
and financial condition.
We
have limited internal research and development personnel, making us dependent on consulting relationships.
We
consider research and development to be an important part of the process of designing, developing, obtaining regulatory required approvals
and the eventual commercialization of our insulin pump. We continue to incur increased research and development expenditures, which are
primarily attributable to effort and expenses incurred in designing and developing our innovative insulin pump. We expect to continue
to incur substantial costs related to research and development.
We
will need to outsource and rely on third parties for various aspects relating to the development, manufacture, sales and marketing of
our insulin pump as well as in connection with assisting us in the preparation and filing of our FDA submission, and our future success
will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We
are dependent on consultants for important aspects of our product development strategy. We do not have the required financial resources
and personnel to carry out independently the development of our product candidate, and do not have the capability or resources to manufacture,
market or sell our current product candidate. As a result, we contract with and rely on third parties for important functions, including
in connection with the development and finalization of our insulin pump, the preparation and filing of our FDA submission and eventual
manufacturing and commercialization of our product candidate. We have recently entered into several agreements with third parties for
such services. If problems develop in our relationships with third parties, or if such parties fail to perform as expected, it could
lead to delays or lack of progress in obtaining FDA clearance, significant cost increases, changes in our strategies, and even failure
of our product initiatives.
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We
may not be able to identify, negotiate and maintain the strategic alliances necessary to develop and commercialize our products and technologies,
and we will be dependent on our corporate partners if we do.
We
may seek to enter into a strategic alliance with a diabetes-related service providing company for the further development and approval
of our insulin pump product candidate. At this time, we have not entered into any such strategic alliance. Strategic alliances, if entered
into, could potentially provide us with additional funds, expertise, access, and other resources in exchange for exclusive or non-exclusive
licenses or other rights to the product that we are currently developing or a product we may explore in the future. We cannot give any
assurance that we will be able to enter into strategic relationships with a diabetes-related service providing company or others in the
near future or at all. In addition, we cannot assure you that any agreements that we do reach will allow us to achieve our goals or that
such grants will be on terms that prove to be economically beneficial to us. When we do enter into strategic or contractual relationships,
we become dependent on the successful performance of our partners or counter-parties. If they fail to perform as expected, such failure
could adversely affect our financial condition, lead to increases in our capital needs, or hinder or delay our development efforts. See
“ Our Business -Employees ” below.
We
may not receive the necessary regulatory clearance or approvals for our insulin pump, and failure to timely obtain necessary clearances
and/or approvals could harm our then operations, including our ability to commercialize our product candidate.
Before
we can market a new medical device, such as our insulin pump, we must first receive clearance under Section 510(k) of the Federal Food,
Drug, and Cosmetic Act, or the “FDCA.” In the 510(k) clearance process, before a device may be marketed, the FDA must determine
that such proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes
a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments
device), a device that was originally on the U.S. market pursuant to a premarket approval (PMA) and later down-classified, or a 510(k)-exempt
device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and
either have the same technological characteristics as the predicate device or have different technological characteristics and not raise
different questions of safety or effectiveness than the predicate device. In January 2024, we submitted a 510(k) premarket notification
to the United States Food and Drug Administration (“FDA”) for our MODD1 insulin pump.
Certain
future modifications made to our product candidate, which we currently expect to be cleared through 510(k), may require a new 510(k)
clearance. The 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes
less than 12 months, but it can last longer. Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any
delay or failure to obtain necessary regulatory authorizations could harm our business, including our ability to commercialize our product
candidate and our stockholders could lose their entire investment. Furthermore, even if we are granted the required regulatory authorizations,
such authorizations may be subject to significant limitations on the indicated uses for the device, which may limit the market for our
product candidate.
If
the FDA requires us to go through a lengthier, more rigorous examination for our product candidate than we had expected, product introductions
or modifications could be delayed or canceled, which could adversely affect our ability to grow our business.
The
FDA can delay, limit or deny clearance or approval for our insulin pump medical device for many reasons, including, for example:
● our
inability to demonstrate to the satisfaction of the FDA that our product candidate is substantially
equivalent to the proposed predicate device;
● the
disagreement of the FDA with the design or implementation of our performance testing protocols
or the interpretation of data from our performance testing;
● the
data from performance testing may be insufficient to support a determination of substantial
equivalence or that our device meets required special controls or applicable performance
standards;
● our
inability to demonstrate that the benefits of our pump outweigh the risks;
● the
manufacturing process or facilities we intend to use may not meet applicable requirements;
for example, we experienced issues maintaining insulin stability on an initial version of
our pump product candidate, and we attributed this issue to the materials used in the production
of our product; we believe we have made the necessary changes to our materials and process
to address this issue and will be completing the required testing prior to our FDA submission;
and
● the
potential for approval policies or regulations of the FDA to change significantly in a manner
rendering our data or regulatory filings insufficient for clearance or approval.
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In
addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take
other actions, which may prevent or delay approval or clearance of our product candidate or impact our ability to modify our product
candidate after clearance on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could
delay our ability to obtain clearance for our pump, increase the costs of compliance or restrict our ability to maintain our current
approval.
