ITEM 1.
BUSINESS
Overview
RenovaCare, Inc. (together with its wholly owned subsidiary
RenovaCare Sciences Corp., “RenovaCare,” the “Company,” “we,” “us,”
and “our,”) was incorporated on July 14, 1983 in the State of Utah under the name Far West Gold, Inc., and changed
its domicile to Nevada in 1997. On January 7, 2014, the Company changed its name at the time from “Janus Resources, Inc.”
to “RenovaCare, Inc.” so as to more fully reflect its current operations and business and changed its trading symbol from
“JANI” to “RCAR” effective as of January 9, 2014.”
RenovaCare has an authorized capital of 500,000,000
shares of $0.00001 par value common stock, of which 87,352,364 shares are outstanding as of December 31, 2020, and 10,000,000 shares of
$0.0001 par value preferred stock, of which none are outstanding.
Description of Business
We are a development-stage biotech and medical device company focusing on
the research, development and commercialization of autologous (using a patient's own cells) cellular therapies that can be used for medical
and aesthetic applications. We do not have any commercialized products. Our activities have consisted principally of performing research
and development activities, business development efforts, and raising capital to support such activities.
Treatment of large deep thermal burn wounds has evolved significantly in
recent years. While traditional skin grafting was used for decades since the 19th century, over the past 20 years sheets of skin cells
grown in vitro and cytokine-treated skin cells applied with mesh matrices have been developed. The newest therapies involve the
use of autologous skin cells. We believe RenovaCare’s technology represents a new generation of autologous skin cell therapy that,
while still in development may become, if approved, the standard of care.
Through RenovaCare Sciences Corp. we own the CellMist™ System, which
is comprised of (a) a treatment methodology for cell isolation for the regeneration of human skin cells and other tissues (the “CellMist™
Solution”) and (b) a solution sprayer device (the (SkinGun™”) for delivering cells to the treatment area.
In August 2020, we announced that the US Food and Drug Administration (FDA)
conditionally approved the Company’s Investigational Device Exemption (IDE) application to conduct a clinical trial to evaluate
the safety and feasibility of autologous skin and pluripotent stem cells rendered by our manual CellMist™ System from donor skin
and applied topically with the electronic SkinGun™ spray device for treatment of acute burn wounds. The clinical trial protocol
is an open-label single-arm clinical study that will enroll 14 adult human burn subjects with partial-thickness, second-degree thermal
burn wounds covering between 10% and 30% total body surface area. The Company expects to conduct the clinical study at four (4) U.S. burn
centers commencing in the second quarter of 2021.
Our proprietary CellMist™ System, and its component technologies are
the subject of six trademarks and applications and over 37 U.S. and international granted or in-process patents in eight patent families.
Our patent filings include three granted patents in the United States, two granted international patents, and two allowed international
patents, while all in-process patent filings include the U.S. and multiple foreign jurisdictions. Our issued patents are scheduled to
expire between 2026 and 2037 and may or may not be the basis for filing continuations. We continually assess opportunities to seek patent
protection for those aspects of our technology, designs, and methodologies and processes that we believe may provide us with significant
competitive advantages or additional commercial opportunities.
The development of our new closed, automated cell isolation device for the
CellMistTM System is in the early stage and we anticipate that we will be required to expend significant time and resources
to further develop and validate our technology and determine whether a commercially viable product can be developed. Research and development
of new technologies involves a high degree of risk and there is no assurance that our development activities will result in a commercially
viable product. The long-term profitability of our operations will be, in part, directly related to the cost and success of our development
programs, which may be affected by a number of factors.
The Company has enlisted the assistance of several Contract Manufacturing
Organizations (CMO) to manufacture clinical supplies including components of the CellMist System™ and the electronic SkinGun™
spray devices in compliance with FDA’s guidance for current Good Manufacturing Practices (cGMP) and Contract Research Organizations
(CRO) to test clinical samples and conduct clinical trials to evaluate the safety and feasibility of an autologous skin cell therapy using
the Company’s products to facilitate burn wound healing. These development activities are subject to significant risks and uncertainties,
including possible failure of preclinical and clinical testing.
We have not generated any revenue and have sustained recurring losses and
negative cash flows from operations since inception. The Company expects to incur losses as it continues development of its products and
technologies and expects that it will need to raise additional capital through partnerships or the sale of its securities to accomplish
its business plan. Failing to secure such additional funding before achieving sustainable revenue and profit from operations poses a significant
risk. The Company's ability to fund the development of its cellular therapies depends on the amount and timing of cash receipts from future
financing activities. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
Additionally, there is significant uncertainty relating to the full impact
of the COVID-19 pandemic on the Company’s operations and capital requirements. Should financing when needed be unavailable or prohibitively
expensive or the COVID-19 pandemic continue, it may adversely affect the Company’s ability to (i) retain employees and consultants;
(ii) obtain additional financing on terms acceptable to the Company, if at all; (iii) delay regulatory submissions and approvals; (iv)
delay, limit or preclude the Company from the operation of clinical study sites and testing laboratories; (v) delay, limit or preclude
the Company from achieving technology or product development goals, milestones, or objectives; and (vi) preclude or delay entry into joint
venture or partnership arrangements. The occurrence of any one or more of such events may affect the Company’s ability to continue
on its pathway to commercialization of its technology or products.
Our Mission and Strategy
Our ultimate goal is to leverage the potential of our CellMistTM System
with the SkinGunTM spray device, as next generation cell therapies for burns and other acute and chronic wounds and skin
disorders. Before we can do so, however, there are multiple steps we must first take, including:
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initiating a series of clinical trials to determine the safety, feasibility, and efficacy of the CellMistTM System with
the SkinGunTM spray device for treating partial-thickness second-degree thermal burns;
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completing development in validation of our closed, automated cell isolation device;
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creating a network of clinical research partners;
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achieving FDA and/or other regulatory approval and clearance; and
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expanding the range of possible clinical applications for unmet health needs.
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To achieve our goal, we have established the following three strategic priorities:
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Obtain marketing approval and prepare to commercialize our CellMistTM System with the SkinGunTM spray
device.
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We have received conditional approval and we continue to pursue our efforts
to secure regulatory (FDA) approval of our IDE in 2020, and if ultimately approved, commence our feasibility study in the United States.
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Selectively pursue strategic partnerships, joint ventures, and licensing opportunities to complement and expand our existing operations.
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We intend to continue to pursue strategic licensing, partnership, and joint
venture opportunities. We will continue to target opportunities that will complement our existing technology and operations to create
value for stockholders and support our business strategy and mission.
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Secure additional financing as and when required.
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Additionally, we will need to pursue financing opportunities,
traditional and non-dilutive, in order to raise sufficient capital to fund our ongoing and planned research and development operations.
Such financing may or may not be available at acceptable terms or at all.
We believe that we have an experienced leadership and scientific team which
has come together to achieve our mission of improving the lives of burn patients by creating potentially more effective, safer, efficient,
and cost-saving treatments.
Our Strategic Collaboration with StemCell Systems
In July 2020, we announced the official launch of our new RenovaCare R&D
Innovation Center located in Berlin, Germany, where our patented technologies for isolating and spraying self-donated stem cells to regenerate
tissues and organs have been under development alongside new product initiatives. Important programs at the Center include preclinical
support to our regulatory submissions for our flagship SkinGun™, which delivers a proprietary gentle CellMist™ spray of a
patient’s own skin cells on to burns and wounds. The Innovation Center is the result of a multi-year collaboration agreement with
StemCell Systems, with whom we have maintained an R&D relationship since 2014.
The Innovation Center houses dedicated RenovaCare cell biology laboratories,
additional engineering, fabrication, prototyping and performance testing facilities, product design studios, and pilot-scale manufacturing
for medical devices and biomedical products. Experienced contract bioengineers, cell biologists, and support staff work under the direction
of a team of MD-PhDs who are experts in regenerative medicine, new product development, and clinical translation. Thomas Bold, an inventor
of several of our technologies and a long-serving advisor to the Company, leads the Innovation Center and interfaces regularly with our
management team. This collaboration has been significant to the development of the CellMist™ System and the SkinGun™ spray
device, and will be an important contributor to our future new product development initiatives.
Our Market Opportunity
Burns
Burns are one of the most common and devastating forms of trauma. Most burn
injuries involve layers of the upper skin, the epidermis. Severe major trauma involves a complete loss of the entire thickness of the
skin and often requires major surgery involving split-skin mesh-grafting. Skin grafting is a procedure where healthy skin is removed from
one area of the body and transplanted to a wound site.
Patients with serious thermal injury require immediate specialized definitive
care to minimize morbidity and mortality. Data from the National Center for Injury Prevention and Control in the U.S. show that approximately
2 million fires are reported each year which result in 1.5 million people suffering burn injuries (see American Burn Association Burn
Incidence and Treatment in the US: 2014 Fact Sheet, available at: http://www.ameriburn.org). Moderate to severe burn injuries requiring
hospitalization account for approximately 50,000 of these cases, and about 5,000 patients die each year in the U.S. from burn-related
complications (see Burns injuries on CDC website https://www.cdc.gov/masstrauma/factsheets/public/burns.pdf(2020).
The prevalence of patients with severe burns is even higher in emerging
economies. For example, according to the World Health Organization over 1,000,000 people in India are moderately to severely burnt every
year and approximately 180,000 people worldwide die from burn related injuries (see World Health Organization “Burns: Fact Sheet
No. 365,” reviewed March 6, 2018, available at: http://www.who.int/mediacentre/factsheets/fs365/en/). According to Critical
Care, an international clinical medical journal, burns are also among the most expensive traumatic injuries due to long and costly hospitalization,
rehabilitation and wound and scar treatment (see Brusselaers, N., Monstrey, et al, “Severe Burn Injury in Europe: A systematic
Review of the Incidence, Etiology, Morbidity, and Mortality” available at: http://ccforum.com/content/14/5/R188).
Burn injuries account for a significant cost to the health care system in
North America and worldwide. In the U.S. there are currently 132 centers specializing in burn care. Recent estimates in the U.S. show
that 150,000 patients are admitted annually for definitive care treatment of burn injuries, and over 60% of the estimated U.S. acute hospitalizations
related to burn injury were admitted to burn centers. Such centers now average over 200 annual admissions each for burn injury and skin
disorders requiring similar treatment. The other 4,500 U.S. acute care hospitals average less than 3 burn admissions each per year (see
American Burn Association Burn Incidence and Treatment in the US: 2013 Fact Sheet, available at: http://www.ameriburn.org).
