ITEM
1. BUSINESS
Overview
We
are an ophthalmic research and development company focused on developing technologies to screen, monitor, diagnose and treat ocular,
optical, and sight-threatening disorders. Our mission is to prevent vision loss and blindness due to diabetic retinopathy and
maculopathy through early detection from use of two devices: (1) Retinal Imaging Screening Device
(RetinalGenixTM), being designed as a portable, high resolution retinal imaging Diabetic screening system providing a
200-degree field of view without requiring pupil dilation; and (2) RetinalCamTM, being designed as a high
resolution home monitoring retinal imaging device and physician alert system offering real-time communication with physicians available 24/7. RetinalCamTM,
is anticipated to have the capability to be used by patients in a variety of locations including at home, primary care centers,
emergency rooms and telehealth centers and nursing homes, at a more efficient cost that is expected to be lower than that of a CT
scan and an MRI. Initially, our primary focus was on designing the RetinalGenixTM) high resolution retinal imaging
system for Diabetic screening, however, due to the cost for such development, including the additional resources, personnel and
equipment that will be required in order to obtain Food and Drug Administration (“FDA”) regulatory approval for
commercialization of RetinalGenixTM,) we have shifted our focus to development of the RetinalcamTM high
resolution retinal imaging, home monitoring device and alert system. Currently, the majority of our design development team is
focused on the development of the RetinalcamTM which does not require FDA approval for its commercialization. We have
also recently acquired a pharmacogenetic mapping technology that is expected to have the ability to screen, monitor, and provide
data to profile, trend and create diagnostic markers for systemic and retinal disorders i.e., cardiovascular, Alzheimers,
Parkinsonism and other diseases. The markers and data analysis are expected to be rapid and cost effective and should eliminate
expensive diagnostic equipment such as MRIs and CT scanning in many cases. The results are confidential to the patient and anonymous
for any third party without permission of the patient.
To
date, we have devoted substantially all of our resources to organizing, business planning, raising capital, designing and developing
product candidates, and securing manufacturing partners. We do not have any products developed on a commercial scale or approved for
sale and have not generated any revenue from product sales. We have funded our operations primarily through the private placement of
common stock.
We
anticipate that we will need an additional $12,000,000 to (i) complete product design and testing for the RetinalGenixTM and
RetinalCamTM and submit RetinalGenixTM for U.S. Food and Drug Administration (“FDA”) clearance (we
anticipate that the RetinalCamTM will not require FDA clearance); (ii) complete the development and expansion of the software
tools around the recently acquired DNA/GPS’ genetic mapping technology (which we anticipate will require approximately $2,000,000);
and (iii) build the infrastructure for our sustained growth. We intend to obtain such funds through the sales of our equity and debt
securities and/or through potential strategic partnerships; however, no assurance can be provided that funds will be available to us
on acceptable terms, if at all.
We
do not expect to generate any revenues from product sales unless and until we either successfully complete development of RetinalCamTM,
or we successfully obtain regulatory clearance for RetinalGenixTM. In addition, we expect to incur additional costs associated
with operating as a public company, including significant legal, accounting, investor relations, compliance and other expenses. As a
result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time
as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public
or private equity offerings, debt financings, strategic partnerships, collaborations and licensing arrangements or other capital sources.
However, we may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms or at all.
Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition
and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to
develop and market our product candidates.
We
have been issuing shares of our common stock pursuant to a private placement raising approximately $3.0 million from the sale of 3,010,000
shares of common stock from 2019 through December 31, 2021. An additional 60,500 shares were sold in January 2022 pursuant to this private
placement. In October 2021, the registration statement on Form S-1 (the “Registration Statement”) that we filed with the
Securities and Exchange Commission (“SEC”) pursuant to which we registered for resale shares of common stock, including shares
of common stock sold in the offering and shares of common stock issuable upon exercise of outstanding options and warrants was declared
effective. No funds were raised by the Company pursuant to the Registration Statement.
Because
of the numerous risks and uncertainties we are unable to accurately predict the timing or amount of increased expenses or when or if
we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If
we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations
at planned levels and be forced to reduce or terminate our operations.
Our
acquisition of DNA/GPS Inc.
On
July 5, 2022, we entered into an exchange agreement (the “Exchange Agreement”) with Dr. Lawrence Perich pursuant to which
we acquired all the outstanding shares of DNA/GPS Inc., a pharmacogenetics company based in Tampa, Florida (“DNA/GPS”), in
exchange for the issuance of 2,000,000 shares of our common stock (the “Shares”). The acquisition of DNA/GPS allows us to
combine DNA/GPS’ genetic mapping capabilities with our high resolution retinal imaging. The combined technology should have the
ability to screen, monitor, and provide data to profile, trend and create diagnostic markers for systemic and retinal disorders i.e.,
cardiovascular, Alzheimer’s, Parkinsonism etc. The markers and data analysis are expected to be rapid and cost effective and should eliminate
expensive diagnostic equipment such as MRI, CT scanning etc. in many cases. Dr. Perich joined our advisory board upon consummation of
the acquisition. Upon acquiring DNA/GPS, we acquired the right to their platform technology that has the ability to screen, monitor,
and provide data to profile, trend and create diagnostic markers for systemic and retinal disorders i.e., cardiovascular, Alzheimer’s,
Parkinsonism and other diseases. This platform, if it received regulatory approval may offer an opportunity to bring testing away from
laboratories and hospitals into primary care centers where it could be handled at reasonable prices. Since many manifestations of diseases
are often seen in the eye, we believe it is possible to observe correlations between damage in the eye and kidney disease, high blood
pressure and heart problems.
Basis
of presentation:
These
accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) including all pronouncements of the SEC applicable to annual financial statements.
Recent
Developments
None
Market
Opportunity
Our
devices are being designed initially to detect the earliest stages of diabetic retinopathy to prevent blindness. Diabetic Retinopathy
(“DR”) happens when too much blood sugar (glucose) associated with diabetes damages the blood vessels in the retina. As a
result, the retina does not get enough oxygen and nutrients, and blood vessels can leak blood into the retina. According to the Mayo
Clinic, DR is the leading cause of new cases of blindness in people 20 to 74 years of age in the United States. According to the Centers
for Disease Control and Prevention (“CDC”) 2022 National Diabetes Statistics Report, more than 130 million adults are living
with diabetes or prediabetes in the United States. The American Diabetes Association reports that diabetic retinopathy is the most common
diabetic eye disease and a leading cause of blindness in American adults. The number of individuals with diabetic retinopathy is predicted
to increase by nearly 50% (it’s actually 47.7%) to over 11 million people by 2030. According to the CDC, 34.2 million patients
in the U.S. have diabetic maculopathy with 26.9 million diagnosed and 7.3 million undiagnosed. In addition, 88 million adult Americans
are pre-diabetics of which 84%, or 74 million, are undiagnosed. Diabetic maculopathy effects 500 million patients globally.
Competition
The
ophthalmic medical technology industries utilize rapidly advancing technologies and are characterized by intense competition. There is
a strong emphasis on intellectual property and proprietary products. We face competition from different sources including ophthalmic
medical technology companies, academic institutions, government agencies, and public and private research institutions. For example,
we face competition from Optomed plc. (“Optomed”), Optos plc (“Optos”) and Zeiss with respect to our RetinalGeniXTM
Imaging System. Optos has developed and is currently globally marketing a wide screen imaging system that has a 200-degree field
of view that screens for diabetic retinopathy, and Optomed has developed and is currently globally marketing a wide screen imaging system
that has a 150 degree field of view that screens for diabetic retinopathy. Zeiss has developed and is currently globally marketing a
wide screen imaging system that has a 200-degree field of view that screens for diabetic retinopathy. Although we face competition with
respect to our RetinalGeniXTM Imaging System, we do not believe we face competition with respect to our RetinalCamTM.
Many
of our competitors have significantly greater financial resources and expertise in research and development, medical device development
and obtaining regulatory approvals than us as well as more established distribution networks and relationships with healthcare providers.
Mergers and acquisitions in the ophthalmic medical technology industries may result in even more resources being concentrated among a
smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified personnel, as well as
in acquiring technologies complementary to our products.
Manufacturing
and Supply
On
June 24, 2021, we entered into an Amended and Restated Master Services Agreement (“Master Services Agreement”) with ADM Tronics
Unlimited, Inc. (“ADM Tronics”), pursuant to which ADM Tronics will provide us with design, engineer and provide regulatory
services related to RetinalGenixTM and RetinalCamTM.
On
October 8, 2019, we entered into an option exchange agreement (the “Option Exchange Agreement”) with Diopsys, Inc. (“Diopsys”)
pursuant to which we shall issue Diopsys an option to purchase up to 10% of our issued and outstanding shares of common stock and Diopsys
shall issue us an option to purchase up to 10% of the issued and outstanding shares of common stock of Diopsys on the Closing Date (the
“Option Exchange”). “Closing Date” means a date that is within 30 days of the date that all of the contingencies
set forth in the Option Exchange Agreement are satisfied including, but not limited to, approval of a product by the FDA. In addition,
pursuant to the Option Exchange Agreement, upon the closing of the Option Exchange, we shall enter into an exclusive distribution agreement
with Diopsys pursuant to which Diopsys shall act as our exclusive distributor of such product. The agreement was terminated on February
14, 2022.
