Item 1A. Risk Factors
Item
1A. Risk Factors
You
should carefully consider the risks described below and elsewhere in this Annual Report on Form 10-K before making an investment decision.
Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Our common stock
is considered speculative and the trading price of our common stock could decline due to any of these risks, and you may lose all or
part of your investment. The following risk factors are not the only risk factors facing the Company. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also affect our business.
Risks
Relating to Our Business
Our
future success depends upon market acceptance of our existing and future products.
We
believe that our success will depend in part upon the acceptance of our existing and future products by the medical community, hospitals
and physicians and other health care providers, third-party payers, and end-users. Such acceptance may depend upon the extent to which
the medical community and end-users perceive our products as safer, more effective or cost-competitive than other similar products. Ultimately,
for our products to gain general market acceptance, it may also be necessary for us to develop marketing partners for the distribution
of our products. There can be no assurance that our products will achieve significant market acceptance on a timely basis, or at all.
Failure of some or all of our future products to achieve significant market acceptance could have a material adverse effect on our business,
financial condition, and results of operations.
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Our
suppliers may fail to deliver components and raw materials and parts according to schedules, prices, quality and volumes that are acceptable
to us, or we may be unable to manage these components and raw materials effectively.
Our
products contain materials and parts purchased globally from many suppliers, including single-source direct suppliers, which exposes
us to potential component shortages or delays. Unexpected changes in business conditions, materials pricing, labor issues, wars such
as the current conflict in Ukraine, trade policies, natural disasters, health epidemics, trade and shipping disruptions, port congestions
and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to
us or to remain solvent and operational. Additionally, if our suppliers do not accurately forecast and effectively allocate production
or if they are not willing to allocate sufficient production to us, it may reduce our access to components and raw materials, thus requiring
us to search for new suppliers. The unavailability of any component or supplier could result in production delays, idle manufacturing
facilities, product design changes and loss of access to important technology and tools for producing and supporting our products. Our
suppliers may not be willing or able to sustainably meet our timelines or our cost, quality and volume needs, or to do so may cost us
more, which may require us to replace them with other sources. While we believe that we will be able to secure additional or alternate
sources for most of our components, there is no assurance that we will be able to do so quickly or at all.
As
the scale of production of our products, we will also need to accurately forecast, purchase, warehouse and transport components at high
volumes to our manufacturing facilities. If we are unable to accurately match the timing and quantities of component purchases to our
actual needs or successfully implement automation, inventory management and other systems to accommodate the increased complexity in
our supply chain and parts management, we may incur unexpected production disruption, storage, transportation and write-off costs, which
may harm our business and operating results.
We
rely heavily on the Amazon and Shopify marketplaces for the sales and distribution of our consumer products, and if we are unable to
maintain a good relationship with Amazon and/or Shopify or if Amazon and/or Shopify experience disruptions, our business will suffer.
We
rely heavily on the Amazon and Shopify marketplaces for the sales and distribution of our consumer products to our end consumers. We
believe that we have good relationships with both Amazon and Shopify. However, if we or any of our partners, (or if Amazon and/or Shopify
believe we or any of our partners have violated) its terms of service, either Amazon and/or Shopify could limit or terminate its relationship
with us. Any limitation or termination of our relationship with Amazon and/or Shopify could materially adversely affect our business,
financial condition and our results of operations. Additionally, any prolonged disruption of Amazon’s and/or Shopify’s websites
or its or their delivery and distribution of our consumer products could materially adversely impact our business.
We
have no contracts in place with our customers in either our contract manufacturing or consumer products business. The absence of such
contracts could result in periods during which we must continue to pay costs without revenues.
Our
sales are made on a purchase order basis, we do not have contracts with our customers in either our contract manufacturing or consumer
products business. Accordingly, our customers are not required to purchase a minimum amount of our products, and we therefore could have
periods during which we have no or limited orders for our products, which will make it difficult for us to operate as we will have to
continue paying our expenses. We cannot provide assurance that we will be able to timely locate new customers, if at all, when our existing
customers are not placing orders. The periods in which we have no or limited purchase orders for our products would have a material adverse
effect on our business and financial condition.
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We
operate in a highly competitive industry.
Competition
from other hydrogel manufacturers is intense. There can be no assurance that we can develop products that are more effective or achieve
greater market acceptance than competitive products, or that our competitors will not succeed in developing or acquiring products and
technologies that are more effective than those being developed by us, that would render our products and technologies less competitive
or obsolete.