According to the Agency for Healthcare Research and Quality, the annual
costs for the treatment of burns is $1.5 billion, with another $5 billion in costs associated with lost work (see https://www.hcup-us.ahrq.gov/reports/statbriefs/sb217-Burn-Hospital-Stays-ED-Visits-2013.pdf).
Initial hospitalization costs and physicians' fees for specialized care of a patient with a major burn injury are currently estimated
to be $200,000. Overall, costs escalate for major burn cases because of repeated admissions for reconstruction and rehabilitation therapy.
In the U.S., current annual estimates show that more than $18 billion is spent on specialized care of patients with major burn injuries
(see Church D, Elsayed S, Reid O, Winston B, Lindsay R “Burn wound infections” Clinical Microbiology Reviews 2006;19(2):403–34,
available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1471990).
Wounds
According to The Wall Street Journal, 6.5 million people are affected by
chronic wounds, and $25 billion is spent annually on treating chronic wounds on patients in the U.S. alone (see Järbrink, Krister
et al. “Prevalence and incidence of chronic wounds and related complications: a protocol for a systematic review.” Systematic
reviews vol. 5,1 152. 8 Sep. 2016 doi:10.1186/s13643-016-0329-y).
The Wound Care Market Global Forecast to 2024 report issued by Markets &
Markets states that in 2019, advanced wound care products accounted for the largest share of the total market and is expected to have
the highest growth, with a projected compound annual growth rate of 4.6% to 2024. Major factors driving the growth of this market of hard-to-heal
wounds are an increase in an aging population and greater prevalence of chronic disease, including diabetes and obesity. The development
of regenerative medicine and healing capabilities allow for more effective treatment, quicker healing and improved health economic outcomes.
The healthcare facilities (hospitals and clinics) segment accounted for
the largest market share in 2019 as these systems are used for critical cases, improve quality of care for patients, and have the infrastructure
and resources to support treatment.
Our Technology
Our CellMist System is comprised of the CellMistTM cell
suspension derived by enzymatic digestion of a patient’s own skin tissue applied topically with our proprietary electronic SkinGunTM spray
device to deliver a fine single-cell mist onto the patient’s burn wound.
The duration of the entire cell isolation and cell spraying procedure is
approximately 1.5–2 hours. Published studies show that within days following the wound treatment procedure, complete wound closure
occurs, and the skin cells generate a protective skin layer (re-epithelialization), and within weeks the skin regains its function, color
and texture.
Our cell isolation and cell spraying procedure occur on the same day, in
an on-site hospital setting. Because the skin cells sprayed using the SkinGunTM spray device are actually the patient's
own cells, the skin that is regenerated looks more natural than other skin replacement technologies. During recovery, the skin cells grow
into fully functional skin layers, and the regenerated skin leaves minimal scarring in observational case studies. Additionally, our methods
require substantially smaller donor areas than skin grafting, reducing donor area burden such as pain and the risk of complications.
In August 2019, the Company was awarded a patent continuation, allowing
the SkinGunTM spray device to be used to spray all varieties of tissues and cells, thus opening the door for its potential
application in the regeneration of tissues and organs, beyond skin.
In November 2020, the Company was issued two new patents encompassing
improvements to the SkinGun™, expanding its potential application beyond the surgical setting into the field, and allowing the use
of liquid suspension solutions to include drugs, hormones, and other useful agents.
The CellMistTM System for which patient applications
were submitted on the closed, automated cell isolation device to the USPTO in December 2020, remains an experimental, unproven methodology
and we continue to evaluate its safety and efficacy. There is no guarantee that we will be able to develop a commercially viable product
based upon the CellMistTM System and its underlying technology.
Competition
The biotechnology, medical device, and wound care industries are characterized
by intense competition, rapid product development and technological change. Our CellMistTM System competes with a variety
of companies in the wound care markets, many of which offer substantially different treatments for similar problems.
Most of our competitors are larger, established companies with considerably
greater financial, marketing, sales and technical resources than those available to us. Additionally, many of our present and potential
competitors have research and development capabilities that may allow them to develop new or improved products that may compete with our
product lines. Our potential products could be rendered obsolete or made uneconomical by the development of new products to treat the
conditions addressed by our products, technological advances affecting the cost of production, or marketing or pricing actions by one
or more of our competitors. Our closest direct competitor with its own skin cell therapy for burn wounds, received FDA approval in September
2018 and launched its product in 2019; however, we believe, our next generation skin cell therapy for burn wounds has multiple notable
advantages including more cell types from both epidermal and dermal layers of the skin; greater cell yield and viability; smaller ratio
of donor tissue to burn wound area; greater burn wound coverage; and single cells applied with the SkinGun™ spray device that rapidly
adhere to the burn wound.
The Company and its direct competitor have autologous skin cell therapies
that facilitate the healing of deep partial-thickness second-degree thermal burn wounds. However, there are notable differences between
these our competitor’s therapy products compared to our CellMistTM System, including product configuration, processes
for cell isolation from donor skin, topical administration of isolated skin cells, burn wound coverage, and duration of patented intellectual
property (IP), as enumerated below:
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RenovaCare’s CellMist™ System in development utilizes a closed, automated cell isolation process, whereas existing cell therapy
products utilize a manual process. We believe our closed, automated process will be easier to use and reproducible for the burn care center
end-user.
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The RenovaCare cell isolation process in development employs a sequential animal-free multi-enzyme process to isolate skin cells and pluripotent
stem cells from both epidermal and dermal layers of donor skin tissues. Existing therapy isolates skin cells with a single animal-origin
enzyme on the epidermal layer only. Significantly more cells and key cell types are afforded by our multi-enzyme process.
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RenovaCare uses the electronic SkinGun™ spray device to administer the skin cell suspension topically as a single-cell, fine mist
on to burn wounds in an evenly, distributed comprehensive pattern, in contrast, existing therapy uses a corrugated plastic nozzle affixed
onto a syringe to spray or drip cells and cell clumps onto the burn wound, which must be positioned to allow the cell suspension to roll
onto the wound.
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The CellMist™ System and SkinGun™ deliver single skin cells as compared to cell clumps, which enhance reepithelization and
wound closure. This gentle fine mist maintains cell viability that affords rapid cell adherence without dripping and rapid cell proliferation
to cover the wound, a distinct advantage over existing therapy.
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The donor skin tissue to burn wound ratio of the RenovaCare product is > 1:100 providing coverage of burn wounds at 10%-30% total body
surface area (TBSA), whereas our competitor’s ratio is 1:80 with coverage <20% TBSA. A practical result is that a single kit
from RenovaCare may cover 30% TBSA burn wounds, as compared to multiple kits needed for 20% TBSA burn wounds by our competitor.
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RenovaCare IP which extends through 2037 has a considerably longer life than that of our competitors.
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Intellectual Property
In the course of conducting our business, we from time to time create inventions.
Obtaining, maintaining, and protecting our inventions, including seeking patent protection, might be important depending on the nature
of the invention. To that end, we seek to implement patent and other intellectual property strategies to appropriately protect our intellectual
property. While we file and prosecute patent applications to protect our inventions, our pending patent applications might not result
in the issuance of patents or issued patents might not provide competitive advantages. Also, our patent protection might not prevent others
from developing competitive products using related or other technology.
The scope, enforceability and effective term of issued
patents can be highly uncertain and often involve complex legal and factual questions. Moreover, the issuance of a patent in one country
does not assure the issuance of a patent with similar claim scope in another country, and claim interpretation and infringement laws vary
among countries, so we are unable to predict the extent of patent protection in any country. The patents we obtain and the unpatented
proprietary technology we hold might not afford us significant commercial protection or advantage.
Our proprietary CellMist™ System and its component technologies were
the subject of six trademarks and applications and over 37 U.S. and international granted or in-process patents in eight patent families.
Our patent filings include three granted patents in the United States, two granted international patents, and two allowed international
patents, while all in-process patent filings include the U.S. and multiple foreign jurisdictions. Our issued patents are scheduled to
expire between 2026 and 2037 and may or may not be the basis for filing continuations. We continually assess opportunities to seek patent
protection for those aspects of our technology, designs, and methodologies and processes that we believe may provide us with significant
competitive advantages or additional commercial opportunities.
In addition to issued patents describe above,
we plan to file additional patent applications that, if issued, would provide further protection for The CellMistTM System.
Although we believe the bases for these patents and patent applications are sound, they are untested; and there is no assurance that they
will not be successfully challenged. There can be no assurance that any patent previously issued will be of commercial value, that any
patent applications will result in issued patents of commercial value, or that our technology will not be held to infringe patents held
by others.
Domestic Regulation
Governmental authorities in the U.S., at the federal, state and local
level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging,
promotion, storage, advertising, distribution, marketing and export and import of products or devices such as those we are attempting
to develop. Our device candidates, to the extent they are developed, will likely be subject to pre-market approval by the FDA prior to
their marketing for commercial use in the U.S., and to any approvals required by foreign governmental entities prior to their marketing
outside the U.S. In addition, any changes or modifications to a device that has received regulatory clearance or approval that could significantly
affect its safety or effectiveness, or would constitute a major change in its intended use, and may require the submission of a new application
or amendment to an existing premarket approval (“PMA”) or 510(k) waiver application in the U.S. for pre-market approval, or
for foreign regulatory approvals outside the U.S. The process of obtaining foreign approvals, can be expensive, time consuming and uncertain.
Premarket Approval
We may be required to file a premarket authorization (“PMA”)
application for any other device that we commercialize if it is deemed a Class III medical device. PMA is the FDA process of scientific
and regulatory review to evaluate the safety and effectiveness of Class III medical devices, which are novel devices that support or sustain
human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of
illness or injury. Due to the level of risk associated with Class III devices, the FDA has determined that general and special controls
alone are insufficient to assure their safety and effectiveness. Therefore, these devices require a PMA application under section 515
of the Federal Food, Drug and Cosmetic Act in order to obtain marketing clearance.
PMA is the most stringent type of device marketing application required
by the FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. PMA approval is based on a determination
by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s).