Intellectual
Property Portfolio
Our
success depends in large part on our ability to protect our proprietary technologies and information, and to operate without infringing
the proprietary rights of third parties. We rely on a combination of patent, trade secret, trademark, and copyright laws, as well as
confidentiality and other agreements, to establish and protect our proprietary rights. In addition to patent protection, we rely on trade
secrets, proprietary know-how, and continuing technological advances to develop and maintain our competitive position. Our goal is to
obtain, maintain and enforce patent protection for our products, preserve our trade secrets, and operate without infringing on the proprietary
rights of other parties.
Sublicense
Agreement with Sanovas Ophthalmology LLC
On
June 24, 2021, we entered into a sublicense agreement (“Sublicense Agreement”) with Sanovas Ophthalmology LLC (“Sanovas
Ophthalmology”), a company for which our Chief Executive Officer is also the managing member, pursuant to which Sanovas Ophthalmology
granted us an exclusive worldwide (“Territory”) license to certain intellectual property, including six patents, two patent
applications, and two trademark applications, licensed to Sanovas Ophthalmology by Sanovas Intellectual Property LLC relating to certain
technologies for eye and ocular visualization and monitoring (“Licensed IP”) for uses related to the screening, examination,
diagnosis, prevention and/or treatment of any eye disease, medical condition or disorder, or any disease, medical condition or disorder
affecting the eye. The Licensed IP which has been issued by the USPTO and relates to methods of use and systems expires on dates ranging
from September 2034 to December 2034, and the Licensed IP which is still pending before the USPTO also relates to methods of use and
systems. Pursuant to the Sublicense Agreement, commencing on the date of the first commercial sale of a Licensed Product (as defined
in the Sublicense Agreement), in each country in the Territory and continuing on a country by country basis until the expiration or termination
of the last Valid Claim (as defined herein) of a licensed patent in such country (the “Royalty End Date”), we shall pay Sanovas
Ophthalmology a royalty equal to a mid-single digit percentage of any Net Sales (as defined in the Sublicense Agreement) of any Licensed
Product. “Valid Claim” means an issued, unexpired patent claim contained in a licensed patent as long as the claim has not
been admitted by Sanovas Intellectual Property, LLC, the owner of the Licensed IP, or otherwise caused to be invalid or unenforceable
through reissue, disclaimer or otherwise, or held invalid or unenforceable by a tribunal or governmental agency of competent jurisdiction
from whose judgment no appeal is allowed or timely taken. The Sublicense Agreement shall continue until the Royalty End Date, unless
earlier terminated pursuant to its terms. The Sublicense Agreement may be terminated by either party if the other party materially breaches
the Sublicense Agreement in a manner that cannot be cured, or materially breaches the Sublicense Agreement in a manner that can be cured,
and such breach remains uncured for more than 30 days after the receipt by the breaching party of notice specifying the breach. Furthermore,
we may terminate the Sublicense Agreement at any time upon 90 days written notice to Sanovas Ophthalmology.
Government
Regulation
Our
business is subject to extensive, complex, and rapidly changing federal and state laws and regulations. Various federal and state agencies
have discretion to issue regulations any interpret and enforce healthcare laws. While we believe we comply in all material respects with
applicable healthcare laws and regulations, these regulations can vary significantly from jurisdiction, and interpretation of existing
laws and regulations may change periodically. Federal and state legislatures also may enact various legislative proposals that could
materially impact certain aspects of our business.
United
States Regulations
In
the U.S., medical devices are subject to regulation by the FDA under the Federal Food, Drug, and Cosmetic Act (the “FDCA”)
and its implementing regulations. The FDCA and regulations govern, among other things, the design, manufacture, storage, recordkeeping,
approval, labeling, promotion, post-approval monitoring and reporting, distribution and import and export of medical devices. Failure
to comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative and judicial sanctions,
such as FDA refusal to grant requests for 510(k) clearance, de novo classification, or premarket approval of new products or modified
products, issuance of warning letters or untitled letters, mandatory product recalls, import detentions, civil monetary penalties, and/or
judicial sanctions, such as product seizures, injunctions, and criminal prosecution.
The
FDCA classifies medical devices into one of three categories based on the risks associated with the device and the level of control necessary
to provide reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk and are subject only to the general
regulatory controls. Class II devices are moderate risk. They are subject to general controls and may also be subject to special controls.
Class III devices are generally the highest risk devices. They are required to obtain premarket approval and comply with post-market
conditions of approval in addition to general regulatory controls.
We
believe RetinalGenixTM is a Class II medical device that will require 510(k) clearance from the FDA. In addition, we believe
RetinalCamTM will be considered a Class II exempt medical device because it is non-diagnostic in nature, and therefore, we
do not anticipate needing 510(k) clearance from the FDA to market such product. Pursuant to FDA product classification codes for ophthalmic
cameras under 21 C.F.R. § 886.1120, “PJZ” cameras are prescription devices indicated only for the capture and storage
of images of the eye and surrounding area in the general population. PJZ cameras cannot be indicated for any specific population (e.g.,
pediatrics, AMD patients, etc.), cannot contain any type of “diagnostic” or “aid in diagnosis” claims in the
indication for use, and cannot reference any specific disease. PJZ cameras do not exceed group 1 radiant exposure limits for ultraviolet,
visible, and infrared radiation under all light energy conditions, as defined in the ANSI Z80.36-2016 standard Light Hazard Protection
for Ophthalmic Instruments. PJZ cameras also have other design and performance characteristics that are described by FDA in the product
code description.
If
the RetinalGeniXTM were to be classified as a Class II medical device, such classification would require us to submit a premarket
notification submission to FDA prior to marketing. We anticipate the submission will require clinical evidence of safety and efficacy,
generated through a regulated, randomized clinical trial or field evaluation. FDA clearance for ophthalmological devices usually require
about 170 days.
We
intend to launch RetinalCamTM in the fall of 2023 and we intend to apply for 510(k) clearance for RetinalGenixTM
in 2024.
FDA
Pre-Market Authorization and Notification
Under
FDA regulations, all devices, including Class I devices, are subject to general controls, which are the basic authorities of the Medical
Device Amendments that provide the FDA with the means of regulating devices to ensure their safety and effectiveness (e.g., labeling,
facility registration and device listing and adherence to Quality System Regulation (“QSR”) requirements). For Class III
devices, a pre-market approval (“PMA”) application will be required unless the device is a pre-amendment device (on the market
prior to the passage of the medical device amendments in 1976, or substantially equivalent to such a device) or is exempted from submission
of a PMA. In that case, a 510(k) will be the route to market. A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is substantially equivalent to a legally marketed Class I or II medical device, or to a Class III medical device
for which the FDA has not required a PMA. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed
device or that additional information or data are needed before a substantial equivalence determination can be made. A request for additional
data may require that clinical studies of the device’s safety and efficacy be performed.
While
most Class I and some Class II devices may be marketed without prior FDA authorization, most other medical devices can be legally sold
within the U.S. only if the FDA has: (i) approved a PMA prior to marketing, generally applicable to most Class III devices; (ii) cleared
the device in response to a premarket notification, or 510(k) submission, generally applicable to Class I and II devices; or (iii) authorized
the device to be marketed through the de novo classification process, generally applicable for novel Class I or II devices. PMA
applications, 510(k) premarket notifications, and de novo requests require payment of substantial user fees that are modified
each fiscal year.
Commercial
distribution of a device for which a 510(k) notification is required may begin only after the FDA issues an order finding the device
to be substantially equivalent to a previously cleared device. Even in cases where the FDA grants a 510(k) clearance, it may take the
FDA between four and nine months from the date of submission to grant a 510(k) clearance, but may take longer.
A
“not substantially equivalent” determination, or a request for additional information, could delay the market introduction
of new products that fall into this category and could have a material adverse effect on our business, financial condition and results
of operations. For any of our products that are cleared through the 510(k) process, modifications or enhancements that could significantly
affect the safety or efficacy of the device or that constitute a major change to the intended use of the device will require new 510(k)
submissions.
Any
products manufactured or distributed by us are subject to pervasive and continuing regulation by the FDA, including record keeping requirements
and reporting of adverse experiences with the use of the device. Device manufacturers are required to register their establishments and
list their devices with the FDA and certain state agencies, and are subject to periodic inspections by the FDA and certain state agencies.
The FDCA requires devices to be manufactured to comply with applicable QSR regulations which impose certain procedural and documentation
requirements upon us with respect to design, development, manufacturing and quality assurance activities. The FDA enforces its requirements
by market surveillance and periodic visits, both announced and unannounced, to inspect or re-inspect equipment, facilities, laboratories
and processes to confirm regulatory compliance. These inspections may include the manufacturing facilities of subcontractors. Following
an inspection, the FDA may issue a report, known as a Form 483, listing instances where the manufacturer has failed to comply with applicable
regulations and/or procedures or, if observed violations are sufficiently severe and urgent, a warning letter. If the manufacturer does
not adequately respond to a Form 483 or warning letter, the FDA make take enforcement action against the manufacturer or impose other
sanctions or consequences.
