ITEM
1. BUSINESS.
Overview
GBS
Inc. and its wholly owned subsidiary, GBS Operations Inc. were formed on December 5, 2016 under the laws of the State of Delaware. Our
headquarters are located in New York, New York.
We
are a biosensor diagnostic technology company operating across the Asia-Pacific Region (“APAC”) and an interest in the USA
Region with the biosensor platform comprising of biochemistry, immunology, tumor markers, hormones, and nucleic acid diagnostic modalities,
and worldwide with our COV2 test.
Our
objective is to introduce and launch initially the Saliva Glucose Biosensor (referred to as the “SGB”), the diagnostic test
that stems from the Biosensor Platform that we license from Life Science Biosensor Diagnostics Pty Ltd (“LSBD”or “Licensor”)
in our regions and the COV2 test globally. This will be followed by developing the platform to its full capacity testing across the
diagnostic modalities of Immunology, Hormones, Chemistry, Tumor markers and Nucleic Acid tests. We are a 42.6% (as of June 30, 2021)
owned (by voting rights) affiliate of LSBD, an Australian company that owns the worldwide intellectual property rights to
the biosensor platform.
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Highlights
of Achievements
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Our
major highlights of achievements since listing the Company on the NASDAQ Global Market in December 2020 are:
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Successfully
being awarded $4.7 million (excluding GST/VAT) in Medical Products Priority Grant funding by the Australian government to fund a high-tech
manufacturing facility, identified as one of six National Manufacturing Priorities
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Harvard
Longwood Campus Institutional Review Board approval to perform a clinical study with patient samples with the SARS-CoV-2 Antibody
Biosensor
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Securing
of an option to acquire the North America license for Glucose Testing
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Receiving
$578,000 in Australian government support as a Research and Development (R&D) incentives for the development of the technology
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Results
of global voice of customer survey of more than 300 patients living with diabetes verified
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an overall 90% desirability for the Saliva Glucose Biosensor
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7 out of 10 patients “seriously interested in purchasing the product upon its release
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3 out of 10 wanting to be placed on the waiting list ahead of release
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L.E.K. Consulting agreement to identify suitable partnership opportunities for sales and distribution in the APAC region
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The
Saliva Glucose Biosensor
The
SGB uses saliva to measure glucose non-invasively. When the SGB interacts with saliva, an electrochemical reaction is initiated that
produces an electrical signal directly correlated to the amount of glucose present in the saliva. This measurement is then converted
into a real-time saliva glucose reading by a software app on a smart device or a dedicated smart reader for those that do not possess
a compliant and compatible smart device. The reading may then be stored in our proprietary cloud-based digital information system.
The
APAC Region includes over 164 million people living with diabetes, which accounts for 38% of the world’s diabetic population. Rapid
urbanization, unhealthy diets and increasingly sedentary lifestyles have resulted in ever increasing rates of obesity and diabetes across
the region.
Self-testing
blood glucose monitors were introduced to the market in the 1970s and, since then, the method of glucose self-monitoring has not meaningfully
changed. The industry remains dominated by invasive methods that ultimately use blood or interstitial fluid to measure glucose. We believe
the methodology of the SGB represents a breakthrough in glucose monitoring as it represents the only non-invasive, painless and cost-effective
saliva-based method of measuring glucose levels. The biosensor technology has been developed over several decades of university-based
scientific research and has been extensively referenced in scientific literature.
The
SGB is an organic transistor, which in its structure embeds the glucose oxidase enzyme (referred to as “GOX”). When
the single-use SGB interacts with saliva it initiates an electrochemical reaction, producing an electrical signal directly correlated
to the amount of glucose present in the saliva. This measurement is then converted into a real-time saliva glucose reading, through the
biosensor app installed on a smart device or a dedicated reader.
The
patent protected SGB is able to detect glucose in saliva at concentrations between 8 and 200 µM and exhibits linear glucose sensing
characteristics at these concentrations, sensing glucose at levels 100 times lower than blood.
In
our development of the SGT, we aim to go beyond the innovation of changing the sampling medium from blood to saliva, and further create
value for the patient and the payers by decreasing the cost of managing diabetes, improving the outcomes of the disease and providing
convenience in testing methodology. This will be achieved by directly transferring the SGB reading from the smart device or dedicated
reader to our proprietary digital information system, which is cloud-based to enable every patient the option to create their own medical
record where the SGB results will be uploaded.
Our
digital information system is intended to be interfaced to an artificial intelligence system and will be able to, at the patient’s
or authorized care giver’s direction, disseminate patient data to a remote caregiver, a service for consultation or to any other
individual with whom the patient chooses to share his or her glucose level measurements. We believe patients and payers will be able
to leverage our digital information system to decrease cost and improve outcomes and convenience.
With
the SGB we aim to drive economic value beyond the revenue stemming from the sale of the SGB units – it also allows for monetization
and the creation of separate revenue streams from the patient network and other data that resides within our digital information system,
by way of the following:
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Data
usage. The usage of the data, and the analysis and interpretation of the data, to improve patients’ conditions and leveraging
this insight to improve patient care.
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Safe
data sharing. The provision of data sharing services between users/patients, authorized care givers and authorized medical practitioners.
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Data
collection. The collection of anonymized data, its aggregation with other data from multiple sources and multiple health devices
and its combination with non-health data.
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We
plan to leverage this usage, safe sharing and collection of data in the following four revenue-generating channels:
Direct
Monetization Channel. This channel focuses on the development of revenue based on commercial relationships for the use of anonymized
and compliant information derived from data generation. These services may include, but will not be limited to:
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Fee
for service, per performed action by pharma, or other commercial partners.
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Subscription,
regular recurring payments for continued access to service.
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Prescription,
value acknowledged by payer reimbursement per active user.
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Third
party coverage, other industry/retail players pay fee for their own customers.
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Risk
sharing/profit sharing, success-based payment models.
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Advertising,
third party ads tailored to demographic data leveraging characteristics unique to channel.
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Added
value of GBS brand loyalty.
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Commercial
Adjacencies Channel. This channel focuses on the development of revenue from data generated through patient engagement and market
insights from a clinical and medical perspective. These services may include, but will not limited to:
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Medical
– Generation of Patient Reported Outcomes, or “PROs”.
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Data
– Market insights, clinical trial recruitment for third parties, e.g., pharmaceutical companies or clinical research organizations.
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Consumer
– e-commerce platform, third party customer care, advertising.
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Product
and Service Bundles Channel. This channel focuses on ancillary revenue generated through bespoke service opportunities across the
industry, for example, by working with insurers to develop products that integrate the usage of testing as part of their service offering.
These services may include, but will not be limited to:
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Over-the-counter
model.
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Bundle
payment model with insurance subsidy.
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Pay
for outcomes model.
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Core
Operations Synergy Channel. Through combining the data generation with the use of artificial intelligence, we expect to have a deep
insight into our customer base, providing an elevated level of customer insight. It is expected that this insight will drive high customer
retention levels and generate a considerable number of broader revenue opportunities through direct and specific interaction with our
customer base. These opportunities may include, but will not be limited to:
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Direct
access to customers for better experience in customer care.
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Peer
learning and support to decrease customer care resource commitment.
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Direct
market and customer insights (including better understanding of customer journey).
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More
customer data for targeted marketing & marketing impact monitoring.
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New
cost effective, digital marketing channel enabling agile marketing approach.
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PRO
data to support unique marketing claims.
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Higher
engagement, customer loyalty and customer lifetime value.
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Consumer
driven innovation and customer involvement in development.
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Involvement
in testing & refining to develop demand-oriented products rapidly.
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Easy
and fast clinical evaluation recruitment.
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PRO
to support regulatory approval / market access for platform tests under development.
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The
SGB has been under continuous development for over six years, first by the University of Newcastle, Australia, then by the Licensor and
us. The SGB development program is currently at the validation stage, which is Phase 5 of development of the SGB, this includes the stages
of design & process development to enable the testing needed to verify and validate the final product. This stage involves implementation
of the clinical evidence module, which incorporates the commercial production of the investigative biosensor devices to commence the
clinical evaluation of analytical performance of the device and generate the clinical evidence necessary to gain regulatory approval.
On
May 1, 2020, the Licensor filed a submission with the
FDA for the Saliva Glucose Biosensor Diagnostic Test, currently in development as a point-of-care test intended to replace blood glucose
testing for diabetes management. Following the 513(g) submission to the FDA (Submitted May 01, 2020), it was determined that the company
could seek the De Novo application pathway for the Saliva Glucose Biosensor Diagnostic Test, we were appointed an expert contact person,
Acting Branch Chief from the Diabetes Diagnostic Devices Branch. We have further commenced planning discussions with the FDA Office of
In Vitro Diagnostics and Radiological Health and the Office of Product Evaluation and Quality pertaining to the clinical development
and study plan of the Saliva Glucose Biosensor. . We expect to leverage synergies from the planned approval process with the FDA within
the Asia Pacific region, where China has the highest number of people with diabetes. We will first seek regulatory approval with the
NMPA of China. However, we intend to apply for regulatory approval in each jurisdiction across the APAC Region. Recently, we entered
into non-binding memoranda of understanding with two large distributors in China, which express our intent to enter into definitive agreements
to collaborate on the manufacture, regulatory approval, and distribution and sale of, and the medical affairs, marketing, and identification
of strategic opportunities for, the SGB in China.
The
SGB is manufactured using modified reel-to-reel printing technology that was developed at the Australian National Fabrication Facility.
This technology allows mass volume printing at a low cost. Previous research published in the journal Solar Energy Materials and Solar
Cells has shown that the cost of manufacture of printed organic electronic devices (like the SGB) using mass volume printing is $7.85
per square meter, with an uncertainty of 30%. The size of the printed biosensors is approximately one square centimeter, resulting in
a manufacturing cost per biosensor of approximately $0.001.
We
anticipate that the non-invasive nature of saliva-based glucose testing will make patients more amenable to glucose monitoring, with
the expected result of increasing the number of times a patient tests per day. The data generated by the SGB, combined with the interface
of the smart device or dedicated reader with our digital information system and the artificial intelligence feedback, will allow the
patient to achieve better glucose control through a practical understanding of lifestyle factors that affect glucose levels, thereby
helping prevent or delay diabetes complications and ultimately personalizing diabetes management.
The
COV2 Biosensor
The
COVID-19 pandemic will not simply go away, and we believe it will remain with us for many years. Development of an improved antibody
assays to detect prior infection with SARS-CoV-2 has been identified as one of the top unmet needs in the ongoing COVID-19 pandemic response.
Precise knowledge of SARS-CoV-2 infection at the individual level can potentially inform clinical decision-making, whereas at the population
level, precise knowledge of prior infection, immunity, and attack rates (particularly asymptomatic infection) is needed to prioritize
risk management decision-making about social distancing, treatments, and vaccination (once the latter two become available). If saliva
can support measurements of both the presence of SARS-CoV-2 RNA26-28 as well as antibodies against SARS-CoV-2, this sample type could
provide an important opportunity to monitor individual and population-level SARS-CoV-2 transmission, infection, and immunity dynamics
over place and time.
We
anticipate there to be 3 different applications for the near future:
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Population
Screening - SARS-CoV-2 antibody testing is urgently needed to estimate the incidence and prevalence of SARS-CoV-2 infection at
the general population level. Precise knowledge of population immunity could allow government bodies to make informed decisions about
how and when to relax stay-at-home directives and to reopen the economy.
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Diagnosis
– The COV2 Biosensor test can be used as a complement to the (RNA) virus detection tests for patients presenting late after
symptoms onset to healthcare facilities and where virus detection tests are negative despite strong indications of infection. In
addition, they can potentially be used for informing the decision on discharge of patients who recovered from SARS-CoV-2 infection
but remain RNA-positive by RT-PCR for a long time after symptoms have subsided. The degree of protective immunity conferred by or
correlated with the antibodies detected in subjects with past SARS-CoV-2 infection is still under investigation. Once this is clarified,
the COV 2 antibody tests could be, together with the (RNA) direct virus detection, an essential tool in de-escalation strategies.
Currently antibody tests are used for sero-epidemiological surveys and studies.
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Post
vaccination screening - To assess the degree of the elicited potent antigen-specific antibody responses, to COV2 vaccines when
developed and administered to humans.
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We
believe our COVID test will have significant advantages and we anticipate it will be a ground-breaking development in the management
of COVID19.
Based
on a recent paper publicly available and authored by the team at Johns Hopkins Department of Environmental Health and Engineering, Bloomberg
School of Public Health, results indicate it is feasible to accurately measure the salivary IgG response to identify individuals with
a prior SARS-CoV-2 infection. A saliva-based approach could serve as a non-invasive approach for accurate and large-scale SARS-CoV-2
“sero”-surveillance.
A
saliva antibody test can greatly increase the scale of testing—particularly among susceptible populations—compared to blood
and could clarify population immunity and susceptibility to SARS-CoV-2. The team at John Hopkins further demonstrated in the laboratory
that when saliva was collected ≥10 days post symptom onset, the anti-SARS-CoV-2 IgG assay detects SARS-CoV-2 infection with 100% sensitivity
and 99% specificity. In addition, the team demonstrated that the temporal kinetics of SARS CoV-2-specific IgG responses in saliva are
consistent with those observed in serum and indicate that most individuals seroconvert approximately 10 days after COVID-19 symptom onset
or approximately two weeks post-presumed infection.
By
utilizing the biosensor platform for detecting COV2 we expect to have lower detection limits, improve on sensitivity and specificity
characteristics of current diagnostic methods, be able to provide real time results at the point of care and provide quantitative results
as opposed to negative or positive which is how other POCT report the results.
Accurate
and scalable point-of-care (POC) tests for the diagnosis of COVID-19 would increase the scope for diagnosis to be made in the community
and outside the laboratory setting They would have the potential to reduce the time to obtaining an actionable result, could support
early identification of those with COVID-19 and could also support appropriate use of isolation resources, infection control measures,
and recruitment into clinical trials of treatments.
Our
Products
Biosensor
Platform Technology
The
“Biosensor Platform” on which the SGB is based is a modified Organic Thin Film Transistor, or “OTFT,”
architecture. The basis OTFT structure consists of a source and drain electrode, a semiconducting layer, a gate electrode, an optional
separation (or dielectric) layer, all printed on a substrate material and superimposed by a polyelectrolyte membrane/enzyme layer onto
which the analyte is placed. The layered biosensor architecture and fabrication allows the recognition element within the biosensor to
be exchanged. The sensing principle for the COV2 Test is the same as the Salivary Glucose Test, amperometric: target biomolecules generate
an electrical current that is detected by the transistor. The major difference is that only the GOX layer is substituted with an alternative
layer containing a different recognition element, in this case the COV2 Protein that enables the detection of COV2 antibodies. The underlying
layers of the Organic Thin Film Transistor (OTFT) remain unchanged. Hence this significantly simplifies our development effort to make
a blood and saliva based COV2 diagnostic test.
Therefore,
the glucose oxidase (“GOX”) element of the biosensor used to detect glucose in the case of the SGB can be substituted with
antibodies specific to cancer biomarkers, immunological tests, hormones and other biomarkers.