Our
competitors enjoy several competitive advantages over us, including some or all of the following:
●
large
and established distribution networks in the U.S. and/or in international markets;
●
greater
financial, managerial and other resources for products, research and development, sales and marketing efforts and protecting and
enforcing intellectual property rights;
●
significantly
greater name recognition;
●
more
expansive portfolios of intellectual property rights; and
●
greater
experience in obtaining and maintaining regulatory approvals and/or clearances from the FDA and other regulatory agencies.
Our
competitors’ products will compete directly with our products. In addition, our competitors, as well as new market entrants, may
develop or acquire new products that will compete directly or indirectly with our products. The presence of this competition in our market
may lead to pricing pressure which would make it more difficult to sell our products at a price that will make us profitable or prevent
us from selling our products at all. Our failure to compete effectively would have a material and adverse effect on our business, results
of operations and financial condition.
As
we enter the consumer product business sector to a larger extent, our failure to compete successfully could materially harm our business,
financial condition, and operating results.
The
business of developing and marketing consumer and personal care products is highly competitive and sensitive to the introduction of new,
competitive products, which may rapidly capture a significant share of the applicable market. Our competitors include numerous manufacturers;
distributors; marketers; online, specialty, mass, and other retailers; and physicians that actively compete for the business of consumers
both in the United States and abroad. Most of our competitors have longer operating histories, significantly greater resources, better-developed
and more innovative sales and distribution channels and platforms, greater name recognition, and larger established customer bases than
we do. Our present and future competitors may be able to better withstand reductions in prices or other adverse economic or market conditions
than we can; develop products that are comparable or superior to those we offer; adapt more quickly or effectively to new technologies,
changing regulatory requirements, evolving industry trends and standards, and customer requirements than we can; and/or devote greater
resources to the development, promotion, and sale of their products than we do. In addition, because the industry in which we operate
is not particularly capital intensive or otherwise subject to high barriers to entry, it is relatively easy for new competitors to emerge
that will compete with us. Accordingly, competition may intensify, and we may not be able to compete effectively in our markets. If we
are not able to compete successfully in the consumer products sector, our business, financial condition, and operating results would
be materially adversely affected.
Our
failure to appropriately respond to changing consumer trends, preferences, and demand for new products and product enhancements could
materially harm our business, financial condition, and operating results.
Our
consumer products business is subject to rapidly changing consumer trends and preferences and product introductions. Our success will
depend in part on our ability to anticipate and respond to these changes and introductions, and we may not respond or develop new products
or product enhancements in a cost-effective, timely, or commercially appropriate manner. The success of our new product offerings and
enhancements depends on a number of factors, including our ability to:
●
accurately
anticipate consumer needs;
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●
innovate
and develop new products and product enhancements that meet these needs;
●
successfully
commercialize new products and product enhancements;
●
price
our products competitively;
●
manufacture
and deliver our products in sufficient volumes and in a cost-effective and timely manner; and
●
differentiate
our product offerings from those of our competitors and successfully respond to other competitive pressures, including technological
advancements, evolving industry standards, and changing regulatory requirements.
Our
failure to accurately predict changes in consumer demand and technological advancements could negatively impact consumer opinion of our
products or our business. In addition, if we do not introduce new products or make enhancements to meet the changing needs of our customers
in a cost-effective, timely, and commercially appropriate manner, or if our competitors release new products or product enhancements
before we do, some of our product offerings could be rendered obsolete, which could cause our market share to decline and negatively
impact our business, financial condition, and operating results.
If
we fail to further penetrate existing markets, the sales of our consumer products, along with our operating results, could be negatively
impacted.
The
success of our consumer product business will be to a large extent contingent on our ability to penetrate existing markets, which is
subject to numerous factors, many of which are out of our control. Moreover, our growth in existing markets will depend upon our ability
to achieve brand awareness. Therefore, we cannot assure you that our general efforts to achieve market penetration in existing markets
will be successful. If we are unable to further penetrate existing markets, our business, financial condition, and operating results
could materially suffer.
We
are subject to governmental regulations in all aspects of our business.