We
are subject to unannounced inspections by the FDA and the Food and Drug Branch of the California Department of Public Health to determine
our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our subcontractors.
510(k)
Premarket Notification Pathway
Product
marketing in the U.S. for most Class II and a limited number of Class I devices typically follows the 510(k) premarket notification pathway.
To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating that the proposed device is substantially
equivalent to a legally marketed device, referred to as the “predicate device.” A predicate device may be a previously 510(k)-cleared
device placed in Class I or Class II via a finding of substantial equivalence to a lawfully marketed Class I or Class II device, or a
Class III device that was in commercial distribution before May 28, 1976 and for which the FDA has not yet called for PMA applications,
or a product previously placed in Class I or Class II through the de novo classification process. A finding of “substantial
equivalence” means the FDA must conclude that the proposed device has the same intended use as a predicate device, and it either
has the same technological characteristics, or it has different technological characteristics but submitted information (potentially
including clinical data) shows it is as safe and effective and does not raise different questions of safety and effectiveness as compared
to the predicate device.
The
FDA has a user fee goal to apply no more than 90 calendar review days to 510(k) submissions. During the process, the FDA may issue an
Additional Information request, which stops the clock. The applicant has no more than 180 days to respond (after which the submission
is automatically terminated). Therefore, the total review time could be up to a maximum of 270 days.
After
a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute
a major change in its intended use, requires a new 510(k) clearance or could require a PMA approval or de novo classification.
The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the
FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance for the modified device, the agency may retroactively
require the manufacturer to seek 510(k) clearance, de novo classification, or PMA approval. The FDA also can require the manufacturer
to cease marketing and/or recall the modified device until 510(k) clearance or PMA approval is obtained.
Post-market
Requirements
After
a device is placed on the market, numerous general regulatory controls apply. These include: the QSR, labeling regulations, the medical
device reporting regulations (which require that manufacturers report to the FDA if their device may have caused or contributed to a
death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur),
and reports of corrections and removals regulations (which require manufacturers to report recalls or removals and field corrections
to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA). Failure to properly identify
reportable events or to file timely reports, as well as failure to address each of the observations to FDA’s satisfaction, can
subject a manufacturer to warning letters, recalls, or other sanctions and penalties.
Labeling
and promotion activities are subject to scrutiny by the FDA and by the Federal Trade Commission. The FDA actively enforces regulations
prohibiting marketing of products for unapproved uses. We and our products are also subject to a variety of state laws and regulations
in those states or localities where our products will be marketed. Any applicable state or local regulations may hinder our ability to
market our products in those states or localities. Manufacturers are also subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous
or potentially hazardous substances. We may be required to incur significant costs to comply with such laws and regulations now or in
the future. Such laws or regulations may have a material adverse effect upon our ability to do business.
Advertising,
marketing and promotional activities for devices are also subject to FDA oversight and must comply with the statutory standards of the
FDCA, and the FDA’s implementing regulations. The FDA’s oversight authority review of marketing and promotional activities
encompasses, but is not limited to, direct-to-consumer advertising, healthcare provider-directed advertising and promotion, sales representative
communications to healthcare professionals, promotional programming and promotional activities involving electronic media. The FDA also
regulates industry-sponsored scientific and educational activities that make representations regarding product safety or efficacy in
a promotional context.
Manufacturers
of medical devices are permitted to promote products solely for the uses and indications set forth in the approved or cleared product
labeling. A number of enforcement actions have been taken against manufacturers that promote products for “off-label” uses
(i.e., uses that are not described in the approved or cleared labeling), including actions alleging that claims submitted to government
healthcare programs for reimbursement of products that were promoted for “off-label” uses are fraudulent in violation of
the Federal False Claims Act or other federal and state statutes and that the submission of those claims was caused by off-label promotion.
The failure to comply with prohibitions on “off-label” promotion can result in significant monetary penalties, revocation
or suspension of a company’s business license, suspension of sales of certain products, product recalls, civil or criminal sanctions,
exclusion from participating in federal healthcare programs, or other enforcement actions. In the United States, allegations of such
wrongful conduct could also result in a corporate integrity agreement with the U.S. government that imposes significant administrative
obligations and costs.
Violations
of the FDCA relating to the inappropriate promotion of approved products may lead to investigations alleging violations of federal and
state healthcare fraud and abuse and other laws, as well as state consumer protection laws.
For
a Class II or Class III device meeting certain requirements, the FDA also may require post-market surveillance requirements. Additionally,
the FDA may place conditions on a PMA-approved device that could restrict the distribution or use of the product. In addition, all classes
of devices must comply with quality-control, manufacture, packaging, and labeling procedures under the QSR, and manufacturers are subject
to periodic inspections by the FDA for compliance. Accordingly, manufacturers must continue to expend time, money, and effort in the
areas of production and quality control to maintain compliance with the QSR. The FDA may withdraw product approvals or recommend or require
product recalls if a company fails to comply with regulatory requirements.
Export
of our products is regulated by the FDA and subject to the FDCA, 21 U.S.C. §§381-384f, and other statutes FDA administers,
which greatly expanded the export of approved and unapproved United States medical devices. Some foreign countries require manufacturers
to provide a specific type of FDA export certificate (such as a Certificate to Foreign Government or Certificate of Exportability), which
may require the device manufacturer to certify the device is lawfully marketed in the United States, including in conformance with QSR
requirements, labeling regulations, premarket notification, and other requirements. The FDA will refuse to issue any export certificate
if significant outstanding QSR violations exist.
European
Union Regulations
In
the European Union (“EU”), there are four main medical device classes: I, IIa, IIb and III. Similar to the US classification
system, the EU classification system is a risk-based system, depending on the potential risk associated with the device. In the EU, we
believe the RetinalCamTM would be considered a Class IIa medical device, which would require the grant of a CE marking prior
to launching in the EU. To obtain a CE marking, the device manufacturer must be certified to ISO 13485, and the product must meet certain
harmonized standards for its design, development and testing. If the manufacturer is not self-certifying, outside agencies (known as
Notified Bodies) will be required to test and certify that the device meets the applicable requirements, including clinical evidence
of safe and effective use prior to the product being released for general market introduction.
Other
Healthcare Laws
In
addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied
to restrict certain general business and marketing practices in the pharmaceutical industry. These laws include anti-kickback, false
claims, transparency and health information privacy laws and other healthcare laws and regulations.
The
federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration
to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service
reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. The Patient Protection and Affordable Care Act
as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”) amended the intent element of the
federal Anti-Kickback Statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to
violate it in order to commit a violation. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers
on the one hand and prescribers, purchasers and formulary managers, among others, on the other. Although there are a number of statutory
exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions
and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations
may be subject to scrutiny if they do not qualify for an exception or safe harbor. Additionally, the ACA amended the federal Anti-Kickback
Statute such that a violation of that statute can serve as a basis for liability under the federal civil False Claims Act. Federal civil
and criminal false claims laws, including the federal civil False Claims Act, prohibit any person or entity from knowingly presenting,
or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false
statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicare
and Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply
Schedule. Pharmaceutical and medical device companies have been prosecuted under these laws for, among other things, allegedly providing
free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing
practices, including off-label promotion, may also violate false claims laws. Most states also have statutes or regulations similar to
the federal Anti-Kickback Statute and civil False Claims Act, which apply to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the payor.
Other
federal statutes pertaining to healthcare fraud and abuse include the Civil Monetary Penalties Law statute, which prohibits, among other
things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror or payor knows or should know is
likely to influence the beneficiary to order or receive a reimbursable item or service from a particular supplier, and the additional
federal criminal statutes created by HIPAA, which prohibit, among other things, knowingly and willfully executing or attempting to execute
a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any
money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare
benefits, items or services.
Further,
pursuant to the ACA, CMS issued a final rule that requires certain manufacturers of prescription drugs to collect and annually report
information on certain payments or transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists
and chiropractors), certain other health care professionals (such as physicians assistants and nurse practitioners) and teaching hospitals,
as well as ownership and investment interests held by physicians and their immediate family members. The reported data are made available
in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties.
Analogous
state and foreign anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare
items or services reimbursed by non- governmental third-party payors, including private insurers, or that apply regardless of payor.
In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion
of drug products and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various
marketing-related activities, such as the provision of certain kinds of gifts or meals. Further, certain states require the posting of
information relating to clinical trials and their outcomes. In addition, certain states require medical device companies to implement
compliance programs and/or marketing codes.
Privacy
and Data Protection Laws
Data
privacy and security regulations by both the federal government and the states in which business is conducted may also be applicable.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and its implementing
regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information.
HIPAA requires covered entities to limit the use and disclosure of protected health information to specifically authorized situations
and requires covered entities to implement security measures to protect health information that they maintain in electronic form. Among
other things, HITECH made HIPAA’s security standards directly applicable to business associates, independent contractors or agents
of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered
entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable
to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts
to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.
