ITEM
1. BUSINESS.
Overview
GBS
Inc. and its wholly owned subsidiary, GBS Operations Inc. were each formed on December 5, 2016 under the laws of the state of
Delaware. Glucose Biosensor Systems (Greater China) Pty Ltd (“GBSPL”) was formed on August 4, 2016 under the laws of New
South Wales, Australia and was renamed to GBS (APAC) Pty Ltd on October 14, 2020. Glucose Biosensor Systems (Japan) Pty Ltd and
Glucose Biosensor Systems (APAC) Pty Ltd were formed under the laws of New South Wales, Australia on February 22, 2017 and February
23, 2017 respectively. These companies (collectively, “we,” “us,” “our,” or the
“Company,”) were formed to provide a non-invasive, pain free innovation to make it easier for people to manage diabetes
using the Company’s Saliva Glucose Biosensor (“SGB” and, together with the software app that interfaces the SGB
with the Company’s digital information system, the “SGT”). Our headquarters are in New York, New York.
We
are a biosensor diagnostic technology company operating across the Asia-Pacific region (the “APAC Region”) and an
interest in the North America region with the biosensor platform comprising of biochemistry, immunology, tumor markers, hormones,
and nucleic acid diagnostic modalities, and worldwide with our SARS-CoV-2 test.
Our
objective is to introduce and launch initially the SGB, the diagnostic test that stems from the Biosensor Platform that we license from
Life Science Biosensor Diagnostics Pty Ltd (“LSBD” or the “Licensor”), in our regions and the SARS-CoV-2 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.
Highlights
of Achievements |
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Our
major highlights of achievements for the fiscal year 2022: |
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The
Company and University of Newcastle have identified and selected an initial site to begin construction of a pilot manufacturing facility
on campus. Management along with university leadership and staff will commence the next phase of the commercial buildout that will
utilize the already delivered equipment, while the architectural design phase is finalized later this year. The Company anticipates
construction to commence before end of calendar year 2022. |
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On June 16, 2022, the Company executed an exclusivity agreement (the “Exclusivity Agreement”) with Intelligent Fingerprinting
Limited (“IFP”), providing the Company with the exclusive right until December 31, 2022, to evaluate and negotiate a transaction to acquire IFP or its assets (or a similar transaction).
In consideration for this exclusivity, on June 16, 2022, the Company entered into a Bridge Facility Agreement with IFP (the
“Bridge Facility Agreement”) through which the Company provided IFP with an unsecured term loan facility in the
amount of $500,000 (the “Loan”), which amount is payable on the earliest of the consummation of an acquisition, 30 days following
the termination of exclusivity under the exclusivity agreement, an event of default under the Bridge Facility Agreement, or December 31,
2022. The Loan contains customary representations and warranties by IFP and bears interest at two percent per annum (or four percent per
annum in the event the Loan is not repaid in full when due) above the Sterling Barclays Bank Base Rate from time to time. The proposed
acquisition If consummated would potentially combine Intelligent Fingerprinting’s leadership position as a revolutionary point of
care fingerprint sweat-based drug screening technology with our saliva-based glucose biosensor platform and manufacturing expertise. The
Company would be able to serve a wider spectrum of patients at point of care across global diagnostic markets. This proposed acquisition,
if consummated, could provide the Company with a clear opportunity to build long-term shareholder value, accelerate revenue growth through
an expanded portfolio of tests, and allow the Company to further solidify its leadership as a developer of rapid non-invasive diagnostic
solutions. Completion of the proposed transaction contemplated by the Exclusivity Agreement is subject to the negotiation of a definitive
agreement providing for the transaction and satisfaction of any conditions negotiated therein. Accordingly, there can be no assurance
that a definitive agreement will be entered into or that the proposed transaction will be consummated, or if a transaction is consummated,
as to its terms, structure, or timing.] |
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GBS
has obtained and completed Institutional Review Board (IRB) approved clinical studies at the Diabetes Research Institute of Sutter
Health’s Mills-Peninsula Medical Center (MPMC) in San Mateo, California. The study design was intended to support the clinical
development of its next-generation Saliva Glucose Biosensor. A total of 40 adult subjects with type 2 diabetes were recruited for
the study. Nearly 1,400 samples of blood and oral fluids were collected and analyzed. Analysis of the resulting data will explore
the degree of agreement among glucose levels in oral fluid and blood samples. The full details of the analysis will is expected to
be announced in September 2022. |
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Receiving
$1,003,904 in Australian government support as a Research and Development (R&D) incentives for the development of the technology
during the fiscal year 2022. |
The
Saliva Glucose Biosensor
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, thin-film transistor, which in its structure embeds the glucose oxidase enzyme (referred to as “GOX”).