As
a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based,
among other things, on the evaluation of data supporting the safety and performance of the product candidates during normal conditions
of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use,
that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended
performance, and that any claims made about the performance and safety of the device are supported by suitable evidence.
Obtaining
marketing authorization in the United States will not obviate the need to obtain marketing authorization in other jurisdictions We must
obtain approval from foreign regulatory authorities before we can market and sell any of our product candidates in countries outside
the United States. We will incur additional costs in seeking such approvals, may experience delays in obtaining such approvals and cannot
be certain that such approvals will be granted.
The
development, manufacture, and marketing of our product candidates outside the United States is subject to government regulation. In most
foreign countries, we must complete rigorous pre-clinical testing and extensive human clinical trials that demonstrate the safety and
efficacy of a product in order to apply for regulatory approval to market the product. If foreign regulatory authorities grant regulatory
approval of a product, the approval may be limited to specific indications or limited with respect to its distribution. Expanded or additional
indications for approved devices may not be approved, which could limit our potential revenues. Foreign regulatory authorities may refuse
to grant any approval. Consequently, even if we believe that pre-clinical and clinical data are sufficient to support regulatory approval
for our products, foreign regulatory authorities may not ultimately grant approval for commercial sale in any jurisdiction. If our product
candidates are not approved in such jurisdictions, our ability to generate revenues will be limited and our business will be adversely
affected.
Our
competitors may develop products that are more effective, safer and less expensive than ours.
Existing
insulin pumps are expensive, with the more popular models having purchase prices exceeding $4,000 for individuals without health insurance
and often require significant patient copays. Others have daily use costs that exceed the reimbursement rates of many health insurance
plans, forcing some users to spend thousands of dollars a year in copays. We believe this makes insurers hesitant to pay for any pumps
and places pumps out of reach for many patients who cannot afford such out of pocket expenses.
We
are engaged in the diabetes treatment sector of the healthcare marketplace, which is intensely competitive. There are current products
that are quite effective at addressing the effects of diabetes, and we expect that new developments by other companies and academic institutions
in the areas of diabetes treatment will continue. If approved for marketing by the FDA, depending on the approved clinical indication,
our product will be competing with existing and future products related to treatments for diabetes.
Our
competitors may:
●
develop product candidates
and market products that increase the levels of safety or efficacy that our product candidates will need to show in order to obtain
regulatory approval;
●
develop product candidates
and market products that are less expensive or more effective than ours;
●
commercialize competing
products before we can launch any products we are working to develop;
●
hold or obtain proprietary
rights that could prevent us from commercializing our products; or
●
introduce therapies or
market medical products that render our potential product candidates obsolete.
We expect to compete against large medical device
companies, such as Medtronic, Inc., Tandem Diabetes Care, Inc. and Insulet Corporation, smaller companies that are collaborating with
larger medical device companies, new companies, academic institutions, government agencies and other public and private research organizations.
These competitors, in nearly all cases, produce similar products relative to the treatment of diabetes and have substantially greater
financial resources than we do. Our competitors also have significantly greater experience in:
●
developing medical device
and other product candidates;
●
undertaking testing and
clinical studies;
●
building relationships
with key customers and opinion-leading physicians;
●
obtaining and maintaining
FDA and other regulatory approvals;
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●
formulating and manufacturing
medical devices;
●
launching, marketing and
selling medical devices;
● providing
management oversight for all of the above-listed operational functions; and
● obtaining
insurance coverage and reimbursement for their competitive products.
If
we fail to achieve acceptance over other existing or newly developed products, we may be unable to obtain regulatory approval or successfully
commercialize our MODD1 insulin pump product candidate or any future products. If our competitors’ market medical devices that
are less expensive, safer or more effective than our insulin pump, or that gain or maintain greater market acceptance, we may not be
able to compete effectively, which would adversely affect our business, prospects, results of operations and financial condition. See
“ Business - Competition .”
We
expect to rely on third-party manufacturers and will be dependent on their quality and effectiveness.
Our
insulin pump requires precise, high-quality manufacturing. The failure to achieve and maintain high manufacturing standards, including
failure to detect or control anticipated or unanticipated manufacturing errors or the frequent occurrence of such errors, could result
in patient injury or death, discontinuance or delay of ongoing or planned clinical studies, delays or failures in product testing or
delivery, cost overruns, product recalls or withdrawals and other problems that could seriously hurt our business. Contract medical device
manufacturers often encounter difficulties involving production yields, quality control and quality assurance and shortages of qualified
personnel. These manufacturers are subject to stringent regulatory requirements, including the FDA’s current good-manufacturing-practices
regulations. If our contract manufacturers fail to maintain ongoing compliance at any time, the production of our product could be interrupted,
resulting in delays or discontinuance of our clinical studies, additional costs and loss of potential revenues.
We
may not be able to successfully scale-up manufacturing of our product candidate in sufficient quality and quantity, which would delay
or prevent us from developing our product candidate and commercializing our product candidate.
