Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
Investing in our securities includes a high
degree of risk. Prior to making a decision about investing in our securities you should consider carefully the specific factors discussed
below, together with all of the other information contained in this report. Our business, financial condition, results of operations and
prospects could be materially and adversely affected by these risks.
Risks Related to Our Business
We have incurred losses and may never achieve
profitability
We have an accumulated deficit of $75,015,126 as
of December 31, 2025. We incurred a net loss of $5,975,352 for the year ended December 31, 2025, and a net loss of $5,134,116 for the
year ended December 31, 2024. We may never achieve profitability.
We are subject to the significant risks associated
with the generic pharmaceutical business
Since our acquisition of Nora Pharma in October
2022, we have generated revenues primarily through sales of generic pharmaceutical products in Canada, and we expect this to remain the
case for the foreseeable future. Generic pharmaceuticals are, as a general matter, significantly less profitable than innovative medicines.
In recent years, the generic pharmaceutical business
has experienced increased volatility in volumes due in large part to global supply chain issues following the COVID-19 pandemic. Since
2022, as the global economy has recovered from the impact of the COVID-19 pandemic, it has also been experiencing additional macroeconomic
pressures such as rising inflation and disruptions to the global supply chain, in part resulting from ongoing conflicts and tariff escalations.
We may experience supply discontinuities due to macroeconomic issues, regulatory actions, including sanctions and trade restrictions,
labor disturbances and approval delays, which may impact our ability to timely meet demand in certain instances. These adverse market
forces have a direct impact on our overall performance. Any such disruptions could have a material adverse impact on our business and
our results of operation and financial condition.
Other risks associated with our generic pharmaceutical
business include:
·
Current macroeconomic conditions are becoming increasingly less stable due to ongoing war in Ukraine, and the Middle East, and threats of war in various other areas around the world including South America, Greenland, and the Far East. Destabilized macroeconomics conditions pose a serious threat to supply chains around the world including those for the generic pharmaceutical business. Nearly all of Nora Pharma’s generic drugs are manufactured outside Canada and the United States and could experience disruptions which would adversely affect our main source of revenue.
·
Supply chains discontinuities due to other issues, including unforeseen regulatory actions, economic sanctions, trade restrictions, labor disturbances and approval delays, may impact our ability to timely meet customer demand in certain instances. These adverse market forces would have a direct impact on our ability to achieve our sales projections.
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·
If Nora Pharma encounters difficulties in executing launches of new products, it may not be able to offset the increasing price erosion on existing products resulting from pricing pressures and increasing generics approvals for competitors. Such unsuccessful launches can be caused by many factors, including delays in regulatory approvals, lack of operational or clinical readiness or patent litigation. Failure or delays to execute launches of new generic products could have a material adverse effect on Nora Pharma’s business and its ability to realize projected sales.
·
Nora Pharma’s sales of generic pharmaceutical products in Canada are heavily dependent on federal and provincial reimbursement frameworks, which determine pricing, formulary inclusion, and allowable markups. Any changes to these government-controlled reimbursement policies, whether through cost-containment measures, reference pricing adjustments, or formulary restrictions, could adversely affect Nora Pharma’s revenues in this market.
Sales of our generic products may be adversely
affected by the drug regulatory environment in Canada
Currently we sell our generic drugs only in Canada.
Our net sales may be affected by fluctuations in the buying patterns of our customers resulting from government lead pricing pressures
and other factors. Our generic sales in Canada are done via retail pharmacies, pharmacy channels, distributors, and wholesalers. Pricing
pressures in Canada represent the highest risk due to ongoing and unresolved negotiations between the pharmaceutical industry and the
federal government. Any financial difficulties experienced by a single key customer, or any delay in receiving payments from such a customer,
could have a material adverse effect on our business, financial condition, and results of operations.
Our revenues from generic
products may decline as a result of competition from other pharmaceutical companies and changes in regulatory policy
Our generic drugs face intense competition. Prices
of generic drugs may, and often do, decline, sometimes dramatically, especially as additional generic pharmaceutical companies receive
approvals and enter the market for a given product and competition intensifies. Consequently, our ability to sustain our sales and profitability
on any given product over time is affected by the number of companies selling such product, including new market entrants, and the timing
of their approvals.
Furthermore, brand pharmaceutical companies continue
to manage products in a challenging environment through marketing agreements with payers, pharmacy benefits managers and generic manufacturers.