When the single-use SGB interacts with saliva it initiates a sequence of enzymatic and electrochemical reactions, 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 reading may then be stored in a cloud-based
digital information system.
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 a cloud-based digital information system to enable all patients the option to create their own medical records 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. |
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. |
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. |
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. |
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. |
The
SGB has been under continuous development for over seven years, first by the University of Newcastle, Australia, then by the Licensor
and us. The SGB development program is currently at the design and manufacturing process development stage, which includes 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 1, 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, We will first seek regulatory approval with the Therapeutic Goods Administration (TGA) in
Australia. However, we intend to apply for regulatory approval in each jurisdiction across the APAC Region.
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 $0.01.
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
SARS-CoV-2 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 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 COVID-19 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 SARS-CoV-2 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 COVID-19 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
SARS-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 COVID-19 vaccines
when developed and administered to humans. |
We
believe our SARS-CoV-2 test will have significant advantages and we anticipate it will be a ground-breaking development in the
management of COVID-19.
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 SARS-CoV-2 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 point of care testing (“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 (OTFT). The 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 SARS-CoV-2 Test is similar to the Saliva Glucose Test: an enzymatic reaction causes changes at the OTFT surface that lead to a measurable
change in electrical current that is detected by the transistor. The major difference is that a binding reaction between immunoglobulin
to SARS-CoV-2 in the sample amplifies the transistor signal by bringing and enzyme conjugate into close proximity with the transistor
surface. The underlying layers of the OTFT remain unchanged. This significantly simplifies our development effort to make a blood- or
saliva-based SARS-CoV-2 diagnostic test.
The
Saliva Glucose Test (SGT)
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. |
The
Saliva Glucose Biosensor (SGB)
The
SGB was invented at the Centre for Organic Electronics (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. In addition
to the patent disclosures, details of the SGB design have been published in Applied Physical Letters, a peer-reviewed physics journal.
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.
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.
The
SGB interacts with the glucose in the saliva and initiates an enzymatic reaction whereby GOX enzyme produces hydrogen peroxide from glucose,
which modifies the properties of the OTFT gate material, 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.
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
use of saliva as a meaningful proxy for estimating blood glucose level has been reported in scientific literature, including 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 articles have reported
finding little or no significant correlation, including articles in the Journal of Clinical and Diagnostic Research and the Journal
of Oral Science. Consequently, GBS is performing clinical research to determine if saliva can be utilized as a non-invasive alternative
to blood to monitor glycemic status in diabetes patients.
At
this time, GBS has concluded the in-clinic portion of a clinical study to measure glucose in oral fluids and blood. The study consented
40 subjects with type 2 diabetes, and collected saliva, gingival crevicular fluid, venous blood and fingerstick capillary blood over
the course of a two-hour oral glucose tolerance test. GBS is in the process of analyzing the data from this study.
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 diabetes diagnosis and monitoring.
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 for a different enzyme, or with antibodies specific
to SARS-CoV-2, cancer biomarkers, immunological tests, hormones and other biomarkers. The substitute recognition element will catalyze
a reaction leading to a signal that is proportional to the amount of analyte, or participate in a binding reaction of labelled antibodies
that will lead to a signal proportional to the amount of analyte of interest. Given the underlying sensing mechanism is unaltered, we
believe the technical risk associated with the development and manufacturing scale-up 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 SARS-CoV-2 Test
For
the SARS-CoV-2 Test 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. |
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
received approval for $4.7 million (excluding GST/VAT) Medical Products Priority Grant funding by the Australian Government in June 2021
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.