Like
other companies in the healthcare industry, we are subject to extensive regulation, investigations and legal action, by national, state
and local government agencies in the U.S. Regulatory issues regarding compliance with cGMP by manufacturers of medical devices and consumer
products can lead to fines and penalties, product recalls, product shortages, interruptions in production, delays in new product approvals
and litigation. In addition, the marketing, pricing and sale of our products are subject to regulation, investigations and legal actions
including under the Federal Food, Drug, and Cosmetic Act, federal and state false claims acts, state unfair trade practices acts and
consumer protection laws. Scrutiny of health care industry business practices by government agencies and state attorneys general in the
U.S., and any resulting investigations and prosecutions, carry risk of significant civil and criminal penalties.
As
we continue to develop our medical devices, if we fail to protect our intellectual property in the future, our ability to compete could
be negatively affected, which could materially harm our financial condition and operating results.
As
we continue to develop our medical devices, such as NEXDrape, our future success and the market for our products will depend to a significant
extent upon the goodwill associated with our trademark and tradenames and our ability to protect our proprietary rights in our innovative
products and product enhancements. We own, or have licenses to use, the material trademark and trade name rights used in connection with
the packaging, marketing, and distribution of our products in the markets where those products are sold. Therefore, trademark and trade
name protection are important to our business. Although most of our trademarks are filed in the United States, we may not be successful
in asserting trademark or trade name protection or obtaining new trademark registrations.
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We
will attempt to protect our innovative products and product enhancements under a combination of patents, trademarks, and trade secret
laws, confidentiality procedures, and contractual provisions. However, monitoring infringement or misappropriation of intellectual property
can be difficult and expensive, and we may not be able to detect every infringement or misappropriation of our proprietary rights or
to prevent third parties from infringing upon or misappropriating our proprietary rights or from independently developing non-infringing
products that are competitive with, equivalent to, or superior to our products. Even if we do detect infringement or misappropriation
of our proprietary rights, litigation to enforce these rights could cause us to divert financial and other resources away from our business
operations and may result in the impairment or loss of all or portions of our proprietary rights. As a result, we cannot assure you that
we will be able to adequately protect our intellectual property in any jurisdiction. The loss or infringement of our trademarks, tradenames,
or other proprietary rights could impair the goodwill associated with our brands and harm our reputation, which could materially harm
our business, financial condition, and operating results.
We
have limited sales, marketing and distribution capabilities.
We
currently have limited sales, marketing and distribution capabilities. We must either develop our own sales, marketing and distribution
capabilities, which will be expensive and time-consuming, or make arrangements with third parties to perform these services for us. If
we enter into third party arrangements, the third parties may not be capable of successfully selling any of our products. If we decide
to market any of our products on our own, we will have to commit significant resources to developing a marketing and sales force and
supporting distribution capabilities. If we decide to enter into arrangements with third parties for performance of these services, we
may find that they are not available on terms acceptable to us, or at all. If we are not able to establish and maintain successful arrangements
with third parties or build our own sales and marketing infrastructure, our business and financial condition will be adversely affected.
Our
products risk exposure to product liability claims.
We
are exposed to potential product liability risks, which are inherent in the testing, manufacturing and marketing of our products. We
may incur significant expense investigating and defending any product liability claims, even if they do not result in liability. Moreover,
even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer, which could have a material adverse
effect on our business, financial condition and results of operations.
We
are reliant upon two manufacturers for key ingredients used to manufacture of our hydrogels.
The
Dow Chemical Company and the BASF Corporation are the principal manufacturers of the two polymers, polyethylene oxide and polyvinylpyrrolidone,
respectively, that we primarily use in the manufacture of hydrogels. Although we have not experienced significant production delays attributable
to supply changes, we believe that developing alternative sources of supply for the polymers used to make our current hydrogels would
be difficult over a short period of time. Because we have no direct control over its third-party suppliers, interruptions or delays in
the products and services provided by these third parties may be difficult to remedy in a timely fashion. In addition, if such suppliers
are unable or unwilling to deliver the necessary raw materials or products, we may be unable to redesign or adapt our technology to work
without such raw materials or products or find alternative suppliers or manufacturers. In such events, we could experience interruptions,
delays, increased costs or quality control problems, which would have a material and adverse effect on our business, results of operations
and financial condition.
We
have a history of operating losses and may require but have difficulty or be unsuccessful in raising potentially needed capital in the
future to continue to operate as a going concern.