The
Saliva Glucose Test
The
SGT consists of:
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The
SGB – a single use disposable saliva biosensor, and
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Software
app on a smart device or a dedicated reader that interfaces the SGB with our digital information system.
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The
Saliva Glucose Biosensor (SGB)
The
SGB was invented at the COE at the University of Newcastle, Australia. Patents for the SGB technology have been granted in the United
States (9,766,199) and China (ZL201380022888.2). The core innovative characteristic of the SGB is the sensitivity of the glucose biosensor
that enables it to detect glucose in saliva at concentrations between 8-200 µM and exhibits linear glucose sensing characteristics
at these concentrations, sensing glucose at levels 100 times lower than in blood.
The
SGB interacts with the glucose in the saliva and initiates an electrochemical reaction, producing an electrical signal directly correlated
to the amount of glucose present in the saliva. This measurement is then converted into a real-time saliva glucose reading, through the
software app installed on a smart device or a dedicated smart reader. The data may then be transferred to our digital information system
coupled with an artificial intelligence system, which will provide the patient with personalized healthcare advice enabling a practical
understanding of lifestyle factors that may affect their glucose levels.
The
SGB utilizes the GOX enzyme for signal generation. The enzyme acts on glucose, triggering a series of reactions that yields two protons
(i.e., electrical current) for each interaction with a substrate molecule. The biosensor therefore produces an electrical current (i.e.,
signal) that is proportional to the concentration of glucose in the sample. The GOX enzyme is well-suited for monitoring glucose levels
and it has been used extensively in commercially available products. Its mode of action, including the direct signal correlation with
the amount of glucose, has been reviewed in numerous scientific journal articles, including in Biosensors and Bioelectronics, International
Journal of Biochemistry & Cell Biology and Journal of Diabetes Science and Technology. Additional scientific journal articles
in Applied Physics Letters have described the biophysical characterization of the SGB and further support the claim that its signal
directly correlates with the glucose concentration in the sample.
The
direct correlation between glucose concentration and sensor signal is independent of the type of sample under examination (i.e., blood
or saliva). The use of saliva as a meaningful proxy for estimating blood glucose level is supported by extensive scientific literature
that has investigated the physiological glucose concentration in both biological fluids and overwhelmingly reported a strong correlation,
including in articles published in independent journals such as the Journal of Obesity, the Journal of International Oral Health,
the Journal of Clinical and Experimental Dentistry, the Journal of Oral Biology and Craniofacial Research, Diabetes & Metabolic
Syndrome, the Journal of Biological Regulators and Homeostatic Agents and Diabetologia, among others. However, a few isolated
articles have reported finding no significant correlation, including articles in the Journal of Clinical and Diagnostic Research
and the Journal of Oral Science. Overall, we believe there is abundant clinical evidence in independently reviewed scientific
literature that saliva can be utilized as a non-invasive alternative to blood to monitor glycemic status in diabetic patients.
The
basic OTFT structure consists of a source and drain electrode on a semiconducting material which is itself separated from a third gate
electrode by a thin insulating layer. The COE has pioneered the fabrication of these novel biosensors based on integrating biomolecules,
such as enzymes, directly into the architecture of organic transistors; producing electronic devices with both high sensitivity and high
specificity for the target analyte. In these biosensors, a molecular recognition element can simply be integrated directly into the device
structure, and in the case of the SGB, the recognition element is GOX.
High
quality OTFTs have been routinely fabricated at the materials node of the Australian National Fabrication Facility. The COE has pioneered
the fabrication of novel biosensors based on integrating biomolecules, such as enzymes, directly into the architecture of organic transistors;
producing electronic devices with both high sensitivity and high specificity for the target analyte and in this case, glucose.
The
development of an intermediate device that communicates to the smart device has been completed. The intermediate device emulates a glucometer,
providing the mechanical and electrical interfaces to receive and power the SGB as well as the required circuitry for accurately reading
the amperometric signals. We intend to transfer the responsibilities of the intermediate device to the SGB. A possible route to achieve
this technical aim is to leverage near-field-communication, or “NFC,” tags, available off the shelf and routinely
used in consumer electronics, to power the SGB and implement the communication protocol. NFC tags are compatible with flexible electronics
and widely used in “internet of things” applications in view of their low cost. We believe that NFC tags suitable for integration
with the SGB can be purchased for approximately $0.10 per tag, even at low volumes. The cost of electronic components is well known to
significantly reduce as volume increases. Due to the large expected volumes of the SGB, we believe it is reasonable to assume that the
cost of suitable NFC tags will be viable and less than $0.04.
The
Licensor owns patents in Australia, China and the United States protecting the following technological claims of the SGB: the architecture
of a biofunctional organic thin film transistor device comprising a gate electrode, a dielectric layer, a partially-organic semiconducting
layer, a source electrode, a drain electrode, a substrate and an enzyme; the method for producing the organic thin film transistor device;
and the method for determining the concentration of a compound in a sample by interpreting the amperometric signals generated by the
device. The Chinese and the United States patent belong to the same patent family, originating from the Australian patent. As such, all
of the patents relate to identical technology claims.
History
and Background of the Saliva Glucose Biosensor
The
SGB leverages the decades of history of all-polymer printed OTFTs. Through the research conducted at COE, this OTFT technology has been
transformed into a medical device and expected to conform to the highest medical device standards globally. The SGB is based on a modified
OTFT architecture incorporating GOX as the recognition element. It has been demonstrated that the SGB exhibits linear glucose sensing
at concentrations of 8-200 µM (micro molar) offering a saliva-based test for diabetic monitoring and diagnosis.
Fundamentals
of the biosensor technology have been well-characterized and have deep scientific foundations. Since their invention in 1947, transistors
have dominated the mainstream microelectronics industry. Field Effect Transistors, or “FETs,” are a class of transistor
in which the current between a pair of source and drain electrodes separated by a semiconductor is controlled by a voltage applied to
a third electrode known as the gate. The gate electrode is separated from the source-drain region by a thin (~100 nm) insulating dielectric
region and thus is coupled to the semiconductor. By altering the bias voltage applied to the gate region, the source-drain region can
be altered from conducting to insulating and thus the device can be turned on or off. Importantly, the presence of a relatively small
number of charges on the gate electrode alters the flow of a great many charges between the source and drain electrodes. Accordingly,
the FET acts as a switch as well as an amplifier.
The
SGB integrates another scientific discovery known as organic electronic polymers. This work, which was conducted in the 1970s, focused
on the development of doped polyacetylene. Historically conductive polymers can also be traced back to the early 1960s. Conductive polymers
have several advantages over other organic conductors with regard to their processability and hence their use is becoming increasingly
widespread. The polymers that show the most promise in this area are based on the polythiophene structure. The flexible nature of these
polymers allows them to be processed into almost any desired shape or form, making them attractive for the low-cost production of flexible
electronic circuits, such as FETs.
The
first demonstrated combination of FETs and organic electronic polymers was in the solid-state OTFT developed in 1986 using polythiophene
(an organic electronic polymer) as the semi-conducting layer, with a similar device being reported in 1988. The performance of OTFTs
in comparison with conventional silicon-based transistors has been considered encouraging and they have already been used in applications
in logic circuits or as the driving elements in active matrix displays. Biosensor fabrication based on organic electronics is also well-established,
primarily driven by the appealing features offered by these materials such as flexible and adjustable chemical properties, and room temperature
operation.
One
of the most attractive features of organic electronics is the potential for flexible low-cost fabrication. A common feature of early
OTFTs was the use of silicon as the substrate material, and thus since these hybrid devices are not truly all-polymer-based they do not
offer all the advantages with respect to fabrication. In the world of sensors, the vast majority of previous scientific research and
subsequent technological implementation of organic sensors has involved electrochemically grown films exhibiting performance levels that
are, in most cases, inadequate for real applications. Solution-processed polymers, on the other hand, offer the greatest potential for
the fabrication of low-cost electronics since they can be easily processed as liquids, unlike the organic crystals and short chain oligomers
which are typically vapor deposited. Combining these unique material properties with low-cost techniques, such as ink-jet or reel-to-reel
printing, offers the ability to rapidly produce disposable printed electronic circuits.
The
first all-polymer printed OTFT was reported in 1994. OTFTs are an exciting class of devices within the organic electronics field. The
prospect of low cost organic electronic modules incorporating OTFTs fabricated at low temperatures using low energy techniques is very
attractive. Low temperature solution-based processes, such as ink-jet printing, allow for compatibility with flexible substrates, upon
which it would be impossible to fabricate conventional electronics. In addition, conducting polymers can be synthesized in a laboratory
without using rare or expensive materials.
Other
Tests Based on the Biosensor Platform
As
discussed above, the architecture of the Biosensor Platform allows the recognition element of the biosensor to be exchanged. Accordingly,
the GOX element used to detect glucose in the case of the SGB can be substituted with antibodies specific to SARS-CoV-2, cancer biomarkers,
immunological tests, hormones and other biomarkers. The substitute recognition element will generate an electrical current signal that
is detected in a manner identical to the SGB. Given the underlying sensing mechanism is unaltered, we believe the technical risk associated
with the development of other tests for biomarkers other than glucose is considered to be relatively low.
Performance
Testing, Current State of Development and Next Steps
Preliminary
Analytical Performance Testing
Regulatory
Approval COV2 Test (“COV2T”)
For
the COV2T we intend to use the section 564 of the Federal Food, Drug and Cosmetic (FD&C) Act, that there is a public health emergency
that has a significant potential to affect national security or the health and security of United States citizens living abroad, and
that involves a novel (new) coronavirus (nCoV) first detected in Wuhan City, Hubei Province, China in 2019 (2019-nCoV). The virus is
now named severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), which causes the disease COVID-19.
On
the basis of this determination, the Secretary of HHS has subsequently declared that circumstances exist justifying the Emergency Use
Authorization (“EUA”) of in vitro diagnostics for the detection and/or diagnosis of COVID-19 (February 4, 2020), personal
respiratory protective devices (March 2, 2020), and other medical devices, including alternative products used as medical devices (March
24, 2020), for use during the COVID-19 outbreak pursuant to section 564 of the Act and subject to the terms of any authorization issued
under that section.
The
criteria for issuance of EUA are the following:
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Serious
or life-threatening disease
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Evidence
of effectiveness the “may be effective” standard for EUAs provides for a lower level of evidence than the “effectiveness”
standard that FDA uses for product approvals. FDA intends to assess the potential effectiveness of a possible EUA product on a case-by-case
basis using a risk-benefit analysis, If, based on the totality of the scientific evidence available, it is reasonable to believe
that the product may be effective for the specified use, FDA may authorize its emergency use, provided that other statutory criteria
for issuing an EUA also are met.
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Commercialization
It
is the company’s intent to introduce and launch the test globally, through assignment of a sublicense and or distributors agreements.
The development path will follow the geographical regulatory path, beginning by the North American Markets. The Saliva Glucose Biosensor
has been designed and developed to meet the ISO 15197:2013 standard and we intend to seek regulatory approval under the specifications
of this standard. The research team at the University of Newcastle, in order to benchmark the performance of the biosensor prototype
systems, compared it with the partial requirements of the ISO standard ISO 15197:2013. This standard dictates the analytical standards
and performance evaluation of a blood-glucose monitoring system for self-testing in managing diabetes mellitus. The standard dictates
that at least 95 % of results for a given system have to be within ± 15 mg/dL at glucose concentrations less than 100 mg/dL and
within ± 15 % at glucose concentrations greater than or equal to 100 mg/dL. Artificial saliva was prepared based on the most widely
used Fusayama Meyer solution consisting of 11 different glucose concentrations of 0, 0.18, 0.36, 0.9, 1.8, 3.6, 9.01, 18.02, 36.04, 90.1,
180.2 mg/dL. Only the first seven concentrations are clinically relevant in saliva (0 – 9.01 mg/dL)3. However, at this stage of
product development we wanted to assess the dynamic range of the biosensor to 20-fold of the upper physiological range (9.01 mg/dL)3.
The concentration range of greater than 9.01-180.2 mg/dL is not clinically relevant criteria for glucose in saliva. The results of the
116 prototype biosensors that were assessed for precision and accuracy by implementing the ISO standard. In conclusion, from the 116
devices assessed 110 devices (94.8 %) met the blood glucose ISO standard in relation to the adapted system accuracy (i.e. 95 % of the
measured results must fall within ± 15 mg/dL at glucose concentrations less than 100 mg/dL).
We
believe the deficiency of the 6 prototype devices that failed to meet the ISO standard is attributable to the previously non-validated
manual printing process of the biosensors, rather than a biosensor technology deficiency. Currently the biosensor is in the process of
transferring to a quality-controlled pilot production phase , standardizing the automated processes, and characterization procedures
which will eliminate such manufacturing deviations in the released biosensor product format. Regardless, 110 prototype sensors in this
test performed at a level to allow compliance with the ISO standard. It is important to note that the ISO standard references blood glucose
monitors rather than salivary glucose monitors so a direct application of the standard here is not entirely practical.
Manufacturing
The
facilities required for the fabrication of these OTFT devices are all in place at the Australian National Fabrication Facility, which
we have used for fabrication and testing. These facilities are being extensively used, and we anticipate they can also be used for
initial manufacturing and charged under a cost recovery basis.
We have received approval for $4.7 million
(excluding GST/VAT) million Medical Products Priority Grant funding by the Australian Government as contributions towards the
establishment of a high-tech manufacturing facility in Australia. Amounts will be paid under this grant upon GBS in achieving
certain deliverables.
Inherent
in the manufacturing process is a separate calibration process that is batch dependent and ensures analytical performance quality control.
Further to this an authenticity validation process verifies that the biosensor is authentic or otherwise flags a device.
Distribution
We
intend, assuming the completion of development and regulatory approval, to market and distribute the SGT in the APAC Region. We propose
to enter into arrangements with distributors to market and sell the SGB. We have entered into an agreement in principle with a medical
affairs commercialization company to drive prelaunch activity with the scope to create awareness and build “share of voice”
with local referring physicians, diabetes educators, patient associations, government organizations and general practitioners. We also
recently entered into non-binding memoranda of understanding with two large distributors in China, which express our intent to enter
into definitive agreements to collaborate on the manufacture, regulatory approval, and distribution and sale of, and the medical affairs,
marketing, and identification of strategic opportunities for, the SGB in China. We have engaged L.E.K Consulting to assist in
expanding the scope of commercial partners.
Our
strategy will depend in part on finding qualified distributors for the marketing and sale of our products. We will work with these distributors
to market our products. These distributors typically would sell a variety of other, non-competing products and will be expected to devote
certain resources to selling the SGB. We expect to devote suitable time and effort to recruiting and retaining qualified third-party
distributors and training them in our technology and product offering. We plan to adopt a multiple channel strategy to balance the marketing
and sales efforts.
The
Glucose Monitoring Industry
The
Self-Monitoring of Blood Glucose
Self-Monitoring
of blood glucose is the main approach for glucose monitoring and has been used for over 40 years. Currently, self-monitoring of blood
glucose is conducted periodically by the patient using a blood glucose measuring device. Blood glucometers require pricking a finger
with a lancet and applying a drop of blood on the test strip. The test strip is then inserted into the device which provides a reading
of glucose level in blood. Test strips are supplied by the glucometer manufacturer and are generally device-specific, although generic
test strips are also available. There are more than 100 types of blood glucometers currently are commercially available and they differentiate
based on size and weight, cost, data storage capacity, test accuracy, blood sample size and screen visibility (users with poor eyesight
may prefer larger screens).