In
addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each
other in significant ways and may not have the same effect, thus complicating compliance efforts. Certain state laws may be more stringent
or broader in scope, or offer greater individual rights, with respect to personal information, and such laws may differ from each other,
all of which may complicate compliance efforts. For example, the CCPA, which increases privacy rights for California residents and imposes
obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires
covered companies to provide new disclosures to California consumers about their data collection, use and sharing practices and provide
such consumers new data protection and privacy rights, including the ability to opt out of certain sales of personal information. The
CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss
of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
On November 3, 2020, California voters approved a new privacy law, the CPRA, which significantly modifies the CCPA, including by expanding
consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement
efforts. Many of the CPRA’s provisions will become effective on January 1, 2023. State laws are changing rapidly and there is discussion
in the U.S. of a new comprehensive federal data privacy law.
Healthcare
Reform
Healthcare
reforms that have been adopted, and that may be adopted in the future, have been focused on cost containment in the healthcare system
and could result in reductions in coverage and levels of reimbursement for healthcare products, increases in rebates payable under U.S.
government rebate programs and additional downward pressure on pharmaceutical product prices. On September 9, 2021, the Biden administration
published a wide-ranging list of policy proposals, most of which would need to be carried out by Congress, to reduce drug prices and
drug payment. The Department of Health and Human Services (“HHS”) plan includes, among other reform measures, proposals to
lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support
market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency. These initiatives
recently culminated in the enactment of the Inflation Reduction Act (“IRA”) in August 2022, which will, among other things,
allow HHS to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although
only high-expenditure single-source drugs that have been approved for at least 7 years (11 years for biologics) can be selected by CMS
for negotiation, with the negotiated price taking effect two years after the selection year. The negotiated prices, which will first
become effective in 2026, will be capped at a statutory ceiling price representing a significant discount from average prices to wholesalers
and direct purchasers. The law will also, beginning in October 2023, penalize drug manufacturers that increase prices of Medicare Part
B and Part D drugs at a rate greater than the rate of inflation. The IRA also extends enhanced subsidies for individuals purchasing health
insurance coverage in ACA marketplaces through plan year 2025. The IRA permits the Secretary of HHS to implement many of these provisions
through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various
penalties, including civil monetary penalties. These provisions will take effect progressively starting in 2023, although they may be
subject to legal challenges.
Employees-Human
Capital
As
of March 31, 2023, we had no employees. We utilize certain Sanovas’ personnel for our business, and are allocated the proportion
of payroll costs applicable to such usage from Sanovas.
Our
Corporate Information
We
were incorporated in Delaware on November 17, 2017. Our principal executive offices are located at 1450 North McDowell Boulevard, Suite
150, Petaluma, California 94954 and our telephone number is (415) 578-9583. Our website address is www.retinalgenix.com. The information
contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained
on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our securities.
Available
Information
Our
website address is www.retinalgenix.com. The contents of, or information accessible through, our website are not part of this Annual
Report on Form 10-K, and our website address is included in this document as an inactive textual reference only. We make our filings
with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments
to those reports, available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish
such reports to, the SEC. The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other
information. The address of the SEC’s website is www.sec.gov. The information contained in the SEC’s website is not intended
to be a part of this filing.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other
information in this Annual Report on Form 10-K before investing in our common stock. Our business and results of operations could be
seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition
and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be
materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part
of your investment.
Risk
Related to our Financial Position and Need for Capital
We
have generated no revenue from commercial sales to date and our future profitability is uncertain.
We
were incorporated in November 2017 and have a limited operating history, and our business is subject to all of the risks inherent in
the establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with development and expansion of a new business enterprise. Since inception,
we have incurred losses and expect to continue to operate at a net loss for at least the next several years. Our net losses for the year
ended December 31, 2022 and December 31, 2021, were $3,913,990 and $2,179,294, respectively, and our accumulated deficit as of December
31, 2022 and December 31, 2021 was $9,018,306 and $5,104,316, respectively. There can be no assurance that the products under development
by us will be cleared for sale in the U.S. or elsewhere. Furthermore, there can be no assurance that if such products are cleared they
will be successfully commercialized, and the extent of our future losses and the timing of our profitability are highly uncertain. If
we are unable to achieve profitability, we may be unable to continue our operations.
If
we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development and
you will likely lose your entire investment.
We
will need to continue to seek capital from time to time to continue development of our products and we cannot provide any assurances
that any revenues they may generate in the future will be sufficient to fund our ongoing operations. We believe that we will need to
raise substantial additional capital to fund our continuing operations and the development and commercialization of our products. We
anticipate that we will need an additional $12,000,000 to (i) complete product design and testing for the RetinalGenixTM and
RetinalCamTM and submit RetinalGenixTM for FDA clearance (we anticipate that the RetinalCamTM will not
require FDA clearance); (ii) complete the development and expansion of the software tools around the recently acquired DNA/GPS’
genetic mapping technology (which we anticipate will require approximately $2,000,000); and (iii) build the infrastructure for our sustained
growth.
Our
business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial additional
funding may be required to maintain operations, fund expansion, develop new or enhanced products, acquire complementary products, business
or technologies or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory environment. In addition,
we may need to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned, and this would require
additional capital. However, we may not be able to secure funding when we need it or on favorable terms. We may not be able to raise
sufficient funds to commercialize the products we intend to develop.
If
we cannot raise adequate funds to satisfy our capital requirements, we will have to delay, scale back or eliminate our research and development
activities or future operations. We may also be required to obtain funds through arrangements with collaborators, which arrangements
may require us to relinquish rights to certain technologies or products that we otherwise would not consider relinquishing, including
rights to certain major geographic markets. This could result in sharing revenues which we might otherwise retain for ourselves. Any
of these actions may harm our business, financial condition and results of operations.
The
amount of capital we may need depends on many factors, including the progress, timing and scope of our product development programs;
the time and cost necessary to obtain regulatory clearance; our ability to enter into and maintain collaborative, licensing and other
commercial relationships; and our partners’ commitment of time and resources to the development and commercialization of our products.
Raising
additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our
products on unfavorable terms to us.
We
may seek additional capital through a variety of means, including through private and public equity offerings and debt financings, collaborations,
strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the
sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms of such financings
may include liquidation or other preferences, anti-dilution rights, conversion and exercise price adjustments and other provisions that
adversely affect the rights of our stockholders, including rights, preferences and privileges that are senior to those of our holders
of common stock in the event of a liquidation. In addition, debt financing, if available, could include covenants limiting or restricting
our ability to take certain actions, such as incurring additional debt, making capital expenditures, or declaring dividends and may require
us to grant security interests in our assets. If we raise additional funds through collaborations, strategic alliances, or marketing,
distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue
streams, or products or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity
or debt financings when needed, we may need to curtail or cease our operations.
There
is substantial doubt about our ability to continue as a going concern.
As
of December 31, 2022 and December 31, 2021, we had cash of $38 and $4,947, respectively. In addition, as of December 31, 2022 and December
31, 2021, we had current liabilities of $1,069,357 and $469,622, respectively. In the event that we are unable to obtain additional financing,
we may be unable to continue as a going concern. There is no guarantee that we will be able to secure additional financing. Changes in
our operating plans, our existing and anticipated working capital needs, costs related to legal proceedings we might become subject to
in the future, the acceleration or modification of our development activities, any near-term or future expansion plans, increased expenses,
potential acquisitions or other events may further affect our ability to continue as a going concern. Similarly, the report of our independent
registered public accounting firm on our financial statements as of and for the year ended December 31, 2022 includes an explanatory
paragraph indicating that there is substantial doubt about our ability to continue as a going concern. If we cannot continue as a viable
entity, our stockholders may lose some or all of their investment in us.
We
have incurred net losses every year since our inception and expect to continue to incur increased expenses and generate operating losses
and experience negative cash flows and it is uncertain whether we will achieve profitability.
Our
net losses for the year ended December 31, 2022 and December 31, 2021, were $3,913,990 and $2,179,294, respectively, and our accumulated
deficit as of December 31, 2022 and December 31, 2021 was $9,018,306 and $5,104,316, respectively. We anticipate that we will need an
additional $12,000,000 to (i) complete product design and testing for the RetinalGenixTM and RetinalCamTM and submit
RetinalGenixTM for FDA clearance (we anticipate that the RetinalCamTM will not require FDA clearance); (ii) complete
the development and expansion of the software tools around the recently acquired DNA/GPS’ genetic mapping technology (which we
anticipate will require approximately $2,000,000); and (iii) build the infrastructure for our sustained growth. We intend to obtain such
funds through the sales of our equity and debt securities and/or through potential strategic partnerships; however, no assurance can
be provided that funds will be available to us on acceptable terms, if at all.
Risks
Relating to Our Business
Our
revenues from sales of our products will be dependent upon pricing and reimbursement guidelines, and if pricing and reimbursement levels
are inadequate to achieve profitability, our operations will suffer.