Currently
we do not have sufficient cash resources to meet our plans for the next twelve months from the issuance of the financial statements included
herein. Our recurring losses from operations, negative cash flows and potential need for additional capital raise substantial doubt about
our ability to continue as a going concern. If we do require additional financing to fund our operations, such funds may not be available
on acceptable terms, if at all, and such availability will depend on a number of factors, some of which are outside of our control, including
general capital markets conditions and investors’ view of our prospects and valuation. In addition, our ability to raise capital
in the public capital markets, including through our at-the-market equity offerings, may in the future be limited by, among other things,
SEC rules and regulations impacting the eligibility of smaller companies to use Form S-3 for primary offerings of securities. In general,
under the “baby shelf” rules if our public float is less than $75 million at the time we file our Annual Report on Form 10-K
to update our Form S-3 and our public float remains less than $75, we may not sell more than the equivalent of one-third of our public
float during any 12 consecutive months pursuant to the baby shelf rules. Alternative public and private transaction structures may require
additional time and cost, may impose operational restrictions on us, and may not be available on attractive terms. Further, investors’
perception of our ability to continue as a going concern may make it more difficult for us to obtain financing, or necessitate that we
obtain financing on terms that are more favorable to investors, and could result in the loss of confidence by investors, suppliers and
employees. If we do require but are not able to acquire sufficient additional funding or alternative sources of capital to meet our working
capital needs, we will have to substantially curtail or discontinue our operations.
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Our
ability to provide customers with competitive services is dependent on our ability to attract and retain qualified personnel, including
our senior management team.
Our
ability to grow and provide our customers with competitive services is partially dependent on our ability to attract and retain highly
motivated people with the skills necessary to serve our customers. Personnel with the requisite skills or qualifications may be in short
supply or generally unavailable. The loss of personnel could impair our ability to perform under certain contracts, which could have
a material adverse effect on our consolidated financial position, results of operations, prospects and cash flows.
Changes
in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could
significantly affect our financial results or financial condition.
GAAP
and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are
relevant to our business, including but not limited to revenue recognition, business combinations, impairment of goodwill, indefinite-lived
intangible assets and long-lived assets, inventory and equity-based compensation, are highly complex and involve many subjective assumptions,
estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments
could significantly change our reported or expected financial performance or financial condition.
Our
ability to pursue strategic partnerships may impact our ability to compete in the markets we serve or desire to enter.
We
have entered into, and expect to seek to enter into, additional strategic partnerships with other industry participants as part of an
effort to expand our business. However, we may be unable to identify attractive strategic partnership candidates or complete such partnerships
on terms favorable to us. In addition, if we are unable to successfully implement our partnership strategies or our strategic partners
do not fulfill their obligations or otherwise do not prove advantageous to our business, our investments in such partnerships and our
anticipated business expansion could be adversely affected.
Achieving
our growth objectives may prove unsuccessful. We may be unable to identify future attractive strategic partnerships, which may adversely
affect our growth. In addition, our ability to consummate or implement our strategic partnerships may be materially and adversely affected.
Risks
Relating to our Common Stock and Capital Structure
An
active trading market may not develop or be sustained, and our stock price may fluctuate significantly once we do trade.
Our
common stock and certain of our warrants trade on The Nasdaq Capital Market under the symbols “NXGL” and “NXGLW,”
respectively.
We
cannot predict the prices at which our common stock may trade. The market price of our common stock may fluctuate widely, depending on
many factors, some of which may be beyond our control, including:
●
actual
or anticipated fluctuations in our operating results due to factors related to our business;
●
success
or failure of our business strategies;
●
our
quarterly or annual earnings, or those of other companies in our industry;
●
our
ability to obtain financing as needed;
●
announcements
by us or our competitors of significant acquisitions or dispositions;
●
changes
in accounting standards, policies, guidance, interpretations or principles;
●
the
failure of securities analysts to cover our common stock after we commence trading;
●
changes
in earnings estimates by securities analysts or our ability to meet those estimates;
●
the
operating and stock price performance of other comparable companies;
●
overall
market fluctuations;
●
results
from any material litigation or government investigation;
●
changes
in laws and regulations (including tax laws and regulations) affecting our business;
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●
changes
in capital gains taxes and taxes on dividends affecting stockholders; and
●
general
economic conditions and other external factors, including wars such as the current conflict in Ukraine and other geopolitical risks.