Continuous
Glucose Monitoring
Continuous
glucose monitoring is not an alternative to finger prick self-monitoring of blood glucose. Only one system to date has been deemed of
equivalent use “as an aid to monitor the effectiveness of diabetes control” or non-adjunctive use. The procedure is invasive
and involves the insertion of a glucose biosensor into the subcutaneous tissue layer or the hypodermis. The biosensor, which measures
glucose levels in interstitial fluid, is attached to a transmitter that sends signals to either an insulin pump or a portable meter.
These devices are generally worn for about one week and require regular calibration through conventional blood glucose detection, about
twice a day. While the accuracy of these devices has been an issue, it has improved in recent years. Continuous glucose monitoring can
track a patients’ glucose throughout the day and night, notifying the patient of highs and lows so the person can act. Subcutaneous
glucose levels change more slowly than plasma glucose, which can be a restriction to their effectiveness, particularly if glucose levels
are changing rapidly. Subcutaneous glucose levels have a time lag compared to blood glucose measurements, and measurements may not always
match blood glucose. Continuous glucose monitoring is commonly used in conjunction with continuous subcutaneous insulin infusion, or
“CSII,” which involves a patient wearing an insulin pump and infusion set that infuses insulin into the body. Although
pumps are currently manually controlled by the patient, continuous glucose monitoring combined with CSII could potentially be used as
part of a closed-loop. CSII is generally restricted to Type 1 diabetics, where the need for ongoing insulin infusion is highest. Continuous
glucose monitoring is mainly used in a limited proportion of diabetics, particularly those concerned about severe, nocturnal hypoglycemia,
pregnant women who require meticulous glucose control or those who may not be able to easily administer a self-monitoring test (e.g.,
those living in remote or hostile environments). However, continuous glucose monitoring is more expensive than traditional self-monitoring
of blood glucose and in many cases is not eligible for reimbursement.
Importance
of Glucose Monitoring
One
of the main aims of diabetes monitoring and management is to maintain blood glucose levels within a specified target range. Self-monitoring
of blood glucose should be part of a regular management plan for patients with diabetes to enable this. Self-monitoring provides information
regarding an individual’s dynamic blood glucose profile. This information can help with the appropriate scheduling of food, activity,
and medication. It is also required for understanding of the timing of blood glucose variations. Lack of regular self-monitoring predicts
hospitalization for diabetes-related complications. Self-monitoring of blood glucose is an essential tool for people with diabetes who
are taking insulin or for those who experience fluctuations in their blood glucose levels, especially hypoglycemia. For patients taking
insulin and adjusting their dose, self-monitoring is needed for self-management. For others receiving oral medication, profiling glucose
trends and the confirmation of high or low blood glucose can be a useful addendum to successful management.
Self-monitoring
of blood glucose aids the management of diabetes by:
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facilitating
the development of an individualized blood glucose profile, which can then guide health care professionals in treatment planning
for an individualized diabetic regimen;
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giving
people with diabetes and their families the ability to make appropriate day-to-day treatment choices in diet and physical activity
as well as administration of insulin or other agents;
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improving
patients’ recognition of hypoglycemia or severe hyperglycemia; and
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enhancing
patient education and patient empowerment regarding the effects of lifestyle and pharmaceutical intervention on glycemic control.
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The
role of blood glucose control in preventing the development and progression of complications has been proven in both type 1 and type
2 diabetes, with an especially strong relationship between intensive blood glucose control and complications such as neuropathy (affecting
limbs) and diabetic retinopathy (leading to blindness).
Over
time, glucose measurements are expected to provide the patient and their health care professionals with the information and insights
required to determine the best management strategy for diabetes, potentially minimizing the fluctuations in their glucose levels and
resulting in better health outcomes.
The
role of blood glucose monitoring and control in preventing the development and progression of diabetes complications has been well established.
Studies show that those who properly monitored blood glucose levels had better health outcomes (such as reduced complications of diabetes)
compared to those who did not.
For
a person with diabetes, however, this daily process is not only painful but can be exhausting, disruptive, frustrating, frightening and
consuming, which often leads to poor compliance and poor health outcomes. People with diabetes have reported that stigma is a significant
concern to them. This causes tension and anxiety and, because the procedure is perceived as inconvenient and difficult, leads to suboptimal
monitoring and poor adherence. Many people with diabetes do not test as often as clinically recommended, increasing the risk of complications.
Technology
License Agreement
On
June 23, 2020, we entered into a certain Technology License Agreement, or the “License Agreement,” with Life Science Biosensor
Diagnostics Pty Ltd, (“LSBD” or “Licensor”). The Licensor owns 42.6% of our outstanding common
stock (by voting rights) as of June 30, 2021.
The
License Agreement sets forth our contractual rights and responsibilities relating to the Licensed Products. The “Licensed Products”
include: (i) a biosensor strip for antibodies against SARS-CoV-2; (ii) a proprietary smartphone application for the purpose reading,
storing, analyzing and providing patient support programs for any one or more of the Indicators for the purpose of measuring the amount
or concentration of immunoglobulins (IgG, IgM, IgA) specific to severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2); and/or
(iii) a dedicated sensor strip reading device for any one or more of the Indicators for the purpose of measuring the amount or concentration
of immunoglobulins (IgG, IgM, IgA) specific to severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).
An
“Authorized Supplier” includes us, the Licensor, any of our affiliates or any affiliates of the Licensor, or any third party
manufacturer and/or reseller that the Licensor has expressly identified or approved in advance in writing for the purpose of quality
control for the supply of Licensed Products to us.
Pursuant
to the License Agreement, the Licensor granted to us an exclusive license to the Licensor’s proprietary rights to the biosensor
technology used in the Licensed Products, worldwide and solely to:
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act
as the authorized party for the purpose of prosecuting the application of, and obtaining any, regulatory approval for the Licensed
Product, including being authorized to prosecute the approval for an investigational device required for the purpose of carrying
out clinical studies;
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manufacture,
promote, market, import, offer, sell and distribute the Licensed Products;
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provide
reasonable customer support services on the use of the Licensed Products to end users of, and health care practitioners referring
end users to, the Licensed Products;
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use
the Licensed Products only for the purposes identified and permitted pursuant to regulatory approval; and
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collect
data acquired from the Licensed Products.
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We
are required to collect and anonymize demographic information about the end users of the Licensed Products and data acquired from the
Licensed Products. While the anonymized data will be owned by the Licensor, we will own during the term of the License Agreement the
personally identifiable data, including health data, collected by us. In addition, the Licensor will provide us with certain of the data
acquired from the Licensed Products. The demographic information and personally identifiable information will be used, following patient
consent, as a disease management tool to offer patients value-added services, i.e., personalized education services for lifestyle, diet
and glucose management. These services will be in accordance with the applicable local medical codes and regulatory environment. The
use of such consensual information will be in accordance with privacy laws of the relevant countries and territories.
The
license is non-transferable, non-assignable and non-sublicensable, except that the Licensor will in good faith consider any request by
us for any sublicense.
Commencing
after the receipt of regulatory approval in a jurisdiction, and the earning of revenue we will be required to pay the Licensor a minimum
royalty fee with respect to such jurisdiction for each year, or the “Minimum Royalty,” in four equal quarterly installments.
The Minimum Royalty will be 13% of the projected net sales in such jurisdiction for each such year. The projected net sales will be an
amount mutually agreed between us and the Licensor for the first such year. For each ensuing year after the first year, the projected
net sales will be the number of Licensed Products sold in such jurisdiction in the prior year, as adjusted for the mutually agreed expected
market growth. In addition to the expected market growth, there will be an additional growth rate percentage of 7% for each year through
the tenth year. In the event of a dispute between us and the Licensor regarding the determination of the expected market growth or the
additional growth percentage, the License Agreement provides for resolution by an independent third party. At the end of each quarter,
if the quarterly installment of the Minimum Royalty is less than 13% of the actual net sales of Licensed Products in such jurisdiction
for such quarter, or the “Actual Royalty,” we will pay Licensor the difference between the quarterly installment of the Minimum
Royalty and the Actual Royalty. The royalty fee rate will be reduced from 13% to 3% upon the expiration of the patent portfolio covered
by the License Agreement.
As
between us and the Licensor, the Licensor solely owns all right, title and interest to, among other items of intellectual property, the
biosensor technology (including any improvements made to the biosensor technology by us), the anonymized data collected by us and any
other technology of the Licensor, and all derivations based on, and all proprietary rights in, the foregoing. The Licensor will have
the right to decide whether to protect or enforce, and the right to control any action relating to the protection and enforcement of,
any of the foregoing intellectual property and proprietary rights.
There
is no set expiration date for the License Agreement. However, the exclusivity of the license granted under the License Agreement runs
until the expiration of the patent portfolio covered by the License Agreement, which is currently until 2033. We expect that the patent
portfolio will be extended as new patents are created throughout product development, thereby extending the exclusivity of the License
Agreement. For instance, we expect to seek additional patents in connection with the development of the Prostate Specific Antigen test,
the Peanut Kernel Allergen test and the Luteinizing Hormone test. The License Agreement may be terminated by us in the event of a material
breach by the Licensor, if the Licensor does not cure the breach within 30 days after receiving notice of the breach; or in the event
the Licensor discontinues its business operations or in the case of certain events related to insolvency or bankruptcy. The License Agreement
also may be terminated by us at any time after the tenth anniversary of the License Agreement upon 180 days’ prior written notice.
On
March 31, 2021, the Company, entered into an Option Agreement with LSBD and BiosensX (North America) Inc. (“BIOX”). Under the terms of this
Option Agreement, LSBD granted to the Company an exclusive option (the “Option”) to purchase an exclusive license to use,
make, sell and offer to sell products under the intellectual property rights in connection with the Biosensor technology the glucose/diabetes
management field in the United States, Mexico and Canada (the “NA Territory”). The Company is entitled to exercise this Option
at any time during the 2-year term from the effective date of the Option Agreement by paying the option fee in the amount of $5 million
to LSBD at the time of the option exercise. Upon such exercise, (i) LSBD and BIOX will promptly terminate their respective agreement
with respect to the NA Territory, and (ii) LSBD and the Company will promptly enter into a license agreement pursuant to which LSBD will
grant an exclusive license (with the right to sublicense) to the Company, substantially on the same set of terms as the LSBD-BIOX license
agreement currently in place, provided that the license agreement between LSBD and the Company will also contain a commercialization
milestone payment to the LSBD for the equivalent of 5 years’ of royalties based upon agreed maintainable sales due 90 days from
the end of the first royalty year. The terms and provisions of the foregoing transaction have been reviewed and approved by the Company’s
Board of Directors and the Audit Committee of the Board.
Intellectual
Property
Our
business depends on the proprietary biosensor technologies licensed by us from the Licensor. The Licensor has secured and continues to
pursue intellectual property rights related to this technology in China, the United States and other countries. The original patent application,
which claims a priority date of March 2012, has been granted in the United States (9,766,199) and China (ZL201380022888.2). A second
international patent application (PCT/AU2016/050555) claiming iterations to the device design has been filed with a priority date of
June 2016 and will soon enter national phase in certain jurisdictions, and further patent applications are in preparation. The patents
protect the following technological claims of the SGB: the architecture of a biofunctional organic thin film transistor device comprising
a gate electrode, a dielectric layer, a partially-organic semiconducting layer, a source electrode, a drain electrode, a substrate and
an enzyme; the method for producing the organic thin film transistor device; and the method for determining the concentration of a compound
in a sample by interpreting the amperometric signals generated by the device. The Chinese and the United States patent belong to the
same patent family, originating from the Australian patent. As such, all of the patents relate to identical technology claims.
We
believe that the Licensor intends to aggressively prosecute these patent applications and file further applications, as appropriate,
to protect the proprietary biosensor technologies, including improvements thereon, in the United States as well as in the APAC Region,
and to take any necessary action to maintain and enforce its patent and other intellectual property rights. There can be no assurance,
however, that the Licensor will take such actions, and under the License Agreement, we have no right to compel them to do so. If the
Licensor elects not to protect or enforce its intellectual property rights, we would be permitted take action to protect or enforce these
rights in the APAC Region, but any such action would be at our cost and expense.
We
intend to vigorously protect our intellectual property rights in any technologies owned by us through patents and copyrights, as available
through registration in the United States and internationally. We also will rely upon trade secrets, know-how, and continuing technological
innovation to develop and maintain our competitive position. We intend to protect any of our proprietary rights through a variety of
methods, including confidentiality agreements and/or proprietary information agreements with suppliers, employees, consultants, independent
contractors and other entities who may have access to proprietary information. We will generally require employees to assign patents
and other intellectual property to us as a condition of employment with us. All of our consulting agreements will pre-emptively assign
to us all new and improved intellectual property that arise during the term of the agreement. In addition, we may license additional
technologies from the Licensor or third parties. Prior to any further acquisition or licensing of technology from a third party, we will
evaluate the existing proprietary rights, our ability to obtain and protect these rights, and the likelihood or possibility of infringement
upon competing rights of others.
The
issuance of a patent does not ensure that it is valid or enforceable. The term of individual patents depends upon the legal term of the
patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest
date of filing a non-provisional patent application. In the United States, a patent’s term may be shortened if a patent is terminally
disclaimed over another patent or as a result of delays in patent prosecution by the patentee, and a patent’s term may be lengthened
by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office in
granting a patent.
We
conduct our business using the licensed trademark “Glucose Biosensor” and our logo, as well as domain names incorporating
either or both of these trademarks. Our trademarks are not registered. We own the domain name glucosebiosensor.com.
Competition
The
medical device industry is highly competitive, subject to rapid change and significantly affected by new product introductions and other
activities of industry participants. We face potential competition from major medical device companies worldwide, many of which have
longer, more established operating histories, and significantly greater financial, technical, marketing, sales, distribution, and other
resources. Our overall competitive position is dependent upon a number of factors, including product performance and reliability, connectivity,
manufacturing cost, and customer support.
The
glucose monitoring industry currently is dominated by blood glucometers that require pricking a finger with a lancet and applying a drop
of blood on a test strip. Our major competitors for glucose testing solutions include Bayer, Abbott, and Roche.
Government
Regulation
We
operate in a highly regulated industry. Our present and future business has been, and will continue to be, subject to a variety of laws
globally regarding quality, safety and efficacy, and governing, among other things, clinical evaluations, marketing authorization, commercial
sales and distribution of our products.
Internationally,
various regulatory bodies monitor and supervise the administration of pharmaceutical products, as well as medical devices and equipment.
Their primary responsibilities include evaluating, registering and approving new drugs, generic drugs and imported drugs; approving and
issuing permits for the manufacture, export and import of pharmaceutical products and medical appliances; approving the establishment
of enterprises for pharmaceutical manufacture and distribution; formulating administrative rules and policies concerning the supervision
and administration of food, cosmetics and pharmaceuticals; and handling significant accidents involving these products.