The
Company and University of Newcastle have identified and selected an initial site to begin operations on campus. Management along with
university leadership and staff will commence this next phase of the commercial buildout that will utilize the already delivered equipment,
while the architectural design phase is finalized later this year and the primary manufacturing and construction begins on this second
site location. The Company anticipates construction to commence before end of calendar year 2022.
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 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:
|
● |
facilitating
the development of an individualized blood glucose profile, which can then guide health care professionals in treatment planning
for an individualized diabetic regimen; |
|
● |
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; |
|
● |
improving
patients’ recognition of hypoglycemia or severe hyperglycemia; and |
|
● |
enhancing
patient education and patient empowerment regarding the effects of lifestyle and pharmaceutical intervention on glycemic control. |
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
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:
|
● |
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; |
|
● |
manufacture,
promote, market, import, offer, sell and distribute the Licensed Products; |
|
● |
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; |
|
● |
use
the Licensed Products only for the purposes identified and permitted pursuant to regulatory approval; and |
|
● |
collect
data acquired from the Licensed Products. |
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. 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 12 full time employees. We also rely on
the services of contractors, collaborators and consultants. We have assembled an outstanding team of 17 people, including our 12 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. 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.
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.
● | COVID-19
has impacted our operations. |
| |
● | We
will need to raise additional capital to fund our operations in the future. If we are unsuccessful
in attracting new capital, we may not be able to continue operations or may be forced to
sell assets to do so. Alternatively, capital may not be available to us on favorable terms,
or if at all. If available, financing terms may lead to significant dilution of our stockholders’
equity. |
| |
● | We
are subject to the risks associated with new businesses generally. |
| |
● | We
have incurred significant losses since inception and continue to incur significant losses
and may not be able to achieve revenues or profitability. |
| |
● | 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. |
| |
● | The
License Agreement with the Licensor, 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. |
| |
● | Neither
we nor the Licensor have yet launched the SGT and the ability to do so will depend on the
acceptance of the SGT in the Global healthcare market. |
| |
● | We
cannot accurately predict the volume or timing of any sales, making the timing of any associated
revenues uncertain and difficult to predict. |
| |
● | If
the 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. |
| |
● | We
are yet to finalize the manufacturing plan for the production of 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. |
● | We
expect to rely in part on third-party distributors to effectively distribute our products,
if our distributors fail to effectively market and sell the SGT in full compliance with applicable
laws, our operating results and business may suffer. |
| |
● | Failure
in our conventional, online and digital marketing efforts could impact our ability to generate
sales. |
| |
● | The
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 and prospects may be negatively impacted. |
| |
● | As
we intend to conduct business internationally, we are susceptible to risks associated with
international relationships, which could adversely impact our results of operations and financial
condition |
| |
● | If
third-party payors do not provide coverage and reimbursement for the use of the SGT, our
business and prospects may be negatively impacted. |
| |
● | Non-United
States governments often impose strict price controls, which may adversely affect our future
profitability. |
| |
● | The
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. |
| |
● | 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. |
| |
● | Our
future performance will depend on the continued engagement of key members of our management
team, and the loss of one or more of the key members of our management team could have a
negative impact on our business. |
| |
● | 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. |
| |
● | If
we or our manufacturers fail to comply with applicable regulatory quality system regulations
or any applicable equivalent regulations, our proposed operations could be interrupted, and
our operating results may be negatively impacted. |
| |
● | We
may be subject to healthcare fraud and abuse laws and regulations which, if violated, could
subject us to substantial penalties. Additionally, any challenge to or investigation into
our practices under these laws could cause adverse publicity and be costly to respond to,
and thus could harm our business. |
| |
● | Product
liability suits, whether or not meritorious, could be brought against us due to an alleged
defective product or for the misuse of the SGT. These suits could result in expensive and
time-consuming litigation, payment of substantial damages, and an increase in our insurance
rates. |
| |
● | 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. |
| |
● | 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 could be party to litigation or other legal proceedings that could adversely affect our business, results of operations and reputation. |