An approved PMA is, in effect, a license granting the applicant (or owner) permission to market the device.
To obtain a 510(k) clearance for a device, a pre-market notification to
the FDA must be submitted demonstrating that the device is substantially equivalent to a legally marketed Class I or Class II predicate
device. For a new device to be found “substantially equivalent” to one or other legally marketed predicate devices, the new
device must have: 1) the same intended use as a predicate, and 2) either a) the same technological characteristics as the predicate device
or b) different technological characteristics, but the information submitted must not raise new questions of safety and effectiveness
and must demonstrate substantial equivalence. We believe that we may be eligible to obtain 510(k) clearance for each of our Electronic
SkinGun, Disposable SkinGun and Cell Isolation Devices for certain uses.
Investigational Device Exemption (“IDE”)
On August 5, 2020 the FDA granted
conditional approval of the Company’s Investigational Device Exemption (IDE) application to conduct a clinical trial to evaluate
the safety and feasibility of autologous skin and stem cells rendered by its CellMist™ System from donor skin and applied topically
with the SkinGun™ spray device for treatment of burn wounds.
Among the data required in a PMA application is human clinical test data.
The FDA’s regulation that governs the human testing is the IDE and other patient protection regulations. For devices that are considered
Significant Risk, an IDE application is required. It consists of the proposed clinical protocol and all supporting study documentation
and must be submitted and approved by the FDA and an Institutional Review Board (IRB) prior to initiation of the human testing. Since
the CellMistTM System employs the use of skin and stem cells taken from the patient, it is considered Significant Risk
by the FDA; therefore, we are required to file an IDE application prior to conducting a clinical study for any application, such as for
treatment of severe burns. The FDA has a specified review timeline and process for IDE reviews - each review phase takes 30 days and if
the FDA has questions or concerns about the study design, there may be multiple review rounds until the FDA either: (a) conditionally
approves, (b) approves or (c) denies approval of the clinical study conduct under the submitted IDE. There is no guarantee that any IDE
application we submit will be approved by the FDA. We received conditional IDE approval in August 2020 to conduct a safety and feasibility
study of the CellMist System in 14 subjects, to be conducted in four burn centers in the U.S.
HIPAA Requirements
Other federal legislation may affect our ability to obtain certain health
information in conjunction with any research activities we conduct. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
mandates, among other things, the adoption of standards designed to safeguard the privacy and security of individually identifiable health
information. In relevant part, the U.S. Department of Health and Human Services (“HHS”), has released two rules to
date mandating the use of new standards with respect to such health information. The first rule imposes new standards relating to the
privacy of individually identifiable health information. These standards restrict the manner and circumstances under which covered entities
may use and disclose protected health information to protect the privacy of that information. The second rule released by HHS establishes
minimum standards for the security of electronic health information. While we do not believe we are directly regulated as a covered entity
under HIPAA, the HIPAA standards impose requirements on covered entities conducting research activities regarding the use and disclosure
of individually identifiable health information collected in the course of conducting the research.
Other U.S. Regulatory Requirements
In the U.S., the research, manufacturing, distribution, sale, and promotion
of drug and biological products are potentially subject to regulation by various federal, state and local authorities in addition to the
FDA, including the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration), other divisions of
the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice and individual
U.S. Attorney offices within the Department of Justice, and state and local governments. For example, sales, marketing, and scientific/educational
grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar state
laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation
Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal
Supply Schedule of the General Services Administration, additional laws and requirements apply. These activities are also potentially
subject to federal and state consumer protection, unfair competition, and other laws.
International Regulation
The regulation of any potential product candidates outside of the U.S.
will be subject to the applicable laws and requirements of the specific country or countries in which we are introducing our product candidates.
Some countries regulate human tissue products as a biological product,
which would require us to make extensive filings and obtain regulatory approvals before selling our product candidates. Other countries
may classify our product candidates as human tissue for transplantation but may restrict its import or sale; other countries may have
no application regulations regarding the import or sale of products similar to potential product candidates, creating uncertainty as to
what standards we may be required to meet. The validation testing and manufacturing of our medical devices are subject to ISO9000 and
other industry regulations.
Employees
We currently have 2 full time and two part time
employees. We also have a number of industry consultants who provide services on a fractional time or on an as needed basis. We also have
one consultant, based in Spain, who provides services on a full-time basis. See “ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE--Directors Executive Officers and Non-Executive Officers” for further
discussion.
ITEM 1A.
RISK FACTORS
An investment in our securities involves a high degree of risk. You
should carefully consider the risks described below before investing in our common stock. If any of the following risks actually occurs,
our business, financial condition, or results of operations could be materially adversely affected, the trading price of our common stock
could decline, and you may lose all or part of your investment. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our
business.
Risks Associated with Our Business Activities
The development of our CellMistTM System
is subject to the risks of failure inherent in the development of any novel technology.
Ultimately, the development and commercialization of our CellMistTM System
is subject to a number of risks that are particular to the development and commercialization of any novel technology. These risks include,
but are not limited to, the following:
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we may fail to develop, acquire, or license various enabling technologies that may be integral to the commercialization of the CellMistTM System
(or any derivatives);
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the CellMistTM System may ultimately prove to be ineffective, unsafe or otherwise fail to receive necessary regulatory
approvals;
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the CellMistTM System (or any derivatives), even if safe and effective, may be difficult to manufacture on a large scale
or uneconomical to market;
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our marketing license or proprietary rights to products derived from the CellMistTM System may not be sufficient to protect
our products from competitors;
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the proprietary rights of third parties may preclude us or our collaborators from making, using or marketing products utilizing the CellMistTM System;
or,
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third parties may market superior, more effective, or less expensive technologies or products having comparable or better results to the
CellMistTM System (or any derivatives).
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The success of our research and development activities is uncertain.
If such efforts are not successful, we will be unable to generate revenues from our operations and we may have to cease doing business.
Commercialization of our CellMistTM System will require
significant further research, development and testing as we must ascertain whether the CellMistTM System can form the
basis for a commercially viable technology or product. If our research and development activities fail to prove commercial viability of
the CellMistTM System, we may need to abandon our business model and/or cease doing business, in which case our shares
may have no value and you may lose your investment. We anticipate we will remain engaged in research and development, through at least
December 31, 2021.
The Company does not have any commercialized products and the failure
to commercialize, or delays in commercializing our CellMistTM System, would adversely impact our ability to attain profitability.
The Company does not have any commercialized products. To date, the
Company's activities have consisted principally of performing research and development activities and raising capital to support such
activities.
The Company has enlisted the assistance of several Contract Manufacturing
Organizations (CMO) to manufacture clinical supplies including components of the CellMist System™ and the electronic SkinGun™
spray devices in compliance with FDA’s guidance for current Good Manufacturing Practices (cGMP) and Contract Research Organizations
(CRO) to conduct clinical trials to evaluate the safety and feasibility of an autologous skin cell therapy using the Company’s products
to facilitate burn wound healing.
These development activities are subject to significant risks and uncertainties,
including possible failure of preclinical and clinical testing. The Company has not generated any revenue and has sustained recurring
losses and negative cash flows from operations since inception.
Should the Company fail to commercialize its CellMistTM System,
or if it were to incur significant delays in doing so, the Company’s business would be adversely affected, and it may not be able
to achieve profitability.
If we fail to manage our growth effectively, our business could
be disrupted.
Our future financial performance and ability to successfully commercialize
our products, of which there is no guarantee, and to compete effectively will depend, in part, on our ability to manage any future growth
effectively. We expect to make significant investments to enable our future growth through, among other things, new product development,
clinical trials for new indications and expansion of our marketing and sales infrastructure. Any failure to manage future growth effectively
could have a material adverse effect on our business and results of operations.
Our commercial success will depend on our ability to compete effectively
in product development and commercialization areas.
Our commercial success will depend on our ability to compete effectively
in product development and commercialization areas such as, but not limited to device manufacturing, product safety and efficacy, ease
of use, customer acceptance, cost of goods, wholesale and retail pricing, marketing and distribution. Our competitors may succeed in developing
products that are more effective than any products derived from our research and development efforts or that would render such products
obsolete and non-competitive. The skin care and wound care industry is characterized by intense competition, rapid product development
and technological change. Most of the competition that we encounter is expected to come from companies, research institutions and universities
who are researching and developing technologies and products similar to or competitive with any we may develop.
These companies enjoy numerous competitive advantages, including:
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significantly greater name recognition;
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established relations with customers;
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established distribution networks;
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more advanced technologies and product development;
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additional lines of products, and the ability to offer rebates, higher discounts
or incentives to gain a competitive advantage;
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successful technical transfer and manufacturing of products at commercial scale;
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greater experience in conducting research and development, manufacturing, obtaining
regulatory approval for products, and marketing approved products;
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greater financial and human resources for product development, sales, and marketing,
and
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the ability to endure potentially prolonged patent litigation.
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As a result, we may not be able to compete effectively against these companies
or their products.
Our success depends in large part on our ability to develop and
commercialize products based upon or derived from our CellMistTM System and underlying technology. If we are unable
to successfully market and sell products incorporating our CellMistTM System and underlying technology, our business
prospects will be significantly harmed, and we may be unable to achieve profitability.
Our future financial success will depend substantially on our ability
to effectively and profitably market and sell our products that incorporate, are based upon, or derived from our CellMistTM System
and underlying technology. The commercial success of our products and any of our planned or future products will depend on a number of
factors, many of which of which are beyond our control, including:
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clinical indication(s) of the CellMist TM System and SkinGun TM devices approved by regulatory authorities
on product label(s) in the Pre-Marketing Authorization and 510(k) clearances;
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customer acceptance of our products;
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the actual and perceived effectiveness and reliability of our products, especially relative to alternative products;
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the results of clinical trials relating to the use of our products;
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achieving and maintaining compliance with all regulatory requirements applicable to our products;
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the level of education and awareness among physicians and hospitals concerning our products;
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our reputation among physicians and hospitals;
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obtaining third-party coverage or reimbursement for our products;
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performance and reliability of our products as compared with other alternative products;
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the ability to offer our products for sale at an attractive value and the willingness of physicians to administer our products and their
acceptance as part of the medical department routine;
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the prevalence and severity of any side effects;
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the efficacy, potential advantages and timing of introduction to the market of alternative treatments; and
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our failure to develop and maintain successful relationships with health care professionals, manufacturers, distributors, and other resellers,
as well as strategic partners.