We
also will be subject to numerous post-marketing regulatory requirements, which may include labeling regulations and medical device reporting
regulations, and which may require us to report to different regulatory agencies if our device causes or contributes to a death or serious
injury, or malfunctions in a way that would likely cause or contribute to a death or serious injury. We may be subject to further regulations
in the areas of import and export restrictions and tariff regulations, duties and tax requirements. In addition, these regulatory requirements
may change in the future.
Employees
In
the past, we have utilized for our benefit certain employees of the Licensor, our largest stockholder. We have not incurred or
accrued any financial or other obligations other than certain shared corporate overhead as required in connection with this utilization.
We have reimbursed the Licensor for any costs the Licensor incurs on our behalf.
Recently,
in anticipation of product commercialization, we have expanded our team. We currently have seven full time employees and two part-time
employees. We also rely on the services of contractors, collaborators and consultants. We have assembled an outstanding team of 14 people,
including our 9 employees, our scientific advisory board and personnel at the University of Newcastle through a collaboration with the
institution, to execute on our mission to create next generation non-invasive diagnostic tools to help patients suffering with diabetes.
From time to time, we also contract for various administrative and other services from our largest stockholder. the Licensor,
as required. Our employees, including our management, have extensive experience in the research, development and commercialization of
life science assets and are leaders in their respective fields.
Our
team, including our employees, contractors and collaborators, comprises multiple cross-functional units, including strategy, project
management, technical engineering, manufacturing and supply chain, and quality assurance, legal and compliance, regulatory affairs, clinical
affairs, product management & marketing, systems engineering, human resources, IT, investor relations, and finance. We believe our
team collectively possesses industry leading capabilities and positions us to build a strong life science company focused on developing
next generation non-invasive diagnostic tools for the tens of millions of diabetes patients worldwide.
Initial
public offering
On
December 28, 2020, the Company closed its initial public offering (“IPO”) and sold 1,270,589 units, consisting of (a) one
share of the Company’s common stock (or, at the purchaser’s election, one share of Series B Convertible Preferred Stock),
(b) one Series A warrant (the “Series A Warrants”) to purchase one share of the Company’s common stock at an exercise
price equal to $8.50 per share, exercisable until the fifth anniversary of the issuance date, and (c) one Series B warrant (the “Series
B Warrants”) to purchase one share of the Company’s common stock at an exercise price equal to $17.00 per share, exercisable
until the fifth anniversary of the issuance date and subject to certain adjustment and cashless exercise provisions. The public offering
price of the shares sold in the IPO was $17.00 per unit. In aggregate, the units issued in the offering generated $17,732,448 in net
proceeds, which amount is net of $1,714,001 in underwriters’ discount and commissions, and $2,153,564 in offering costs. Offering
costs include underwriters’ warrants to acquire up to 63,529 shares with an exercise price of $18.70 per share, exercisable until
the fifth anniversary of the issuance date. The Company also issued to the underwriter an option, exercisable one or more times in whole
or in part to purchase up to 190,588 additional shares of common stock and/or Series A Warrants to purchase up to an aggregate of 190,588
shares of common stock and/or Series B Warrants to purchase up to an aggregate of 190,588 shares of common stock, in any combinations
thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date
of the IPO to cover over-allotments, if any (the “Over-Allotment Option”).
Upon
the closing of the IPO, all shares of preferred stock then outstanding were automatically converted into 2,810,190 shares of common stock,
and all convertible notes then outstanding were automatically converted into 710,548 shares of common stock.
Pre-IPO
preferred shareholders were issued warrants following the Company’s completed IPO, that allow the holders to acquire 2,736,675
shares of common stock at the IPO price during year two through to year three following the completion of the IPO. At exercise date,
the shareholder must hold, for each warrant to be exercised, the underlying common share to exercise the warrant. The warrants are not
transferable and apply to the number of shares that were subscribed for.
Access
to Information
Our
website is at www.gbs.inc we make available, free of charge, on our corporate website, our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after they are electronically
filed with the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site that contains reports, proxy
and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. Information
contained on our website does not, and shall not be deemed to, constitute part of this Annual Report on Form 10-K. Our reference to the
URL for our website is intended to be an inactive textual reference only.
ITEM
1A. RISK FACTORS.
Our
business is subject to a number of risks. You should carefully consider the following risk factors, together with all of the other information
included or incorporated by reference in this report, before you decide whether to purchase our common stock. These factors are not intended
to represent a complete list of the general or specific risks that may affect us. It should be recognized that other risks may be significant,
presently or in the future, and the risks set forth below may affect us to a greater extent than indicated. If any of the following risks
occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you many lose all or part of your investment.
Forward-looking
statements in this document and those we make from time to time through our senior management are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking statements concerning the expected future revenue or earnings
or concerning projected plans, performance, or development of products and services, as well as other estimates related to future operations
are necessarily only estimates of future results. We cannot assure you that actual results will not materially differ from expectations.
Forward-looking statements represent our current expectations and are inherently uncertain. We do not undertake any obligation to update
forward-looking statements.
Summary
of Risk Factors
The
summary below provides a non-exhaustive overview of the risks that if realized could materially harm our business, prospects, operating
results and financial condition. This summary is qualified by reference to the full set of risk factors set forth in this Item.
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COVID-19 may impact our operations.
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We have incurred significant losses since inception and may not be able to achieve significant revenues or profitability.
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Given our lack of revenue and our negative cash flow, we may need to raise additional capital, which may be unavailable to us or,
even if consummated, may cause dilution or place significant restrictions on our ability to operate.
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The License Agreement with the Licensor, our largest stockholder, which covers the license of the core technology used in our
products, contains significant risks that may threaten our viability or otherwise have a material adverse effect on us and our business,
assets and its prospects.
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Neither we nor the Licensor have yet launched the COV2T or the SGT and the ability to do so will depend on the acceptance of the
COV2T and/or the SGT in the Global healthcare market.
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If the COV2T and/or SGT fails to satisfy current or future customer requirements, we may be required to make significant
expenditures to redesign the product candidate, and we may have insufficient resources to do so.
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Initially, we expect to derive a significant proportion of our revenues from the COV2 test (“COV2T”) and the underlying
Biosensor Platform technology.
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We have yet to finalize the manufacturing plan for the production of the COV2T nor the SGT and its components on a mass market
commercial scale, and may be dependent upon third-party manufacturers and suppliers, making us vulnerable to contractual
relationships and market forces, supply shortages and problems and price fluctuations, which could harm our business.
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If third-party payors do not provide coverage and reimbursement for the use of the COV2T and/or SGT, our business and prospects may
be negatively impacted.
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Non-United States governments often impose strict price controls, which may adversely affect our future profitability.
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The COV2T and/or SGT, including its software and systems, may contain undetected errors, which could limit our ability to provide
our products and services and diminish the attractiveness of our service offerings.
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If we are not able to attract and retain highly skilled managerial, scientific and technical personnel, we may not be able to
implement our business model successfully.
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Product liability suits, whether or not meritorious, could be brought against us due to an alleged defective product or for the
misuse of the COV2T and/or SGT. These suits could result in expensive and time-consuming litigation, payment of substantial damages,
and an increase in our insurance rates.
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We are party to agreements pursuant to which we may be required to make payments to certain of our affiliates, which may reduce our
cash flow and profits.
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The regulatory approval process which we may be required to navigate may be expensive, time-consuming, and uncertain and may prevent
us from obtaining clearance for the product launch of the SGT or our any future product.
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Clinical data obtained subsequent to the implementation of the clinical evidence module may not meet the required objectives, which
could delay, limit or prevent additional regulatory approval.
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We may be unable to complete required clinical evaluations, or we may experience significant delays in completing such clinical
evaluations, which could prevent or significantly delay our targeted product launch timeframe and impair our viability and business
plan.
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We are subject to the risk of reliance on third parties to conduct our clinical evaluation work.
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We depend on intellectual property licensed from the Licensor, and any absence of legal effect of the license or dispute over the
license would significantly harm our business.
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The Licensor has limited foreign intellectual property rights and may not be able to protect its intellectual property
rights.
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We and the Licensor may be subject to claims challenging the invention of the intellectual property that we license from the
Licensor.
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We face intense competition in the self-monitoring of glucose market, particularly blood-based products, and as a result we may be
unable to effectively compete in our industry.
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The medical device and other medical product industries in the APAC Region generally are highly regulated and such regulations are
subject to change.
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We are subject to laws and regulations governing business conduct, which will require us to develop and implement costly compliance
programs.
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Our customers for the Saliva Glucose Test initially may be concentrated in China; in which case we may be susceptible to risks
specifically associated with business activities in China.
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We may not be able to satisfy the continued listing requirements of the NASDAQ Global Market in order to maintain the listing of our
common stock.
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There is no public market for the Series B Convertible Preferred Stock and an active trading market for the same is not expected to
develop.
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LSBD, our largest stockholder, may exert significant influence over our affairs, including the outcome of matters requiring stockholder
approval.
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We are obligated to develop and maintain a system of effective internal control over financial reporting. We may not complete our
analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be
effective, which may harm investor confidence in our company and, as a result, the value of our common stock.
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We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial
time to new compliance initiatives and corporate governance practices. Moreover, our ability to comply with all applicable laws,
rules and regulations is uncertain given our management’s relative inexperience with operating United States public
companies.
Risks
Related to Our Business
COVID-19
may impact our operations.
On
January 30, 2020, the International Health Regulations Emergency Committee of the World Health Organization (WHO) declared the COVID-19
coronavirus outbreak a public health emergency of international concern and on March 10, 2020, declared it to be a pandemic. Actions
taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas,
and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have
had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical
area in which we operate. Although COVID-19 has begun to show signs of stabilization in certain regions, the potential impact brought
by and the duration of the COVID-19 outbreak is difficult to assess or predict and the full impact of the virus on our operations will
depend on many factors beyond our control. For instance, our business operations may be adversely affected if global economies continue
to be affected by COVID-19. While it is unknown how long these conditions will last and what the complete financial effect will be to
our company, we are closely monitoring its impact on us. Our business, results of operations, financial conditions and prospects could
be materially adversely affected to the extent that COVID-19 harms the global economy in general, and the trading price of our stock
may be adversely affected. In addition, the Company expects the impact of COVID-19 on the Company’s capital and financial resources
to be minimal. Its ability to raise money from the capital market by issuing equity may be adversely affected by the pandemic, and the
cost of capital will likely be higher. The Company does not expect any material impairments as a result of the impact by COVID-19 pandemic.
While the Company has not experienced challenges in implementing its business plans in the near-term, or requiring material expenditures
to do so, if the pandemic continues and/or there is a second wave of COVID-19, the Company is likely to need more expenditures to sustain
its operations.
We
are subject to the risks associated with new businesses.
We
were formed in December 2016 as a new business with a plan to commercialize our licensed technology. Our limited operating history may
not be adequate to enable you to fully assess our ability to develop and market the SGT and other tests based on the Biosensor Platform,
achieve market acceptance of the COV2 Test (“COV2T”) and/or SGT and such other tests and respond to competition. Our efforts
to date have related to the organization and formation of our company, strategic planning, product research and development and preparation
for commencing regulatory trials and have depended on support from the Licensor and its affiliates. We have not yet generated revenue,
and we cannot guarantee we will ever be able to generate revenues. Therefore, we are, and expect for the foreseeable future to be, subject
to all the risks and uncertainties, inherent in a new business focused on the development and sale of new medical devices and related
software applications. As a result, we may be unable to further develop, obtain regulatory approval for, manufacture, market, sell and
derive revenues from the COV2 Test (“COV2T”) and/or SGT and the other products in our pipeline based on the Biosensor Platform,
and our inability to do so would materially and adversely impact our viability. In addition, we still must optimize many functions necessary
to operate a business, including expanding our managerial, personnel and administrative structure, continuing product research and development,
and assessing and commencing our marketing activities.
Accordingly,
you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies that
have not yet commercialized their products or services, particularly those in the medical device and digital heath fields. In particular,
potential investors should consider that there is a significant risk that we will not be able to:
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implement
or execute our current business plan, or that our business plan is sound;
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maintain
our management team and Board of Directors;
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determine
that the technologies that have been developed are commercially viable;
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attract,
enter into or maintain contracts with, and retain customers; and
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raise
any necessary additional funds in the capital markets or otherwise to effectuate our business plan.
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In
the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could
be materially and adversely affected.
We
have incurred significant losses since inception and may not be able to achieve significant revenues or profitability.
Since
our inception, we have engaged primarily in development activities. We have financed our operations primarily through financing from
private capital raising and support from our largest stockholder, and have incurred losses since inception, including a net loss
of $5,020,383 for the fiscal year ended June 30, 2018, a net loss of $7,336,686 for the fiscal year ended June 30, 2019, a net loss of
$3,163,776 for the fiscal year ended June 30, 2020 and a net loss of $7,037,286 for the fiscal year ended June 30, 2021. We do not know
whether or when we will become profitable. Our ability to generate revenue and achieve profitability depends upon our ability, alone
or with others, to complete the development process of our products, including regulatory approvals, and thereafter achieve substantial
acceptance in the marketplace for our products. We may be unable to achieve any or all of these goals.
Given
our lack of revenue and our negative cash flow, we may need to raise additional capital, which may be unavailable to us or, even if consummated,
may cause dilution or place significant restrictions on our ability to operate.
We believe we have sufficient
capital resources to enable us to continue to implement our business plan and remain in operation for at least the next 15 months
from the date this report. We cannot yet forecast revenues, if at all, and our revenues will not immediately be sufficient
to finance our ongoing operations. In addition, available resources may be consumed more rapidly than currently anticipated, and there
can be no assurance that we will be successful in developing the COV2 Test (“COV2T”) and/or SGT and generating sufficient
revenue in the timeframe set forth above, or at all. We may also need additional funding for developing new products and services and
for additional sales, marketing and promotional activities. Accordingly, we may need to seek additional equity or debt financing earlier
than anticipated to provide the capital required to maintain or expand our operations. We may raise additional capital through sales
of equity securities or the incurrence of debt. If such financing is not available on satisfactory terms, or is not available at all,
we may be required to delay, scale back or eliminate the development of business opportunities and our operations and financial condition
may be materially adversely affected.
The
License Agreement with the Licensor, our largest stockholder, which covers the license of the core technology used in our products,
contains significant risks that may threaten our viability or otherwise have a material adverse effect on us and our business, assets
and its prospects.
Under
the terms of the Technology License Agreement executed by the Company and LSBD dated as of June 23, 2020, the Company is the global licensee
and intends to introduce and launch COV2 diagnostic tests across the US, Europe, APAC and the rest of the world through appropriately
qualified distributors and includes the terms and related risks set forth below.