| |
● | 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. |
| |
● | 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. |
| |
● | 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 |
| |
● | We
are subject to the risk of reliance on third parties to conduct our clinical evaluation work,
their inability to comply with good clinical practice and relevant regulation could adversely
affect the clinical development of our product candidates and harm our business. |
| |
● | 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
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. |
| |
● | We
and the Licensor may be unable to protect or enforce the intellectual property rights licensed
to us, which could impair our competitive position. |
| |
● | We
and/or the Licensor may be subject to claims alleging the violation of the intellectual property
rights of others, which could involve in lawsuits to protect or enforce our intellectual
property rights, which could be expensive, time consuming and unsuccessful |
| |
● | The
Licensor has limited foreign intellectual property rights and may not be able to protect
its intellectual property rights, which could not prevent third parties from practicing our
inventions or from selling or importing products made using our inventions |
| |
● | 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. |
| |
● | We
and the Licensor may be subject to claims challenging the invention of the intellectual property
that we license from the Licensor. |
| |
● | 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. |
| |
● | If
we or the Licensor fail to respond quickly to technological developments, our products may
become uncompetitive and obsolete. |
| |
● | We
are susceptible to economic conditions and conducting operations in the Asia Pacific region. |
| |
● | 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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● | Fluctuation
in the value of foreign currencies may have a material adverse effect on your investment. |
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● | We
may be subject to tax inefficiencies and have not ascertained the impact on us of the new
United States tax laws |
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● | 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. |
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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. |
● | 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 Capital Market
in order to maintain the listing of our common stock. |
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● | The
market price of our common stock may be significantly volatile. |
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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
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 |
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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. |
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● | Completion of the acquisition, the failure to complete the acquisition and delays completing the acquisition could adversely affect the
market price of our common stock. |
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● | We will incur transaction, integration and restructuring costs in connection with the proposed acquisition. |
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● | Our licensor is undergoing equity recapitalization the outcome with which could materially and adversely affect our business, financial
condition and operating results. |
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● | Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going
concern in its report on our audited financial statements included in this Annual Report on Form 10-K. |
Risks
Related to Our Business
COVID-19
has impacted our operations.
Our
business, including our workforce, supply chain, and research partners has been adversely affected by COVID-19. COVID-19 has caused several
states and countries around the world to implement restrictions on travel, and/or quarantines in certain areas, and forced closures for
certain types of public places and businesses. In addition, affected regions, including several states within the United States, have
previously implemented work restrictions that limited many employees from going to work. Moreover, COVID-19 has resulted in business
closures and a substantial reduction in economic activity in the United States and worldwide. The emergence of new variants of the SARS-CoV-2
virus raises the possibility that recurring cycles of restrictions will be imposed in the future, notwithstanding increasing vaccination,
and immunity levels.
While
significant uncertainty remains as to the future impact of the COVID-19 pandemic on our operations, and on the global economy,
COVID-19 had a negative impact on Research and Development Activities in 2021 and 2022. While we have seen some recovery in our work
force and research partners returning to work, we believe this period of reduced research and development will continue into fiscal
year 2023 as many have not returned to historical operating levels, are not yet allowing visitors on site at their facilities or
have not resumed previously planned studies. The extent of this impact is likely to vary from stakeholders to stakeholders depending
upon how they are or have been directly or indirectly impacted by local stay-at-home orders and other social distancing
measures.
The
effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay
our development programs and regulatory timelines and negatively impact our commercial activities, the magnitude of which will depend,
in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary
course. In addition, these widespread outbreaks of illness could adversely affect our workforce resulting in serious health issues and
absenteeism.