For example, brand companies often sell or license their own generic versions of their products, either directly or through other generic
pharmaceutical companies (so-called “authorized generics”). No significant regulatory approvals are required for
authorized generics, and brand companies do not face any other significant barriers to entry into such market. Brand companies may seek
to delay introduction of generic equivalents through a variety of commercial and regulatory tactics. These actions may increase the costs
and risks of our efforts to introduce generic products and may delay or prevent such introductions altogether.
We may experience delays in launching our new
generic products
If we cannot execute timely launches of new products,
we may not be able to offset the increasing price erosion on existing products resulting from pricing pressures and approvals for competing products. Such unsuccessful launches can be caused by many factors, including delays in regulatory approvals,
lack of operational or clinical readiness or patent litigation. Failure or delays in executing launches of new generic products could
have a material adverse effect on our business, financial condition, and results of operations.
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We may not receive required
regulatory approval for any of our non-generic pharmaceutical product candidates
We have not received approval for any of our proprietary
(non-generic) drug development operations product candidates from the FDA or any other regulatory bodies in other jurisdictions. Any compounds
we discover or in-license will require extensive and costly development, preclinical testing and clinical trials prior to seeking regulatory
approval for commercial sales. Our most advanced product candidate, K1.1 mRNA and our potential Covid-19 treatment in development may
never be approved for commercial sale. We have not made any filings to date with the FDA or other regulatory bodies in other jurisdictions.
The time required to attain product sales and profitability is expensive, lengthy and highly uncertain. If we fail to obtain required
regulatory approvals for our pharmaceutical product candidates our business will be materially harmed.
As we have no approved non-generic
pharmaceutical products on the market, we do not expect to generate significant revenues from non-generic pharmaceutical product sales
in the foreseeable future, if at all
To date, we have no approved non-generic pharmaceutical
products on the market and have generated product revenues largely from our generic pharmaceutical product sales. We have funded our operations
primarily from sales of our securities. We have not received, and do not expect to receive, for the foreseeable future, if at all, any
revenues from the commercialization of our non-generic pharmaceutical product candidates. To obtain revenues from sales of such pharmaceutical
product candidates we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for manufacturing,
marketing and distributing drugs with commercial potential. We may never succeed in these activities, and we may not generate sufficient
revenues to continue our business operations or achieve profitability.
We will require additional
funding to satisfy our future capital needs, which may not be available
We will require significant additional funding
for our operations, including future preclinical and clinical testing costs, and insufficient sales revenues in the near future. We do
not know whether additional financing will be available to us on favorable terms or at all. If we cannot raise additional funds, we may
be required to reduce our capital expenditures, scale back product development programs, reduce our workforce and license to others products
or technologies that we may otherwise be able to commercialize. We are currently unable to project when or whether our operations will
generate positive cash flow.
Any additional equity securities we issue or issuances
of debt we may enter into or undertake may have rights, preferences or privileges senior to those of existing holders of common stock.
To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some rights
to our technologies or product candidates or grant licenses on terms that are not favorable to us.
We may be sued or become
a party to litigation, which could require significant management time and attention and result in significant legal expenses and may
result in an unfavorable outcome which could have a material adverse effect on our business, financial condition, results of operations
and cash flow
We may be forced to incur costs and expenses in
connection with defending ourselves with respect to litigation and the payment of any settlement or judgment in connection therewith if
there is an unfavorable outcome. The expense of defending litigation may be significant. The amount of time to resolve lawsuits is unpredictable
and defending ourselves may divert management’s attention from the day-to-day operations of our business, which could adversely
affect our business, results of operations and cash flows. In addition, an unfavorable outcome in any such litigation could have a material
adverse effect on our business, results of operations and cash flows.
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If we are unable to attract
and retain qualified scientific, technical, and key management personnel, or if our key executive, Dr. Steve N. Slilaty, discontinues
his employment with us, it may delay our research and development efforts
We rely on the services of Dr. Slilaty for strategic
and operational management, as well as for scientific and/or medical expertise in the development of our products. The loss of Dr. Slilaty
would result in a significant negative impact on our ability to implement our business plan. The loss of Dr. Slilaty would also significantly
delay or prevent the achievement of our business objectives.