In
order to conduct larger-scale or late-stage clinical studies and for commercialization of our insulin pump, if 510(k) clearance is granted,
we will need to manufacture it in larger quantities. We may not be able to successfully increase the manufacturing capacity for our product
candidate in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If we are
unable to successfully scale up the manufacture of our product candidate in sufficient quality and quantity, the development and testing
of our product candidate and regulatory approval or commercial launch may be delayed, which could significantly harm our business.
We
are dependent upon third-party suppliers to manufacture our product, and this makes us vulnerable to supply shortages and price increases;
we may not be able to obtain an adequate supply of components on a timely basis or at all.
The
future manufacture of our product will require the timely delivery of sufficient amounts of components from multiple suppliers in various
countries. We intend to work closely with our suppliers to ensure continuity of supply, but we cannot guarantee these efforts will be
successful. Due to the supply chain issues experienced by the semiconductor industry, at times, we have experienced delays obtaining
integrated circuits from certain suppliers. We may need to enter into “take or pay” contracts with suppliers. We have also
seen price increases for various components. We do not have supply agreements with any of our suppliers, and we make purchases based
on individual purchase orders. An interruption, delay, or inability to obtain components from our third-party suppliers at acceptable
prices in a timely manner, could hinder our ability to manufacture our products and have a material adverse effect on our business, prospects,
financial condition and results of operations.
We
may be subject to potential product liability and other claims that could materially impact our business and financial condition.
The
development and sale of our insulin pump exposes us to the risk of significant damages from product liability and other claims, and the
use of our product in clinical studies may result in adverse effects from liability claims. We cannot predict all the possible harms
or adverse effects that may result. We intend to obtain product liability insurance to provide some protection from claims. Nonetheless,
we may not have sufficient resources to pay for any liabilities resulting from a personal injury or other claim, even if it is partially
covered by insurance. In addition to the possibility of direct claims, we may be required to indemnify third parties against damages
and other liabilities arising out of our development, commercialization and other business activities, which would increase our liability
exposure. If third parties that have agreed to indemnify us fail to do so, we may be held responsible for those damages and other liabilities
as well.
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Legislative,
regulatory, or medical cost reimbursement changes may adversely impact our business.
New
laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to the health
care system in the U.S. and in other jurisdictions may change the nature of and regulatory requirements relating to innovations in medical
devices, testing and regulatory approvals, limit or eliminate payments for medical procedures and treatments, or subject the pricing
of medical devices to government control. In addition, third-party payors in the U.S. are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement of new products. Consequently, significant uncertainty exists as to the
reimbursement status of newly approved health care products. Significant changes in the health care system in the U.S. or elsewhere,
including changes resulting from adverse trends in third-party reimbursement programs, could have a material adverse effect on our projected
future operating results and our ability to raise capital, commercialize products, and remain in business.
We
are subject to extensive regulation by the FDA, which could restrict the sales and marketing of our insulin pump and could cause us to
incur significant costs.
Our
insulin pump is subject to extensive regulation by the FDA. These regulations relate to manufacturing, labeling, sale, promotion, distribution
and shipping. Before a new medical device, or a new intended use of a legally marketed device, can be marketed in the United States,
it must be cleared or approved by FDA through the applicable premarket review process (510(k), PMA, or de novo classification), unless
an exemption applies. If we receive 510(k) clearance for our insulin pump, we may be required to obtain new 510(k) clearances for significant
post-market modifications to the pump. Each premarket submission and review process can be expensive and lengthy, and entail significant
user fees, unless exempt.
Medical
devices may be marketed only for the indications for which they are approved or cleared. Further, 510(k) clearance can be revoked if
safety or effectiveness problems develop once the device is on the market.
The
current regulatory requirements to which we are subject may change in the future in a way that adversely affects us. If we fail to comply
with present or future regulatory requirements that are applicable to us, we may be subject to enforcement action by the FDA, which may
include any of the following sanctions:
●
untitled letters, warning
letters, fines, injunctions, consent decrees and civil penalties;
●
customer notification,
or orders for repair, replacement or refunds;
●
voluntary or mandatory
recall or seizure of our current or future products;
●
administrative detention
by the FDA of medical devices believed to be adulterated or misbranded;
●
imposing operating restrictions,
suspension or shutdown of production;
●
refusing our requests for
510(k) clearance, PMA or de-novo classification of any new products, new intended uses or modifications to our insulin
pump;
●
rescinding 510(k) clearance
that has already been granted; and
●
criminal prosecution.
The
occurrence of any of these events would have a material adverse effect on our business, financial condition and results of operations
and could result in stockholders losing their entire investment.
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Although
our insulin pump product candidate does not presently require clinical trials to apply to the FDA for clearance and even if a clinical
trial is completed, the results of our clinical testing may not demonstrate the safety and efficacy of the device or may be equivocal
or otherwise not be sufficient for us to obtain approval of our product candidate.