Our
financial success will be dependent on our ability to price our products in a manner acceptable to government and private payors while
still maintaining our profit margins. Numerous factors that may be beyond our control may ultimately impact the pricing of our products
and determine whether we are able to obtain reimbursement or reimbursement at adequate levels from governmental programs and private
insurance. If we are unable to obtain reimbursement or our products are not adequately reimbursed, we will experience reduced sales,
our revenues likely will be adversely affected, and we may not become profitable. Obtaining reimbursement approvals is time consuming,
requires substantial management attention and is expensive. Our business will be materially adversely affected if we do not receive approval
for reimbursement of our products under government programs and from private insurers on a timely or satisfactory basis. If reimbursement
for our products is unavailable, limited in scope or amount, or if pricing is set at unsatisfactory levels, our business may be materially
harmed.
If
our suppliers cannot provide the components we require, our ability to develop and manufacture our products could be harmed.
We
rely on third-party suppliers to provide us with components that will be used in the products we are developing. For example, we rely
on third-party suppliers to provide us with sensors which will be used in both RetinalGeniXTM and RetinalCamTM.
Relying on third-party suppliers makes us vulnerable to component part failures or obsolescence and interruptions in supply including,
but not limited to, as a result of COVID-19, either of which could impair our ability to develop our products in a timely manner. Vendor
lead times to supply us with ordered components vary significantly and as a result of COVID-19 can exceed three months or more. We cannot
be sure that our suppliers will furnish us required components when we need them or be able to provide us with sufficient components
to support the development and manufacture of our products.
Some
of our suppliers may be the only source for a particular component, which makes us vulnerable to significant cost increases or shortage
of supply. We have foreign suppliers for some of our parts in which we are subject to currency exchange rate volatility. Some of our
vendors are small in size and may have difficulty supplying the quantity and quality of materials required for our products as our business
potentially grows. Vendors that are the sole source of certain products may decide to limit or eliminate sales of certain components
due to product liability or other concerns and we might not be able to find a suitable replacement for those products. Our inventory
may run out before we find alternative suppliers and we might be forced to purchase excess inventory, if available, to last until we
are able to qualify an alternate supplier. Any of these events could adversely impact our results of operations.
Our
commercial and financial success depends on our products being accepted in the market, and if not achieved will result in our not being
able to generate revenues to support our operations.
Even
if we are able to obtain favorable reimbursement within the markets that we serve, commercial success of our products will depend, among
other things, on their acceptance by retinal specialists, ophthalmologists, general practitioners, low vision therapists and mobility
experts, hospital purchasing and controlling departments, patients, and other members of the medical community. The degree of market
acceptance of any of our potential products will depend on factors that include:
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cost
of treatment; |
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pricing
and availability of alternative products; |
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the
extent of available third-party coverage or reimbursement; |
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perceived
efficacy of our products relative to other products and medical solutions; and |
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prevalence
and severity of adverse side effects associated with treatment. |
We
may face substantial competition in the future and may not be able to keep pace with the rapid technological changes which may result
from others discovering, developing or commercializing products before or more successfully than we do.
In
general, the development and commercialization of new medical devices is highly competitive and is characterized by extensive research
and development and rapid technological change. Our customers consider many factors including product reliability, product availability,
inventory consignment, price and product services provided by the manufacturer. Market share can shift as a result of technological innovation
and other business factors. Major shifts in industry market share have occurred in connection with product related problems, physician
advisories and safety alerts and quality problems with processes, goods and services, any of which could harm our reputation and have
a material adverse effect on our operations. In addition, our competitors may develop products or other novel technologies that are more
effective, safer or less costly than our products. If we fail to develop new products or enhance our existing products, our business,
financial condition and results of operations may be adversely affected.
Product
liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we
may develop.
We
face an inherent risk of product liability exposure related to our products. Product liability claims may be brought against us by patients,
healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves against claims
that our products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims
may result in:
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decreased
demand for our products; |
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injury
to our reputation and significant negative media attention; |
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significant
costs to defend the related litigation; |
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substantial
monetary awards; |
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loss
of revenue; |
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diversion
of management and scientific resources from our business operations; and |
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the
inability to commercialize any products that we may develop. |
Prior
to commercializing our products, we intend to obtain product liability insurance coverage at a level that we believe is customary for
similarly situated companies and adequate to provide us with insurance coverage for foreseeable risks; however, we may be unable to obtain
such coverage at a reasonable cost, if at all. If we are able to obtain product liability insurance, we may not be able to maintain insurance
coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise and such insurance may not be adequate
to cover all liabilities that we may incur. A successful product liability claim or series of claims brought against us, particularly
if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
Risk
Related to our Intellectual Property Rights
We
are dependent on information technology systems, including systems from third parties, and if we fail to properly maintain the integrity
of our data or if our products do not operate as intended, our business could be materially and adversely affected.
We
are dependent on information technology systems for our products and infrastructure, and we rely on these information technology systems,
including technology from third-party vendors, to process, transmit and store electronic information in our day-to-day operations. We
continuously monitor, upgrade and expand the systems we operate to improve information systems capabilities. Our information systems
require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop or contract new
systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, and the
increasing need to protect patient and customer information. In addition, third parties may attempt to hack into our products or systems
and may obtain data relating to patients or proprietary information. If we fail to protect our information systems and data integrity,
we could lose existing customers; have difficulty attracting new customers; have difficulty preventing, detecting, and controlling fraud;
be subject to regulatory sanctions, fines or penalties; be subject to increases in operating expenses; incur expenses or lose revenue;
or suffer other adverse consequences.
If
the quality or delivery of our products does not meet our customers’ expectations, our reputation could suffer and ultimately our
sales and operating earnings could be negatively impacted.
In
the course of conducting our business, we will need to adequately address quality issues associated with our products, including in our
engineering, design, manufacturing and delivery processes, as well as issues in third-party components included in our products. Because
our products are highly complex, the occurrence of performance issues may increase as we continue to introduce new products and as we
rapidly scale up manufacturing to meet increased demand for our products. There can be no assurance that we will be able to eliminate
or mitigate occurrences of these issues and associated liabilities. In addition, identifying the root cause of performance or quality
issues, particularly those affecting third-party components, may be difficult, which increases the time needed to address quality issues
as they arise and increases the risk that similar problems could recur. Finding solutions to quality issues can be expensive, and we
may incur significant costs or lost revenue in connection with, for example, shipment holds, product recalls and warranty or other service
obligations. In addition, quality issues can impair our relationships with new or existing customers and our reputation as a producer
of high-quality products could suffer, which could adversely affect our business, financial condition or results of operations.
Failure
to comply with data privacy and security laws could have a material adverse effect on our business.
We
are subject to state, federal and foreign laws relating to data privacy and security in the conduct of our business, including state
breach notification laws, the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for
Economic and Clinical Health Act of 2009 and the California Consumer Privacy Act. These laws affect how we collect and use data of our
employees, consultants, customers and other parties. Furthermore, these laws impose substantial requirements that require the expenditure
of significant funds and employee time to comply, and additional states are enacting new data privacy and security laws, which will require
future expansion of our compliance efforts. We also rely on third parties to host or otherwise process some of this data. Any failure
by a third party to prevent security breaches could have adverse consequences for us. We will need to expend additional resources and
make significant investments to comply with data privacy and security laws. Our failure to comply with these laws or prevent security
breaches of such data could result in significant liability under applicable laws, cause disruption to our business, harm our reputation
and have a material adverse effect on our business.
We
may not be successful in hiring and retaining key employees, including executive officers.
Our
future operations and successes depend in large part upon the strength of our management team. We rely heavily on the continued service
of Jerry Katzman, our President and Chief Executive Officer. Accordingly, if Dr. Katzman terminates his employment with us, such a departure
may have a material adverse effect on our business. Our future success also depends on our ability to identify, attract, hire or engage,
retain and motivate other well-qualified financial, managerial, technical and regulatory personnel. There can be no assurance that these
professionals will be available in the market, or that we will be able to retain existing professionals or to meet or to continue to
meet their compensation requirements. Furthermore, the cost base in relation to such compensation, which may include equity compensation,
may increase significantly, which could have a material adverse effect on us. Failure to establish and maintain an effective management
team and work force could adversely affect our ability to operate, grow and manage our business.
Our
management overlaps substantially with the management and beneficial owners of our principal stockholder, which may give rise to potential
conflicts of interest.
Our
Chief Executive Officer also serves as the Chief Executive Officer of our principal stockholder, Sanovas, Inc. (‘Sanovas”).
Accordingly, there may be inherent, albeit non-specific, potential conflicts involved in the participation by members of each company’s
management.
We
may acquire other businesses, form joint ventures or make investments in other companies or technologies that could negatively affect
our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
We
may pursue acquisitions of businesses and assets. We also may pursue strategic alliances and joint ventures that leverage our proprietary
technology and industry experience to expand our offerings or distribution. We have no experience with acquiring other companies other
than our acquisition of DNA/ GPS Inc. and limited experience with forming strategic partnerships. We may not be able to find suitable
partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any
acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown
or contingent liabilities. Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs
of intangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations.
Integration of an acquired company also may disrupt ongoing operations and require management resources that we would otherwise focus
on developing our existing business. We may experience losses related to investments in other companies, which could harm our financial
condition and results of operations. We may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture.