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Failure to achieve market acceptance for any of our products, if and when
they are approved for commercial sale, will have a material adverse effect on our business, financial condition and results of operations.
We may be unsuccessful in commercializing our products due to unfavorable
pricing regulations, third-party coverage and reimbursement policies or healthcare reform initiatives.
We cannot predict the pricing and reimbursement of any products we may
develop and commercialize. The regulations that govern marketing approvals, pricing and reimbursement for new products vary widely from
country to country. In some foreign jurisdictions, including the European Union, the pricing of medical devices and treatments is subject
to governmental control. In these jurisdictions, pricing negotiations with governmental authorities can take considerable time after the
receipt of marketing approval for a product candidate.
As a result, we might obtain regulatory approval for a product in a particular
country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenue we
are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment
in any products we may develop and commercialize, even after obtaining regulatory approval.
Additionally, we cannot be sure that reimbursement will be available for
any products we may develop and commercialize, or if reimbursement is available, what the level of reimbursement will be. Reimbursement
may affect the demand for, or the price of, any product for which we obtain marketing approval. Obtaining reimbursement for any products
we may develop and commercialize may be particularly difficult because of the higher prices often associated with products administered
under the supervision of a physician. If reimbursement is not available or is available only at limited levels, we may not be able to
successfully commercialize any products that we successfully develop. Eligibility for reimbursement does not imply that any product will
be paid for in all cases or at a rate that covers our costs. Interim payments for new products, if applicable, may also not be sufficient
to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting
in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into
existing payments for other services.
The commercial success of our products will depend upon attaining
market acceptance of these products among physicians, healthcare payors and the medical community.
Our success will depend on the acceptance of our products as safe, useful
and, with respect to providers, cost effective. We cannot predict how quickly, if at all, physicians will accept our products or, if accepted,
how frequently they will be used. Our products and planned or future products we may develop or market may never gain broad market acceptance
among physicians and the medical community for some or all of our targeted indications. Healthcare providers must believe that our products
offer benefits over alternative treatment methods. The degree of market acceptance of any of our products will depend on a number of factors,
including:
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whether physicians and others in the medical community consider our products to be safe and cost-effective treatment methods;
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the potential and perceived advantages of our products over alternative treatment methods;
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the prevalence and severity of any side effects associated with using our products;
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limitations or warnings contained in the labeling cleared or approved by the FDA or other authorities;
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the cost of treatment in relation to alternative treatments methods;
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the convenience and ease of use of our products relative to alternative treatment methods;
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the availability of coverage and adequate reimbursement for procedures using our products from third-party payors, including government
authorities;
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the willingness of patients to pay out-of-pocket in the absence of coverage and adequate reimbursement by third-party payors, including
government authorities;
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our ability to provide incremental clinical and economic data that show the safety, clinical efficacy and cost effectiveness of, and patient
benefits from, our products; and
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the effectiveness of our sales and marketing efforts for our products.
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Additionally, even if our products achieve market acceptance, they may
not maintain that market acceptance over time if competing products or technologies, which are more cost effective or received more favorably,
are introduced. Failure to achieve or maintain market acceptance and/or market share would limit our ability to generate revenue and would
have a material adverse effect on our business, financial condition and results of operations.
Development and commercialization of any products requires successful
completion of the regulatory approval process, and may suffer delays or fail.
In the U.S., as well as other jurisdictions, we will be required to apply
for and receive marketing authorization before we can market our products. This process can be time consuming and complicated and may
result in unanticipated delays. To secure marketing authorization, an applicant generally is required to submit an application that includes
the data supporting preclinical and clinical safety and efficacy as well as detailed information on the manufacturing and quality control
of the product, proposed labeling and other additional information. Before marketing authorization is granted, regulatory authorities
generally require the inspection of the manufacturing facility or facilities and quality systems (including those of third parties) at
which the product candidate is manufactured and tested, as well as potential audits of the non-clinical and clinical trial sites that
generated the data cited in the marketing authorization application.
We cannot predict how long the applicable regulatory authority or agency
will take to grant marketing authorization or whether any such authorizations will ultimately be granted. Regulatory agencies, including
the Food and Drug Administration (the “FDA”), have substantial discretion in the approval process, and the approval
process and the requirements governing clinical trials vary from country to country. The policies of the FDA or other regulatory authorities
may change or may not be explicit, and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of any products we may develop and commercialize. We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action, either in the U.S., Europe or elsewhere. If we are slow or unable to
adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory
compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
Additionally, any regulatory approval that we receive may also contain
requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate.
Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising,
promotion, import, export and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements
include submission of safety and other post-marketing information and reports, registration and continued compliance with good manufacturing
practices for any clinical trials that we conduct post-approval.
We utilize our technical staff with third party Contract Research
Organization and Contract Manufacturing Organizations to conduct research and development for our CellMistTM System.
In July 2020, we announced the official launch of our new RenovaCare R&D
Innovation Center located in Berlin, Germany, where our patented technologies for isolating and spraying self-donated stem cells to regenerate
tissues and organs have been under development alongside new product initiatives. Important programs at the Center include design, validation,
and pilot-scale manufacturing of our cell isolation and SkinGunTM spray devices; preclinical study support to our clinical
studies and regulatory submissions for our flagship SkinGun™ spray device, which delivers a proprietary gentle CellMist™ spray
of a patient’s own skin cells on to burns and wounds. The Innovation Center is the result of a multi-year collaboration agreement
with StemCell Systems GmbH (“StemCell Systems” or “SCS”), with whom we have maintained an R&D
relationship since 2014.
We currently rely on the services of StemCell Systems to conduct our pre-clinical
research and development activities for our CellMistTM System and manufacture the SkinGunTM spray device
at pilot scale. In the event they are unable to provide us with these services, we may need to expend considerable resources, time, and
money to locate, if possible, another research lab which could have a material and adverse effect on our research and development activities,
as well as our operating results and financial condition even, if we were to eventually design and engage such alternative research laboratories
We may expend our limited resources to pursue a particular product
or indication and fail to capitalize on products or indications that may be more profitable or for which there is a greater likelihood
of success.
Because we have limited financial and managerial resources, we focus on
specific products, indications, and discovery programs. As a result, we may forgo or delay pursuit of other opportunities with others
that could have had greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Our spending on current and future research and development programs for specific indications
may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular
potential product, we may relinquish valuable rights to that potential product through future collaborations, licenses, and other similar
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to
such potential product.
If any of our products cause or contribute to a death or serious adverse
events or malfunction in certain ways, we will be required to report under applicable medical device reporting regulations, which can
result in voluntary corrective actions or agency enforcement actions.
Under FDA medical device reporting regulations (“MDR regulations”),
medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death
or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of
the device or one of our similar devices were to recur. If we fail to report events required to be reported to the FDA within the required
timeframes, or at all, the FDA could take enforcement action and impose sanctions against us. Any such adverse event involving our products
also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection
or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, would require
our time and capital, distract management from operating our business and may harm our reputation and have a material adverse effect on
our business, financial condition and results of operations.
Our employees, independent contractors, consultants, commercial partners,
distributors, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements.
We are exposed to the risk that our employees, independent contractors,
consultants, commercial partners, distributors and vendors may engage in fraudulent or illegal activity. Misconduct by these parties could
include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) the laws
of the FDA and other similar foreign regulatory bodies, including those laws requiring the reporting of true, complete and accurate information
to such regulators; (ii) manufacturing standards; (iii) healthcare fraud and abuse laws in the United States and similar foreign
fraudulent misconduct laws; or (iv) laws that require the true, complete and accurate reporting of financial information or data.
These laws may impact, among other things, future sales, marketing and education programs. In particular, the promotion, sales and marketing
of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed
to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range
of pricing, discounting, marketing and promotion, structuring and commissions, certain customer incentive programs and other business
arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient
recruitment for clinical trials.
We have adopted a code of business conduct and ethics, but it is not always
possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent
these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted
against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant
fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, disgorgement,
individual imprisonment, additional integrity reporting and oversight obligations, possible exclusion from participation in Medicare,
Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment
of operations, any of which could adversely affect our ability to operate our business and our results of operations. Whether or not we
are successful in defending against any such actions or investigations, we could incur substantial costs, including legal fees, and divert
the attention of management in defending ourselves against any of these claims or investigations, which could have a material adverse
effect on our business, financial condition and results of operations.
Legislative or regulatory reforms may make it more difficult and costly
for us to obtain regulatory clearance or approval of our planned or future products and to manufacture, market and distribute our products
after clearance or approval is obtained.
From time to time, legislation is enacted that could significantly change
the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof.
In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business
and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen
review times of planned or future products. It is impossible to predict whether legislative changes will be enacted or FDA regulations,
guidance or interpretations changed, and what the impact of such changes, if any, may be.
Moreover, the policies that may be adopted by the Biden Administration and
their impact on the regulation of our products in the United States remain uncertain. The outcome of the 2020 election resulting
in one party control of the House of Representatives and the Senate could result in significant legislative and regulatory reforms impacting
the FDA’s regulation of our products. Any change in the laws or regulations that govern the clearance and approval processes
relating to our current, planned, and future products could make it more difficult and costly to obtain clearance or approval for new
products or to produce, market and distribute existing products. Significant delays in receiving clearance or approval or the failure
to receive clearance or approval for our new products would have an adverse effect on our ability to expand our business.
Our products or processes may infringe the intellectual property rights
of others, which may cause us to pay unexpected litigation costs or damages or prevent us from selling our products.
We cannot be certain that our products do not and will not infringe issued
patents or other intellectual property rights of third parties. We may be subject to legal proceedings and claims in the ordinary course
of our business, including claims of alleged infringement of the intellectual property rights of third parties. Any such claims, whether
or not meritorious, could result in litigation and divert the efforts of our personnel. If we are found liable for infringement, we may
be required to enter into licensing agreements (which may not be available on acceptable terms or at all) or to pay damages and to cease
making or selling certain products. We may need to redesign some of our products or processes to avoid future infringement liability.
Any of the foregoing could be detrimental to our business and ultimate profitability.
We may become exposed to costly and damaging liability claims and
any product liability insurance we have may not cover all damages from such claims.