The
Amended and Restated License Agreement, dated September 12, 2019, which amends and restates all previous license agreements (the “SGT
License Agreement”) is limited to the APAC Region and includes the terms and related risks set forth below. We have no contractual
rights to the intellectual property covered in the License Agreement other than as expressly set forth therein. Our plans, business,
prospects and viability are substantially dependent on that intellectual property and subject to the limitations relating thereto as
set forth in the License Agreement:
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The
SGT license granted to us is limited in territorial scope. The Licensor, which owns a 42.6% (by voting rights) of our
common stock as of June 30, 2021, granted us a license to its proprietary rights in the biosensor technology used in the Licensed
Products solely in the APAC Region, and primarily to act as authorized party for obtaining regulatory approval and to manufacture
(subject to being approved as an Authorized Supplier by the Licensor) for use in the APAC Region, and to promote, market, import,
offer sell and distribute the Licensed Products in the APAC Region. We may not exploit or seek to exploit any rights in respect of
the Licensed Product outside of the APAC Region through any means, including digitally or online where the end user is not physically
resident in the APAC Region. Accordingly, to the extent that such users are prohibited, we will be unable to realize any commercialization
from such users and ensure that such users do not do business with us, even as such commercialization and business might be appropriate,
related, synergistic or enhanced by our operations. In addition, we may be responsible for costs and other liabilities that might
arise to the extent that users outside the APAC Region obtain such access and may incur costs to comply with these prohibitions.
Further, the non-coverage of digital or online use for users not physically in the APAC Region may constitute a material limitation
on our ability to freely conduct business digitally, online or through any other medium that may reach outside of the APAC Region.
This limitation may have a material adverse effect on our marketing, sales, operational and other business efforts.
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After
the receipt of regulatory approval in a jurisdiction, we may be required to pay the Minimum Royalty with respect to such jurisdiction
regardless of the actual amount of sales by us of Licensed Products. Accordingly, although the Minimum Royalty is based on our projected
sales in each such jurisdiction, and although the determination of the Minimum Royalty is subject to agreement between us and the
Licensor as to certain parameters, as described elsewhere in this prospectus, with disputes generally resolved by an independent
third party, we could be obligated to pay royalties even though we have generated no or limited revenue. Such payments could materially
and adversely affect our profitability and could limit our investment in our business.
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The
Licensed Products include only products that are supplied by an Authorized Supplier. Accordingly, we will not have unfettered right
to select our suppliers, regardless of whether an unauthorized supplier could provide products on better pricing, delivery, quality
or other terms, thus potentially materially and adversely impacting those aspects of our business, economies, profitability and prospects.
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We
are required to collect and anonymize demographic information about the end users of the Licensed Products, as well as data acquired
from the Licensed Products. The data collection and retention may be expensive in cost, resources, legal and regulatory compliance
and other ways, none of which costs can be quantified at this time. Further, changing regulations with respect to medical and similar
such data may make such compliance beyond the scope of our capabilities. Any failure to comply may result in financial liability,
as well as reputational harm.
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The
license is non-transferable, non-assignable and non-sublicensable, except that the Licensor will in good faith consider any request
by us for any sublicense. The Licensor is not obligated to agree to any such sub-license. These restrictions may limit our flexibility
to structure our operations in the most advantageous manner.
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We
must manufacture, promote, market, import, offer, sell, distribute and supply the Licensed Products in accordance with certain distribution
requirements set forth in the License Agreement. For instance, we may not package the Licensed Products with other products, and
we may deliver them only as supplied by an Authorized Supplier. Accordingly, the limitations imposed by the License Agreement may
impact our ability to pursue certain marketing strategies and distribution channels, which may have a material adverse effect on
us and our business, assets and prospects.
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The
Licensor may require any change to any Licensed Product by any Authorized Supplier and may make any change to any sales or promotional
literature made available by the Licensor, provided that such changes do not affect any regulatory approvals we obtain. This right
of the Licensor may create material expense for us, may be practically difficult to accomplish and may cause relationship, reputational
and other adverse harm to us, our business and our prospects, without our having any control over these changes. Further, the Licensor
is not liable for any of the costs to us of such changes.
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We
must file for, prosecute the application for, and obtain all regulatory approvals for each of the Licensed Products and all legal
permits necessary for promoting, marketing, offering or selling each Licensed Product. The regulatory approval process can be expensive
and time consuming, and there can be no assurances that we will be able to obtain or maintain any or all required permits.
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Except
with respect to the Licensor’s ownership of all intellectual property rights in respect of the licensed property and the non-infringement
by our exercise of those rights, the Licensor provides no, and disclaims all, representations, warranties or covenants relating to
the licensed intellectual property or any other matters under the License Agreement and in particular disclaims any fitness of the
property for any purpose. These provisions limit our recourse in the event that the licensed intellectual property is flawed, defective,
inadequate, incomplete, uncommercial, wrongly described or otherwise not useful for our purposes. We have not independently verified
any of the technical, scientific, commercial, legal, medical or other circumstances or nature of the licensed intellectual property
and therefore there can be no assurances that any of the foregoing risks have been reduced or eliminated. These provisions represent
a significant risk of a material adverse impact on us, our business and our prospects.
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Neither
we nor the Licensor have yet launched the COV2T or the SGT and the ability to do so will depend on the acceptance of the COV2T and/or
the SGT in the Global healthcare market.
Neither
we nor the Licensor has yet launched the COV2T nor the SGT and neither has received regulatory approvals in any country or territory.
We are faced with the risk that the COV2 Test and/or the SGT will be accepted in their respective jurisdictions over competing products
and that we will be unable to enter the marketplace or compete effectively. Factors that could affect our ability to establish the COV2T
and/or the SGT or any future diagnostic test based on the Biosensor Platform include:
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sales
of the COV2T and/or the SGT across their respective jurisdictions may be limited due to the complex nature of the healthcare system
in each country and territory in the region, low average personal income, lack of patient cost reimbursement and pricing controls
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the
development of products or devices which could result in a shift of customer preferences away from our device and services and significantly
decrease revenue;
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the
increased use of improved diabetes drugs that could encourage certain diabetics to test less often, resulting in less usage of self-monitoring
(saliva-based, blood-based or otherwise) test device for certain types of diabetics;
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the
challenges of developing (or acquiring externally developed) technology solutions that are adequate and competitive in meeting the
requirements of next-generation design challenges;
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the
significant number of current competitors in the glucose monitoring market who have significantly greater brand recognition and more
recognizable trademarks and who have established relationships with diabetes healthcare providers and payors; and
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intense
competition to attract acquisition targets, which may make it more difficult for us to acquire companies or technologies at an acceptable
price or at all.
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We
cannot assure you that the COV2T and/or SGT or any future diagnostic test based on the Biosensor Platform will gain market acceptance.
If the market for the COV2T and/or SGT or any future test fails to develop or develops more slowly than expected, or if any of the technology
and standards supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and
adversely affected.
We
cannot accurately predict the volume or timing of any sales, making the timing of any revenues difficult to predict.
We
may be faced with lengthy and unpredictable customer evaluation and approval processes associated with the COV2T and/or SGT. Consequently,
we may incur substantial expenses and devote significant management effort and expense in developing customer adoption of the COV2T and/or
SGT, which may not result in revenue generation. We must also obtain regulatory approvals of the COV2T and/or SGT in each respective
jurisdiction, which is subject to risk and potential delays, and may actually occur. The same risks apply to other tests we may develop
based on the Biosensor Platform. As such, we cannot accurately predict the volume, if any, or timing of any future sales.
If
the COV2T and/or SGT fails to satisfy current or future customer requirements, we may be required to make significant expenditures to
redesign the product candidate, and we may have insufficient resources to do so.
The
COV2T and/or SGT is being designed to address an existing marketplace and must comply with current and evolving customer requirements
in order to gain market acceptance. There is a risk that the COV2T and/or SGT will not meet anticipated customer requirements or desires.
If we are required to redesign our products to address customer demands or otherwise modify our business model, we may incur significant
unanticipated expenses and losses, and we may be left with insufficient resources to engage in such activities. If we are unable to redesign
our products, develop new products or modify our business model to meet customer desires or any other customer requirements that may
emerge, our operating results would be materially adversely affected, and our business might fail.
Initially,
we expect to derive a significant proportion of our revenues from the COV2 test (“COV2T”) and the underlying Biosensor Platform
technology.
We
expect to derive substantially all of our revenues from sales of products derived from the Biosensor Platform technology, which we license
from the Licensor. Our initial product utilizing this technology is the COV2 Test. As such, any factor adversely affecting sales of the
COV2T, including the product development and release cycles, regulatory issues, market acceptance, product competition, performance and
reliability, reputation, price competition and economic and market conditions, would likely harm our operating results. We may be unable
to fully develop the COV2 Test or other products utilizing our technology, which may lead to the failure of our business. Moreover, in
spite of our efforts related to the registration of our technology, if intellectual property protection is not available for the Biosensor
Platform technology, the viability of the COV2 test and any other products that may be derived from such technology would likely be adversely
impacted to a significant degree, which would materially impair our prospects.
We
have yet to finalize the manufacturing plan for the production of the COV2T nor the SGT and its components on a mass market commercial
scale, and may be dependent upon third-party manufacturers and suppliers, making us vulnerable to contractual relationships and market
forces, supply shortages and problems and price fluctuations, which could harm our business.
While
we are using the facilities of Australian National Fabrication Facility to manufacture the COV2T and SGB for clinical evaluation, we
have yet to finalize the manufacturing plan for the production of the COV2T nor SGT and its components on a mass market commercial scale.
We presently do not possess the manufacturing and processing capacity to meet the production requirements of consumer demand in a timely
manner. Accordingly, we may rely on outsourcing the manufacturing of the COV2T and/or SGT or its components. Our capacity to conduct
clinical evaluation and launch our products in the market will depend in part on our ability or the ability of third-party manufacturers
to provide our products on a large scale, at a competitive cost and in accordance with regulatory requirements. We cannot guarantee that
we or our third-party manufacturers or suppliers will be able to provide the COV2T and/or SGT and its components in mass-market quantities
in a timely or cost-effective manner, or at all. Delays in providing or increasing production or processing capacity could result in
additional expense or delays in our clinical evaluation, regulatory submissions and the market launch of our products. In addition, we
or our third-party manufacturers or suppliers could make errors that could adversely affect the efficacy or safety of the COV2T and/or
SGT or cause delays in shipment. Any third-party party manufacturers or suppliers may encounter problems for a variety of reasons, including,
for example, failure to follow specific protocols and procedures, failure to comply with applicable legal and regulatory requirements,
equipment malfunction and environmental factors, failure to properly conduct their own business affairs, and infringement of third-party
intellectual property rights, any of which could delay or impede their ability to meet our requirements. Reliance on these third-party
manufacturers or suppliers also subjects us to other risks where:
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we
may have difficulty locating and qualifying alternative manufacturers or suppliers;
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switching
manufacturers or suppliers may require product redesign and possibly submission to regulatory bodies, which could significantly impede
or delay our commercial activities;
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sole-source
manufacturers or suppliers could fail to supply the COV2T and/or SGT or components of the COV2T and/or SGT; and
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manufacturers
or suppliers could encounter financial or other business hardships unrelated to us, interfering with their fulfillment of our orders
and requirements.
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We
may not be able to quickly establish additional or alternative manufacturers or suppliers if necessary, in part because we may need to
undertake additional activities to establish such manufacturers or suppliers as required by the regulatory approval process. We potentially
will rely on certain single-source manufacturers or suppliers, and to the extent we do so, these risks will be intensified. Any interruption
or delay in obtaining products or components from our third-party manufacturers or suppliers, or shortages of products or components,
could impair our ability to meet the demand of our customers and cause them to switch to competing products.
We
expect to rely in part on third-party distributors to effectively distribute our products.
We
will depend in part on qualified distributors for the marketing and selling of our products. We will depend on these distributors’
efforts to market our products, yet we will be unable to control their efforts completely. While we recently entered into non-binding
memoranda of understanding with two large distributors in China for the SGT, we have not yet executed any definitive distribution agreements
in this regard and there can be no assurances that suitable distributors will be engaged on terms acceptable to us. These distributors
typically would sell a variety of other, non-competing products that may limit the resources they dedicate to selling the COV2T and/or
SGT. In addition, we are unable to ensure that our distributors will comply with all applicable laws regarding the sale of our products.
If our distributors fail to effectively market and sell the COV2T and/or SGT in full compliance with applicable laws, our operating results
and business may suffer. Recruiting and retaining qualified third-party distributors and training them in our technology and product
offering will require significant time and resources. To develop and expand our distribution, we will be required to scale and improve
our processes and procedures that support our distributors. Further, if our relationship with a successful distributor terminates, we
may be unable to replace that distributor without disruption to our business. If we fail to develop or maintain positive relationships
with our distributors, including in new markets, fail to manage, train or incentivize these distributors effectively, or fail to provide
distributors with competitive products on attractive terms, or if these distributors are not successful in their sales efforts, we may
not achieve or may have a reduction in revenue and our operating results, reputation and business would be harmed.
Failure
in our conventional, online and digital marketing efforts could impact our ability to generate sales.
We
intend to engage in conventional marketing strategies and also may utilize online and digital marketing in order to create awareness
to the COV2T and/or SGT. Our management believes that using a wide variety of marketing strategies, including online advertisement and
a variety of other pay-for-performance methods may be effective for marketing and generating sales of the COV2T and/or SGT, as opposed
to relying exclusively on traditional, expensive retail channels. In any event, there is a risk that any or all of our marketing strategies
could fail. We cannot predict whether the use of traditional and/or non-traditional retail sales tools, in combination with reliance
on healthcare providers to educate our customers about the COV2T and/or SGT, will be successful in effectively marketing the COV2T and/or
SGT. The failure of our marketing efforts could negatively impact our ability to generate sales.
The
COV2T and SGT may utilize a smart device platform and, in the future, other software platforms. If we are unable to achieve or maintain
a good relationship with the providers of these platforms, or if a platform’s application store (such as the App Store for iOS
devices or the Google Play Store for Android devices), or any other applicable platform resource were unavailable for any prolonged period
of time, our business will suffer.
A
key component of the COV2T and SGT is a smart device application that includes tools to help patients manage their disease. This application
will be compatible with various operating platforms. We will be subject to each of the standard terms and conditions for application
developers, which govern the promotion, distribution and operation of applications through their respective app stores. If we are unable
to make the COV2T or SGT application compatible with these platforms, or if we fail to comply with the standard terms and conditions
for developers or there is any deterioration in our relationship with either platform providers or others after our application is available,
our business would be materially harmed.
As
we intend to conduct business internationally, we are susceptible to risks associated with international relationships.
We
are based in the United States, and expect to market, promote and sell our products globally. The international nature of our business
requires significant management attention, which could negatively affect our business if it diverts their attention from their other
responsibilities. In addition, doing business with foreign customers subjects us to additional risks that companies do not generally
face if they operate exclusively within a single jurisdiction. These risks and uncertainties include:
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different
regulatory requirements for medical product approvals in foreign countries;
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different
standards of care in various countries that could complicate the evaluation of our product candidates;
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different
medical product import and export rules;
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different
labor laws;
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reduced
protection for intellectual property rights in certain countries;
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unexpected
changes in tariffs, trade barriers and regulatory requirements;
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different
reimbursement systems and different competitive medical products indicated for glucose testing;
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localization
of products and services, including translation of foreign languages;
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delivery,
logistics and storage costs;
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longer
accounts receivable payment cycles and difficulties in collecting accounts receivable;
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difficulties
providing customer services;
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economic
weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance
with tax, employment, immigration and labor laws for employees living or traveling abroad;
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compliance
with the Foreign Corrupt Practices Act, or the “FCPA,” and other anti-corruption and anti-bribery laws;
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foreign
taxes, including withholding of payroll taxes;
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to
doing business in another country;
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restrictions
on the repatriation of earnings;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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potential
liability resulting from development work conducted by third party foreign distributors; and
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business
interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters, management, communication and
integration problems resulting from cultural differences and geographic dispersion.