It
is also possible that further COVID-19 outbreaks will continue to impact our workforce, research partners and our ability to conduct
planned research and development programs. Governmental mandates may require forced shutdowns of our research facilities for extended
or indefinite periods. Pandemic outbreaks, including the COVID-19, could also substantially interfere with general commercial activity
related to our supply chain and customer base, which could have a material adverse effect on our financial condition, results of operations,
business or prospects. While we do not know the full extent of potential delays or impacts on the global economy, these effects could
have a material adverse impact on our operations, financial position and liquidity
We
will need to raise additional capital to fund our operations in the future. If we are unsuccessful in attracting new capital, we may
not be able to continue operations or may be forced to sell assets to do so. Alternatively, capital may not be available to us on favorable
terms, or if at all. If available, financing terms may lead to significant dilution of our stockholders’ equity.
We
are not profitable and have had negative cash flow from operations since our inception. To fund our operations and develop and commercialize
our products, we have relied primarily on equity and debt financings and government support income. We cannot be certain that our existing
resources will be sufficient to fund our planned operations and expenditures for at least the next 12 months from the date of this report.
Potentially changing circumstances, including those related to COVID-19, may also result in the depletion of our capital resources more
rapidly than we currently anticipate. These circumstances raise substantial doubt about our ability to continue as a going concern. We
will need to obtain additional funds to finance our operations. Additional capital may not be available at such times or amounts as needed
by us. Historically we have financed our business in part by access to the capital markets. Even if capital is available, it might be
available only on unfavorable terms. Any additional equity or convertible debt financing into which we enter could be dilutive to our
existing stockholders. Any future debt financing into which we enter may impose covenants upon us that restrict our operations, including
limitations on our ability to incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage
in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms
that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with
third parties, we may need to relinquish rights to our technologies or our products or grant licenses on terms that are not favorable
to us. If access to sufficient capital is not available as and when needed, our business will be materially impaired, and we may be required
to cease operations, curtail one or more product development or commercialization programs, or significantly reduce expenses, sell assets,
seek a merger or joint venture partner, file for protection from creditors or liquidate all of our assets. Any of these factors could
harm our operating results.
We
are subject to the risks associated with new businesses generally.
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 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.
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 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 health 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. |
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 continue to incur significant losses 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 licensor, 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, a net loss of $7,037,286 for the fiscal year ended June 30, 2021 and a net loss of
$8,306,051 for the fiscal year ended June 30, 2022. 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 cannot be certain we have sufficient capital resources to enable us to continue to implement our business plan and remain in operation for at least
the next 12 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 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, 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 has the global
licensee for COV2 diagnostic tests.
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 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. |
Neither
we nor the Licensor have yet launched the SGT and the ability to do so will depend on the acceptance of the SGT in the Global healthcare
market.
Neither
we nor the Licensor has yet launched the SGT and neither has received regulatory approvals in any country or territory. We are faced
with the risk that 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 SGT or any future diagnostic test based
on the Biosensor Platform include:
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sales
of 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. |
We
cannot assure you that the SGT or any future diagnostic test based on the Biosensor Platform will gain market acceptance. If the market
for the 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 associated revenues uncertain and difficult to
predict.
We
may be faced with lengthy and unpredictable customer evaluation and approval processes associated with the SGT. Consequently, we may
incur substantial expenses and devote significant management effort and expense in developing customer adoption of the SGT, which may
not result in revenue generation. We must also obtain regulatory approvals of 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 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
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 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.
We
are yet to finalize the manufacturing plan for the production of 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 SGB for clinical evaluation, we are yet to
finalize the manufacturing plan for the production of the 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 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 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 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 SGT or components of the SGT; and |
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manufacturers
or suppliers could encounter financial or other business hardships unrelated to us, interfering with their fulfilment of our orders
and requirements. |
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, if our distributors fail to effectively market
and sell the SGT in full compliance with applicable laws, our operating results and business may suffer.
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 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 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 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 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 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 SGT, will be successful in effectively marketing the SGT. The failure of our marketing efforts could
negatively impact our ability to generate sales.
The
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 and prospects may be negatively impacted.
A
key component of the 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 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, which could adversely
impact our results of operations and financial condition
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. |
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 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 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 SGT. Moreover, the process and timing for the implementation of
price restrictions is unpredictable, which may cause potential revenues from the sales of the SGT to fluctuate from period to period.
The
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
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, and the loss of one or more of the
key members of our management team could have a negative impact on our business..