We are exposed to potential product liability risks
that are inherent in the research, development, manufacturing, marketing and use of medical device products. The future use of product
candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. For example,
we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical
trials, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects
in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could
also be asserted under state consumer protection acts.
The outcome of litigation, particularly any class-action
lawsuits, is difficult to quantify. Plaintiffs often seek recovery of very large or indeterminate amounts, including punitive damages.
The magnitude of the potential losses relating to these lawsuits may remain unknown for substantial periods of time and the cost to defend
against any such litigation may be significant.
Although the clinical trial process is designed
to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen
side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval thereof, we
may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse
effects and patients who should not use our product candidates. If we cannot successfully defend ourselves against product liability claims,
we may incur substantial liabilities or be required to limit or cease the commercialization of our products. Even a successful defense
would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result
in:
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delay or termination of clinical trials;
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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significant negative financial impact; and
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the inability to commercialize our product candidates.
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Although we have procured product liability insurance
coverage, such insurance may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage
each time we commence a clinical trial and if we successfully commercialize any product candidate. As the expense of insurance coverage
is increasing, 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. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess
of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be materially harmed.
Our internal computer systems, or those used
by our CROs or other contractors or consultants, may fail or suffer security breaches.
Despite the implementation of security measures,
our internal computer systems, and those of our CROs and other third-party vendors on which we rely or will rely, are vulnerable to damage
from computer viruses and unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures,
cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to
systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including
by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of
attempted attacks and intrusions from around the world have increased.
While we have not experienced any such material
system failure or security breach to our knowledge to date, if such an event were to occur and cause interruptions in our operations,
it could result in a material disruption of our development programs and our business operations. For example, the loss of preclinical
data or data from future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs
to recover or reproduce the data. Likewise, we plan to rely on third parties for the manufacture of our product candidates and to conduct
clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the
extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur liability and the further development and commercialization of our future product
candidates could be delayed.
We face competition from the existing standard
of care and potential changes in medical practice and technology and the possibility that our competitors may develop products, treatments
or procedures that are similar, more advanced, safer or more effective than ours.
The medical, biotechnology and pharmaceutical industries
are intensely competitive and subject to significant technological and practice changes. We may face competition from many difference
sources with respect to any products we may develop and commercialize. Possible competitors may be medical practitioners, pharmaceutical,
biotechnology, medical device, and wound care companies, academic and medical institutions, governmental agencies and public and private
research institutions, among others. Should any competitor’s product candidates receive regulatory or marketing approval prior to
ours, they may establish a strong market position and be difficult to displace, or will diminish the need for our products.
Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products, treatments or procedures that are safer, more effective, have fewer
or less severe adverse effects, are more convenient or are less expensive than any product that we may develop. Many of our current or
future competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical
testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we may have. Mergers and acquisitions
in the pharmaceutical, medical device, and biotechnology industries or wound care markets may result in even more resources being concentrated
among a smaller number of our competitors. Other early-stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. These companies compete with us in recruiting and retaining qualified
scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our programs.
We may compete for the time and efforts of
our officers and directors.
Certain of our officers and directors are also
officers, directors, and employees of other companies and we may have to compete with the other companies for their time, attention and
efforts. One or our officers and non-executive directors provide us their services on a part-time basis.
We maintain at-will employment agreements
with our officers that may be terminated by us or the respective officer at any time and for any reason.
We maintain at-will employment agreements with
our officers that may be terminated by us or the respective officer at any time and for any reason. If any of our officers terminate their
consulting agreement it may have a material adverse effect on our business, financial condition or ability to operate.
Our growth and success depend on our ability
to attract and retain additional highly qualified and skilled sales and marketing, research and development, operational, managerial and
finance personnel.
Our growth and success depend on our ability to
attract and retain additional highly qualified and skilled sales and marketing, research and development, operational, managerial and
finance personnel. Competition for skilled personnel is intense and the unexpected loss of an employee with a particular skill could materially
adversely affect our operations until a replacement can be found and trained. If we cannot attract and retain skilled scientific and operational
personnel, as required, for our research and development and manufacturing operations on acceptable terms, we may not be able to develop
and commercialize any products. Further, any failure to effectively integrate new personnel could prevent us from successfully growing
our Company.
Risks Associated with a Failure to Comply with Regulatory Requirements
Development and commercialization of any
products requires successful completion of the regulatory approval process, and may suffer delays or fail.
Our medical devices and business activities are
subject to rigorous regulation by the FDA and other federal, state and international governmental authorities. These authorities and members
of Congress have been increasing their scrutiny over the medical device industry. In recent years, the U.S. Congress, Department of Justice,
the Office of Inspector General of the Department of Health and Human Services, and the Department of Defense have issued subpoenas and
other requests for information to medical device manufacturers, primarily related to financial arrangements with health care providers,
regulatory compliance and marketing and product promotional practices.
Furthermore, certain state governments have enacted
legislation to increase transparency of interactions with health care providers, pursuant to which we are required by law to disclose
payments and other transfers for value to health care providers licensed by certain states. We anticipate that the government will continue
to scrutinize our industry closely, and any new regulations or statutory provisions could result in delays or increased costs during the
periods of product development, clinical trials and regulatory review and approval, as well as increased costs to assure compliance.
In the U.S., as well as other jurisdictions, we
will be required to apply for and receive marketing authorization before we can market our products. This process can be time consuming
and complicated and may result in unanticipated delays. To secure marketing authorization, an applicant generally is required to submit
an application that includes the data supporting preclinical and clinical safety and efficacy as well as detailed information on the manufacturing
and control of the product, proposed labeling and other additional information. Before marketing authorization is granted, regulatory
authorities generally require the inspection of the manufacturing facility or facilities and quality systems (including those of third
parties) at which the product candidate is manufactured and tested, as well as potential audits of the non-clinical and clinical trial
sites that generated the data cited in the marketing authorization application.
We cannot predict how long the applicable regulatory
authority or agency will take to grant marketing authorization or whether any such authorizations will ultimately be granted. Regulatory
agencies, including the Food and Drug Administration (the “FDA”), have substantial discretion in the approval process,
and the approval process and the requirements governing clinical trials vary from country to country. The policies of the FDA or other
regulatory authorities may change or may not be explicit, and additional government regulations may be enacted that could prevent, limit
or delay regulatory approval of any products we may develop and commercialize. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the U.S., Europe or elsewhere. If we are slow or
unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
Additionally, any regulatory approval that we receive
may also contain requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the
product candidate. Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting,
storage, advertising, promotion, import, export and recordkeeping for the product will be subject to extensive and ongoing regulatory
requirements. These requirements include submission of safety and other post-marketing information and reports, registration and continued
compliance with good manufacturing practices for any clinical trials that we conduct post-approval.
We may encounter substantial delays in the
commencement, completion, termination or suspension of our clinical trials, which could result in increased costs to us, delay or limit
our ability to generate revenue and adversely affect our commercial prospects.
Before obtaining marketing approval from regulatory
authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of
the product candidate for its intended indications. Clinical medical device development is a lengthy and expensive process, with an uncertain
outcome; accordingly, we cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. We
may experience numerous unforeseen events during or as a result of clinical trials that could delay or prevent our ability to receive
marketing approval or commercialize our product candidates, including but not limited to:
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changes to a clinical trial protocol;
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clinical trial sites deviating from a trial protocol or dropping out of a trial;
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subjects failing to enroll or remain in clinical trials at the rate we expect, or failing to return for post-treatment follow-up;
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subjects choosing an alternative treatment for the indication for which we are developing our product candidates, or participating in
competing clinical trials;
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subjects experiencing severe adverse effects;
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clinical trials of our product candidates may produce unfavorable or inconclusive results;
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we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials, or we may decide to abandon
product development programs;
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we may need to add new or additional clinical trial sites;
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our third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail
to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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any changes to manufacturing process that may be necessary or desired;
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the cost of preclinical testing and studies and clinical trials of any product candidates may be greater than we anticipate or greater
than our available financial resources; or
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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may
be insufficient or inadequate or we may not be able to obtain sufficient quantities of combination therapies for use in clinical trials.
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If we are required to conduct additional clinical
trials or other testing of our product candidates beyond the clinical trials and testing that we contemplate, if we are unable to successfully
complete clinical trials or other testing of our product candidates, if the results of these clinical trials or tests are unfavorable
or are only modestly favorable or if there are safety concerns associated with any of product candidates, we may, among other things:
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incur additional unplanned costs;
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be delayed in obtaining marketing approval, if at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
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be subject to additional post-marketing testing or other requirements;
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be required to perform additional clinical trials to support approval;
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be subject to the addition of labeling statements, such as warnings or contraindications;
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be subject to lawsuits; or
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experience damage to our reputation.
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Similar or other events could delay or prevent our ability to complete
necessary clinical trials for our pipeline products, including:
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regulators may not authorize us to conduct a clinical trial within a country or at a prospective trial site or may change the design of
a study;
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delays may occur in reaching agreement on acceptable clinical trial terms with regulatory authorities or prospective sites, or obtaining
institutional review board approval;
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our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us,
to conduct additional trials or to abandon strategic projects;
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the number of patients required for our clinical trials may be larger than we anticipate, enrollment in our clinical trials may be slower
or more difficult than we expect, or patients may not participate in necessary follow-up visits to obtain required data, any of which
would result in significant delays in our clinical testing process;
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our third-party contractors, such as a research institution, may fail to comply with regulatory requirements or meet their contractual
obligations to us;
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we may be forced to suspend or terminate our clinical trials if the participants are being exposed, or are thought to be exposed, to unacceptable
health risks or if any participant experiences an unexpected serious adverse event;
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regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including
noncompliance with regulatory requirements;
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undetected or concealed fraudulent activity by a clinical researcher, if discovered, could preclude the submission of clinical data prepared
by that researcher, lead to the suspension or substantive scientific review of one or more of our marketing applications by regulatory
agencies, and result in the recall of any approved product distributed pursuant to data determined to be fraudulent;
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the cost of our clinical trials may be significantly greater than we anticipate;
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an audit of preclinical or clinical studies by regulatory authorities may reveal noncompliance with applicable protocols or regulations,
which could lead to disqualification of the results and the need to perform additional studies; and
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delays may occur in obtaining our clinical materials.