Our business exposes us to
potential product liability risks and we may be unable to acquire and maintain sufficient insurance to provide adequate coverage against
potential liabilities
Our business exposes us to potential product liability
risks that are inherent in the testing, manufacturing and marketing of pharmaceutical products. The use of our products by our customers
exposes us to the possibility of product liability claims and possible adverse publicity. These risks will increase to the extent our
pharmaceutical product candidates receive regulatory approval and are commercialized. We currently have product liability insurance for
our generic drugs and OTC products and we plan to obtain product liability insurance in connection with clinical trials of our pharmaceutical
product candidates in the near future. However, our current and future product liability insurance may not provide adequate protection
against potential liabilities. On occasion, juries have awarded large judgments in class action lawsuits based on drugs that had
unanticipated side effects. A successful product liability claim, or series of claims brought against us would decrease our cash reserves
and could cause our stock price to fall significantly.
We face regulation and risks
related to hazardous materials and environmental laws, violations of which may subject us to claims for damages or fines that could materially
affect our business, cash flow, financial condition and results of operations
Our research and development activities involve
the use of controlled and/or hazardous materials and chemicals. The risk of accidental contamination or injury from these materials cannot
be completely eliminated. In the event of an accident, we could be held liable for any damages or fines that result, and the liability
could have a material adverse effect on our business, financial condition, and results of operations. We are also subject to federal,
state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products.
If we fail to comply with these laws and regulations or with the conditions attached to our operating licenses, the licenses could be
revoked, and we could be subjected to criminal sanctions and substantial liability or be required to suspend or modify our operations.
In addition, we may have to incur significant costs to comply with future environmental laws and regulations. We do not currently have
a pollution and remediation insurance policy.
Third party manufacturers
may not be able to manufacture our pharmaceutical product candidates, which would prevent us from commercializing our product candidates
If any of our pharmaceutical product candidates
is approved by the FDA or other regulatory agencies for commercial sale, we will need third parties to manufacture the product in larger
quantities. If we are able to reach an agreement with any collaborator or third-party manufacturer in the future, of which there can be
no assurance, these collaborators and/or third-party manufacturers may not be able to increase their manufacturing capacity for any of
our product candidates in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation
studies, which the FDA must review and approve. If we are unable to increase the manufacturing capacity for a product candidate successfully,
the regulatory approval or commercial launch of that product candidate may be delayed or there may be a shortage in the supply of the
product candidate. Our product candidates require precise, high-quality manufacturing. The failure of collaborators or third-party manufacturers
to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, could result in patient injury
or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could
seriously harm our business.
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If we are unable to establish
sales and marketing capabilities for our pharmaceutical product candidates or enter into agreements with third parties to sell and market
any such products we may develop, we may be unable to generate revenues from our non-generic pharmaceutical business
We do not currently have product sales and marketing
capabilities for our non-generic pharmaceutical operations. If we receive regulatory approval to commence commercial sales of any of our
pharmaceutical product candidates, we will have to establish a sales and marketing organization with appropriate technical expertise and
distribution capabilities or make arrangements with third parties to perform these services in other jurisdictions. If we receive approval
in applicable jurisdictions to commercialize any of our pharmaceutical products candidates, we intend to engage additional pharmaceutical
or health care companies with existing distribution systems and direct sales organizations to assist us in North America and throughout
the world. We may not be able to negotiate favorable distribution partnering arrangements, if at all. To the extent we enter into co-promotion
or other licensing arrangements, any revenues we receive will depend on the efforts of third parties and will not be under our control.
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, our
ability to generate product revenues, and become profitable, would be severely limited.
Even if we obtain required U.S. and foreign regulatory
approvals, as applicable, factors that may inhibit our efforts to commercialize our pharmaceutical product candidates without strategic
partners or licensees include:
·
Difficulty recruiting and retaining adequate numbers of effective sales and marketing personnel;
·
The inability of sales personnel to obtain access to, or persuade adequate numbers of, physicians to prescribe our products;
·
The lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage against companies with broader product lines; and
·
Unforeseen costs associated with creating an independent sales and marketing organization.