Furthermore,
our business profile and market capitalization may not fit the investment objectives of some of our stockholders and, as a result, these
stockholders may sell their shares of our common stock if we are able to list our common stock on The Nasdaq Capital Market. Substantial
sales of our common stock may occur, which could cause our stock price to decline. Low trading volume for our stock, which may occur
if an active trading market does not develop, among other reasons, would amplify the effect of the above factors on our stock price volatility.
Our
failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock and warrants.
If
we fail to continue to satisfy the continued listing requirements of The Nasdaq Stock Market, LLC such as the corporate governance requirements,
the stockholder’s equity requirement or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock
and warrants. Such a delisting or even notification of failure to comply with such requirements would likely have a negative effect on
the price of our common stock and warrants and would impair your ability to sell or purchase our common stock and warrants when you wish
to do so. In the event of a delisting, we expect that we would take actions to restore our compliance with Nasdaq’s listing requirements,
but we can provide no assurance that any such action taken by us would allow our common stock and warrants to become listed again, stabilize
the market price or improve the liquidity of our common stock and warrants, prevent our common stock from dropping below the Nasdaq minimum
bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
We
cannot assure you that we will pay dividends on our common stock, and our indebtedness may limit our ability to pay dividends on our
common stock.
The
timing, declaration, amount and payment of future dividends to stockholders will fall within the discretion of our Board of Directors.
Our Board of Directors’ decisions regarding the payment of future dividends will depend on many factors, including our financial
condition, earnings, capital requirements of our business and covenants associated with debt obligations, as well as legal requirements,
regulatory constraints, industry practice and other factors that our Board of Directors deems relevant. There can be no assurance that
we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends.
The
interests of our principal stockholders, officers and directors, who collectively beneficially own approximately 16.3% of our stock,
may not coincide with yours and such stockholders will have the ability to control decisions with which you may disagree.
As
of March 31, 2026, our principal stockholders, officers and directors beneficially owned approximately 16.3% of our common stock. As
a result, our principal stockholders, officers and directors will have the ability to substantially influence matters requiring stockholder
approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of
ownership may delay or prevent a change in control of our company and make some future transactions more difficult or impossible without
the support of our controlling stockholders. The interests of such stockholders may not coincide with your interests or the interests
of other stockholders.
We
have identified material weaknesses in connection with our internal control over financial reporting which, if not remediated, could
adversely affect our business, reputation and stock price.
Our
executive management and Audit Committee have concluded that we have material weaknesses in our internal control over financial reporting.
Specifically, management has concluded that its internal control over financial reporting was not effective as of December 31, 2025 to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America due to not maintaining proper segregation of duties, including:
(i) we have not designed controls to ensure all accounting journals entries are reviewed and approved and (ii) we have one individual
in our accounting department who has “super user” access and security administration rights to the financial reporting systems.
To
remediate these material weaknesses, we are working to do the following: (i) implementing appropriate controls for accounting journal
entry approvals, including the approval of our chief financial officer, and (ii) either actively monitoring any accounting user with
elevated rights or assigning another employee outside of an accounting and reporting role with elevated access. We will not be able to
fully remediate the material weakness until the actions discussed above have been implemented and operated effectively for a sufficient
period of time.
While
we are designing and implementing measures to remediate the material weaknesses, we cannot predict the success of such measures or the
outcome of our assessment of these measures at this time. We can give no assurance that these measures will remediate the weakness in
internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting
will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could
result in errors in our financial statements that may lead to restatements of our financial statements, cause us to fail to meet our
reporting obligations, or prevent fraud. Any such failure could also lead to reputational damage and a decrease in the market price of
our stock
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If
securities or industry analysts do not publish research about our business, or publish negative reports about our business, our share
price and trading volume could decline.
The
trading market for our common stock, to some extent, may at some point depend on the research and reports that securities or industry
analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts elect to cover us
and downgrade our shares or lower their opinion of our shares, our share price would likely decline. If one or more of these analysts
elect to cover us and subsequently cease coverage of our company or fail to regularly publish reports on us, we could lose visibility
in the financial markets, which could cause our share price or trading volume to decline.
Future
sales or potential sales of our common stock in the public market could cause our share price to decline.
If
the existing holders of our common stock, particularly our directors and officers, sell a large number of shares, they could adversely
affect the market price for our common stock. Sales of substantial amounts of our common stock in the public market, or the perception
that these sales could occur, could cause the market price of our common stock to decline.
We
may issue additional securities in the future upon conversion or exercise of outstanding securities which would result in dilution to
our stockholders.