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Moreover, we do not know whether preclinical tests
or clinical trials will begin or be completed as planned or will need to be restructured. Significant delays could also shorten the patent
protection period during which we may have the exclusive right to commercialize our products or could allow our competitors to bring products
to the market before we do, impairing our ability to commercialize our products.
Obtaining and maintaining regulatory approval
for a product candidate in one jurisdiction does not mean that we will be successful in obtaining regulatory approval for that product
candidate in other jurisdictions.
Obtaining and maintaining regulatory approval for
a product candidate in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other
jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory
approval process in others. For example, even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities
in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval
procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those
in the U.S., including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted
by regulatory authorities in other jurisdictions. In many jurisdictions outside the U.S., a drug candidate must be approved for reimbursement
before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject
to approval.
We may fail to obtain regulatory approval
for our product candidates.
Our potential product candidates could fail to
receive regulatory approval for many reasons, including one or more of the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials or the validation
of our caregiver and patient reported outcome instruments;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is
safe and effective for any of its proposed indications;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory
authorities for approval;
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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical
trials;
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the data collected from clinical trials of our CellMistTM System and its underlying technology may not be sufficient to
satisfy the FDA or comparable foreign regulatory authorities to support our submission or to obtain regulatory approval in the U.S. or
elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial supplies; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering
our clinical data insufficient for approval.
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We are subject to extensive environmental,
health and safety, and other laws and regulations.
Although our business involves the controlled use
of biological materials, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident, spill
or release of any such chemicals or substances occurs, we could be held liable for resulting damages, including for investigation, remediation
and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. We are also subject
to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures. Additional
or more stringent laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and
operating expenses and may be required to obtain consents to comply with any of these or certain other laws or regulations and the terms
and conditions of any permits required pursuant to such laws and regulations, including costs to install new or updated pollution control
equipment, modify our operations or perform other corrective actions at our respective facilities. In addition, fines and penalties may
be imposed for noncompliance with environmental, health and safety and other laws and regulations or for the failure to have, or comply
with the terms and conditions of, required environmental or other permits or consents.
Risks Associated with our Intellectual Property
If we are unable to protect effectively
our intellectual property, we may not be able to operate our business and third parties may use our technology, both of which would impair
our ability to compete in our markets.
Our success will depend in significant part on
our ability to obtain and maintain meaningful patent protection for certain of our technologies and products throughout the world. Patent
law relating to the scope of claims in the technology fields in which we will operate is still evolving. The degree of future protection
for our proprietary rights is uncertain. We will rely on patents to protect a significant part of our intellectual property and to enhance
our competitive position. However, our presently pending or future patent applications may not issue as patents, and any patent previously
issued to us or our subsidiaries may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the claims in patents
that have been issued to us or our subsidiaries or that may be issued to us in the future may not be sufficiently broad to prevent third
parties from producing competing products similar to our products. In addition, the laws of various foreign countries in which we plan
to compete may not protect our intellectual property to the same extent as do the laws of the United States. If we fail to obtain adequate
patent protection for our proprietary technology, our ability to be commercially competitive will be materially impaired.
If third parties make or file claims of intellectual
property infringement against us, or otherwise seek to establish their intellectual property rights, we may have to spend time and money
in response and cease some of our operations.
Third parties may claim that we are employing their
proprietary technology without authorization or that we are infringing on their patents. We could incur substantial costs and diversion
of management and technical personnel in defending against any of these claims. Furthermore, parties making claims against us may be able
to obtain injunctive or other equitable relief which could effectively block our ability to further develop, commercialize and sell products.
In the event of a successful claim of infringement, courts may order us to pay damages and obtain one or more licenses from third parties.
We may not be able to obtain these licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any of these
licenses could prevent us from commercializing available products.
In addition to patented technology, we rely on our unpatented proprietary
technology, trade secrets, processes and know-how.
We rely on proprietary information (such as trade secrets, know-how and
confidential information) to protect intellectual property that may not be patentable, or that we believe is best protected by means that
do not require public disclosure. We generally seek to protect this proprietary information by entering into confidentiality agreements,
or consulting, services or employment agreements that contain non-disclosure and non-use provisions with our employees, consultants, contractors,
scientific advisors and third parties. However, we may fail to enter into the necessary agreements, and even if entered into, these agreements
may be breached or otherwise fail to prevent disclosure, third-party infringement or misappropriation of our proprietary information,
may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure or use of proprietary information.
We have limited control over the protection of
trade secrets used by our suppliers and service providers and could lose future trade secret protection if any unauthorized disclosure
of such information occurs. In addition, our proprietary information may otherwise become known or be independently developed by our competitors
or other third parties. To the extent that our employees, consultants, contractors, scientific advisors and other third parties use intellectual
property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly
and time-consuming litigation could be necessary to enforce and determine the scope of our and relevant third parties’ proprietary
rights, failure to obtain or maintain protection for our proprietary information could adversely affect our competitive business position
and if third parties are able to establish that we are using their proprietary information without their permission, we may be required
to obtain a license to that information, or if such a license is not available, re-design our products to avoid any such unauthorized
use or temporarily delay or permanently stop manufacturing or sales of the affected products. Furthermore, laws regarding trade secret
rights in certain markets where we may operate may afford little or no protection to our trade secrets.
Our proprietary rights may not adequately
protect our technologies and products.
Our commercial success will depend on our ability
to obtain patents and/or regulatory exclusivity and maintain adequate protection for our technologies and products in the United States
and other countries. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that
our proprietary technologies and products are covered by valid and enforceable patents or are effectively maintained as trade secrets.
We intend to apply for additional patents covering
both our technologies and products, as we deem appropriate. We may, however, fail to apply for patents on important technologies or products
in a timely fashion, if at all. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others
from practicing our technologies or from developing competing products and technologies. In addition, the patent positions of life science
industry companies are highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.
As a result, the validity and enforceability of our patents cannot be predicted with certainty. In addition, we cannot guarantee that:
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we were the first to make the inventions covered by each of our issued patents and pending patent applications;
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we were the first to file patent applications for these inventions;
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others will not independently develop similar or alternative technologies or duplicate any of our technologies;
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any of our pending patent applications will result in issued patents;
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any of our patents will be valid or enforceable;
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any patents issued to us will provide us with any competitive advantages, or will not be challenged by third parties; and
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we will develop additional proprietary technologies that are patentable, or the patents of others will not have an adverse effect on our
business.
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The actual protection afforded by a patent varies on a product-by-product
basis, from country to country and depends on many factors, including the type of patent, the scope of its coverage, the availability
of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the
patents. Our ability to maintain and solidify our proprietary position for our products will depend on our success in obtaining effective
claims and enforcing those claims once granted. Our issued patents and those that may be issued in the future, or those licensed to us,
may be challenged, invalidated, unenforceable or circumvented, and the rights granted under any issued patents may not provide us with
proprietary protection or competitive advantages against competitors with similar products. We also rely on trade secrets to protect some
of our technology, especially where it is believed that patent protection is inappropriate or unobtainable. However, trade secrets are
difficult to maintain. While we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors or scientific
and other advisors may unintentionally or willfully disclose our proprietary information to competitors. Enforcement of claims that a
third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, non-U.S. courts
are sometimes less willing than U.S. courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods
and know-how, we would not be able to assert our trade secrets against them and our business could be harmed.
We may not be able to protect our intellectual property rights throughout
the world.
Filing, prosecuting and defending patents on all of our products in every
jurisdiction would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent
protection to develop their own products. These products may compete with our products, and may not be covered by any patent claims or
other intellectual property rights.
The laws of some non-U.S. countries do not protect intellectual property
rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and
defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do
not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which could
make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could
result in substantial cost and divert our efforts and attention from other aspects of our business.
If we fail to protect our intellectual property rights, our competitors
may take advantage of our ideas and compete directly against us.
Our success will depend to a significant degree on our ability to secure
and protect intellectual property rights and enforce patent and trademark protections relating to our technology. While we believe that
the protection of patents and trademarks is important to our business, we also rely on a combination of copyright, trade secret, nondisclosure
and confidentiality agreements, know-how and continuing technological innovation to maintain our competitive position. From time to time,
litigation may be advisable to protect our intellectual property position. However, these legal means afford only limited protection and
may not adequately protect our rights or permit us to gain or keep any competitive advantage. Any litigation in this regard could be costly,
and it is possible that we will not have sufficient resources to fully pursue litigation or to protect our intellectual property rights.
This could result in the rejection or invalidation of our existing and future patents. Any adverse outcome in litigation relating to the
validity of our patents, or any failure to pursue litigation or otherwise to protect our patent position, could materially harm our business
and financial condition. In addition, confidentiality agreements with our employees, consultants, customers, and key vendors may not prevent
the unauthorized disclosure or use of our technology. It is possible that these agreements will be breached or that they will not be enforceable
in every instance, and that we will not have adequate remedies for any such breach. Enforcement of these agreements may be costly and
time consuming. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the
laws of the United States.
We may incur substantial costs as a result of litigation or other
proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use of, our technology.
If we choose to go to court to stop someone else from using the inventions
claimed in our patents or our licensed patents, that individual or company has the right to ask the court to rule that these patents are
invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources
even if we were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that
these patents are invalid or unenforceable and that we do not have the right to stop the other party from using the inventions.
For example, on or about April 11, 2017, we received from Avita Medical
Limited a Petition for Inter Partes Review purporting to challenge the validity of the claims in U.S. Patent No. 9,610,430 before
the PTAB of the U.S. Patent & Trademark Office. Upon consideration of the arguments and evidence set forth by us and Avita, on December
18, 2017, the PTAB rendered a Final Written Decision dismissing the Petition in its entirety and, accordingly, confirming all such claims.
Avita’s right to file an appeal expired on February 21, 2018. Although we were thoroughly successful in our defense of the matter,
we encountered substantial legal fees as well as the diversion of management time and focus.
There is also the risk that, even if the validity or enforceability of these
patents is upheld, the court will refuse to stop the other party on the grounds that such other party’s activities do not infringe
our rights.
If we wish to use the technology claimed in issued and unexpired patents
owned by others, we will need to obtain a license from the owner, enter into litigation to challenge the validity or enforceability of
the patents or incur the risk of litigation in the event that the owner asserts that we infringed its patents. The failure to obtain a
license to technology or the failure to challenge an issued patent that we may require to discover, develop or commercialize our products
may have a material adverse effect on us.