To
finance any acquisitions or joint ventures, we may choose to issue shares of common stock as consideration, which could dilute the ownership
of our stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common stock
is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration.
If
we fail to accurately forecast demand for our products, we could incur additional costs or experience lost sales.
It
will be very important that we accurately predict the demand for our products. If we overestimate the demand for our products, we may
have excess inventory, which would increase our costs. If we underestimate demand for our products, we may have inadequate inventory,
which could delay delivery of our products to our customers and result in the loss of customer sales. Any of these occurrences would
negatively impact our business and operating results.
If
our facilities were to experience catastrophic loss, our operations would be seriously harmed.
Our
facilities could be subject to catastrophic loss such as fire, flood, unpredictable power outages or earthquakes. All of our research
and development activities, our corporate headquarters and other critical business operations are located in California. California can
experience catastrophic wildfires, as well as intermittent power outages. Any such loss at any of our facilities caused by fires, flooding,
power outages or earthquakes could disrupt our operations and may have a material adverse effect on our business.
Changes
in general economic conditions, geopolitical conditions, domestic and foreign trade policies, monetary policies and other factors beyond
our control may adversely impact our business and operating results.
Our
operations and performance depend on global, regional and U.S. economic and geopolitical conditions. General worldwide economic conditions
have experienced significant instability in recent years including the recent global economic uncertainty and financial market conditions.
Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S. and European leaders and financial
markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. Resulting changes in U.S.
trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade
war.” Furthermore, if other countries, including the U.S., become further involved in the conflict, we could face significant adverse
effects to our business and financial condition.
The
uncertain financial markets, disruptions in supply chains, mobility restraints, and changing priorities as well as volatile asset values
could impact our business in the future. Concerns over medical epidemics, energy costs, geopolitical issues, the mortgage market and
a deteriorating real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods
of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary
spending, diminished expectations for the global economy and expectations of slower global economic growth, increased unemployment rates,
and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns
(including the current downturn related to the current COVID-19 pandemic), volatile business environments and continued unstable or unpredictable
economic and market conditions. The COVID-19 outbreak and government measures taken in response to the pandemic have also had a significant
impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities
and production have been suspended; and demand for certain goods and services, such as medical services and supplies, have spiked, while
demand for other goods and services, such as travel, have fallen. The future progression of the pandemic and its effects on our business
and operations are uncertain. In addition, the outbreak of a pandemic could disrupt our operations due to absenteeism by infected or
ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work
due to the illness affecting others in our office or laboratory facilities, or due to quarantines. Pandemics could also impact members
of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult
to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.
Further,
due to increasing inflation, operating costs for many businesses including ours have increased and, in the future, could impact demand
or pricing manufacturing of our devices, foreign exchange rates or employee wages. Inflation rates, particularly in the United States,
have increased recently to levels not seen in years, and increased inflation may result in increases in our operating costs (including
our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital. In addition, the Federal Reserve
has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending
and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks.
Actual
events involving reduced or limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions
or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events
of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon
Valley Bank, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance
Corporation as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, uncertainty
and liquidity concerns in the broader financial services industry remain and the failure of Silicon Valley Bank and its potential near-
and long-term effects on the biotechnology industry and its participants such as our vendors, suppliers, and investors, may also adversely
affect our operations and stock price.
We
are actively monitoring the effects these disruptions and increasing inflation could have on our operations.
These
conditions make it extremely difficult for us to accurately forecast and plan future business activities.
We
will be dependent upon third parties for the distribution of our products, and if such third parties are unable to establish and maintain
effective sales, marketing and distribution capabilities, we will be unable to successfully commercialize our products.
We
intend to use third parties to market and sell our products. We cannot guarantee that we will be able to enter into and maintain any
distribution agreements with third parties on acceptable terms, if at all. If we enter into distribution agreements with third parties,
and such third parties are unable to establish and maintain effective sales, marketing and distribution capabilities, we will be unable
to successfully commercialize our products.
Our
board of directors rescinded the 3,000,000 shares of Series F Preferred Stock issued to Halo Management LLC (“Halo”) and
Halo may dispute such decision.
Halo
was previously issued 3,000,000 shares of our Series F Preferred Stock. See “Description of Business - Legal Proceedings.”
On November 21, 2021, our board of directors rescinded the 3,000,000 shares of Series F Preferred Stock issued to Halo for lack of contract
consideration. Halo may dispute this decision; however, we believe Halo has no basis to dispute such decision, and we are prepared to
vigorously defend our decision. Notwithstanding the foregoing, litigation can be expensive and time consuming and an adverse result in
any litigation proceeding may have a material adverse effect on our business. The cost to us of any litigation or other proceeding, regardless
of its merit, even if resolved in our favor, could be substantial and may result in a diversion of our management’s attention.
Risks
Relating to Intellectual Property
Our
intellectual property may not be sufficient to protect our products from competition, which may negatively affect our business.
We
may be subject to competition despite the existence of intellectual property we license or may, in the future, own. We can give no assurances
that our intellectual property claims will be sufficient to prevent third parties from designing around patents we license, or may in
the future own or developing and commercializing competitive products. The existence of competitive products that avoid our intellectual
property rights could materially adversely affect our operating results and financial condition. Furthermore, limitations, or perceived
limitations, in our intellectual property rights may limit the interest of third parties to partner, collaborate or otherwise transact
with us, if third parties perceive a higher than acceptable risk to commercialization of our products.
We
may elect to sue a third party, or otherwise make a claim, alleging infringement or other violation of patents, trademarks, trade dress,
copyrights, trade secrets, domain names or other intellectual property rights that we license from a third party or may, in the future
own. If we do not prevail in enforcing our intellectual property rights in this type of litigation, we may be subject to:
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paying
monetary damages related to the legal expenses of the third party; |
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facing
additional competition that may have a significant adverse effect on our product pricing, market share, business operations, financial
condition and the commercial viability of our product; and |
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restructuring
our company or delaying or terminating select business opportunities, including, but not limited to, research and development and
commercialization activities, due to a potential deterioration of our financial condition or market competitiveness. |
A
third party may also challenge the validity, enforceability or scope of the intellectual property rights that we license or may, in the
future, own, and the result of these challenges may narrow the scope or claims of or invalidate patents that are integral to our products
in the future. There can be no assurance that we will be able to successfully defend our intellectual property rights in an action against
third parties due to the unpredictability of litigation and the high costs associated with intellectual property litigation, among other
factors.
Intellectual
property rights and enforcement may be less extensive in jurisdictions outside of the U.S. Thus, we may not be able to protect our intellectual
property rights and third parties may be able to market competitive products that may use some or all of our intellectual property rights.
Changes
to patent law, including the Leahy-Smith America Invests Act, AIA or Leahy-Smith Act, of 2011 and the Patent Reform Act of 2009 and other
future article of legislation, may substantially change the regulations and procedures surrounding patent applications, issuance of patents,
and prosecution of patents. We can give no assurances that the patents of our licensor can be defended or will protect us against future
intellectual property challenges, particularly as they pertain to changes in patent law and future patent law interpretations.
In
addition, enforcing and maintaining our intellectual property protection depends on compliance with various procedural, document submission,
fee payment and other requirements imposed by the United States Patent and Trademark Office (“USPTO”), courts and foreign
government patent agencies, and patent protection could be reduced or eliminated for non-compliance with these requirements which may
have a material adverse effect on our business.
We
may become involved in future lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time
consuming and unsuccessful.
Competitors
may infringe our future patents or the patents of our licensors. To counter infringement or unauthorized use, we may file infringement
claims, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours
or of our licensors is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the
grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put
one or more of our or our licensors’ patents at risk of being invalidated or interpreted narrowly and could put our or our licensors’
potential patent applications at risk of not issuing.
The
USPTO may initiate interference proceedings to determine the priority of inventions described in or otherwise affecting our future patents
and patent applications or those of our licensors. An unfavorable outcome could require us to cease using the technology or to attempt
to license rights to it from the prevailing party. Our business could be harmed if a prevailing party does not offer us a license on
terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs
and distraction of our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of
our proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the U.S.
Furthermore,
if we are the target of claims by third parties asserting that our products or intellectual property infringe upon the rights of others,
we may be forced to incur substantial expenses or divert substantial employee resources from our business and, if successful, those claims
could result in our having to pay substantial damages or prevent us from developing one or more of our products. Further, if a patent
infringement suit were brought against us or our licensors, we or they could be forced to stop or delay research, development, manufacturing
or sales of the product that is the subject of the lawsuit.
If
we experience patent infringement claims, or if we elect to avoid potential claims others may assert, we or our licensors may choose
to seek, or be required to seek, a license from the third-party and would most likely be required to pay license fees or royalties or
both. These licenses may not be available on acceptable terms, or at all. Even if we or our licensors were able to obtain a license,
the rights may be non-exclusive, which would give our competitors access to the same intellectual property. Ultimately, we may be prevented
from commercializing a product, or be forced to cease some aspect of our business operations if, as a result of actual or threatened
patent infringement claims, we or our licensors are unable to enter into licenses on acceptable terms. This could harm our business significantly.