Even if we successfully develop
and obtain approval for our proprietary drug product candidates, our business will not be profitable if such products do not achieve and
maintain market acceptance
Even if our proprietary drug product candidates
are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of our approved product candidates
by physicians, healthcare professionals, patients and third-party payors, and our resulting profitability and growth, will depend on a
number of factors, including:
·
Our ability to provide acceptable evidence of safety and efficacy;
·
Relative convenience and ease of administration;
·
The prevalence and severity of any adverse side effects;
·
The availability of alternative treatments;
·
The details of FDA labeling requirements, including the scope of approved indications and any safety warnings;
·
Pricing and cost effectiveness;
·
The effectiveness of our or our collaborators' sales and marketing strategy;
·
Our ability to obtain sufficient third-party insurance coverage or reimbursement; and
·
Our ability to have the product listed on insurance company formularies.
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If our proprietary drug product candidates achieve
market acceptance, we may not maintain that market acceptance over time if new products or technologies are introduced that are received
more favorably or are more cost effective. Complications may also arise, such as development of new know-how or new medical or therapeutic
capabilities by other parties that render our product obsolete.
Because the results of preclinical
studies for our preclinical product candidates are not necessarily predictive of future results, our pharmaceutical product candidates
may not have favorable results in later clinical trials or ultimately receive regulatory approval
Our proprietary drug product candidates have not
been tested in clinical trials. Positive results from preclinical studies are no assurance that later clinical trials will succeed. Preclinical
studies are not designed to establish the clinical efficacy of our preclinical product candidates. We will be required to demonstrate
through clinical trials that our product candidates are safe and effective for use before we can seek regulatory approvals for commercial
sale. There is typically an extremely high rate of failure as product candidates proceed through the various phases of clinical trials. If
our product candidates fail to demonstrate sufficient safety and efficacy in any clinical trial, we would experience potentially significant
delays in, or be required to abandon, development of that product candidate. This would adversely affect our ability to generate
revenues and may damage our reputation in the industry and in the investment community.
We face or will face significant
competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively
Most of our pharmaceutical company competitors,
such as Merck, Bristol-Myers Squibb, Pfizer, Amgen, and others, are large pharmaceutical companies with substantially greater financial,
technical, and human resources than we have. The biotechnology and pharmaceutical industries are intensely competitive and subject to
rapid and significant technological change. The drugs that we are attempting to develop will compete with existing therapies if we receive
marketing approval. Because of their significant resources, our competitors may be able to use discovery technologies and techniques,
or partnerships with collaborators, to develop competing products that are more effective or less costly than the product candidate we
are developing. This may render our technology or product candidate obsolete and noncompetitive. Academic institutions, government agencies,
and other public and private research organizations may seek patent protection with respect to potentially competitive products or technologies
and may establish exclusive collaborative or licensing relationships with our competitors.
Our competitors may succeed in obtaining FDA or
other regulatory approvals for product candidates more rapidly than us. Companies that complete clinical trials, obtain required regulatory
agency approvals and commence commercial sale of their drugs before we do may achieve a significant competitive advantage, including certain
FDA marketing exclusivity rights that would delay or prevent our ability to market certain products. Any approved drugs resulting from
our research and development efforts, or from our joint efforts with our existing or future collaborative partners, might not be able
to compete successfully with our competitors' existing or future products.
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Because our proprietary drug
product candidates and our development and collaboration efforts depend on our intellectual property rights, adverse events affecting
our intellectual property rights will harm our ability to commercialize products
Our success will depend to a large degree on our
own and our licensors’ ability to obtain and defend patents for each party's respective technologies and the compounds and other
products, if any, resulting from the application of such technologies. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and technical questions. No consistent policy regarding the breadth of claims allowed
in biotechnology patents has emerged to date. Accordingly, we cannot predict the breadth of claims that will be allowed or maintained,
after challenge, in our or other companies' patents.
The degree of future protection for our proprietary
rights is uncertain, and we cannot ensure that:
·
We were the first to make the inventions covered by each of our pending patent applications;
·
We were the first to file patent applications for these inventions;
·
Others will not independently develop similar or alternative technologies or duplicate any of our technologies;
·
Any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages, or will not be challenged by third parties;
·
Our pending patent applications will result in issued patents;
·
We will develop additional proprietary technologies that are patentable;
·
The patents of others will not have a negative effect on our ability to do business; or
·
Our issued patents will have sufficient useful life remaining for commercial viability of our product candidate.