If a third party asserts that we infringed its patents or other proprietary
rights, we could face a number of risks that could seriously harm our results of operations, financial condition and competitive position,
including:
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patent infringement and other intellectual property claims, which would be costly and time consuming to defend, whether or not the claims
have merit, and which could delay a product and divert management’s attention from our business;
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substantial damages for past infringement, which we may have to pay if a court determines that our product or technologies infringe a
competitor’s patent or other proprietary rights;
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a court prohibiting us from selling or licensing our technologies unless the third party licenses its patents or other proprietary rights
to us on commercially reasonable terms, which it is not required to do; and
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if a license is available from a third party, we may have to pay substantial royalties or lump-sum payments or grant cross licenses to
our patents or other proprietary rights to obtain that license.
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The biotechnology industry has produced a proliferation of patents, and
it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage
of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement,
we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent, and/or
that the patent claims are invalid, and/or that the patent is unenforceable and we may not be able to do this. Proving invalidity, in
particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed
by issued patents.
U.S. patent laws as well as the laws of some foreign jurisdictions provide
for provisional rights in published patent applications beginning on the date of publication, including the right to obtain reasonable
royalties, if a patent subsequently issues and certain other conditions are met.
Because some patent applications in the United States may be maintained
in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically
not published until 18 months after filing, and because publications in the scientific literature often lag behind actual discoveries,
we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications,
or that we were the first to invent the technology.
Patent applications filed by third parties that cover technology similar
to ours may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies.
If another party files a U.S. patent application on an invention similar to ours, we may elect to participate in or be drawn into an interference
proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. The costs of these
proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our U.S. patent position
with respect to such inventions. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively
than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation
of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations. We cannot
predict whether third parties will assert these claims against us, or whether those claims will harm our business. If we are forced to
defend against these claims, whether they are with or without any merit and whether they are resolved in favor of or against us, we may
face costly litigation and diversion of management’s attention and resources. As a result of these disputes, we may have to develop
costly non-infringing technology, or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable
to us, if at all, which could seriously harm our business or financial condition.
Risks Related to Our Financial Condition
We have experienced significant losses, have not generated any revenues,
expect losses to continue for the foreseeable future and may never achieve or maintain profitability.
We are a development-stage company. We do not have any commercialized products
and have not generated any revenue since inception and do not expect to generate any revenue for the foreseeable future. We had a loss
from operations of $9,677,098 and $3,690,322 for our fiscal years ended December 31, 2020 and 2019, respectively. We have incurred a cumulative
deficit of $29,768,181 through December 31, 2020. We anticipate incurring losses for the next several years. We may not be able to successfully
achieve or sustain profitability. Successful transition to profitable operations is dependent upon achieving a level of revenues adequate
to support our cost structure.
We may require additional financing to expand,
accelerate or sustain our current level of operations beyond our current fiscal year, and failure to obtain such financing would have
a material adverse effect on our business, operating results, financial condition and prospects.
As of December 31, 2020, we had cash and cash equivalents
of $7,412,969. We anticipate that we will remain engaged in research and product development activities through at least December 31,
2022. Based upon our current level of operations and expenditures, we believe that absent any modification or expansion of our existing
research, development and testing activities, cash on hand should be sufficient to enable us to continue operations through at least one
year from the filing of this Form 10-K. The Company expects to incur losses as it continues development of its products and technologies
and expects that it will need to raise additional capital through the sale of its securities to accomplish its business plan and failing
to secure such additional funding before achieving sustainable revenue and profit from operations poses a significant risk. The Company’s
ability to fund the development of its cellular therapies will depend on the amount and timing of cash receipts from future financing
activities. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
If adequate funds, including proceeds, if any,
from the exercise of the Warrants are not available on reasonable terms or at all, it would result in a material adverse effect on our
business, operating results, financial condition and prospects. In particular, we may be required to delay, reduce the scope of or terminate
one or more of our research programs, sell rights to our CellMistTM System or other technologies or products based upon
such technologies, or license the rights to such technologies or products on terms that are less favorable to us than might otherwise
be available. If we raise additional funds by issuing equity or debt securities, further dilution to stockholders may result and new investors
could have rights superior to existing stockholders.
Additionally, there is significant uncertainty
relating to the full impact of the COVID-19 pandemic on the Company’s operations and capital requirements. Should financing when
needed be unavailable or prohibitively expensive or the COVID-19 pandemic continue, it may adversely affect the Company’s ability
to (i) retain employees and consultants; (ii) obtain additional financing on terms acceptable to the Company, if at all; (iii) delay regulatory
submissions and approvals; (iv) delay, limit or preclude the Company from the operation of clinical study sites and testing laboratories;
(v) delay, limit or preclude the Company from achieving technology or product development goals, milestones, or objectives; and (vi) preclude
or delay entry into joint venture or partnership arrangements. The occurrence of any one or more of such events may affect the Company’s
ability to continue on its pathway to commercialization of its technology or products.
We may need additional capital and if we
raise such additional capital through the issuance of equity or convertible debt securities, your ownership will be diluted, and equity
securities issued may have rights, preferences and privileges superior to the shares of common stock.
If we are unable to achieve profitability sufficient to permit us to fund
our operations and other planned actions, we may be required to raise additional capital. There can be no assurance that such capital
would be available on favorable terms, or at all. If we raise additional capital through the issuance of equity or convertible debt securities,
the percentage ownership held by existing stockholders may be reduced, and the market price of our common stock could fall due to an increased
number of shares available for sale in the market. Further, our board has the authority to establish the designation of additional shares
of preferred stock that may be convertible into common stock without any action by our stockholders, and to fix the rights, preferences,
privileges and restrictions, including voting rights, of such shares. Any such additional shares of preferred stock may have rights, preferences
and privileges senior to those of outstanding common stock, and the issuance and conversion of any such preferred stock would further
dilute the percentage ownership of our stockholders. Debt financing, if available, may involve restrictive covenants, which may limit
our operating flexibility with respect to certain business matters. If we are unable to secure additional capital as circumstances require,
we may not be able to fund our planned activities or continue our operations.
Even if financing is available to us, because we cannot currently
estimate the amount of funds or time required to commercialize our CellMistTM System, we may secure less funding than
is actually required to effectuate our business plan.
We cannot accurately predict the amount of funding or the time required
to successfully commercialize our CellMistTM System, or any products based on our technology platform. The actual cost
and time required to commercialize this technology may vary significantly depending on, among other things, the results of our research
and development efforts, the cost of developing, acquiring, or licensing various enabling technologies, changes in the focus and direction
of our research and development programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing
claims with respect to patents, the regulatory approval process and manufacturing, marketing and other costs associated with commercialization
of these technologies. Because of this uncertainty, even if financing is available to us, we may secure insufficient funding to effectuate
our business plan.
Risks Related to Ownership of Our Common Stock
We are not a fully reporting company under the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act; therefore, we are subject only to the reporting requirements of Section
15(d) of the Exchange Act.
We are not a fully reporting company under the Securities Exchange Act of
1934, as amended (the “Exchange Act”); therefore, we are subject only to the reporting requirements of Section 15(d)
of the Exchange Act. Until our Common Stock is registered under the Exchange Act, we will be subject only to the reporting obligations
imposed by Section 15(d) of the Exchange Act, which we refer to as Section 15(d). Section15(d) requires that issuers file periodic and
current reports with the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”)
when they have issued any class of securities for which a registration statement was filed and became effective pursuant to the Securities
Act. The purpose of Section 15(d) is to ensure that investors who buy securities in registered offering are provided with the same information
on an ongoing basis that they would receive if the securities they purchased were listed on a securities exchange or the issuer were otherwise
subject to periodic reporting obligations. However, companies that are required to report only under Section 15(d) are not subject to
some of the Exchange Act reporting requirements. For example, companies that are required to report only under Section 15(d) are not subject
to the short-swing profit reporting requirements contained in Section 16 of the Exchange Act, the beneficial ownership reporting requirements
contained in Section 13 of the Exchange Act, the institutional investor reporting rules or the third-party tender offer rules, or the
Exchange Act’s proxy rules contained in Section 14 of the Exchange Act.
The reporting obligations under Section15(d) of the Exchange Act are automatically
suspended when: (i) any class of securities of the issuer reporting under Section 15(d) is registered under Section 12 of the Exchange
Act; or (ii) at the beginning of the issuer’s fiscal year, other than the year in which the applicable registration statement became
effective, if the class of securities covered by the registration statement is held of record by fewer than 300 persons. In the latter
case, the Company would no longer be subject to periodic reporting obligations so long as the number of holders remained below 300 unless
we filed a registration statement with the Securities and Exchange Commission under Section 12 of the Exchange Act. If our obligation
to file reports under Section 15(d) is suspended (other than due to our having registered our common stock under Section 12 of the Exchange
Act), then investors will have reduced visibility with respect to the Company, its financial condition and results of operations.
Since February 26, 2018, our Common Stock has traded on the OTC Markets
Group, Inc.’s Pink Current Information platform, (“OTC Pink-Current”). Until our Common Stock is listed on an exchange,
we expect to remain eligible for quotation on the OTC Pink-Current. In addition, if we fail to meet the criteria set forth in SEC regulations,
various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and
accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may
further affect the liquidity of your shares. This would also make it more difficult for us to raise additional capital or attract qualified
employees or partners.
Our common stock is currently quoted on the
OTC Pink-Current which may make it more difficult for you to purchase or sell shares of the Company’s Common Stock.
The OTC Pink-Current is viewed by most investors
as a less desirable, and less liquid, marketplace. As a result, an investor may find it more difficult to purchase, dispose of or obtain
accurate quotations as to the value of, our common stock. We may reapply for listing on the OTCQB, which application may or may not be
approved. If not approved, we expect that our stock will continue to trade on the OTC Pink-Current
To be eligible for OTCQB, companies will be required
to:
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meet a minimum bid price test of $0.01. Securities that do not meet the minimum bid price test will be
downgraded to OTC Pink-Current;
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submit an application to OTCQB and pay an application and annual fee; and
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submit an OTCQB “annual certification” confirming the Company Profile displayed on www.otcmarkets.com
is current and complete and providing additional information on officers, directors, and controlling stockholders.