The cost to us of any litigation or other proceeding, regardless of its merit, even if resolved in our favor, could be substantial and
may result in a diversion of our management’s attention. Some of our competitors may be able to bear the costs of such litigation
or proceedings more effectively than we can because they may have greater financial resources than us. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business.
We
may not be able to enforce our intellectual property rights throughout the world.
The
laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many
companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions.
This could make it difficult for us to stop the infringement of our future patents or those that we license from our licensors, or the
misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under
which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against certain
third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.
Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain
outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection
in such countries.
Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other
aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In
addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain
adequate protection for our products and the enforcement of intellectual property.
Third
parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade
secrets.
We
may employ individuals who were previously employed at universities or other medical device companies, including our competitors or potential
competitors. Although we intend to ensure that our employees and consultants do not use the proprietary information or know-how of others
in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently
or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer
or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against
such claims, litigation could result in substantial costs and result in a diversion of management’s attention.
We
may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
We
rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection
is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our
employees, consultants, outside scientific collaborators and other advisors to protect our trade secrets and other proprietary information.
However, any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including
our trade secrets. Accordingly, these agreements may not effectively prevent disclosure of confidential information and may not provide
an adequate remedy in the event of unauthorized disclosure of confidential information. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable
competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse
effects upon our competitive business position and financial results.
Risks
Relating to Government Regulations
Our
failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our products
in the U.S., which could severely harm our business.
Unless
an exemption applies, each medical device that we market in the U.S. must first undergo premarket review pursuant to the FDCA by receiving
clearance of a 510(k) premarket notification, receiving clearance through the de novo review process, or obtaining approval of
a PMA application. Even if regulatory clearance or approval of a product is granted, the FDA may clear or approve our products only for
limited indications for use. Additionally, the FDA may not grant 510(k) clearance on a timely basis, if at all, for new products or uses
that we propose. The traditional FDA 510(k) clearance process for our products may take between four to nine months. However, in some
cases, the FDA is requiring applicants to provide additional or different information and data for 510(k) clearance than it had previously
required, and that the FDA may not rely on approaches that it had previously accepted to support 510(k) clearance. As a result, FDA 510(k)
clearance may be delayed for our products in some cases.
To
support our product applications to the FDA, we may be required to conduct clinical testing of our products. Such clinical testing must
be conducted in compliance with FDA requirements pertaining to human research. Among other requirements, we must obtain informed consent
from study subjects and approval by institutional review boards before such studies may begin. We must also comply with other FDA requirements
such as monitoring, record-keeping, reporting and the submission of information regarding certain clinical trials to a public database
maintained by the National Institutes of Health. In addition, if the study involves a significant risk device, we are required to obtain
the FDA’s approval of the study under an Investigational Device Exemption. Compliance with these requirements can require significant
time and resources. If the FDA determines that we have not complied with such requirements, the FDA may refuse to consider the data to
support our applications or may initiate enforcement actions. Even if we obtain 510(k) clearance, if safety or effectiveness problems
are identified with our products, we may need to initiate a recall of such devices. Furthermore, our products may be denied 510(k) clearance
and be required to undergo the more burdensome PMA or de novo review processes. The process of obtaining a de novo classification
or PMA approval is much more costly, lengthy and uncertain than the process for obtaining 510(k) clearance. De novo classification
generally takes six months to one year from the time of submission of the de novo request, although it can take longer. Approval
of a PMA generally takes one year from the time of submission of the PMA, but may be longer.
Some
of our products or product features may also be exempted from the 510(k) process and/or other regulatory requirements in accordance with
specific FDA regulations, guidance or policies. If the FDA changes its policy or concludes that our marketing of these products is not
in accordance with its current policy, we may be required to seek clearance or approval of these devices through the 510(k), de novo
or PMA processes.
Our
promotional practices will be subject to extensive government scrutiny. We may be subject to governmental, regulatory and other legal
proceedings relative to advertising, promotion, and marketing that could have a significant negative effect on our business.
We
will be subject to governmental oversight and associated civil and criminal enforcement relating to medical device advertising, promotion,
and marketing, and such enforcement is evolving and intensifying. In the United States, we are subject to potential enforcement from
the FDA, the U.S. Federal Trade Commission, the Department of Justice, the Centers for Medicare & Medicaid Services, other divisions
of the Department of Health and Human Services and state and local governments. Other parties, including private plaintiffs, also are
commonly bringing suit against medical device companies, alleging off-label marketing and other violations. We may be subject to liability
based on the actions of individual employees and contractors carrying out activities on our behalf, including sales representatives who
may interact with healthcare professionals.
Legislative
or regulatory reform of the health care system in the U.S. may adversely impact our business, operations or financial results.
Our
industry is highly regulated and changes in law may adversely impact our business, operations or financial results. In March 2010, the
Patient Protection and Affordable Care Act, and a related reconciliation bill were signed into law. This legislation changes the current
system of healthcare insurance and benefits intended to broaden coverage and control costs. The law also contains provisions that will
affect companies in the medical device industry and other healthcare related industries by imposing additional costs and changes to business
practices. We cannot predict what healthcare reform initiatives may be adopted in the future. These reforms could have an adverse effect
on our ability to obtain timely regulatory approval for new products and on anticipated revenues from our products, both of which may
affect our overall financial condition.
We
are subject to stringent domestic and foreign medical device regulations and any unfavorable regulatory action may materially and adversely
affect our financial condition and business operations.
Our
products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government
agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance
with laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution, and the safety and effectiveness
of our medical devices. The process of obtaining marketing approval or clearance from the FDA and comparable foreign bodies for new products,
or for enhancements, expansion of the indications or modifications to existing products, could:
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in product shortages due to regulatory delays; |
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the expenditure of substantial resources; |
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involve
modifications, repairs or replacements of our products; |
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design changes of our products; |
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in limitations on the indicated uses of our products; and |
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Any
of these occurrences that we might experience will cause our operations to suffer, harm our competitive standing and result in further
losses that adversely affect our financial condition.
We
will be subject to ongoing responsibilities under FDA and international regulations, both before and after a product is commercially
released. For example, we are required to comply with the FDA’s Quality System Regulation which mandates that manufacturers of
medical devices adhere to certain quality assurance requirements pertaining, among other things, to validation of manufacturing processes,
controls for purchasing product components and documentation practices. As another example, the Medical Device Reporting regulation requires
us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed
to a death or serious injury, or that a malfunction occurred which would be likely to cause or contribute to a death or serious injury
upon recurrence. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through
periodic inspections by the FDA. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that
any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize
such medical devices, order a recall, repair, replacement, or refund of such devices, or require us to notify health professionals and
others that the devices present unreasonable risks of substantial harm to the public health. Additionally, the FDA may restrict manufacturing
and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess
civil or criminal penalties against our officers, employees, or us. Any adverse regulatory action, depending on its magnitude, may restrict
us from effectively manufacturing, marketing and selling our products. In addition, negative publicity and product liability claims resulting
from any adverse regulatory action could have a material adverse effect on our financial condition and results of operations.
We
will also be subject to stringent government regulation in foreign countries, which could delay or prevent our ability to sell our products
in those jurisdictions.
We
intend to pursue market authorizations for our products in foreign countries. For us to market our products in international jurisdictions,
we and our distributors and agents must obtain required regulatory registrations or approvals. The approval procedure varies among countries
and jurisdictions and can involve additional testing, and the time and costs required to obtain approval may differ from that required
to obtain an approval by the FDA. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions,
and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions
or by the FDA. Violations of foreign laws governing use of medical devices may lead to actions against us by the FDA as well as by foreign
authorities. We must also comply with extensive regulations regarding safety, efficacy and quality in those jurisdictions. We may not
be able to obtain all the required regulatory registrations or approvals, or we may be required to incur significant costs in obtaining
or maintaining any regulatory registrations or approvals we receive. Delays in obtaining any registrations or approvals required for
marketing our products, failure to receive these registrations or approvals, or future loss of previously obtained registrations or approvals
would limit our ability to sell our products internationally and may have a material adverse effect on our business.
Failure
by us or our distributors to comply with foreign regulations applicable to the products we design, manufacture, install or distribute
could expose us to enforcement actions or other adverse consequences.
We
may be subject to the European Medical Device Regulation, which was adopted by the European Union (“EU”) as a common legal
framework for all EU member states. These regulations require companies that wish to manufacture and distribute medical devices in EU
member states to meet certain quality system and safety requirements and ongoing product monitoring responsibilities, and obtain a “CE”
marking (i.e., a mandatory conformity marking for certain products sold within the European Economic Area) for their products. Various
penalties exist for non-compliance with the laws implementing the European Medical Device Regulations which, if incurred, could have
a material adverse impact on our business, results of operations and cash flows.
Even
if we obtain clearance or approval to sell our products, we are subject to ongoing requirements and inspections that could lead to the
restriction, suspension or revocation of our clearance.