As
described elsewhere in this Form 10-K, we have previously issued warrants, restricted stock units, and stock options to fund our operations,
pay for services rendered and incentivize our employees and directors. The conversion or exercise of these securities would result in
substantial dilution to our stockholders. As of the date of the filing of this Form 10-K, we may be required to issue:
●
907,111
shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $2.940267
per share;
●
5,142,940
shares of common stock issuable upon the exercise of warrants at a weighted average exercise price of approximately $5.111123; and
●
35,494
shares of restricted common stock issuable upon vesting and another 24,962 shares of vested shares of restricted common stock.
We
are an “emerging growth company” and a “smaller reporting company” and may elect to comply with reduced public
company reporting requirements applicable to emerging growth companies, and are subject to lesser public company reporting requirements
applicable to smaller reporting companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not “emerging growth companies” including reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously
approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will
remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual
gross revenues of $1.07 billion or more; (ii) the fifth anniversary of the Distribution; (iii) the date on which we have issued
more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a “large
accelerated filer” under the Exchange Act. We cannot predict if investors will find our common stock less attractive because we
may rely on these exemptions. In addition, we are a “smaller reporting company” and accordingly are required to provide less
public disclosure than larger public companies. If some investors find our common stock less attractive as a result, there may be a less
active trading market for our common stock and our stock price may be more volatile.
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We
will incur costs as a result of operating as a public company, and our management will be required to devote substantial time to new
compliance initiatives.
As
a public reporting company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting
and other expenses. The Sarbanes-Oxley Act and rules subsequently implemented by the SEC, have imposed various requirements on public
companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.
Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these
rules and regulations will entail significant legal and financial compliance costs and will make some activities more time consuming
and costly. For example, we expect that these rules and regulations may make it difficult and expensive for us to obtain director and
officer liability insurance, and we may be required to accept low policy limits and coverage.
Provisions
in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and of Delaware law may prevent or delay an
acquisition of our company, which could decrease the trading price of our common stock.
Several
provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware law may discourage, delay
or prevent a merger or acquisition that stockholders may consider favorable. These include provisions that:
●
permit
us to issue blank check preferred stock as more fully described under “Description of Our Capital Stock Anti-Takeover Effects
of Various Provisions of Delaware Law and Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws”;
●
require
stockholders to follow certain advance notice and disclosure requirements in order to propose business or nominate directors at an
annual or special meeting; and
●
limit
our ability to enter into business combination transactions with certain stockholders.
These
and other provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware law may discourage,
delay or prevent certain types of transactions involving an actual or a threatened acquisition or change in control of us, including
unsolicited takeover attempts, even though the transaction may offer our stockholders the opportunity to sell their shares of our common
stock at a price above the prevailing market price. See “Description of Our Capital Stock Anti-Takeover Effects of Various Provisions
of Delaware Law and Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws” for more information.
Our
Amended and Restated Bylaws include a forum selection clause, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us.
Our
Amended and Restated Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive
forum for (i) any internal corporate claims within the meaning of the Delaware General Corporation Law (“DGCL”), (ii) any
derivative action or proceeding brought on our behalf, (iii) any action asserting a claim of breach of a fiduciary duty owed by any of
our directors, officers, or employees to us or to our stockholders, or (iv) any action asserting a claim arising pursuant to any provision
of the DGCL, will be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has
jurisdiction, the federal court for the District of Delaware). Specifically, the sole and exclusive forum for such legal actions shall
be (i) first, the Court of Chancery of the State of Delaware, (ii) second, if the Court of Chancery of the State of Delaware lacks jurisdiction,
the Superior Court of the State of Delaware, or (iii) third, if the Superior Court of the State of Delaware lacks jurisdiction, the United
States District Court for the District of Delaware, in all cases subject to the court’s having personal jurisdiction over the indispensable
parties named as defendants. This exclusive forum provision will apply to state and federal law claims, including claims under the federal
securities laws (including actions arising under the Exchange Act or the Securities Act), although our stockholders will not be deemed
to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities
Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created
by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce
such a forum selection provision as written in connection with claims arising under federal securities laws. Any person or entity purchasing
or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions.
This forum selection provision in our bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us. It is also possible that, notwithstanding the forum selection clause included in our bylaws, a court could rule that such a
provision is inapplicable or unenforceable.
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