Our
future performance depends to a large extent on the continued services of members of our current management including, in particular,
our Interim Chief Executive Officer, President Asia Pacific Sales and Marketing 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 applicable regulatory quality system regulations or any applicable equivalent regulations,
our proposed operations could be interrupted, and our operating results may be negatively impacted.
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 which, if violated, could subject us to substantial penalties. Additionally,
any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and
thus could harm our business.
There
are numerous U.S. federal and state, as well as foreign, laws pertaining to healthcare fraud and abuse, including anti-kickback, false
claims and transparency laws. 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. The federal civil and criminal false
claims laws, including the federal civil False Claims Act, which prohibit, among other things, individuals, or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal healthcare programs that are false
or fraudulent. Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals,
commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement. When
an entity is determined to have violated the federal civil False Claims Act, the government may impose substantial penalties plus three
times the amount of damages which the government sustains because of the submission of a false claim, and exclude the entity from participation
in Medicare, Medicaid and other federal healthcare programs.
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
SGT. These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase in our insurance
rates.
If
the 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 SGT. There are several 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 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.
We
could be party to litigation or other legal proceedings that could adversely affect our business, results of operations and reputation.
We
may be subject to litigation and other legal proceedings that may adversely affect our business. These legal proceedings may involve
claims brought by employees, government agencies, suppliers, shareholders or others through private actions, class actions, administrative
proceedings, regulatory actions, or other litigation. These legal proceedings may involve allegations of illegal, unfair or inconsistent
employment practices, including wage and hour, employment of minors, discrimination, harassment, wrongful termination, and vacation and
family leave laws; data security or privacy breaches; violation of the federal securities laws or other concerns.
We
could be involved in litigation and legal proceedings in the future. Even if the allegations against us in future legal matters are unfounded
or we ultimately are not held liable, the costs to defend ourselves may be significant and the litigation may subject us to substantial
settlements, fines, penalties or judgments against us and may consume management’s bandwidth and attention, some or all of which
may negatively impact our financial condition and results of operations. Litigation also may generate negative publicity, regardless
of whether the allegations are valid, or we ultimately are liable, which could damage our reputation, and adversely impact our sales
and our relationship with our employees, clients, and guests.
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.
We
intend to market the SGT following regulatory approval. To date, we have not received regulatory approval in any jurisdiction. The research,
design, testing, manufacturing, labelling, 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 labelling 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 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. |
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 SGT, or other studies that we may be required to undertake in the future for the
SGT or other products based on the Biosensor Platform, could be delayed, suspended or terminated for several reasons, including:
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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. |
If
our clinical evaluations are delayed it will take us longer to ultimately launch the 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, their inability to comply with good clinical
practice and relevant regulation could adversely affect the clinical development of our product candidates and harm our business.
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 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 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.
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.” |
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, which could involve
in lawsuits to protect or enforce our intellectual property rights, which could be expensive, time consuming and unsuccessful
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, which could
not prevent third parties from practicing our inventions or from selling or importing products made using our inventions
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
industry 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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agreements may be breached; |
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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. |
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 Licensor, 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 1, 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:
● |
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; |
● |
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. |
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 Capital Market in order to maintain the listing of our common
stock.
On
March 17, 2022, GBS Inc. (the “Company”) received a letter (the “Notice”) from the Listing Qualifications Department
of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the minimum closing bid price per share for its common
stock was below $1.00 for 30 consecutive business days preceding the date of the Notice, and that the Company did not meet the $1.00
per share minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1).
The
Notice has no immediate effect on the listing or trading of the Company’s common stock on the Nasdaq Capital
Market.
Pursuant
to Nasdaq Listing Rule 5810I(3)(A), the Company has a compliance period of 180 calendar days, or until September 13, 2022 (the “Compliance
Period”), to regain compliance with Nasdaq’s minimum bid price requirement. If at any time during the Compliance Period,
the closing bid price per share of the Company’s common stock is at least $1.00 for a minimum of 10 consecutive business days,
Nasdaq will provide the Company a written confirmation of compliance and the matter will be closed.