We,
as well as any potential collaborative partners such as distributors, will be required to adhere to applicable FDA regulations regarding
good manufacturing practice, which include testing, control, and documentation requirements. We are subject to similar regulations in
foreign countries. Even if regulatory clearance of a product is granted, the clearance may be subject to limitations on the indicated
uses for which the product may be marketed or to the conditions of approval or contain requirements for costly post-marketing testing
and surveillance to monitor the safety or efficacy of the product. Ongoing compliance with good manufacturing practice and other applicable
regulatory requirements is strictly enforced in the United States through periodic inspections by state and federal agencies, including
the FDA, and in international jurisdictions by comparable agencies. Failure to comply with these regulatory requirements could result
in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension
of production, failure to obtain pre-market clearance or pre-market approval for devices, withdrawal of approvals previously obtained
and criminal prosecution. The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory
requirements would limit our ability to operate and could increase our costs which may have a material adverse effect on our business.
We
could be subject to substantial fines or damages and possible exclusion from participation in federal or state health care programs if
we fail to comply with the laws and regulations applicable to our business.
We
are subject to stringent laws and regulations at both the federal and state levels governing the participation of durable medical equipment
suppliers in federal and state health care programs. From time to time, the government may seek additional information related to our
claims submissions, and in some instances government contractors may perform audits of payments made to us under Medicare, Medicaid,
and other federal health care programs. These reviews may identify overpayments for which we submit refunds. We believe the frequency
and intensity of government audits and review processes has intensified, and we expect this will continue in the future, due to increased
resources allocated to these activities at both the federal and state Medicaid level, and greater sophistication in data review techniques.
If
we are considered to have violated these laws and regulations, we could be subject to substantial fines, damages, possible exclusion
from participation in federal health care programs such as Medicare and Medicaid and possible recoupment of any overpayments related
to such violations. Failure to comply with applicable laws and regulations, even if inadvertent, could have a material adverse impact
on our business.
If
we fail to develop and successfully introduce new products and applications or fail to improve our existing products, our business prospects
and operating results may suffer.
Our
ability to generate incremental revenue growth will depend, in part, on the successful outcome of research and development activities,
which may include clinical trials that lead to the development of new products and new applications using our products. Our research
and development process is expensive, prolonged, and entails considerable uncertainty. Due to the complexities and uncertainties associated
with ophthalmic research and development, products we are currently developing may not complete the development process or obtain the
regulatory approvals required to market such products successfully. In addition, our research and development process has been slowed
by the impact of COVID-19, and should the COVID-19 economic restrictions worsen, it could delay and disrupt our research and development
processes even further.
Successful
commercialization of new products and new applications will require that we effectively transfer production processes from research and
development to manufacturing and effectively coordinate with our suppliers. In addition, we must successfully sell and achieve market
acceptance of new products and applications and enhanced versions of existing products. The extent of, and rate at which, market acceptance
and penetration are achieved by future products is a function of many variables, which include, among other things, price, safety, efficacy,
reliability, marketing and sales efforts, the development of new applications for these products, the availability of third-party reimbursement
of procedures using our new products, the existence of competing products and general economic conditions affecting purchasing patterns.
Our
ability to market and sell new products is subject to government regulation, including approval or clearance by the FDA and foreign government
agencies. Any failure in our ability to successfully develop and introduce new products or enhanced versions of existing products and
achieve market acceptance of new products and new applications could have a material adverse effect on our operating results and would
cause our net revenues to decline.
Risks
Related to Owning our Securities
Our
stock price may be volatile and you may not be able to resell your shares at or above the purchase price.
The
market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors,
many of which are beyond our control, including the following:
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in our industry; |
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pricing pressures; |
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our
ability to obtain working capital financing; |
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or departures of key personnel; |
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sales
of our common stock; |
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operating
results that fall below expectations; |
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regulatory
developments; |
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economic
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period-to-period
fluctuations in our financial results; |
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the
public’s response to press releases or other public announcements by us or third parties, including filings with the SEC; |
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changes
in financial estimates or ratings by any securities analysts who follow our common stock, our failure to meet these estimates or
failure of those analysts to initiate or maintain coverage of our common stock; |
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the
development and sustainability of an active trading market for our common stock; |
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future sales of our common stock by our officers, directors and significant stockholders; and |
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other
events or factors, many of which may be out of our control, including, but not limited to, pandemics such as COVID-19, war, or other
acts of God. |
In
addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of
our common stock.
Future
sales and issuances of our common stock could result in additional dilution of the percentage ownership of our stockholders.
We
expect that significant additional capital will be needed in the future to continue our planned operations. We may sell common stock,
convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time.
To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution.
We
have never paid cash dividends and have no plans to pay cash dividends in the future.
Holders
of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we have paid
no cash dividends on our capital stock and we do not expect to pay cash dividends in the foreseeable future. We intend to retain future
earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our capital stock may have will
be in the form of appreciation, if any, in the market value of their shares of common stock.
Our
common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which
makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule
15g-9 under the Exchange Act, establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s
account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information
and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to
the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination;
and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more
difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions
payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
Because
certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions
requiring stockholder approval.
As
of March 31, 2023, our directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately
88% of our outstanding shares of common stock. As a result, these stockholders, acting together, would have the ability to control
the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation
or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control
the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock
by:
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delaying,
deferring or preventing a change in corporate control; |
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impeding
a merger, consolidation, takeover or other business combination involving us; or |
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discouraging
a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. |
We
are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging
growth 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 intend to take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not
being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, 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 stockholder approval of any golden parachute payments not previously approved. In addition,
pursuant to Section 107 of the JOBS Act, as an “emerging growth company” we intend to take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (“Securities Act”), for complying with new
or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We cannot predict if investors will find our common stock
less attractive because we may rely on these exemptions. 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. 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 $1235 billion or more; (ii) the last
day of our fiscal year following the fifth anniversary of our initial public offering; (iii) the date on which we have issued more than
$1 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 rules of the SEC.
Our
First Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) and our Bylaws (the “Bylaws”)
and Delaware law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock
price to decline.
Our
Certificate of Incorporation and our Bylaws and Delaware law could make it more difficult for a third party to acquire us, even if closing
such a transaction would be beneficial to our stockholders. We are authorized to issue up to 40,000,000 shares of preferred stock. This
preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors
without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions.
The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce
the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict
our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.
Provisions
of our Certificate of Incorporation and our Bylaws and Delaware law also could have the effect of discouraging potential acquisition
proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable.
Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our Certificate
of Incorporation and our Bylaws and Delaware law, as applicable, among other things provide the board of directors with the ability to
alter the bylaws without stockholder approval.
Financial
reporting obligations of being a public company in the U.S. are expensive and time-consuming, and our management will be required to
devote substantial time to compliance matters.
As
a publicly traded company we will incur significant additional legal, accounting and other expenses that we did not incur as a private
company. The obligations of being a public company in the U.S. require significant expenditures and will place significant demands on
our management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act and the
rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street
Reform and Consumer Protection Act. These rules require the establishment and maintenance of effective disclosure and financial controls
and procedures, internal control over financial reporting and changes in corporate governance practices, among many other complex rules
that are often difficult to implement, monitor and maintain compliance with. Moreover, despite recent reforms made possible by the JOBS
Act, the reporting requirements, rules, and regulations will make some activities more time-consuming and costly, particularly after
we are no longer an “emerging growth company.” In addition, we expect these rules and regulations to make it more difficult
and more expensive for us to obtain director and officer liability insurance. Our management and other personnel will need to devote
a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, otherwise
we may fall out of compliance and risk becoming subject to litigation, among other potential problems.
Failure
to maintain effective internal control over our financial reporting in accordance with Section 404 of Sarbanes-Oxley could cause our
financial reports to be inaccurate.
We
are required pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to maintain internal control over financial reporting
and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified
by our management in our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting
principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies
with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may
be obligated to report control deficiencies, in which case we could become subject to regulatory sanction or investigation. Further,
such an outcome could damage investor confidence in the accuracy and reliability of our financial statements.
Our
management has concluded that our internal controls over financial reporting were, and continue to be, ineffective, and as of December
31, 2022 as a result of a material weakness in our internal controls due to the lack of segregation of duties. While management is working
to remediate the material weakness, there is no assurance that such changes, when economically feasible and sustainable, will remediate
the identified material weaknesses or that the controls will prevent or detect future material weaknesses. If we are not able to maintain
effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which
could have a material adverse effect on our business.
Our
Certificate of Incorporation and Bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum
for substantially all disputes between us and our stockholders, which could limit stockholders’ ability to obtain a favorable judicial
forum for disputes with us or our directors, officers or employees.
Our
Certificate of Incorporation and Bylaws provide that unless we consent in writing to the selection of an alternative forum, the Court
of Chancery in the State of Delaware is the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of
us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of our Company to
us or our stockholders, (iii) any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision
of the Delaware General Corporation Law (“DGCL”) or our Certificate of Incorporation or Bylaws or (iv) any action asserting
a claim governed by the internal affairs doctrine. This exclusive forum provision would not apply to suits brought to enforce any liability
or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction
over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
These
choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees and may result in increased costs to our stockholders, which may discourage such
lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find our choice of forum provisions
contained in our Certificate of Incorporation or Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs
associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.