Clinical trials are almost always required to
support a PMA application and may also be required to support 510(k) submissions although at this time ours does not require a PMA. If
the device presents a “significant risk” to human health as defined by the FDA, the FDA requires the study sponsor to submit
an investigational device exemption (“IDE”) application and obtain IDE approval prior to commencing human clinical trials.
The IDE must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device
in humans and that the testing protocol is scientifically sound. An IDE will automatically become effective 30 days after receipt by the
FDA, unless the FDA denies the application or notifies the sponsor that the investigation is on hold and may not begin until the sponsor
provides supplemental information about the investigation that satisfies the agency’s concerns. The FDA may also notify the sponsor
that the study is approved as proposed. If the FDA determines that there are deficiencies or other concerns with an IDE that require modification
of the study, the FDA may permit a clinical trial to proceed under conditional approval. Furthermore, the agency may withdraw approval
of an IDE under certain circumstances. Clinical trials for a significant risk device may begin once an IDE is approved by the FDA and
the appropriate Institutional Review Board (“IRB”) at each clinical trial site. If the product is deemed a “non-significant
risk” device, IDE approval from the FDA would not be required, but the clinical trial would need to meet other requirements including
IRB approval. Our clinical trials must be conducted in accordance with FDA regulations and federal and state regulations concerning human
subject protection, including informed consent and healthcare privacy. A clinical trial may be suspended by the FDA or at a specific site
by the relevant IRB at any time for various reasons, including a determination that the risks to the trial participants outweigh the benefits
of participation in the clinical trial. Even if a clinical trial is completed, the results of our clinical testing may not demonstrate
the safety and efficacy of the device or may be equivocal or otherwise not be sufficient for us to obtain approval of our product.
Our
success depends substantially upon our ability to obtain and maintain intellectual property protection relating to our product candidate
and research technologies.
We have applied to the U.S. Patent and Trademark
Office (the “USPTO”) and various foreign patent agencies for patents on our proprietary fluid movement technology and our
insulin delivery methodology. To date, the USPTO has granted four patents to us, and we have additional applications pending and in various
stages of review by the USPTO and foreign patent agencies. There can be no assurance that we will be issued additional patents by the
USPTO or foreign patent agencies and that any of our patents will prevent other companies from competing with us. We will continue to
attempt to patent our innovations, as appropriate, to help ensure a sustainable competitive advantage.
Due
to evolving legal standards relating to the patentability, validity and enforceability of patents covering health care product inventions,
our ability to enforce our existing patents and to obtain and enforce patents that may issue from any pending or future patent applications
is uncertain and involves complex legal, scientific and factual questions. To date, no consistent policy has emerged regarding the breadth
of claims allowed in medical device patents. Thus, we cannot be sure that any patents will issue from any pending or future patent applications
owned by or licensed to us. Even if patents do issue, we cannot be sure that the claims of these patents will be held valid or enforceable
by a court of law, will provide us with any significant protection against competing products, or will afford us a commercial advantage
over competitive products. If, at some point in the future, one or more products resulting from our product candidates is approved for
sale by the FDA and we do not have adequate intellectual property protection for those products, competitors could duplicate them for
approval and sale in the United States without repeating the extensive testing required of us to obtain FDA approval.
If
we are sued for infringing on third-party intellectual property rights, it will be costly and time-consuming, and an unfavorable outcome
would have a significant adverse effect on our business.
Our
ability to commercialize our product candidate depends on our ability to use, manufacture and sell our product candidate without infringing
the patents or other proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned
by third parties exist in the diabetes medical device area. There may be existing patents, unknown to us, on which our activities with
our insulin pump candidate could infringe.
If
a third party claims that our actions infringe on its patents or other proprietary rights, we could face a number of issues that could
materially harm our competitive position, including, but not limited to:
●
infringement and other
intellectual property claims that, even if meritless, can be costly and time-consuming, delay the regulatory approval process and
divert management’s attention from our core business operations;
●
an order that we pay substantial damages for infringement, including consequential damages for lost of profits or market share, if a
court determines that our products or technologies infringe on a third party’s patent or other proprietary rights;
28
●
a court prohibiting us
from selling or licensing our products or technologies unless the holder licenses the patent or other proprietary rights to us, which
it is not required to do; and
●
even if a license is available
from a holder, we may have to pay substantial royalties or grant cross-licenses to our patents or other proprietary rights.
If
any of these events occur, it could significantly harm our operations and financial condition and negatively affect our stock price.
If
we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely
affected.
In
addition to patented technology and technology for which patent protection is being sought, we rely on our unpatented technology, trade
secrets and know-how. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements
with our officers, employees, contractors and other service providers and with parties with which we do business. These agreements may
be breached, which breach may result in the misappropriation of such information, and we may not have adequate remedies for any such
breach. We cannot be certain that the steps we have taken will prevent unauthorized use or reverse engineering of our technology.
Moreover,
our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our
officers, employees, contractors, other service providers, or other third parties with whom we do business use intellectual property
owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any
of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and
have a material adverse effect on our business, financial condition, and results of operations.
Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations,
and may not adequately protect our business, or permit us to gain and maintain a competitive advantage. The following examples are illustrative:
●
others may be able to make
devices that are similar to our insulin pump but that are not covered by the claims of the patents that we own;
●
we or any collaborators
might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own;
●
we might not have been
the first to file patent applications covering certain of our inventions;
●
others may independently
develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
●
it is possible that our
pending patent applications will not lead to issued patents;
●
issued patents that we
own may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
●
our competitors might conduct
research and development activities in the U.S. and other countries that provide a safe harbor from patent infringement claims for
certain research and development activities, as well as in countries where we do not have patent rights, and then use the information
learned from such activities to develop competitive products for sale in our major commercial markets; and
●
we may not develop additional
proprietary technologies that are patentable.
29
Healthcare
reform and drug-pricing reform laws could adversely affect our product candidate and financial condition.
In
the United States, there have been, and continue to be, a number of legislative initiatives to contain healthcare costs. In March 2010,
the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (ACA), was
enacted in the United States, which made a number of substantial changes in the way healthcare is financed by both governmental and private
insurers. Among other ways in which it may affect our business, the ACA implemented payment system reforms, including a national pilot
program on payment bundling to encourage hospitals, physicians, and other providers to improve the coordination, quality, and efficiency
of certain healthcare services through bundled payment models and expanded the eligibility criteria for Medicaid programs. Since its
enactment, there have been judicial, executive, and Congressional challenges to certain aspects of the ACA. It is unclear how the ACA
and its implementation, as well as efforts to repeal or replace, or invalidate, the ACA, or portions thereof, will affect our insulin
pump or our business. Additional legislative changes, regulatory changes, and judicial challenges related to the ACA remain possible.
It is possible that the ACA, as currently enacted or as it may be amended in the future, and other healthcare reform measures that may
be adopted in the future, could have an adverse effect on our industry generally and on our ability to commercialize our insulin pump
and achieve profitability. We have assumed in all of our financial projections that there is not an increase in the reimbursement for
our product through the pharmacy or durable medical equipment routes.
Drug pricing continues to be a subject of debate
at the executive and legislative levels of U.S. government. The American Rescue Plan Act of 2021 eliminated the statutory cap on rebates
that drug manufacturers pay to Medicaid beginning January 1, 2024. With the elimination of the rebate cap, manufacturers may be required
to compensate states in an amount greater than what the state Medicaid programs pay for the drug. Additionally, the Inflation Reduction
Act of 2022 contains substantial drug pricing reforms, including the establishment of a drug price negotiation program within the U.S.
Department of Health and Human Services that would require manufacturers to charge a negotiated “maximum fair price” for
certain selected drugs or pay an excise tax for noncompliance, the establishment of rebate payment requirements on manufacturers of certain
drugs payable under Medicare Parts B and D to penalize price increases that outpace inflation, and requires manufacturers to provide
discounts on Part D drugs. Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the Inflation
Reduction Act of 2022. The Inflation Reduction Act of 2022 could have the effect of reducing the prices we can charge and reimbursement
we receive for our products, if approved, thereby reducing our profitability, and could have a material adverse effect on our financial
condition, results of operations and growth prospects. The effect of Inflation Reduction Act of 2022 on our business and the pharmaceutical
industry in general is not yet known.
At
the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product
pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure
and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect
that additional federal, state and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement
and reduced demand for our products, once approved, or additional pricing pressures.
These
and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and in additional
downward pressure on the price that we receive for any current product or future product candidate. Any reduction in reimbursement from
Medicare or other government healthcare programs may result in a similar reduction in payments from private payors. The implementation
of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or
commercialize our products. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales
and promotional activities for drugs. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of any current or future product
candidates, if any, may be. In addition, increased Congressional scrutiny of the FDA’s approval process may significantly delay
or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
30
Even
if we are able to obtain all regulatory approvals and have completed all other steps needed to be taken to commercialize our insulin
pump, if we or any contract manufacturers we select fails to comply with the FDA’s quality system regulations, the manufacturing
and distribution of our product candidate could be interrupted, and our product sales and operating results could suffer.
We
have established initial, low-volume manufacturing capability in our facility, and we have selected an initial, tier one contract manufacturer.
We and the contract manufacturer of our insulin pump will be required to comply with the FDA’s quality system regulations, which
impose a complex regulatory framework that covers the procedures and documentation of the design, testing, production, control, quality
assurance, labeling, packaging, sterilization, storage and shipping of medical devices. The FDA enforces its quality system regulations
through periodic unannounced inspections. We cannot assure you that, in the future, any manufacturing facilities owned by us or any contract
manufacturer will pass any quality system inspection. In the event that our or any contract manufacturer’s facilities fails a quality
system inspection, the manufacturing or distribution of our product candidate could be interrupted and our operations disrupted. Failure
to take adequate and timely corrective action in response to an adverse quality system inspection could force a suspension or shutdown
of any packaging and labeling operations or then manufacturing operations of any contract manufacturers, or a recall of our insulin pump.