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The
occurrence of any or all of these risks could adversely affect our business. In the event that we are unable to manage the complications
associated with international operations, our results of operations, financial condition and business prospects could be materially and
adversely affected.
If
third-party payors do not provide coverage and reimbursement for the use of the COV2T and/or SGT, our business and prospects may be negatively
impacted.
Third-party
payors, whether governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition,
in certain countries, no uniform policy of coverage and reimbursement for medical device products and services exists among third-party
payors. Therefore, coverage and reimbursement for medical device products and services can differ significantly from payor to payor.
In addition, payors continually review new technologies for possible coverage and can, without notice, deny coverage for these new products
and procedures. As a result, the coverage determination process is often a time-consuming and costly process that will require us to
provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate
reimbursement will be obtained, or maintained if obtained. Reimbursement systems in international markets vary significantly by country
and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. In many international
markets, a product must be approved for reimbursement before it can be approved for sale in that country. Further, many international
markets have government-managed healthcare systems that control reimbursement for new devices and procedures. For example, no government
in the areas where we hold our license has approved reimbursement of the SGT in particular. We believe that reimbursement will not be
an issue as we intend to put this in the market at the same price as current reimbursed blood finger tests. In most markets, there are
private insurance systems as well as government-managed systems. If sufficient coverage and reimbursement is not available for our current
or future products, in any country where our license operates, the demand for our products and our revenues will be adversely affected.
Non-United
States governments often impose strict price controls, which may adversely affect our future profitability.
We
intend to seek approval to market the COV2T globally and the SGT across the APAC Region. If we obtain approval in one or more of the
jurisdictions within our License Agreement, we will be subject to rules and regulations in those jurisdictions relating to our products.
In some countries, pricing may be subject to governmental control under certain circumstances, which may vary country by country. In
these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of requisite marketing
approval. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical evaluation that compares
the cost-effectiveness of our product to other available products. If reimbursement of our product candidates is unavailable or limited
in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability. Price controls
may reduce prices to levels significantly below those that would prevail in less regulated markets or limit the volume of products which
may be sold, either of which may have a material and adverse effect on potential revenues from sales of the COV2T and/or SGT. Moreover,
the process and timing for the implementation of price restrictions is unpredictable, which may cause potential revenues from the sales
of the COV2T and/or SGT to fluctuate from period to period.
The
COV2T and/or SGT, including its software and systems, may contain undetected errors, which could limit our ability to provide our products
and services and diminish the attractiveness of our service offerings.
The
COV2T and/or SGT may contain undetected errors, defects or bugs. As a result, our customers or end users may discover errors or defects
in our products, software or systems, or our products, software or systems may not operate as expected. We may discover significant errors
or defects in the future that we may not be able to fix. Our inability to fix any of those errors could limit our ability to provide
our products and services, impair the reputation of our brand and diminish the attractiveness of our product and service offerings to
our customers. In addition, we may utilize third party technology or components in our products, and we rely on those third parties to
provide support services to us. The existence of errors, defects or bugs in third party technology or components, or the failure of those
third parties to provide necessary support services to us, could materially adversely impact our business.
We
will rely on the proper function, security and availability of our information technology systems and data to operate our business, and
a breach, cyber-attack or other disruption to these systems or data could materially and adversely affect our business, results of operations,
financial condition, cash flows, reputation or competitive position.
We
will depend on sophisticated software and other information technology systems to operate our business, including to process, transmit
and store sensitive data, and our products and services will include information technology systems that collect data regarding patients.
We could experience attempted or actual interference with the integrity of, and interruptions in, our technology systems, as well as
data breaches, such as cyber-attacks, malicious intrusions, breakdowns, interference with the integrity of our products and data or other
significant disruptions. Furthermore, we may rely on third-party vendors to supply and/or support certain aspects of our information
technology systems. These third-party systems could also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference
or other significant disruptions, and may contain defects in design or manufacture or other problems that could result in system disruption
or compromise the information security of our own systems. Our international operations mean that we are subject to laws and regulations,
including data protection and cybersecurity laws and regulations, in many jurisdictions. Furthermore, there has been a developing trend
of civil lawsuits and class actions relating to breaches of consumer data held by large companies or incidents arising from other cyber-attacks.
Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies
and/or civil litigation, any of which could materially and adversely affect our business, results of operations, financial condition,
cash flows, reputation or competitive position. In addition, our information technology systems require an ongoing commitment of significant
resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information
processing technology, evolving legal and regulatory standards, the increasing need to protect patient and customer information, changes
in the techniques used to obtain unauthorized access to data and information systems, and the information technology needs associated
any new products and services. There can be no assurance that our process of consolidating, protecting, upgrading and expanding our systems
and capabilities, continuing to build security into the design of our products, and developing new systems to keep pace with continuing
changes in information processing technology will be successful or that additional systems issues will not arise in the future. If our
information technology systems, products or services or sensitive data are compromised, patients or employees could be exposed to financial
or medical identity theft or suffer a loss of product functionality, and we could lose existing customers, have difficulty attracting
new customers, have difficulty preventing, detecting, and controlling fraud, be exposed to the loss or misuse of confidential information,
have disputes with customers, physicians, and other health care professionals, suffer regulatory sanctions or penalties, experience increases
in operating expenses or an impairment in our ability to conduct our operations, incur expenses or lose revenues as a result of a data
privacy breach, product failure, information technology outages or disruptions, or suffer other adverse consequences including lawsuits
or other legal action and damage to our reputation.
Our
future performance will depend on the continued engagement of key members of our management team.
Our
future performance depends to a large extent on the continued services of members of our current management including, in particular,
our President & Chief Executive Officer and Chief Financial Officer. In the event that we lose the continued services of such key
personnel for any reason, this could have a material adverse effect on our business, operations and prospects.
If
we are not able to attract and retain highly skilled managerial, scientific and technical personnel, we may not be able to implement
our business model successfully.
We
believe that our management team must be able to act decisively to apply and adapt our business model in the markets in which we will
compete. In addition, we will rely upon technical and scientific employees or third-party contractors to effectively establish, manage
and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract and retain highly
skilled managerial, sales, scientific and technical personnel. In order to do so, we may need to pay higher compensation or fees to our
employees or consultants than we currently expect, and such higher compensation payments would have a negative effect on our operating
results. Competition for experienced, high-quality personnel is intense and we cannot assure that we will be able to recruit and retain
such personnel. We may not be able to hire or retain the necessary personnel to implement our business strategy. Our failure to hire
and retain such personnel could impair our ability to develop new products and manage our business effectively.
If
we or our manufacturers fail to comply with the regulatory quality system regulations or any applicable equivalent regulations, our proposed
operations could be interrupted, and our operating results would suffer.
We
and any third-party manufacturers and suppliers of ours will be required, to the extent of applicable regulation, to follow the quality
system regulations of each jurisdiction we will seek to penetrate and also will be subject to the regulations of these jurisdictions
regarding the manufacturing processes. If we or any third-party manufacturers or suppliers of ours are found to be in significant non-compliance
or fail to take satisfactory corrective action in response to adverse regulatory findings in this regard, regulatory agencies could take
enforcement actions against us and such manufacturers or suppliers, which could impair or prevent our ability to produce our products
in a cost-effective and timely manner in order to meet customers’ demands. Accordingly, our operating results would suffer.
We
may be subject to healthcare fraud and abuse laws and regulations.
Many
international healthcare laws and regulations apply to the glucose monitoring business and medical devices. We will be subject to certain
regulations regarding commercial practices false claims. If our operations or arrangements are found to be in violation of governmental
regulations, we may be subject to civil and criminal penalties, damages, fines and the curtailment of our operations. All of these penalties
could adversely affect our ability to operate our business and our financial results.
Product
liability suits, whether or not meritorious, could be brought against us due to an alleged defective product or for the misuse of the
COV2T and/or SGT. These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase
in our insurance rates.
If
the COV2T and/or SGT or any future diagnostic test based on the Biosensor Platform is defectively designed or manufactured, contains
defective components or is misused, or if someone claims any of the foregoing, whether or not meritorious, we may become subject to substantial
and costly litigation. Misusing our devices or failing to adhere to the operating guidelines or our devices producing inaccurate meter
readings could cause significant harm to patients, including death. In addition, if our operating guidelines are found to be inadequate,
we may be subject to liability. Product liability claims could divert management’s attention from our core business, be expensive
to defend and result in sizable damage awards against us. While we expect to maintain product liability insurance, we may not have sufficient
insurance coverage for all future claims. Any product liability claims brought against us, with or without merit, could increase our
product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could
reduce revenue. Product liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial
condition and adversely affecting our results of operations.
If
we are found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil or criminal
penalties, which could increase our liabilities and harm our reputation or our business.
Part
of our business plan includes the storage and potential monetization of data of users of the COV2T and/or SGT. There are a number of
laws around the world protecting the confidentiality of certain patient health information, including patient records, and restricting
the use and disclosure of that protected information. Privacy rules protect medical records and other personal health information by
limiting their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information
and limiting most use and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose.
We may face difficulties in holding such information in compliance with applicable law. If we are found to be in violation of the privacy
rules, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material
adverse effect on our business, financial condition and results of operations.
We
are party to agreements pursuant to which we may be required to make payments to certain of our affiliates, which may reduce our cash
flow and profits.
We
are party to agreements (including the License Agreement) pursuant to which we may be required to make payments to certain of our affiliates
as described in “Certain Transactions.” For instance, commencing after the receipt of SGT regulatory approval in any
jurisdiction in the APAC Region, we may be required to pay the Minimum Royalty with respect to such jurisdiction to our largest
stockholder, the Licensor, although the determination of the Minimum Royalty is subject to agreement between us and the Licensor as to
certain parameters, as described elsewhere in this prospectus, with disputes generally resolved by an independent third party.
Risks
Related to Product Development and Regulatory Approval
The
regulatory approval process which we may be required to navigate may be expensive, time-consuming, and uncertain and may prevent us from
obtaining clearance for the product launch of the SGT or our any future product.
It
is anticipated that FDA review for COV2T will be under the Emergency Use Authorization program, which means expedited time to market.
However, to date, we have not received regulatory approval in any jurisdiction. We intend to market the SGT following regulatory approval.
To date, we have not received regulatory approval in any jurisdiction. However, we recently have engaged Emergo Global Consulting LLC,
a clinical research and regulatory consulting firm specializing in high tech medical device development, and commenced the regulatory
approval process in various jurisdictions in the APAC Region. The research, design, testing, manufacturing, labeling, selling, marketing
and distribution of medical devices are subject to extensive regulation by country-specific regulatory authorities, which regulations
differ from country to country. There can be no assurance that, even after such time and expenditures, we will be able to obtain necessary
regulatory approvals for clinical testing or for the manufacturing or marketing of any products. In addition, during the regulatory process,
other companies may develop other technologies with the same intended use as our products. We also will be subject to numerous post-marketing
regulatory requirements, which may include labeling regulations and medical device reporting regulations, which may require us to report
to different regulatory agencies if our device causes or contributes to a death or serious injury, or malfunctions in a way that would
likely cause or contribute to a death or serious injury. In addition, these regulatory requirements may change in the future in a way
that adversely affects us. If we fail to comply with present or future regulatory requirements that are applicable to us, we may be subject
to enforcement action by regulatory agencies, which may include, among others, any of the following sanctions:
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letters, warning letters, fines, injunctions, consent decrees and civil penalties;
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customer
notification, or orders for repair, replacement or refunds;
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voluntary
or mandatory recall or seizure of our current or future products;
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imposing
operating restrictions, suspension or shutdown of production;
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refusing
our requests for clearance or pre-market approval of new products, new intended uses or modifications to the COV2T and/or SGT or
future products;
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rescinding
clearance or suspending or withdrawing pre-market approvals that have already been granted; and
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criminal
prosecution.
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The
occurrence of any of these events may have a material adverse effect on our business, financial condition and results of operations.
Clinical
data obtained subsequent to the implementation of the clinical evidence module may not meet the required objectives, which could delay,
limit or prevent additional regulatory approval.
There
can be no assurance that we will successfully complete any clinical evaluations necessary to receive regulatory approvals. While preliminary
results have been encouraging and indicative of the potential performance of the SGT, data already obtained, or in the future obtained,
from clinical studies do not necessarily predict the results that will be obtained from later clinical evaluations. The failure to adequately
demonstrate the analytical performance characteristics of the device under development could delay or prevent regulatory approval of
the device, which could prevent or result in delays to market launch and could materially harm our business. There can be no assurance
that we will be able to receive approval for any potential applications of our principal technology, or that we will receive regulatory
clearances from targeted regions or countries.
We
may be unable to complete required clinical evaluations, or we may experience significant delays in completing such clinical evaluations,
which could prevent or significantly delay our targeted product launch timeframe and impair our viability and business plan.
The
completion of any future clinical evaluations for the COV2T and/or SGT, or other studies that we may be required to undertake in the
future for the COV2T and/or SGT or other products based on the Biosensor Platform, could be delayed, suspended or terminated for several
reasons, including:
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we
may fail to or be unable to conduct the clinical evaluation in accordance with regulatory requirements;
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sites
participating in the trial may drop out of the trial, which may require us to engage new sites for an expansion of the number of
sites that are permitted to be involved in the trial;
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patients
may not enroll in, remain in or complete, the clinical evaluation at the rates we expect; and
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clinical
investigators may not perform our clinical evaluation on our anticipated schedule or consistent with the clinical evaluation protocol
and good clinical practices.
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If
our clinical evaluations are delayed it will take us longer to ultimately launch the COV2T and/or SGT and our other products based on
the Biosensor Platform in the market and generate revenues. Moreover, our development costs will increase if we have material delays
in our clinical evaluation or if we need to perform more or larger clinical evaluations than planned.
We
are subject to the risk of reliance on third parties to conduct our clinical evaluation work.
We
will depend on independent clinical investigators to conduct our clinical evaluations. Contract research organizations may also assist
us in the collection and analysis of data. These investigators and contract research organizations will not be our employees and we will
not be able to control, other than by contract, the amount of resources, including time that they devote to products that we develop.
If independent investigators fail to devote sufficient resources to our clinical evaluations, or if their performance is substandard,
it will delay the approval or clearance and ultimately the market launch of any products that we develop. Further, regulatory bodies
require that we comply with standards, commonly referred to as good clinical practice, for conducting, recording and reporting clinical
evaluations to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of
trial subjects are protected. If our independent clinical investigators and contract research organizations fail to comply with good
clinical practice, the results of our clinical evaluations could be called into question and the clinical development of our product
candidates could be delayed. Failure of clinical investigators or contract research organizations to meet their obligations to us or
comply with applicable regulations could adversely affect the clinical development of our product candidates and harm our business. Moreover,
we intend to have several clinical evaluations in order to support our marketing efforts and business development purposes. Such clinical
evaluations will be conducted by third parties as well. Failure of such clinical evaluations to meet their primary endpoints could adversely
affect our marketing efforts.