On
September 8, 2022, the Company filed second 180-day period within which to evidence compliance with the $1.00 bid price requirement following
the expiration of the current compliance period on September 13, 2022. No further extension has been granted by NASDAQ as at the date
of this report.
As part of its review process, Nasdaq will make a determination of whether it believes the Company will be
able to cure the deficiency. If Nasdaq concludes that the Company will not be able to cure the deficiency, or if the Company determine
not to submit a transfer application or make the required representation, Nasdaq will provide notice that the Company’s securities
will be subject to delisting. If the Company chooses to implement a reverse stock split, it must complete the split no later than ten
business days prior to the expiration of the second compliance period.
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:
● |
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; |
● |
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. |
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:
● |
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; |
● |
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. |
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.
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. 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 Capital 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.
Risks
Relating to Our Potential Acquisition of Intelligent Fingerprinting Limited
Completion
of the acquisition, the failure to complete the acquisition and delays completing the acquisition could adversely affect the market price
of our common stock.
Failure
by the Company to complete an acquisition of Intelligent Fingerprinting Limited (“IFP”) would prevent us from realizing the
anticipated benefits of the acquisition. We would also remain liable for significant transaction costs, including legal,
accounting and financial advisory fees. The completion of, the failure to complete, or any delay in the completion of any
such acquisition could result in a significant adverse change in the market price of our common stock, particularly to the extent that
the current market price reflects a market assumption that the potential acquisition will be completed.
We
will incur transaction, integration and restructuring costs in connection with the proposed acquisition.
We
expect to incur significant transaction costs in connection with the potential acquisition, including fees of our attorneys, accountants
and financial advisors. In addition, we will incur integration and restructuring costs following the completion of the acquisition,
if it is consummated, as we integrate the businesses of IFP with those of the Company.
Our
Licensor is undergoing equity recapitalization the outcome with which could materially and adversely affect our business, financial condition
and operating results.
We
are party to a Technology License Agreement (the “Technology License Agreement”) with Life Science Biosensor Diagnostics
Pty Ltd. (“LSBD”), pursuant to which, among other things, the Company licenses certain products from LSBD (the “Licensed
Products”), and an option agreement with LSBD and BiosensX (North America) Inc., pursuant to which, among other things, 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. See exhibits 10.2, exhibits 10.3, exhibits 9, 5– Technology License Agreements for a description of
the Technology License Agreement, the Licensed Products, and the Option. According to the Australian Securities and Investment Commission’s
(ASIC’s), Companies and Organizations Register, on May 10, 2022, LSBD filed a Notice of Appointment of External Administrator,
followed by a filing of a Deed of Company Arrangement on the August 2, 2022. Pursuant this filing we understand that LSBD is proposing
to undergo a recapitalization of its equity structure on or before October 2, 2022. The terms of such recapitalization or other outcome
of such administration of LSBD could result in, among other things, change in control of the Licensor or more parties other than LSBD
becoming the owner of the Intellectual Property (IP) rights. Accordingly, this has an inherent risk of the possibility of modifications
to, or the Company’s ability to use, the Licensed Products, which could materially and adversely affect the Company’s business,
financial condition and operating results.
Our
independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern
in its report on our audited financial statements included in this Annual Report on Form 10-K.
The
report from our independent registered public accounting firm for the year ended June 30, 2022, includes an explanatory paragraph stating
that our losses from operations and required additional funding to finance our operations raise substantial doubt about our ability to
continue as a going concern for a period of one year after the date the financial statements are issued. See Note 2 to our consolidated
financial statements appearing elsewhere in our Annual Report on Form 10-K for additional information on our assessment. If we are unable
to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely
affected, and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate
our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely
that investors will lose all or a part of their investment. If we seek additional financing to fund our business activities in the future
and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling
to provide additional funding to us on commercially reasonable terms or at all. There can be no assurance that the current operating
plan will be achieved in the time frame anticipated by us, or that our cash resources will fund our operating plan for the period anticipated
by the Company or that additional funding will be available on terms acceptable to us, or at all.