If any of these events were to occur, we at such time would not be able to provide our customers with the quantity of insulin pumps that
they require on a timely basis, our reputation could be harmed and we could lose any customers we then have, any or all of which could
have a material adverse effect on our business, financial condition and results of operations.
We
may bring infringement claims or other legal proceedings against third parties, causing us to spend substantial resources on litigation
and exposing our own intellectual property portfolio to challenge.
We
may come to believe that third parties are infringing on our patents or other proprietary rights. To prevent infringement or unauthorized
use, we may need to file infringement and/or misappropriation suits, which are very expensive and time-consuming, could result in meritorious
counterclaims against us and would distract management’s attention. Also, in an infringement or misappropriation proceeding, a
court may decide that one or more of our patents is invalid, unenforceable, or both, in which case third parties may be able to use our
technology without paying license fees or royalties. Even if the validity of our patents is upheld, a court may refuse to stop the other
party from using the technology at issue on the grounds that the other party’s activities are not covered by our patents. See “Business
- Patents,” below.
We
may become involved in disputes with our present or future contract partners over intellectual property ownership or other matters, which
would have a significant effect on our business.
Inventions discovered in the course of performance
of contracts with third parties or contractors may become jointly owned by such third-party contractors and us, in some cases, and the
exclusive property of one of us, in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention
or whether it is jointly owned, and disputes could arise regarding ownership or use of those inventions or jointly developed improvements
thereto. Other disputes may also arise relating to the performance or alleged breach of our agreements with third parties. Any disputes
could be costly and time-consuming, and an unfavorable outcome could have a significant adverse effect on our business.
Assuming
our insulin pump receives FDA clearance or approval, our insulin pump will still be subject to recalls, which would harm our reputation,
business operations and financial results.
Even
assuming we obtain FDA approval or clearance with regard to our insulin pump, the FDA has the authority to require the recall of our
pump if we commence manufacturing of our insulin pump and we or any contract manufacturers we retain fail to comply with relevant regulations
pertaining to manufacturing practices, labeling, advertising or promotional activities, or if new information is obtained concerning
the safety or efficacy of the device. A government-mandated recall could occur if the FDA finds that there is a reasonable probability
that our device would cause serious, adverse health consequences or death. A voluntary recall by us could occur as a result of manufacturing
defects, labeling deficiencies, packaging defects or other failures to comply with applicable regulations. Any recall would divert management’s
attention and financial resources and harm our reputation with customers. A recall involving our insulin pump would be particularly harmful
to our business, financial condition and results of operations because it is currently our only product candidate.
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Any
disruption and/or instability in economic conditions and capital markets could adversely affect our ability to access the capital markets,
and thus adversely affect our business and liquidity.
Negative
economic conditions and instability or uncertainty in the financial markets could have a negative impact on our ability to access the
capital markets, and thus have a negative impact on our then operations and liquidity. We face certain risks in the event of a sustained
deterioration of financial market liquidity, as well as in the event of sustained deterioration in the liquidity, or failure, of our
banking, cash management and custodial financial institutions. A general shortage of liquidity and credit combined with the substantial
losses in worldwide equity markets could lead to an extended worldwide recession in the future. If such occurred, we would face significant
challenges if conditions in the capital markets did not improve. Our ability to access the capital markets under such circumstances could
be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans. Even
if we are able to raise capital under such circumstances, it may not be at a price or on terms that are favorable to us. We cannot predict
the occurrence of future disruptions or how long such negative conditions might continue.
Because
our current insulin pump is still in the pre-clearance stage with the FDA, it does not have reimbursement and is not approved for insurance
coverage. If in the future we are cleared for and are otherwise able to commercialize our insulin pump, but are unable to obtain adequate
reimbursement or insurance coverage for such product candidate from third-party payors, we will be unable to generate significant revenue.
Because
our current insulin pump is still in the pre-clearance stage with the FDA, it is not eligible for reimbursement and is not approved for
insurance coverage. The future availability of insurance coverage and reimbursement for newly approved medical devices is highly uncertain.
In the United States, patients using insulin pumps are generally reimbursed for all or part of the product cost by Medicare or other
third-party payors. Any future commercial success of our insulin pump will be substantially dependent on whether third-party coverage
and reimbursement is available for future customers. Medicare, Medicaid, health maintenance organizations and other third-party payors
are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new medical devices,
and, as a result, they may not cover or provide adequate reimbursement for our insulin pump, assuming we are able to fully develop and
obtain all regulatory approval to market it in the United States. In addition, in certain countries, no uniform policy of coverage and
reimbursement for medical device products and services exists among third-party payors. Therefore, coverage and reimbursement for medical
device products and services can differ significantly from payor to payor. In addition, payors continually review new technologies for
possible coverage and can, without notice, deny coverage for these new products and procedures. As a result, the coverage determination
process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our
products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained or maintained, if obtained.
Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals
must be obtained on a country-by-country basis. In many international markets, a product must be approved for reimbursement before it
can be approved for sale in that country. Further, many international markets have government-managed healthcare systems that control
reimbursement for new devices and procedures. Accordingly, unless government and other third-party payors provide coverage and reimbursement
for our insulin pump, patients may not use it, which would cause investors to lose their entire investment.
Third
parties might attempt to gain unauthorized access to our network or seek to compromise our insulin pump product.
Our
business is dependent on the security and efficacy of our networks and computer and data management systems, and we rely on our internal
computer networks for many of the systems we use to operate our business generally. From time to time, we may face attempts by others
to gain unauthorized access through the Internet or otherwise or to introduce malicious software to our information technology systems.
We or our products may be a target of computer hackers, organizations or malicious attackers who attempt to:
● gain
access to our network;
● steal
proprietary information related to our business, products and employees; or
● interrupt
our systems.
From
time to time, we may encounter attempts at gaining unauthorized access to our network, and we periodically run security checks. While
we seek to detect and investigate unauthorized attempts and attacks against our network and products of which we become aware, and to
prevent their recurrence where practicable through changes to our internal processes and tools and/or changes to our products, we remain
potentially vulnerable to additional known or unknown threats. In addition to intentional security breaches, the integrity and confidentiality
of Company and customer data and our intellectual property may be compromised as a result of human error, product defects, or technological
failures. Different geographic markets may have different regulations regarding data protection, raising potential compliance risks.
Further, retaliatory acts by foreign governments or terrorist organizations in response to policies of the United States government could
include cyber attacks that could disrupt the economy more generally or that could also impact our operations directly or indirectly.
32
Any
failure or perceived failure by us or our service providers to prevent information security breaches or other incidents or system disruptions,
or any compromise of security that results in or is perceived or reported to result in unauthorized access to, or loss, theft, alteration,
release or transfer of, our information, or any personal information, confidential information, or other data could result in loss or
theft of proprietary or sensitive data and intellectual property, could harm our reputation and competitive position and could expose
us to legal claims, regulatory investigations and proceedings, and fines, penalties, and other liability. Any such actual or perceived
security breach, incident or system disruption could also divert the efforts of our personnel, and could require us to incur significant
costs and operational consequences in connection with investigating, remediating, eliminating and putting in place additional tools,
devices, policies, and other measures designed to prevent actual or perceived security breaches and other incidents and system disruptions,
and in, for example, rebuilding internal systems, reduced inventory value, providing modifications to our products and services, defending
against claims and litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect
to third parties. Moreover, we could be required or otherwise find it appropriate to expend significant capital and other resources to
respond to, notify third parties of, and otherwise address the incident or breach and its root cause, and to notify individuals, regulatory
authorities and others of security breaches involving certain types of data.
Further,
we cannot assure that any limitations of liability provisions in our current or future contracts that may be applicable would be enforceable
or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security
breach or other security-related matter. We also cannot be sure that any insurance coverage will continue to be available on acceptable
terms or will be available in sufficient amounts to cover claims related to a security breach or incident, or that the insurer will not
deny coverage as to any future claim. The successful assertion of claims against us that exceed available insurance coverage, or the
occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements,
could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
We
are subject to oversight by the SEC and other regulatory agencies. Investigations by those agencies could divert management’s focus
and could have a material adverse effect on our reputation and financial condition.
We
are subject to the regulation and oversight of the SEC and state regulatory agencies, in addition to the FDA. As a result, we may face
legal or administrative proceedings by these agencies. We are unable to predict the effect of any investigations on our business, financial
condition or reputation. In addition, publicity surrounding any investigation, even if ultimately resolved in our favor, could have a
material adverse effect on our business.
We
are a “smaller reporting company” and, as a result of the reduced disclosure and governance requirements applicable to smaller
reporting companies, our common stock may be less attractive to investors.
We
are a “smaller reporting company,” and are subject to lesser disclosure obligations in our SEC filings compared to other
issuers. Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in
their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public
accounting firms provide an attestation report on the effectiveness of internal control over financial reporting and have certain other
decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited
financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company”
may make it harder for investors to analyze our operating results and financial prospects.
We
do not expect any cash dividends to be paid on our shares of common stock for the foreseeable future.
We
have never declared or paid a cash dividend and we do not anticipate declaring or paying dividends on our common stock for the foreseeable
future. We expect to use future financing proceeds and earnings, if any, to fund operating expenses. Consequently, stockholders’
only opportunity to achieve a return on their investment is if the price of our stock appreciates and they sell their shares at a profit.
We cannot assure stockholders of a positive return on their investment when they sell their shares or that stockholders will not lose
the entire amount of their investment.
33
If
the beneficial ownership of our common stock continues to be highly concentrated, it may prevent our stockholders from influencing significant
corporate decisions.