Risks
Related to Our Intellectual Property
We
depend on intellectual property licensed from the Licensor, and any absence of legal effect of the license or dispute over the license
would significantly harm our business.
We
are dependent on the intellectual property licensed from the Licensor. Although the License Agreement may not be terminated by the Licensor
as long as we are continuing our operations, any absence of legal effect of the license could result in the loss of significant rights
and could harm our ability to launch the COV2T and/or SGT in the market. Disputes may also arise between us and the Licensor regarding
intellectual property subject to the License Agreement. If disputes over intellectual property that we have licensed prevent or impair
our ability to maintain our current licensing arrangements on acceptable terms, or are insufficient to provide us the necessary rights
to use the intellectual property, we may be unable to successfully develop and launch the COV2T and/or SGT and our other product candidates.
If we or the Licensor fail to adequately protect this intellectual property, our ability to launch our products in the market also could
suffer. For so long as we are dependent on the intellectual property covered by the License Agreement for the pursuit of our business,
any such disputes relating to the License Agreement or failure to protect the intellectual property could threaten our viability.
We
will depend primarily on the Licensor to file, prosecute, maintain, defend and enforce intellectual property that we license from it
and that is material to our business.
The
intellectual property relating to the COV2T and/or SGT is owned by the Licensor. Under the License Agreement, the Licensor generally
has the right to file, prosecute, maintain and defend the intellectual property we have licensed from the Licensor. If the Licensor fails
to conduct these activities for intellectual property protection covering any of our product candidates, our ability to develop and launch
those product candidates may be adversely affected and we may not be able to prevent competitors from making, using or selling competing
products. In addition, pursuant to the terms of the License Agreement with the Licensor, the Licensor generally has the right to control
the enforcement of our licensed intellectual property and the defense of any claims asserting the invalidity of that intellectual property.
We cannot be certain that the Licensor will allocate sufficient resources to and otherwise prioritize the enforcement of such intellectual
property or the defense of such claims to protect our interests in the licensed intellectual property. In the absence of action by the
Licensor, we may be unable to protect and enforce the proprietary rights on which our business relies. Even if we are not a party to
these legal actions, an adverse outcome could harm our business because it might prevent us from continuing to use the licensed intellectual
property that we need to operate our business. In addition, even if we take control of the prosecution of licensed intellectual property
and related applications, enforcement of licensed intellectual property, or defense of claims asserting the invalidity of that intellectual
property, we may still be adversely affected or prejudiced by actions or inactions of the Licensor and its counsel that took place prior
to or after our assuming control, and we cannot ensure the cooperation of the Licensor in any such action. Furthermore, if we take action
to protect, enforce or defend the licensed intellectual property, we may incur significant costs and the attention of our management
may be diverted from our normal business operations. As a result, our business, results of operations and financial condition could be
materially and adversely affected.
We
and the Licensor may be unable to protect or enforce the intellectual property rights licensed to us, which could impair our competitive
position.
In
order for our business to be viable and to compete effectively, the proprietary rights with respect to the technologies and intellectual
property used in our products must be developed and maintained. The Licensor relies primarily on patent protection and trade secrets,
as well as a combination of copyright and trademark laws and nondisclosure and confidentiality agreements to protect its technology and
intellectual property rights. There are significant risks associated with the Licensor’s ability (or our ability, in the absence
of action by the Licensor) to protect the intellectual property licensed to us, including:
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pending
intellectual property applications may not be approved or may take longer than expected to result in approval in one or more of the
countries in which we operate;
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the
Licensor’s intellectual property rights may not provide meaningful protection;
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other
companies may challenge the validity or extent of the Licensor’s patents and other proprietary intellectual property rights
through litigation, oppositions and other proceedings. These proceedings can be protracted as well as unpredictable;
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other
companies may have independently developed (or may in the future independently develop) similar or alternative technologies, may
duplicate the Licensor’s technologies or may design their technologies around the Licensor’s technologies;
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enforcement
of intellectual property rights is complex, uncertain and expensive, and may be subject to lengthy delays. In the event we take control
of any such action under the License Agreement, our ability to enforce our intellectual property protection could be limited by our
financial resources; and
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the
other risks described in “—Risks Related to Our Intellectual Property.”
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If
any of the Licensor’s patents or other intellectual property rights fail to protect the technology licensed by us, it would make
it easier for our competitors to offer similar products. Any inability on the Licensor’s part (or on our part, in the absence of
action by the Licensor) to adequately protect its intellectual property may have a material adverse effect on our business, financial
condition and results of operations.
We
and/or the Licensor may be subject to claims alleging the violation of the intellectual property rights of others.
We
may face significant expense and liability as a result of litigation or other proceedings relating to intellectual property rights of
others. In the event that another party has intellectual property protection relating to an invention or technology licensed by us from
the Licensor, we and/or the Licensor may be required to participate in an interference proceeding declared by the regulatory authorities
to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome was
favorable to us. We and/or the Licensor also could be required to participate in interference proceedings involving intellectual property
of another entity. An adverse outcome in an interference proceeding could require us and/or the Licensor to cease using the technology,
to substantially modify it or to license rights from prevailing third parties, which could delay or prevent the launch of our products
in the market or adversely affect our profitability. The cost to us of any intellectual property litigation or other proceeding relating
the intellectual property licensed by us from the Licensor, even if resolved in our favor, could be substantial, especially given our
early stage of development. A third party may claim that we and/or the Licensor are using inventions claimed by their intellectual property
and may go to court to stop us and/or the Licensor from engaging in our normal operations and activities, such as research, development
and the sale of any future products. Such lawsuits are expensive and would consume significant time and other resources. There is a risk
that a court will decide that we and/or the Licensor are infringing the third party’s intellectual property and will order us to
stop the activities claimed by the intellectual property. In addition, there is a risk that a court will order us and/or the Licensor
to pay the other party damages for having infringed their intellectual property. While the Licensor is required to indemnify us for certain
losses in connection with such proceedings, there can be no assurance that the Licensor will be able to satisfy any such obligation.
Moreover, there is no guarantee that any prevailing intellectual property owner would offer us a license so that we could continue to
engage in activities claimed by the intellectual property, or that such a license, if made available to us, could be acquired on commercially
acceptable terms.
The
Licensor has limited foreign intellectual property rights and may not be able to protect its intellectual property rights.
Our
intellectual property rights consist primarily of intellectual property licensed from the Licensor. The Licensor has determined that
filing, prosecuting and defending intellectual property on devices in all countries globally would be prohibitively expensive, and intellectual
property rights in some countries can be less extensive than those in the United States. In addition, the laws of some foreign countries
do not protect intellectual property to the same extent as laws in the United States. Consequently, we and/or the Licensor may not be
able to prevent third parties from practicing our inventions or from selling or importing products made using our inventions. Competitors
may use our technologies in jurisdictions where we have not obtained intellectual property rights to develop their own products and further,
may export otherwise infringing products to territories where we have intellectual property protection, but enforcement is not as strong
as that in the United States. Policing unauthorized use of proprietary technology is difficult and expensive. The legal systems of certain
countries do not favor the enforcement of trade secrets and other intellectual property, particularly those relating to medical device
products, which could make it difficult for us to stop the infringement of our intellectual property or marketing of competing products
in violation of our proprietary rights generally. An adverse determination or an insufficient damage award in any such litigation could
materially impair our intellectual property rights and may otherwise harm our business. In addition, some developing countries in the
APAC Region have compulsory licensing laws under which an intellectual property owner may be compelled to grant licenses to third parties.
In those countries, we and/or the Licensor may have limited remedies if our intellectual property is infringed or if we and/or the Licensor
are compelled to grant a license to a third party, which could materially diminish the value of that intellectual property. Furthermore,
we may not be able to register or otherwise protect the trademark “Glucose Biosensor” in developing countries in the APAC
Region.
We
and the Licensor rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third
parties using our intellectual property to compete against us.
Although
we believe that we and the Licensor take reasonable steps to protect our intellectual property, including the use of agreements relating
to the non-disclosure of confidential information to third parties, as well as agreements that purport to require the disclosure and
assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we or the
Licensor employ them, the agreements can be difficult and costly to enforce. Although we and the Licensor seek to enter into these types
of agreements with contractors, consultants, advisors and research collaborators, to the extent that employees and consultants utilize
or independently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property
rights associated with our technology. If a dispute arises, a court may determine that the right belongs to a third party. In addition,
enforcement of our rights and the rights of the Licensor can be costly and unpredictable. We and the Licensor also rely on trade secrets
and proprietary know-how that we and the Licensor may seek to protect in part by confidentiality agreements with employees, contractors,
consultants, advisors or others. Despite the protective measures we employ, we and the Licensor still face the risk that:
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these
agreements may be breached;
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these
agreements may not provide adequate remedies for the applicable type of breach;
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our
proprietary know-how will otherwise become known; or
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our
competitors will independently develop similar technology or proprietary information.
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We
and the Licensor may be subject to claims challenging the invention of the intellectual property that we license from the Licensor.
We
and the Licensor may be subject to claims that former employees, collaborators or other third parties have an interest in intellectual
property as an inventor or co-inventor. For example, we and the Licensor may have inventorship disputes arising from conflicting obligations
of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and
other claims challenging inventorship. If we and the Licensor fail in defending any such claims, in addition to paying monetary damages,
we and the Licensor may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and other employees. As a result, it is unclear whether
and, if so, to what extent employees of ours and the Licensor may be able to claim compensation with respect to our future revenue. We
may receive less revenue from future products if any of employees of the Licensor or us successfully claim compensation for their work
in developing our intellectual property, which in turn could impact our future profitability.
Risks
Related to Our Industry
We
face intense competition in the self-monitoring of glucose market, particularly blood-based products, and as a result we may be unable
to effectively compete in our industry.
With
our second product from the platform, the SGT, we expect to compete directly and primarily with large medical device companies, as well
as with second and third tier companies having various levels of sophistication and resources. The large companies have most of the glucose
monitoring business and strong research and development capacity. Their dominant market position over the last few decades and significant
control over markets could significantly limit our ability to introduce the SGT or effectively market and generate sales of the product.
We have not yet entered the revenue stage and most of our competitors have long histories and strong reputations within the industry.
They have significantly greater brand recognition, financial and human resources than we do. They also have more experience and capabilities
in researching and developing testing devices, obtaining and maintaining regulatory clearances and other requirements, manufacturing
and marketing those products than we do. There is a significant risk that we may be unable to overcome the advantages held by our competition,
and our inability to do so could lead to the failure of our business. Competition in the glucose monitoring markets is intense, which
can lead to, among other things, price reductions, longer selling cycles, lower product margins, loss of market share and additional
working capital requirements. To succeed, we must, among other critical matters, gain consumer acceptance for the SGT, technical solutions,
prices and response time, or a combination of these factors, other than those of other competitors. If our competitors offer significant
discounts on certain products, we may need to lower our prices or offer other favorable terms in order to compete successfully. Moreover,
any broad-based changes to our prices and pricing policies could make it difficult to generate revenues or cause our revenues, if established,
to decline. Moreover, if our competitors develop and commercialize products that are more desirable than the SGT or the other products
that we may develop, we may not convince customers to use our products. Any such changes would likely reduce our commercial opportunity
and revenue potential and could materially adversely impact our operating results.
If
we or the Licensor fail to respond quickly to technological developments, our products may become uncompetitive and obsolete.
The
glucose monitoring market may experience rapid technology developments, changes in industry standards, changes in customer requirements
and frequent new product introductions and improvements. If we or the Licensor are unable to respond to these developments, we may lose
competitive position, and the SGT or any other device or technology may become uncompetitive or obsolete, causing our business and prospects
to suffer. In order to compete, we and the Licensor may have to develop, license or acquire new technology on a schedule that keeps pace
with technological developments and the requirements for products addressing a broad spectrum and designers and designer expertise in
our industries.
We
are susceptible to economic conditions and conducting operations in the Asia Pacific Region
General
economic conditions in APAC and China have an impact on our business and financial results. Weak economic conditions or softness in the
consumer or business demand in APAC and China could result in lower demand for our services, which would likely have an adverse impact
on our earnings and cash flows. Economic rebalancing policies recently adopted by the Chinese government have had a positive effect on
the economic development of the country, but the government can change these economic reforms or any of the legal systems at any time.
This could either benefit or damage our operations and profitability.
The
medical device and other medical product industries in the APAC Region generally are highly regulated and such regulations are subject
to change.
The
medical device and other medical product industries in the APAC Region generally are subject to comprehensive government regulation and
supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new products. In addition,
the regulatory frameworks in the APAC Region regarding our industry are subject to change. Any such changes may result in increased compliance
costs on our business or cause delays in or prevent the successful development or launch of our product candidates in the APAC Region.
The regulatory authorities in the countries and territories constituting the APAC Region also may launch investigations of individual
companies or on an industry-wide basis. The costs and time necessary to respond to an investigation can be material. Any failure by us
or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may
result in the suspension or termination of our business activities in certain countries and territories in the APAC Region or in the
region as a whole.
Fluctuation
in the value of foreign currencies may have a material adverse effect on your investment.
A
substantial portion of our revenues and costs may be denominated in foreign currencies, such as the Australian Dollar or Japanese Yen.
Any significant change in value of these foreign currencies against the U.S. dollar may materially affect our cash flows, net revenues,
earnings and financial position, and the value of, and any dividends payable on, our common stock in U.S. dollars. For example, an appreciation
of any such foreign currency against the U.S. dollar would make any new investments or expenditures denominated in the foreign currency
costlier to us, to the extent that we need to convert U.S. dollars into the foreign currency for such purposes. Conversely, a significant
depreciation of any such foreign currency against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings,
which in turn could adversely affect the price of our common stock. If we decide to convert any such foreign currency into U.S. dollars
for the purpose of making payments for dividends on our common stock, strategic acquisitions or investments or other business purposes,
appreciation of the U.S. dollar against the foreign currency would have a negative effect on the U.S. dollar amount available to us.
We do not expect to hedge against the risks associated with fluctuations in exchange rates and, therefore, exchange rate fluctuations
could have an adverse impact on our future operating results. As a result, fluctuations in exchange rates may have a material adverse
effect on your investment.
We
may be subject to tax inefficiencies and have not ascertained the impact on us of the new United States tax laws.
The
tax regulations of the United States and other jurisdictions in which we operate are extremely complex and subject to change. New laws,
new interpretations of existing laws, such as the Base Erosion Profit Shifting project initiated by the Organization for Economic Co-operation
and Development and any legislation proposed by the relevant taxing authorities, or limitations on our ability to structure our operations
and intercompany transactions may lead to inefficient tax treatment of our revenue, profits, royalties and distributions, if any are
achieved. In the United States, in December 2017, comprehensive tax reform was enacted. We have not yet ascertained what impact the new
law will have on our future effective tax rate, corporate structure and us in general. In addition, we and our foreign subsidiaries will
have various intercompany transactions. We may not be able to obtain certain benefits under relevant tax treaties to avoid double taxation
on certain transactions among our subsidiaries. If we are not able to avail ourselves of the tax treaties, we could be subject to additional
taxes, which could adversely affect our financial condition and results of operations.