If we cannot maintain the confidentiality of our
technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or
protect our proprietary information will be impaired. In addition, some of the technology we have licensed relies on inventions
developed using U.S. government resources. Under applicable law, the U.S. government has the right to require us to grant a nonexclusive,
partially exclusive or exclusive license for such technology to a responsible applicant or applicants, upon terms that are reasonable
under the circumstances, if the government determines that such action is necessary.
Confidentiality agreements
with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information and may not adequately
protect our intellectual property
We rely on trade secrets to protect our technology,
particularly when we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. In
order to protect our proprietary technology and processes, we rely in part on confidentiality and intellectual property assignment agreements
with our employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not
effectively prevent disclosure of confidential information nor result in the effective assignment to us of intellectual property and may
not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements.
In addition, others may independently discover our trade secrets and proprietary information, and in such case, we could not assert any
trade secret rights against such party. Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult,
expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect
trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary
rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
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The implementation of our
business plan may result in a period of rapid growth that will impose a significant burden on our current administrative and operational
resources
Our ability to effectively manage our growth will
require us to substantially expand the capabilities of our administrative and operational resources by attracting, training, managing,
and retaining additional qualified personnel, including additional members of management, technicians, and others. To successfully develop
our products, we will need to manage operating, producing, marketing and selling our products. There can be no assurances that we will
be able to do so. Our failure to successfully manage our growth will have a negative impact on our anticipated results of operations.
The failure of our suppliers to supply quality materials in sufficient quantities, at a favorable price, and in a timely fashion
could adversely affect the results of our operations
Our outside manufacturers buy raw materials from
a limited number of suppliers. The loss of any of our major suppliers or of any supplier who, through our contract manufacturer, provides
us materials that are hard to obtain elsewhere at the same quality could adversely affect our business operations. Although we believe
we could establish alternate manufacturers and sources for most of our raw materials, any delay in locating and establishing relationships
with other sources could result in shortages of products we manufacture from such raw materials, with a resulting loss of sales and customers.
A shortage of raw materials or an unexpected interruption
of supply could also result in higher prices for those materials. We have experienced increases in various raw material costs, transportation
costs and the cost of petroleum-based raw materials and packaging supplies used in our business. Increasing cost pricing pressures on
raw materials and other products occurred throughout fiscal 2024 and 2025 as a result of limited supplies of various ingredients, and
the effects of higher labor and transportation costs. We expect these upward pressures to continue through fiscal 2026. Although we may
be able to raise our prices in response to significant increases in the cost of raw materials, we may not be able to raise prices sufficiently
or quickly enough to offset the negative effects such cost increases could have on our results of operations or financial condition.
There can be no assurance suppliers will provide
the quality raw materials we need in the quantities requested or at a price we are willing to pay. Because we do not control the actual
production of these raw materials, we are also subject to delays caused by interruption in production of materials including but not limited
to those resulting from conditions outside of our control, such as pandemics, weather, transportation interruptions, strikes, terrorism,
geopolitics, natural disasters, and other catastrophic events.
Our business is subject to
the effects of adverse publicity, which could negatively affect our sales and revenues
Our business can be affected by adverse publicity
or negative public perception about us, our competitors, our products, or our industry or competitors generally. Adverse publicity may
include publicity about the efficacy, safety and quality of health care products or ingredients in general or our products or ingredients
specifically, and regulatory investigations, regardless of whether these investigations involve us or the business practices or products
of our competitors, or our customers. Any adverse publicity or negative public perception could have a material adverse effect on our
business, financial condition and results of operations. Our business, financial condition and results of operations could be adversely
affected if any of our products or any similar products distributed by other companies are alleged to be or are proved to be harmful to
consumers or to have unanticipated and unwanted health consequences.
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Our manufacturing and third-party
fulfillment activities are subject to certain risks
Our products are manufactured at third party manufacturing
facilities in Canada and overseas. As a result, we are dependent on the uninterrupted and efficient operation of these facilities. Such
manufacturing operations, and those of their suppliers, are subject to power failures, blackouts, border shutdowns, telecommunications
failures, computer viruses, cybersecurity vulnerabilities, human error, breakdown, failure or substandard performance. The occurrence
of these or any other operational problems, including the improper installation or operation of equipment, terrorism, pandemics, natural
or other disasters, intentional acts of violence, and the need to comply with the requirements or directives of governmental agencies,
including the FDA and Health Canada may have a material adverse effect on our business, financial condition and results of operations.