As of March 31, 2024, our executive officers,
directors and certain persons, who may be deemed affiliates, beneficially owned approximately 24% of our issued and outstanding common
stock. Specifically, James Besser, our chief executive officer, and Morgan Frank, a member of our board of directors, were the beneficial
owners of approximately 13% of our outstanding common stock. As a result, such persons may exercise substantial influence over the outcome
of corporate actions requiring stockholder approval including, without limitation, the election of directors, certain mergers, consolidations
and sales of all or substantially all of our assets or any other significant corporate transactions. Such persons may also vote against
a change of control, even if such a change of control would benefit our other stockholders. Thus, investors in our common stock cannot
reasonably expect to have any influence over the election of our directors or other matters submitted to a vote of our stockholders. Instead,
our existing significant stockholders may exert a substantial influence on the election of our directors and any actions requiring or
otherwise put to a stockholder vote, potentially in a manner that you do not support. The concentrated amount of control over our affairs
held by a relatively few significant investors could serve to reduce the attractiveness or liquidity of our common stock, and thereby
depress its trading price. Additionally, conflicts of interest may arise between these executive officers, directors and other affiliates,
on the one hand, and us and our other stockholders, on the other hand. In resolving these conflicts of interests, these investors may
favor their own interests and the interests of their affiliates, over the interests of our other stockholders, which could cause a material
adverse effect on our business, prospects, financial condition and results of operations.
Future
sales of our securities could adversely affect the market price of our common stock and our future capital-raising activities could involve
the issuance of equity securities, which would dilute your investment and could result in a decline in the trading price of our common
stock.
We
may sell securities in the public or private equity markets at prices per share below the current market price of our common stock, even
if we do not have an immediate need for additional capital at that time. Sales of substantial amounts of shares of our common stock,
or the perception that such sales could occur, could adversely affect the prevailing market price of our shares and our ability to raise
capital. We may issue additional shares of common stock in future financing transactions or as incentive compensation for our executive
management and other key personnel, consultants and advisors. Issuing any equity securities would be dilutive to the equity interests
represented by our then-outstanding shares of common stock. Moreover, sales of substantial amounts of shares in the public market, or
the perception that such sales could occur, may adversely affect the prevailing market price of our common stock and make it more difficult
for us to raise additional capital. Such resulting significant downward pressure on the price of our common stock could also encourage
short sales by third parties. Such an event could place further downward pressure on the price of our common stock.
Our
articles of incorporation allow for our board of directors to create new series of preferred stock without further approval by our stockholders,
which could adversely affect the rights of the holders of our common stock.
Our
board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Currently, our board
of directors has the authority to designate and issue up to 5,000,000 shares of our preferred stock without further stockholder approval.
In the future, our board of directors could authorize the issuance of one or more series of preferred stock that would grant to holders,
among other rights, the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed
to the holders of common stock and the right to the redemption of our preferred shares acquired by such persons, together with a premium,
prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred
stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative
voting power of our common stock or result in dilution to our existing stockholders.
34
If
we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately
or prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely
affect the trading price of our common stock.
Effective
internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed,
and our business and reputation with investors may be harmed. If we are unable to maintain effective internal controls, we may not have
adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a public company, including
the requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). In addition, we may be unable to accurately report our financial
results in future periods or report them within the timeframes required by the requirements of the SEC or the Sarbanes-Oxley Act. Failure
to comply with the Sarbanes-Oxley Act, when and as applicable, could also potentially subject us to sanctions or investigations by the
SEC or other regulatory authorities. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter
in their implementation, could result in identification of additional material weaknesses or significant deficiencies, cause us to fail
to meet our reporting obligations or result in material misstatements in our financial statements.
Furthermore,
Section 404 of the Sarbanes-Oxley Act and related regulations require our management to evaluate the effectiveness of our internal control
over financial reporting as of the end of each fiscal year. Based on its evaluation, our management concluded that our internal controls
over financial reporting were effective as of March 31, 2024. We cannot provide assurance that, in the future, a material weakness or
significant deficiency will not exist or otherwise be discovered. If that were to happen, it could harm our operating results and cause
stockholders to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the
trading price of our securities.
Sustained
inflation could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Inflation
rates in the United States have remained high and may continue to rise. Inflation over the last several months has led us to experience
higher costs, including, among others, labor and transportation. Some of our suppliers have raised their prices and may continue to raise
prices, and, assuming we achieve FDA clearance and commence commercialization of our product, in the future, we may not be able to make
corresponding price increases to obtain adequate gross margins and achieve profitability. If inflation rates continue to rise or remain
elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations
and liquidity.
Our
board of directors is able to adopt recapitalizations through forward or reverse splits of our outstanding shares of common stock without
stockholder approval.
Pursuant
to our amended and restated articles of incorporation, our board of directors has the power, without obtaining stockholder approval,
to effectuate recapitalizations of us through forward or reverse splits of our outstanding common stock. As a result of such provision,
our board of directors can implement recapitalizations of us by effectuating a forward or reverse stock split of our outstanding common
stock, which would increase or decrease each of our stockholder’s number of shares owned, and our stockholders will have no right
to approve or disapprove any such action even if such actions have a material adverse effect on them.
35