We
are subject to laws and regulations governing business conduct, which will require us to develop and implement costly compliance programs.
We
must comply with a wide range of laws and regulations to prevent corruption, bribery, and other unethical business practices, including
the FCPA, anti-bribery and anti-corruption laws in other countries. The creation and implementation of international business practices
compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. Anti-bribery
laws prohibit us, our employees, and some of our agents or representatives from offering or providing any personal benefit to covered
government officials to influence their performance of their duties or induce them to serve interests other than the missions of the
public organizations in which they serve. Certain commercial bribery rules also prohibit offering or providing any personal benefit to
employees and representatives of commercial companies to influence their performance of their duties or induce them to serve interests
other than their employers. The FCPA also obligates companies whose securities are listed in the United States to comply with certain
accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation,
including international subsidiaries, and devise and maintain an adequate system of internal accounting controls for international operations.
The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice. The SEC is involved with enforcement of
the books and records provisions of the FCPA. Compliance with these anti-bribery laws is expensive and difficult, particularly in countries
in which corruption is a recognized problem. In addition, the anti-bribery laws present particular challenges in the medical products
industries because in many countries, a majority of hospitals are state-owned or operated by the government, and doctors and other hospital
employees are considered civil servants. Furthermore, in certain countries, hospitals and clinics are permitted to sell medical devices
to their patients and are primary or significant distributors of medical devices. Certain payments to hospitals in connection with clinical
studies, procurement of medical devices and other work have been deemed to be improper payments to government officials that have led
to vigorous anti-bribery law enforcement actions and heavy fines in multiple jurisdictions, particularly in the United States and China.
It is not always possible to identify and deter violations, and the precautions we take to detect and prevent this activity 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. In the medical products industries, corrupt practices
include, among others, acceptance of kickbacks, bribes or other illegal gains or benefits by the hospitals and medical practitioners
from medical device manufacturers, distributors or their third-party agents in connection with the prescription of certain medical devices
or disposables. If our employees, affiliates, distributors or third-party marketing firms violate these laws or otherwise engage in illegal
practices with respect to their sales or marketing of our products or other activities involving our products, we could be required to
pay damages or heavy fines by multiple jurisdictions where we operate, which could materially and adversely affect our financial condition
and results of operations. Our potential customers also may deny access to sales representatives from medical device companies because
the potential customers want to avoid the perception of corruption, which could adversely affect our ability to promote our products.
As we expand our operations in the APAC Region, we will need to increase the scope of our compliance programs to address the risks relating
to the potential for violations of the FCPA and other anti-bribery and anti-corruption laws. Our compliance programs will need to include
policies addressing not only the FCPA, but also the provisions of a variety of anti-bribery and anti-corruption laws in multiple jurisdictions,
including provisions relating to books and records that apply to us as a public company, and will need to include effective training
for our personnel throughout our organization. The creation and implementation of anti-corruption compliance programs is costly and such
programs are difficult to enforce, particularly where reliance on third parties is required. Violation of the FCPA and other anti-corruption
laws can result in significant administrative and criminal penalties for us and our employees, including substantial fines, suspension
or debarment from government contracting, prison sentences, or even the death penalty in extremely serious cases in certain countries.
The SEC also may suspend or bar us from trading securities on United States exchanges for violation of the FCPA’s accounting provisions.
Even if we are not ultimately punished by government authorities, the costs of investigation and review, distraction of company personnel,
legal defense costs, and harm to our reputation could be substantial and could limit our profitability or our ability to develop or launch
our product candidates. In addition, if any of our competitors are not subject to the FCPA, they may engage in practices that will lead
to their receipt of preferential treatment from potential customers and enable them to secure business from potential customers in ways
that are unavailable to us.
Changes
in the economic, political or social conditions or government policies in the APAC Region could have a material adverse effect on our
business and operations.
The
economies and societies of certain countries and territories in the APAC Region, continue to undergo significant change. Adverse changes
in the political and economic policies in these countries and territories could have a material adverse effect on the overall economic
growth of these countries and territories, which could adversely affect our ability to conduct business in these countries and territories.
The governments of these countries and territories continue to adjust economic policies to promote economic growth. Some of these measures
may benefit the overall economy, but may also have a negative effect on us. As the medical product industry grows and evolves in these
countries and territories, the governments may also implement measures to change the structure of foreign investment in this industry.
We are unable to predict any such policy changes, any of which could materially and adversely affect our ability to finance or conduct
our business in these countries and territories. Any failure on our part to comply with changing government regulations and policies
could result in the loss of our ability to develop and launch our product candidates in these countries and territories.
Our
customers for the Saliva Glucose Test initially may be concentrated in China; in which case we may be susceptible to risks specifically
associated with business activities in China.
On
May 1, 2020, our parent company, LSBD (Life Science Biosensor Diagnostics Pty Ltd), filed a submission with the FDA for the Saliva Glucose
Biosensor Diagnostic Test, currently in development as a point-of-care test intended to replace blood glucose testing for diabetes management.
Following the 513(g) submission to the FDA (Submitted May 01, 2020), it was determined that the company could seek the De Novo application
pathway for the Saliva Glucose Biosensor Diagnostic Test, we were appointed an expert contact person, Acting Branch Chief from the Diabetes
Diagnostic Devices Branch. We have further commenced planning discussions with the FDA Office of In Vitro Diagnostics and Radiological
Health and the Office of Product Evaluation and Quality pertaining to the clinical development and study plan of the Saliva Glucose Biosensor.
LSBD have completed the supplier evaluation process and identified a suitable partner to implement the clinical plan once approved by
the FDA. We expect to leverage synergies from the approval process with the FDA within the Asia Pacific region, where China has the highest
number of people with diabetes. We will first seek regulatory approval for the SGT with the NMPA of China and also other regulatory agencies
that serve as reference regulators, such as the FDA, the European CE approval bodies and the Japanese regulatory bodies. To the extent
we have operations in China and our customers initially are concentrated in China, we may be subject to additional risks specific to
China that companies do not generally face if they operate primarily outside of China. These risks and uncertainties include:
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the
Ministry of Commerce in China or its local counterpart must approve the amount and use of any capital contributions from us to our
Chinese subsidiary, which may inhibit our ability to contribute additional capital to fund our Chinese operations;
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the
Chinese government imposes controls on the convertibility of the Renminbi into foreign currencies and the remittance of foreign currency
out of China for certain transactions, which may restrict the ability of our operating subsidiary in China to remit sufficient foreign
currency to pay dividends or other payments to us;
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the
legal system of China is a civil law system that continues to rapidly evolve, and the laws, regulations and rules are not always
uniformly interpreted or enforced, which may limit legal protections available to us;
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our
operations in China subject us to various Chinese labor and social insurance laws, and any failure to comply with such laws could
subject us to late fees, fines and penalties, or cause the suspension or termination of our ability to conduct business in China;
and
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failure
to make adequate contributions to various employee benefit plans as required by Chinese regulations may subject us to penalties.
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In
the event that we are unable to manage the complications associated with operations in China, our results of operations, financial condition
and business prospects could be materially and adversely affected.
Risks
Related to the Ownership of Our Common Stock
We
may not be able to satisfy the continued listing requirements of the NASDAQ Global Market in order to maintain the listing of our common
stock.
We
must meet certain financial and liquidity criteria to maintain the listing of our common stock on the NASDAQ Global Market. If we fail
to meet any of continued listing standards, our common stock may be delisted. In addition, while we have no present intention to do so,
our Board of Directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits
of such listing. A delisting of our common stock from the NASDAQ Global Market may have materially adverse consequences to our stockholders,
including:
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a
reduced market price and liquidity with respect to our shares of common stock;
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limited
dissemination of the market price of our common stock;
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limited
news coverage;
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limited
interest by investors in our common stock;
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volatility
of the prices of our common stock, due to low trading volume;
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our
common stock being considered a “penny stock,” which would result in broker-dealers participating in sales of our common
stock being subject to the regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act;
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increased
difficulty in selling our common stock in certain states due to “blue sky” restrictions; and
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limited
ability to issue additional securities or to secure additional financing.
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If
our common stock is delisted, we may seek to have our common stock quoted on an over-the-counter marketplace, such as on the OTCQX. The
OTCQX is not a stock exchange, and if our common stock trades on the OTCQX rather than a securities exchange, there may be significantly
less trading volume and analyst coverage of, and significantly less investor interest in, our common stock, which may lead to lower trading
prices for our common stock.
The
market price of our common stock may be significantly volatile.
The
market price for our common stock may be significantly volatile and subject to wide fluctuations in response to factors including the
following:
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developments
prior to commercial sales relating to regulatory approval, manufacturing and distribution of our products;
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actual
or anticipated fluctuations in our quarterly or annual operating results;
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changes
in financial or operational estimates or projections;
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conditions
in markets generally;
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changes
in the economic performance or market valuations of companies similar to ours; and
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general
economic or political conditions in the United States or elsewhere.
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In
particular, the market prices for securities of medical device companies have historically been particularly volatile. Some of the factors
that may cause the market price of our common stock to fluctuate include:
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any
delay in or the results of our clinical evaluations;
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any
delay in manufacturing of our products;
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any
delay with the approval for reimbursement for the patients from their insurance companies;
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our
failure to comply with regulatory requirements;
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the
announcements of clinical evaluation data, and the investment community’s perception of and reaction to those data;
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the
results of clinical evaluations conducted by others on products that would compete with ours;
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any
delay or failure to receive clearance or approval from regulatory agencies or bodies;
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our
inability to commercially launch products or market and generate sales of our products, including the SGT;
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failure
of the SGT or any other products, even if approved for marketing, to achieve any level of commercial success;
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our
failure to obtain intellectual property protection for any of our technologies and products (including those related to the SGT)
or the issuance of third-party intellectual property that cover our proposed technologies or products;
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developments
or disputes concerning our product’s intellectual property rights;
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our
or our competitors’ technological innovations;
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general
and industry-specific economic conditions that may affect our expenditures;
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changes
in market valuations of similar companies;
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announcements
by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new
technologies, or intellectual property;
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failure
to adequately manufacture the SGT or any other products through third parties;
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future
sales of our common stock or other securities, including shares issuable upon the exercise of outstanding warrants or otherwise issued
pursuant to certain contractual rights;
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period-to-period
fluctuations in our financial results; and
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low
or high trading volume of our common stock due to many factors, including the terms of our financing arrangements.
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In
addition, if we fail to reach an important research, development or commercialization milestone or result by a publicly expected deadline,
even if by only a small margin, there could be significant impact on the market price of our common stock. Additionally, as we approach
the announcement of anticipated significant information and as we announce such information, we expect the price of our common stock
to be volatile and negative results would have a substantial negative impact on the price of our common stock. In some cases, following
periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention
and resources, which could significantly harm our business operations and reputation.
There
is no public market for the Series B Convertible Preferred Stock and an active trading market for the same is not expected to develop.
There
is no established public trading market for the Series B Convertible Preferred Stock and we do not expect a market to develop. Without
an active market, the liquidity of such securities will be severely limited.
Holders
of our preferred stock will have no rights as common stockholders with respect to the shares of common stock underlying the Preferred
Stock until they acquire our common stock.
Until
preferred holders acquire our common stock upon conversion of their preferred stock, they will have no rights with respect to the common
stock underlying such securities. Upon conversion, they will be entitled to exercise the rights of a common stockholder only as to matters
for which the record date for actions to be taken by our common stockholders occurs after the date such conversion.
LBSD, our largest stockholder
may, exert significant influence over our affairs, including the outcome of matters requiring stockholder approval.
LSBD,
our largest stockholder, controls 42.6% (as of June 30,
2021) of the total voting power of our outstanding common stock. Accordingly, the Licensor has the ability to control the
election of our directors and the outcome of corporate actions requiring stockholder approval, such as: (i) a merger or a sale of
our company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our certificate of incorporation and
by-laws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an
action that might otherwise be beneficial to our other stockholders and be disadvantageous to our stockholders with interests
different from the Licensor.
We
are obligated to develop and maintain a system of effective internal control over financial reporting. We may not complete our analysis
of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective,
which may harm investor confidence in our company and, as a result, the value of our common stock.
We
will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness
of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include
disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our auditors
will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404
until we are no longer an “emerging growth company” as defined in the JOBS Act, if we take advantage of the exemptions available
to us through the JOBS Act. Even after we cease to be an “emerging growth company,” our auditors will not be required to
formally attest to the effectiveness of our internal control over financial reporting unless we are an accelerated filer or a large accelerated
filer (as defined under the Exchange Act). We are in the very early stages of the costly and challenging process of compiling the system
and process documentation necessary to perform the evaluation needed to comply with Section 404. In this regard, we will need to continue
to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal
control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls
are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.
As we transition to the requirements of reporting as a public company, we may need to add additional finance staff. We may not be able
to complete our evaluation and testing in a timely fashion. During the evaluation and testing process, if we identify one or more material
weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. We
may not be able to remediate any material weaknesses in a timely fashion. If we are unable to complete our evaluation and testing, or
if we are unable to assert that our internal control over financial reporting is effective, particularly if we have been unable to remediate
any material weaknesses identified, or if or our auditors, when required to do so, are unable to express an opinion that our internal
controls are effective, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our
stock price.
We
are an emerging growth company and currently have limited accounting personnel and other supervisory resources. This can result in lack
of necessary resources to adequately execute its accounting processes and address its internal controls over financial reporting requirements.
The
Company is an emerging growth company which completed the IPO in December 2020. Prior to the IPO, the Company was a private corporation
with limited accounting personnel and other supervisory resources necessary to adequately execute its accounting processes and address
its internal controls over financial reporting requirements. As a result, previously existing internal controls are no longer sufficient,
and the Company is in the process of updating these controls. The design and implementation of internal control over financial reporting
for the Company’s post-IPO has required and will continue to require significant time and resources from management and other personnel.
As
part of this updating process, our management identified a material weakness in its internal control over financial reporting. A material
weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely
basis. The material weakness identified relates to the fact that the Company has not yet designed and maintained an effective control
environment commensurate with its financial reporting requirements, including a) has not yet completed the formally documented policies
and procedures with respect to the review, supervision and monitoring of the Company’s accounting and reporting functions and b)
lack of evidence to support the performance of controls and the adequacy of review procedures, including the completeness and accuracy
of information used in the performance of controls.
We
will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time
to new compliance initiatives and corporate governance practices. Moreover, our ability to comply with all applicable laws, rules and
regulations is uncertain given our management’s relative inexperience with operating United States public companies.
As
a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal,
accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, the listing requirements of the NASDAQ Global Market and other applicable securities rules and regulations
impose various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time
to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and
will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult
and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for
us to attract and retain qualified members of our board of directors. Furthermore, new or changing laws, regulations and standards are
subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We cannot predict or estimate
the amount of additional costs we will incur as a public company or the timing of such costs. Moreover, our executive officers have little
experience in operating a United States public company, which makes our ability to comply with applicable laws, rules and regulations
uncertain. Our failure to company with all laws, rules and regulations applicable to United States public companies could subject us
or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.