We are dependent on a concentrated
base of finished goods suppliers, which increases our risk of product interruption
Approximately 75% of the drugs in our products
portfolio are manufactured by three (3) suppliers overseas. Reliance on a limited number of third-party suppliers for finished products
exposes us to material operational, regulatory, and financial risks. Because these suppliers are responsible for manufacturing, packaging,
and releasing finished pharmaceuticals under stringent regulatory requirements, any disruption in their operations can directly affect
our ability to maintain continuous product supply. Disruptions may arise from GMP non-compliance, regulatory inspection findings, quality
system failures, contamination events, batch deviations, or shortages of critical components such as active pharmaceutical ingredients,
excipients, or specialized packaging. Regulatory actions, including FDA Form 483 observations, warning letters, import alerts, or license
suspensions can halt production or delay batch release. These risks, individually or in the aggregate, could have a material adverse effect
on our business, financial condition, and results of operations.
Risks Related to Our Common
Stock
There is significant volatility
in the price and trading volume of our common stock, and investors may find it difficult to buy and sell our shares
Our common stock has been listed on the Nasdaq
Capital Market since February 15, 2022. The price and daily trading volume of our common stock have been very volatile and may continue
to be so, and any significant trading volume in our common stock may not be maintained. These factors may have an adverse impact on the
trading and price of our common stock.
If we are unable to continue
to meet the listing requirements of Nasdaq, our common stock will be delisted
Our
common stock currently trades on Nasdaq, where it is subject to various listing requirements, including Nasdaq Rule 5500(a)(2), which
requires that our common stock maintain a minimum bid price of at least $1.00 to maintain its listing on Nasdaq (the “Bid Price
Rule”).
Our
common stock has recently traded at prices slightly above the $1.00 Nasdaq required minimum bid price requirement. In addition, though
we have obtained stockholder approval to authorize the board of directors to implement a reverse stock split in its discretion, in a
ratio of up to 1-for-10, there is no assurance that, even if we implement a reverse split, we will be able to maintain compliance with
the Bid Price Rule or other applicable requirements for continued listing on Nasdaq. If we are unable to maintain compliance with Nasdaq
listing requirements, we could be subject to suspension and delisting proceedings. A delisting of our common stock and our inability
to list on another national securities market could negatively impact us by: (i) reducing the liquidity and market price of our common
stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to
raise equity financing; (iii) limiting our ability to use certain registration statements to offer and sell freely tradeable securities,
thereby limiting our ability to access the public capital markets; and (iv) impairing our ability to provide equity incentives to our
employees.
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We do not intend to pay dividends
on our common stock for the foreseeable future
We have paid no dividends on our common stock to
date and we do not anticipate paying any dividends to holders of our common stock in the foreseeable future. While our future dividend
policy will be based on the operating results and capital needs of the business, we currently anticipate that we will retain any earnings
to finance our future expansion and for the implementation of our business plan. Investors should take note of the fact that a lack of
a dividend can further affect the market value of our common stock and could significantly affect the value of any investment in our Company.
Our articles of incorporation
allow for our board 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. Our board of directors has the authority to issue up to 30,000,000
shares of our preferred stock without further stockholder approval. 1,000,000 shares of preferred stock are designated Series B Preferred
Stock and as of the date of this Report, 130,000 of such shares are outstanding and held by our Chief Executive Officer. Our board of
directors could authorize the creation of additional series of preferred stock that would grant to holders of preferred stock the right
to our assets upon liquidation, or the right to receive dividend payments before dividends are distributed to the holders of common stock.
In addition, subject to the rules of any securities exchange on which our stock is then listed, our board of directors could authorize
the creation of additional 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.
Additional stock offerings
in the future or the issuance of stock upon exercise of outstanding warrants may dilute then-existing shareholders’ percentage ownership
in our Company
Given our plans and expectations that we will need
additional capital and personnel, we anticipate that we will need to issue additional shares of common stock or securities convertible
or exercisable for shares of common stock, including convertible preferred stock, convertible notes, stock options or warrants. In addition,
as of the date of filing of this report, we had 15,227,962 Series B Warrants issued and outstanding, each exercisable to purchase one
share of our common stock at an exercise price of $2.07 per warrant. The issuance of additional securities in the future will dilute the
percentage ownership of our current stockholders.
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