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In the event we do not submit an application for
listing on the OTCQB or other stock exchange or if we do and the application is not approved, we expect that our stock will continue to
trade on the OTC Pink-Current, which could adversely affect the market liquidity of our common stock.
Our common stock is not registered for trading
on any national stock exchange and thus, should the price of our stock on the OTC Pink-Current fall below five dollars per share and our
net tangible assets fall below two million dollars our stock may be deemed a “penny stock” and is not traded on a national
securities exchange you may find it difficult to, deposit, transfer, sell or purchase the shares of our common stock in open market transactions.
“Penny stocks” are, generally speaking,
those securities that are not listed on a national securities exchange and are priced under $5. There are exclusions for securities of
issuers that have net tangible assets greater than $2 million if they have been in operation at least three years or greater than $5 million
if in operation less than three years. Securities of issuers with average revenue of at least $6 million for the last three years are
also not considered penny stocks.
Currently our common stock is considered “penny
stock exempt” by the OTC Pink-Current. This means that our stock is exempt from the definition of a Penny Stock under SEC under Rule
240.3a51-1 because it meets one of the following tests: 1) A price of over $5 per share, 2) the issuer has Average Revenue of at
least $6 million for the last 3 years, or 3) the issuer has Net Tangible Assets in excess of $2 million if the issuer has been in continuous
operations for at least 3 years or $5 million if less than 3 years. The closing price of our common stock on the OTC Pink-Current has
closed above $5 since November 23, 2020; and, the value of our net tangible assets for the fiscal years ended December 31, 2020 and 2019
was, approximately $6.9 million and $12.0 million, respectively.
As long as we continue to satisfy at least one
of the foregoing exemptions, our common stock should continue to be deemed “penny stock exempt.” However, because our stock
is not registered for trading on a national stock exchange should we no longer satisfy at least one of the exemption criteria described
above, our common stock would be considered a “penny stock.”
The penny stock rules are designed to prevent deceptive
or manipulative practices. It provides that a broker cannot sell a penny stock to any person unless it has approved that person's account
for penny stock transactions and the broker/dealer has received in writing from customer agreement to the transaction; approving an account
includes, among other things, reviewing the customer's financial data and determining the customer's suitability, including the capability
to evaluate the risks of trading in penny stocks. Some types of transactions in penny stocks are exempt from these rules. Exempt transactions
include those with an established customer (a customer of more than one year or one who has made at least three separate penny stock purchases)
and transactions in which the customer is an institutional investor.
In addition, the penny stock regulations require
that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule proscribed by the SEC relating to the penny
stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the commissions payable
to both the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require
that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information of
the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.
Accordingly, should our common stock be deemed
a “penny stock,” you may find it difficult to, deposit, transfer, sell or purchase the shares of our common stock in open
market transactions.
The trading price of our common stock historically has been volatile
and may continue to be so in the future; such volatility may not only negatively impact stock price but may also adversely affect our
ability to raise additional capital.
The trading price of our common stock has, from time to time, fluctuated
widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the
risk factors set forth herein, as well as our operating results, financial condition, general economic beyond our control. In recent years,
broad stock market indices in general, and smaller capitalization companies, in particular have experienced substantial price fluctuations.
Since our common stock is thinly traded its trading price is likely to
be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control,
including, but not limited to:
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the trading volume of our common stock;
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the number of securities analysts, market-makers and brokers following our common stock;
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new products or services introduced or announced by us or our competitors;
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actual or anticipated variations in quarterly operating results;
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conditions or trends in our business industries;
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announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
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additions or departures of key personnel;
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sales of our common stock and
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general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies.
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In a volatile market, we may experience wide fluctuations in the market
price of our common stock. These fluctuations may have a negative effect on the market price of our common stock. In addition, the sale
of our common stock into the public market upon the effectiveness of this registration statement could put downward pressure on the trading
price of our common stock. Such fluctuations and their potential negative impact on our stock price may also adversely affect our ability
to raise capital on favorable terms.
Financial Industry Regulatory Authority (“FINRA”)
sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock, which could depress the price
of our common stock.
In addition to the “penny stock” rules
described above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is
suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low-priced securities to
their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial
status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a
high probability that speculative low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements
make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy
and sell our shares of common stock, have an adverse effect on the market for our shares of common stock, and thereby depress our price
per share of common stock.
Sales of a substantial number of shares of
our common stock into the public market by the Selling Stockholders may result in significant downward pressure on the price of our common
stock and may affect the ability of our stockholders to realize any trading price of our common stock.
Sales of a substantial number of shares of our
common stock into the public market by the Selling Stockholders may result in significant downward pressure on the price of our common
stock and may affect the ability of our stockholders to realize any trading price of our common stock when and if a trading market develops
for our common stock.
Any significant downward pressure on the price
of our common stock as the Selling Stockholders sell their shares of our common stock could encourage other stockholders to sell as well
as short sales by the Selling Stockholders or others. Any such short sales could place further downward pressure on the price of our common
stock.
The sale by our stockholders of restricted
shares, either pursuant to a resale prospectus or Rule 144, may adversely affect our ability to raise the funds we will require to effectuate
our business plan.
As of March 31, 2021 we had 87,352,364 shares issued and outstanding,
of which 61,248,711 are deemed “control” or “restricted” securities within the meaning of Rule 144. The
possibility that substantial amounts of our common stock may be sold into the public market, either under Rule 144, or pursuant
to a resale registration statement, may adversely affect prevailing market prices for the common stock and could impair our ability
to raise capital in the future through the sale of equity securities because of the perception that future re-sales could decrease
our stock price and because of the availability of resale shares to those interested in investing in our common stock.
Mr. Harmel S. Rayat, directly and through
wholly owned entities owns a majority of our issued and outstanding stock. This ownership interest will permit Mr. Rayat to influence
or control significant corporate decisions.
As of March 31, 2021, Mr. Harmel S. Rayat, a director,
beneficially owned approximately 72.05% of our common shares (including shares issuable upon exercise of outstanding warrants). See the
beneficial ownership table in the section of this Form 10-K titled “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.”
As a result, Mr. Rayat may be able to exercise
significant influence or control over matters requiring stockholder approval, including the election of directors and approval of significant
corporate transactions, and will have significant control over our management and policies. Mr. Rayat’s interests may be different
from yours. For example, he may support proposals and actions with which you may disagree or which are not in your interest. This concentration
of ownership could delay or prevent a change in control of our company or otherwise discourage a potential acquirer from attempting to
obtain control of our company, which in turn could reduce the price of our common stock. In addition, Mr. Rayat could use his voting influence
to maintain our existing management and directors in office, or support or reject other management and board proposals that are subject
to stockholder approval, such as the adoption of employee stock plans and significant unregistered financing transactions.
There are options to purchase shares of our
common stock currently outstanding.
As of the date of this Form 10-K we have granted
options to purchase shares of our common stock to various persons and entities, under which we could be obligated to issue up to 5,895,570
shares of our common stock. The exercise prices of these options range from $1.05 to $4.20 per share. If issued, the shares underlying
these options would increase the number of shares of our common stock currently outstanding and dilute the holdings and voting rights
of our then-existing stockholders. The sale of the shares issued upon the exercise of such options may also place downward pressure on
our stock price.
There are warrants to purchase shares of
our common stock currently outstanding.
As of the date of this Form 10-K we have issued
warrants to purchase shares of our common stock to various persons and entities, under which we could be obligated to issue up to 12,296,912
shares of common stock. Each of the warrants may be exercised on a “cashless basis” using the formula set forth therein at
prices ranging from $1.54 to $3.45 per share. If exercised the shares issuable may be resold
immediately pursuant to Rule 144, to the extent available. Such sales could exert downward pressure on the market price of our common
stock and may cause other stockholders and others to sell their stock or to enter into short sales transactions which will further exacerbate
the downward pressure on the stock price.
We may sell additional equity securities
in the future and your ownership interest in the Company may be diluted as a result of such sales.
We intend to sell additional equity securities
in order to fully implement our business plan. Such sales will be made at prices determined by our board of directors based on factors
deemed appropriate at the time; accordingly, such sales by us could be made at prevailing market prices at the time, in which case, investors
could experience dilution of their investment.
We may issue preferred stock which may have
greater rights than our common stock.
Our Articles of Incorporation allow our Board of
Directors to issue up to 10,000,000 shares of preferred stock. Currently, no shares of preferred stock are issued and outstanding. However,
we can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further
approval from the holders of our common stock. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend
priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain
provisions allowing it to be converted into shares of common stock, which could dilute the value of our common stock to then current stockholders
and could adversely affect the market price, if any, of our common stock.
Our compliance with changing laws and rules
regarding corporate governance and public disclosure may result in additional expenses to us which, in turn, may adversely affect our
ability to continue our operations.
Keeping abreast of, and in compliance with, changing
laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new
SEC regulations and, in the event that we are ever approved for listing on a registered national exchange, such exchange’s rules,
will require an increased amount of management attention and external resources. We intend to continue to invest all reasonably necessary
resources to comply with evolving standards, which may result in increased general and administrative expenses and a diversion of management
time and attention from revenue-generating activities to compliance activities. Our failure to adequately comply with any of these laws,
regulations, standards or rules may result in substantial fines or other penalties and could have an adverse impact on our ongoing operations.
Because we do not intend to pay dividends
for the foreseeable future you should not purchase our shares if you are seeking dividend income.
We currently intend to retain future earnings,
if any, to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.
Our payment of any future dividends will be at the discretion of our Board after taking into account various factors, including but not
limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be
a party to at the time. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur,
as the only way to realize their investment.
Our articles of incorporation provide for
indemnification of officers and directors at our expense and limit their liability, which may result in a major cost to us and hurt the
interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.
Our articles of incorporation and applicable Nevada
law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s
fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities
on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s
promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification
policy could result in substantial expenditures by us, which we will be unable to recoup.
We have been advised that, in the opinion of the
SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification against these types of liabilities, other than the payment
by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding,
is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion
of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether
indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such
issue. The legal process relating to this matter, if it were to occur, is likely to be very costly and may result in us receiving negative
publicity, either of which factors is likely to materially reduce the market and price for our common stock.